SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the first quarterly period ended March 31, 2000
Commission file number: 0-27824
SPAR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0684451
State of Incorporation IRS Employer Identification No.
580 White Plains Road, Sixth Floor, Tarrytown, New York, 10591
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (914) 332-4100
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 12 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: [ X ] Yes
On May 12, 2000 there were 18,175,800 shares of Common Stock outstanding.
<PAGE>
SPAR Group, Inc.
Index
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
<S> <C> <C>
Condensed Consolidated and Combined Balance Sheets
As of March 31, 2000 and December 31, 1999.......................................3
Condensed Consolidated and Combined Statements of Operations
Three Months Ended March 31, 2000 and March 31, 1999.............................4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and March 31, 1999.............................5
Notes to Condensed Financial Statements..........................................6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................................13
Item 3: Quantitative and Qualitative Disclosures About Market Risk........................18
PART II: OTHER INFORMATION
Item 1: Legal Proceedings......................................................19
Item 2: Changes in Securities and Use of Proceeds..............................20
Item 3: Defaults upon Senior Securities........................................20
Item 4: Submission of Matters to a Vote of Security Holders....................20
Item 5: Other Information......................................................20
Item 6: Exhibits and Reports on Form 8-K.......................................21
SIGNATURES..............................................................................................24
</TABLE>
2
<PAGE>
PART I:.FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SPAR GROUP INC.
Condensed Consolidated and Combined Balance Sheets
(unaudited) (In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------------------------------
ASSETS (Unaudited) (Note)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,314 $ 2,074
Accounts receivable, net 28,444 28,858
Prepaid expenses and other current assets 499 1,134
Prepaid program costs 3,747 2,777
Investment in affiliate - 710
---------------------------------
Total current assets 34,004 35,553
Property and equipment, net 3,528 3,459
Goodwill and other intangibles, net 23,419 23,767
Other assets 309 308
---------------------------------
Total assets $ 61,260 $ 63,087
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities:
Line of credit and notes payable $ 1,225 $ 857
Accounts payable 8,825 7,419
Accrued expenses and other current liabilities 8,541 9,954
Deferred revenue 5,880 6,341
Restructuring and other charges 4,857 5,404
Due to affiliates - 178
Due to certain stockholders 3,721 3,847
Note payable to MCI - 1,045
Current portion of long-term debt 1,147 1,147
---------------------------------
Total current liabilities 34,196 36,192
Line of credit and long-term liabilities, net of current portion 13,722 14,009
Long-term debt due to certain stockholders 2,040 2,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 3,000,000
Issued and outstanding shares - none - -
Common stock, $.01 par value:
Authorized shares - 47,000,000
Issued and outstanding shares - 18,175,348 as of March 31, 2000 182 182
Additional paid-in capital 10,095 10,095
Retained earnings 1,025 609
---------------------------------
Total stockholders' equity 11,302 10,886
---------------------------------
Total liabilities and stockholders' equity $ 61,260 $ 63,087
=================================
</TABLE>
Note: The Balance Sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include any of
the information and footnotes required by Generally Accepted Accounting
Principles for complete financial statements
See accompanying notes.
3
<PAGE>
SPAR Group, Inc.
Condensed Consolidated and Combined Statements of Operations
(unaudited) (In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------------------------------------------
<S> <C> <C>
Net revenues $ 32,447 $ 21,637
Cost of revenues 22,473 14,373
------------------------------------------------
Gross profit 9,974 7,264
Selling, general and administrative expenses 8,768 4,780
Depreciation and amortization 801 171
------------------------------------------------
Operating income 405 2,313
Interest expense 456 416
Other (income) expense (790) (45)
------------------------------------------------
Income before provision for income taxes 739 1,942
Provision for income taxes 323 -
------------------------------------------------
Net income $ 416 $ 1,942
================================================
Unaudited pro forma information:
Income before income tax provision $ 739 $ 1,942
Actual/Pro forma income tax provision 323 716
------------------------------------------------
Actual/Pro forma net income $ 416 $ 1,226
================================================
Actual/Pro forma basic earnings per share $ 0.02 $ 0.10
================================================
Actual/Pro forma basic weighted average common
shares 18,165 12,655
================================================
Actual/Pro forma diluted earnings per share $ 0.02 $ 0.10
================================================
Actual/Pro forma diluted weighted average common
shares 18,294 12,789
================================================
</TABLE>
See accompanying notes.
