10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________

FORM 10-Q/A

(Mark One)

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the second quarterly period ended June 30, 2020.

OR

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

Commission file number 0-27408

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

Delaware	33-0684451
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
333 Westchester Avenue, Suite 204, White Plains, New York	10604
(Address of principal executive offices)	(Zip Code)

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

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

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

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

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-Accelerated Filer ☐	Smaller reporting company ☒
Emerging Growth Company ☐

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

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

The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant on April 30, 2020, based on the closing price of the Common Stock as reported by the Nasdaq Capital Market on such date, was approximately $6.8 million.

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common	SGRP	Nasdaq

The number of shares of the Registrant's Common Stock outstanding as of August 7, 2020, was 21,108,352 shares.

SPAR Group, Inc.

Index

The purpose of this Form 10-Q/A to SPAR Group, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, filed with the Securities and Exchange Commission ("SEC") on August 14, 2020 (The "Form 10-Q") is to correct several typographical errors, cross references, incomplete deletions and the names of the signatories and signing dates for the certifications on Exhibits 31.1, 31.2, 32.1 and 32.2, and to delete the reference to Exhibit 3.3 (which was previously filed with the SEC) and amend, restate and supersede the previously filed Form 10-Q.

No other changes have been made to the Form 10-Q previously filed.  This Amendment speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date and does not modify or update in any way disclosures made in the original Form 10-Q.

PART I:	FINANCIAL INFORMATION
Item 1	Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited), and December 31, 2019	2
	Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) for the three and six months ended June 30, 2020 and 2019	3
	Condensed Consolidated Statement of Equity (Unaudited) for the three and six months ended June 30, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4	Controls and Procedures	39
PART II:	OTHER INFORMATION
Item 1	Legal Proceedings	40
Item 1A	Risk Factors	46
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3	Defaults Upon Senior Securities	46
Item 4	Mine Safety Disclosures	46
Item 5	Other Information	46
Item 6	Exhibits	47
SIGNATURES		48

1

PART I: FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SPAR Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data) 

	June 30,			December 31,
	2020			2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	13,676		$	10,458
Accounts receivable, net		42,911			49,299
Prepaid expenses and other current assets		1,871			2,404
Total current assets		58,458			62,161
Property and equipment, net		2,793			2,848
Operating lease right-of-use assets		3,488			4,948
Goodwill		3,756			3,784
Intangible assets, net		2,512			2,796
Deferred income taxes		1,644			1,883
Other assets		1,259			1,115
Total assets	$	73,910		$	79,535
Liabilities and equity
Current liabilities:
Accounts payable	$	6,841		$	9,186
Accrued expenses and other current liabilities		20,278			18,548
Due to affiliates		3,780			4,666
Customer incentives and deposits		416			594
Lines of credit and short-term loans		8,103			8,932
Current portion of operating lease liabilities		1,779			2,828
Total current liabilities		41,197			44,754
Operating lease liabilities, less current portion		1,709			2,120
Long-term debt and other liabilities		1,300			1,300
Total liabilities		44,206			48,174
Commitments and contingencies – See Note 8
Equity:
SPAR Group, Inc. equity
Preferred stock, $.01 par value: Authorized and available shares– 2,445,598 Issued and outstanding shares – None – Balance at June 30, 2020 and December 31, 2019		-			-
Common stock, $.01 par value: Authorized shares – 47,000,000 Issued shares – 21,108,352 – Balance at June 30, 2020, and 21,102,335 – December 31, 2019		211			211
Treasury stock, at cost 1,697 shares – Balance at June 30, 2020, and December 31, 2019		(2	)		(2	)
Additional paid-in capital		16,606			16,511
Accumulated other comprehensive loss		(5,106	)		(3,616	)
Retained earnings		6,044			5,851
Total SPAR Group, Inc. equity		17,753			18,955
Non-controlling interest		11,951			12,406
Total equity		29,704			31,361
Total liabilities and equity	$	73,910		$	79,535

See accompanying notes.

2

 SPAR Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive (Loss) Income

(unaudited)

(In thousands, except share and per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Net revenues	$	50,944		$	68,223		$	112,292		$	125,383
Cost of revenues		41,072			54,159			90,632			100,685
Gross profit		9,872			14,064			21,660			24,698
Selling, general and administrative expense		7,370			9,306			17,141			17,699
Depreciation and amortization		539			528			1,079			1,038
Operating income		1,963			4,230			3,440			5,961
Interest expense		84			187			312			388
Other income, net		(50	)		(192	)		(58	)		(257	)
Income before income tax expense		1,929			4,235			3,186			5,830
Income tax expense		624			1,428			959			1,986
Net income		1,305			2,807			2,227			3,844
Net (income) attributable to non-controlling interest		(1,408	)		(1,284	)		(2,034	)		(1,705	)
Net (loss) income attributable to SPAR Group, Inc.	$	(103	)	$	1,523		$	193		$	2,139
Basic and diluted income per common share:	$	(0.00	)	$	0.07		$	0.01		$	0.10
Weighted average common shares – basic		21,108			20,816			21,107			20,796
Weighted average common shares – diluted		21,125			21,104			21,157			21,080
Net income	$	1,305		$	2,807		$	2,227		$	3,844
Other comprehensive (loss) income:
Foreign currency translation adjustments		(79	)		59			(3,979	)		167
Comprehensive (loss) income		1,226			2,866			(1,752	)		4,011
Comprehensive (income) loss attributable to non-controlling interest		(1,365	)		(1,358	)		455			(1,808	)
Comprehensive (loss) income attributable to SPAR Group, Inc.	$	(139	)	$	1,508		$	(1,297	)	$	2,203

See accompanying notes.

3

SPAR Group, Inc. and Subsidiaries

Condensed Consolidated Statement of Equity

(unaudited) 

(In thousands)

	Common Stock				Treasury Stock					Additional		Accumulated Other						Non-
	Shares		Amount		Shares		Amount			Paid-In Capital		Comprehensive Loss			Retained Earnings			Controlling Interest			Total Equity
Balance at January 1, 2020	21,102		$	211	2		$	(2	)	$	16,511	$	(3,616	)	$	5,851		$	12,406		$	31,361
Exercise of stock options	6			–	–			–			–		–			–			–			–
Share-based compensation		–		–		–		–		25			–			–			–		25
Other comprehensive (loss)		–		–		–		–			–	(1,456		)	–			(2,444		)	(3,900		)
Net income		–		–		–		–			–		–		296			626			922
Balance at March 31, 2020	21,108		$	211	2		$	(2	)	$	16,536	$	(5,072	)	$	6,147		$	10,588		$	28,408
Share-based compensation	–			–	–			–			70		–			–			–			70
Other comprehensive (loss)	–			–	–			–			–		(34	)		–			(45	)		(79	)
Net income (loss)	–			–	–			–			–		–			(103	)		1,408			1,305
Balance at June 30, 2020	21,108		$	211	2		$	(2	)	$	16,606	$	(5,106	)	$	6,044		$	11,951		$	29,704

4

SPAR Group, Inc. and Subsidiaries

Condensed Consolidated Statement of Equity

(unaudited continued) 

(In thousands)

	Common Stock				Treasury Stock						Additional		Accumulated Other						Non-
	Shares		Amount		Shares			Amount			Paid-In Capital		Comprehensive Loss			Retained Earnings			Controlling Interest		Total Equity
Balance at January 1, 2019		20,785	$	208		8		$	(8	)	$	16,304	$	(3,638	)	$	3,432		$	8,476	$	24,774
Share-based compensation		–		–		–			–			49		–			–			–		49
Other comprehensive income (loss)		–		–		–			–			–		98			(18	)		28		108
Net income		–		–		–			–			–		–			616			421		1,037
Balance at March 31, 2019		20,785	$	208		8		$	(8	)	$	16,353	$	(3,540	)	$	4,030		$	8,925	$	25,968
Share-based compensation		–		–		–			–			51		–			–			–		51
Exercise of stock options		65		1		(6	)		(7	)		6		–			–			–		–
Other comprehensive income (loss)		–		–		–			–			–		(16	)		–			75		59
Net income		–		–		–			–			–		–			1,523			1,284		2,807
Balance at June 30, 2019		20,850	$	209		2		$	(15	)	$	16,410	$	(3,556	)	$	5,553		$	10,284	$	28,885

See accompanying notes.

5

SPAR Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

	Six Months Ended June 30,
	2020			2019
Operating activities
Net income	$	2,227		$	3,844
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization		1,079			1,038
Non-cash lease expense		1,562			1,071
Bad debt expense, net of recoveries		64			(229	)
Share-based compensation		95			100
Changes in operating assets and liabilities:
Accounts receivable		6,404			(11,109	)
Prepaid expenses and other assets		619			(1,112	)
Accounts payable		(2,334	)		1,654
Operating lease liabilities		(1,562	)		(1,071	)
Accrued expenses, other current liabilities and customer incentives and deposits		618			4,632
Net cash provided by (used in) operating activities		8,772			(1,182	)
Investing activities
Purchases of property and equipment and capitalized software		(786	)		(935	)
Net cash used in investing activities		(786	)		(935	)
Financing activities
Net (payments)/borrowings on lines of credit		(792	)		12,338
Payoff of bank line of credit		-			(9,598	)
Payments on term debt		-			(74	)
Payments on capital lease obligations		-			(56	)
Net cash (used in) provided by financing activities		(792	)		2,610
Effect of foreign exchange rate changes on cash		(3,976	)		222
Net change in cash and cash equivalents		3,218			715
Cash and cash equivalents at beginning of year		10,458			7,111
Cash and cash equivalents at end of period	$	13,676		$	7,826
Supplemental disclosure of cash flows information:
Interest paid	$	413		$	375
Income taxes paid	$	36		$	541

See accompanying notes.

6

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

1. Basis of Presentation

The unaudited, interim condensed consolidated financial statements of the Company, accompanying this Quarterly Report on Form 10-Q/A for the second quarter ended June 30, 2020 (this "Quarterly Report"), have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The consolidated balance sheet as of December 31, 2019, has been prepared from the Company's audited consolidated balance sheet as of such date. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation have been included in these interim financial statements. However, these interim financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the Company as contained in the SGRP's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (the "SEC") on April 14, 2020 (the "Annual Report").  Particular attention should be given to Items 1 and 1A of the Annual Report respecting the Company's Business and Risk Factors, respectively. The Company's results of operations for the interim period are not necessarily indicative of its operating results for the entire year. Except for the change noted below, the Company has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements.

2. Business and Organization

The Company is a supplier of merchandising and other marketing services throughout the United States and internationally. The Company provides merchandising and other marketing services to manufacturers, distributors and retailers worldwide, primarily in mass merchandiser, office supply, grocery, drug, dollar, independent, convenience, home improvement and electronics stores, as well as providing furniture and other product assembly services, audit services, in-store events, technology services and marketing research.

Merchandising services primarily consist of regularly scheduled, special project and other product services provided at the store level, and the Company may be engaged by either the retailer or the manufacturer. Those services may include restocking and adding new products, removing spoiled or outdated products, resetting categories in accordance with client or store schematics, confirming and replacing shelf tags, setting new sale or promotional product displays and advertising, replenishing kiosks, providing in-store event staffing and providing assembly services in stores, homes and offices. Other merchandising services include whole store or departmental product sets or resets, including new store openings, new product launches and in-store demonstrations, audit services, special seasonal or promotional merchandising, focused product support and product recalls. The Company also provides technology services and marketing research services.

As of June 30, 2020, the Company operates in 10 countries and divides its operations into two reportable segments: its Domestic Division, which has provided services in the United States of America since certain of its predecessors were formed in 1979, and its International Division, which began operations in May 2001 and provides similar merchandising, marketing, audit and in-store event staffing services in Australia, Brazil, Canada, China, India, Japan, Mexico, South Africa and Turkey.

Novel Coronavirus (COVID-19) Outbreak

In March 2020, the World Health Organization declared the novel strain of Coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce.

In the USA, many of our clients have been affected by business closure and stay at home orders, which has hampered our ability to perform in-store services since March 2020. As of the date of this filing, many of our Company subsidiaries globally have been impacted by temporary retail closures or reduced in-store hours, although most of our customer’s locations remain open to provide essential products. New store openings and remodels with the Company's assistance are particularly susceptible to such external factors and are being delayed by many of the Company's clients due to the effects of the Novel Coronavirus. The Company has initiated mitigation efforts and is monitoring the situation on a country-by-country basis.  The Company has also implemented several cost savings measures which include a reduction in the use of contracted workers, furloughing employees, reducing hours and a reduction in other corporate and non-critical expenses.

Due in part to the uncertainty stemming from the COVID-19 pandemic as described above the Company experienced a decrease in market capitalization near the end of the first quarter that has continued into the subsequent period. As a result of this condition, the Company reviewed for any triggering event and the need to perform quantitative interim impairment testing over the Company’s goodwill assets as of June 30, 2020. The Company concluded that a triggering event did not occur based on qualitative factors assessed as part of the annual impairment test previously performed, such as actual results to date in comparison to previous forecasts and assumptions based on current projections, including projected revenue, projected operational profit, terminal growth rates, and the cost of capital, and accordingly did not record any asset impairment charges on its goodwill. In performing its assessment, the Company believes it has made reasonable accounting estimates based on the facts and circumstances that were available as of the reporting date considering the developing situation resulting from the COVID-19 pandemic. If actual results are not consistent with the assumptions and judgments used, there may be exposure to future impairment losses that could be material to the Company’s results of operations.

Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company cannot reasonably estimate the length or severity of this pandemic, however we currently anticipate a material adverse impact on our consolidated financial position, results of operations, and cash flows in fiscal 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law.  The CARES Act is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. We are analyzing the various aspects of the CARES Act to determine the impact specific provisions may have on us.

7

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

3. Earnings Per Share

The following table sets forth the computations of basic and diluted net income per share (in thousands, except per share data):

	Three Months End					Six Months Ended
	June 30,					June 30,
	2020			2019		2020		2019
Numerator:
Net income attributable to SPAR Group, Inc.	$	(103	)	$	1,523	$	193	$	2,139
Denominator:
Shares used in basic net income per share calculation		21,108			20,816		21,107		20,796
Effect of diluted securities:
Stock options and unvested restricted shares		17			288		50		284
Shares used in diluted net income per share calculations		21,125			21,104		21,157		21,080
Basic net income per common share:	$	(0.00	)	$	0.07	$	0.01	$	0.10
Diluted net income per common share:	$	(0.00	)	$	0.07	$	0.01	$	0.10

4. Credit Facilities and Other Debt

Domestic Credit Facilities

PNC Credit Facility

In January 2018, the Company repaid and replaced its credit facility with Sterling Bank with a secured revolving credit facility in the United States and Canada (as amended the "PNC Credit Facility") with PNC Bank, National Association.

An amendment to the PNC Credit Facility dated as of July 3, 2018, among other things, increased the maximum principal amount of the Revolving Loans to $9.5 million.

On April 10, 2019, the Company repaid and replaced its credit facility with PNC Bank, National Association with a new secured revolving credit facility in the United States and Canada (the "NM Credit Facility") with North Mill Capital, LLC ("NM").

8

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

North Mill Capital Credit Facility

On April 10, 2019, the Company repaid and replaced its 2018 credit facility with PNC Bank, National Association ("PNC"), with the NM Credit Facility with NM.

In order to obtain, document and govern the NM Credit Facility: SGRP and certain of its direct and indirect subsidiaries in the United States and Canada, namely SPAR Marketing Force ("SMF"), Inc., and SPAR Canada Company ("SCC") (each, an "NM Borrower" and collectively, the "NM Borrowers"), and SPAR Canada, Inc., SPAR Acquisition, Inc., SPAR Assembly and Installation, Inc., and SPAR Trademarks, Inc. (together with SGRP, each a "NM Guarantor" and collectively, the "NM Guarantors"), entered into eighteen (18) month individual Loan and Security Agreements with NM dated as of April 10, 2019 (the "NM Loan Agreements"), which governs the obligations of the NM Loan Parties to NM and secures them with pledges of substantially all of the assets of the NM Loan Parties (other than SGRP's foreign subsidiaries, certain designated domestic subsidiaries, and their respective equity and assets); the SMF Borrower issued its $12.5 million Revolving Credit Master Promissory Note to NM dated April 10, 2019, and the SCC Borrower issued its $2.5 million Revolving Credit Master Promissory Note to NM dated April 10, 2019 (the "NM Notes"), which evidences the NM Borrowers' loans and other obligations to NM; the NM Guarantors entered into a Guaranty Agreement with NM dated as of April 10, 2019 (the "NM Guaranty"), which guaranties the NM Borrowers' loans and other obligations to NM. The NM Credit Facility, was subsequently extended until October 2021.

On April 10, 2019, the Company drew down an initial advance under the NM Credit Facility of approximately $9.8 million, which was used to repay the Company's existing credit facility with PNC.

The NM Note currently requires the NM Borrowers to pay interest on the loans thereunder equal to (A) Prime Rate designated by Wells Fargo Bank, plus (B) one hundred twenty five basis points (1.25%) or a minimum of 6.75%. In addition, the Company is paying a fee to NM of $180,000 payable at $10,000 per month over the term of the agreement.  The Company utilized a broker to assist in this financing and has paid a fee of $120,000 for their services. On June 30, 2020, the aggregate interest rate under that formula was 6.75% per annum, and the outstanding loan balance was $6.6 million. Outstanding amounts are classified as short-term debt.

Revolving loans are available to the Borrowers under the NM Credit Facility based upon the borrowing base formula defined in the NM Loan Agreement (principally 85% of "eligible" accounts receivable less certain reserves and 60% of eligible unbilled accounts receivable at a maximum limit of $4.5 million).

The NM Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the NM Loan Parties, including, maintaining a positive trailing EBITDA for each Borrower and limits on capital expenditures and other investments. The Company was in compliance of such covenants as of June 30, 2020.

Fifth Third Credit Facility

One of the Company's consolidated subsidiaries, Resource Plus of North Florida ("Resource Plus"), is a party to a revolving line of credit facility (the "Fifth Third Credit Facility") from Fifth Third Bank for $3.5 million, which was scheduled to become due on April 23, 2020. Effective April 16, 2020, the term of the Fifth Third Credit Facility was extended and is currently scheduled to become due on June 16, 2022. 

Revolving loans of up to $3.5 million are available to Resource Plus under the Fifth Third Credit Facility based upon the borrowing base formula defined in the agreement (principally 80% of "eligible" accounts receivable less certain reserves). As of June 30, 2020, there was a balance of $700,000. The Fifth Third Credit Facility is secured by substantially all assets of Resource Plus.

The Fifth Third Credit Facility currently requires Resource Plus to pay interest on the loans thereunder equal to (A) the Daily LIBOR Rate (as defined in the agreement) per annum, plus (B) two hundred fifty basis points (2.50%). On June 30, 2020, the aggregate interest rate under that formula was 3.60% per annum.

Other Debt

Effective with the closing of the Resource Plus acquisition, the Company entered into promissory notes with the sellers totaling $2.3 million. The notes are payable in annual installments at various amounts due on December 31st of each year starting with December 31, 2018 and continuing through December 31, 2023. As such these notes are classified as both short term and long term for the appropriate amounts. The total balance owed at June 30, 2020 was approximately $1.6 million.

9

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

International Credit Facilities: 

SPARFACTS Australia Pty. Ltd. has a secured line of credit facility with National Australia Bank, effective October 31, 2017, for $800,000 (Australian) or approximately $550,000 USD (based upon the exchange rate at June 30, 2020). The facility provides for borrowing based upon a formula, as defined in the agreement (principally 80% of eligible accounts receivable less certain deductions). The outstanding balance with National Australia Bank as of June 30, 2020 was $21,000 (Australian) or $15,000 USD and is due on demand.

On October 5, 2018, SPAR Brazil secured a line of credit facility with Banco Santander for approximately 381,000 Brazilian Real or approximately $70,000 USD (based upon the exchange rate at June 30, 2020). The outstanding balance as of June 30, 2020 was approximately 13,000 Brazilian Real or approximately $2,000 USD. This note is due September 30, 2020.

SPAR Todopromo has secured a line of credit facility with Steel Factoring for 5.0 million Mexican Pesos or approximately $217,000 USD (based upon the exchange rate at June 30, 2020). The revolving line of credit was secured on December 13, 2019, and expires December 2020. The fixed interest rate for the Steel Factoring facility is 18%, as of June 30, 2020. The outstanding balance as of June 30, 2020 was $5,000,000 million Pesos or approximately $217,000 USD (based upon the exchange rate at June 30, 2020).

Effective February 4, 2020, SPAR Todopromo established a line of credit facility with Ve Por Mas for 5.2 million Mexican Pesos or approximately $226,000 USD (based upon the exchange rate at June 30, 2020).  The line expires on February 4, 2021.  The variable interest rate is TIIE plus 3.0% resulting in a rate of 9.1% as of June 30, 2020.  The outstanding balance was 4.7 million Mexican Pesos or approximately $205,000 USD (based upon the exchange rate at June 30, 2020).

SPAR Todopromo has secured a line of credit facility with BBVA Bancomer for 5.0 million Mexican Pesos or approximately $217,000 USD (based upon the exchange rate at June 30, 2020). The revolving line of credit expired April 2020 but has been extended to May 2021.  The variable interest rate is TIIE (Interbank Interest Rate) plus 5.2% resulting in a rate of 10.9% as of June 30, 2020. There was no outstanding balance as of June 30, 2020. 

	Interest Rate
	as of
	June 30, 2020			2020		2021		2022		2023		2024		2025
Australia - National Australia Bank		6.56	%		15		-		-		-		-		-
Brazil - Santander		16.52	%		2		-		-		-		-		-
Mexico - Steel Factoring		18.00	%		217		-		-		-		-		-
Mexico - Ve Por Mas		9.10	%		205		-		-		-		-		-
Mexico - Bancomer Bank		10.90	%		-		-		-		-		-		-
USA – North Mill Capital		6.75	%		6,631		-		-		-		-		-
USA - Fifth Third Bank		3.60	%		700		-		-		-		-		-
USA – Resource Plus Seller Notes		1.85	%		333		300		300		700		-		-
Total				$	8,103	$	300	$	300	$	700	$	-	$	–

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

	June 30,		December 31,
	2020		2019
Unused Availability:
United States / Canada	$	8,169	$	3,694
Australia		536		423
Mexico		237		-
Brazil		68		49
Total Unused Availability	$	9,010	$	4,166

Management believes that based upon the continuation of the Company's existing credit facilities, projected results of operations, vendor payment requirements and other financing available to the Company (including amounts due to affiliates), sources of cash availability should be manageable and sufficient to support ongoing operations over the next year. However, delays in collection of receivables due from any of the Company's major clients, or a significant reduction in business from such clients could have a material adverse effect on the Company's cash resources and its ongoing ability to fund operations.

10

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

5. Related-Party Transactions

SGRP's policy respecting approval of transactions with related persons, promoters and control persons is contained in the SPAR Group Code of Ethical Conduct for its Directors, Executives, Officers, Employees, Consultants and other Representatives Amended and Restated (as of) March 15, 2018 (the "Ethics Code"). The Ethics Code is intended to promote and reward honest, ethical, respectful and professional conduct by each director, executive, officer, employee, consultant and other representative of any of SGRP and its subsidiaries (together with SGRP, the "Company") and each other Covered Person (as defined in the Ethics Code) in his or her position with the Company anywhere in the world, including (among other things) serving each customer, dealing with each vendor and treating each other with integrity and respect, and behaving honestly, ethically and professionally with each customer, each vendor, each other and the Company. Article II of the Ethics Code specifically prohibits various forms of self-dealing (including dealing with relatives) and collusion and Article V of the Ethics Code generally prohibits each "Covered Person" (including SGRP's officers and directors) from using or disclosing the Confidential Information of the Company or any of its customers or vendors, seeking or accepting anything of value from any competitor, customer, vendor, or other person relating to doing business with the Company, or engaging in any business activity that conflicts with his or her duties to the Company, and directs each "Covered Person" to avoid any activity or interest that is inconsistent with the best interests of the SPAR Group, in each case except for any "Approved Activity" (as such terms are defined in the Ethics Code). Examples of violations include (among other things) having any ownership interest in, acting as a director or officer of or otherwise personally benefiting from business with any competitor, customer or vendor of the Company other than pursuant to any Approved Activity. Approved Activities include (among other things) any contract with an affiliated person (each an "Approved Affiliate Contract") or anything else disclosed to and approved by SGRP's Board of Directors (the "Board"), its Governance Committee or its Audit Committee, as the case may be, as well as the ownership, board, executive and other positions held in and services and other contributions to affiliates of SGRP and its subsidiaries by certain directors, officers or employees of SGRP, any of its subsidiaries or any of their respective family members. The Company's senior management is generally responsible for monitoring compliance with the Ethics Code and establishing and maintaining compliance systems, including those related to the oversight and approval of conflicting relationships and transactions, subject to the review and oversight of SGRP's Governance Committee as provided in clause IV.11 of the Governance Committee's Charter, and SGRP's Audit Committee as provided in clause I.2(l) of the Audit Committee's Charter. The Governance Committee and Audit Committee each consist solely of independent outside directors (see Domestic Related Party Services, International Related Party Services, SBS Bankruptcy, Settlement and March 2020 Claim, Summary of Certain Related Party Transactions, Infotech Litigation and Settlement, Affinity Insurance, and Other Related Party Transactions and Arrangements, below).

SGRP's Audit Committee has the specific duty and responsibility to review and approve the overall fairness and terms of all material related-party transactions. The Audit Committee receives affiliate contracts and amendments thereto for its review and approval (to the extent approval is given), and these contracts are periodically (often annually) again reviewed, in accordance with the Audit Committee Charter, the Ethics Code, the rules of the Nasdaq Stock Market LLC ("Nasdaq"), and other applicable law to ensure that the overall economic and other terms will be (or continue to be) no less favorable to the Company than would be the case in an arms-length contract with an unrelated provider of similar services (i.e., its overall fairness to the Company, including pricing, payments to related parties, and the ability to provide services at comparable performance levels). The Audit Committee periodically reviews all related party relationships and transactions described below.

Domestic Related Party Services: 

SPAR Business 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 SBS LLC which in turn is beneficially owned by Robert G. Brown. 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 principally by Robert G. Brown.  Mr. Robert G. Brown and Mr. Bartels (the "Majority Stockholders") (see below), are members of a 13D control group and founders of SGRP, Mr. Robert G. Brown was Chairman and an officer and director of SGRP through May 3, 2018 (when he retired), and became a director again on April 24, 2020, pursuant to the written consents of the Brown Group and Mr. Bartels. Mr. Bartels was and continues to be Vice Chairman and a director of SGRP, but retired as an employee of SGRP as of January 1, 2020 (see Bartels' Retirement and Director Compensation, below).  Mr. Robert G. Brown and Mr. Bartels also have been and are stockholders, directors and executive officers of various other affiliates of SGRP. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies – Legal Matters, and SBS Bankruptcy, Settlement and March 2020 Claim and Infotech Litigation and Settlement, below.

11

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

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 are employed by other independent third parties.

Due to (among other things) the adverse determination in 2016 in the Clothier case (as defined below) that SBS had misclassified its employees as independent contractors and the ongoing proceedings against SBS (which could have had a material adverse effect on SBS's ability to provide future services needed by the Company), SBS' continued higher charges and expense reimbursement disputes, and the Company's identification of an experienced independent third party company (the "Independent Field Vendor") 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 Field Vendor to replace those field services previously provided by SBS (other than in California).  The Company similarly terminated SAS and has engaged another independent third party company to replace those administrative services formerly provided by SAS, effective August 1, 2018 (the "Independent Field Administrator").

On May 7, 2018, the Company gave a termination notice to SAS specifying July 31, 2018, as the end of the Service Term under (and as defined in) SAS Agreement signed in 2016.  The Company has reached a non-exclusive agreement with an independent third party vendor to provide substantially all of the domestic Independent Field Administrators used by the Company.    

Although SAS has not provided or been authorized to perform any services to the Company after their terminations described above effective on or before July 31, 2018. While SAS has apparently continued to operate for its own benefit and/or the winding down of its operations, the Company has determined that it is not obligated to reimburse any post-termination expense.  However, in the spirit of settlement, the Company had offered to reimburse SAS $237,500 for claimed transition expenses to be offset by $226,000 owed by SAS to the Company, for a net payment to SAS of $11,500. SAS has not accepted the Company's offer. 

The Company expects that SBS and SAS may use every available means to attempt to collect reimbursement from the Company for the foreseeable future for all of their post-termination expense, including repeated litigation. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies -- Legal Matters and SBS Bankruptcy, Settlement and March 2020 Claim, below.

Any claim by Robert G. Brown, William H. Bartels, SBS, SAS, any other related party or any third party that the Company is somehow liable for any judgment or similar amount imposed against SBS or SAS or any other related party, any judicial determination that the Company is somehow liable for any judgment or similar amount imposed against SBS or SAS or any other related party, or any increase in the Company's use of employees (rather than the services of independent contractors provided by third parties) to perform Field Specialist services domestically, in each case in whole or in part, could have a material adverse effect on the Company or its performance or condition (including its 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), whether actual or as planned, intended, anticipated, estimated or otherwise expected. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies -- Legal Matters, below.

Current material and potentially material legal proceedings impacting the Company are described in Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies - Legal Matters, 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.  Furthermore, even though SBS was solely responsible for its operations, methods and legal compliance, in connection with any proceedings against SBS, SBS continues to claim that the Company is 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.

Infotech sued the Company in New York seeking reimbursement for approximately $190,000 respecting alleged lost tax benefits and other expenses it claims to have incurred in connection with SGRP's acquisition of its Brazilian subsidiary and previously denied on multiple occasions by both management and SGRP's Audit Committee, whose approval was required because Infotech is a related party. Infotech also threatened to sue the Company in Romania for approximately $900,000 for programming services allegedly owed to the 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. The Company and Infotech settled this matter. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies - Legal Matters, below.

12

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Peter W. Brown was appointed as a Director on the Board as of May 3, 2018, replacing Mr. Robert G. Brown upon his retirement from the Board and Company at that date.  He has recently been deemed independent by the Board except for with respect to related party matters and for matters concerning SPAR Brasil Servicos de Merchandising e Tecnologia S.A., a Brazilian corporation and SGRP subsidiary ("SPAR BSMT").  Peter Brown is an affiliate and related party respecting SGRP and was proposed by Mr. Robert G. Brown to represent the Brown family interests.  He worked for and is a stockholder of SAS (see above) and certain of its affiliates, he is the nephew of Mr. Robert G. Brown, he is a director of SPAR BSMT and owns Earth Investments LLC, ("EILLC"), which owns 10% interest in the SGRP's Brazilian subsidiary. Mr. Robert G. Brown is a significant stockholder of SGRP, and member of a 13D control group, SGRP's former Chairman and director and became a director again on April 24, 2020, pursuant to the written consents of the Brown Group and Mr. Bartels.

National Merchandising Services, LLC ("NMS"), is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect ownership of 51% of the NMS membership interests and by National Merchandising of America, Inc. ("NMA"), through its ownership of the other 49% of the NMS membership interests. Mr. Edward Burdekin is the Chief Executive Officer and President and a director of NMS and also is an executive officer and director of NMA. Ms. Andrea Burdekin, Mr. Burdekin's wife, is the sole stockholder and a director of NMA and a director of NMS. NMA is an affiliate of the Company but is not under the control of or consolidated with the Company. Mr. Burdekin also owns 100% of National Store Retail Services ("NSRS"). Since September 2018, NSRS provided substantially all of the domestic merchandising specialist field force used by NMS. For those services, NMS agrees to reimburse NSRS the total costs for providing those services and to pay NSRS a premium equal to 1.0% of its total cost.

Also, NMS leases office and operational space that is owned personally by Mr. Burdekin. The lease expense is $2,000 a month. While there is no formal signed agreement, there is no expected change to the arrangement.

