8.	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.

RELATED PARTIES AND RELATED PARTY LITIGATION:

SPAR Business Services, Inc., f/k/a SPAR Marketing Services, Inc. ("SBS"), SPAR Administrative Services, Inc. ("SAS"), and SPAR InfoTech, Inc. (" Infotech "), have provided services from time to time to the Company and are related parties and affiliates of SGRP, but are

not

under the control or part of the consolidated Company. SBS is an affiliate because it is owned by Robert G. Brown and William H. Bartels. SAS is an affiliate because it is owned by William H. Bartels and certain relatives of Robert G. Brown or entities controlled by them (each of whom are considered affiliates of the Company for related party purposes). Infotech is an affiliate because it is owned by Robert G. Brown. See Note

to the Company's Consolidated Financial Statements -

Related Party Transactions – Domestic Transactions,

above. Mr. Brown and Mr. Bartels are the Majority Stockholders (see below) and founders of SGRP, Mr. Brown was Chairman and an officer and director of SGRP through

May 3,

3018

(when he retired), and Mr. Bartels was and continues to be Vice Chairman and a director and officer of SGRP. Mr. Brown and Mr. Bartels also have been and are stockholders, directors and executive officers of various other affiliates of SGRP.

Delaware Litigation Settlement

January 18, 2019,

SGRP, Robert G. Brown, a substantial stockholder of SGRP and former Executive Chairman and director of SGRP, William H. Bartels, a substantial stockholder of SGRP and current Vice Chairman and director and officer of SGRP (together with Robert G. Brown, the "Majority Stockholders"), and Christiaan Olivier, Chief Executive Officer, President and a Director of SGRP, and all

four

of the members of the Governance Committee, namely Lorrence T. Kellar, Chairman, and Jack W. Partridge, Arthur B. Drogue and R. Eric McCarthey (together with Mr. Olivier, the

"225

Defendants"), reached a settlement (the "Settlement") in the By-Laws Action and the

225

Action as such terms are defined below (collectively, the "Actions) and had the Actions then dismissed.

September 4, 2018,

SGRP filed in the Court of Chancery of the State of Delaware (the "Court") a claim, C.A.

No.

2018

0650,

which it amended on

September 21, 2018 (

the "By-Laws Action "), in a Verified Complaint Seeking Declaratory Judgment and Injunctive Relief against the Majority Stockholders. SGRP sought to invalidate the proposed amendments to SGRP's By-Laws put forth in a written consent by the Majority Stockholders (the "Proposed Amendments") because the Board's Governance Committee believed that the Proposed Amendments would have negatively impacted all stockholders (particularly minority stockholders) by (among other things) weakening the independence of the Board through new supermajority requirements, eliminating the Board's independent majority requirement, and subjecting various functions of the Board respecting vacancies on the Board to the prior approval of the holders of a majority of the Common Stock (i.e., the Majority Stockholders), and thus also potentially reducing the representation of SGRP's minority stockholders.

September 18, 2018,

Robert G Brown (

one

of the Majority Stockholders) commenced an action in the Court pursuant to

Del. C.

§225

(a) from (C.A.

No.

2018

00687

-TMR) (the

"225

Action") against the

225

Defendants seeking to remove Lorrence T. Kellar from the Board and add Jeffrey Mayer to the Board.

September 20, 2018,

the Court issued a Status Quo Order in the

225

Action (the "Status Quo Order") that (among other things) seated Jeffrey Mayer on the Board, provided for Lorrence T. Kellar to remain seated on the Board, and effectively increased the Board size from

seven

eight

for the duration of the order.

The By-Laws Action was dismissed upon the filing of the Stipulation of Dismissal. On

January 23, 2019,

the Court granted the dismissal of the

225

Action and vacated its previously entered Status Quo Order entered in that action.

As part of the Settlement, on

January 18, 2019,

the Board of Directors of the Corporation (the "Board") appointed Jeffrey Mayer to the Board and accepted Lorrence T. Kellar's retirement from the Board. The Board also appointed Mr. Mayer to the Board's Compensation Committee on the recommendation of its Governance Committee.

