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, 2018 (

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 "Delaware Releases") 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 Delaware 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).

Post-Settlement Disputes Involving Board Independence.

Robert G. Brown Demands Directors Either Support His Positions or Resign

The co-founders of SPAR Group, Inc. ("

SGRP

" and, together with its subsidiaries, the "

Company

"), Mr. Robert G. Brown and Mr. William H. Bartels, are significant stockholders of SGRP. Mr. Brown was Chairman and an officer and director of SGRP through

May 3, 2018 (

when he retired), and Mr. Bartels is Vice Chairman and a director and officer of SGRP. Together Mr. Brown and Mr. Bartels (the "

Majority Stockholders

") beneficially own as a group a total of approximately

57.6%

(or

12.0

million shares) of SGRP's common stock (the "

SGRP Common Stock

").

July 10, 2019,

Mr. Robert G Brown wrote in an email communication to Arthur B. Drogue, an independent director and Chairman of the SGRP Board, to which he copied Mr. Bartels, Mr. Peter W. Brown and Mr. Jeffery Mayer (each a director), expressing Mr. Brown's concerns with the positions of certain of SGRP's directors (the "

July 10

"), including the independent directors. The concerns listed in the

July 10

Email include SGRP's: (

) initiation of the legal proceedings to maintain the independence of the Board and which lead to the Delaware Settlement (as defined below); (

) opposition to the terms and conditions of the reorganization of SPAR Business Services, Inc., a Nevada corporation formerly known as SPAR Marketing Services, Inc. ("SBS"), that the Board and management of SGRP deemed to be unfavorable to SGRP and its stockholders without appropriate settlement terms and releases (See SGRP's Current Report on Form

-K as filed with the SEC on

August 8, 2019,

respecting the negotiated SBS bankruptcy settlement); (

) opposition to the election or appointment of director candidates to the Board whom the independent directors deemed

not

independent under applicable NASDAQ and SEC rules, including opposing the nomination of Mr. Panos Lazaretos, a long-time associate of the Majority Stockholders and the Majority Stockholders' preferred director candidate (see

Search for a Replacement Independent Director

, below); and (

) refusal to reimburse the alleged expenses of entities owned by, or affiliated with, the Majority Stockholders, that have

not

been approved by the Audit Committee and SGRP's management (collectively, the "

Brown Demands

"). Mr. Bartels has since repeated several of the Brown Demands. Mr. Brown further demanded in the

July 10

Email that the directors change their positions and accept the Brown Demands or resign. The Company believes that neither the acquiescence to the Brown Demands nor the resignations of directors who oppose the Brown Demands would be in the best interests of SGRP and all of its stockholders. The foregoing description of the

July 10

Email is qualified in its entirety by reference to the

July 10

Email filed with this Current Report on Form

-K (this "

Report

") as Exhibit

99.1,

which is incorporated herein by reference.

Background: Recent Actions of the Majority Stockholders and their Control Group

June 1, 2018,

June 29, 2018,

July 5, 2018,

August 6, 2018

and

January 25, 2019,

the Majority Stockholders each filed an amended Schedule

13D

with the Securities and Exchange Commission (the "SEC"), in which they each acknowledged that they

"may

be deemed to comprise a 'group' within the meaning of [the Securities Exchange Act of

1934]"

and

"may

act in concert with respect to certain matters", including various listed items. Pursuant to those Schedule

13D

filings, the Majority Stockholders have acted as a control group and adopted written consents to unilaterally, and without the participation of SGRP's Board of Directors (the "

Board

"), Governance Committee or other stockholders, endeavoring to: approve the selection, appointment and election of Mr. Jeffrey A. Mayer as a director of SGRP; remove Lorrence T. Kellar as an independent director of SGRP; and change SGRP's By-Laws in order to (among other things) remove authority from the Board through new supermajority requirements and stockholder only approvals (the "

Proposed Amendments

"), which the Governance Committee believed weakened the Board's independence, and which were contested by SGRP and ultimately concluded in a negotiated settlement that included Mayer's appointment, Mr. Kellar's forced retirement, and the adoption of SGRP's Amended and Restated By-Laws on

January 18, 2019 (

the "

Delaware Settlement

"). See PART II, Item

Legal Proceedings

RELATED PARTIES AND RELATED PARTY LITIGATION

in SGRP's Quarterly Report on Form

-Q as filed with the SEC on

May 15, 2019.

In the Delaware 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 preserved 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 (the "

Nomination Process

") other than those under a stockholder written consent making a removal and appointment, which is unchanged).