On August 10, 2019, NMS, to protect continuity of its Field Specialist nationwide, petitioned for bankruptcy protection under chapter 11 of the United States Bankruptcy Code in the U.S. District for Nevada (the "NMS Chapter 11 Case"), and as a result, the claims of NMS' creditors must now generally be pursued in the NMS Chapter 11 Case.  On August 11, 2019, NSRS and Mr. Burdekin also filed for reorganization in the NMS Chapter 11 Case, NMS is part of the consolidated Company.  Currently the Company believes that the NMS Chapter 11 Case is not likely to have a material adverse effect on the Company, and the Company's ownership of and involvement in NMS is not likely to change as a result of the NMS Chapter 11 Case or any resulting NMS reorganization.

Resource Plus of North Florida, Inc. "Resource Plus" or "RPI" is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect ownership of 51% of the RPI membership interests and by Mr. Richard Justus through his ownership of the other 49% of the RPI membership interests. Mr. Justus has a 50% ownership interest in RJ Holdings which owns the buildings where RPI is headquartered and operates. Both buildings are subleased to RPI.

SBS Bankruptcy, Settlement and March 2020 Claim

On November 23, 2018, SBS petitioned for bankruptcy protection under chapter 11 of the United States Bankruptcy Code in the U.S. District for Nevada (the "SBS Chapter 11 Case").  On March 18, 2019, the Company filed claims in the SBS Chapter 11 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 its settlement (see below) of the Clothier class action case in California ("Clothier") and legal costs and an unspecified amount for indemnification of SGRP for the Hogan action (see below) and other to be discovered indemnified claims.

On August 6, 2019, SGRP, and its subsidiaries SPAR Marketing Force, Inc. ("SMF"), a Nevada corporation, and SPAR Assembly & Installation, Inc., f/k/a SPAR National Assembly Services, Inc., a Nevada corporation, submitted to the U.S. District Court in Nevada (the "Bankruptcy Court") their Compromise and Settlement Agreement, dated July 26, 2019 (the "Settlement Agreement"), with SBS, a Nevada corporation formerly known as SPAR Marketing Services, Inc., debtor and debtor-in-possession, and SBS, LLC, a Nevada limited liability company.  The Settlement Agreement was submitted in the SBS Chapter 11 Case.  Pursuant to the Settlement Agreement, the Company settled its claims for (among other things) indemnification from SBS in Clothier and the Rodgers class action case in Texas ("Rodgers").

13

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

On August 6, 2019, the Bankruptcy Court approved the Settlement Agreement and the SBS reorganization pursuant to SBS' First Amended Chapter 11 Plan of Reorganization, as amended by the Settlement Agreement (the "Plan of Reorganization").  Pursuant to its Plan of Reorganization, SBS also settled its potential liability in the Clothier and Rodgers cases, but the Company believes that Robert G. Brown and William H. Bartels were not released from Clothier, any related case or Rodgers.  See Note 8 to the Company's Consolidated Financial Statements in the Commitments and Contingencies -- Legal Proceedings -- SBS Bankruptcy, Settlement and March 2020 Claim, SBS Clothier Litigations, and SBS Rodgers Litigation, below.  In the Settlement Agreement, except for the carve out described in the next paragraph, SBS completely released the Company from all obligations that may be owed to SBS.

On August 6, 2019, with the support of (among others) the Clothier and Rodgers plaintiffs and the Company, the Court approved the SBS Settlement Agreement and the SBS Reorganization pursuant to the SBS Plan (as defined in the SBS Settlement Release). The SBS Settlement Agreement provides for a mutual release of claims (including the SBS Claims and the SGRP Claims, as defined therein), except for the following:

(i)       the Company’s $2.2 million in claims were settled for $174,097 payable by SBS over 24 monthly installments of $7,254 per month starting January 1, 2020, and without any interest (collectively, the "Discounted Claim Payments"), as such terms are defined in the SBS Settlement Agreement and the Company accrued $174,097 for the Discounted Claim Payments; and

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

In the SBS Settlement Agreement, the parties agreed to have a third party financial and accounting services firm, independently determine the Proven Unpaid A/R based on parameters set forth in the SBS Settlement Agreement.  In the SBS Settlement Agreement, the parties will accept the determination of the third party financial and accounting services firm as final and binding, and all other claims and amounts are released. The third party financial and accounting services firm has determined that the Company had paid all amounts due to SBS and that the Proven Unpaid A/R equals zero.

The Company has recorded the total settlement amount of $174,097 as of December 31, 2019.  This settlement amount is payable in 24 equal monthly payments of $7,254 starting January 1, 2020.  To date SBS is in default of the first six payments totaling $43,524 and formal default notices have been sent to SBS. SBS has responded and claimed an offset respecting its undocumented and unproven claims.  As of June 30, 2020, the total settlement has been reserved.

On March 6, 2020, Robert G. Brown on behalf of SBS sent an email communication to Arthur B. Drogue, to which he copied Arthur H. Baer, demanding payment of $1,707,374 to SBS from SMF pursuant to (among other things) the SBS Settlement Agreement (the "March 2020 Claim").  The Company has reviewed the March 2020 Claim in detail (although Brown has provided no backup or proof) and the Company strongly disagrees that any such amount is owed.  The Company believes that the robust and comprehensive mutual releases and other provisions in the SBS Settlement Agreement provide valuable relief from such claims and potential future claims and litigation by SBS respecting the Company's past involvement with SBS, including the March 2020 Claim.  However, Robert G. Brown, president, director and indirect owner of SBS, since and notwithstanding the Court's approval of the SBS Settlement Agreement, has continued to make unproven and undocumented claims that amounts that were fully released pursuant to the SBS Settlement Agreement and approved by the bankruptcy court are nevertheless due to SBS from the Company, and the Company strongly disagrees.  The Company is prepared to take action in Nevada Bankruptcy Court by reopening the SBS bankruptcy case and petitioning official settlement of this matter.  Since all such claims have been completely released by SBS (with Mr. Robert G. Brown's approval), the Company owes nothing and has not accrued anything respecting Mr. Robert G. Brown's renewed claims.  Mr. Robert G. Brown is significant stockholder of SGRP, and member of a 13D control group, SGRP's former Chairman and director of SGRP, and became a director again on April 24, 2020, pursuant to the written consents of the Brown Group and Mr. Bartels.

At SGRP's March 2020 Board meeting, Mr. Bartels was requested by an independent director to compile a list of unproven and undocumented claims that he and Mr. Brown believe are owed by the Company. On March 17, 2020, that list was given to the Audit Committee Chairman and included additional claims, net of an anticipated reduction, totaling approximately $1.3 million, bringing their total claims to approximately $3 million.  The Company has completely rejected these claims, and believes it was released from all such claims by SBS in the SBS bankruptcy reorganization.

14

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

The March 2020 Claim includes estimates for the individual legal defenses of Robert G. Brown and William H. Bartels in the private attorney general action in California ("PAGA") and Texas ("Rodgers") in cases that do not involve and never included the Company and for which the Company believes it has no liability.  The March 2020 Claim also includes defense expenses for SBS Clothier case, which expenses SBS settled for a highly discounted amount in its bankruptcy reorganization but now wants the Company to pay in full. SBS in its bankruptcy reorganization but SBS now wants the Company to pay in full. SBS in its bankruptcy reorganization settled its potential liability in the Rodgers and Clothier cases and SBS has, and since July 2019 had, no more defense expenses in those cases.  Subsidiaries of SGRP were at one time in the Clothier case but were dismissed without prejudice leaving SGRP subject to potential liability. Accordingly, SGRP settled the Clothier case separately.  SGRP was never named in the Rodgers case. However, the alleged continued willful misclassification by SBS of its independent contractors after the Clothier misclassification determination is a claimed basis for the PAGA lawsuit against Brown and Bartels. See Note 8 to the Company's Consolidated Financial Statements in the Commitments and Contingencies -- Legal Proceedings -- SBS Field Specialist Litigation, SBS Clothier Litigation, and SGRP Hogan Litigation. Mr. Bartels' list also includes payments of $500,000 per year to Robert G. Brown for extended retirement and advisory fees, although the Company has never proposed, committed or agreed to them and on several occasions specifically rejected Mr. Brown's proposals in various forms for them.

Infotech Litigation and Settlement

On 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 Mr. Robert G. Brown (one of the Majority Stockholders) as plaintiff commencing a case against SGRP (the "Infotech Action"). The Infotech Action sought 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 on multiple occasions by both management and SGRP's Audit Committee (whose approval was required because Infotech is a related party).

In 2016, SGRP acquired SPAR Brasil Serviços de Merchandising e Tecnologia S.A. ("SPAR BSMT"), its Brazilian subsidiary, with the assistance of Mr. Robert G. Brown (while he was still Chairman and an officer and director of SGRP) and his nephew, Peter W. Brown, who became an indirect 10% owner of SPAR BSMT, and later became a director of SGRP on May 3, 2018. Mr. Robert G. Brown used his private company, Infotech and undisclosed foreign companies to structure the acquisition for SGRP.

Mr. Robert G. Brown incurred his alleged expenses associated with the transaction through Infotech, including salary allocations for unauthorized personnel and claims for his "lost tax breaks".  Mr. Robert G. Brown submitted his unauthorized, unproven and undocumented "expenses" to SGRP, and SGRP's Audit Committee allowed approximately $50,000 of them (which was paid) and disallowed approximately $150,000 of them.  His claim increased to over $190,000 in the Infotech Action.  The Company vigorously denied owing any of those amounts.

In 2018, Infotech also threatened to sue the Company in Romania for approximately $900,000 for programming services allegedly owed to the Company's former Romanian subsidiary (sold at book value to Infotech in 2013) and not provided to Infotech (the "Romanian Claim"). Infotech gave a draft complaint to the Company in 2018. The Company also vigorously denied owing any of those obligations or amounts.

In order to avoid the expenses of protracted litigation, SGRP's Management and the Audit Committee agreed that it would be in the best interest of all stockholders to reach a reasonable settlement of both the Infotech Action and the Romanian Claim for installment payments in reasonable amounts and mutual releases of all other related claims.  Management had offered $225,000 to settle both, but at the urging of the Board and assurances of several Board members that it would help them persuade Mr. Robert G. Brown to settle, management agreed to increase the settlement offer to a total of $275,000.  After extensive negotiation between the Company and Infotech, Mr. Robert G. Brown accepted the $275,000 offer and the parties entered into the Confidential Settlement Agreement and Mutual Release on October 8, 2019 (the "Infotech Settlement Agreement"), which was approved and ordered by the Court on October 30, 2019, and the Infotech Action was discontinued (dismissed) with prejudice.

15

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

The Infotech Settlement Agreement required the Company to make payments totaling $275,000 in four installments: (i) $75,000 following Court approval (which Payment has already been made); (ii) $75,000 within 30 days following discontinuance of the Infotech Action (which was discontinued on October 30, 2019); (iii) $75,000 within 60 days following discontinuance of the Infotech Action; and (iv) $50,000 within 90 days following discontinuance of the Infotech Action.  The Infotech Settlement was paid in accordance with the agreement and is therefore paid in full effective January 2020.

The Company believes that the robust and comprehensive mutual releases in the Infotech Settlement Agreement provide valuable relief from potential future claims and litigation by Infotech respecting the Company's past involvement with Infotech in the Brazilian and Romanian transactions.

International Related Party Services:

SGRP Meridian (Pty), Ltd. ("Meridian") is a consolidated international subsidiary of the Company and is owned 51% by SGRP, 23% by Friedshelf 401 Proprietary Limited and 26% by Lindicom Empowerment Holdings Proprietary Limited. Mr. Garry Bristow, who is an executive at SGRP Meridian and a Director of CMR Meridian, is one of the beneficial owners of both Merhold Cape Property Trust ("MCPT") and Merhold Holding Trust ("MHT"). Mr. Adrian Wingfield, who is a Director of CMR Meridian, is one of the beneficial owners of MHT. MHT owns the building where Meridian is headquartered and also owns 32 vehicles which are leased to Meridian. MCPT provides a fleet of 173 vehicles to Meridian under a 4 year lease program.

SPAR Todopromo is a consolidated international subsidiary of the Company and is owned 51% by SGRP and 49% by the following individuals: Mr. Juan F. Medina Domenzain, Juan Medina Staines, Julia Cesar Hernandez Vanegas, and Jorge Medina Staines. Mr. Juan F. Medina Domenzain is an officer and director of SPAR Todopromo and is also majority shareholder (90%) of CONAPAD ("CON") which has supplied administrative and operational consulting support to SPAR Todopromo since 2016.

Mr. Juan F. Medina Domenzain ("JFMD"), partner in SPAR Todopromo, leased a warehouse to SPAR Todopromo. The lease expires on December 31, 2020.

SPAR Brasil Serviços de Merchandising e Tecnologia S.A., a Brazilian corporation ("SPAR BSMT" is owned 51% by the Company, 39% by JK Consultoria Empresarial Ltda.-ME, a Brazilian limitada ("JKC"), and 10% by Earth Investments, LLC, a Nevada limited liability company ("EILLC"). 

JKC is owned by Mr. Jonathan Dagues Martins, a Brazilian citizen and resident ("JDM") and his sister, Ms. Karla Dagues Martins, a Brazilian citizen and resident. JDM is the Chief Executive Officer and President of each SPAR Brazil company pursuant to a Management Agreement between JDM and SPAR BSMT dated September 13, 2016. JDM also is a director of SPAR BSMT. Accordingly, JKC and JDM are each a related party respecting the Company. EILLC is owned by Mr. Peter W. Brown, a citizen and resident of the USA ("PWB") and a director of SPAR BSMT and SGRP and nephew of Robert G. Brown. Mr. Robert G. Brown is significant stockholder of SGRP, and member of a 13D control group, SGRP's former Chairman and director of SGRP, and became a director again on April 24, 2020, pursuant to the written consents of the Brown Group and Mr. Bartels. Accordingly, PWB and EILLC are each a related party respecting the Company.

SPAR BSMT has contracted with Ms. Karla Dagues Martins, a Brazilian citizen and resident and JDM's sister and a part owner of SPAR BSMT, to handle the labor litigation cases for SPAR BSMT and its subsidiaries.  These legal services are being provided to them by Ms. Martins' company, Karla Martins Sociedade de Advogados ("KMSA"). Accordingly, Mr. Jonathan Dagues Martins and Ms. Karla Dagues Martins are each an affiliate and a related party respecting the Company.

16

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Summary of Certain Related Party Transactions:

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Services provided by affiliates:
National Store Retail Services (NSRS)		1,050		260		2,392		385
Office lease expenses (Mr. Burdekin)		6		-		12		-
Office lease expenses (RJ Holdings)		177		97		350		199
Office and vehicle lease expenses (MPT)		11		16		27		32
Vehicle rental expenses (MCPT)		281		297		580		587
Office and vehicle rental expenses (MHT)		58		68		131		132
Consulting and administrative services (CON)		11		37		23		74
Legal Services (KMSA)		34		21		57		43
Warehousing rental (JFMD)		12		12		25		24
Consulting and administrative fees (SPARFACTS)		41		-		72		-
Total services provided by affiliates	$	1,681	$	808	$	3,669	$	1,476

Due to affiliates consists of the following (in thousands):	June 30,		December 31,
	2020		2019
Loans from local investors:(1)
Australia	$	696	$	467
Mexico		623		623
Brazil		140		139
China		1,387		2,271
South Africa		403		635
Resource Plus		531		531
Total due to affiliates	$	3,780	$	4,666

(1) Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans have no payment terms and are due on demand and as such have been classified as current liabilities in the Company's consolidated financial statements.

Affinity Insurance:

SMF, a wholly-owned subsidiary of SGRP that provides merchandising and marketing service to its clients throughout the United States through (among other things) services provided by others, is owed $675,000 for security deposit advances and $226,000 for quarterly premium advances made by SMF (as described below) to SAS.  Prior to the termination of the services provided by SAS and SBS (effective at the end of July 2018), SMF engaged SAS as an independent contractor to provide the services of Field Administrators to domestically schedule, deploy and administer the independent Field Specialists provided by SBS as an independent contractor under a similar engagement. 

Affinity Insurance Company, Ltd. ("Affinity") is a captive insurance company that provides insurance and reinsurance products to its shareholders and their affiliates in exchange for payment of premium installments, posting of security collateral and other requirements, and subject to adjustments and assessments.  SAS is, and has been, a shareholder and member of Affinity and has been since approximately 2000.  SMF became a direct shareholder and member of Affinity in March 2018 in order to directly procure insurance for the domestic employees of the Company.

The business services SAS provided to, or on behalf of, SMF included insurance coverages for SMF and other SGRP employees domestically prior to March 2018, for SAS' Field Administrators and other employees through the termination by SMF of SAS' services effective on or about July 31, 2018, and for the Field Specialists provided by SBS to SMF through the termination by SMF of SBS’ services effective on or about July 31, 2018, all in connection with services provided by SMF to its clients.  In connection with the business services provided by SAS, and based on informal arrangements between the parties, the Affinity insurance premiums for such coverage were ultimately charged (through SAS) for their fair share of the costs of that insurance to SMF, SAS (which then charges the Company) and SBS. The Company also advanced money to SAS to prepay Affinity insurance premiums.

SAS has received and may shortly be receiving returns of those security deposit advances and quarterly premium advances from Affinity totaling approximately $921,000.  SMF has demanded repayment of its advances to SAS from these recent refunds received from Affinity, but SAS has refused and appears to have distributed the moneys to other SAS related parties. SAS has recently stated it has no funds available to remit to SMF even though they have repeatedly acknowledged SAS owes these advances to SMF and in fact, it has been documented that these liabilities were properly reported in SAS' financial statements.

On July 8, 2020 the Company issued a demand notice to SAS for the return of $901,000 (the $675,000 security advances and the $226,000 premium advances) but to-date SAS has refused to comply with this demand. 

The Company has prepared the draft of a complaint to be filed in the Supreme Court of the State of New York in Westchester County, NY, seeking appropriate relief and recovery from SAS and other related parties, which it prepared with the support of SGRP's Audit Committee (which has certain oversight responsibilities respecting related party matters).  However, because of the pending changes in the SGRP' CEO and CFO positions, the Audit Committee recommended that management delay filing the complaint until it can be reviewed and pursued by SGRP's new CEO and CFO (upon their selection and appointment) if and as they determine appropriate.

17

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Bartels' Retirement and Director Compensation

William H. Bartels retired as an employee of the Company as of January 1, 2020. However, he will continue to serve as Vice Chairman and a member of SGRP's Board of Directors (the "Board"), positions he has held since July 8, 1999.

Effective as of January 18, 2020, SGRP's Governance Committee proposed and unanimously approved the following benefits for the five year period commencing January 1, 2020, and ending December 31, 2024 (the "Five Year Period"), for Mr. Bartels in connection with his retirement: (a) retirement payments of $100,000 per year ("Retirement Compensation"); (b) the then applicable regular non-employee director fees ("Regular Fees"), currently $55,000 per year, and a supplemental Board fee of $50,000 per year ("Supplemental Fees"); and (c) the same medical, dental, eye and life insurance benefits he received as of December 31, 2019, under an arrangement whereby Mr. Bartels shared part of the cost of Medicare and supplemental health benefits, currently valued at approximately $15,588 per year ("Medical Benefits"); in each case paid in accordance with SGRP's payroll schedule and policies, and payable whether or not Mr. Bartels remains a director of SGRP for any reason.

The Retirement Compensation, Regular Fees and Supplemental Fees that remain unpaid during the Five Year Period: (i) shall be accelerated and paid to Mr. Bartels (or his heirs or assigns) in full upon the sale to a third party of a majority of the SGRP Shares or all or substantially all of SGRP's assets; and (ii) shall survive and be payable in full to his heirs and assigns in the event of the death of Mr. Bartels.

Based on current rates and benefits, the aggregate value of such compensation, fees and benefits payable to Mr. Bartels will be approximately $220,558 per year and a total of $1,102,790 for the Five Year Period. Such compensation, fees and benefits (in whole or in part) may be extended beyond the Five Year Period in the discretion of the Board. The Company recognized $700,000 of retirement benefit expense during the six-month period ended June 30, 2020, representing the present value of the future payments due Mr. Bartels. 

In the event of  any future business transaction involving Mr. Bartels and SGRP for which Bartels may receive additional compensation as mutually agreed at the time of or in connection with such transaction, which under applicable law also will require approval of SGRP's Audit Committee as a related party payment or transaction (as Mr. Bartels will still be a related party if he is then a director or significant stockholder), such retirement compensation, fees or benefits will not offset, replace or limit any such additional approved transactional compensation payable to Mr. Bartels.

Mr. Bartels is one of the founders and a significant stockholder of SGRP (holding approximately 25.1% of the SGRP Shares).  He also is part of a control group holding a majority of the SGRP Shares with Robert G. Brown (together with Mr. Bartels), which group most recently acted to (1) unilaterally select, appoint and elect Panagiotis ("Panos") N. Lazaretos to serve on the board of directors of SGRP, effective on December 10, 2019, and unilaterally select, appoint and elect Robert G. Brown to serve on the board of directors of SGRP, effective as of April 24, 2020.

Other Related Party Transactions and Arrangements:

In July 1999, SMF, SBS and SIT entered into a perpetual software ownership agreement providing that each party independently owned an undivided share of and has the right to unilaterally license and exploit certain portions of the Company's proprietary scheduling, tracking, coordination, reporting and expense software (the "Co-Owned Software") are co-owned with SBS and Infotech and each entered into a non-exclusive royalty-free license from the Company to use certain "SPAR" trademarks in the United States (the "Licensed Marks"). As a result of the SBS Chapter 11 Case, SBS' rights in the Co-Owned Software and Licensed Marks are assets of SBS' estate, subject to sale or transfer in any court approved reorganization or liquidation. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies -- Legal Matters, Related Party Litigation and SBS Bankruptcy, below.

18

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Through arrangements with the Company, SBS (owned by Mr. Bartels and Mr. Brown), SAS (owned by Mr. Bartels and family members of Mr. Robert G. Brown), and other companies owned by Mr. Brown participate in various benefit plans, insurance policies and similar group purchases by the Company, for which the Company charges them their allocable shares of the costs of those group items and the actual costs of all items paid specifically for them. All such transactions between the Company and the above affiliates are paid and/or collected by the Company in the normal course of business.

6. Preferred Stock

SGRP's certificate of incorporation authorizes it to issue 3,000,000 shares of preferred stock with a par value of $0.01 per share (the "SGRP Preferred Stock"), which may have such preferences and priorities over the SGRP Common Stock and other rights, powers and privileges as the Company's Board of Directors may establish in its discretion from time to time. The Company has created and authorized the issuance of a maximum of 3,000,000 shares of Series A Preferred Stock pursuant to SGRP's Certificate of Designation of Series "A" Preferred Stock (the "SGRP Series A Preferred Stock"), which have dividend and liquidation preferences, have a cumulative dividend of 10% per year, are redeemable at the Company's option and are convertible at the holder's option (and without further consideration) on a one-to-one basis into SGRP Common Stock. The Company issued 554,402 of SGRP shares to affiliated retirement plans, which were all converted into common shares in 2011 (including dividends earned thereon), leaving 2,445,598 shares of remaining authorized preferred stock. At June 30, 2020, no shares of SGRP Series A Preferred Stock were issued and outstanding.

7. Stock-Based Compensation and Other Plans

As of June 30, 2020, there were Awards representing 585,000 shares of SGRP's Common Stock that had been granted under the 2018 Plan (565,000 of which remain outstanding), and Awards representing 3,044,927 shares of SGRP's Common Stock outstanding under the 2008 Plan.  After May 31, 2019, the 2018 Plan ended and no further grants can be made under the 2018 Plan respecting such shares of SGRP's Common Stock. There is no new plan in place for stock compensation.

The Company recognized $70,000 and $66,000 in stock-based compensation expense relating to stock option awards during the three month periods ended  June 30, 2020 and 2019, respectively.  The tax benefit available from stock based compensation expense related to stock option during both the three months ended June 30, 2020 and 2019 was approximately $11,000 and $17,000 respectively. The Company recognized $95,000 and $96,000 in stock-based compensation expense relating to stock option awards during the six month periods ended June 30, 2020 and 2019, respectively.  The tax benefit available from stock based compensation expense related to stock option during both the six months ended June 30, 2020 and 2019 was approximately $17,000 and $24,000 respectively. As of June 30, 2020, total unrecognized stock-based compensation expense related to stock options was $202,000.   

During the three months ended June 30, 2020 and 2019, the Company recognized approximately $0 and $3,000, respectively of stock based compensation expense related to restricted stock.  The tax benefit available to the Company from stock based compensation expense related to restricted stock during the three months ended June 30, 2020 and 2019 was approximately $0 and $1,000, respectively. During the six months ended June 30, 2020 and 2019, the Company recognized approximately $0 and $5,000, respectively of stock based compensation expense related to restricted stock.  The tax benefit available to the Company from stock based compensation expense related to restricted stock during the three months ended June 30, 2020 and 2019 was approximately $0 and $1,000, respectively. As of June 30, 2020, there was no unrecognized stock-based compensation expense related to unvested restricted stock awards.

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.

19

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

RELATED PARTIES AND RELATED PARTY LITIGATION:

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 an entity controlled by Robert G. Brown and prior to November 2018 was owned by Robert G. Brown and William H. Bartels. SAS is an affiliate because it is owned by William H. Bartels, Peter W. Brown and certain other 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. Messrs. Brown and Bartels (including, as applicable, certain related parties, the "Majority Stockholders") collectively own approximately 53.2% of SGRP's common stock and are the founders of SGRP.  Mr. Robert G. Brown is significant stockholder of SGRP, and member of a 13D control group, SGRP's former Chairman and director of SGRP, and became a director again on April 24, 2020, pursuant to the written consents of the Brown Group and Mr. Bartels.  Mr. Bartels is Vice Chairman and a director of SGRP.  Mr. Bartels retired as an employee of the Company as of January 1, 2020 (in accordance with the actions of SGRP's Compensation Committee on January 22, 2020). See Bartels' Retirement and Director Compensation, above. Messrs. Brown and Bartels also are stockholders, directors and/or executive officers of various affiliates of SGRP.

SGRP claims against SAS re Affinity

The Company has prepared the draft of a complaint to be filed in the Supreme Court of the State of New York in Westchester County, NY, seeking appropriate relief and recovery from SAS and other related parties, which it prepared with the support of SGRP's Audit Committee (which has certain oversight responsibilities respecting related party matters).  However, because of the pending changes in the SGRP CEO and CFO positions, the Audit Committee recommended that management delay filing the complaint until it can be reviewed and pursued by SGRP's new CEO and CFO (upon their selection and appointment) if and as they determine appropriate.  See Affinity Insurance in Related Part Transactions in Note 5, above. 

Delaware Litigation Settlement

On September 4, 2018, SGRP filed in the Court of Chancery of the State of Delaware (the "Chancery Court") a claim, 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.

On September 18, 2018, Robert G. Brown (one of the Majority Stockholders) commenced an action in the Chancery Court pursuant to 8 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.

On January 18, 2019, SGRP, Messrs. Brown and Bartels, Christiaan Olivier (Chief Executive Officer, President and a Director of SGRP), and all four of the members of the Governance Committee at that time, namely Lorrence T. Kellar (Chairman), Jack W. Partridge, Arthur B. Drogue and R. Eric McCarthey (together with Mr. Olivier, the "225 Defendants"), reached a settlement (the "Delaware Settlement") in the By-Laws Action and the 225 Action (together, the "Delaware Actions") and had the Delaware Actions then dismissed.

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 (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, 2019.  The Governance Committee and the Board intended that those changes in the 2019 Restated By-Laws will help the Corporation maintain the independent Board desired by them. 

Additionally, as part of the Delaware Settlement, the parties to the Delaware Actions executed a Limited Mutual Release Agreement limited to the Delaware Actions and subject to specific exclusions (the "Delaware Releases"), and the parties to the Delaware 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 Chancery Court on January 18, 2019.

20

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

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 certain related parties, including (without limitation) post termination claims by and against SBS (which has been resolved in a voluntary bankruptcy proceeding in Nevada by SBS -- see SBS Bankruptcy, Settlement, and March 2020 Claim, below) and SAS and the lawsuit by Infotech against the Company (which has been resolved in a settlement – see  Infotech Litigation and Settlement, below), and the claims by Messrs. Brown and Bartels for advancement and indemnification of legal fees and expenses in connection with the Delaware Actions and certain related party claims (see Advancement Claims, below).

Advancement Claims

From October 2018 through January 2019, the Majority Stockholders, in a series of correspondence, demanded from SGRP advancement and indemnification of their respective shares of legal fees and expenses incurred by them in connection with the By-Laws Action and the 225 Action and other related party litigation matters.

On 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 Action 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 Action because (among other things) Mr. Bartels was sued predominately as a stockholder in the By-Laws Action and not as a director and the By-Laws Action alleged numerous instances of improper conduct by Mr. Bartels that could preclude indemnification under the Corporation's By-Laws. However, the Audit Committee made no determination regarding improper conduct or the issue of advancement.

On 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.

In December 2018 SGRP reached an 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 paid approximately $106,000 in April 2019.  If Mr. Bartels is ultimately determined to not be entitled to indemnification, he could still be obligated to return all amounts advanced to him by SGRP.

On 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 Action 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.

21

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

On January 27, 2019, Mr. Robert G. 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. On March 21, 2020, Mr. Robert G. Brown repeated the Brown Advancement Demand and sent a slightly revised draft complaint that would purportedly change the contemplated litigation jurisdiction from Delaware to Massachusetts.  No explanation was given for this alleged change in jurisdiction.  On August 1, 2020, Robert G. Brown sent a slightly revised complaint to William H. Bartels (who forwarded it to Arthur H. Baer, Chairman of the Board and Audit Committee) changing the contemplated litigation jurisdiction from Massachusetts back to Delaware.  Although it was signed and notarized and said by Robert G. Brown in his email to be in the process of being filed, no such complaint has been filed by Mr. Brown through August 11, 2020, and SGRP continues to deny the Brown Advancement Demand.  In addition, SGRP believes that the Delaware Court has exclusive jurisdiction pursuant to SGRP's 2019 Restated By-Laws and the Settlement. Mr. Robert G. Brown is significant stockholder of SGRP, and member of a 13D control group, SGRP's former Chairman and director of SGRP, and became a director again on April 24, 2020, pursuant to the written consents of the Brown Group and Mr. Bartels.

SBS Bankruptcy, Settlement and March 2020 Claim

On November 23, 2018, SBS petitioned for bankruptcy protection under chapter 11 of the United States Bankruptcy Code in the U.S. District for Nevada (the "SBS Chapter 11 Case").  On March 18, 2019, the Company filed claims in the SBS Chapter 11 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 its settlement (see below) of the Clothier class action case in California ("Clothier") and legal costs and an unspecified amount for indemnification of SGRP for the Hogan action (see below) and other to be discovered indemnified claims.

On August 6, 2019, SGRP, and its subsidiaries SPAR Marketing Force, Inc. ("SMF"), a Nevada corporation, and SPAR Assembly & Installation, Inc., f/k/a SPAR National Assembly Services, Inc., a Nevada corporation, submitted to the U.S. District Court in Nevada (the "Bankruptcy Court") their Compromise and Settlement Agreement, dated July 26, 2019 (the "Settlement Agreement"), with SBS, a Nevada corporation formerly known as SPAR Marketing Services, Inc., debtor and debtor-in-possession, and SBS, LLC, a Nevada limited liability company.  The Settlement Agreement was submitted in the SBS Chapter 11 Case.  Pursuant to the Settlement Agreement, the Company settled its claims for (among other things) indemnification from SBS in Clothier and the Rodgers class action case in Texas ("Rodgers").