4
<PAGE>
SPAR Group, Inc.
Condensed Consolidated and Combined Statements of Cash Flows
(unaudited) (In thousands)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
----------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 416 $1,942
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation 392 66
Amortization 409 179
Gain on sale of affiliate (790) -
Changes in operating assets and liabilities:
Accounts receivable 414 (2,284)
Prepaid expenses and other current assets (336) 408
Due from affiliates (178) (27)
Accounts payable, accrued expenses and other current
liabilities (7) 2,604
Restructuring charges (547) -
Deferred revenue (461) (3,668)
----------------- -----------------
Net cash used in operating activities (688) (780)
INVESTING ACTIVITIES
Purchases of property and equipment (461) (280)
Goodwill (61) -
Purchase of businesses, net of cash acquired - 738
Sale of investment in affiliate 1,500 -
----------------- -----------------
Net cash provided by investing activities 978 458
FINANCING ACTIVITIES
Net proceeds from line of credit 368 (962)
Due to (from) certain stockholders (86) 2,322
Net payments of long term debt due to SPAR Marketing Services, Inc. - (686)
Payments of note payable MCI (1,045) (1,625)
Payment of other long-term debt (287) 3,218
Distributions to certain stockholders - (874)
----------------- -----------------
Net cash provided by (used in) financing activities (1,050) 1,393
----------------- -----------------
Net increase (decrease) in cash (760) 1,071
Cash at beginning of period 2,074 910
----------------- -----------------
Cash at end of period $1,314 $1,981
================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 342 $ 281
================= =================
Non-cash transactions:
Distributions payable to certain stockholders $ - $2,500
================= =================
</TABLE>
See accompanying notes.
5
<PAGE>
SPAR Group, Inc.
Notes to Condensed Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated and combined
financial statements of the Company and its subsidiaries (collectively, the
"SPAR Group") have been prepared in accordance with generally accepted
accounting principles 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 generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. This financial information
should be read in conjunction with the combined financial statements and notes
thereto for the Company as contained in Form 10-K and 10K/A for the year ended
December 31, 1999. The results of operations for the interim periods are not
necessarily indicative of the operating results for the year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION/COMBINATION
Through July 8, 1999, the combined financial statements include
operating companies owned by the same two stockholders (the "SPAR Companies").
On July 8, 1999, the SPAR Companies reorganized and completed a "reverse" merger
with the PIA Companies (see Note 3). From July 8, 1999, the consolidated
financial statements include the accounts of the SPAR Group, Inc. and its
wholly-owned subsidiaries.
PRO FORMA EARNINGS PER SHARE
Pro forma basic earnings per share amounts are based upon the weighted
average number of common shares outstanding. Pro forma diluted earnings per
share amounts are based upon the weighted average number of common and potential
common shares for each period represented. Potential common shares include stock
options, using the treasury stock method. The pro forma basic and pro forma
diluted earnings per share amounts for periods prior to July 8, 1999 are based
upon 12,655,000 shares, although these shares were issued on July 9, 1999, as
required to comply with SFAS No. 128 and the Securities and Exchange Commission
Staff Accounting Bulletin 98 (SAB 98).
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which the Company is required to adopt effective in its fiscal year
2000. SFAS No. 133 will require the Company to record all derivatives on the
balance sheet at fair value. The Company does not currently engage in hedging
activities and will continue to evaluate the effect of adopting SFAS No. 133.
The Company is expected to adopt SFAS No. 133 in its fiscal year 2000.
6
<PAGE>
SPAR Group, Inc.
Notes to Condensed Financial Statements
(unaudited) (continued)
RECLASSIFICATIONS
Certain amounts presented for the period ended March 31, 1999 have been
reclassified to conform to the 2000 presentations.
3. BUSINESS COMBINATIONS
MCI ACQUISITION
On January 15, 1999, SPAR Performance Group, Inc. ("SPGI"), acquired
substantially all the business and assets (the "MCI Acquisition") of BIMA Group,
Inc., a Texas corporation formerly known as MCI Performance Group, Inc. ("MCI"),
pursuant to their Asset Purchase Agreement dated as of December 23, 1998, as
amended (the "MCI Purchase Agreement"). The transaction was accounted for as a
purchase and consisted of consideration of $1.8 million cash, an $8.8 million
note (as amended) payable to MCI (the "MCI Note") and the assumption of certain
agreed-upon liabilities (the "MCI Purchase Price").