Prior to SGRP's

2019

annual stockholders' meeting (the "

2019

Annual Meeting

"), Jack Partridge, an independent director of SGRP, retired effective as of the close of business on

May 15, 2019.

Mr. Partridge indicated that he was prepared to serve on the Board for another year, but based on Mr. Partridge's discussions with Mr. Bartels and the preliminary vote totals (including Mr. Brown's votes), Mr. Partridge believed that the Majority Stockholders would vote "against" him, so he elected to retire before the

2019

Annual Meeting. Following the departure of Messrs. Kellar and Partridge, SGRP had

two

fully independent directors, Arthur B. Drogue and R. Eric McCarthey. Jeffery Mayer is also considered independent except for related party matters.

Threatened Removal of Arthur B. Drogue as a Director

July 12,

Mr. Brown sent in an email communication to Mr. Drogue, with a copy to Mr. Bartels, a draft Amendment

No.

to Schedule

13D

from Mr. Brown (the "

Draft Schedule

13D

")that indicated the Majority Stockholders intended to deliver a written consent action to SGRP resolving to remove Mr. Drogue from the Board. The foregoing description of the Draft Schedule

13D

is qualified in its entirety by reference to the Draft Schedule

13D

filed with this Report as Exhibit

99.2,

which is incorporated herein by reference. In addition to the

July 10

Email and the Draft Schedule

13D,

Mr. Drogue engaged in various telephonic conversations with the Majority Stockholders in connection with the matters described in the

July 10

Email and the Draft Schedule

13D

where he reiterated his position and the position of the independent directors that the Board was acting, and would continue to act, in the best interests of SGRP and all of its stockholders, including by maintaining a majority independent Board, as required by applicable NASDAQ and SEC rules and by refusing to pay expenses for affiliates of the Majority Stockholders when the payment of those expenses were

not

approved by management and the Audit Committee and were

not

in the best interests of SGRP and its stockholders.

During such conversations, the Majority Stockholders said that Mr. Drogue and any other directors of SGRP who have

not

been complying with the Brown Demands would need to acquiesce to the Brown Demands or resign from the Board.

In response to the

July 10

Email, the Brown Demands and the Draft Schedule

13D,

Mr. Drogue sent an email, dated

July 24, 2019,

to Mr. Bartels (the "

Response to Brown Demands

") outlining the reasons the recent actions taken, and proposed to be taken, by the Majority Stockholders are

not

in the best interests of all SGRP stockholders, and Mr. Drogue further indicated that he would

not

comply with the Brown Demands and would

not

resign. The foregoing description of the Response to Brown Demands is qualified in its entirety by reference to the Response to Brown Demands filed with this Report as Exhibit

99.3,

which is incorporated herein by reference.

After Mr. Drogue sent the Response to Brown Demands, he received an email correspondence from Mr. Bartels on

August 5, 2019,

dated

August 3, 2019,

in which Mr. Bartels reiterated certain of the Brown Demands and that the Majority Stockholders have the right to remove any director (the "

August 3

"). The

August 3

Email: (

) erroneously indicates that certain NASDAQ independence and director nomination rules do

not

apply to SGRP (incorrectly citing an exception applicable to underwritings, senior debt and the like); (

) reiterates the view of the Majority Stockholders that Mr. Lazaretos meets NASDAQ and SEC independence requirements and should be immediately appointed to the Board (see

Search for a Replacement Independent Director

, below); and (

) reminds Mr. Drogue of the right of the Majority Stockholders to remove directors at any time and for any reason. The foregoing description of the

August 3

Email is qualified in its entirety by reference to the

August 3

Email filed with this Report as Exhibit

99.4,

which is incorporated herein by reference.

Failure to Maintain a Majority of Independent Directors on the Board; Failure to Comply with NASDAQ Audit Committee Composition Requirements

The Board currently has only

two

independent directors and

one

director classified as independent on all but related party matters out of

six

(resulting from Jack W. Partridge's

May 2019

forced retirement), which is less than a majority of the current Board. If Mr. Drogue is removed or resigns, the Board would only have

one

independent director out of five. SGRP's Audit Committee, Compensation Committee, Governance Committee and Special Committee would continue to consist of

one

independent director until the Governance Committee and the Board secure duly qualified independent director candidates to replace Messrs. Partridge and Drogue. The current composition of the Board and its Audit Committee, Compensation Committee and Governance Committee is in violation of the NASDAQ rules and such committees' respective charters.