On August 6, 2019, the Bankruptcy Court approved the Settlement Agreement and the SBS reorganization pursuant to SBS' First Amended Chapter 11 Plan of Reorganization, as amended by the Settlement Agreement (the "Plan of Reorganization").  Pursuant to its Plan of Reorganization, SBS also settled its potential liability in the Clothier and Rodgers cases, but the Company believes that Robert G. Brown and William H. Bartels were not released from Clothier, any related case or Rodgers. See SBS Rodgers Litigation, below. In the Settlement Agreement, except for the carve out described in the next paragraph, SBS completely released the Company from all obligations that may be owed to SBS.

On August 6, 2019, with the support of (among others) the Clothier and Rodgers plaintiffs and the Company, the Court approved the SBS Settlement Agreement and the SBS Reorganization pursuant to the SBS Plan (as defined in the SBS Settlement Release). The SBS Settlement Agreement provides for a mutual release of claims (including the SBS Claims and the SGRP Claims, as defined therein), except for the following:

(i)       the Company’s $2.2 million in claims were settled for $174,097.34 payable by SBS over 24 monthly installments of $7,254.06 per month starting January 1, 2020, and without any interest (collectively, the "Discounted Claim Payments"), as such terms are defined in the SBS Settlement Agreement; and

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

In the SBS Settlement Agreement, the parties agreed to have a third party financial and accounting services firm, independently determine the Proven Unpaid A/R based on parameters set forth in the SBS Settlement Agreement.  In the SBS Settlement Agreement, the parties will accept the determination of the third party financial and accounting services firm as final and binding, and all other claims and amounts are released. The third party financial and accounting services firm, has determined that the Company had paid all amounts due to SBS and has no further obligation.

22

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

The Company has recorded the total settlement amount of $174,097 as of December 31, 2019.  This settlement amount is payable in 24 equal monthly payments of $7,254 starting January 1, 2020.  To date SBS is in default of the first six payments totaling $43,524 and formal default notices have been sent to SBS.  SBS has responded and claimed an offset respecting its undocumented and unproven claims.  As of June 30, 2020, the total settlement has been reserved.

On March 6, 2020, Robert G. Brown on behalf of SBS sent an email communication to Arthur B. Drogue, to which he copied Arthur H. Baer, demanding payment of $1,707,374 to SBS from SMF SGRP pursuant to (among other things) the SBS Settlement Agreement (the "March 2020 Claim").  The Company has reviewed the March 2020 Claim in detail (although Brown has provided no backup or proof) and the Company strongly disagrees that any such amount is owed.  The Company believes that the robust and comprehensive mutual releases and other provisions in the SBS Settlement Agreement provide valuable relief from such claims and potential future claims and litigation by SBS respecting the Company's past involvement with SBS, including the March 2020 Claim.  However, Robert G. Brown, president, director and indirect owner of SBS, since and notwithstanding the Court's approval of the SBS Settlement Agreement, has continued to make unproven and undocumented claims that amounts that were fully released pursuant to the SBS Settlement Agreement and approved by the bankruptcy court are nevertheless due to SBS from the Company, and the Company strongly disagrees.  The Company is prepared to take action in Nevada Bankruptcy Court by reopening the SBS bankruptcy case and petitioning official settlement of this matter.  Since all such claims have been completely released by SBS (with Mr. Robert G. Brown's approval), the Company owes nothing and has not accrued anything respecting Mr. Robert G. Brown's renewed claims.  Mr. Robert G. Brown is significant stockholder of SGRP, and member of a 13D control group, SGRP's former Chairman and director of SGRP, and became a director again on April 24, 2020, pursuant to the written consents of the Brown Group and Mr. Bartels.

At SGRP's March 2020 Board meeting, Mr. Bartels was requested by an independent director to compile a list of claims that he and Mr. Brown believe are owed by the Company. On March 17, 2020, that list was given to the Audit Committee Chairman and included additional claims, net of an anticipated reduction, totaling approximately $1.3 million, bringing their total claims to approximately $3 million.  The Company has completely rejected these claims, and believes it was released from all such claims by SBS in the SBS bankruptcy reorganization.

The March 2020 Claim includes estimates for the individual legal defenses of Robert G. Brown and William H. Bartels in the private attorney general action in California ("PAGA") and Texas ("Rodgers") in cases that do not involve and never included the Company and for which the Company believes it has no liability.  The March 2020 Claim also includes defense expenses for SBS Clothier case, which expenses SBS settled for a highly discounted amount in its bankruptcy reorganization but now wants the Company to pay in full. SBS in its bankruptcy reorganization settled its potential liability in the Rodgers and Clothier cases has, and since July 2018 had, no more defense expenses in those cases.  SGRP settled Clothier separately and was never in the Rodgers case. However, the alleged continued willful misclassification by SBS of its independent contractors after the Clothier misclassification determination is the basis for the PAGA lawsuit against Brown and Bartels. See Legal Proceedings -- SBS Field Specialist Litigation, SBS Clothier Litigation, and SGRP Hogan Litigation in this note. Mr. Bartels' list also includes payments of $500,000 per year to Robert G. Brown for extended retirement and advisory fees, although the Company has never proposed, committed or agreed to them and on several occasions specifically rejected Mr. Brown's proposals in various forms for them.

Infotech Litigation and Settlement

On 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) as plaintiff commencing a case against SGRP (the "Infotech Action"). The Infotech Action sought 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 on multiple occasions by both management and SGRP's Audit Committee (whose approval was required because Infotech is a related party).

In 2016, SGRP acquired SPAR Brasil Serviços de Merchandising e Tecnologia S.A. ("SPAR BSMT"), its Brazilian subsidiary, with the assistance of Robert G. Brown (while he was still Chairman and an officer and director of SGRP) and his nephew, Peter W. Brown, who became an indirect 10% owner of SPAR BSMT, and later became a director of SGRP on May 3, 2018. Robert G. Brown used his private company, Infotech and undisclosed foreign companies to structure the acquisition for SGRP.

23

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Robert G. Brown incurred his alleged expenses associated with the transaction through Infotech, including salary allocations for unauthorized personnel and claims for his "lost tax breaks".  Robert G. Brown submitted his unauthorized and unsubstantiated "expenses" to SGRP, and SGRP's Audit Committee allowed approximately $50,000 of them (which was paid by the Company) and disallowed approximately $150,000 of them.  His claim increased to over $190,000 in the Infotech Action.  The Company vigorously denied owing any of those amounts.

In 2018, Infotech also threatened to sue the Company in Romania for approximately $900,000 for programming services allegedly owed to the Company's former Romanian subsidiary (sold at book value to Infotech in 2013) and not provided to Infotech (the "Romanian Claim"). Infotech gave a draft complaint to the Company in 2018. The Company also vigorously denied owing any of those obligations or amounts.

In order to avoid the expenses of protracted litigation, SGRP's Management and the Audit Committee agreed that it would be in the best interest of all stockholders to reach a reasonable settlement of both the Infotech Action and the Romanian Claim for installment payments in reasonable amounts and mutual releases of all other related claims.  Management had offed $225,000 to settle both, but at the urging of the Board and assurances of several Board members that it would help them persuade Robert G. Brown to settle, management agreed to increase the settlement offer to a total of $275,000.  After extensive negotiation between the Company and Infotech, Robert G. Brown accepted the $275,000 offer and the parties entered into the Confidential Settlement Agreement and Mutual Release on October 8, 2019 (the "Infotech Settlement Agreement"), which was approved and ordered by the Court on October 30, 2019, and the Infotech Action was discontinued (dismissed) with prejudice.

The Infotech Settlement Agreement requires the Company to make payments totaling $275,000 in four installments: (i) $75,000 following Court approval (which Payment has already been made); (ii) $75,000 within 30 days following discontinuance of the Infotech Action (which was discontinued on October 30, 2019); (iii) $75,000 within 60 days following discontinuance of the Infotech Action; and (iv) $50,000 within 90 days following discontinuance of the Infotech Action.  The Company has paid all the installments including the final payment to Infotech in January 2020.

The Company believes that the robust and comprehensive mutual releases in the Infotech Settlement Agreement provide valuable relief from potential future claims and litigation by Infotech respecting the Company's past involvement with Infotech in the Brazilian and Romanian transactions.

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") furnished by others and 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 did not manage, direct or control SBS, and SGRP did not participate in or control the defense by SBS of any litigation against it. The Company terminated its relationship with SBS and received no services from SBS after July 27, 2018.  For affiliation, termination, contractual details and payment amounts, see Related Party Transactions, above.

The appropriateness of SBS' treatment of Field Specialists as independent contractors had been periodically subject to legal challenge (both currently and historically) by various states and others. SBS' expenses of defending those challenges and other proceedings generally were, through but not after the termination of the SBS services, reimbursed by the Company after and to the extent the Company determined (on a case by case basis) that those defense expenses were costs of providing services to the Company.

The Company settled its potential liability (as a current or former party) under two class action lawsuits against SBS, namely Clothier and Hogan.  SBS was separately dismissed from the Hogan class action prior to the Company's settlement.  SBS settled with Clothier and Rodgers in the SBS Bankruptcy, but Robert G. Brown and William H. Bartels were not released from Clothier, any related case or Rodgers (see above).  The Company has never been a party to the Rodgers case.

24

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Any claim made and proven by Robert G. Brown, William H. Bartels, SBS, SAS, any other related party or any third party that the Company is somehow liable (through indemnification or otherwise) for any judgment or similar amount imposed against Mr. Brown, Mr. Bartels, SBS or SAS or any other related party, in each case in whole or in part, could have a material adverse effect on the Company or its performance or condition (including its 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), whether actual or as planned, intended, anticipated, estimated or otherwise expected.

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 (instead of as employees) 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 Misclassification Determination").  The plaintiffs and SBS then moved into phase two to determine damages (if any), which has included discovery as to the measure of damages in this case.

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, subject to the final court approval (the "Clothier Settlement").  Final approval was granted on September 20, 2019, and the Company was released by plaintiff and the settlement class from all other liability under the Clothier Case. The Company recorded a $1.3 million charge for the Clothier Settlement during 2018, when the agreement in the Clothier Settlement was reached.  Pursuant to the Clothier Settlement SGRP will pay a maximum settlement amount of $1.3 million, payable in four equal annual installments that commenced with the first payment of $325,000 in December 2019.  The $975,000 balance was accrued as of June 30, 2020.

Since SGRP has no 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. SBS did not participate in the Clothier Settlement and was not released. Rather than proceed to the damage portion of the trial respecting trial the Clothier Misclassification Determination, SBS filed for bankruptcy protection.

25

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

SBS and 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 by SBS as independent contractors (instead of as employees), 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, SGRP 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.

On March 12, 2018, the Court denied the Motion to Compel Arbitration as to SGRP because as drafted by SBS, the arbitration clause did not reference or protect SGRP according to the Court.  However, the Court eventually granted SBS the right to arbitrate without SGRP. SGRP appealed to the First Circuit contesting the District Court's decision that the arbitration clause (as written by SBS) did not protect SGRP.

On 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 no 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 (the "Hogan Settlement"), which was approved by the court and became final in November 2019, and the Company was released by plaintiff and the settlement class from all other liability under the Hogan Case.  Pursuant to the Hogan Settlement, SGRP agreed to a maximum settlement amount of $250,000 (in three installments), which payments commenced in December 2019 with the first payment of $150,000, $50,000 paid in March 2020 and the remaining $50,000 paid in June 2020.

SBS Rodgers Litigation

Maceo Rodgers was engaged by and provided services to SBS pursuant to the terms of his "Master Agreements" with SBS acknowledging his engagement as an independent contractor.  On February 21, 2014, Rodgers filed suit against SBS, Robert G. Brown and William H. Bartels, styled Civil Action No. 3:14-CV-00055, in the U.S. District Court for the Southern District of Texas (Galveston Division).  Plaintiff asserted claims on behalf of himself and an alleged class of similarly situated individuals who provided services to SBS as independent contractors at any time on or after July 15, 2012, claiming they all were misclassified by SBS independent contractors and that, as a result of this misclassification, the Defendants improperly underpaid them in violation of the Fair Labor Standards Act's overtime and minimum wage provisions.  Although the Court conditionally certified the class on December 8, 2015, 61 individuals joined the action as opt-in plaintiffs, and all but 11 of them have potentially disqualifying arbitration provisions, residences outside the class's geographic area, or late opt-in filings, and were challenged by the Defendants in various motions, including a motion to decertify the class.  The Court, however, did not rule on these motions and instead stayed the case on September 19, 2017 to allow the parties to mediate.  On October 24, 2017, the Court granted the parties' joint motion to extend the stay order until January 31, 2018.

Rodgers settled for a claim of approximately $618,000 against SBS (but not any claims against Brown or Bartels), in the SBS bankruptcy case, and in full settlement of that claim they agreed upon a discounted payment amount of approximately $48,000, payable in equal quarterly installments over a five (5) year period.  See SBS Bankruptcy, Settlement and March 2020 Claim, above.

26

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

9. Segment Information

The Company reports net revenues from operating income by reportable segment. Reportable segments are components of the Company for which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company provides similar merchandising, business technology and marketing services throughout the world, operating within two reportable segments, its Domestic Division and its International Division. The Company uses those divisions to improve its administration and operational and strategic focuses, and it tracks and reports certain financial information separately for each of those divisions. The Company measures the performance of its Domestic and International Divisions and subsidiaries using the same metrics. The primary measurement utilized by management is operating profits, historically the key indicator of long-term growth and profitability, as the Company is focused on reinvesting the operating profits of each of its international subsidiaries back into its local markets in an effort to improve market share and continued expansion efforts.

The accounting policies of each of the reportable segments are the same as those described in the Summary of Significant Accounting Policies. Management evaluates performance as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Revenue:
United States	$	22,123		$	28,006		$	45,412		$	46,662
International		28,821			40,217			66,880			78,721
Total revenue	$	50,944		$	68,223		$	112,292		$	125,383
Operating income:
United States	$	315		$	2,608		$	623		$	3,360
International		1,648			1,622			2,817			2,601
Total operating income	$	1,963		$	4,230		$	3,440		$	5,961
Interest expense (income):
United States	$	144		$	185		$	276		$	246
International		(60	)		2			36			142
Total interest expense	$	84		$	187		$	312		$	388
Other (income), net:
United States	$	(1	)	$	(1	)	$	(1	)	$	(1	)
International		(49	)		(191	)		(57	)		(256	)
Total other (income), net	$	(50	)	$	(192	)	$	(58	)	$	(257	)
Income before income tax expense:
United States	$	172		$	2,424		$	348		$	3,115
International		1,757			1,811			2,838			2,715
Total income before income tax expense	$	1,929		$	4,235		$	3,186		$	5,830
Income tax expense:
United States	$	124		$	501		$	199		$	702
International		500			927			760			1,284
Total income tax expense	$	624		$	1,428		$	959		$	1,986

27

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Net income:
United States	$	48		$	1,923		$	149		$	2,413
International		1,257			884			2,078			1,431
Total net income	$	1,305		$	2,807		$	2,227		$	3,844
Net (income) attributable to non-controlling interest:
United States	$	(519	)	$	(679	)	$	(583	)	$	(775	)
International		(889	)		(605	)		(1,451	)		(930	)
Total net (income) attributable to non-controlling interest	$	(1,408	)	$	(1,284	)	$	(2,034	)	$	(1,705	)
Net income (loss) attributable to SPAR Group, Inc.:
United States	$	(471	)	$	1,244		$	(434	)	$	1,638
International		368			279			627			501
Total net income (loss) attributable to SPAR Group, Inc.	$	(103	)	$	1,523		$	193		$	2,139
Depreciation and amortization:
United States	$	419		$	382		$	832		$	754
International		120			146			247			284
Total depreciation and amortization	$	539		$	528		$	1,079		$	1,038
Capital expenditures:
United States	$	288		$	344		$	669		$	722
International		156			127			117			213
Total capital expenditures	$	444		$	471		$	786		$	935

Note:  There were no inter-company sales for the six months ended June 30, 2020 or 2019.

	June 30,		December 31,
	2020		2019
Assets:
United States	$	30,697	$	24,927
International		43,213		54,608
Total assets	$	73,910	$	79,535

	June 30,		December 31,
	2020		2019
Long lived assets:
United States	$	4,182	$	4,957
International		3,358		3,954
Total long lived assets	$	7,540	$	8,911

28

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Geographic Data (in thousands)

	Three Months Ended June 30,										Six Months Ended June 30,
	2020					2019					2020					2019
			% of					% of					% of					% of
			consolidated					consolidated					consolidated					consolidated
International revenue:			net revenue					net revenue					net revenue					net revenue
Brazil	$	10,539		20.7	%	$	16,612		24.3	%	$	26,103		23.2	%	$	32,145		25.6	%
South Africa		6,088		12.0			6,442		9.4			13,002		11.6			12,976		10.3
Mexico		4,820		9.5			5,664		8.3			10,667		9.5			10,951		8.7
China		2,756		5.4			3,180		4.7			5,320		4.7			6,459		5.2
India		1,915		3.8			2,065		3.0			4,207		3.7			4,271		3.4
Japan		1,649		3.2			2,865		4.2			4,431		3.9			5,595		4.5
Canada		1,004		2.0			2,459		3.6			2,720		2.4			4,563		3.6
Australia		50		0.1			863		1.3			430		0.4			1,627		1.3
Turkey		-		-			67		0.1			-		-			134		0.1
Total international revenue	$	28,821		56.7	%	$	40,217		58.9	%	$	66,880		59.4	%	$	78,721		62.7	%

10. Recent Accounting Pronouncements

The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board (“FASB”).

In December 2019, the FASB issued ASU 2019-12 simplifying various aspects related to the accounting for income taxes. The guidance removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13 which eliminates, adds and modifies certain fair value measurement disclosures. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual periods, with early adoption permitted. The adoption of this standard did not have a material impact to the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 simplifying the accounting for goodwill impairment for all entities. The new guidance eliminates the requirement to calculate the implied fair value of goodwill (Step 2 of the current two-step goodwill impairment test under ASC 350). Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (Step 1 of the current two-step goodwill impairment test). The ASU is effective prospectively for reporting periods beginning after December 15, 2019. The adoption of this standard did not have a material impact on the goodwill impairment testing process or the consolidated financial statements.

29

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments (Topic 326) Credit Losses”. Topic 326 changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Topic 326 is effective as of January 1, 2020, although in November 2019, the FASB delayed the effective date until fiscal years beginning after December 15, 2022 for Security Exchange Commission ("SEC") filers eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities. The Company qualifies as a smaller reporting company under the SEC’s definition. Early adoption is permitted. The Company is currently evaluating the impact of Topic 326 on its consolidated balance sheets, statements of operations, statements of cash flows and related disclosures.

In February 2016, the FASB issued ASU 2016-02 amending the existing accounting standards for lease accounting and requiring lessees to recognize lease assets and lease liabilities for all leases with lease terms of more than 12 months, including those classified as operating leases. Both the asset and liability are initially measured at the present value of the future minimum lease payments, with the asset being subject to adjustments such as initial direct costs. Consistent with current U.S. GAAP, the presentation of expenses and cash flows depends primarily on the classification of the lease as either a finance or an operating lease. The new standard also requires additional quantitative and qualitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases in order to provide additional information about the nature of an organization’s leasing activities. An additional optional transition method to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption is allowed. The Company adopted this guidance with the optional transition method effective January 1, 2019.

11. Leases

The Company is a lessee under certain operating leases for office space and equipment. 

ASC 842 requires lessees to recognize leases on the balance sheet as a lease liability with a corresponding right of use ("ROU") asset, subject to certain permitted accounting policy elections.

Under ASC 842, SPAR determines, at the inception of the contract, whether the contract is or contains a lease based on whether the contract provides SPAR the right to control the use of a physically distinct asset or substantially all of the capacity of an asset.

Many of SPAR's equipment leases are short-term or cancellable with notice. SPAR’s office space leases have remaining lease terms between one and approximately eleven years, many of which include one or more options to extend the term for periods thereafter. Certain leases contain options to terminate the lease early, which may include a penalty for exercising the option. Many of the termination options require notice within a specified period, after which the option is no longer available to SPAR if not exercised. The extension options and termination options may be exercised at SPAR’s sole discretion. SPAR does not consider in the measurement of ROU assets and lease liabilities an option to extend or terminate a lease if SPAR is not reasonably certain to exercise the option. As of the end of this reporting period, SPAR has not included any options to extend or terminate in its measurement of ROU assets or lease liabilities.

Certain of SPAR’s leases include covenants that oblige SPAR, at its sole expense, to repair and maintain the leased asset periodically during the lease term. SPAR is not a party to any leases that contain residual value guarantees nor is SPAR a party to any leases that provide an option to purchase the underlying asset.

Many of SPAR's office space leases include fixed and variable payments. Variable payments relate to real estate taxes, insurance, operating expenses, and common area maintenance, which are usually billed at actual amounts incurred proportionate to SPAR's rented square feet of the building. Variable payments that do not depend on an index or rate are expensed by SPAR as they are incurred and are not included in the measurement of the lease liability.

Some of SPAR's leases contain both lease and non-lease components. Fixed and variable payments are allocated to each component relative to observable or estimated standalone prices. SPAR measures its variable lease costs as the portion of variable payments that are allocated to lease components.

30

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

SPAR measures its lease liability for each leased asset as the present value of lease payments, as defined in ASC 842, allocated to the lease component, discounted using an incremental borrowing rate specific to the underlying asset. SPAR's ROU assets are equal to the lease liability. SPAR estimates its incremental borrowing rate based on the interest rate SPAR would incur to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment.

The components of SPAR's lease expenses for the six months ended June 30, 2020 and 2019, which are included in the condensed consolidated income statement, are as follows (in thousands):

		Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
Lease Costs	Classification	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Operating lease cost	Selling, General and Administrative Expense	$	694	$	534	$	1,368	$	1,067
Short-term lease cost	Selling, General and Administrative Expense	$	100	$	28		213		57
Variable costs	Selling, General and Administrative Expense	$	97	$	290		194		585
Total lease cost		$	891	$	852	$	1,775	$	1,709

Supplemental cash flow information related to SPAR’s leases for six months ended June 30, 2020 and 2019 is as follows (in thousands):

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	794	$	562	$	1,514	$	1,071
Assets obtained in exchange for new operating lease liabilities
Operating lease	$	741	$	5,736	$	1,463	$	5,736	(a)

At June 30, 2020, SPAR had the following maturities of lease liabilities related to office space and equipment, all of which are under non-cancellable operating leases (in thousands):

Period Ending June 30,	Amount
2020	$	1,779
2021		1,153
2022		629
2023		106
2024		-
Total Lease Payments		3,667
Less: imputed interest		179
Total		3,488

31

12. Subsequent Events 

Resignation of Christiaan M. Olivier as Chief Executive Officer (Principal Executive Officer), President and Director

After the close of business on July 15, 2020, the Corporation received the voluntary resignation of Christiaan M. Olivier as Chief Executive Officer (Principal Executive Officer), President and a director of SGRP, and from all positions with SGRP's subsidiaries, effective with the close of business on August 7, 2020 (the "CEO Effective Time").

Mr. Olivier has said that his resignation is due to his assertion that actions of the Corporation's two largest shareholders (Robert G. Brown and William H. Bartels), at times supported by some independent directors, have led to dysfunctional governance and disagreements with the Board over director and related party accountability and corporate strategy.  Mr. Olivier has provided written correspondence to SGRP discussing his beliefs respecting the circumstances of his resignation.

On July 17, 2020, the Board of Directors of SGRP (the "Board") accepted Mr. Olivier's resignation. The Board plans to appoint an interim successor Chief Executive Officer and President.

Retirement of James R. Segreto as Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Secretary

After the close of business on July 15, 2020, the Corporation received the notice of the voluntary retirement of James R. Segreto as Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Secretary of SGRP, and from all positions with SGRP's subsidiaries, effective with the close of business on August 7, 2020 (the "CFO Effective Time").

Mr. Segreto's retirement letter expressed similar concerns outlined by Mr. Olivier and as reported and supported in various SEC filings. Mr. Segreto has provided written correspondence to SGRP discussing his beliefs respecting the circumstances of his retirement.

On July 17, 2020 the Board accepted Mr. Segreto's notice of retirement.  Several candidates have been identified by management and recommended to the Corporation's Audit Committee and Governance Committee.

32

SPAR Group, Inc. and Subsidiaries

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "Quarterly Report") contains "forward-looking statements" within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, made by, or respecting, SPAR Group, Inc. ("SGRP") and its subsidiaries (together with SGRP, the "SPAR Group" or the "Company"), and this Quarterly Report has been filed by SGRP with the Securities and Exchange Commission (the "SEC"). There also are "forward-looking statements" contained in SGRP's Annual Report on Form 10-K for its fiscal year ended December 31, 2019 (as filed, the "Annual Report"), as filed with the SEC on April 14, 2020, in SGRP's definitive Proxy Statement respecting its Annual Meeting of Stockholders to be held on May 13, 2020, which SGRP filed with the SEC on May 1, 2020 (the "Proxy Statement"), SGRP's definitive Proxy Statement and Information Statement (the "First Special Meeting Proxy/Information Statement"), filed with the SEC on April 3, 2020, and SGRP's Current Report on Form 8-K respecting the First Special Meeting voting results as filed with the SEC on May 4, 2020 (the "First Special Meeting Report"). and SGRP's Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and statements as and when filed with the SEC (including this Quarterly Report, the Annual Report the Proxy Statement, the First Special Meeting Proxy/Information Statement and the First Special Meeting Report, each a "SEC Report"). "Forward-looking statements" are defined in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and other applicable federal and state securities laws, rules and regulations, as amended (together with the Securities Act and Exchange Act, the "Securities Laws").

All statements (other than those that are purely historical) are forward-looking statements. Words such as "may," "will," "expect," "intend", "believe", "estimate", "anticipate," "continue," "plan," "project," or the negative of these terms or other similar expressions also identify forward-looking statements. Forward-looking statements made by the Company in this Quarterly Report or the Annual Report may include (without limitation) statements regarding: risks, uncertainties, cautions, circumstances and other factors ("Risks"); and plans, intentions, expectations, guidance or other information respecting the potential negative effects of the Coronavirus and COVID-19 pandemic on Company's business, cash flow or financial condition, the Company's cash flow later this year, or the pursuit or achievement of the Company's five corporate objectives (growth, customer value, employee development, greater productivity & efficiency, and increased earnings per share), building upon the Company's strong foundation, leveraging compatible global opportunities, growing the Company's client base and contracts, continuing to strengthen its balance sheet, growing revenues and improving profitability through organic growth, new business development and strategic acquisitions, and continuing to control costs. The Company's forward-looking statements also include (without limitation) those made in the Annual Report in "Business", "Risk Factors", "Legal Proceedings", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Directors, Executive Officers and Corporate Governance", "Executive Compensation", "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters", and "Certain Relationships and Related Transactions, and Director Independence".

You should carefully review and consider the Company's forward-looking statements (including all risk factors and other cautions and uncertainties) and other information made, contained or noted in or incorporated by reference into this Quarterly Report, the Annual Report, the Proxy Statement, the First Special Meeting Proxy/Information Statement and the First Special Meeting Report and the other applicable SEC Reports, but you should not place undue reliance on any of them. The results, actions, levels of activity, performance, achievements or condition of the Company (including its affiliates, assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, liabilities, liquidity, locations, marketing, operations, performance, prospects, sales, strategies, taxation or other achievement, results, risks, trends or condition) and other events and circumstances planned, intended, anticipated, estimated or otherwise expected by the Company (collectively, "Expectations"), and our forward-looking statements (including all Risks) and other information reflect the Company's current views about future events and circumstances. Although the Company believes those Expectations and views are reasonable, the results, actions, levels of activity, performance, achievements or condition of the Company or other events and circumstances may differ materially from our Expectations and views, and they cannot be assured or guaranteed by the Company, since they are subject to Risks and other assumptions, changes in circumstances and unpredictable events (many of which are beyond the Company's control). In addition, new Risks arise from time to time, and it is impossible for the Company to predict these matters or how they may arise or affect the Company. Accordingly, the Company cannot assure you that its Expectations will be achieved in whole or in part, that it has identified all potential Risks, or that it can successfully avoid or mitigate such Risks in whole or in part, any of which could be significant and materially adverse to the Company and the value of your investment in the Company's Common Stock.

These forward-looking statements reflect the Company's Expectations, views, Risks and assumptions only as of the date of this Quarterly Report, and the Company does not intend, assume any obligation, or promise to publicly update or revise any forward-looking statements (including any Risks or Expectations) or other information (in whole or in part), whether as a result of new information, new or worsening Risks or uncertainties, changed circumstances, future events, recognition, or otherwise.

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SPAR Group, Inc. and Subsidiaries

GENERAL

The Company is a diversified international merchandising, business technology and marketing services company and provides a broad array of services worldwide to help companies improve their sales, operating efficiency and profits at retail locations. The Company provides its merchandising and other marketing services to manufacturers, distributors and retailers worldwide, primarily in mass merchandise, office supply, value, grocery, drug, independent, convenience, home improvement and electronics stores. The Company also provides furniture and other product assembly services in stores, homes and offices. The Company has supplied these services in the United States since certain of its predecessors were formed in 1979 and internationally since the Company acquired its first international subsidiary in Japan in May of 2001. The Company currently does business in 10 countries that encompass approximately 50% of the total world population through its operations in the United States, Australia, Brazil, Canada, China, India, Japan, Mexico, South Africa and Turkey.

Merchandising services primarily consist of regularly scheduled, special project and other product services provided at store level, and the Company may be engaged by either the retailer or the manufacturer. Those services may include restocking and adding new products, removing spoiled or outdated products, resetting categories "on the shelf" in accordance with client or store schematics, confirming and replacing shelf tags, setting new sale or promotional product displays and advertising, replenishing kiosks, demonstrating or promoting a product, providing on-site audit and in-store event staffing services and providing product assembly services in stores, homes and offices. Other merchandising services include whole store or departmental product sets or resets, including new store openings, new product launches and in-store demonstrations, special seasonal or promotional merchandising, focused product support and product recalls. The Company continues to seek to expand its merchandising, assembly and marketing services business throughout the world. 

Summaries of our business and domestic and international business are set forth below. Please see Item 1 of the Annual Report for a more detailed description of the Company's Business, and the following parts of the Proxy Statement (which were incorporated by reference into the Annual Report): (i) Security Ownership of Certain Beneficial Owners and Management, (ii) Corporate Governance, (iii) Executive Compensation, Directors and Other Information and (iv) Executive Compensation, Equity Awards and Options. Please also see, review and give particular attention, to the Risk Factors in Item 1A of the Annual Report (including, without limitation, Dependence Upon and Cost of Services Provided by Affiliates and Use of Independent Contractors, Potential Conflicts in Services Provided by Affiliates, Risks Related to the Company's Significant Stockholders: Potential Voting Control and Conflicts, and Risks of a Nasdaq Delisting and Penny Stock Trading), to Note 8 to the Company's Condensed Consolidated Financial Statements – Commitments and Contingencies - Legal Matters, above, and to Note 5 to the Company's Condensed Consolidated Financial Statements – Related Party Transactions – Domestic Related Party Services, above.

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SPAR Group, Inc. and Subsidiaries

Results of Operations

Three months ended June 30, 2020, compared to three months ended June 30, 2019

The following table sets forth selected financial data and data as a percentage of net revenues for the periods indicated (in thousands, except percent data).