The MCI Purchase Price was allocated to the assets acquired by SPGI as
agreed upon in a schedule to the MCI Purchase Agreement, which generally used
their respective carrying values, as these carrying values were deemed to
represent fair market values of those assets and liabilities.
The total purchase consideration does not reflect contingent
consideration related to earn-out arrangements included in the MCI Purchase
Agreement. The MCI Purchase Agreement provides for a post-closing adjustment
whereby additional contingent consideration will be payable to MCI in the event
that earnings before taxes for the year ended March 31, 1999 (as defined in the
MCI Purchase Agreement) exceed $3.5 million. The Company has determined that
there is no additional earn-out consideration to be paid.
The excess purchase price paid by SPGI for the business and assets of
MCI over the fair value of those assets was $13 million, subject to change from
the contingent earn-out arrangement, and is being amortized using the
straight-line method over 15 years.
PIA REVERSE MERGER
On July 8, 1999, SG Acquisition, Inc., a Nevada corporation ("PIA
Acquisition"), a wholly-owned subsidiary of PIA Merchandising Services, Inc., a
Delaware corporation ("PIA Delaware"), merged into and with SPAR Acquisition,
Inc., a Nevada corporation ("SAI") (the "Merger") pursuant to the Agreement and
Plan of Merger dated as of February 28, 1999, as amended (the "Merger
Agreement"), by and among (i) PIA Delaware, PIA Merchandising Co., Inc., a
California corporation ("PIA California"), and PIA Acquisition (collectively,
the "PIA Parties"), and (ii) SAI, SPAR Marketing, Inc., a Delaware corporation
("SMI"), SPAR Marketing Force, Inc., a Nevada corporation ("SMF"),
7
<PAGE>
SPAR Group, Inc.
Notes to Condensed Financial Statements
(unaudited) (continued)
SPAR Marketing, Inc., a Nevada corporation ("SMNEV"), SPAR, Inc., a Nevada
corporation ("SINC"), SPAR/Burgoyne Retail Services, Inc., an Ohio corporation
("SBRS"), SPAR Incentive Marketing, Inc., a Delaware corporation ("SIM"), SPAR
Performance Group, Inc., a Delaware corporation ("SPGI") and SPAR Trademarks,
Inc., a Nevada corporation ("STM") (each a "SPAR Company" and collectively, the
"SPAR Companies").
PIA Delaware (pre-Merger only), PIA California and each of the PIA
California's direct and indirect subsidiaries (i.e., Pacific Indoor Display Co.,
Inc., a California corporation ("Pacific"), Pivotal Sales Company, a California
corporation ("Pivotal") and PIA Merchandising Limited, a corporation organized
under the laws of Nova Scotia ("PIA Canada"), may be referred to individually as
a "PIA Company" and collectively as the "PIA Companies."
In connection with the Merger, PIA Delaware changed its name to SPAR
Group, Inc. (which will be referred to post-Merger individually as "SGI" or the
"Company"). Although the SPAR Companies became subsidiaries of PIA Delaware (now
SGI) as a result of this "reverse" Merger, the transaction has been accounted
for as required under generally accepted accounting principles as a purchase by
the SPAR Companies of the PIA Companies, with the books and records of SGI being
adjusted to reflect the historical operating results of the SPAR Companies.
In the transaction, the former shareholders and optionholders of SAI
received approximately 12.7 million shares of common stock and 134,114 common
stock options, respectively. The purchase price of approximately $12.3 million
has been allocated based on the estimated fair value of the assets of the PIA
Companies deemed for accounting purposes to have been acquired by the SPAR
Companies.
The goodwill that resulted from the Merger was calculated after giving
effect to the merger costs of the PIA Companies totaling $2.4 million and the
anticipated restructuring costs that are directly related to the Merger totaling
$7.4 million (see Note 5, below). The excess purchase price deemed paid by the
SPAR Companies for the assets of the PIA Companies over the fair value of those
assets was $11.7 million and is being amortized using the straight-line method
over 15 years.