Mr. Mayer was

first

seated on the Board on

November 20, 2018,

pursuant to the Status Quo Order (see Settled Actions above), which order has now been vacated. Mr. Mayer had previously been determined

not

to be independent because he was unilaterally chosen by the Majority Stockholders, so as a result of the Status Quo Order and resulting change in Board composition, SGRP received a notification letter from Nasdaq dated

December 13, 2018,

stating that SGRP

longer satisfies Nasdaq's majority independent director requirement (the "Nasdaq Board Independence Deficiency"), as set forth in Nasdaq Listing Rule

5605

(b)(

In connection with the Settlement, the Governance Committee re-evaluated the independence of Mr. Mayer, based on (among other things) Mr. Mayer's independent business skills and contribution to the Settlement process, determined that he has the requisite independence from the management of the Corporation except for the Related Party Matters (as defined below), and accordingly Mr. Mayer: (a) will be an independent director for all purposes other than any Related Party Matter; (b) will be a non-independent director respecting any Related Party Matter; and (c)

may

participate in discussions but will be excluded and shall recuse himself from any and all decisions of the Board and applicable Board Committees respecting any Related Party Matter. "Related Party Matter" shall mean any payment to or for, or any transaction or litigation with, Robert G. Brown, William H. Bartels, any of their respective family members, or any company or other business or entity directly or indirectly owned or controlled by any

one

or more of Mr. Brown, Mr. Bartels or their respective family members.

The Governance Committee and the Board believe that such re-evaluation and redetermination (together with the

2019

Restated By-Laws described below) will help the Corporation maintain the independent Board desired by the Governance Committee and the Board and required under Nasdaq rules, and correct the Nasdaq Board Independence Deficiency.

In the Settlement the parties agreed to amend and restate SGRP's By-Laws (the

"2019

Restated By-Laws") with negotiated changes to the Proposed Amendments that preserve the current roles of the Governance Committee and Board in the location, evaluation, and selection of candidates for director and in the nominations of those candidates for the annual stockholders meeting and appointment of those candidates to fill Board vacancies (other than those under a stockholder written consent making a removal and appointment, which is unchanged). The Board approved and adopted the

2019

Restated By-Laws on

January 18, 2018.

The Governance Committee and the Board believe that those changes in the

2019

Restated By-Laws will help the Corporation maintain the independent Board desired by them.

In addition to the compromise provisions described above in Settlement Terms above, the Governance Committee and Board accepted certain of the Proposed Amendments with negotiated changes and clarifications that are now contained in the

2019

Restated By-Laws, including the following:

●

Any vacancy that results from the death, retirement or resignation of a director that remains unfilled by the directors for more than

days

may

be filled by the stockholders.

●

Certain stockholder proposals

may

now be made up to the

90th

day prior to the

first

anniversary of the preceding year's Annual Meeting.

●

The Board size has been fixed at

seven

and can only be changed by the stockholders (as provided in the Proposed Amendments).

●

The section requiring majority Board independence has been removed (as provided in the Proposed Amendments).

●

The By-Laws now require that each candidate for director sign a written irrevocable letter of resignation and retirement effective upon such person failing to be re-elected by the required majority stockholder vote.

●

A "super majority" vote of at least

75%

of all directors is now required for (and any

two

directors can block) any of the following (as provided in the Proposed Amendments):

Issuance of more than

500,000

shares of stock (other than under the Corporation's stock compensation plans);

Issuance of any preferred stock;

Declaration of any non-cash dividend on the shares of capital stock of the Corporation;

By-Laws modification;

Formation or expansion of the authority of any Committee or subcommittee; or

Appointment or removal of any Committee director.

The descriptions of the negotiated compromise

2019

Restated By-Laws above are qualified in their entirety by reference to the copy of the

2019

Restated By-Laws.