	Three Months Ended June 30,
	2020						2019
	$			%			$			%
Net revenues	$	50,944			100.0	%	$	68,223			100.0	%
Cost of revenues		41,072			80.6			54,159			79.4
Gross profit		9,872			19.4			14,064			20.6
Selling, general & administrative expense		7,370			14.5			9,306			13.6
Depreciation & amortization		539			1.1			528			0.8
Operating income		1,963			3.8			4,230			6.2
Interest expense, net		84			0.2			187			0.3
Other income, net		(50	)		-			(192	)		(0.3	)
Income before income taxes		1,929			3.6			4,235			6.2
Income tax expense		624			1.2			1,428			2.1
Net income		1,305			2.4			2,807			4.1
Net income attributable to non-controlling interest		(1,408	)		(2.8	)		(1,284	)		(1.9	)
Net income attributable to SPAR Group, Inc.	$	(103	)		(0.4	)%	$	1,523			2.2	%

Net Revenues

Net revenues for the three months ended June 30, 2020, were $50.9 million, compared to $68.2 million for the three months ended June 30, 2019, a decrease of $17.3 million or 25.3%.

Domestic net revenues totaled $22.1 million in the three months ended June 30, 2020, compared to $28.0 million for the same period in 2019. The decrease of $5.9 million was primarily due to the impact of Covid-19.

International net revenues totaled $28.8 million for the three months ended June 30, 2020, compared to $40.2 million for the same period in 2019, a decrease of $11.4 million or 28.2%.  The decrease in international net revenues was primarily due to foreign currency translation and the impact of Covid-19.

Cost of Revenues

The Company's cost of revenues consists of its on-site labor and field administration fees, travel and other direct labor-related expenses and was 80.6% of its net revenues for the three months ended June 30, 2020, and 79.4% of its net revenues for the three months ended June 30, 2019.

Domestic cost of revenues was 79.1% of net domestic revenues for the three months ended June 30, 2020, and 74.0% of net domestic revenues for the three months ended June 30, 2019. The increase in cost of revenues was due primarily to an unfavorable mix of project work.

Internationally, the cost of revenues as a percentage of net international revenues was 81.8% and 83.1% for the three months ended June 30, 2020 and 2019, respectively.

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SPAR Group, Inc. and Subsidiaries

Selling, General and Administrative Expenses

Selling, general and administrative expenses of the Company include its corporate overhead, project management, information technology, executive compensation, human resources, legal and accounting expenses. Selling, general and administrative expenses were approximately $7.4 million and $9.3 million for the three months ended June 30, 2020 and 2019, respectively.

Domestic selling, general and administrative expenses totaled $3.9 million and $4.3 million for the three months ended June 30, 2020 and 2019, respectively. 

International selling, general and administrative expenses totaled $3.4 million and $5.0 million for the three months ended June 30, 2020 and 2019, respectively.

Depreciation and Amortization

Depreciation and amortization charges totaled $539,000 and $528,000 for the three months ended June 30, 2020 and 2019, respectively.

Interest Expense

The Company's net interest expense was $84,000 for the three months ended June 30, 2020, and $187,000 for the same period in 2019.

Other Income

Other income was $50,000 and $192,000 for the three months ended June 30, 2020 and 2019, respectively.

Income Taxes

Income tax expense was $624,000 for the three months ended June 30, 2020, compared to $1.4 million for the three months ended June 30, 2019. 

Non-controlling Interest

Net operating profits from the non-controlling interest, from the Company's 51% owned subsidiaries, resulted in a reduction of net income attributable to SPAR Group, Inc. of $1.4 million and $1.3 million for the three months ended June 30, 2020 and 2019, respectively.

Net Income

The Company reported net income of -$103,000 for the three months ended June 30, 2020, or $0.00 per diluted share, compared to a net income of $1.5 million, or $0.07 per diluted share, for the corresponding period last year. 

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SPAR Group, Inc. and Subsidiaries

Six months ended June 30, 2020, compared to six months ended June 30, 2019

The following table sets forth selected financial data and data as a percentage of net revenues for the periods indicated (in thousands, except percent data).

	Six Months Ended June 30,
	2020						2019
	$			%			$			%
Net revenues	$	112,292			100.0	%	$	125,383			100.0	%
Cost of revenues		90,632			80.7			100,685			80.3
Gross profit		21,660			19.3			24,698			19.7
Selling, general & administrative expense		17,141			15.3			17,699			14.1
Depreciation & amortization		1,079			1.0			1,038			0.8
Operating income		3,440			3.0			5,961			4.8
Interest expense, net		312			0.3			388			0.3
Other income, net		(58	)		(0.1	)		(257	)		(0.2	)
Income before income taxes		3,186			2.8			5,830			4.6
Income tax expense		959			0.9			1,986			1.6
Net income		2,227			1.9			3,844			3.1
Net income attributable to non-controlling interest		(2,034	)		(1.8	)		(1,705	)		(1.4	)
Net income attributable to SPAR Group, Inc.	$	193			0.1	%	$	2,139			1.7	%

Net Revenues

Net revenues for the six months ended June 30, 2020, were $112.3 million, compared to $125.4 million for the six months ended June 30, 2019, a decrease of $13.1 million or 10.4%.

Domestic net revenues totaled $45.4 million in the six months ended June 30, 2020, compared to $46.7 million for the same period in 2019. The decrease of $1.3 million was primarily due to the impact of Covid-19.

International net revenues totaled $66.9 million for the six months ended June 30, 2020, compared to $78.7 million for the same period in 2019, a decrease of $11.8 million or 15.0%.  The decrease in international net revenues was primarily due to foreign currency translation and the impact of Covid-19.

Cost of Revenues

The Company's cost of revenues consists of its on-site labor and field administration fees, travel and other direct labor-related expenses and was 80.6% of its net revenues for the six months ended June 30, 2020, and 80.3% of its net revenues for the six months ended June 30, 2019.

Domestic cost of revenues was 77.6% of net domestic revenues for the six months ended June 30, 2020, and 74.3% of net domestic revenues for the six months ended June 30, 2019. The increase in cost of revenues was due primarily to an unfavorable mix of project work.

Internationally, the cost of revenues as a percentage of net international revenues was 82.8% and 83.8% for the six months ended June 30, 2020 and 2019, respectively.

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SPAR Group, Inc. and Subsidiaries

Selling, General and Administrative Expenses

Selling, general and administrative expenses of the Company include its corporate overhead, project management, information technology, executive compensation, human resources, legal and accounting expenses. Selling, general and administrative expenses were approximately $17.1 million and $17.7million for the six months ended June 30, 2020 and 2019, respectively.

Domestic selling, general and administrative expenses totaled $8.7 million and $7.9 million for the six months ended June 30, 2020 and 2019, respectively. The increase is primarily due to an accrual for retirement benefits.

International selling, general and administrative expenses totaled $8.3 million and $9.8 million for the six months ended June 30, 2020 and 2019, respectively.

Depreciation and Amortization

Depreciation and amortization charges totaled $1.1 million and $1.0 million for the six months ended June 30, 2020 and 2019, respectively.

Interest Expense

The Company's net interest expense was $312,000 for the six months ended June 30, 2020, and $388,000 for the same period in 2019.

Other Income

Other income was $58,000 and $257,000 for the six months ended June 30, 2020 and 2019, respectively.

Income Taxes

Income tax expense was $959,000 for the six months ended June 30, 2020, compared to $2.0 million for the six months ended June 30, 2019. 

Non-controlling Interest

Net operating profits from the non-controlling interest, from the Company's 51% owned subsidiaries, resulted in a reduction of net income attributable to SPAR Group, Inc. of $2.0 million and $1.7 million for the six months ended June 30, 2020 and 2019, respectively.

Net Income

The Company reported net income of $193,000 for the six months ended June 30, 2020, or $0.01 per diluted share, compared to a net income of $2.1 million, or $0.10 per diluted share, for the corresponding period last year. 

Liquidity and Capital Resources  

In the six months ended June 30, 2020, the Company had a net income before non-controlling interest of $2.2 million.

Net cash provided by operating activities was $8.8 million for the six months ended June 30, 2020, compared to cash used by operating activities of $1.2 million for the six months ended June 30, 2019.  The net cash provided by operating activities during the six months ended June 30, 2020, was primarily due to an increase in accounts receivable and accrued expenses offset by a decrease in accounts payable and operating lease liabilities.  Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and the other risks detailed in the section titled "Risk Factors" included elsewhere in our Annual Report.  However, we believe that our existing cash, cash equivalents, short-term investment balances, funds available under our debt agreement, and cash generated from operations, will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. 

Net cash used in investing activities was $786,000 for the six months ended June 30, 2020, compared to $935,000 for the six months ended June 30, 2019. The net cash used in investing activities during the six months ended June 30, 2020, was due to fixed asset additions, primarily capitalized software.

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SPAR Group, Inc. and Subsidiaries

Net cash used by financing activities for the six months ended June 30, 2020, was $792,000 compared to net cash provided by financing activities of $2.6 million for the six months ended June 30, 2019.  Net cash used by financing activities during the six months ended June 30, 2020, was primarily due to net payments on lines of credit.

The above activity and the impact of foreign exchange rate changes resulted in an increase in cash and cash equivalents for the six months ended June 30, 2020 of approximately $3.2 million.

The Company had net working capital of $17.3 million at both June 30, 2020 and December 31, 2019. The Company's current ratio was 1.4 at both June 30, 2020, and December 31, 2019.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

Item 4. Controls and Procedures

Management's Report on Internal Control Over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the registrant, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management has designed such internal control over financial reporting by the Company to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

The Company's management has evaluated the effectiveness of the Company's internal control over financial reporting using the "Internal Control – Integrated Framework (2013)" created by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") framework. Based on this evaluation, management has concluded that internal controls over financial reporting were effective as of June 30, 2020.

Management's Evaluation of Disclosure Controls and Procedures

The Company's interim chief financial officer and chief operating officer have each reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report, as required by Exchange Act Rules 13a-15(b) and Rule 15d-15(b). Based on that evaluation, the chief executive officer and chief financial officer have each concluded that the Company's current disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in reports it files, or submits under the Exchange Act were recorded, processed, summarized and reported within the time period specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's second quarter of its 2020 fiscal year that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

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SPAR Group, Inc. and Subsidiaries

PART II: OTHER INFORMATION

Item 1. Legal Proceedings 

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.

Background: 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 an entity controlled by Robert G. Brown, and prior to November 2018, was owned by Robert G. Brown and William H. Bartels. SAS is an affiliate because it is owned by William H. Bartels, Peter W. Brown and certain other 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. Messrs. Brown and Bartels (including, as applicable, certain related parties, the "Majority Stockholders") collectively own approximately 53.2% of SGRP's common stock and are the founders of SGRP.  Mr. Brown was Chairman and an officer and director of SGRP through May 3, 2018 (when he retired) and became a director of SGRP on April 24, 2020, as discussed in INFORMATION IN CONNECTION WITH APPOINTMENT OF ROBERT G. BROWN AS A DIRECTOR in the First Special Meeting Proxy/Information Statement.  Mr. Bartels retired as an employee of the Company as of January 1, 2020 (in accordance with the actions of SGRP's Compensation Committee on January 22, 2020). See Bartel's Retirement and Director Compensation in Note 5 to the Company's Consolidated Financial Statements - Related Party Transactions, above. Messrs. Brown and Bartels also are stockholders, directors and/or executive officers of various affiliates of SGRP.

For recent actions by the Majority Stockholders to change or potentially change the Board and 2019 By-Laws, see Risks Related to the Company's Significant Stockholders and Potential Voting Control and Conflicts in Part 1A-Risk Factors in the Annual Report

SGRP claims against SAS re Affinity

The Company has prepared the draft of a complaint to be filed in the Supreme Court of the State of New York in Westchester County, NY, seeking appropriate relief and recovery from SAS and other related parties, which it prepared with the support of SGRP's Audit Committee (which has certain oversight responsibilities respecting related party matters).  However, because of the pending changes in the SGRP CEO and CFO positions, the Audit Committee recommended that management delay filing the complaint until it can be reviewed and pursued by SGRP's new CEO and CFO (upon their selection and appointment) if and as they determine appropriate.  See Affinity Insurance in Related Part Transactions in Note 5, above.  For a more detailed explanation of the Affinity claims see the Corporation's Current Report on Form 8-K as filed with the SEC on July 31, 2020.

Delaware Litigation Settlement

On September 4, 2018, SGRP filed in the Court of Chancery of the State of Delaware (the "Chancery 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.

On September 18, 2018, Robert G Brown (one of the Majority Stockholders) commenced an action in the Chancery Court pursuant to 8 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.

On January 18, 2019, SGRP, Messrs. Brown and Bartels, Christiaan Olivier (Chief Executive Officer, President and a Director of SGRP), and all four of the members of the Governance Committee at that time, namely Lorrence T. Kellar (Chairman), Jack W. Partridge, Arthur B. Drogue and R. Eric McCarthey (together with Mr. Olivier, the "225 Defendants"), reached a settlement (the "Delaware Settlement") in the By-Laws Action and the 225 Action (together, the "Delaware Actions") and had the Delaware Actions then dismissed.

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SPAR Group, Inc. and Subsidiaries

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 (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, 2019. The Governance Committee and the Board intended that those changes in the 2019 Restated By-Laws will help the Corporation maintain the independent Board desired by them.

Additionally, as part of the Delaware Settlement, the parties to the Delaware Actions executed a Limited Mutual Release Agreement limited to the Delaware Actions, subject to specific exclusions (the "Delaware Releases"), and the parties to the Delaware 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 Chancery 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 certain related parties, including (without limitation) post termination claims by and against SBS (which has been resolved  in a voluntary bankruptcy proceeding in Nevada by SBS -- see SBS Bankruptcy, Settlement, and March 2020 Claim, below) and SAS and the lawsuit by Infotech against the Company (which has been resolved in a settlement – see  Infotech Litigation and Settlement, below), by Messrs. Brown and Bartels for advancement and indemnification of legal fees and expenses in connection with the Delaware Actions and certain related party claims (see Advancement Claims, below).  For further information regarding the details of the Delaware Settlement, the Delaware Releases, the Non-Settled Matters, see Note 8 to the Company's Consolidated Financial Statements in Commitments and Contingencies -- Legal Proceedings – Related Parties and Related Party Litigation – Delaware Litigation Settlement, Advancement Claims and Non-Settled Matters, SBS Field Specialist Litigation, SBS Clothier Litigation, and SGRP Hogan Litigation in SGRP's Quarterly Report on Form 10-Q filed with the SEC on August 14, 2019 (the "Q2 2019 Quarterly Report"). and Note 8 to the Company's Consolidated Financial Statements in the Commitments and Contingencies -- Legal Proceedings -- SBS Rodgers Litigation in SGRP's Quarterly Report on Form 10-Q filed with the SEC on November 18, 2018 (the "Q3 2018 Quarterly Report").

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

On June 1, 2018, June 29, 2018, July 5, 2018, August 6, 2018, January 25, 2019,  October 18, 2019, February 11, 2020 and March 11, 2020, the Majority Stockholders filed amended Schedule 13Ds 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. 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 the Board, Governance Committee or other stockholders, add Mr. Robert G. Brown, Mr. Panagiotis ("Panos") Lazaretos, and Mr. Jeffrey A. Mayer to the Board and remove Mr. Laurence T. Kellar from the Board without cause.  Mr. Robert G. Brown was seated on the Board on or about April 24, 2020.  See Risks of a Nasdaq Delisting and Penny Stock Trading in Part 1A - Risk Factors in the Annual Report, and INFORMATION IN CONNECTION WITH APPOINTMENT OF ROBERT G. BROWN AS A DIRECTOR in the Special Meeting Proxy Statement/Information Statement.

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.

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SPAR Group, Inc. and Subsidiaries

On July 10, 2019, Robert G Brown wrote in an email communication to Arthur B. Drogue, an independent director and Chairman of the 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 Email"), including the independent directors.   The concerns listed in the July 10 Email include SGRP's 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. These amounts were included in his March 2020 Demand (See SBS Bankruptcy, Settlement, and March 2020 Claim, below).  Mr. Brown further demanded in the July 10 Email that the directors change their positions and accept the Brown Demands or resign.  In the July 10 Email, Mr. Brown indicated his desire to have SGRP's directors acquiesce to his requests or resign, neither of which SGRP's independent directors believe are in the best interests of SGRP and its stockholders, which Mr. Drogue communicated to the Majority Stockholders in response to the July 10 Email.  For further information regarding Mr. Brown's demands, his threatened removal of directors who oppose such demands and the Majority Stockholders' request to hold a special stockholders meeting to affect such director removals. See SGRP's Current Report on Form 8-K filed with the SEC on August 23, 2019.

In furtherance of furthered such threats to remove directors who do not comply with his demands, Mr. Robert G. Brown and related parties have executed and delivered written requests forcing SGRP to call a special stockholders' meeting (currently scheduled for April 23, 2020) to consider (i) removal of Mr. Arthur B. Drogue, currently one of five independent directors of SGRP and its Chairman, from the Board, without cause,(ii) removal of Mr. R. Eric McCarthey, currently one of five independent directors of SGRP and Chairman of its Governance Committee (as of 3-1-2020), from the Board, without cause,), (iii) addition to the Board of Mr. James R. Brown Sr. (who is the brother of Robert G. Brown and the father of Peter W. Brown, a director who joined the Board in May 2018 to represent the Brown family interests), and (iv) adoption of various amendments to SGRP's By-Laws which are favorable to the Majority Stockholders and not approved or supported by a majority of SGRP's Board or Independent Directors.  See Risks of a Nasdaq Delisting and Penny Stock Trading in Part 1A - Risk Factors in the Annual Report..  See SGRP's First Special Meeting Proxy/Information.

For additional recent actions by the Majority Stockholders to change or potentially change the Board and 2019 By-Laws, see Risks Related to the Company's Significant Stockholders and Potential Voting Control and Conflicts in Part 1A - Risk Factors in the Annual Report.

Advancement Claims

From October 2018 through January 2019, the Majority Stockholders, in a series of correspondence, demanded from SGRP advancement and indemnification of their respective shares of legal fees and expenses incurred by them in connection with the By-Laws Action and the 225 Action and other related party litigation matters.

On 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 Action 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 Action because (among other things) Mr. Bartels was sued predominately as a stockholder in the By-Laws Action and not as a director and the By-Laws Action alleged numerous instances of improper conduct by Mr. Bartels that could preclude indemnification under the Corporation's By-Laws. However, the Audit Committee made no determination regarding improper conduct or the issue of advancement.

On 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.

In 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 paid in April 2019.  If Mr. Bartels is ultimately determined to not be entitled to indemnification, he could still be obligated to return all amounts advanced to him by SGRP.

42

SPAR Group, Inc. and Subsidiaries

On 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 Action 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.

On January 27, 2019, Mr. Robert G. 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. On March 21, 2020, Mr. Robert G. Brown repeated the Brown Advancement Demand and sent a slightly revised draft complaint that would purportedly change the contemplated litigation jurisdiction from Delaware to Massachusetts.  No explanation was given for this change and SGRP believes that Mr. Robert G. Brown does not live or work in Massachusetts, but Mr. Robert G. Brown's brother, James S. Brown, is a Massachusetts lawyer and was an unsuccessful candidate for election as a SGRP director at the April 30, 2020, special stockholder meeting at the unilateral direction of Mr. Robert G. Brown and related parties.  On August 1, 2020, Robert G. Brown sent a slightly revised complaint to William H. Bartels (who forwarded it to Arthur H. Baer, (Chairman of the Board and Audit Committee) changing the contemplated litigation jurisdiction from Massachusetts back to Delaware.  Although it was signed and notarized and said by Robert G. Brown in his email to be in the process of being filed, no such complaint has been filed by Mr. Brown through August 14, 2020, and SGRP continues to deny the Brown Advancement Demand.  In addition, SGRP believes that the Delaware Court has exclusive jurisdiction pursuant to SGRP's 2019 Restated By-Laws and the Settlement. Mr. Robert G. Brown is significant stockholder of SGRP, and member of a 13D control group, SGRP's former Chairman and director of SGRP and became a director again on April 24, 2020, pursuant to the written consents of the Brown Group and Mr. Bartels.

SBS Bankruptcy, Settlement and March 2020 Claim

On November 23, 2018, SBS petitioned for bankruptcy protection under chapter 11 of the United States Bankruptcy Code in the U.S. District for Nevada (the "SBS Chapter 11 Case").  On March 18, 2019, the Company filed claims in the SBS Chapter 11 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 its settlement (see below) of the Clothier class action case in California ("Clothier") and legal costs and an unspecified amount for indemnification of SGRP for the Hogan action (see below) and other to be discovered indemnified claims.

On August 6, 2019, SGRP, and its subsidiaries SPAR Marketing Force, Inc. ("SMF"), a Nevada corporation, and SPAR Assembly & Installation, Inc., f/k/a SPAR National Assembly Services, Inc., a Nevada corporation, submitted to the U.S. District Court in Nevada (the "Bankruptcy Court") their Compromise and Settlement Agreement, dated July 26, 2019 (the "Settlement Agreement"), with SBS, a Nevada corporation formerly known as SPAR Marketing Services, Inc., debtor and debtor-in-possession, and SBS, LLC, a Nevada limited liability company.  The Settlement Agreement was submitted in the SBS Chapter 11 Case.  Pursuant to the Settlement Agreement, the Company settled its claims for (among other things) indemnification from SBS in Clothier and the Rodgers class action case in Texas ("Rodgers"), and SBS released all receivable and other claims against the Company.  See Note 8 to the Company's Consolidated Financial Statements – Legal Proceedings  – SBS Bankruptcy, Settlement, and March 2020 Claim, above.

On August 6, 2019, the Bankruptcy Court approved the Settlement Agreement and the SBS reorganization pursuant to SBS' First Amended Chapter 11 Plan of Reorganization, as amended by the Settlement Agreement (the "Plan of Reorganization").  Pursuant to its Plan of Reorganization, SBS also settled its potential liability in the Clothier and Rodgers cases, but Robert G. Brown and William H. Bartels were not released from Clothier, any related case or Rodgers.  For further information regarding the Clothier and Rodgers cases, the SBS bankruptcy and the Settlement Agreement, including SBS's potential competition with SGRP and the potential involvement of certain SGRP directors in the management of SBS following the Plan of Reorganization, see SGRP's Current Report on Form 8-K filed with the SEC on Aug 8, 2019. See Note 8 to the Company's Consolidated Financial Statements in the Commitments and Contingencies -- Legal Proceedings -- SBS Rodgers Litigation in the Q3 2018 Quarterly Report.  In the Settlement Agreement, except for the carve out described in the next paragraph, SBS completely released the Company from all obligations that may be owed to SBS.

In the SBS settlement, the Company’s $2.2 million in claims were settled for $174,097.34 payable over 24 monthly installments of $7,254.06 per month starting January 1, 2020.  To date SBS is in default of the first 5 months of installment payments totaling $36,270.30.

43

SPAR Group, Inc. and Subsidiaries

On March 6, 2020, Robert G. Brown demanded payment in full of $1,707,374 to SBS from SMF and SGRP pursuant to the SBS Settlement Agreement. The Settlement Agreement includes a specific carve out clause for the payment of specific fees for services provided by SBS to SMF.  The clause required a special review, by a third party prominent auditing firm, as verification that SMF actually made those payments to SBS. The report has been completed and properly supports the Company’s position that all such fees were paid to SBS (the "March 2020 Claim"). The Company disagrees that such amount is owed. The Company believes that the robust and comprehensive mutual releases in the SBS Settlement Agreement provide valuable relief from potential future claims and litigation by SBS respecting the Company's past involvement with SBS, including the March 2020 Claim. However, Robert G. Brown, president, director and indirect owner of SBS, since and notwithstanding the Court's approval of the SBS Settlement Agreement, has continued to allege that the claims and amounts that were fully released pursuant to the SBS Settlement Agreement and approved by the bankruptcy court are due to SBS from the Company, and the Company strongly disagrees. Since all such SBS claims have been completely released by SBS (with Mr. Brown's approval), the Company owes nothing and will not accrue anything respecting Mr. Brown's renewed claims.  Mr. Robert G. Brown is significant stockholder of SGRP, and member of a 13D control group, SGRP's former Chairman and director of SGRP, and became a director again on April 24, 2020, pursuant to the written consents of the Brown Group and Mr. Bartels.

At SGRP’s March 2020 Board meeting, Mr. William H. Bartels was requested by an independent director to compile a list of claims that he and Mr. Brown believe are owed by the Company. On March 17, 2020, that list was given to the Audit Committee Chairman and included additional claims, net of an anticipated reduction, totaling approximately $1.3 million, bring their total claims to approximately $3 million.  Since all such SBS claims have been completely released by SBS (with Mr. Brown's approval), the Company owes nothing and will not accrue anything respecting Mr. Brown's renewed claims.

The March 2020 Claim includes estimates for the legal defenses of Robert G. Brown and William H. Bartels in California ("PAGA") and Texas ("Rodgers") in cases that do not involve and never included the Company and for which the Company believes it has no liability.  The March 2020 Claim also includes defense expenses for SBS' Clothier case, which expenses SBS settled for a highly discounted amount in its bankruptcy reorganization but now wants the Company to pay in full. SBS in its bankruptcy reorganization settled its potential liability in the Rodgers and Clothier cases has, and since July 2019 had, no more defense expenses in those cases.  SGRP settled Clothier separately and was never in the Rodgers case. However, the alleged continued willful misclassification by SBS of its ICs after the Clothier misclassification determination is the basis for the PAGA lawsuit against Brown and Bartels. See Note 8 to the Company's Consolidated Financial Statements in the Commitments and Contingencies -- Legal Proceedings -- SBS Field Specialist Litigation, SBS Clothier Litigation, and SGRP Hogan Litigation in SGRP's Quarterly Report in the Q2 2019 Quarterly Report, and Note 8 to the Company's Consolidated Financial Statements in the Commitments and Contingencies -- Legal Proceedings -- SBS Rodgers Litigation in SGRP's Quarterly Report on Form 10-Q filed with the SEC in the Q3 2018 Quarterly Report. Mr. Bartels' list also includes payments of $500,000 per year to Robert G. Brown for extended retirement and advisory fees, although the Company has never proposed, committed or agreed to them and on several occasions specifically rejected Mr. Brown's proposals in various forms for them.

Infotech Litigation and Settlement

On 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) as plaintiff commencing a case against SGRP (the "Infotech Action"). The Infotech Action sought 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 on multiple occasions by both management and SGRP's Audit Committee (whose approval was required because Infotech is a related party).

In 2016, SGRP acquired SPAR Brasil Serviços de Merchandising e Tecnologia S.A. ("SPAR BSMT"), its Brazilian subsidiary, with the assistance of Robert G. Brown (while he was still Chairman and an officer and director of SGRP) and his nephew, Peter W. Brown, who became an indirect 10% owner of SPAR BSMT, and later became a director of SGRP on May 3, 2018. Robert G. Brown used his private company, Infotech and undisclosed foreign companies to structure the acquisition for SGRP.

Robert G. Brown incurred his alleged expenses associated with the transaction through Infotech, including salary allocations for unauthorized personnel and claims for his "lost tax breaks".  Robert G. Brown submitted his unauthorized and unsubstantiated "expenses" to SGRP, and SGRP's Audit Committee allowed approximately $50,000 of them (which was paid by the Company) and disallowed approximately $150,000 of them.  His claim increased to over $190,000 in the Infotech Action.  The Company vigorously denied owing any of those amounts.

44

SPAR Group, Inc. and Subsidiaries

In 2018, Infotech also threatened to sue the Company in Romania for approximately $900,000 for programming services allegedly owed to the Company's former Romanian subsidiary (sold at book value to Infotech in 2013) and not provided to Infotech (the "Romanian Claim"). Infotech gave a draft complaint to the Company in 2018. The Company also vigorously denied owing any of those obligations or amounts.

In order to avoid the expenses of protracted litigation, SGRP's Management and the Audit Committee agreed that it would be in the best interest of all stockholders to reach a reasonable settlement of both the Infotech Action and the Romanian Claim for installment payments in reasonable amounts and mutual releases of all other related claims.  Management had offed $225,000 to settle both, but at the urging of the Board and assurances of several Board members that it would help them persuade Robert G. Brown to settle, management agreed to increase the settlement offer to a total of $275,000.  After extensive negotiation between the Company and Infotech, Robert G. Brown accepted the $275,000 offer and the parties entered into the Confidential Settlement Agreement and Mutual Release on October 8, 2019 (the "Infotech Settlement Agreement"), which was approved and ordered by the Court on October 30, 2019, and the Infotech Action was discontinued (dismissed) with prejudice.

The Infotech Settlement Agreement requires the Company to make payments totaling $275,000 in four installments: (i) $75,000 following Court approval (which Payment has already been made); (ii) $75,000 within 30 days following discontinuance of the Infotech Action (which was discontinued on October 30, 2019); (iii) $75,000 within 60 days following discontinuance of the Infotech Action; and (iv) $50,000 within 90 days following discontinuance of the Infotech Action.  The Company paid the first four installments and has made an appropriate accrual for the final installment as of December 31, 2019.  In January 2020, the Company made the final payment to Infotech.

The Company believes that the robust and comprehensive mutual releases in the Infotech Settlement Agreement provide valuable relief from potential future claims and litigation by Infotech respecting the Company's past involvement with Infotech in the Brazilian and Romanian transactions.

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") furnished by others and 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 did not manage, direct or control SBS, and SGRP did not participate in or control the defense by SBS of any litigation against it. The Company terminated its relationship with SBS and received no services from SBS after July 27, 2018.  For affiliation, termination, contractual details and payment amounts, see Note 5 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 had been periodically subject to legal challenge (both currently and historically) by various states and others. SBS' expenses of defending those challenges and other proceedings generally were, through but not after the termination of the SBS services, reimbursed by the Company after and to the extent the Company determined (on a case by case basis) that those defense expenses were costs of providing services to the Company.

The Company settled its potential liability (as a current or former party) under two class action lawsuits against SBS, namely Clothier and Hogan.  SBS was separately dismissed from the Hogan class action prior to the Company's settlement.  SBS settled with Clothier and Rodgers in the SBS Bankruptcy, but Robert G. Brown and William H. Bartels were not released from Clothier, any related case or Rodgers (see above).  The Company has never been a party to the Rodgers case.  See Note 8 to the Company's Consolidated Financial Statements in the Q2 2019 Quarterly Report - Commitments and Contingencies -- SBS Clothier Litigation and SGRP Hogan Litigation, and Note 8 to the Company's Consolidated Financial Statements in the Commitments and Contingencies -- Legal Proceedings -- SBS Rodgers Litigation in the Q3 2018 Quarterly Report.

Any claim made and proven by Robert G. Brown, William H. Bartels, SBS, SAS, any other related party or any third party that the Company is somehow liable (through indemnification or otherwise) for any judgment or similar amount imposed against Mr. Brown, Mr. Bartels, SBS or SAS or any other related party, in each case in whole or in part, could have a material adverse effect on the Company or its performance or condition (including its 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), whether actual or as planned, intended, anticipated, estimated or otherwise expected. See Note 8 to the Company's Consolidated Financial Statements in the Q2 2019 Quarterly Report - Commitments and Contingencies.

45

SPAR Group, Inc. and Subsidiaries

Item 1A. Risk Factors

Existing Risk Factors

Various risk factors applicable to the Company and its businesses are described in Item 1A under the caption "Risk Factors" in the Annual Report, which Risk Factors are incorporated by reference into this Quarterly Report. There have been no material changes in the Company's risk factors since the Annual Report. You should review and give attention to all of those Risk Factors, including (without limitation) Dependence Upon and Cost of Services Provided by Affiliates and Use of Independent Contractors, Potential Conflicts in Services Provided by Affiliates, Risks Related to the Company's Significant Stockholders: Potential Voting Control and Conflicts, and Risks of a Nasdaq Delisting and Penny Stock Trading.

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

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable. 

Item 5. Other Information

Not applicable.

46

SPAR Group, Inc. and Subsidiaries

Item 6. Exhibits

31.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
31.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.