Despite the actions of the Majority Stockholders, the Board and the Governance Committee have determined that the Board should always have a majority of independent directors as required by NASDAQ and the SEC. The Board and Governance Committee have continued to follow the Nomination Process and search for an independent director replacement for Mr. Partridge. SGRP's Statement of Policy Regarding Director Qualifications and Nominations dated as of

May 18, 2004,

requires that (among other things) that a majority of the directors of the Board, and all of the members of its Audit Committee, Compensation Committee and Governance Committee, be independent directors.

Additionally, NASDAQ Listing Rule

5605

(b)(

) requires a majority of the board of directors of a listed company to consist of independent directors, as defined in Rule

5605

(a)(

), and NASDAQ Listing Rule

5605

(c)(

) requires the audit committee of a listed company to be composed of at least

three

members, all of whom must be independent (together, the "

Board Independence Rules

"). When similar circumstances occurred last year in connection with the forced retirement of Lorrence Kellar, SGRP received a notification letter from NASDAQ dated

December 13, 2018,

stating that SGRP

longer complied with NASDAQ's Board Independence Rule and had approximately

days to regain compliance with the NASDAQ Listing Rules.

July 24, 2019,

SGRP received a phone call from a NASDAQ representative expressing concern with respect to (

) the Board's lack of independence following Mr. Partridge's forced retirement; (

) the number of independent directors serving on the Audit Committee, Compensation Committee and Governance Committee (which, as of

July 24, 2019,

was

two

members on each such committee); and (

) the independence of Mr. Lazaretos, who, along with several other director candidates, is currently under review by the Governance Committee.

July 25, 2019,

SGRP received a letter from NASDAQ notifying SGRP that it was

not

in compliance with the Board Independence Rules and that SGRP has until the earlier of: (

) the next annual stockholders' meeting of SGRP or

May 15, 2020,

or (

)

November 11, 2019,

if the next annual stockholders' meeting is held before

November 11, 2019 (

the "

Board Independence Deadline

"). Accordingly, the forced retirement of Mr. Partridge and the threatened removal of Mr. Drogue, in each case directly resulting from the actions of the Majority Stockholders,

may

cause SGRP to be delisted by NASDAQ for failing to adhere to the Board Independence Rules.

The independent directors of the Board and the management of SGRP believe that if Mr. Drogue is ultimately removed from the Board and the directors selected for nomination and election by the Majority Stockholders comprise a majority of the Board, the newly constituted and potentially non-independent Board

may

cause NASDAQ to reconsider and escalate its deadline for corrective action by the Company and proceed with delisting SGRP for failure to comply with the Board Independence Rules (as defined below).

Search for a Replacement Independent Director

Even before Mr. Partridge's forced retirement, the Majority Stockholders lobbied (and have continued to lobby) the Board to add Mr. Lazaretos, a resident of Greece, as a director of SGRP. Mr. Lazaretos has been associated with the Majority Stockholders since

2000

when he

first

worked for SGRP. He has since provided services to SPAR Infotech, Inc. ("

Infotech

"), which is owned by Mr. Brown, and the costs of those services were included in Infotech's lawsuit against SGRP respecting "alleged" unreimbursed expenses in the acquisition of a Brazil subsidiary.

At and since the

May

Board meeting, SGRP's Governance Committee has insisted on following the Nomination Process agreed to in the Delaware Settlement to fill the vacancy created by Mr. Partridge's forced retirement. Mr. Brown and Mr. Bartels have repeatedly tried to circumvent the agreed upon Nomination Process to immediately put Mr. Lazaretos on the Board. Mr. Bartels unilaterally invited Mr. Lazaretos to the

May

Board meeting before Mr. Partridge's forced retirement and sought to have Mr. Lazaretos appointed to the Board immediately. Additionally, Mr. Brown generally has been copying Mr. Lazaretos on his emails to the Board and its committees.

Complying with the stockholder approved Nomination Process, SGRP's Governance Committee has recently conducted a search and evaluation for a new independent director to replace Mr. Partridge. Of the

four

finalists,

two

candidates were recommended by the Majority Stockholders (including Mr. Lazaretos), and

two

candidates were identified by an independent,

third

-party executive search firm (the "

Independent Search Firm

"). An outside evaluation conducted by the Independent Search Firm found Mr. Lazaretos to be unqualified to be a public company director and that other identified director candidates under consideration by the Governance Committee were better qualified to serve as directors of SGRP. An independent Delaware law firm (the "

Delaware Law Firm

") has determined that Mr. Lazaretos does

not

satisfy the NASDAQ, SEC and Delaware independence requirements. Pursuant to its authority under SGRP's governing documents, SGRP's Governance Committee has determined that Mr. Lazaretos does

not

qualify as an independent director, based on feedback from references, Management, the Delaware Law Firm, and its own evaluations and determinations respecting compliance with applicable SEC and NASDAQ independence and other standards.