8
<PAGE>
SPAR Group, Inc.
Notes to Condensed Financial Statements
(unaudited) (continued)
3. BUSINESS COMBINATIONS (CONTINUED)
BUSINESS COMBINATIONS - RESULTS AS IF THE ACQUISITIONS HAD OCCURRED ON JANUARY
1, 1999
In accordance with generally accepted accounting principles, the
operating results of SPGI and the PIA Companies have been included in the
condensed consolidated statements of operations from the dates of the respective
acquisitions. The unaudited results below (not included in the consolidated and
combined statements) are computed on a pro forma basis as if the acquisitions
occurred at the beginning of each of the periods ended March 31, 2000 and 1999
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
------------------------------------------
<S> <C> <C>
Net revenues $ 32,447 $ 44,028
==========================================
Operating income $ 405 $ 1,391
==========================================
Actual/Pro forma net (loss) income $ 416 $ (1,736)
==========================================
Actual/Pro forma basic (loss) earnings per share $ .02 $ (.10)
==========================================
Actual/Pro forma diluted (loss) earnings per share $ .02 $ (.10)
==========================================
Basic weighted average common shares 18,165 18,136
==========================================
Diluted weighted average common shares 18,294 18,136
==========================================
</TABLE>
The above pro forma statements of operations reflect incremental
amortization of goodwill, interest expense, increases in bonuses to new SPGI
management and provisions for federal and state income taxes.
The above pro forma results are not necessarily indicative of what
actually would have occurred if the acquisitions had been completed as of the
beginning of each of the periods presented, nor are they necessarily indicative
of future consolidated results.
4. SEGMENTS
Utilizing the management approach, the SPAR Group has broken down its
business based upon the nature of services provided (i.e., merchandising
services and incentive marketing services). The Merchandising Services Division
consists of SMI (an intermediate holding company), SMF, SMNEV,
9
<PAGE>
SPAR Group, Inc.
Notes to Condensed Financial Statements
(unaudited) (continued)
SBRS and SINC (collectively, the "SPAR Marketing Companies") and the PIA
Companies (see Note 3). The Incentive Marketing Division consists of each of SIM
(an intermediate holding company) and SPGI (see Note 3). Merchandising services
generally consist of regularly scheduled, routed services provided at the stores
for a specific retailer or multiple manufacturers primarily under multiple year
contracts. Services also include stand-alone large scale implementations. These
services may include activities such as ensuring that clients' products
authorized for distribution are in stock and on the shelf, adding in new
products that are approved for distribution but not present on the shelf,
setting category shelves in accordance with approved store schematics, ensuring
that shelf tags are in place, checking for the overall salability of clients'
products, selling new product and promotional items. Specific in-store services
can be initiated by retailers and manufacturers, such as new product launches,
special seasonal or promotional merchandising, focused product support and
product recalls. These services are used typically for large-scale
implementations over 30 days. The Merchandising Services Division of the SPAR
Group also performs other project services, such as new store sets and existing
store resets, re-merchandising, remodels and category implementations,
multi-year shared service contracts or stand-alone project contracts.
The Incentive Marketing Division generally consists of designing and
implementing premium incentives, managing meetings and group travel for clients
throughout the United States. These services may include providing a variety of
consulting, creative, program administrative, travel and merchandise fulfillment
services to companies seeking to motivate employees, salespeople, dealers,
distributors, retailers and consumers toward certain action or objectives. The
following table presents segment information (in thousands):
<TABLE>
<CAPTION>
MERCHANDISING SERVICES INCENTIVE MARKETING TOTAL
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
---------------------------- ---------------------------- ----------------------------
MARCH 31 MARCH 31 MARCH 31, MARCH 31 MARCH 31 MARCH 31
2000 1999 2000 1999 2000 1999
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $24,682 $10,245 $7,765 $ 11,391 $32,447 $21,637
Cost of revenues 16,523 5,372 5,950 9,001 22,473 14,373
---------------------------- ---------------------------- ----------------------------
Gross profit 8,159 4,873 1,815 2,391 9,974 7,264
SG&A 6,869 3,586 1,899 1,194 8,768 4,780
---------------------------- ---------------------------- ----------------------------
EBITDA $ 1,290 $ 1,287 $ (84) $ 1,197 $ 1,206 $ 2,484
============================ ============================ ============================
Net income (loss) $844 $1,112 $(428) $830 $416 $1,942
Total Assets $49,619 $13,078 $11,641 $21,064 $61,260 $34,142
============================ ============================ ============================
</TABLE>
In March 2000, the Company established its Internet Division to
separately market its applications, software products and services. As the
division develops, we anticipate separately reporting information regarding this
segment.