101.INS	XBRL Instance
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation
101.DEF	XBRL Taxonomy Extension Definition
101.LAB	XBRL Taxonomy Extension Labels
101.PRE	XBRL Taxonomy Extension Presentation

47

SPAR Group, Inc. and Subsidiaries

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:  August 14, 2020	SPAR Group, Inc., Registrant
	By: /s/ Clint Morrow
	Clint Morrow Interim Chief Financial Officer

48

EX-31.1

SPAR Group, Inc. and Subsidiaries

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kori Belzer, certify that:

1.     I have reviewed this quarterly report on Form 10-Q/A for the three-month period ended June 30, 2020 of SPAR Group, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 14, 2020 /s/ Kori Belzer
Kori Belzer Chief Operating Officer

Ex-1

EX-31.2

SPAR Group, Inc. and Subsidiaries

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Clint Morrow, certify that:

1.     I have reviewed this quarterly report on Form 10-Q/A for the three-month period ended June 30, 2020 of SPAR Group, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)     Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 14, 2020 /s/ Clint Morrow
Clint Morrow, Interim Chief Financial Officer

Ex-2

EX-32.1

SPAR Group, Inc. and Subsidiaries

EXHIBIT 32.1

Certification of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report on Form 10-Q/A for the three-month period ended June 30, 2020 of SPAR Group, Inc., the undersigned hereby certifies that, to his knowledge:

1. The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

/s/ Kori Belzer
Kori Belzer
Chief Operating Officer

August 14, 2020

A signed original of this written statement required by Section 906 has been provided to SPAR Group, Inc. and will be retained by SPAR Group, Inc., and furnished to the Securities and Exchange Commission or its staff upon request. 

Ex-3

EX-32.2

SPAR Group, Inc. and Subsidiaries

EXHIBIT 32.2

Certification of the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report on Form 10-Q/A for the three-month period ended June 30, 2020 of SPAR Group, Inc., the undersigned hereby certifies that, to his knowledge:

1. The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

/s/ Clint Morrow
Clint Morrow
Interim Chief Financial Officer

August 14, 2020

A signed original of this written statement required by Section 906 has been provided to SPAR Group, Inc. and will be retained by SPAR Group, Inc., and furnished to the Securities and Exchange Commission or its staff upon request. 

Ex-4

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Aug. 07, 2020
Document Information [Line Items]
Entity Registrant Name	SPAR GROUP INC
Entity Central Index Key	0001004989
Trading Symbol	sgrp
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		21,108,352
Entity Shell Company	false
Document Type	10-Q/A
Document Period End Date	Jun. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	true
Amendment Description	The purpose of this Form 10-Q/A to SPAR Group, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, filed with the Securities and Exchange Commission ("SEC") on August 14, 2020 (The "Form 10-Q") is to correct several typographical errors, cross references, incomplete deletions and the names of the signatories and signing dates for the certifications on Exhibits 31.1, 31.2, 32.1 and 32.2, and to delete the reference to Exhibit 3.3 (which was previously filed with the SEC) and amend, restate and supersede the previously filed Form 10-Q.
Title of 12(b) Security	Common

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands		Jun. 30, 2020	Dec. 31, 2019
Assets
Cash and cash equivalents		$ 13,676	$ 10,458
Accounts receivable, net		42,911	49,299
Prepaid expenses and other current assets		1,871	2,404
Total current assets		58,458	62,161
Property and equipment, net		2,793	2,848
Operating lease right-of-use assets		3,488	4,948
Goodwill		3,756	3,784
Intangible assets, net		2,512	2,796
Deferred income taxes		1,644	1,883
Other assets		1,259	1,115
Total assets		73,910	79,535
Liabilities and equity
Accounts payable		6,841	9,186
Accrued expenses and other current liabilities		20,278	18,548
Due to affiliates	[1]	3,780	4,666
Customer incentives and deposits		416	594
Lines of credit and short-term loans		8,103	8,932
Current portion of operating lease liabilities		1,779	2,828
Total current liabilities		41,197	44,754
Operating lease liabilities, less current portion		1,709	2,120
Long-term debt and other liabilities		1,300	1,300
Total liabilities		44,206	48,174
Commitments and contingencies – See Note 8
Equity:
Preferred stock, $.01 par value: Authorized and available shares– 2,445,598 Issued and outstanding shares – None – Balance at June 30, 2020 and December 31, 2019		0	0
Common stock, $.01 par value: Authorized shares – 47,000,000 Issued shares – 21,108,352 – Balance at June 30, 2020, and 21,102,335 – December 31, 2019		211	211
Treasury stock, at cost 1,697 shares – Balance at June 30, 2020, and December 31, 2019		(2)	(2)
Additional paid-in capital		16,606	16,511
Accumulated other comprehensive loss		(5,106)	(3,616)
Retained earnings		6,044	5,851
Total SPAR Group, Inc. equity		17,753	18,955
Non-controlling interest		11,951	12,406
Total equity		29,704	31,361
Total liabilities and equity		$ 73,910	$ 79,535

[1] Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans have no payment terms and are due on demand and as such have been classified as current liabilities in the Company's consolidated financial statements.

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized (in shares)	2,445,598	2,445,598
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	47,000,000	47,000,000
Common stock, issued (in shares)	21,108,352	21,102,335
Common stock, outstanding (in shares)	21,108,352	21,102,335
Treasury stock, shares (in shares)	1,697	1,697

XML

Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Net revenues	$ 50,944	$ 68,223	$ 112,292	$ 125,383
Cost of revenues	41,072	54,159	90,632	100,685
Gross profit	9,872	14,064	21,660	24,698
Selling, general and administrative expense	7,370	9,306	17,141	17,699
Depreciation and amortization	539	528	1,079	1,038
Operating income	1,963	4,230	3,440	5,961
Interest expense	84	187	312	388
Other income, net	(50)	(192)	(58)	(257)
Income before income tax expense	1,929	4,235	3,186	5,830
Income tax expense	624	1,428	959	1,986
Net income	1,305	2,807	2,227	3,844
Net (income) attributable to non-controlling interest	(1,408)	(1,284)	(2,034)	(1,705)
Net (loss) income attributable to SPAR Group, Inc.	$ (103)	$ 1,523	$ 193	$ 2,139
Basic and diluted income per common share: (in dollars per share)	$ 0	$ 0.07	$ 0.01	$ 0.10
Weighted average common shares – basic (in shares)	21,108	20,816	21,107	20,796
Weighted average common shares – diluted (in shares)	21,125	21,104	21,157	21,080
Net income	$ 1,305	$ 2,807	$ 2,227	$ 3,844
Other comprehensive (loss) income:
Foreign currency translation adjustments	(79)	59	(3,979)	167
Comprehensive (loss) income	1,226	2,866	(1,752)	4,011
Comprehensive (income) loss attributable to non-controlling interest	(1,365)	(1,358)	455	(1,808)
Comprehensive (loss) income attributable to SPAR Group, Inc.	$ (139)	$ 1,508	$ (1,297)	$ 2,203

XML

Condensed Consolidated Statement of Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Noncontrolling Interest [Member]	Total
Balance (in shares) at Dec. 31, 2018	20,785	8
Balance at Dec. 31, 2018	$ 208	$ (8)	$ 16,304	$ (3,638)	$ 3,432	$ 8,476	$ 24,774
Share-based compensation			49				49
Other comprehensive (loss)				98	(18)	28	108
Net income					616		1,037
Net income (loss), non-controlling interest						421
Balance (in shares) at Mar. 31, 2019	20,785	8
Balance at Mar. 31, 2019	$ 208	$ (8)	16,353	(3,540)	4,030	8,925	25,968
Balance (in shares) at Dec. 31, 2018	20,785	8
Balance at Dec. 31, 2018	$ 208	$ (8)	16,304	(3,638)	3,432	8,476	24,774
Net income							3,844
Net income (loss), non-controlling interest							1,705
Balance (in shares) at Jun. 30, 2019	20,850	2
Balance at Jun. 30, 2019	$ 209	$ (15)	16,410	(3,556)	5,553	10,284	28,885
Balance (in shares) at Mar. 31, 2019	20,785	8
Balance at Mar. 31, 2019	$ 208	$ (8)	16,353	(3,540)	4,030	8,925	25,968
Exercise of stock options (in shares)	65	(6)
Exercise of stock options	$ 1	$ (7)	6
Share-based compensation			51				51
Other comprehensive (loss)				(16)		75	59
Net income					1,523		2,807
Net income (loss), non-controlling interest						1,284	1,284
Balance (in shares) at Jun. 30, 2019	20,850	2
Balance at Jun. 30, 2019	$ 209	$ (15)	16,410	(3,556)	5,553	10,284	28,885
Balance (in shares) at Dec. 31, 2019	21,102	2
Balance at Dec. 31, 2019	$ 211	$ (2)	16,511	(3,616)	5,851	12,406	31,361
Exercise of stock options (in shares)	6
Exercise of stock options
Share-based compensation			25				25
Other comprehensive (loss)				(1,456)		(2,444)	(3,900)
Net income					296		922
Net income (loss), non-controlling interest						626
Balance (in shares) at Mar. 31, 2020	21,108	2
Balance at Mar. 31, 2020	$ 211	$ (2)	16,536	(5,072)	6,147	10,588	28,408
Balance (in shares) at Dec. 31, 2019	21,102	2
Balance at Dec. 31, 2019	$ 211	$ (2)	16,511	(3,616)	5,851	12,406	31,361
Net income							2,227
Net income (loss), non-controlling interest							2,034
Balance (in shares) at Jun. 30, 2020	21,108	2
Balance at Jun. 30, 2020	$ 211	$ (2)	16,606	(5,106)	6,044	11,951	29,704
Balance (in shares) at Mar. 31, 2020	21,108	2
Balance at Mar. 31, 2020	$ 211	$ (2)	16,536	(5,072)	6,147	10,588	28,408
Share-based compensation			70				70
Other comprehensive (loss)				(34)		(45)	(79)
Net income					(103)		1,305
Net income (loss), non-controlling interest						1,408	1,408
Balance (in shares) at Jun. 30, 2020	21,108	2
Balance at Jun. 30, 2020	$ 211	$ (2)	$ 16,606	$ (5,106)	$ 6,044	$ 11,951	$ 29,704

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Operating activities
Net income	$ 2,227	$ 3,844
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization	1,079	1,038
Non-cash lease expense	1,562	1,071
Bad debt expense, net of recoveries	64	(229)
Share-based compensation	95	100
Changes in operating assets and liabilities:
Accounts receivable	6,404	(11,109)
Prepaid expenses and other assets	619	(1,112)
Accounts payable	(2,334)	1,654
Operating lease liabilities	(1,562)	(1,071)
Accrued expenses, other current liabilities and customer incentives and deposits	618	4,632
Net cash provided by (used in) operating activities	8,772	(1,182)
Investing activities
Purchases of property and equipment and capitalized software	(786)	(935)
Net cash used in investing activities	(786)	(935)
Financing activities
Net (payments)/borrowings on lines of credit	(792)	12,338
Payoff of bank line of credit		(9,598)
Payments on term debt		(74)
Payments on capital lease obligations		(56)
Net cash (used in) provided by financing activities	(792)	2,610
Effect of foreign exchange rate changes on cash	(3,976)	222
Net change in cash and cash equivalents	3,218	715
Cash and cash equivalents at beginning of year	10,458	7,111
Cash and cash equivalents at end of period	13,676	7,826
Supplemental disclosure of cash flows information:
Interest paid	413	375
Income taxes paid	$ 36	$ 541

XML

Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Basis of Accounting [Text Block]

1. Basis of Presentation

The unaudited, interim condensed consolidated financial statements of the Company, accompanying this Quarterly Report on Form

10

-Q/A for the 

second

quarter ended

June 30, 2020

(this "Quarterly Report"), have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form

10

-Q and Article

10

of Regulation S-

X.

Accordingly, they do

not

include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The consolidated balance sheet as of

December 31, 2019

, has been prepared from the Company's audited consolidated balance sheet as of such date. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation have been included in these interim financial statements. However, these interim financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the Company as contained in the SGRP's Annual Report on Form

10

-K for the year ended

December 31, 2019

, as filed with the Securities and Exchange Commission (the "SEC") on

April 14, 2020 (

the "Annual Report").  Particular attention should be given to Items

1

and

1A

of the Annual Report respecting the Company's Business and Risk Factors, respectively

.

 The Company's results of operations for the interim period are

not

necessarily indicative of its operating results for the entire year. Except for the change noted below, the Company has consistently applied the accounting policies to all periods presented in these condensed consolidated financial statements.

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Note 2 - Business and Organization

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

2. Business and Organization

The Company is a supplier of merchandising and other marketing services throughout the United States and internationally. The Company provides merchandising and other marketing services to manufacturers, distributors and retailers worldwide, primarily in mass merchandiser, office supply, grocery, drug, dollar, independent, convenience, home improvement and electronics stores, as well as providing furniture and other product assembly services, audit services, in-store events, technology services and marketing research.

Merchandising services primarily consist of regularly scheduled, special project and other product services provided at the store level, and the Company

may

be engaged by either the retailer or the manufacturer. Those services

may

include restocking and adding new products, removing spoiled or outdated products, resetting categories in accordance with client or store schematics, confirming and replacing shelf tags, setting new sale or promotional product displays and advertising, replenishing kiosks, providing in-store event staffing and providing assembly services in stores, homes and offices. Other merchandising services include whole store or departmental product sets or resets, including new store openings, new product launches and in-store demonstrations, audit services, special seasonal or promotional merchandising, focused product support and product recalls. The Company also provides technology services and marketing research services.

As of

June 30, 2020

, the Company operates in

10

 countries and divides its operations into

two

reportable segments: its Domestic Division, which has provided services in the United States of America since certain of its predecessors were formed in

1979,

and its International Division, which began operations in

May 2001

and provides similar merchandising, marketing, audit and in-store event staffing services in Australia, Brazil, Canada, China, India, Japan, Mexico, South Africa and Turkey.

Novel Coronavirus (COVID-

19

) Outbreak

In

March 2020,

the World Health Organization declared the novel strain of Coronavirus (COVID-

19

) a global pandemic and recommended containment and mitigation measures worldwide. The full impact of the COVID-

19

outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company's financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce.

In the USA, many of our clients have been affected by business closure and stay at home orders, which has hampered our ability to perform in-store services since

March 2020.

As of the date of this filing, many of our Company subsidiaries globally have been impacted by temporary retail closures or reduced in-store hours, although most of our customer's locations remain open to provide essential products. New store openings and remodels with the Company's assistance are particularly susceptible to such external factors and are being delayed by many of the Company's clients due to the effects of the Novel Coronavirus. The Company has initiated mitigation efforts and is monitoring the situation on a country-by-country basis.  The Company has also implemented several cost savings measures which include a reduction in the use of contracted workers, furloughing employees, reducing hours and a reduction in other corporate and non-critical expenses.

Due in part to the uncertainty stemming from the COVID-

19

pandemic as described above the Company experienced a decrease in market capitalization near the end of the

first

quarter that has continued into the subsequent period. As a result of this condition, the Company reviewed for any triggering event and the need to perform quantitative interim impairment testing over the Company's goodwill assets as of 

June 30, 2020.

The Company concluded that a triggering event did

not

occur based on qualitative factors assessed as part of the annual impairment test previously performed, such as actual results to date in comparison to previous forecasts and assumptions based on current projections, including projected revenue, projected operational profit, terminal growth rates, and the cost of capital, and accordingly did

not

record any asset impairment charges on its goodwill. In performing its assessment, the Company believes it has made reasonable accounting estimates based on the facts and circumstances that were available as of the reporting date considering the developing situation resulting from the COVID-

19

pandemic. If actual results are

not

consistent with the assumptions and judgments used, there

may

be exposure to future impairment losses that could be material to the Company's results of operations.

Given the daily evolution of the COVID-

19

outbreak and the global responses to curb its spread, the Company cannot reasonably estimate the length or severity of this pandemic, however we currently anticipate a material adverse impact on our consolidated financial position, results of operations, and cash flows in fiscal

2020.

On

March 27, 2020,

the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law.  The CARES Act is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-

19

pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. We are analyzing the various aspects of the CARES Act to determine the impact specific provisions

may

have on us.

XML

Note 3 - Earnings Per Share

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

3. Earnings Per Share

The following table sets forth the computations of basic and diluted net income per share (in thousands, except per share data):

	Three Months End					Six Months Ended
	June 30,					June 30,
	2020			2019		2020		2019
Numerator:
Net income attributable to SPAR Group, Inc.	$	(103	)	$	1,523	$	193	$	2,139
Denominator:
Shares used in basic net income per share calculation		21,108			20,816		21,107		20,796
Effect of diluted securities:
Stock options and unvested restricted shares		17			288		50		284
Shares used in diluted net income per share calculations		21,125			21,104		21,157		21,080
Basic net income per common share:	$	(0.00	)	$	0.07	$	0.01	$	0.10
Diluted net income per common share:	$	(0.00	)	$	0.07	$	0.01	$	0.10

XML

Note 4 - Credit Facilities and Other Debt

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

4. Credit Facilities and Other Debt

Domestic Credit Facilities

PNC Credit Facility

In

January 2018,

the Company repaid and replaced its credit facility with Sterling Bank with a secured revolving credit facility in the United States and Canada (as amended the "PNC Credit Facility") with PNC Bank, National Association.

An amendment to the PNC Credit Facility dated as of

July 3, 2018,

among other things, increased the maximum principal amount of the Revolving Loans to

$9.5

million.

On

April 10, 2019,

the Company repaid and replaced its credit facility with PNC Bank, National Association with a new secured revolving credit facility in the United States and Canada (the "NM Credit Facility") with North Mill Capital, LLC ("NM").

North Mill Capital Credit Facility

On

April 10, 2019,

the Company repaid and replaced its

2018

credit facility with PNC Bank, National Association ("PNC"), with the NM Credit Facility with NM.

In order to obtain, document and govern the NM Credit Facility: SGRP and certain of its direct and indirect subsidiaries in the United States and Canada, namely SPAR Marketing Force ("SMF"), Inc., and SPAR Canada Company ("SCC") (each, an "NM Borrower" and collectively, the "NM Borrowers"), and SPAR Canada, Inc., SPAR Acquisition, Inc., SPAR Assembly and Installation, Inc., and SPAR Trademarks, Inc. (together with SGRP, each a "NM Guarantor" and collectively, the "NM Guarantors"), entered into

eighteen

(

18

) month individual Loan and Security Agreements with NM dated as of

April 10, 2019 (

the "NM Loan Agreements"), which governs the obligations of the NM Loan Parties to NM and secures them with pledges of substantially all of the assets of the NM Loan Parties (other than SGRP's foreign subsidiaries, certain designated domestic subsidiaries, and their respective equity and assets); the SMF Borrower issued its

$12.5

million Revolving Credit Master Promissory Note to NM dated

April 10, 2019,

and the SCC Borrower issued its

$2.5

million Revolving Credit Master Promissory Note to NM dated

April 10, 2019 (

the "NM Notes"), which evidences the NM Borrowers' loans and other obligations to NM; the NM Guarantors entered into a Guaranty Agreement with NM dated as of

April 10, 2019 (

the "NM Guaranty"), which guaranties the NM Borrowers' loans and other obligations to NM. The NM Credit Facility, was subsequently extended until

October 2021.

On

April 10, 2019,

the Company drew down an initial advance under the NM Credit Facility of approximately

$9.8

million, which was used to repay the Company's existing credit facility with PNC.

The NM Note currently requires the NM Borrowers to pay interest on the loans thereunder equal to (A) Prime Rate designated by Wells Fargo Bank, plus (B)

one hundred twenty

five

basis points (

1.25%

) or a minimum of

6.75%.

In addition, the Company is paying a fee to NM of

$180,000

payable at

$10,000

per month over the term of the agreement.  The Company utilized a broker to assist in this financing and has paid a fee of

$120,000

for their services. On

June 30, 2020

, the aggregate interest rate under that formula was

6.75%

per annum, and the outstanding loan balance was

$6.6

 million. Outstanding amounts are classified as short-term debt.

Revolving loans are available to the Borrowers under the NM Credit Facility based upon the borrowing base formula defined in the NM Loan Agreement (principally

85%

of "eligible" accounts receivable less certain reserves and

60%

of eligible unbilled accounts receivable at a maximum limit of

$4.5

million).

The NM Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the NM Loan Parties, including, maintaining a positive trailing EBITDA for each Borrower and limits on capital expenditures and other investments. The Company was in compliance of such covenants as of

June 30, 2020

.

Fifth Third Credit Facility

One of the Company's consolidated subsidiaries, Resource Plus of North Florida ("Resource Plus"), is a party to a revolving line of credit facility (the "Fifth Third Credit Facility") from Fifth Third Bank for

$3.5

million, which was scheduled to become due on

April 23, 2020. 

Effective

April 16, 2020,

the term of the Fifth Third Credit Facility was extended and is currently scheduled to become due on

June 

16,

2022.

 

Revolving loans of up to

$3.5

million are available to Resource Plus under the Fifth Third Credit Facility based upon the borrowing base formula defined in the agreement (principally

80%

of "eligible" accounts receivable less certain reserves). As of

June 30, 2020

, there was a balance of

$700,000.

The Fifth Third Credit Facility is secured by substantially all assets of Resource Plus.

The Fifth Third Credit Facility currently requires Resource Plus to pay interest on the loans thereunder equal to (A) the Daily LIBOR Rate (as defined in the agreement) per annum, plus (B)

two hundred fifty

basis points (

2.50%

). On

June 30, 2020

, the aggregate interest rate under that formula was

3.60%

per annum.

Other Debt

Effective with the closing of the Resource Plus acquisition, the Company entered into promissory notes with the sellers totaling

$2.3

million. The notes are payable in annual installments at various amounts due on

December

31st

of each year starting with

December 31, 2018 

and continuing through

December 31, 2023.

As such these notes are classified as both short term and long term for the appropriate amounts. The total balance owed at

June 30, 2020

was approximately

$1.6

 million.

International Credit Facilities:

 

SPARFACTS Australia Pty. Ltd. has a secured line of credit facility with National Australia Bank, effective

October 31, 2017,

for

$800,000

(Australian) or approximately

$550,000

 USD (based upon the exchange rate at

June 30, 2020

). The facility provides for borrowing based upon a formula, as defined in the agreement (principally

80%

of eligible accounts receivable less certain deductions). The outstanding balance with National Australia Bank as of

June 30, 2020

was

$21,000

 (Australian) or

$15,000

 USD and is due on demand.

On

October 5, 2018,

SPAR Brazil secured a line of credit facility with Banco Santander for approximately

381,000

Brazilian Real or approximately

$70,000

 USD (based upon the exchange rate at

June 30, 2020

). The outstanding balance as of

June 30, 2020

was approximately

13,000

 Brazilian Real or approximately

$2,000

 USD. This note is due

September 30, 2020.

SPAR Todopromo has secured a line of credit facility with Steel Factoring for

5.0

million Mexican Pesos or approximately

$217,000

 USD (based upon the exchange rate at

June 30, 2020

). The revolving line of credit was secured on

December 13, 2019,

and expires 

December 2020. 

The fixed interest rate for the Steel Factoring facility is

18%,

 as of

June 30, 2020

. The outstanding balance as of

June 30, 2020

 was

$5,000,000

 million Pesos or approximately

$217,000

 USD (based upon the exchange rate at

June 30, 2020

).

Effective

February 4, 2020,

SPAR Todopromo established a line of credit facility with Ve Por Mas for

5.2

million Mexican Pesos or approximately

$226,000

 USD (based upon the exchange rate at

June 30, 2020). 

The line expires on

February 4, 2021. 

The variable interest rate is TIIE plus

3.0%

resulting in a rate of

9.1%

as of

June 30, 2020. 

The outstanding balance was

4.7

million Mexican Pesos or approximately

$205,000

 USD (based upon the exchange rate at

June 30, 2020).

SPAR Todopromo has secured a line of credit facility with BBVA Bancomer for 

5.0

million Mexican Pesos or approximately

$217,000

 USD (based upon the exchange rate at

June 30, 2020

). The revolving line of credit expired

April 2020

but has been extended to

May 2021. 

The variable interest rate is TIIE (Interbank Interest Rate) plus

5.2%

 resulting in a rate of 

10.9%

as of

June 30, 2020.

There was

no

outstanding balance as of

June 30, 2020. 

	Interest Rate
	as of
	June 30, 2020			2020		2021		2022		2023		2024		2025
Australia - National Australia Bank		6.56	%		15		-		-		-		-		-
Brazil - Santander		16.52	%		2		-		-		-		-		-
Mexico - Steel Factoring		18.00	%		217		-		-		-		-		-
Mexico - Ve Por Mas		9.10	%		205		-		-		-		-		-
Mexico - Bancomer Bank		10.90	%		-		-		-		-		-		-
USA – North Mill Capital		6.75	%		6,631		-		-		-		-		-
USA - Fifth Third Bank		3.60	%		700		-		-		-		-		-
USA – Resource Plus Seller Notes		1.85	%		333		300		300		700		-		-
Total				$	8,103	$	300	$	300	$	700	$	-	$	–

Summary of

Unused

Company Credit and Other Debt Facilities (in thousands):

	June 30,		December 31,
	2020		2019
Unused Availability:
United States / Canada	$	8,169	$	3,694
Australia		536		423
Mexico		237		-
Brazil		68		49
Total Unused Availability	$	9,010	$	4,166

Management believes that based upon the continuation of the Company's existing credit facilities, projected results of operations, vendor payment requirements and other financing available to the Company (including amounts due to affiliates), sources of cash availability should be manageable and sufficient to support ongoing operations over the next year. However, delays in collection of receivables due from any of the Company's major clients, or a significant reduction in business from such clients could have a material adverse effect on the Company's cash resources and its ongoing ability to fund operations.

XML

Note 5 - Related-party Transactions

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

5. Related-Party Transactions

SGRP's policy respecting approval of transactions with related persons, promoters and control persons is contained in the SPAR Group Code of Ethical Conduct for its Directors, Executives, Officers, Employees, Consultants and other Representatives Amended and Restated (as of)

March 15, 2018 (

the "

Ethics Code

"). The Ethics Code is intended to promote and reward honest, ethical, respectful and professional conduct by each director, executive, officer, employee, consultant and other representative of any of SGRP and its subsidiaries (together with SGRP, the "

Company

") and each other Covered Person (as defined in the Ethics Code) in his or her position with the Company anywhere in the world, including (among other things) serving each customer, dealing with each vendor and treating each other with integrity and respect, and behaving honestly, ethically and professionally with each customer, each vendor, each other and the Company. Article II of the Ethics Code specifically prohibits various forms of self-dealing (including dealing with relatives) and collusion and Article V of the Ethics Code generally prohibits each "Covered Person" (including SGRP's officers and directors) from using or disclosing the Confidential Information of the Company or any of its customers or vendors, seeking or accepting anything of value from any competitor, customer, vendor, or other person relating to doing business with the Company, or engaging in any business activity that conflicts with his or her duties to the Company, and directs each "Covered Person" to avoid any activity or interest that is inconsistent with the best interests of the SPAR Group, in each case except for any "Approved Activity" (as such terms are defined in the Ethics Code). Examples of violations include (among other things) having any ownership interest in, acting as a director or officer of or otherwise personally benefiting from business with any competitor, customer or vendor of the Company other than pursuant to any Approved Activity. Approved Activities include (among other things) any contract with an affiliated person (each an "

Approved Affiliate Contract

") or anything else disclosed to and approved by SGRP's Board of Directors (the "

Board

"), its Governance Committee or its Audit Committee, as the case

may

be, as well as the ownership, board, executive and other positions held in and services and other contributions to affiliates of SGRP and its subsidiaries by certain directors, officers or employees of SGRP, any of its subsidiaries or any of their respective family members. The Company's senior management is generally responsible for monitoring compliance with the Ethics Code and establishing and maintaining compliance systems, including those related to the oversight and approval of conflicting relationships and transactions, subject to the review and oversight of SGRP's Governance Committee as provided in clause

IV.11

of the Governance Committee's Charter, and SGRP's Audit Committee as provided in clause

I.2

(l) of the Audit Committee's Charter. The Governance Committee and Audit Committee each consist solely of independent outside directors (see

Domestic Related Party Services, International Related Party Services, SBS Bankruptcy, Settlement and

March 2020

Claim, Summary of Certain Related Party Transactions, Infotech Litigation and Settlement, Affinity Insurance, and Other Related Party Transactions and Arrangements

, below).

SGRP's Audit Committee has the specific duty and responsibility to review and approve the overall fairness and terms of all material related-party transactions. The Audit Committee receives affiliate contracts and amendments thereto for its review and approval (to the extent approval is given), and these contracts are periodically (often annually) again reviewed, in accordance with the Audit Committee Charter, the Ethics Code, the rules of the Nasdaq Stock Market LLC ("

Nasdaq

"), and other applicable law to ensure that the overall economic and other terms will be (or continue to be)

no

less favorable to the Company than would be the case in an arms-length contract with an unrelated provider of similar services (i.e., its overall fairness to the Company, including pricing, payments to related parties, and the ability to provide services at comparable performance levels). The Audit Committee periodically reviews all related party relationships and transactions described below.

Domestic Related Party Services:

SPAR Business 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 SBS LLC which in turn is beneficially owned by Robert G. Brown. 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 principally by Robert G. Brown.  Mr. Robert G. Brown and Mr. Bartels (the "Majority Stockholders") (see below), are members of a

13D

control group and founders of SGRP, Mr. Robert G. Brown was Chairman and an officer and director of SGRP through

May 3, 2018 (

when he retired), and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels. Mr. Bartels was and continues to be Vice Chairman and a director of SGRP, but retired as an employee of SGRP as of

January 1, 2020 (

see

Bartels' Retirement and Director Compensation

, below).  Mr. Robert G. Brown and Mr. Bartels also have been and are stockholders, directors and executive officers of various other affiliates of SGRP. See Note

8

to the Company's Consolidated Financial Statements -

Commitments and Contingencies – Legal Matters

, and 

SBS Bankruptcy, Settlement and

March 2020

Claim

and

Infotech Litigation and Settlement,

below.

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 are employed by other independent

third

parties.

Due to (among other things) the adverse determination in

2016

in the Clothier case (as defined below) that SBS had misclassified its employees as independent contractors and the ongoing proceedings against SBS (which could have had a material adverse effect on SBS's ability to provide future services needed by the Company), SBS' continued higher charges and expense reimbursement disputes, and the Company's identification of an experienced independent

third

party company (the "

Independent Field Vendor

") 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 Field Vendor to replace those field services previously provided by SBS (other than in California).  The Company similarly terminated SAS and has engaged another independent

third

party company to replace those administrative services formerly provided by SAS, effective

August 1, 2018 (

the "

Independent Field Administrator

").

On

May 7, 2018,

the Company gave a termination notice to SAS specifying

July 31, 2018,

as the end of the Service Term under (and as defined in) SAS Agreement signed in

2016.

  The Company has reached a non-exclusive agreement with an independent

third

party vendor to provide substantially all of the domestic Independent Field Administrators used by the Company.    

Although SAS has

not

provided or been authorized to perform any services to the Company after their terminations described above effective on or before

July 31, 2018.

While SAS has apparently continued to operate for its own benefit and/or the winding down of its operations, the Company has determined that it is

not

obligated to reimburse any post-termination expense.  However, in the spirit of settlement, the Company had offered to reimburse SAS

$237,500

for claimed transition expenses to be offset by

$226,000

owed by SAS to the Company, for a net payment to SAS of

$11,500.

SAS has

not

accepted the Company's offer. 

The Company expects that SBS and SAS

may

use every available means to attempt to collect reimbursement from the Company for the foreseeable future for all of their post-termination expense, including repeated litigation. See Note

8

to the Company's Consolidated Financial Statements -

Commitments and Contingencies -- Legal Matters

and

SBS Bankruptcy, Settlement and

March 2020

Claim

, below.