However, the Majority Stockholders continue to insist upon the immediate appointment of Mr. Lazaretos as a director. In fact, on

August 8, 2019,

Mr. Bartels sent an email to Mr. Drogue attaching an unauthorized and unsolicited draft press release announcing the appointment of Mr. Lazaretos as a director, which has

not

happened (the "

Draft Press Release

"). The Draft Press Release repeatedly refers to Mr. Lazaretos as an independent director, despite (

) the contrary determinations made by the Delaware Law Firm and the Governance Committee and (

) the initial verbal indications from SGRP's contact person at NASDAQ that Mr. Lazaretos

may

not

be viewed by NASDAQ as independent.

SGRP's Governance Committee believes that if the Majority Stockholders put Mr. Lazaretos on the Board through a written consent action (which is within their rights), the Board size would have to be increased (requiring stockholder approval) and additional independent directors would need to be added to satisfy the Board Independence Rules.

Although the Majority Stockholders can eventually appoint a director on the Board through their right to act by written consent, they cannot determine independence. Only the Governance Committee can determine independence under the NASDAQ rules and SGRP's governing documents. The most recent amendments to SGRP's governing documents were agreed to by the Majority Stockholders in the Delaware Settlement and continued the Nomination Process (including the continuation of the Governance Committee's authority to identify, select and nominate qualified director candidates).

SGRP's Governance Committee currently plans to submit a final nominee to the full Board later this month, and it will be arranging candidate interviews at its upcoming meeting on

August 15, 2019.

SGRP intends to submit to NASDAQ documentation, including biographies of any new directors, evidencing compliance with the Board Independence Rules

later than the Board Independence Deadline.

In the event SGRP does

not

regain compliance with the Board Independence Rules by the Board Independence Deadline, or if more independent directors are removed, or if more non-independent directors are added, NASDAQ

may

delist SGRP's securities before the Board Independence Deadline. Repeated violations or intentional violations by the Majority Stockholders could lead to an accelerated or immediate delisting by NASDAQ.

Risks of a NASDAQ Delisting and Penny Stock Trading

There can be

assurance that SGRP will be able to correct the current or any future NASDAQ rule deficiencies described herein, or that if timely corrected, SGRP will be able to comply in the future with such NASDAQ rules. If SGRP fails to gain compliance with or further breaches such NASDAQ rules, NASDAQ

may

commence delisting procedures against SGRP (during which SGRP

may

appeal the delisting determination based on the current breach to a NASDAQ hearings panel). Repeated violations or intentional violations by the Majority Stockholders could lead to an accelerated or immediate delisting. If shares of SGRP Common Stock are ultimately delisted by NASDAQ, the market liquidity of the SGRP Common Stock could be adversely affected and its market price could decrease, even though such shares

may

continue to be traded over-the-counter, due to (among other things) the potential for increased spreads between bids and asks, lower trading volumes and reporting delays in over-the-counter trades and the negative implications and perceptions that could arise from such a delisting.

In addition to the foregoing, if the SGRP Common Stock is delisted from NASDAQ and is traded on the over-the-counter market, the application of the "penny stock" rules could adversely affect the market price of the SGRP Common Stock and increase the transaction costs to sell those shares. The SEC has adopted regulations which generally define a "penny stock" as any equity security

not

listed on a national securities exchange or quoted on NASDAQ that has a market price of less than

$5.00

per share, subject to certain exceptions. If the SGRP Common Stock is delisted from NASDAQ and is traded on the over-the-counter market at a price of less than

$5.00

per share, the SGRP Common Stock would be considered a penny stock. Unless otherwise exempted, the SEC's penny stock rules require a broker-dealer, before a transaction in a penny stock, to deliver a standardized risk disclosure document that provides information about penny stock and the risks in the penny stock market, the current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. Further, prior to a transaction in a penny stock occurs, the penny stock rules require the broker-dealer to provide a written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's agreement to the transaction. If applicable in the future, the penny stock rules

may

restrict the ability of brokers-dealers to sell the SGRP Common Stock and

may

affect the ability of investors to sell their shares, until the SGRP Common Stock is

longer a penny stock.