As part of the Settlement of the Actions, the parties to the Actions executed a Limited Mutual Release Agreement limited to the Actions and subject to specific exclusions (the "Release") and the parties to the Actions mutually agreed upon Stipulations of Dismissal ending those actions without prejudice and without admission or retraction of any fact cited therein, and the parties caused them to be filed with the Court on

January 18, 2019.

The Releases are limited to matters related to those actions described therein and subject to specific exclusions, and the parties expressly preserved all unrelated actions and claims. Accordingly, there remain a number of unresolved claims and actions (each a "Non-Settled Matter") between the Company and the following Related Parties (as defined below), including (without limitation), post termination claims by and against SPAR Business Services, Inc. (which is now in a voluntary bankruptcy proceeding in Nevada), and SPAR Administrative Services, Inc., the lawsuit by SPAR InfoTech, Inc., against the Company, and the Bartels Advancement Claim and the claim by Mr. Brown for a similar advancement (see

Advancement Claims

, below).

Advancement Claims

In an email to Arthur Drogue, SGRP's Chairman, on

October 3, 2018,

and in subsequent calls with him, William H. Bartels, a substantial stockholder of SGRP and current Vice Chairman and director and officer of SGRP (and

one

of the Majority Stockholders), requested indemnification for his legal fees and expenses incurred in his defense of the By-Laws Case brought by SGRP against him and Mr. Brown.

November 2, 2018,

in a letter from his counsel, Mr. Bartels demanded advancement of his proportionate share of the legal fees and expenses incurred in his defense of the By-Laws Case against him.

SGRP's Audit Committee determined on

November 5, 2018,

that Mr. Bartels was

not

entitled to indemnification by SGRP for his fees and expenses incurred in his defense of the By-Laws Case because (among other things) Mr. Bartels was sued predominately as a stockholder in the By-Laws Case and

not

as a director and the By-Laws Case alleged numerous instances of improper conduct by Mr. Bartels that could preclude indemnification under the Corporation's By-Laws. However, the Audit Committee made

determination regarding improper conduct or the issue of advancement.

November 28, 2018,

Mr. Bartels filed with the Court a Verified Complaint For Advancement against SGRP (the "Bartels Advancement Complaint") seeking advancement of his proportionate share of the legal fees and expenses incurred in the By-Laws Case against him ("Allocated By-Laws Expenses"). In evaluating the Bartels Advancement Complaint, counsel advised SGRP that generally advancement was somewhat different than indemnification in that money was advanced on the condition (which Bartels have accepted in writing) that the advances be repaid if indemnification was determined to be improper on the grounds of improper conduct or otherwise.

December 2018

SGRP reached agreement with Mr. Bartels through counsel to conditionally make his reasonably documented Allocated By-Laws Expenses (the "Bartels Advancement Settlement"), pursuant to which payment to Mr. Bartels of the accepted Allocated By-Laws Expenses was made in

April 2019.

If Mr. Bartels is ultimately determined

not

to be entitled to indemnification, he could still be obligated to return all amounts advanced to him by SGRP.

December 3, 2018,

Robert G. Brown sent an email to Mr. McCarthey, Chairman of SGRP's Audit Committee, demanding advancement from SGRP for his proportionate share of the legal fees and expenses incurred by him in the By-Laws Case against him (the "Brown Advancement Demand").

Counsel advised that Brown had been sued as a stockholder and conspirator in the By-Laws Action against him, and

not

as a director, and they didn't believe Brown could reasonably and successfully bring or wage a lawsuit for advancement. SGRP, with the support of its Audit Committee, rejected the Brown Advancement Demand, stating that "The bylaw action does

not

sue you in your capacity as an officer or director of the company. Section

6.02

of the bylaws requires the proceeding subject to advancement to be brought "by /reason of the Indemnitee's position with the Corporation or any of its subsidiaries … at the request of the Corporation …." This provision does

not,

and was

not

intended to, cover shareholders for advancement.