10
<PAGE>
SPAR Group, Inc.
Notes to Condensed Financial Statements
(unaudited) (continued)
5. RESTRUCTURING AND OTHER CHARGES
In connection with the PIA Merger, the Company's Board of Directors
approved a plan to restructure the operations of the PIA Companies.
Restructuring costs are composed of committed costs required to integrate the
SPAR Companies and the PIA Companies' field organizations and the consolidation
of administrative functions to achieve beneficial synergies and costs savings.
The SPAR Group recognized termination costs in accordance with EITF
95-3, Recognition of Liabilities in Connection with a Business Combination.
The following table displays a roll-forward of the liabilities for
restructuring and other charges from December 31, 1999 to March 31, 2000 (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 QUARTER ENDED 2000
RESTRUCTURING AND MARCH 31, 2000 RESTRUCTURING AND
OTHER CHARGES DEDUCTIONS OTHER CHARGES
-----------------------------------------------------------
<S> <C> <C> <C>
Type of cost:
Employee separation $1,115 $ 474 $ 641
Equipment lease settlements 2,747 60 2,687
Office lease settlements 1,542 13 1,529
-----------------------------------------------------------
$5,404 $ 547 $4,857
===========================================================
</TABLE>
Management believes that the remaining reserves for restructuring are
adequate to complete its plan.
11
<PAGE>
SPAR Group, Inc.
Notes to Condensed Financial Statements
(unaudited) (continued)
6. EARNINGS PER SHARE
The following table sets forth the computations of pro forma basic and
diluted earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
---------------------------------
<S> <C> <C>
Numerator:
Actual/Pro forma net income $416 $ 1,226
=================================
Denominator:
Shares used in pro forma basic earnings per share
calculation1 18,165 12,655
Effect of diluted securities:
Employee stock options 129 134
Warrants - -
---------------------------------
Shares used in pro forma diluted earnings per share
calculations1 18,294 12,789
=================================
Actual/Pro forma basic earnings per share1 $ 0.02 $ 0.10
=================================
Actual/Pro forma diluted earnings per share1 $ 0.02 $ 0.10
=================================
</TABLE>
1 The pro forma basic and pro forma diluted earnings per share amounts are
based upon 12,655,000 shares on January 1, 1999, although these shares were
issued on July 9, 1999, as required to comply with SFAS No. 128 and the
Securities and Exchange Commission Staff Accounting Bulletin 98 (SAB 98).
7. OTHER INCOME
In January 2000, the Company sold its investment in an affiliate for
approximately $1.5 million. The sale resulted in a gain of approximately
$790,000, which is included in other income.
12
<PAGE>
SPAR Group, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
- --------------------------
This Quarterly Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, including, in particular, the statements about the SPAR
Group's plans and strategies under the headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Although the SPAR
Group believes that its plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, it cannot assure
that such plans, intentions or expectations will be achieved. Important factors
that could cause actual results to differ materially from the forward-looking
statements made in this Quarterly Report on Form 10-Q are set forth in this
Quarterly Report on Form 10-Q. All forward-looking statements attributable to
the SPAR Group or persons acting on its behalf are expressly qualified by the
cautionary statements contained in this Quarterly Report on Form 10-Q.
The SPAR Group does not undertake any obligation to update or revise
any forward-looking statement or risk factor or to publicly announce any
revisions to any of them to reflect future events, developments or circumstances
OVERVIEW
- --------
The Company provides merchandising services to manufacturers and
retailers principally in mass merchandiser, chain, discount drug and grocery
stores through its Merchandising Services Division. In addition, the SPAR
Group's Incentive Marketing Division designs and implements premium incentives,
manages meetings and group travel for principally corporate clients. In March
2000, the Company established its Internet Division to separately market its
applications, software products and services. Although such products and
services were in part available through the Company's other divisions prior to
the establishment of the Internet Division, the historical revenues and expenses
related to such software products and services generally were not maintained
separately and have been included below in the discussion of the condition and
results of the Merchandising Services Division and Incentive Marketing Division.