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 and Settlement

August 6, 2019,

SPAR Group, Inc. ("SGRP", the "Corporation" or the "Registrant"), and its subsidiaries SPAR Marketing Force, Inc., a Nevada corporation ("SMF"), and SPAR Assembly & Installation, Inc., f/k/a SPAR National Assembly Services, Inc., a Nevada corporation ("SAI", and collectively with SGRP and SMF, the "SGRP Parties"), submitted in the SBS Chapter

Case (as defined below) in the U.S. District for Nevada their Compromise and Settlement Agreement with SPAR Business Services, Inc., a Nevada corporation formerly known as SPAR Marketing Services, Inc., debtor and debtor-in-possession ("SBS"), and SBS, LLC, a Nevada limited liability company "SBS LLC" and together with SBS, the "SBS Parties"). SGRP and its subsidiaries

may

be referred to as the "Company" and file reports on a consolidated basis with the Securities and Exchange Commission ("SEC").

August 6, 2019,

with the support of (among others, the Clothier and Rodgers plaintiffs and the Company), the Court approved the Settlement Agreement and the SBS Reorganization pursuant to the SBS Plan (as all such terms are defined below).

Background: Recent Actions of the Majority Stockholders and their Control Group

The co-founders of SGRP, Mr. Robert G. Brown and Mr. William H. Bartels, are significant stockholders of SGRP. Mr. Brown was Chairman and an officer and director of SGRP through

May 3, 2018 (

when he retired), and Mr. Bartels is Vice Chairman and a director and officer of SGRP. Together Mr. Brown and Mr. Bartels (the "Majority Stockholders") beneficially own, as a group, a total of approximately

57.6%

(or

12.0

million shares) of SGRP''s common stock (the "SGRP Common Stock"). On

June 1, 2018,

June 29, 2018,

July 5, 2018,

August 6, 2018

and

January 25, 2019,

the Majority Stockholders each filed an amended Schedule

13D

with the SEC, in which they each acknowledged that they

"may

be deemed to comprise a ''group'' within the meaning of [the Securities Exchange Act of

1934]"

and

"may

act in concert with respect to certain matters", including various listed items. See Note

to the Company's Consolidated Financial Statements -

Commitments and Contingencies -- Related Parties and Related Party Litigation

and

SBS Bankruptcy,

in SGRP's Quarterly Report on Form

-Q as filed with the SEC on

May 15, 2019.

The Company executes its domestic field services through the services of field merchandising, auditing, assembly and other field personnel (each a "Field Specialist"), substantially all of whom are provided to the Company and engaged by independent

third

parties and located, scheduled, deployed and administered domestically through the services of local, regional, district and other personnel (each a "Field Administrator"), and substantially all of the Field Administrators are in turn employed and supplied by other independent

third

parties. The Company believes that high quality Field Administrator performances are essential to the effective delivery and performance of their services by the Field Specialists.

SBS provided the services of Field Specialists from time to time to the SMF and SAI, and SBS is an affiliate of and related party to the Company, but SBS is

not

under the control of or part of the consolidated Company and has

not

provided services or been a vendor to the Company Parties since

August 2018 (

when SBS' termination by the Company took effect). SBS is an affiliate of and a related party to the Company because it is owned by an entity owned and controlled by Robert G. Brown and prior to

December 2018

was owned by Robert G. Brown and William H. Bartels.

SPAR Administrative Services, Inc. ("SAS"), provided under contract the services of Field Administrators from time to time to SMF and SAI, and SAS is an affiliate of and related party to the Company, but SAS is

not

under the control or part of the consolidated Company and has

not

provided services or been a vendor to the SGRP Parties since

August 2018 (

when SAS' termination by the Company took effect). SAS is an affiliate of and a related party to the Company because it is owned by William H. Bartels and entities owned and controlled by family members of Robert G. Brown and prior to

January 1, 2015,

was owned by Robert G. Brown and William H. Bartels.

In terminating SBS and SAS and engaging a new independent vendor to provide the same services, the Company has saved approximately

$900,000

per year. For services previously provided by SBS and SAS to SMF and SAI, see Note

to the Company's Consolidated Financial Statements -

Related Party Transactions – Domestic Related Party Services,

in SGRP's Quarterly Report on Form

-Q as filed with the SEC on

May 15, 2019.

SBS Bankruptcy

The Company received

services from SBS after the Company's termination of SBS' services took effect in

August 2018.