January 27, 2019,

Mr. Brown sent a draft of his proposed Delaware litigation complaint in an email to Arthur Drogue, SGRP's Chairman, threatening to sue SGRP respecting the Brown Advancement Demand, which he repeated in an email to Mr. McCarthey on

February 2, 2019.

such complaint has been filed by Mr. Brown through

May 6, 2019,

and SGRP continues to deny the Brown Advancement Demand.

SBS Bankruptcy

The Company received

services from SBS after the termination of SBS' services took effect. Furthermore, even though SBS was solely responsible for its operations, methods and legal compliance, SBS continues to claim that the Company is to reimburse SBS for its expenses in various cases and state proceedings. The Company anticipates that SBS

may

use every available means to attempt to collect reimbursement from the Company for the foreseeable future for all of their post-termination expense. The Company does

not

believe there is any basis for such claims and would defend them vigorously. See Note

to the Company's Consolidated Financial Statements -

Related Party Transactions – Domestic Transactions

, above.

November 23, 2018,

SBS petitioned for bankruptcy protection under chapter

of the United States Bankruptcy Code in the U.S. District for Nevada (the "SBS Chapter

Case"), so the pre-petition claims of SBS' creditors now must be made in the SBS Chapter

Case. On

March 11, 2019,

the Bankruptcy Court entered an order modifying the automatic stay in the SBS Chapter

Case to permit the plaintiffs in the Clothier Case to proceed with the

second

part of their case to determine damages in the same California Court that rendered the Clothier Determination. The Bankruptcy Court did

not

modify the automatic stay to permit collection of any resulting damage award from SBS absent further Bankruptcy Court order, and absent such further order, any damage award in Clothier Case will therefore have to be pursued against SBS in the SBS Chapter

Case.

On the advice of SGRP's bankruptcy counsel, management reported and the Audit Committee agreed that while SBS is in the SBS Chapter

Case; (a) SBS cannot legally pay the

third

-party pre-petition invoices and other emailed claims sent via email from SBS to the Company, which are non-priority claims (

i.e

., claims that both are unsecured and lack administrative priority) payable in chapter

as part of the unsecured creditor claim pool (potentially pennies or less per dollar) without specific legal authorization or court order (including under a Bankruptcy Court approved reorganization plan, which is the usual mechanism for paying non-priority claims in a chapter

case); (b) any SGRP payment to SBS would likely be utilized to fund the SBS Chapter

Case and after that to pay the Clothier claims and other non-priority claimants; (c) SGRP and SMF non-priority claims against SBS (including, without limitation, reimbursement claims for funding the Affinity Security Deposits and field payment checks that would have otherwise bounced and indemnification for the Clothier settlement and legal costs) must be and have been asserted in the SBS Chapter

Case and can only be satisfied in that case only through a Court permitted setoff (potentially dollar-for-dollar), or from the unsecured creditor pool (potentially pennies or less per dollar); (d) any resolution of claims between SBS and SGRP sought (at this time) by SBS from the Bankruptcy Court requires such court's approval after notice to creditors (including the plaintiffs in the Clothier Case) and the U.S. Trustee, so finality can only be achieved in the SBS Chapter

Case; and (e) when SBS seeks payment through the Bankruptcy Court (whether for pre- or post-petition claims), SGRP has the right to defend them on the merits and to assert an offset for amounts owed to SMF and SGRP (potentially dollar-for-dollar).

Accordingly, Management recommended and the Audit Committee agreed that it would be in the best interest of all stockholders: (i) to submit SGRP and SMF claims against SBS in the SBS Chapter

Case in order to preserve their value (including as an offset against SBS' claims), particularly since those claims against SBS exceed amounts potentially owed to SBS; (ii)

not

to voluntarily pay any SBS obligations directly to targeted SBS creditors, as such payments would reduce that offset value (potentially dollar-for-dollar), subvert the bankruptcy process and potentially expose SGRP and SMF to direct future liability (for example, liability for a lawsuit if SGRP voluntarily pays for its defense); and (iii) only to make payments to or on behalf of SBS to the extent proven and required in the SBS Chapter

Case or other court with jurisdiction over the dispute.