According to Generally Accepted Accounting Principles, upon an
acquisition, the acquired company's results of operations are not included in
the acquirer's results of operations prior to the date of acquisition. The SPAR
companies acquired substantially all of the assets of BIMA on January 16, 1999
(the "MCI Acquisition"). (See Notes 2 and 3 to the Condensed Financial
Statements.) Under GAAP, the SPAR/PIA merger completed on July 9, 1999 was
deemed to be an acquisition of PIA by SPAR. (See Notes 2 and 3 to the Condensed
Financial Statements). Therefore, the following discussions include only the
results of SPGI subsequent to January 15, 1999 and the results of PIA subsequent
to July 8, 1999.
13
<PAGE>
SPAR Group, Inc.
During the third quarter of 1999, the SPAR Group restructured its
operations by integrating the SPAR Marketing Companies and the PIA Companies'
field organizations and consolidating administrative functions where possible to
achieve beneficial synergies and cost savings. Although significant cost savings
were achieved during the third and fourth quarters of 1999 and the first quarter
of 2000, not all synergistic programs had been implemented, and further cost
savings are expected to be achieved in the second quarter of 2000.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
- -------------------------------------------------------------------------------
NET REVENUES
- ------------
The following table sets forth net revenues by division as a percentage
of net revenues for the periods indicated:
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
March 31, 2000 March 31, 1999 Change
-----------------------------------------------------------------
(amounts in millions) Amount % Amount % %
--------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Merchandising Services net revenues $24.7 76.2% $10.2 47.2% 142.2%
Incentive Marketing net revenues 7.7 23.8 11.4 52.8% (32.5)
--------- ---------- ---------- ----------
Net Revenue $32.4 100.0% $21.6 100.0% 50.0%
========= ========== ========== ========== ========
</TABLE>
Net revenues for the quarter ended March 31, 2000 increased from the
comparable period of 1999 due principally to the acquisition of the PIA
Companies. All of the net revenues derived from the acquisition of the PIA
Companies were included in the quarter ended March 31, 2000 with no comparable
PIA revenues in the quarter ended March 31, 1999. For the first quarter of 2000,
net revenues were $32.4 million compared to $21.6 million in the first quarter
of 1999, a 50.0% increase.
Merchandising services net revenues for the quarter ended March 31,
2000 were $24.7 million, compared to $10.2 million in the quarter ended March
31, 1999, a 142.2% increase. The increase in net revenues is primarily
attributed to the inclusion of $13.5 million of net revenues of the PIA
Companies' merchandising operations since their acquisition. In addition, the
SPAR Companies merchandising net revenues increased by $1.0 million due to
additional customers.
Incentive marketing net revenues for the quarter ended March 31, 2000
were $7.7 million, compared to $11.4 million for the quarter ended March 31,
1999, a reduction of 32.5% primarily due to a decrease in project revenue.
14
<PAGE>
SPAR Group, Inc.
COST OF REVENUES
- ----------------
The following table sets forth cost of revenues by division as a
percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
March 31, 2000 March 31, 1999 Change
-------------------------- ----------------------------- --------
(amounts in millions) Amount % Amount % %
--------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Direct Supervision $ 2.0 6.2% $ 0.9 4.2% 122.2%
Merchandising Costs 20.5 63.1 13.5 62.2 51.9
--------- ---------- --------- ----------
Total cost of revenues $22.5 69.3% $14.4 66.4% 56.3%
========= ========== ========= ========== ==========
</TABLE>
Cost of revenues for the quarters ended March 31, 2000 and March 31,
1999 were $22.5 million and $14.4 million, respectively. Cost of revenues for
the quarter ended March 31, 2000 was 69% of net revenues, compared to 66% in
1999. The increase in cost of revenues, as a percentage of net revenues, in the
quarter ended March 31, 2000 over 1999 is primarily attributable to the higher
labor cost structure of the PIA Companies field organization. The SPAR Group has
taken steps to control and improve gross profits and has implemented synergy
plans to control direct costs (see Restructuring and Other Charges, Note 5 to
the Condensed Financial Statements).