Any claim by Robert G. Brown, William H. Bartels, SBS, SAS, any other related party or any

third

party that the Company is somehow liable for any judgment or similar amount imposed against SBS or SAS or any other related party, any judicial determination that the Company is somehow liable for any judgment or similar amount imposed against SBS or SAS or any other related party, or any increase in the Company's use of employees (rather than the services of independent contractors provided by

third

parties) to perform Field Specialist services domestically, in each case in whole or in part, could have a material adverse effect on the Company or its performance or condition (including its 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), whether actual or as planned, intended, anticipated, estimated or otherwise expected. See Note

8

to the Company's Consolidated Financial Statements -

Commitments and Contingencies

--

Legal Matters,

below.

Current material and potentially material legal proceedings impacting the Company are described in Note

8

to the Company's Consolidated Financial Statements -

Commitments and Contingencies

-

Legal Matters,

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.  Furthermore, even though SBS was solely responsible for its operations, methods and legal compliance, in connection with any proceedings against SBS, SBS continues to claim that the Company is 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.

Infotech sued the Company in New York seeking reimbursement for approximately

$190,000

respecting alleged lost tax benefits and other expenses it claims to have incurred in connection with SGRP's acquisition of its Brazilian subsidiary and previously denied on multiple occasions by both management and SGRP's Audit Committee, whose approval was required because Infotech is a related party. Infotech also threatened to sue the Company in Romania for approximately

$900,000

for programming services allegedly owed to the 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. The Company and Infotech settled this matter. See Note

8

to the Company's Consolidated Financial Statements -

Commitments and Contingencies

-

Legal Matters,

below.

Peter W. Brown was appointed as a Director on the Board as of

May 3, 2018,

replacing Mr. Robert G. Brown upon his retirement from the Board and Company at that date.  He has recently been deemed independent by the Board except for with respect to related party matters and for matters concerning SPAR Brasil Servicos de Merchandising e Tecnologia S.A., a Brazilian corporation and SGRP subsidiary ("

SPAR BSMT

").  Peter Brown is an affiliate and related party respecting SGRP and was proposed by Mr. Robert G. Brown to represent the Brown family interests.  He worked for and is a stockholder of SAS (see above) and certain of its affiliates, he is the nephew of Mr. Robert G. Brown, he is a director of SPAR BSMT and owns Earth Investments LLC, ("

EILLC

"), which owns

10%

interest in the SGRP's Brazilian subsidiary. Mr. Robert G. Brown is a significant stockholder of SGRP, and member of a

13D

control group, SGRP's former Chairman and director and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels.

National Merchandising Services, LLC ("

NMS

"), is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect ownership of

51%

of the NMS membership interests and by National Merchandising of America, Inc. ("

NMA

"), through its ownership of the other

49%

of the NMS membership interests. Mr. Edward Burdekin is the Chief Executive Officer and President and a director of NMS and also is an executive officer and director of NMA. Ms. Andrea Burdekin, Mr. Burdekin's wife, is the sole stockholder and a director of NMA and a director of NMS. NMA is an affiliate of the Company but is

not

under the control of or consolidated with the Company. Mr. Burdekin also owns

100%

of National Store Retail Services ("

NSRS

"). Since

September 2018,

NSRS provided substantially all of the domestic merchandising specialist field force used by NMS. For those services, NMS agrees to reimburse NSRS the total costs for providing those services and to pay NSRS a premium equal to

1.0%

of its total cost.

Also, NMS leases office and operational space that is owned personally by Mr. Burdekin. The lease expense is

$2,000

a month. While there is

no

formal signed agreement, there is

no

expected change to the arrangement.

On

August 10, 2019,

NMS, to protect continuity of its Field Specialist nationwide, petitioned for bankruptcy protection under chapter

11

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

NMS Chapter

11

Case

"), and as a result, the claims of NMS' creditors must now generally be pursued in the NMS Chapter

11

Case.  On

August 11, 2019,

NSRS and Mr. Burdekin also filed for reorganization in the NMS Chapter

11

Case, NMS is part of the consolidated Company.  Currently the Company believes that the NMS Chapter

11

Case is

not

likely to have a material adverse effect on the Company, and the Company's ownership of and involvement in NMS is

not

likely to change as a result of the NMS Chapter

11

Case or any resulting NMS reorganization.

Resource Plus of North Florida, Inc. "Resource Plus" or "RPI" is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect ownership of

51%

of the RPI membership interests and by Mr. Richard Justus through his ownership of the other

49%

of the RPI membership interests. Mr. Justus has a

50%

ownership interest in RJ Holdings which owns the buildings where RPI is headquartered and operates. Both buildings are subleased to RPI.

S

BS Bankruptcy, Settlement and

March 2020

Claim

On

November 23, 2018,

SBS petitioned for bankruptcy protection under chapter

11

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

SBS Chapter

11

Case

").  On

March 18, 2019,

the Company filed claims in the SBS Chapter

11

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 its settlement (see below) of the Clothier class action case in California ("

Clothier"

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

On

August 6, 2019,

SGRP, and its subsidiaries SPAR Marketing Force, Inc. ("

SMF

"), a Nevada corporation, and SPAR Assembly & Installation, Inc., f/k/a SPAR National Assembly Services, Inc., a Nevada corporation, submitted to the U.S. District Court in Nevada (the "

Bankruptcy Court

") their Compromise and Settlement Agreement, dated

July 26, 2019 (

the "

Settlement Agreement

"), with SBS, a Nevada corporation formerly known as SPAR Marketing Services, Inc., debtor and debtor-in-possession, and SBS, LLC, a Nevada limited liability company.  The Settlement Agreement was submitted in the SBS Chapter

11

Case.  Pursuant to the Settlement Agreement, the Company settled its claims for (among other things) indemnification from SBS in Clothier and the Rodgers class action case in Texas ("

Rodgers

"

)

.

On

August 6, 2019,

the Bankruptcy Court approved the Settlement Agreement and the SBS reorganization pursuant to SBS' First Amended Chapter

11

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

Plan of Reorganization

").  Pursuant to its Plan of Reorganization, SBS also settled its potential liability in the Clothier and Rodgers cases, but the Company believes that Robert G. Brown and William H. Bartels were

not

released from Clothier, any related case or Rodgers.  See Note

8

 to the Company's Consolidated Financial Statements in the

Commitments and Contingencies --

Legal Proceedings -- SBS Bankruptcy, Settlement and

March 2020

Claim, SBS Clothier Litigations,

and

SBS Rodgers Litigation,

below

.  

In the Settlement Agreement, except for the carve out described in the next paragraph, SBS completely released the Company from all obligations that

may

be owed to SBS.

On

August 6, 2019,

with the support of (among others) the Clothier and Rodgers plaintiffs and the Company, the Court approved the SBS Settlement Agreement and the SBS Reorganization pursuant to the SBS Plan (as defined in the SBS Settlement Release). The SBS Settlement Agreement provides for a mutual release of claims (including the SBS Claims and the SGRP Claims, as defined therein), except for the following:

(i)       the Company's

$2.2

million in claims were settled for

$174,097

 payable by SBS over

24

monthly installments of

$7,254

 per month starting

January 1, 2020,

and without any interest (collectively, the "

Discounted Claim Payments

"), as such terms are defined in the SBS Settlement Agreement and the Company accrued

$174,097

for the Discounted Claim Payments; and

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

In the SBS Settlement Agreement, the parties agreed to have a

third

party financial and accounting services firm, independently determine the Proven Unpaid A/R based on parameters set forth in the SBS Settlement Agreement.  In the SBS Settlement Agreement, the parties will accept the determination of the

third

party financial and accounting services firm as final and binding, and all other claims and amounts are released. The

third

party financial and accounting services firm has determined that the Company had paid all amounts due to SBS and that the Proven Unpaid A/R equals zero.

The Company has recorded the total settlement amount of

$174,097

as of

December 31, 2019. 

This settlement amount is payable in

24

equal monthly payments of

$7,254

starting

January 1, 2020. 

To date SBS is in default of the

first

six

payments totaling

$43,524

and formal default notices have been sent to SBS. SBS has responded and claimed an offset respecting its undocumented and unproven claims.  As of

June 30, 2020,

the total settlement has been reserved.

On

March 6, 2020,

Robert G. Brown on behalf of SBS sent an email communication to Arthur B. Drogue, to which he copied Arthur H. Baer, demanding payment of

$1,707,374

to SBS from SMF pursuant to (among other things) the SBS Settlement Agreement (the "

March 2020

Claim

").  The Company has reviewed the

March 2020

Claim in detail (although Brown has provided

no

backup or proof) and the Company strongly disagrees that any such amount is owed.  The Company believes that the robust and comprehensive mutual releases and other provisions in the SBS Settlement Agreement provide valuable relief from such claims and potential future claims and litigation by SBS respecting the Company's past involvement with SBS, including the

March 2020

Claim.  However, Robert G. Brown, president, director and indirect owner of SBS, since and notwithstanding the Court's approval of the SBS Settlement Agreement, has continued to make unproven and undocumented claims that amounts that were fully released pursuant to the SBS Settlement Agreement and approved by the bankruptcy court are nevertheless due to SBS from the Company, and the Company strongly disagrees.  The Company is prepared to take action in Nevada Bankruptcy Court by reopening the SBS bankruptcy case and petitioning official settlement of this matter.  Since all such claims have been completely released by SBS (with Mr. Robert G. Brown's approval), the Company owes nothing and has

not

accrued anything respecting Mr. Robert G. Brown's renewed claims.  Mr. Robert G. Brown is significant stockholder of SGRP, and member of a

13D

control group, SGRP's former Chairman and director of SGRP, and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels.

At SGRP's

March 2020

Board meeting, Mr. Bartels was requested by an independent director to compile a list of unproven and undocumented claims that he and Mr. Brown believe are owed by the Company. On

March 17, 2020,

that list was given to the Audit Committee Chairman and included additional claims, net of an anticipated reduction, totaling approximately

$1.3

million, bringing their total claims to approximately

$3

million.  The Company has completely rejected these claims, and believes it was released from all such claims by SBS in the SBS bankruptcy reorganization.

The

March 2020

Claim includes estimates for the individual legal defenses of Robert G. Brown and William H. Bartels in the private attorney general action in California ("

PAGA

") and Texas ("

Rodgers

") in cases that do

not

involve and never included the Company and for which the Company believes it has

no

liability.  The

March 2020

Claim also includes defense expenses for SBS Clothier case, which expenses SBS settled for a highly discounted amount in its bankruptcy reorganization but now wants the Company to pay in full. SBS in its bankruptcy reorganization but SBS now wants the Company to pay in full. SBS in its bankruptcy reorganization settled its potential liability in the Rodgers and Clothier cases and SBS has, and since

July 2019

had,

no

more defense expenses in those cases.  Subsidiaries of SGRP were at

one

time in the Clothier case but were dismissed without prejudice leaving SGRP subject to potential liability. Accordingly, SGRP settled the Clothier case separately.  SGRP was never named in the Rodgers case. However, the alleged continued willful misclassification by SBS of its independent contractors after the Clothier misclassification determination is a claimed basis for the PAGA lawsuit against Brown and Bartels. See Note

8

to the Company's Consolidated Financial Statements in the Commitments and Contingencies --

Legal Proceedings -- SBS Field Specialist Litigation, SBS Clothier Litigation, and SGRP Hogan Litigation

. Mr. Bartels' list also includes payments of

$500,000

per year to Robert G. Brown for extended retirement and advisory fees, although the Company has never proposed, committed or agreed to them and on several occasions specifically rejected Mr. Brown's proposals in various forms for them.

Infotech Litigation and Settlement

On

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 Mr. Robert G. Brown (

one

of the Majority Stockholders) as plaintiff commencing a case against SGRP (the "

Infotech Action

"). The Infotech Action sought 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 on multiple occasions by both management and SGRP's Audit Committee (whose approval was required because Infotech is a related party).

In

2016,

SGRP acquired SPAR Brasil Serviços de Merchandising e Tecnologia S.A. ("

SPAR BSMT

"), its Brazilian subsidiary, with the assistance of Mr. Robert G. Brown (while he was still Chairman and an officer and director of SGRP) and his nephew, Peter W. Brown, who became an indirect

10%

owner of SPAR BSMT, and later became a director of SGRP on

May 3, 2018.

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

Mr. Robert G. Brown incurred his alleged expenses associated with the transaction through Infotech, including salary allocations for unauthorized personnel and claims for his "lost tax breaks".  Mr. Robert G. Brown submitted his unauthorized, unproven and undocumented "expenses" to SGRP, and SGRP's Audit Committee allowed approximately

$50,000

of them (which was paid) and disallowed approximately

$150,000

of them.  His claim increased to over

$190,000

in the Infotech Action.  The Company vigorously denied owing any of those amounts.

In

2018,

Infotech also threatened to sue the Company in Romania for approximately

$900,000

for programming services allegedly owed to the Company's former Romanian subsidiary (sold at book value to Infotech in

2013

) and

not

provided to Infotech (the "

Romanian Claim

"). Infotech gave a draft complaint to the Company in

2018.

The Company also vigorously denied owing any of those obligations or amounts.

In order to avoid the expenses of protracted litigation, SGRP's Management and the Audit Committee agreed that it would be in the best interest of all stockholders to reach a reasonable settlement of both the Infotech Action and the Romanian Claim for installment payments in reasonable amounts and mutual releases of all other related claims.  Management had offered

$225,000

to settle both, but at the urging of the Board and assurances of several Board members that it would help them persuade Mr. Robert G. Brown to settle, management agreed to increase the settlement offer to a total of

$275,000.

  After extensive negotiation between the Company and Infotech, Mr. Robert G. Brown accepted the

$275,000

offer and the parties entered into the Confidential Settlement Agreement and Mutual Release on

October 8, 2019 (

the "

Infotech Settlement Agreement

"), which was approved and ordered by the Court on

October 30, 2019,

and the Infotech Action was discontinued (dismissed) with prejudice.

The Infotech Settlement Agreement required the Company to make payments totaling

$275,000

in

four

installments: (i)

$75,000

following Court approval (which Payment has already been made); (ii)

$75,000

within

30

days following discontinuance of the Infotech Action (which was discontinued on

October 30, 2019); (

iii)

$75,000

within

60

days following discontinuance of the Infotech Action; and (iv)

$50,000

within

90

days following discontinuance of the Infotech Action.  The Infotech Settlement was paid in accordance with the agreement and is therefore paid in full effective

January 2020.

The Company believes that the robust and comprehensive mutual releases in the Infotech Settlement Agreement provide valuable relief from potential future claims and litigation by Infotech respecting the Company's past involvement with Infotech in the Brazilian and Romanian transactions.

International Related Party Services:

SGRP Meridian (Pty), Ltd. ("Meridian") is a consolidated international subsidiary of the Company and is owned

51%

by SGRP,

23%

by Friedshelf

401

Proprietary Limited and

26%

by Lindicom Empowerment Holdings Proprietary Limited. Mr. Garry Bristow, who is an executive at SGRP Meridian and a Director of CMR Meridian, is

one

of the beneficial owners of both Merhold Cape Property Trust ("MCPT") and Merhold Holding Trust ("MHT"). Mr. Adrian Wingfield, who is a Director of CMR Meridian, is

one

of the beneficial owners of MHT. MHT owns the building where Meridian is headquartered and also owns

32

vehicles which are leased to Meridian. MCPT provides a fleet of

173

vehicles to Meridian under a

4

year lease program.

SPAR Todopromo is a consolidated international subsidiary of the Company and is owned

51%

by SGRP and

49%

by the following individuals: Mr. Juan F. Medina Domenzain, Juan Medina Staines, Julia Cesar Hernandez Vanegas, and Jorge Medina Staines. Mr. Juan F. Medina Domenzain is an officer and director of SPAR Todopromo and is also majority shareholder (

90%

) of CONAPAD ("

CON

") which has supplied administrative and operational consulting support to SPAR Todopromo since

2016.

Mr. Juan F. Medina Domenzain ("

JFMD

"), partner in SPAR Todopromo, leased a warehouse to SPAR Todopromo. The lease expires on

December 31, 2020.

SPAR Brasil Serviços de Merchandising e Tecnologia S.A., a Brazilian corporation ("

SPAR BSMT

" is owned

51%

by the Company,

39%

by JK Consultoria Empresarial Ltda.-ME, a Brazilian limitada ("

JKC

"), and

10%

by Earth Investments, LLC, a Nevada limited liability company ("

EILLC

"). 

JKC is owned by Mr. Jonathan Dagues Martins, a Brazilian citizen and resident ("

JDM

") and his sister, Ms. Karla Dagues Martins, a Brazilian citizen and resident. JDM is the Chief Executive Officer and President of each SPAR Brazil company pursuant to a Management Agreement between JDM and SPAR BSMT dated

September 13, 2016.

JDM also is a director of SPAR BSMT. Accordingly, JKC and JDM are each a related party respecting the Company. EILLC is owned by Mr. Peter W. Brown, a citizen and resident of the USA ("

PWB

") and a director of SPAR BSMT and SGRP and nephew of Robert G. Brown. Mr. Robert G. Brown is significant stockholder of SGRP, and member of a

13D

control group, SGRP's former Chairman and director of SGRP, and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels. Accordingly, PWB and EILLC are each a related party respecting the Company.

SPAR BSMT has contracted with Ms. Karla Dagues Martins, a Brazilian citizen and resident and JDM's sister and a part owner of SPAR BSMT, to handle the labor litigation cases for SPAR BSMT and its subsidiaries.  These legal services are being provided to them by Ms. Martins' company, Karla Martins Sociedade de Advogados ("

KMSA

"). Accordingly, Mr. Jonathan Dagues Martins and Ms. Karla Dagues Martins are each an affiliate and a related party respecting the Company.

Summary of Certain Related Party Transactions:

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Services provided by affiliates:
National Store Retail Services (NSRS)		1,050		260		2,392		385
Office lease expenses (Mr. Burdekin)		6		-		12		-
Office lease expenses (RJ Holdings)		177		97		350		199
Office and vehicle lease expenses (MPT)		11		16		27		32
Vehicle rental expenses (MCPT)		281		297		580		587
Office and vehicle rental expenses (MHT)		58		68		131		132
Consulting and administrative services (CON)		11		37		23		74
Legal Services (KMSA)		34		21		57		43
Warehousing rental (JFMD)		12		12		25		24
Consulting and administrative fees (SPARFACTS)		41		-		72		-
Total services provided by affiliates	$	1,681	$	808	$	3,669	$	1,476

Due to affiliates consists of the following (in thousands):	June 30,		December 31,
	2020		2019
Loans from local investors:(1)
Australia	$	696	$	467
Mexico		623		623
Brazil		140		139
China		1,387		2,271
South Africa		403		635
Resource Plus		531		531
Total due to affiliates	$	3,780	$	4,666

( 1 ) Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans have no payment terms and are due on demand and as such have been classified as current liabilities in the Company's consolidated financial statements.

Affinity Insurance:

SMF, a wholly-owned subsidiary of SGRP that provides merchandising and marketing service to its clients throughout the United States through (among other things) services provided by others, is owed

$675,000

for security deposit advances and

$226,000

for quarterly premium advances made by SMF (as described below) to SAS.  Prior to the termination of the services provided by SAS and SBS (effective at the end of

July 2018),

SMF engaged SAS as an independent contractor to provide the services of Field Administrators to domestically schedule, deploy and administer the independent Field Specialists provided by SBS as an independent contractor under a similar engagement. 

Affinity Insurance Company, Ltd. ("

Affinity

") is a captive insurance company that provides insurance and reinsurance products to its shareholders and their affiliates in exchange for payment of premium installments, posting of security collateral and other requirements, and subject to adjustments and assessments.  SAS is, and has been, a shareholder and member of Affinity and has been since approximately

2000.

  SMF became a direct shareholder and member of Affinity in

March 2018

in order to directly procure insurance for the domestic employees of the Company.

The business services SAS provided to, or on behalf of, SMF included insurance coverages for SMF and other SGRP employees domestically prior to

March 2018,

for SAS' Field Administrators and other employees through the termination by SMF of SAS' services effective on or about

July 31, 2018,

and for the Field Specialists provided by SBS to SMF through the termination by SMF of SBS' services effective on or about

July 31, 2018,

all in connection with services provided by SMF to its clients.  In connection with the business services provided by SAS, and based on informal arrangements between the parties, the Affinity insurance premiums for such coverage were ultimately charged (through SAS) for their fair share of the costs of that insurance to SMF, SAS (which then charges the Company) and SBS. The Company also advanced money to SAS to prepay Affinity insurance premiums.

SAS has received and

may

shortly be receiving returns of those security deposit advances and quarterly premium advances from Affinity totaling approximately

$921,000.

  SMF has demanded repayment of its advances to SAS from these recent refunds received from Affinity, but SAS has refused and appears to have distributed the moneys to other SAS related parties. SAS has recently stated it has

no

funds available to remit to SMF even though they have repeatedly acknowledged SAS owes these advances to SMF and in fact, it has been documented that these liabilities were properly reported in SAS' financial statements.

On

July 8, 2020

the Company issued a demand notice to SAS for the return of

$901,000

(the

$675,000

security advances and the

$226,000

premium advances) but to-date SAS has refused to comply with this demand. 

The Company has prepared the draft of a complaint to be filed in the Supreme Court of the State of New York in Westchester County, NY, seeking appropriate relief and recovery from SAS and other related parties, which it prepared with the support of SGRP's Audit Committee (which has certain oversight responsibilities respecting related party matters).  However, because of the pending changes in the SGRP' CEO and CFO positions, the Audit Committee recommended that management delay filing the complaint until it can be reviewed and pursued by SGRP's new CEO and CFO (upon their selection and appointment) if and as they determine appropriate.

Bartels' Retirement and Director Compensation

William H. Bartels retired as an employee of the Company as of

January 1, 2020.

However, he will continue to serve as Vice Chairman and a member of SGRP's Board of Directors (the "

Board

"), positions he has held since

July 8, 1999.

Effective as of

January 18, 2020,

SGRP's Governance Committee proposed and unanimously approved the following benefits for the

five

year period commencing

January 1, 2020,

and ending

December 31, 2024 (

the "

Five Year Period

"), for Mr. Bartels in connection with his retirement: (a) retirement payments of

$100,000

per year ("

Retirement Compensation

"); (b) the then applicable regular non-employee director fees ("

Regular Fees

"), currently

$55,000

per year, and a supplemental Board fee of

$50,000

per year ("

Supplemental Fees

"); and (c) the same medical, dental, eye and life insurance benefits he received as of

December 31, 2019,

under an arrangement whereby Mr. Bartels shared part of the cost of Medicare and supplemental health benefits, currently valued at approximately

$15,588

per year ("

Medical Benefits

"); in each case paid in accordance with SGRP's payroll schedule and policies, and payable whether or

not

Mr. Bartels remains a director of SGRP for any reason.

The Retirement Compensation, Regular Fees and Supplemental Fees that remain unpaid during the Five Year Period: (i) shall be accelerated and paid to Mr. Bartels (or his heirs or assigns) in full upon the sale to a

third

party of a majority of the SGRP Shares or all or substantially all of SGRP's assets; and (ii) shall survive and be payable in full to his heirs and assigns in the event of the death of Mr. Bartels.

Based on current rates and benefits, the aggregate value of such compensation, fees and benefits payable to Mr. Bartels will be approximately

$220,558

per year and a total of

$1,102,790

for the Five Year Period. Such compensation, fees and benefits (in whole or in part)

may

be extended beyond the Five Year Period in the discretion of the Board. The Company recognized

$700,000

of retirement benefit expense during the

six

-month period ended

June 30, 2020,

representing the present value of the future payments due Mr. Bartels. 

In the event of  any future business transaction involving Mr. Bartels and SGRP for which Bartels

may

receive additional compensation as mutually agreed at the time of or in connection with such transaction, which under applicable law also will require approval of SGRP's Audit Committee as a related party payment or transaction (as Mr. Bartels will still be a related party if he is then a director or significant stockholder), such retirement compensation, fees or benefits will

not

offset, replace or limit any such additional approved transactional compensation payable to Mr. Bartels.

Mr. Bartels is

one

of the founders and a significant stockholder of SGRP (holding approximately

25.1%

of the SGRP Shares).  He also is part of a control group holding a majority of the SGRP Shares with Robert G. Brown (together with Mr. Bartels), which group most recently acted to (

1

) unilaterally select, appoint and elect Panagiotis ("Panos") N. Lazaretos to serve on the board of directors of SGRP, effective on

December 10, 2019,

and unilaterally select, appoint and elect Robert G. Brown to serve on the board of directors of SGRP, effective as of

April 24, 2020.

Other Related Party Transactions and Arrangements:

In

July 1999,

SMF, SBS and SIT entered into a perpetual software ownership agreement providing that each party independently owned an undivided share of and has the right to unilaterally license and exploit certain portions of the Company's proprietary scheduling, tracking, coordination, reporting and expense software (the "

Co-Owned Software

") are co-owned with SBS and Infotech and each entered into a non-exclusive royalty-free license from the Company to use certain "SPAR" trademarks in the United States (the "

Licensed Marks

"). As a result of the SBS Chapter

11

Case, SBS' rights in the Co-Owned Software and Licensed Marks are assets of SBS' estate, subject to sale or transfer in any court approved reorganization or liquidation. See Note

8

to the Company's Consolidated Financial Statements -

Commitments and Contingencies

--

Legal Matters, Related Party Litigation

and

SBS Bankruptcy

, below.

Through arrangements with the Company, SBS (owned by Mr. Bartels and Mr. Brown), SAS (owned by Mr. Bartels and family members of Mr. Robert G. Brown), and other companies owned by Mr. Brown participate in various benefit plans, insurance policies and similar group purchases by the Company, for which the Company charges them their allocable shares of the costs of those group items and the actual costs of all items paid specifically for them. All such transactions between the Company and the above affiliates are paid and/or collected by the Company in the normal course of business.

XML

Note 6 - Preferred Stock

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Preferred Stock [Text Block]

6. Preferred Stock

SGRP's certificate of incorporation authorizes it to issue

3,000,000

shares of preferred stock with a par value of

$0.01

per share (the "SGRP Preferred Stock"), which

may

have such preferences and priorities over the SGRP Common Stock and other rights, powers and privileges as the Company's Board of Directors

may

establish in its discretion from time to time. The Company has created and authorized the issuance of a maximum of

3,000,000

shares of Series A Preferred Stock pursuant to SGRP's Certificate of Designation of Series "A" Preferred Stock (the "

SGRP Series A Preferred Stock

"), which have dividend and liquidation preferences, have a cumulative dividend of

10%

per year, are redeemable at the Company's option and are convertible at the holder's option (and without further consideration) on a

one

-to-

one

basis into SGRP Common Stock. The Company issued

554,402

of SGRP shares to affiliated retirement plans, which were all converted into common shares in

2011

(including dividends earned thereon), leaving

2,445,598

shares of remaining authorized preferred stock. At 

June 30, 2020

, 

no

shares of SGRP Series A Preferred Stock were issued and outstanding.

XML

Note 7 - Stock-based Compensation and Other Plans

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

7. Stock-Based Compensation and Other Plans

As of

June 30, 2020,

there were Awards representing

585,000

shares of SGRP's Common Stock that had been granted under the

2018

Plan (

565,000

of which remain outstanding), and Awards representing

3,044,927

shares of SGRP's Common Stock outstanding under the

2008

Plan.  After

May 31, 2019,

the

2018

Plan ended and

no

further grants can be made under the

2018

 Plan respecting such shares of SGRP's Common Stock. There is

no

new plan in place for stock compensation.

The Company recognized

$70,000

and

$66,000

in stock-based compensation expense relating to stock option awards during the

three

month periods ended  

June 30, 2020

and

2019

, respectively.  The tax benefit available from stock based compensation expense related to stock option during both the 

three

months ended

June 30, 2020

and

2019

 was approximately

$11,000

and

$17,000

respectively. The Company recognized

$95,000

and

$96,000

in stock-based compensation expense relating to stock option awards during the

six

month periods ended

June 30, 2020

and

2019,

respectively.  The tax benefit available from stock based compensation expense related to stock option during both the

six

months ended

June 30, 2020

and

2019

was approximately

$17,000

and

$24,000

respectively. As of

June 30, 2020

, total unrecognized stock-based compensation expense related to stock options was

$202,000.

   

During the

three

months ended

June 30, 2020

and

2019

, the Company recognized approximately

$0

and

$3,000,

respectively of stock based compensation expense related to restricted stock.  The tax benefit available to the Company from stock based compensation expense related to restricted stock during the

three

months ended

June 30, 2020

and

2019

was approximately

$0

and

$1,000,

respectively. During the

six

months ended 

June 30, 2020

and

2019

, the Company recognized approximately

$0

and

$5,000,

respectively of stock based compensation expense related to restricted stock.  The tax benefit available to the Company from stock based compensation expense related to restricted stock during the

three

months ended

June 30, 2020

and

2019

was approximately

$0

and

$1,000,

respectively. As of

June 30, 2020

, there was

no

unrecognized stock-based compensation expense related to unvested restricted stock awards.

XML

Note 8 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

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:

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 an entity controlled by Robert G. Brown and prior to

November 2018

was owned by Robert G. Brown and William H. Bartels. SAS is an affiliate because it is owned by William H. Bartels, Peter W. Brown and certain other 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. Messrs. Brown and Bartels (including, as applicable, certain related parties, the "

Majority Stockholders

") collectively own approximately

53.2%

of SGRP's common stock and are the founders of SGRP.  Mr. Robert G. Brown is significant stockholder of SGRP, and member of a

13D

control group, SGRP's former Chairman and director of SGRP, and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels.  Mr. Bartels is Vice Chairman and a director of SGRP.  Mr. Bartels retired as an employee of the Company as of

January 1, 2020 (

in accordance with the actions of SGRP's Compensation Committee on

January 22, 2020).

See

Bartels' Retirement and Director Compensation,

 above. Messrs. Brown and Bartels also are stockholders, directors and/or executive officers of various affiliates of SGRP.

SGRP claims against SAS re Affinity

The Company has prepared the draft of a complaint to be filed in the Supreme Court of the State of New York in Westchester County, NY, seeking appropriate relief and recovery from SAS and other related parties, which it prepared with the support of SGRP's Audit Committee (which has certain oversight responsibilities respecting related party matters).  However, because of the pending changes in the SGRP CEO and CFO positions, the Audit Committee recommended that management delay filing the complaint until it can be reviewed and pursued by SGRP's new CEO and CFO (upon their selection and appointment) if and as they determine appropriate.  See

Affinity Insurance

in

Related Part Transactions

in Note

5,

above. 

Delaware Litigation Settlement

On

September 4, 2018,

SGRP filed in the Court of Chancery of the State of Delaware (the "

Chancery Court

") a claim, 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.

On

September 18, 2018,

Robert G. Brown (

one

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

8

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.

On

January 18, 2019,

SGRP, Messrs. Brown and Bartels, Christiaan Olivier (Chief Executive Officer, President and a Director of SGRP), and all

four

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

225

Defendants

"), reached a settlement (the "

Delaware Settlement

") in the By-Laws Action and the

225

Action (together, the "

Delaware Actions

") and had the Delaware Actions then dismissed.

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 (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, 2019. 

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

2019

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

Additionally, as part of the Delaware Settlement, the parties to the Delaware Actions executed a Limited Mutual Release Agreement limited to the Delaware Actions and subject to specific exclusions (the "

Delaware Releases

"), and the parties to the Delaware 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 Chancery 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 certain related parties, including (without limitation) post termination claims by and against SBS (which has been resolved in a voluntary bankruptcy proceeding in Nevada by SBS -- see

SBS Bankruptcy, Settlement, and

March 2020

Claim,

below) and SAS and the lawsuit by Infotech against the Company (which has been resolved in a settlement – see 

Infotech Litigation and Settlement

, below), and the claims by Messrs. Brown and Bartels for advancement and indemnification of legal fees and expenses in connection with the Delaware Actions and certain related party claims (see

Advancement Claims

, below).