As a result of the SBS Chapter

Case, the claims of SBS' creditors must now generally be pursued in the SBS Chapter

Case. On

March 11, 2019,

the Bankruptcy Court entered an order modifying the automatic stay in the SBS Chapter

Case to permit the plaintiffs in the Clothier Case to proceed with the

second

part of the case to determine damages against SBS in the same California Court that rendered the Clothier Determination. However, the Bankruptcy Court did

not

modify the automatic stay to permit collection from SBS of any resulting damage award against it absent further Bankruptcy Court order, and therefore and absent such further order, any such damage award will have to be pursued against SBS in the SBS Chapter

Case. Accordingly, the Company believes there can be

assurance that SBS will ever be able to fully pay any such damage award resulting from any determination in the Clothier Case or any other judgment or similar amount resulting from any legal determination adverse to SBS.

March 18, 2019,

the Company filed claims in the SBS Chapter

Case seeking reimbursement for

$378,838

for SMF's funding of the Affinity Security Deposits

$12,963

for SMF's funding of the field payment checks that would have otherwise bounced,

$1,839,459

for indemnification of SGRP for the Clothier settlement (see below) and legal costs, and an unspecified amount for indemnification of SGRP for the Hogan action (see below) and other yet to be discovered indemnified claims.

Infotech Litigation Against SGRP

September 19, 2018,

SGRP was served with a Summons and Complaint by SPAR InfoTech, Inc. ("Infotech"), an affiliate of SGRP that is owned principally by Robert G. Brown (

one

of the Majority Stockholders, a defendant in the By-Laws Action, and the plaintiff in the

225

Action) as plaintiff commencing a case against SGRP entitled SPAR InfoTech, Inc. v. SPAR Group, Inc., et al., Index

no.

64452/2018

(Supreme Court, Westchester County) (the "Infotech Action"). The Infotech Action seeks payment from SGRP of approximately

$190,000

for alleged lost tax benefits and other expenses that it claims to have incurred in connection with SGRP's acquisition of its Brazilian subsidiary and that were previously denied by both management and SGRP's Audit Committee (which had jurisdiction because Infotech is a related party).

2016,

SGRP acquired SPAR Brasil Serviços de Merchandising e Tecnologia S.A. ("SPAR BSMT"), its Brazilian subsidiary, with the assistance of Robert G. Brown ("Mr. Brown"), who retired as Chairman and an officer and director on

May 3, 2018,

and his nephew, Peter W. Brown, who became a director on

May 3, 2018.

Mr. Brown used his private company, Infotech and undisclosed Irish companies to structure the acquisition for SGRP.

Mr. Brown also ran his alleged expenses associated with the transaction through Infotech, including large salary allocations for unauthorized personnel and claims for his "lost tax breaks." One of those unauthorized personnel had agreed in her severance agreement with SGRP to never directly or indirectly perform any services for SGRP or any services that could be directly or indirectly billed to SGRP, which restriction was fully disclosed to and known by Mr. Brown and, therefore, Infotech. Mr. Brown submitted his unauthorized and unsubstantiated "expenses" to SGRP, and SGRP's Audit Committee allowed approximately

$50,000

of them and disallowed approximately

$150,000

of them. Mr. Brown has repeatedly sought payment of the disallowed expenses, and on

August 4, 2018,

counsel for Infotech (also counsel for SBS and Mr. Brown) sent SGRP a draft complaint for a proposed action by Infotech against SGRP to be filed in the Supreme Court, Westchester County, New York seeking to obtain the disallowed expenses.

September 18, 2018,

Infotech commenced the Infotech Action seeking to obtain those previously disallowed unauthorized expenses, now totaling approximately

$190,000,

to circumvent the adverse determination and objection of SGRP's Audit Committee (whose approval is required by applicable law for such a related party payment).