Furthermore, even though SBS was solely responsible for its operations, methods and legal compliance, SBS continued to claim that the Company was somehow liable to reimburse SBS for its expenses in those proceedings. The Company does

not

believe there is any basis for such claims and would defend them vigorously. The Company anticipated that SBS would use every available means to attempt to collect reimbursement from the Company for the foreseeable future for all of its post-termination expense and other claims ("SBS Claims").

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 then had to be made in the SBS Chapter

Case. See Note

to the Company's Consolidated Financial Statements -

Commitments and Contingencies -- SBS Bankruptcy,

in SGRP's Quarterly Report on Form

-Q as filed with the SEC on

May 15, 2019.

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

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

A review of SBS' previous filings in the SBS Chapter

Case shows that SBS has listed the Company as a contingent, unliquidated, disputed creditor, but in its most recently filed amended reorganization plan in the SBS Chapter

Case, SBS reflected an unspecified receivable in the amount of

$300,000

due from the Company, which alleged claim was to be excluded from the assets available to creditors and retained by SBS to pursue after plan confirmation.

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 and

$12,963

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

$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 Note

to the Company's Consolidated Financial Statements,

Commitments and Contingencies

Legal Matters

SBS Clothier Litigation

, below) in SGRP's Quarterly Report on Form

-Q as filed with the SEC on

May 15, 2019,

and other to be discovered and identified claims (the "SGRP Claims").

Settlement Agreement

Management recommended, and the Audit Committee agreed, that it would be in the best interest of all stockholders to oppose SBS's proposed reorganization unless a reasonable settlement could be reached, and that any settlement should include a reasonable disposition of the SGRP Claims and mutual releases of all other claims. After extensive negotiation between the SBS Parties and the SGRP Parties, the SBS Parties and the SGRP Parties entered into the Compromise and Settlement Agreement dated as of

July 26, 2019,

and signed and released over the succeeding weekend (the "Settlement Agreement").

The Settlement Agreement provides for a mutual release of claims (including the SBS Claims and the SGRP Claims), except for the following:

(i)

Subject to plan confirmation, SBS will pay to the applicable SGRP Parties the SGRP Claims (before discount,

$2,231,260

) discounted to their pro rata share (among all creditors of the same class) of the New Value Contribution (after discount, est.

$111,563

) and of the Settlement Contribution in

twenty-four

(

) equal monthly amounts (after discount, est.

$61,370

), starting

January 2020

and without any interest (collectively, the "Discounted Claim Payments").

(ii)	SMF will pay to SBS the Proven Unpaid A/R upon its determination (as described below).

The Discounted Claim Payments reflect a substantial discount (

92%

) over the total SGRP Claims, do

not

bear interest, are unsecured, and are dependent on the success of the reorganized SBS business (as to which the Company expresses

opinion),

In the Settlement Agreement, the parties agreed to have Rehmann Robison, a financial and accounting services firm, independently determine, based on parameters set forth in the Settlement Agreement: (i) whether SMF paid all amounts for allowable reimbursable expenses (net of all applicable credits) that were properly invoiced to SMF and the amounts of allowable reimbursable expenses that (

) were paid to vendors for expenses by SBS in

2018

for allowable reimbursable expenses (net of all applicable credits) and

not

paid to SBS by SMF and (y) should have been invoiced but were

not

invoiced to SMF and (ii) the amount put into the SBS payroll accounts, including the payments for the amounts due to SBS for the independent contractors ("IC's") (which, following the

2017

methodology of the SBS controller, includes both the net amount to be paid by SBS to the IC's and the amount to be withheld by SBS from the payments to the IC's for workman's compensation and liability insurance), plus the mark-up of

2.9638%

to SBS for

2018.

Rehmann Robison will use the parameters identified in Schedule

to the Company's Consolidated Financial Statements -

Related Party Transactions – Domestic Related Party Services,

in SGRP's Quarterly Report on Form

-Q as filed with the SEC on

May 15, 2019.

To the extent Rehmann Robison determines that any such net allowable reimbursable expenses were

not

paid and are still owed to SBS ("Proven Unpaid AR"), the parties will accept the determination of Rehmann Robison as final and binding.

In the Settlement Agreement, the SGRP Parties agreed to withdraw their opposition to the SBS reorganization and vote in favor of SBS' First Amended Chapter

Plan of Reorganization, as amended by the Settlement Agreement (the "SBS Plan").