Advancement Claims

From

October 2018

through

January 2019,

the Majority Stockholders, in a series of correspondence, demanded from SGRP advancement and indemnification of their respective shares of legal fees and expenses incurred by them in connection with the By-Laws Action and the

225

Action and other related party litigation matters.

On

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 Action 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 Action because (among other things) Mr. Bartels was sued predominately as a stockholder in the By-Laws Action and

not

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

no

determination regarding improper conduct or the issue of advancement.

On

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.

In

December 2018

SGRP reached an 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 paid approximately

$106,000

in

April 2019. 

If Mr. Bartels is ultimately determined to

not

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

On

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 Action 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.

On

January 27, 2019,

Mr. Robert G. 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.

On

March 21, 2020,

Mr. Robert G. Brown repeated the Brown Advancement Demand and sent a slightly revised draft complaint that would purportedly change the contemplated litigation jurisdiction from Delaware to Massachusetts. 

No

explanation was given for this alleged change in jurisdiction.  On

August 1, 2020,

Robert G. Brown sent a slightly revised complaint to William H. Bartels (who forwarded it to Arthur H. Baer, Chairman of the Board and Audit Committee) changing the contemplated litigation jurisdiction from Massachusetts back to Delaware.  Although it was signed and notarized and said by Robert G. Brown in his email to be in the process of being filed,

no

 such complaint has been filed by Mr. Brown through

August 11, 2020,

and SGRP continues to deny the Brown Advancement Demand.  In addition, SGRP believes that the Delaware Court has exclusive jurisdiction pursuant to SGRP's

2019

Restated By-Laws and the Settlement. Mr. Robert G. Brown is significant stockholder of SGRP, and member of a

13D

control group, SGRP's former Chairman and director of SGRP, and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels.

SBS Bankruptcy, Settlement and

March 2020

Claim

On

November 23, 2018,

SBS petitioned for bankruptcy protection under chapter

11

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

SBS Chapter

11

Case

").  On

March 18, 2019,

the Company filed claims in the SBS Chapter

11

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 its settlement (see below) of the Clothier class action case in California ("

Clothier

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

On

August 6, 2019,

SGRP, and its subsidiaries SPAR Marketing Force, Inc. ("

SMF

"), a Nevada corporation, and SPAR Assembly & Installation, Inc., f/k/a SPAR National Assembly Services, Inc., a Nevada corporation, submitted to the U.S. District Court in Nevada (the "

Bankruptcy Court

") their Compromise and Settlement Agreement, dated

July 26, 2019 (

the "

Settlement Agreement

"), with SBS, a Nevada corporation formerly known as SPAR Marketing Services, Inc., debtor and debtor-in-possession, and SBS, LLC, a Nevada limited liability company.  The Settlement Agreement was submitted in the SBS Chapter

11

Case.  Pursuant to the Settlement Agreement, the Company settled its claims for (among other things) indemnification from SBS in Clothier and the Rodgers class action case in Texas ("

Rodgers").

On

August 6, 2019,

the Bankruptcy Court approved the Settlement Agreement and the SBS reorganization pursuant to SBS' First Amended Chapter

11

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

Plan of Reorganization

").  Pursuant to its Plan of Reorganization, SBS also settled its potential liability in the Clothier and Rodgers cases, but the Company believes that Robert G. Brown and William H. Bartels were

not

released from Clothier, any related case or Rodgers. See

SBS Rodgers Litigation,

below

.

In the Settlement Agreement, except for the carve out described in the next paragraph, SBS completely released the Company from all obligations that

may

be owed to SBS.

On

August 6, 2019,

with the support of (among others) the Clothier and Rodgers plaintiffs and the Company, the Court approved the SBS Settlement Agreement and the SBS Reorganization pursuant to the SBS Plan (as defined in the SBS Settlement Release). The SBS Settlement Agreement provides for a mutual release of claims (including the SBS Claims and the SGRP Claims, as defined therein), except for the following:

(i)       the Company's

$2.2

million in claims were settled for

$174,097.34

payable by SBS over

24

monthly installments of

$7,254.06

per month starting

January 1, 2020,

and without any interest (collectively, the "

Discounted Claim Payments

"), as such terms are defined in the SBS Settlement Agreement; and

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

In the SBS Settlement Agreement, the parties agreed to have a

third

party financial and accounting services firm, independently determine the Proven Unpaid A/R based on parameters set forth in the SBS Settlement Agreement.  In the SBS Settlement Agreement, the parties will accept the determination of the

third

party financial and accounting services firm as final and binding, and all other claims and amounts are released. The

third

party financial and accounting services firm, has determined that the Company had paid all amounts due to SBS and has

no

further obligation.

The Company has recorded the total settlement amount of

$174,097

as of

December 31, 2019. 

This settlement amount is payable in

24

equal monthly payments of

$7,254

starting

January 1, 2020. 

To date SBS is in default of the

first

six

payments totaling

$43,524

and formal default notices have been sent to SBS.  SBS has responded and claimed an offset respecting its undocumented and unproven claims.  As of

June 30, 2020,

the total settlement has been reserved.

On

March 6, 2020,

Robert G. Brown on behalf of SBS sent an email communication to Arthur B. Drogue, to which he copied Arthur H. Baer, demanding payment of

$1,707,374

to SBS from SMF SGRP pursuant to (among other things) the SBS Settlement Agreement (the "

March 2020

Claim

").  The Company has reviewed the

March 2020

Claim in detail (although Brown has provided

no

backup or proof) and the Company strongly disagrees that any such amount is owed.  The Company believes that the robust and comprehensive mutual releases and other provisions in the SBS Settlement Agreement provide valuable relief from such claims and potential future claims and litigation by SBS respecting the Company's past involvement with SBS, including the

March 2020

Claim.  However, Robert G. Brown, president, director and indirect owner of SBS, since and notwithstanding the Court's approval of the SBS Settlement Agreement, has continued to make unproven and undocumented claims that amounts that were fully released pursuant to the SBS Settlement Agreement and approved by the bankruptcy court are nevertheless due to SBS from the Company, and the Company strongly disagrees.  The Company is prepared to take action in Nevada Bankruptcy Court by reopening the SBS bankruptcy case and petitioning official settlement of this matter.  Since all such claims have been completely released by SBS (with Mr. Robert G. Brown's approval), the Company owes nothing and has

not

accrued anything respecting Mr. Robert G. Brown's renewed claims.  Mr. Robert G. Brown is significant stockholder of SGRP, and member of a

13D

control group, SGRP's former Chairman and director of SGRP, and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels.

At SGRP's

March 2020

Board meeting, Mr. Bartels was requested by an independent director to compile a list of claims that he and Mr. Brown believe are owed by the Company. On

March 17, 2020,

that list was given to the Audit Committee Chairman and included additional claims, net of an anticipated reduction, totaling approximately

$1.3

million, bringing their total claims to approximately

$3

million.  The Company has completely rejected these claims, and believes it was released from all such claims by SBS in the SBS bankruptcy reorganization.

The

March 2020

Claim includes estimates for the individual legal defenses of Robert G. Brown and William H. Bartels in the private attorney general action in California ("

PAGA

") and Texas ("

Rodgers

") in cases that do

not

involve and never included the Company and for which the Company believes it has

no

liability.  The

March 2020

Claim also includes defense expenses for SBS Clothier case, which expenses SBS settled for a highly discounted amount in its bankruptcy reorganization but now wants the Company to pay in full. SBS in its bankruptcy reorganization settled its potential liability in the Rodgers and Clothier cases has, and since

July 2018

had,

no

more defense expenses in those cases.  SGRP settled Clothier separately and was never in the Rodgers case. However, the alleged continued willful misclassification by SBS of its independent contractors after the Clothier misclassification determination is the basis for the PAGA lawsuit against Brown and Bartels.

See Legal Proceedings -- SBS Field Specialist Litigation, SBS Clothier Litigation

, and

SGRP Hogan Litigation

in this note. Mr. Bartels' list also includes payments of

$500,000

per year to Robert G. Brown for extended retirement and advisory fees, although the Company has never proposed, committed or agreed to them and on several occasions specifically rejected Mr. Brown's proposals in various forms for them.

Infotech Litigation and Settlement

On

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) as plaintiff commencing a case against SGRP (the "

Infotech Action

"). The Infotech Action sought 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 on multiple occasions by both management and SGRP's Audit Committee (whose approval was required because Infotech is a related party).

In

2016,

SGRP acquired SPAR Brasil Serviços de Merchandising e Tecnologia S.A. ("

SPAR BSMT

"), its Brazilian subsidiary, with the assistance of Robert G. Brown (while he was still Chairman and an officer and director of SGRP) and his nephew, Peter W. Brown, who became an indirect

10%

owner of SPAR BSMT, and later became a director of SGRP on

May 3, 2018.

Robert G. Brown used his private company, Infotech and undisclosed foreign companies to structure the acquisition for SGRP.

Robert G. Brown incurred his alleged expenses associated with the transaction through Infotech, including salary allocations for unauthorized personnel and claims for his "lost tax breaks".  Robert G. Brown submitted his unauthorized and unsubstantiated "expenses" to SGRP, and SGRP's Audit Committee allowed approximately

$50,000

of them (which was paid by the Company) and disallowed approximately

$150,000

of them.  His claim increased to over

$190,000

in the Infotech Action.  The Company vigorously denied owing any of those amounts.

In

2018,

Infotech also threatened to sue the Company in Romania for approximately

$900,000

for programming services allegedly owed to the Company's former Romanian subsidiary (sold at book value to Infotech in

2013

) and

not

provided to Infotech (the "

Romanian Claim

"). Infotech gave a draft complaint to the Company in

2018.

The Company also vigorously denied owing any of those obligations or amounts.

In order to avoid the expenses of protracted litigation, SGRP's Management and the Audit Committee agreed that it would be in the best interest of all stockholders to reach a reasonable settlement of both the Infotech Action and the Romanian Claim for installment payments in reasonable amounts and mutual releases of all other related claims.  Management had offed

$225,000

to settle both, but at the urging of the Board and assurances of several Board members that it would help them persuade Robert G. Brown to settle, management agreed to increase the settlement offer to a total of

$275,000.

  After extensive negotiation between the Company and Infotech, Robert G. Brown accepted the

$275,000

offer and the parties entered into the Confidential Settlement Agreement and Mutual Release on

October 8, 2019 (

the "

Infotech Settlement Agreement

"), which was approved and ordered by the Court on

October 30, 2019,

and the Infotech Action was discontinued (dismissed) with prejudice.

The Infotech Settlement Agreement requires the Company to make payments totaling

$275,000

in

four

installments: (i)

$75,000

following Court approval (which Payment has already been made); (ii)

$75,000

within

30

days following discontinuance of the Infotech Action (which was discontinued on

October 30, 2019); (

iii)

$75,000

within

60

days following discontinuance of the Infotech Action; and (iv)

$50,000

within

90

days following discontinuance of the Infotech Action.  The Company has paid all the installments including the final payment to Infotech in 

January 2020.

The Company believes that the robust and comprehensive mutual releases in the Infotech Settlement Agreementprovide valuable relief from potential future claims and litigation by Infotech respecting the Company's past involvement with Infotech in the Brazilian and Romanian transactions.

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

") furnished by others and 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 did

not

manage, direct or control SBS, and SGRP did

not

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

no

services from SBS after

July 27, 2018. 

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

Related Party Transactions

, above.

The appropriateness of SBS' treatment of Field Specialists as independent contractors had been periodically subject to legal challenge (both currently and historically) by various states and others. SBS' expenses of defending those challenges and other proceedings generally were, through but

not

after the termination of the SBS services, reimbursed by the Company after and to the extent the Company determined (on a case by case basis) that those defense expenses were costs of providing services to the Company.

The Company settled its potential liability (as a current or former party) under

two

class action lawsuits against SBS, namely Clothier and Hogan.  SBS was separately dismissed from the Hogan class action prior to the Company's settlement.  SBS settled with Clothier and Rodgers in the SBS Bankruptcy, but Robert G. Brown and William H. Bartels were

not

released from Clothier, any related case or Rodgers (see above).  The Company has never been a party to the Rodgers case.

Any claim made and proven by Robert G. Brown, William H. Bartels, SBS, SAS, any other related party or any

third

party that the Company is somehow liable (through indemnification or otherwise) for any judgment or similar amount imposed against Mr. Brown, Mr. Bartels, SBS or SAS or any other related party, in each case in whole or in part, could have a material adverse effect on the Company or its performance or condition (including its 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), whether actual or as planned, intended, anticipated, estimated or otherwise expected.

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 (instead of as employees) 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 Misclassification Determination

").  The plaintiffs and SBS then moved into phase

two

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

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, subject to the final court approval (the "

Clothier Settlement

").  Final approval was granted on

September 20, 2019, 

and the Company was released by plaintiff and the settlement class from all other liability under the Clothier Case. The Company recorded a

$1.3

million charge for the Clothier Settlement during

2018,

when the agreement in the Clothier Settlement was reached.  Pursuant to the Clothier Settlement SGRP will pay a maximum settlement amount of

$1.3

million, payable in

four

equal annual installments that commenced with the

first

payment of

$325,000

in

December 2019. 

The

$975,000

balance was accrued as of

June 30, 2020.

Since SGRP has

no

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. SBS did

not

participate in the Clothier Settlement and was

not

released. Rather than proceed to the damage portion of the trial respecting trial the Clothier Misclassification Determination, SBS filed for bankruptcy protection.

SBS and 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 by SBS as independent contractors (instead of as employees), 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,

SGRP 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.

On

March 12, 2018,

the Court denied the Motion to Compel Arbitration as to SGRP because as drafted by SBS, the arbitration clause did

not

reference or protect SGRP according to the Court.  However, the Court eventually granted SBS the right to arbitrate without SGRP. SGRP appealed to the First Circuit contesting the District Court's decision that the arbitration clause (as written by SBS) did

not

protect SGRP.

On

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

no

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 (the "

Hogan Settlement

"), which was approved by the court and became final in

November 2019,

and the Company was released by plaintiff and the settlement class from all other liability under the Hogan Case.  Pursuant to the Hogan Settlement, SGRP agreed to a maximum settlement amount of

$250,000

(in

three

installments), which payments commenced in

December 2019 

with the

first

payment of

$150,000,

 

$50,000

paid in

March 2020

and the remaining

$50,000

paid in

June 2020.

SBS Rodgers Litigation

Maceo Rodgers was engaged by and provided services to SBS pursuant to the terms of his "Master Agreements" with SBS acknowledging his engagement as an independent contractor.  On

February 21, 2014,

Rodgers filed suit against SBS, Robert G. Brown and William H. Bartels, styled Civil Action

No.

3:14

-CV-

00055,

in the U.S. District Court for the Southern District of Texas (Galveston Division).  Plaintiff asserted claims on behalf of himself and an alleged class of similarly situated individuals who provided services to SBS as independent contractors at any time on or after

July 15, 2012,

claiming they all were misclassified by SBS independent contractors and that, as a result of this misclassification, the Defendants improperly underpaid them in violation of the Fair Labor Standards Act's overtime and minimum wage provisions.  Although the Court conditionally certified the class on

December 8, 2015,

61

individuals joined the action as opt-in plaintiffs, and all but

11

of them have potentially disqualifying arbitration provisions, residences outside the class's geographic area, or late opt-in filings, and were challenged by the Defendants in various motions, including a motion to decertify the class.  The Court, however, did

not

rule on these motions and instead stayed the case on

September 19, 2017

to allow the parties to mediate.  On

October 24, 2017,

the Court granted the parties' joint motion to extend the stay order until

January 31, 2018.

Rodgers settled for a claim of approximately

$618,000

against SBS (but

not

any claims against Brown or Bartels), in the SBS bankruptcy case, and in full settlement of that claim they agreed upon a discounted payment amount of approximately

$48,000,

payable in equal quarterly installments over a

five

(

5

) year period.  See SBS Bankruptcy, Settlement and

March 2020

Claim, above.

XML

Note 9 - Segment Information

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

9. Segment Information

The Company reports net revenues from operating income by reportable segment. Reportable segments are components of the Company for which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company provides similar merchandising, business technology and marketing services throughout the world, operating within

two

reportable segments, its Domestic Division and its International Division. The Company uses those divisions to improve its administration and operational and strategic focuses, and it tracks and reports certain financial information separately for each of those divisions. The Company measures the performance of its Domestic and International Divisions and subsidiaries using the same metrics. The primary measurement utilized by management is operating profits, historically the key indicator of long-term growth and profitability, as the Company is focused on reinvesting the operating profits of each of its international subsidiaries back into its local markets in an effort to improve market share and continued expansion efforts.

The accounting policies of each of the reportable segments are the same as those described in the Summary of Significant Accounting Policies. Management evaluates performance as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Revenue:
United States	$	22,123		$	28,006		$	45,412		$	46,662
International		28,821			40,217			66,880			78,721
Total revenue	$	50,944		$	68,223		$	112,292		$	125,383
Operating income:
United States	$	315		$	2,608		$	623		$	3,360
International		1,648			1,622			2,817			2,601
Total operating income	$	1,963		$	4,230		$	3,440		$	5,961
Interest expense (income):
United States	$	144		$	185		$	276		$	246
International		(60	)		2			36			142
Total interest expense	$	84		$	187		$	312		$	388
Other (income), net:
United States	$	(1	)	$	(1	)	$	(1	)	$	(1	)
International		(49	)		(191	)		(57	)		(256	)
Total other (income), net	$	(50	)	$	(192	)	$	(58	)	$	(257	)
Income before income tax expense:
United States	$	172		$	2,424		$	348		$	3,115
International		1,757			1,811			2,838			2,715
Total income before income tax expense	$	1,929		$	4,235		$	3,186		$	5,830
Income tax expense:
United States	$	124		$	501		$	199		$	702
International		500			927			760			1,284
Total income tax expense	$	624		$	1,428		$	959		$	1,986

Net income:
United States	$	48		$	1,923		$	149		$	2,413
International		1,257			884			2,078			1,431
Total net income	$	1,305		$	2,807		$	2,227		$	3,844
Net (income) attributable to non-controlling interest:
United States	$	(519	)	$	(679	)	$	(583	)	$	(775	)
International		(889	)		(605	)		(1,451	)		(930	)
Total net (income) attributable to non-controlling interest	$	(1,408	)	$	(1,284	)	$	(2,034	)	$	(1,705	)
Net income (loss) attributable to SPAR Group, Inc.:
United States	$	(471	)	$	1,244		$	(434	)	$	1,638
International		368			279			627			501
Total net income (loss) attributable to SPAR Group, Inc.	$	(103	)	$	1,523		$	193		$	2,139
Depreciation and amortization:
United States	$	419		$	382		$	832		$	754
International		120			146			247			284
Total depreciation and amortization	$	539		$	528		$	1,079		$	1,038
Capital expenditures:
United States	$	288		$	344		$	669		$	722
International		156			127			117			213
Total capital expenditures	$	444		$	471		$	786		$	935

Note:  There were

no

inter-company sales for the 

six

months ended

June 30, 2020

or

2019

.

	June 30,		December 31,
	2020		2019
Assets:
United States	$	30,697	$	24,927
International		43,213		54,608
Total assets	$	73,910	$	79,535

	June 30,		December 31,
	2020		2019
Long lived assets:
United States	$	4,182	$	4,957
International		3,358		3,954
Total long lived assets	$	7,540	$	8,911

Geographic Data

(in thousands)

	Three Months Ended June 30,										Six Months Ended June 30,
	2020					2019					2020					2019
			% of					% of					% of					% of
			consolidated					consolidated					consolidated					consolidated
International revenue:			net revenue					net revenue					net revenue					net revenue
Brazil	$	10,539		20.7	%	$	16,612		24.3	%	$	26,103		23.2	%	$	32,145		25.6	%
South Africa		6,088		12.0			6,442		9.4			13,002		11.6			12,976		10.3
Mexico		4,820		9.5			5,664		8.3			10,667		9.5			10,951		8.7
China		2,756		5.4			3,180		4.7			5,320		4.7			6,459		5.2
India		1,915		3.8			2,065		3.0			4,207		3.7			4,271		3.4
Japan		1,649		3.2			2,865		4.2			4,431		3.9			5,595		4.5
Canada		1,004		2.0			2,459		3.6			2,720		2.4			4,563		3.6
Australia		50		0.1			863		1.3			430		0.4			1,627		1.3
Turkey		-		-			67		0.1			-		-			134		0.1
Total international revenue	$	28,821		56.7	%	$	40,217		58.9	%	$	66,880		59.4	%	$	78,721		62.7	%

XML

Note 10 - Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Significant Accounting Policies [Text Block]

10. Recent Accounting Pronouncements

The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board (“FASB”).

In

December 2019,

the FASB issued ASU

2019

-

12

simplifying various aspects related to the accounting for income taxes. The guidance removes exceptions to the general principles in Topic

740

related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU is effective for annual reporting periods beginning after

December 15, 2020,

including interim reporting periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.

In

August 2018,

the FASB issued ASU

2018

-

13

which eliminates, adds and modifies certain fair value measurement disclosures. The ASU is effective for annual reporting periods beginning after

December 15, 2019,

including interim reporting periods within those annual periods, with early adoption permitted. The adoption of this standard did

not

 have a material impact to the consolidated financial statements.

In

January 2017,

the FASB issued ASU

2017

-

04

simplifying the accounting for goodwill impairment for all entities. The new guidance eliminates the requirement to calculate the implied fair value of goodwill (Step

2

of the current

two

-step goodwill impairment test under ASC

350

). Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value (Step

1

of the current

two

-step goodwill impairment test). The ASU is effective prospectively for reporting periods beginning after

December 15, 2019.

The adoption of this standard did

not

have a material impact on the goodwill impairment testing process or the consolidated financial statements.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

“Financial Instruments (Topic

326

) Credit Losses”. Topic

326

changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are

not

accounted for at fair value through net income are to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Topic

326

is effective as of

January 1, 2020,

although in

November 2019,

the FASB delayed the effective date until fiscal years beginning after

December 15, 2022

for Security Exchange Commission ("SEC") filers eligible to be smaller reporting companies under the SEC's definition, as well as private companies and

not

-for-profit entities. The Company qualifies as a smaller reporting company under the SEC's definition. Early adoption is permitted. The Company is currently evaluating the impact of Topic

326

on its consolidated balance sheets, statements of operations, statements of cash flows and related disclosures.

In

February 2016,

the FASB issued ASU

2016

-

02

amending the existing accounting standards for lease accounting and requiring lessees to recognize lease assets and lease liabilities for all leases with lease terms of more than

12

months, including those classified as operating leases. Both the asset and liability are initially measured at the present value of the future minimum lease payments, with the asset being subject to adjustments such as initial direct costs. Consistent with current U.S. GAAP, the presentation of expenses and cash flows depends primarily on the classification of the lease as either a finance or an operating lease. The new standard also requires additional quantitative and qualitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases in order to provide additional information about the nature of an organization's leasing activities. An additional optional transition method to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption is allowed. The Company adopted this guidance with the optional transition method effective

January 1, 2019.

XML

Note 11 - Leases

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

11. Leases

The Company is a lessee under certain operating leases for office space and equipment. 

ASC

842

requires lessees to recognize leases on the balance sheet as a lease liability with a corresponding right of use ("ROU") asset, subject to certain permitted accounting policy elections.

Under ASC

842,

SPAR determines, at the inception of the contract, whether the contract is or contains a lease based on whether the contract provides SPAR the right to control the use of a physically distinct asset or substantially all of the capacity of an asset.

Many of SPAR's equipment leases are short-term or cancellable with notice. SPAR's office space leases have remaining lease terms between

one

and approximately

eleven

years, many of which include

one

or more options to extend the term for periods thereafter. Certain leases contain options to terminate the lease early, which

may

include a penalty for exercising the option. Many of the termination options require notice within a specified period, after which the option is

no

longer available to SPAR if

not

exercised. The extension options and termination options

may

be exercised at SPAR's sole discretion. SPAR does

not

consider in the measurement of ROU assets and lease liabilities an option to extend or terminate a lease if SPAR is

not

reasonably certain to exercise the option. As of the end of this reporting period, SPAR has

not

included any options to extend or terminate in its measurement of ROU assets or lease liabilities.

Certain of SPAR's leases include covenants that oblige SPAR, at its sole expense, to repair and maintain the leased asset periodically during the lease term. SPAR is

not

a party to any leases that contain residual value guarantees nor is SPAR a party to any leases that provide an option to purchase the underlying asset.

Many of SPAR's office space leases include fixed and variable payments. Variable payments relate to real estate taxes, insurance, operating expenses, and common area maintenance, which are usually billed at actual amounts incurred proportionate to SPAR's rented square feet of the building. Variable payments that do

not

depend on an index or rate are expensed by SPAR as they are incurred and are

not

included in the measurement of the lease liability.

Some of SPAR's leases contain both lease and non-lease components. Fixed and variable payments are allocated to each component relative to observable or estimated standalone prices. SPAR measures its variable lease costs as the portion of variable payments that are allocated to lease components.

SPAR measures its lease liability for each leased asset as the present value of lease payments, as defined in ASC

842,

allocated to the lease component, discounted using an incremental borrowing rate specific to the underlying asset. SPAR's ROU assets are equal to the lease liability. SPAR estimates its incremental borrowing rate based on the interest rate SPAR would incur to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment.

The components of SPAR's lease expenses for the

six

months ended

June 30, 2020

 and

2019,

which are included in the condensed consolidated income statement, are as follows (in thousands):

		Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
Lease Costs	Classification	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Operating lease cost	Selling, General and Administrative Expense	$	694	$	534	$	1,368	$	1,067
Short-term lease cost	Selling, General and Administrative Expense	$	100	$	28		213		57
Variable costs	Selling, General and Administrative Expense	$	97	$	290		194		585
Total lease cost		$	891	$	852	$	1,775	$	1,709

Supplemental cash flow information related to SPAR's leases for

six

months ended

June 30, 2020

 and

2019

is as follows (in thousands):

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	794	$	562	$	1,514	$	1,071
Assets obtained in exchange for new operating lease liabilities
Operating lease	$	741	$	5,736	$	1,463	$	5,736	(a)

At

June 30, 2020

, SPAR had the following maturities of lease liabilities related to office space and equipment, all of which are under non-cancellable operating leases (in thousands):

Period Ending June 30,	Amount
2020	$	1,779
2021		1,153
2022		629
2023		106
2024		-
Total Lease Payments		3,667
Less: imputed interest		179
Total		3,488

XML

Note 12 - Subsequent Events

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Subsequent Events [Text Block]

12. Subsequent Events  

Resignation of Christiaan M. Olivier as

Chief Executive Officer (Principal Executive Officer), President and Director

After the close of business on

July 15, 2020,

the Corporation received the voluntary resignation of Christiaan M. Olivier as Chief Executive Officer (Principal Executive Officer), President and a director of SGRP, and from all positions with SGRP's subsidiaries, effective with the close of business on

August 7, 2020 (

the "

CEO Effective Time

").

Mr. Olivier has said that his resignation is due to his assertion that actions of the Corporation's

two

largest shareholders (Robert G. Brown and William H. Bartels), at times supported by some independent directors, have led to dysfunctional governance and disagreements with the Board over director and related party accountability and corporate strategy.  Mr. Olivier has provided written correspondence to SGRP discussing his beliefs respecting the circumstances of his resignation.

On

July 17, 2020,

the Board of Directors of SGRP (the "

Board

") accepted Mr. Olivier's resignation. The Board plans to appoint an interim successor Chief Executive Officer and President.

Retirement of James R. Segreto as Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Secretary

After the close of business on

July 15, 2020,

the Corporation received the notice of the voluntary retirement of James R. Segreto as Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Secretary of SGRP, and from all positions with SGRP's subsidiaries, effective with the close of business on

August 7, 2020 (

the "

CFO Effective Time

").

Mr. Segreto's retirement letter expressed similar concerns outlined by Mr. Olivier and as reported and supported in various SEC filings. Mr. Segreto has provided written correspondence to SGRP discussing his beliefs respecting the circumstances of his retirement.

On

July 17, 2020

the Board accepted Mr. Segreto's notice of retirement.  Several candidates have been identified by management and recommended to the Corporation's Audit Committee and Governance Committee.