The parties are now engaged in pretrial settlement discussions and management has accrued for

$75,000

with estimated total liability between

$75,000

$90,000.

SGRP will vigorously contest the Infotech Action.

Infotech also is threatening to sue the Company in Romania for approximately

$900,000

for programming services allegedly owed to

he Company's former Romanian subsidiary (sold at book value to Infotech in

2013

) and

not

provided to Infotech, for which the Company vigorously denies liability. Infotech has given a draft complaint to the Company.

SBS Field Specialist Litigation

The Company's merchandising, audit, assembly and other services for its domestic clients are performed by field merchandising, auditing, assembly and other field personnel (each a "Field Specialist") substantially all of whose services were provided to the Company prior to

August 2018

by SBS, the Company's affiliate. SBS is

not

a subsidiary or in any way under the control of SGRP, SBS is

not

consolidated in the Company's financial statements, SGRP does

not

manage, direct or control SBS, and SGRP does

not

participate in or control the defense by SBS of any litigation against it. The Company terminated its relationship with SBS and received

services from SBS after

July 27, 2018.

For affiliation, termination, contractual details and payment amounts, see Note

to the Company's Consolidated Financial Statements -

Related Party Transactions

Domestic Related Party Services

, above.

The appropriateness of SBS' treatment of Field Specialists as independent contractors has been periodically subject to legal challenge (both currently and historically) by various states and others. SBS' expenses of defending those challenges and other proceedings have historically been reimbursed by the Company under SBS' Prior Agreement, and SBS' expenses of defending those challenges and other proceedings were reimbursed by the Company through the termination of the contract in

July 2018,

in the amount of

$50,000,

after determination (on a case by case basis) that those defense expenses were costs of providing services to the Company.

March 2017,

the Company advised SBS that, since there was

currently effective comprehensive written services agreement with SBS, the Company would continue to review and decide each request by SBS for reimbursement of its legal defense expenses (including appeals) on a case-by-case basis in its discretion, including the relative costs and benefits to the Company. See

Related Party Transactions

Domestic Related Party Services

, above. SBS has disputed the right of the Company and SGRP's Audit Committee to review and decide the appropriateness of the reimbursement of any of those related party defense and other expense reimbursements. As provided in SBS' Prior Agreement, the Company is

not

obligated or liable, and the Company has

not

otherwise agreed and does

not

currently intend, to reimburse SBS for any judgment or similar amount (including any damages, settlement, or related tax, penalty, or interest) in any legal challenge or other proceeding against or involving SBS, and the Company does

not

believe it has ever done so (other than in insignificant nuisance amounts).

As a result of the SBS Chapter

Case (see above), there can be

assurance that SBS will ever be able to satisfy any such judgment or similar claim or amount resulting from any adverse legal determination See

Commitments and Contingencies --

SBS Bankruptcy,

above.

As the Company had utilized the services of SBS' Field Specialists to support its in-store merchandising needs in California and SBS' independent contractor classifications had been held invalid in the Clothier Determination (see below), management of the Company determined, with the support of SGRP's Audit Committee and Board of Directors, and began in

May

2018

to shift to an all employee servicing model for Field Specialists to support the performance of the Company's services in California for clients in this critical market. As previously noted, management currently estimates that the potential incremental annual cost of this change in California from

third

party independent contractors to Company employees could be substantial.

Due to (among other things) the Clothier Determination and the ongoing proceedings against SBS, which could have had a material adverse effect on SBS' ability to provide future services needed by the Company, and the Company's identification of an independent

third

party company who would provide comparable services on substantially better terms, the Company terminated the services of SBS effective

July 27, 2018,

and the Company has engaged that independent

third

party company to provide the Field Specialist services formerly provided by SBS.

Current material and potentially material proceedings against SBS and, in

one

instance, the Company are described below. These descriptions are based on an independent review by the Company and do

not

reflect the views of SBS, its management or its counsel.