OPERATING EXPENSES
- ------------------
The following table sets forth the operating expenses as a percentage
of net revenues for the periods indicated:
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
March 31, 2000 March 31, 1999 Change
-------------------------- ----------------------------- --------
(amounts in millions) Amount % Amount % %
--------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Selling, general & administrative expenses $8.8 27.1% $4.7 21.8% 87.2%
Depreciation & amortization 0.8 2.6 .2 1.1 300.0
--------- ---------- --------- ----------
Total Operating Expenses $9.6 29.6% $4.9 22.9% 95.9%
========= ========== ========= ========== ========
</TABLE>
Selling, general and administrative expenses increased by 87.2% in the
first quarter of 2000 to $8.8 million compared to $4.7 million in the same
period of 1999. This increase was due primarily to the inclusion of the PIA
Companies general and administrative costs for the entire quarter totaling $3.5
million coupled with an increase in SPGI general and administration costs of
$0.7 million.
Depreciation and amortization increased by $0.6 million in the first
quarter of 2000 due primarily to the amortization of goodwill recognized by the
acquisition of the PIA Companies and the MCI Acquisition by the SPAR Group.
15
<PAGE>
SPAR Group, Inc.
OTHER EXPENSES
- --------------
Interest expense increased in the first quarter of 2000 due to higher
weighted average borrowing rates in 2000.
ACTUAL/PRO FORMA INCOME TAXES
- -----------------------------
The income tax provision in the first quarter of 2000 represents a
combined federal and state income tax rate of 44%. The pro forma income tax
provision in the first quarter of 1999 is computed using a combined federal and
state income tax rate of 36.9% of taxable income.
ACTUAL/PRO FORMA NET INCOME
- ---------------------------
The SPAR Group had net income of $0.4 million in the first quarter of
2000 or $0.02 per basic and diluted share compared to pro forma net income of
$1.2 million or $0.10 per pro forma basic and diluted share in the corresponding
period in 1999. The Company is currently consolidating and restructuring the
operations of SPAR Group to reduce labor costs and administrative costs (see
Restructuring and Other Charges, Note 5 to the Condensed Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In the three months ended March 31, 2000, the SPAR Group had pre-tax
income of $0.7 million and experienced a negative operating cash flow of $0.7
million. As previously noted, the Merger with PIA was consummated on July 8,
1999. The Merger has reduced fixed costs and created synergies directly
impacting the SPAR Group's profitability and cash flow. Management expects that
further cost reductions and synergies will be realized in 2000.
The SPAR Group experienced a net decrease in cash and cash equivalents
of $0.8 million for the three months ended March 31, 2000. With the existing
revolving line of credit, subject to availability, timely collection of
receivables, and the SPAR Group's current working capital position, management
believes that liquidity and capital resources over the next twelve months will
be sufficient to maintain ongoing operations.
Debt
In 1999, IBJ Whitehall and the members of the SPAR Group (other than
PIA Canada) (collectively, the "Borrowers") entered into a Revolving Credit,
Term Loan and Security Agreement (the "Bank Loan Agreement"), pursuant to which
the Borrowers are permitted to borrow up to a maximum of $14 million on a
revolving credit basis, and $2.5 million on a term basis (the "Term Loan"). The
revolving loans bear interest at IBJ Whitehall's "Alternate Base Rate I" plus
one-half of one percent (0.50%) (a total of 10.0% per annum at March 31, 2000),
and the Term Loan bears interest at such
16
<PAGE>
SPAR Group, Inc.
"Alternate Base Rate II" plus three-quarters of one percent (0.75%) (a total of
10.5% per annum at March 31, 2000). The Bank Loan Agreement's revolving credit
loans of $1.5 million and $12.5 million are scheduled to mature on June 30,
2000, and September 21, 2002, respectively. The Term Loan amortizes in equal
monthly installments of $83,334 each. In addition, the Borrowers are required to
make mandatory prepayments in an amount equal to 25% of Excess Cash Flow, as
defined in the Bank Loan Agreement, for each fiscal year, to be applied first to
the Term Loan and then to the revolving credit loans (subject to the Borrowers'
ability to re-borrow revolving advances in accordance with the terms of the Bank
Loan Agreement). The facility is secured with the assets of the SPAR Group.