The Company believes the financial impact of the Settlement Agreement is immaterial since the SGRP Claims already have been all expensed or reserved, and there can be

assurance that the Discounted Claim Payments will ever be received by the Company (particularly if the reorganized SBS business does

not

succeed). However, the Company believes that the mutual releases in the Settlement Agreement provide valuable relief from potential future claims and litigation by SBS respecting the Company's past involvement with SBS.

SBS Reorganization

The SBS Plan generally does

not

describe the intended business of how, or manner in which, SBS intends to operate after its reorganization (if approved) (the "SBS Reorganization"). Those descriptions are contained in various disclosure documents, the most recent of which is Robert G. Brown's sworn Declaration of Robert G. Brown In Support of Debtor's Brief In Support Of Confirmation Of First Amended Chapter

Plan Of Reorganization And Final Approval Of Accompanying Disclosure Statement; And Omnibus Reply To Objections dated

July 29, 2019 (

the "Declaration").

August 6, 2019,

with the support of (among others, the Clothier and Rodgers plaintiffs and the Company, the Court approved the Settlement Agreement and the SBS Reorganization pursuant to the SBS Plan.

In paragraphs

and

of his Declaration cited below, Robert G. Brown, under penalty of perjury, described key elements of his plan for the intended business of how, and manner in which, SBS intends to operate after the SBS Reorganization.

Potential Competition from and Confusion respecting SBS

Business segment. SBS is a business to business company using Independent Contractors ("IC's"). The SBS services are referred to as merchandising and the IC's, merchandisers. SGRP was a customer of SBS obtaining clients (e.g.,

Client names omitted by the Company due to

SGRP's c

onfidentiality obligations to such Clients

) and then SGRP subcontracted client work to SBS. SGRP as the customer was responsible for administrating the IC's (which they did through SPAR Administrative Services, Inc. ("SAS") instead of hiring their own employees), handling payroll, obtaining clients, providing working capital and recruiting merchandisers. SBS will continue to provide the services SBS offered to SGRP and SBS's customers will be responsible for what SGRP was responsible for."

The Declaration indicates that SBS' clients will provide their own Field Administrators to schedule and administer the SBS' Field Specialists, but does

not

specify who would provide the Field Administrators to SBS' clients if

not

internally provided by the client. Internal provision by the ultimate clients of Field Administrators was

not

SBS' previous model and is

not

industry practice. The Company believes that SAS has had

Field Administrators since

August 2018

and was

not

named by SBS as a possible supplier. However, SAS is a member of Affinity Insurance Ltd. ("Affinity"), while SBS is

not

an Affinity member, and the Declaration implies that the necessary workers compensation and liability insurance will be provided by SBS through SAS and Affinity to SBS' Field Specialists, which

may

put the Affinity security deposit repayments owed to SMF by SAS at further risk. See Note

to the Company's Consolidated Financial Statements -

Related Party Transactions –

Affinity Insurance

in SGRP's Quarterly Report on Form

-Q as filed with the SEC on

May 15, 2019.

Assuming SBS is successful in its reorganized business model (as to which the Company expresses

opinion), SBS will likely be competing (at least in part) with the Company respecting (i) the provision of field merchandising services directly to the Company's clients and (ii) the provision of Field Specialists to competitors of the Company to use in the provision of field merchandising services in competition against the Company.

SBS has the unlimited right to use the SPAR name in the United States under a perpetual royalty free license, whether or

not

in competition with the Company. See Note

to the Company's Consolidated Financial Statements -

Related Party Transactions –

Other Related Party Transactions and Arrangements

in SGRP's Quarterly Report on Form

-Q as filed with the SEC on

May 15, 2019.

Assuming SBS continues to use the SPAR name in its reorganized business (and the Company believes it will do so), there will be great potential for confusion with the services marketed and provided by the Company's domestic subsidiary "SPAR Marketing Force, Inc." In at least

places in the Declaration, Mr. Brown implies a relationship with the SPAR Group (SGRP) or its people, know how or technology. This potential for confusion will be even greater if any of SBS' directors are involved with SBS (see below) after its reorganization.

Potential Involvement of SGRP Directors in Reorganized SBS

“

15.

Management

. In addition to me (who will work without compensation) SBS will work with experienced executives in IT, sales, field operations and administration for a share of profits and/or equity. These include Brown, Pat Franco, Bill Bartels, Peter Brown and the others with similar experience. Franco has over

years' experience in technology and merchandising. . . . Bartels is Vice Chairman and most senior sales person at SGRP responsible for over

70%

of the current SGRP US revenue from clients and acquisitions. Bartels will help with the initial customer contacts while keeping the SGRP board fully apprised of his work and the work of SBS. Peter Brown worked for SPAR Administrative Service for a number of years and negotiated the acquisition of a subsidiary in Brazil for SGRP which is now SGRP's biggest international subsidiary. He is on the board of SPAR Brazil LLC, SGRP and Affinity insurance company. All management have agreed to work for equity or a share of the profits and PM AM is included in the budget.”