SBS Clothier Litigation

Melissa Clothier was engaged by SBS (then known as SPAR Marketing Services, Inc.) and provided services pursuant to the terms of an "Independent Merchandiser Agreement" with SBS (prepared solely by SBS) acknowledging her engagement as an independent contractor. On

June 30, 2014,

Ms. Clothier filed suit against SBS and the Company styled Case

No.

RG12

639317,

in the Superior Court in Alameda County, California (the "Clothier Case"), in which Ms. Clothier asserted claims on behalf of herself and a putative class of similarly situated merchandisers in California who are or were classified by SBS as independent contractors at any time between

July 16, 2008,

and

June 30, 2014.

Ms. Clothier alleged that she and other class members were misclassified by SBS as independent contractors and that, as a result of this misclassification, the defendants improperly underpaid them in violation of various California minimum wage and overtime laws. The Company was originally a defendant in the Clothier Case but was subsequently dismissed from the action without prejudice (meaning it could have joined back into the case).

The court ordered that the case be heard in

two

phases. Phase

one

was limited to the determination of whether members of the class were misclassified as independent contractors. After hearing evidence, receiving post-trial briefings and considering the issues, the Court issued its Statement of Decision on

September 9, 2016,

finding that the class members had been misclassified by SBS as independent contractors rather than employees (the "Clothier Determination"). The plaintiffs and SBS have now moved into phase

two

to determine damages (if any), which has included discovery as to the measure of damages in this case.

The plaintiffs and SBS are still proceeding with the damages phase of the Clothier Case, which trial was scheduled for

December

2018

but was temporarily stayed as a result of the SBS Chapter

Case (see above and below).

Facing significant potential damages in the Clothier Case, SGRP chose, and on

June 7, 2018,

entered into mediation with the plaintiffs and plaintiff's counsel in the Clothier Case to try to settle any potential future liability for any possible judgment against SGRP in that case. SGRP asked SBS to participate financially and provide its knowledge in that mediation, but SBS and its stockholders wanted SGRP to bear the full cost of any settlement and on several occasions they declined or failed to participate in that mediation. SGRP disagreed, insisting on the Majority Stockholders' and SBS' economic participation. After extensive discussions, SGRP reached a settlement and entered into a memorandum of settlement agreement, which is subject to court approval and

not

likely to become final until several months into

2019

if and when the settlement is approved by the court. If approved, SGRP will pay a maximum settlement amount of

$1.3

million, payable in

four

equal annual installments that commence

days after the settlement becomes final, and the Company will be released by plaintiff and the settlement class from all other liability under the Clothier Case (the "Clothier Settlement"). SBS did

not

participate in the Clothier Settlement and will

not

be released. The Company has recorded a

$1.3

million charge for the Clothier Settlement during

2018.

March 21, 2019,

the court issued a tentative ruling preliminarily approving the Clothier settlement.

Since SGRP has

further involvement in the Clothier Case, SGRP stopped paying (as of

June 7, 2018)

for SBS' legal expenses (defense and appeal) in the Clothier Case and notified SBS. Defendants continue to demand that those expenses be reimbursed by SGRP.

As a result of the SBS Chapter

Case (see above), the claims of SBS' creditors must now generally be pursued in the SBS Chapter

Case. On

March 11, 2019,

the Bankruptcy Court entered an order modifying the automatic stay in the SBS Chapter

Case to permit the plaintiffs in the Clothier Case to proceed with the

second

part of the case to determine damages against SBS in the same California Court that rendered the Clothier Determination. However, the Bankruptcy Court did

not

Case. Accordingly, the Company believes there can be

to the Company's Consolidated Financial Statements -

Commitments and Contingencies --

SBS Bankruptcy,

above.

SGRP Hogan Litigation

Paradise Hogan was engaged by and provided services to SBS as an independent contractor pursuant to the terms of an "Independent Contractor Master Agreement" with SBS (prepared solely by SBS) acknowledging his engagement as an independent contractor. On

January 6, 2017,

Hogan filed suit against SBS and SGRP (and part of the Company), styled Civil Action

No.