XML

Note 3 - Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months End					Six Months Ended
	June 30,					June 30,
	2020			2019		2020		2019
Numerator:
Net income attributable to SPAR Group, Inc.	$	(103	)	$	1,523	$	193	$	2,139
Denominator:
Shares used in basic net income per share calculation		21,108			20,816		21,107		20,796
Effect of diluted securities:
Stock options and unvested restricted shares		17			288		50		284
Shares used in diluted net income per share calculations		21,125			21,104		21,157		21,080
Basic net income per common share:	$	(0.00	)	$	0.07	$	0.01	$	0.10
Diluted net income per common share:	$	(0.00	)	$	0.07	$	0.01	$	0.10

XML

Note 4 - Credit Facilities and Other Debt (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Debt [Table Text Block]

	Interest Rate
	as of
	June 30, 2020			2020		2021		2022		2023		2024		2025
Australia - National Australia Bank		6.56	%		15		-		-		-		-		-
Brazil - Santander		16.52	%		2		-		-		-		-		-
Mexico - Steel Factoring		18.00	%		217		-		-		-		-		-
Mexico - Ve Por Mas		9.10	%		205		-		-		-		-		-
Mexico - Bancomer Bank		10.90	%		-		-		-		-		-		-
USA – North Mill Capital		6.75	%		6,631		-		-		-		-		-
USA - Fifth Third Bank		3.60	%		700		-		-		-		-		-
USA – Resource Plus Seller Notes		1.85	%		333		300		300		700		-		-
Total				$	8,103	$	300	$	300	$	700	$	-	$	–

Credit And Debt Facilities Unused Availability [Table Text Block]

	June 30,		December 31,
	2020		2019
Unused Availability:
United States / Canada	$	8,169	$	3,694
Australia		536		423
Mexico		237		-
Brazil		68		49
Total Unused Availability	$	9,010	$	4,166

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Note 5 - Related-party Transactions (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Related Party Transactions [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Services provided by affiliates:
National Store Retail Services (NSRS)		1,050		260		2,392		385
Office lease expenses (Mr. Burdekin)		6		-		12		-
Office lease expenses (RJ Holdings)		177		97		350		199
Office and vehicle lease expenses (MPT)		11		16		27		32
Vehicle rental expenses (MCPT)		281		297		580		587
Office and vehicle rental expenses (MHT)		58		68		131		132
Consulting and administrative services (CON)		11		37		23		74
Legal Services (KMSA)		34		21		57		43
Warehousing rental (JFMD)		12		12		25		24
Consulting and administrative fees (SPARFACTS)		41		-		72		-
Total services provided by affiliates	$	1,681	$	808	$	3,669	$	1,476

Due to affiliates consists of the following (in thousands):	June 30,		December 31,
	2020		2019
Loans from local investors:(1)
Australia	$	696	$	467
Mexico		623		623
Brazil		140		139
China		1,387		2,271
South Africa		403		635
Resource Plus		531		531
Total due to affiliates	$	3,780	$	4,666

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Note 9 - Segment Information (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Revenue:
United States	$	22,123		$	28,006		$	45,412		$	46,662
International		28,821			40,217			66,880			78,721
Total revenue	$	50,944		$	68,223		$	112,292		$	125,383
Operating income:
United States	$	315		$	2,608		$	623		$	3,360
International		1,648			1,622			2,817			2,601
Total operating income	$	1,963		$	4,230		$	3,440		$	5,961
Interest expense (income):
United States	$	144		$	185		$	276		$	246
International		(60	)		2			36			142
Total interest expense	$	84		$	187		$	312		$	388
Other (income), net:
United States	$	(1	)	$	(1	)	$	(1	)	$	(1	)
International		(49	)		(191	)		(57	)		(256	)
Total other (income), net	$	(50	)	$	(192	)	$	(58	)	$	(257	)
Income before income tax expense:
United States	$	172		$	2,424		$	348		$	3,115
International		1,757			1,811			2,838			2,715
Total income before income tax expense	$	1,929		$	4,235		$	3,186		$	5,830
Income tax expense:
United States	$	124		$	501		$	199		$	702
International		500			927			760			1,284
Total income tax expense	$	624		$	1,428		$	959		$	1,986

Net income:
United States	$	48		$	1,923		$	149		$	2,413
International		1,257			884			2,078			1,431
Total net income	$	1,305		$	2,807		$	2,227		$	3,844
Net (income) attributable to non-controlling interest:
United States	$	(519	)	$	(679	)	$	(583	)	$	(775	)
International		(889	)		(605	)		(1,451	)		(930	)
Total net (income) attributable to non-controlling interest	$	(1,408	)	$	(1,284	)	$	(2,034	)	$	(1,705	)
Net income (loss) attributable to SPAR Group, Inc.:
United States	$	(471	)	$	1,244		$	(434	)	$	1,638
International		368			279			627			501
Total net income (loss) attributable to SPAR Group, Inc.	$	(103	)	$	1,523		$	193		$	2,139
Depreciation and amortization:
United States	$	419		$	382		$	832		$	754
International		120			146			247			284
Total depreciation and amortization	$	539		$	528		$	1,079		$	1,038
Capital expenditures:
United States	$	288		$	344		$	669		$	722
International		156			127			117			213
Total capital expenditures	$	444		$	471		$	786		$	935

Reconciliation of Assets from Segment to Consolidated [Table Text Block]

	June 30,		December 31,
	2020		2019
Assets:
United States	$	30,697	$	24,927
International		43,213		54,608
Total assets	$	73,910	$	79,535

Reconciliation Of Long Lived Assets From Segments To Consolidated [Table Text Block]

	June 30,		December 31,
	2020		2019
Long lived assets:
United States	$	4,182	$	4,957
International		3,358		3,954
Total long lived assets	$	7,540	$	8,911

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Three Months Ended June 30,										Six Months Ended June 30,
	2020					2019					2020					2019
			% of					% of					% of					% of
			consolidated					consolidated					consolidated					consolidated
International revenue:			net revenue					net revenue					net revenue					net revenue
Brazil	$	10,539		20.7	%	$	16,612		24.3	%	$	26,103		23.2	%	$	32,145		25.6	%
South Africa		6,088		12.0			6,442		9.4			13,002		11.6			12,976		10.3
Mexico		4,820		9.5			5,664		8.3			10,667		9.5			10,951		8.7
China		2,756		5.4			3,180		4.7			5,320		4.7			6,459		5.2
India		1,915		3.8			2,065		3.0			4,207		3.7			4,271		3.4
Japan		1,649		3.2			2,865		4.2			4,431		3.9			5,595		4.5
Canada		1,004		2.0			2,459		3.6			2,720		2.4			4,563		3.6
Australia		50		0.1			863		1.3			430		0.4			1,627		1.3
Turkey		-		-			67		0.1			-		-			134		0.1
Total international revenue	$	28,821		56.7	%	$	40,217		58.9	%	$	66,880		59.4	%	$	78,721		62.7	%

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Note 11 - Leases (Tables)

6 Months Ended

Jun. 30, 2020

Notes Tables

Lease, Cost [Table Text Block]

		Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
Lease Costs	Classification	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Operating lease cost	Selling, General and Administrative Expense	$	694	$	534	$	1,368	$	1,067
Short-term lease cost	Selling, General and Administrative Expense	$	100	$	28		213		57
Variable costs	Selling, General and Administrative Expense	$	97	$	290		194		585
Total lease cost		$	891	$	852	$	1,775	$	1,709

Lessee, Operating Lease, Cash Flows [Table Text Block]

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	794	$	562	$	1,514	$	1,071
Assets obtained in exchange for new operating lease liabilities
Operating lease	$	741	$	5,736	$	1,463	$	5,736	(a)

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Period Ending June 30,	Amount
2020	$	1,779
2021		1,153
2022		629
2023		106
2024		-
Total Lease Payments		3,667
Less: imputed interest		179
Total		3,488

XML

Note 2 - Business and Organization (Details Textual)	6 Months Ended
	Jun. 30, 2020
Number of Countries in which Entity Operates	10
Number of Reportable Segments	2

XML

Note 3 - Earnings Per Share - Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Net income attributable to SPAR Group, Inc.	$ (103)	$ 1,523	$ 193	$ 2,139
Shares used in basic net income per share calculation (in shares)	21,108	20,816	21,107	20,796
Stock options and unvested restricted shares (in shares)	17	288	50	284
Shares used in diluted net income per share calculations (in shares)	21,125	21,104	21,157	21,080
Basic net income per common share: (in dollars per share)	$ 0	$ 0.07	$ 0.01	$ 0.10
Diluted net income per common share: (in dollars per share)	$ 0	$ 0.07	$ 0.01	$ 0.10

XML

Note 4 - Credit Facilities and Other Debt (Details Textual)	Feb. 04, 2020 MXN ($)	Apr. 10, 2019 USD ($)	Jan. 09, 2018 USD ($)	Mar. 15, 2016 MXN ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2020 MXN ($)	Jun. 30, 2020 AUD ($)	Jun. 30, 2020 BRL (R$)	Oct. 05, 2018 USD ($)	Oct. 05, 2018 BRL (R$)	Jul. 03, 2018 USD ($)	Oct. 31, 2017 USD ($)	Oct. 31, 2017 AUD ($)
Debt Instrument, Interest Rate, Effective Percentage
Resource Plus Acquisition Note [Member]
Debt Instrument, Face Amount			$ 2,300,000
Notes Payable, Total					$ 1,600,000
North Mill, LLC [Member]
Debt Instrument, Interest Rate, Effective Percentage					6.75%	6.75%	6.75%	6.75%
Fifth Third Bank [Member]
Debt Instrument, Interest Rate, Effective Percentage					3.60%	3.60%	3.60%	3.60%
National Australia Bank [Member]
Debt Instrument, Interest Rate, Effective Percentage					6.56%	6.56%	6.56%	6.56%
Banco Santander [Member]
Debt Instrument, Interest Rate, Effective Percentage					16.52%	16.52%	16.52%	16.52%
Steel Factoring [Member]
Debt Instrument, Interest Rate, Effective Percentage					18.00%	18.00%	18.00%	18.00%
Ve Por Mas [Member]
Debt Instrument, Interest Rate, Effective Percentage					9.10%	9.10%	9.10%	9.10%
Revolving Credit Facility [Member] | PNC Bank, National Association [Member]
Line of Credit Facility, Maximum Borrowing Capacity											$ 9,500,000
Revolving Credit Facility [Member] | North Mill, LLC [Member]
Proceeds from Lines of Credit, Total		$ 9,800,000
Debt Instrument, Face Amount		180,000
Debt Instrument, Payable Per Month		10,000
Line of Credit Facility, Commitment Fee Amount		$ 120,000
Debt Instrument, Interest Rate, Effective Percentage					6.75%	6.75%	6.75%	6.75%
Long-term Line of Credit, Total					$ 6,600,000
Percent Of Eligible Domestic Accounts Receivable Less Certain Reserves To Calculate Borrowing Availability		85.00%
Percent Of Eligible Domestic Unbilled Accounts Receivable Less Certain Reserves To Calculate Borrowing Availability		60.00%
Maximum Amount of Accounts Receivable Less Certain Reserves To Calculate Borrowing Availability		$ 4,500,000
Revolving Credit Facility [Member] | North Mill, LLC [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage					6.75%	6.75%	6.75%	6.75%
Revolving Credit Facility [Member] | North Mill, LLC [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate		1.25%
Revolving Credit Facility [Member] | North Mill, LLC [Member] | NM Loan Agreement [Member]
Debt Instrument, Term (Month)		1 year 180 days
Revolving Credit Facility [Member] | North Mill, LLC [Member] | NM Loan Agreement [Member] | SPAR Marketing Force [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 12,500,000
Revolving Credit Facility [Member] | North Mill, LLC [Member] | NM Loan Agreement [Member] | SPAR Canada Company [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 2,500,000
Revolving Credit Facility [Member] | Fifth Third Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity			$ 3,500,000
Long-term Line of Credit, Total					$ 700,000
Percent Of Eligible Domestic Accounts Receivable Less Certain Reserves To Calculate Borrowing Availability			80.00%
Line of Credit Facility, Interest Rate at Period End					3.60%	3.60%	3.60%	3.60%
Revolving Credit Facility [Member] | Fifth Third Bank [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate			2.50%
Revolving Credit Facility [Member] | National Australia Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity												$ 550,000	$ 800,000
Long-term Line of Credit, Total					$ 15,000		$ 21,000
Percent Of Eligible Domestic Accounts Receivable Less Certain Reserves To Calculate Borrowing Availability												80.00%	80.00%
Revolving Credit Facility [Member] | Banco Santander [Member]
Line of Credit Facility, Maximum Borrowing Capacity									$ 70,000	R$ 381,000
Long-term Line of Credit, Total					2,000			R$ 13,000
Revolving Credit Facility [Member] | Steel Factoring [Member]
Line of Credit Facility, Maximum Borrowing Capacity					$ 217,000	$ 5,000,000
Debt Instrument, Interest Rate, Stated Percentage					18.00%	18.00%	18.00%	18.00%
Long-term Line of Credit, Total					$ 217,000	$ 5,000,000
Revolving Credit Facility [Member] | Ve Por Mas [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 5,200,000				226,000
Long-term Line of Credit, Total					$ 205,000	$ 4,700,000
Line of Credit Facility, Interest Rate at Period End					9.10%	9.10%	9.10%	9.10%
Revolving Credit Facility [Member] | Ve Por Mas [Member] | Interbank Interest Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	3.00%
Revolving Credit Facility [Member] | BBVA Bancormer [Member]
Line of Credit Facility, Maximum Borrowing Capacity				$ 5,000,000	$ 217,000
Long-term Line of Credit, Total					$ 0
Line of Credit Facility, Interest Rate at Period End					10.90%	10.90%	10.90%	10.90%
Revolving Credit Facility [Member] | BBVA Bancormer [Member] | Interbank Interest Rate [Member]
Debt Instrument, Basis Spread on Variable Rate				5.20%

XML

Note 4 - Credit Facilities and Other Debt - Summary of Credit and Other Debt Facilities (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Interest Rate
Repayments of Principal, 2020	$ 8,103
Repayments of Principal, 2021	300
Repayments of Principal, 2022	300
Repayments of Principal, 2023	700
Repayments of Principal, 2024
Repayments of Principal, 2025
National Australia Bank [Member]
Interest Rate	6.56%
Repayments of Principal, 2020	$ 15
Repayments of Principal, 2021
Repayments of Principal, 2022
Repayments of Principal, 2023
Repayments of Principal, 2024
Repayments of Principal, 2025
Banco Santander [Member]
Interest Rate	16.52%
Repayments of Principal, 2020	$ 2
Repayments of Principal, 2021
Repayments of Principal, 2022
Repayments of Principal, 2023
Repayments of Principal, 2024
Repayments of Principal, 2025
Steel Factoring [Member]
Interest Rate	18.00%
Repayments of Principal, 2020	$ 217
Repayments of Principal, 2021
Repayments of Principal, 2022
Repayments of Principal, 2023
Repayments of Principal, 2024
Repayments of Principal, 2025
Ve Por Mas [Member]
Interest Rate	9.10%
Repayments of Principal, 2020	$ 205
Repayments of Principal, 2021
Repayments of Principal, 2022
Repayments of Principal, 2023
Repayments of Principal, 2024
Repayments of Principal, 2025
Bancomer Bank [Member]
Interest Rate	10.90%
Repayments of Principal, 2020
Repayments of Principal, 2021
Repayments of Principal, 2022
Repayments of Principal, 2023
Repayments of Principal, 2024
Repayments of Principal, 2025
North Mill, LLC [Member]
Interest Rate	6.75%
Repayments of Principal, 2020	$ 6,631
Repayments of Principal, 2021
Repayments of Principal, 2022
Repayments of Principal, 2023
Repayments of Principal, 2024
Repayments of Principal, 2025
Fifth Third Bank [Member]
Interest Rate	3.60%
Repayments of Principal, 2020	$ 700
Repayments of Principal, 2021
Repayments of Principal, 2022
Repayments of Principal, 2023
Repayments of Principal, 2024
Repayments of Principal, 2025
Resource Plus Acquisition Note [Member]
Interest Rate	1.85%
Repayments of Principal, 2020	$ 333
Repayments of Principal, 2021	300
Repayments of Principal, 2022	300
Repayments of Principal, 2023	700
Repayments of Principal, 2024
Repayments of Principal, 2025

XML

Note 4 - Credit Facilities and Other Debt - Unused Availability (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Unused Availability	$ 9,010	$ 4,166
UNITED STATES
Unused Availability	8,169	3,694
AUSTRALIA
Unused Availability	536	423
MEXICO
Unused Availability	237
BRAZIL
Unused Availability	$ 68	$ 49

XML

Note 5 - Related-party Transactions (Details Textual)											1 Months Ended				3 Months Ended	6 Months Ended	12 Months Ended
	Mar. 17, 2020 USD ($)	Mar. 06, 2020 USD ($)	Jan. 18, 2020 USD ($)	Jan. 01, 2020 USD ($)	Oct. 30, 2019 USD ($)	Oct. 08, 2019 USD ($)	Jul. 26, 2019 USD ($)	Mar. 18, 2019 USD ($)	Sep. 19, 2018 USD ($)	Sep. 08, 2016	Mar. 31, 2020 USD ($)	Jan. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Nov. 30, 2019 USD ($)	Mar. 31, 2020 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Jul. 08, 2020 USD ($)	May 07, 2018 USD ($)
NMS [Member]
Percent of Reimbursement																1.00%
Merhold Property Trust [Member]
Number Of Vehicles Subleased																32
Number Of Vehicles Leased																173
Lessee, Operating Lease, Term of Contract (Year)																4 years
SGRP Holdings [Member] | SPAR BSMT Joint Venture [Member]
Variable Interest Entity, Qualitative or Quantitative Information, Ownership Percentage										51.00%
JKC [Member] | SPAR BSMT Joint Venture [Member]
Variable Interest Entity, Qualitative or Quantitative Information, Ownership Percentage										39.00%
EILLC [Member] | SPAR BSMT Joint Venture [Member]
Variable Interest Entity, Qualitative or Quantitative Information, Ownership Percentage										10.00%
SMF [Member] | SAS [Member]
Due from Related Parties, Total																$ 226,000
Security Deposit																$ 675,000
EILLC [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners																10.00%
NMS [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners																49.00%
NSRS [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners																100.00%
Resource Plus, Inc [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners																49.00%
RJ Holdings [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners																50.00%
FRIEDSHELF 401 Proprietary Limited [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners																23.00%
Lindicom Proprietary Limited [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners																26.00%
SPAR Todopromo [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners																49.00%
Settlement Agreement with SBS [Member]
Loss Contingency, Damages Sought, Value				$ 2,200,000
Settlement Agreement, Amount Awarded, Before Discount							$ 0
Settlement and Other Charges				174,097													$ 174,097
Settlement Agreement, Amount Awarded, Monthly Payment				7,254
Settlement, Periodic Payment				$ 7,254												$ 43,524
Robert G. Brown Demand for Payment [Member] | Robert G. Brown [Member]
Loss Contingency, Damages Sought, Value	$ 1,300,000														$ 3,000,000
SPAR InfoTech, Inc. [Member] | Alleged Lost Tax Benefits and Other Expenses [Member]
Loss Contingency, Damages Sought, Value									$ 190,000
Reimbursement for SMF's funding of the Affinity Security Deposits [Member]
Loss Contingency, Damages Sought, Value								$ 378,838
Reimbursement for SMF's Funding of the Field Payment Checks [Member]
Loss Contingency, Damages Sought, Value								12,963
SBS Clothier Litigation [Member]
Loss Contingency, Damages Sought, Value								$ 1,839,459
Settlement and Other Charges																		$ 1,300,000
Loss Contingency, Damages Number of Equal Annual Installments																	4
SAS [Member]
Reimbursement Expenses Offered																				$ 237,500
Due from Related Parties, Total																				226,000
Payment for Reimbursement Expenses Net Of Amounts Owed																				$ 11,500
SAS [Member] | Advances for Affinity Insurance Plan [Member]
Related Party Transaction, Amounts of Transaction																921,000
SAS [Member] | Return of Security Advances and Preimum Advances [Member]
Due from Related Parties, Total																			$ 901,000
SAS [Member] | Premium Adjustments [Member]
Related Party Transaction, Amounts of Transaction																220,558
SAS [Member] | Remaining Premium Adjustments [Member]
Related Party Transaction, Amounts of Transaction																$ 1,102,790
SPAR InfoTech, Inc. [Member] | Alleged Lost Tax Benefits and Other Expenses [Member]
Loss Contingency, Damages Sought, Value									190,000
Related-party Expenses Allowed by the Audit Committee									50,000
Related-party Expenses Disallowed By the Audit Committee									150,000
SPAR InfoTech, Inc. [Member] | Allegedly Owed Programming Services [Member]
Loss Contingency, Damages Sought, Value									900,000
SPAR InfoTech, Inc. [Member] | Infotech Action and the Romanian Claim [Member]
Settlement, Amount Offered						$ 225,000
Settlement, Amount Accepted						$ 275,000
Loss Contingency, Damages Number of Equal Annual Installments						4
Loss Contingency Accrual, Payments					$ 75,000							$ 50,000	$ 75,000	$ 75,000
NMS [Member]
Majority Interest Ownership Percentage By Parent																51.00%
Operating Lease, Expense Per Month																$ 2,000
Resource Plus, Inc [Member]
Majority Interest Ownership Percentage By Parent																51.00%
Robert G. Brown [Member]
Related-party Expenses Allowed by the Audit Committee									50,000
Related-party Expenses Disallowed By the Audit Committee									$ 150,000
Robert G. Brown [Member] | Robert G. Brown Demand for Payment [Member]
Loss Contingency, Damages Sought, Value		$ 1,707,374
Loss Contingency, Yearly Damages Sought, Value											$ 500,000
Meridian [Member]
Majority Interest Ownership Percentage By Parent																51.00%
Mr. Mason [Member] | Merhold Property Trust [Member]
Related Party Ownership Percentage																1.00%
Mr. Mason and Mr. Bristow [Member] | Merhold Cape Property Trust [Member]
Related Party Ownership Percentage																1.00%
SPAR Todopromo [Member]
Majority Interest Ownership Percentage By Parent																51.00%
Mr. Juan F. Medina Domenzain [Member] | CON [Member]
Related Party Ownership Percentage																90.00%
William Bartels [Member]
Five Yer Period Agreement, Retirement Compensation			$ 100,000
Five Year Period Agreement, Annual Regular Fees			55,000
Five Year Period Agreement, Annual Supplemental Fees			50,000
Five Year Period Agreement, Annual Medical Benefits			$ 15,588
William Bartels [Member] | SPAR Group [Member]
Pension and Other Postretirement Benefits Cost (Reversal of Cost), Total																$ 700,000
Percentage of Stockholders' Shares																25.10%

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Note 5 - Related-party Transactions - Transactions Between the Company and Affiliates (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Services provided by affiliates		$ 1,681	$ 808	$ 3,669	$ 1,476
Due to affiliates	[1]	3,780		3,780		$ 4,666
NSRS [Member]
Services provided by affiliates		1,050	260	2,392	385
RJ Holdings [Member]
Services provided by affiliates		6		12
Office lease expenses (Mr. Burdekin) [Member]
Services provided by affiliates		177	97	350	199
Office And Vehicle Rental MPT [Member]
Services provided by affiliates		11	16	27	32
Vehicle Rental MCPT [Member]
Services provided by affiliates		281	297	580	587
Office And Vehicle Rental MHT [Member]
Services provided by affiliates		58	68	131	132
Consulting and Administrative Services (CON) [Member]
Services provided by affiliates		11	37	23	74
Legal Services (KMSA) [Member]
Services provided by affiliates		34	21	57	43
Warehouse Rental (JFMD) [Member]
Services provided by affiliates		12	12	25	24
Sparfacts [Member]
Services provided by affiliates		41		72
Loans Due to Affiliates [Member] | Local Investors in Australia [Member]
Due to affiliates	[1]	696		696		467
Loans Due to Affiliates [Member] | Local Investors in Mexico [Member]
Due to affiliates	[1]	623		623		623
Loans Due to Affiliates [Member] | Local Investors in Brazil [Member]
Due to affiliates	[1]	140		140		139
Loans Due to Affiliates [Member] | Local Investors in China [Member]
Due to affiliates	[1]	1,387		1,387		2,271
Loans Due to Affiliates [Member] | Local Investors In South Africa [Member]
Due to affiliates	[1]	403		403		635
Loans Due to Affiliates [Member] | Local Investors Related to Resource Plus [Member]
Due to affiliates	[1]	$ 531		$ 531		$ 531

[1] Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans have no payment terms and are due on demand and as such have been classified as current liabilities in the Company's consolidated financial statements.

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Note 6 - Preferred Stock (Details Textual) - $ / shares	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Preferred Stock, Shares Authorized (in shares)	2,445,598	2,445,598
Preferred Stock, Par or Stated Value Per Share (in dollars per share)	$ 0.01	$ 0.01
Preferred Stock, Shares Outstanding, Ending Balance (in shares)	0	0
Series A Preferred Stock [Member]
Preferred Stock, Shares Authorized (in shares)	3,000,000
Preferred Stock, Par or Stated Value Per Share (in dollars per share)	$ 0.01
Preferred Stock, Dividend Rate, Percentage	10.00%
Preferred Stock, Conversion Basis	1
Common Stock For Conversion (in shares)	554,402
Preferred Stock Number Of Authorized Shares Remaining (in shares)	2,445,598
Preferred Stock, Shares Outstanding, Ending Balance (in shares)	0

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Note 7 - Stock-based Compensation and Other Plans (Details Textual) - USD ($)	3 Months Ended			6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	May 31, 2019
Share-based Payment Arrangement, Option [Member]
Share-based Payment Arrangement, Expense	$ 70,000		$ 66,000	$ 95,000	$ 96,000
Share-based Payment Arrangement, Expense, Tax Benefit	11,000		17,000	17,000	24,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	202,000			202,000
Restricted Stock [Member]
Share-based Payment Arrangement, Expense	0		3,000	0	$ 5,000
Share-based Payment Arrangement, Expense, Tax Benefit	0		$ 1,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 0			$ 0
The 2018 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)		585,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance (in shares)		565,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)						0
The 2008 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)		3,044,927

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Note 8 - Commitments and Contingencies (Details Textual)									1 Months Ended				2 Months Ended	3 Months Ended	12 Months Ended
	Mar. 17, 2020 USD ($)	Mar. 17, 2020 USD ($)	Mar. 06, 2020 USD ($)	Jan. 01, 2020 USD ($)	Oct. 08, 2019 USD ($)	Mar. 18, 2019 USD ($)	Sep. 19, 2018 USD ($)	May 03, 2018	Jun. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Apr. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Aug. 14, 2020 USD ($)
Mr. Brown [Member] | SPAR BSMT [Member]
Related Party Ownership Percentage								10.00%
SBS Bankruptcy and Settlement [Member] | Robert G. Brown [Member]
Loss Contingency, Damages Sought, Value	$ 1,300,000	$ 3,000,000	$ 1,707,374
SBS Bankruptcy, Settlement and March 2020 Claim [Member] | Robert G. Brown [Member]
Loss Contingency, Yearly Damages Sought, Value		$ 500,000
Alleged Lost Tax Benefits and Other Expenses [Member] | SPAR InfoTech, Inc. [Member]
Loss Contingency, Damages Sought, Value							$ 190,000
Related-party Expenses Allowed by the Audit Committee							50,000
Related-party Expenses Disallowed By the Audit Committee							150,000
Allegedly Owed Programming Services [Member] | SPAR InfoTech, Inc. [Member]
Loss Contingency, Damages Sought, Value							$ 900,000
Alleged Lost Tax Benefits and Allegedly Owed Programming Services [Member] | SPAR InfoTech, Inc. [Member]
Litigation Settlement, Management Offer					$ 225,000
Litigation Settlement, Amount Awarded to Other Party					275,000
Litigation Settlement, Amount Awarded to Other Party, Paid Upon Court Approval					75,000
Litigation Settlement, Amount Awarded to Other Party, Paid Within 30 Days					75,000
Litigation Settlement, Amount Awarded to Other Party, Paid Within 60 Days					75,000
Litigation Settlement, Amount Awarded to Other Party, Paid Within 90 Days					$ 50,000
Bartels Advancement Settlement [Member]
Loss Contingency, Damages Paid, Value												$ 106,000
Reimbursement for SMF's funding of the Affinity Security Deposits [Member]
Loss Contingency, Damages Sought, Value						$ 378,838
Reimbursement for SMF's Funding of the Field Payment Checks [Member]
Loss Contingency, Damages Sought, Value						12,963
Settlement Agreement with SBS [Member]
Loss Contingency, Damages Sought, Value				$ 2,200,000
Litigation Settlement, Amount Awarded from Other Party				$ 174,097.34
Settlement Agreement, Number of Monthly Installments				24
Settlement, Periodic Payment				$ 7,254.06
Settlement Agreement with SBS [Member] | Subsequent Event [Member]
Settlement, Amount in Default																	$ 43,524
SBS Clothier Litigation [Member]
Loss Contingency, Damages Paid, Value											$ 325,000
Loss Contingency, Damages Sought, Value						$ 1,839,459
Litigation Settlement, Amount Awarded to Other Party													$ 250,000		$ 1,300,000
Settlement and Other Charges																$ 1,300,000
Loss Contingency, Damages Number of Equal Annual Installments															4
Loss Contingency Accrual, Ending Balance											975,000		$ 975,000		$ 975,000
SBS and SGRP Hogan Litigation [Member]
Loss Contingency, Damages Paid, Value									$ 50,000	$ 50,000	$ 150,000
Litigation Settlement, Amount Awarded to Other Party														$ 618,000
Loss Contingency, Damages Number of Installments													3
Rodgers Settlement With SBS [Member]
Settlement, Periodic Payment														$ 48,000

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Note 9 - Segment Information (Details Textual) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)
Number of Reportable Segments			2
Revenue from Contract with Customer, Including Assessed Tax	$ 50,944	$ 68,223	$ 112,292	$ 125,383
Intersegment Eliminations [Member]
Revenue from Contract with Customer, Including Assessed Tax			$ 0	$ 0

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Note 9 - Segment Information - Segment Reporting Information (Details) - USD ($) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Net revenues	$ 50,944		$ 68,223		$ 112,292	$ 125,383
Operating income (loss)	1,963		4,230		3,440	5,961
Interest expense	84		187		312	388
Other income, net	(50)		(192)		(58)	(257)
Income before income tax expense	1,929		4,235		3,186	5,830
Income tax expense	624		1,428		959	1,986
Net income	1,305	$ 922	2,807	$ 1,037	2,227	3,844
Net income (loss) attributable to non-controlling interest	(1,408)		(1,284)		(2,034)	(1,705)
Total net income attributable to SPAR Group, Inc.	(103)		1,523		193	2,139
Depreciation and amortization	539		528		1,079	1,038
Capital expenditures	444		471		786	935
US Segment [Member]
Net revenues	22,123		28,006		45,412	46,662
Operating income (loss)	315		2,608		623	3,360
Interest expense	144		185		276	246
Other income, net	(1)		(1)		(1)	(1)
Income before income tax expense	172		2,424		348	3,115
Income tax expense	124		501		199	702
Net income	48		1,923		149	2,413
Net income (loss) attributable to non-controlling interest	(519)		(679)		(583)	(775)
Total net income attributable to SPAR Group, Inc.	(471)		1,244		(434)	1,638
Depreciation and amortization	419		382		832	754
Capital expenditures	288		344		669	722
International Segment [Member]
Net revenues	28,821		40,217		66,880	78,721
Operating income (loss)	1,648		1,622		2,817	2,601
Interest expense	(60)		2		36	142
Other income, net	(49)		(191)		(57)	(256)
Income before income tax expense	1,757		1,811		2,838	2,715
Income tax expense	500		927		760	1,284
Net income	1,257		884		2,078	1,431
Net income (loss) attributable to non-controlling interest	(889)		(605)		(1,451)	(930)
Total net income attributable to SPAR Group, Inc.	368		279		627	501
Depreciation and amortization	120		146		247	284
Capital expenditures	$ 156		$ 127		$ 117	$ 213

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Note 9 - Segment Information - Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Assets	$ 73,910	$ 79,535
US Segment [Member]
Assets	30,697	24,927
International Segment [Member]
Assets	$ 43,213	$ 54,608

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Note 9 - Segment Information - Long Lived Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Long lived assets	$ 7,540	$ 8,911
UNITED STATES
Long lived assets	4,182	4,957
International [Member]
Long lived assets	$ 3,358	$ 3,954

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Note 9 - Segment Information - Geographic Data (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Net revenues	$ 50,944	$ 68,223	$ 112,292	$ 125,383
BRAZIL
Net revenues	$ 10,539	$ 16,612	$ 26,103	$ 32,145
BRAZIL | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue	20.70%	24.30%	23.20%	25.60%
SOUTH AFRICA
Net revenues	$ 6,088	$ 6,442	$ 13,002	$ 12,976
SOUTH AFRICA | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue	12.00%	9.40%	11.60%	10.30%
MEXICO
Net revenues	$ 4,820	$ 5,664	$ 10,667	$ 10,951
MEXICO | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue	9.50%	8.30%	9.50%	8.70%
CHINA
Net revenues	$ 2,756	$ 3,180	$ 5,320	$ 6,459
CHINA | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue	5.40%	4.70%	4.70%	5.20%
INDIA
Net revenues	$ 1,915	$ 2,065	$ 4,207	$ 4,271
INDIA | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue	3.80%	3.00%	3.70%	3.40%
JAPAN
Net revenues	$ 1,649	$ 2,865	$ 4,431	$ 5,595
JAPAN | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue	3.20%	4.20%	3.90%	4.50%
CANADA
Net revenues	$ 1,004	$ 2,459	$ 2,720	$ 4,563
CANADA | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue	2.00%	3.60%	2.40%	3.60%
AUSTRALIA
Net revenues	$ 50	$ 863	$ 430	$ 1,627
AUSTRALIA | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue	0.10%	1.30%	0.40%	1.30%
TURKEY
Net revenues		$ 67		$ 134
TURKEY | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue		0.10%		0.10%
International [Member]
Net revenues	$ 28,821	$ 40,217	$ 66,880	$ 78,721
International [Member] | Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Percent of consolidated net revenue	56.70%	58.90%	59.40%	62.70%

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Note 11 - Leases (Details Textual)	Jun. 30, 2020
Minimum [Member]
Lessee, Operating Lease, Remaining Lease Term (Year)	1 year
Maximum [Member]
Lessee, Operating Lease, Remaining Lease Term (Year)	11 years

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Note 11 - Leases - Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Operating lease cost	$ 694	$ 534	$ 1,368	$ 1,067
Short-term lease cost	100	28	213	57
Variable costs	97	290	194	585
Total lease cost	$ 891	$ 852	$ 1,775	$ 1,709

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Note 11 - Leases - Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$ 794	$ 562	$ 1,514	$ 1,071
Operating lease	$ 741	$ 5,736	$ 1,463	$ 5,736

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Note 11 - Leases - Maturity of Lease Liability (Details) $ in Thousands	Jun. 30, 2020 USD ($)
2020	$ 1,779
2021	1,153
2022	629
2023	106
2024
Total Lease Payments	3,667
Less: imputed interest	179
Total	$ 3,488