In an email to William H. Bartels and Peter Brown, James R. Segreto, the Company's Chief Financial Officer, asked each of them if either would have any involvement with the reorganized SBS, as sworn by Robert G. Brown in the Declaration.

Bartels responded as follows:

•

I have

ownership in SBS or any related party.

•

I am

not

receiving and will

not

receive any salary, sales commission, or finder's fee from or share of sales, revenues or profits of SBS or any related party.

•

"I do

not

consider myself part of SBS "management team". "

•

"I don’t believe anything above is in conflict with the statements made by [Robert G.] Brown."

•

"In my view my potential involvement was supplying a list for initial customer."

•

"Being fully aware of my fiduciary responsibilities to SGRP I will always act in the best interest of all SGRP shareholders."

Peter Brown responded:

•

"I am

not

going to be attempting to represent the accuracy of Bob's statement in any way and will

not

respond to Jim at this time."

•

"I will serve all SGRP shareholders to the best of my ability."

Accordingly, the Company believes that Mr. Bartels does

not

intend to be directly involved with the reorganized SBS. It is unclear how much involvement his Company, SAS, will have with the reorganized SBS.

Peter Brown has

not

disclaimed any involvement with the reorganized SBS.

Outside counsel have advised that any involvement with SBS by any SGRP director

may

be a violation of Delaware law and SGRP's Ethics Code, could put SGRP at substantial risk for liability for future potential SBS litigation, and could possibly make SGRP a liability shield for SBS, which involvement they advised was very unlikely to benefit the Company and all its shareholders.

The order confirming the SBS Plan expressly preserves the Companies rights as follows: "The SGRP Stipulations do

not

seek Bankruptcy Court’s approval of, and the parties thereto have

not

agreed to, any direct or indirect waiver or violation of any applicable State or Federal Law or the governing documents, codes or policies of any entity party to the SGRP Stipulations."

In Summary:

The Company and certain other significant SBS creditors have settled and agreed to vote (and on

August 6, 2019,

voted) in favor of the SBS Plan to enable SBS to independently operate its reorganized business, but according to the SBS Plan and disclosure documents ,

none

are taking any equity in SBS or providing any financing or credit to SBS. A vote in favor of the SBS Plan was

not

a vote to support any of the SBS business plan specifics or to change or waive any of the governing documents or policies of SGRP or any other party.

SBS is

not

and will never be part of the Company, the Company will never in any way use or support (financially or otherwise) SBS' reorganized business, and the Company will caution its clients and others accordingly.

The Company believes SBS will continue to imply a connection either thought use of the SPAR name and or common management or affiliations, potentially leading SBS' customers, Field Specialists, and governmental regulators to wrongly look to the Company to fulfill unsatisfied SBS liabilities. This risk increases as SBS becomes more unsuccessful in its reorganized business (as to which the Company expresses

opinion). The Company had been named in numerous prior proceedings involving SBS because of (among other things) the common use of the name "SPAR". Although defensible on the merits (since there is

legal connection), correcting these matters could consume significant management time, working capital and other Company resources and negatively impact the Company's client relationships and business reputation.

Non-Settled Matters:

The Settlement Agreement and its releases are limited to the SBS matters described therein and subject to specific exclusions. Accordingly, there remain a number of unresolved claims and actions (each a "Non-Settled Matter") between the Company and SAS and SPAR Infotech, Inc. (including the lawsuit and other claims against the Company), and the claims, rights and liabilities of Robert G. Brown and William H Bartels respecting the Company. See Part II, Item IA -

Risk Factors -Dependence Upon and Cost of Services Provided by Affiliates and Use of Independent Contractors

Risk Factors -

Risks Related to the Company's Significant Stockholders: Potential Voting Control and Conflicts

, and Note

to the Company's Condensed Consolidated Financial Statements –

Commitments and Contingencies -- Legal Matters

, in the Corporation's Quarterly Report on Form

-Q as filed with the SEC on

May 15, 2019,

the Corporation's Current Report on Form

-K as filed with the SEC on

September 28, 2018,

the Corporation's Current Report on Form

-K as filed with the SEC on

December 4, 2018

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

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. See Note

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.