1:17

-cv-

10024

-LTS, in the U.S. District Court for District of Massachusetts. Hogan initially asserted claims on behalf of himself and an alleged nationwide class of similarly situated individuals who provided services to SBS and SGRP as independent contractors. Hogan alleged that he and other alleged class members were misclassified as independent contractors, and as a result of this purported misclassification, Hogan asserted claims on behalf of himself and the alleged Massachusetts class members under the Massachusetts Wage Act and Minimum Wage Law for failure to pay overtime and minimum wages, as well as state law claims for breach of contract, unjust enrichment, quantum meruit, and breach of the covenant of good faith and fair dealing. In addition, Hogan asserted claims on behalf of himself and the nationwide class for violation of the Fair Labor Standards Act's overtime and minimum wage provisions. On

March 28, 2017,

the Company moved to refer Hogan's claim to arbitration pursuant to his agreement, to dismiss or stay Hogan's case pending arbitration, and to dismiss Hogan's case for failure to state a specific claim upon which relief could be granted.

March 12, 2018,

the Court denied both defendants' Motion to Dismiss for failure to state a claim, denied the Motion to Compel Arbitration as to SGRP (because as drafted by SBS, the arbitration clause did

not

reference or protect SGRP), denied the Motion to Stay as to SGRP, and allowed the Motion to Stay as to SBS pending the outcome of the Supreme Court's decision in Epic Systems Corp. v. Lewis. In

May 2018,

the Supreme Court decided arbitration clauses that include an express waiver of a worker's right to bring or participate in a class action did

not

violate the National Labor Relations Act, which resulted in all SBS disputes (but

not

any SGRP disputes) being sent to arbitration. On

April 24, 2018,

SGRP filed a notice of appeal with the First Circuit of the District Court's decision that the arbitration clause (as written by SBS) did

not

protect SGRP. SGRP and Hogan agreed to stay the District Court litigation pending the First Circuit's decision on SGRP's appeal. Briefing on SGRP's appeal closed on

August 8, 2018

and the appeal hearing was heard by the First Circuit on

September 11, 2018.

January 25, 2019,

the First Circuit issued a judgment affirming the District Court's decision that the arbitration clause (as written by SBS) did

not

protect SGRP and remanding the case back to the District Court for further proceedings. As a result, SGRP would have been required to go to trial without SBS.

Facing lengthy and costly litigation and significant potential damages in the Hogan Case, on

March 27, 2019,

SGRP entered into mediation with the plaintiffs and plaintiff's counsel in the Hogan Case to try to settle any potential future liability for any possible judgment against SGRP in that case. SBS and its stockholders were

longer involved in that case and so were

not

involved in that mediation. After extensive discussions, SGRP reached a settlement and entered into a memorandum of settlement agreement, which is subject to court approval and

not

likely to become final until later in

2019

if and when the settlement is approved by the court. If approved, SGRP will pay a maximum settlement amount of

$250,000

(in

three

installments)

one hundred eighty

(

180

) days after the settlement becomes final, and the Company will be released by plaintiff and the settlement class from all other liability under the Hogan Case (the "Hogan Settlement"). The Company has recorded

$250,000

liability as a result of the settlement.

SBS and SGRP Litigation Generally

As a result of the SBS Chapter

Case (see above), the claims of SBS' creditors must now generally be pursued in the SBS Chapter

Case. On

March 11, 2019,

the Bankruptcy Court entered an order modifying the automatic stay in the SBS Chapter

Case to permit the plaintiffs in the Clothier Case to proceed with the

second

part of the case to determine damages against SBS in the same California Court that rendered the Clothier Determination. However, the Bankruptcy Court did

not

Case. Accordingly, the Company believes there can be

to the Company's Consolidated Financial Statements -

Commitments and Contingencies --

SBS Bankruptcy,

above.