The Bank Loan Agreement contains an option for the Bank to purchase
16,667 shares of common stock of the Company for $0.01 per share in the event
that the Company's average closing share price over ten consecutive trading day
period exceeds $15.00 per share. This option expires September 22, 2002.
The Bank Loan Agreement contains certain financial covenants that must
be met by the Borrowers on a consolidated basis, among which are a minimum "Net
Worth," a "Fixed Charge Coverage Ratio", a minimum ratio of Debt to EBITDA, and
a minimum EBITDA, as such terms are defined in the Bank Loan Agreement.
The balance outstanding on the revolving line of credit was $13.7
million and $13.3 million at March 31, 2000 and December 31, 1999, respectively.
As of March 31, 2000, the SPAR Group had unused availability under the line of
credit to borrow up to an additional $300,000.
Cash and Cash Equivalents
Net cash used by operating activities for the three months ended March
31, 2000, of $0.7 million was consistent with net cash used of $0.8 million for
the three months ended March 31, 1999.
Net cash provided from investing activities for the three months ended
March 31, 2000, was $1.0 million, compared with $0.5 million for the three
months ended March 31, 1999. Net cash provided from investing activities was
primarily due to a sale of an investment offset by purchases of property and
equipment.
Net cash used in financing activities for the three months ended March
31, 2000, was $1.1 million, compared with net cash provided by financing
activities of $1.4 for the three months ended March 31, 1999. The net cash used
in financing activities was primarily due to the payment of the MCI Note
payable.
The above activity resulted in a net decrease in cash and cash
equivalents of $0.8 million for the three months ended March 31, 2000, compared
to a net increase of $1.1 million for the three months ended March 31, 1999.
17
<PAGE>
SPAR Group, Inc.
Cash and cash equivalents totaled $1.3 million at March 31, 2000,
compared with $2.1 at December 31, 1999. At March 31, 2000, the Company had
negative working capital of $192,000 as compared to negative working capital at
December 31, 1999 of $639,000, and current ratios of 1.0 and 1.0 as of March 31,
2000, and December 31, 1999, respectively.
Cash and cash equivalents and the timely collection of its receivables
provide the SPAR Group's current liquidity. However, the potential of delays in
collection of receivables due from any of the SPAR Group's major clients, or a
significant reduction in business from such clients, or the inability to acquire
new clients, would have a material adverse effect on the SPAR Group's cash
resources and its ongoing ability to fund operations.
At March 31, 2000, The SPAR Group is obligated, under certain
circumstances, to pay severance compensation to its employees and other costs in
connection with the Merger of approximately $4.9 million. In addition, the
Company incurred substantial cost in connection with the transaction, including
legal, accounting and investment banking fees estimated to be an aggregate
unpaid obligation of approximately $1.3 million. The SPAR Group has also accrued
approximately $2.4 million for expenses incurred by PIA prior to the Merger,
which have not been paid. Management believes the current bank credit facilities
are sufficient to fund operations and working capital, including the current
maturities of debt obligations, but may not be sufficient to reduce obligations
of the Merger with PIA. The Company is currently negotiating with its bank for
an increase in its credit facility to meet the non-operational credit needs and
is also working to secure additional long-term capital. However, there can be no
assurances that the Company will be successful in these negotiations.
Certain former principal stockholders of the SPAR Companies each made
loans to certain SPAR Companies in the aggregate amount of $4.3 million to
facilitate the acquisition of the assets of Old MCI. These stockholders also
were owed $1.9 million in unpaid distributions relating to the former status of
certain of the operating SPAR Companies as Subchapter S Corporations. Those
amounts were converted into promissory notes issued to these certain
stockholders severally by SMF, SINC and SPGI prior to the Merger, which
aggregated $6.2 million. As of March 31, 2000, a total of $5.6 million remained
outstanding under these notes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The SPAR Group is exposed to market risk related to the variable
interest rate on the line of credit and term note and the variable yield on its
cash and cash equivalents. The SPAR Group's accounting policies for financial
instruments and disclosures relating to financial instruments require that the
SPAR Group's consolidated balance sheets include the following financial
instruments: cash and cash equivalents, accounts receivable, accounts payable
and long term debt. The SPAR Group considers carrying amounts of current assets
and liabilities in the condensed consolidated financial statements to
approximate the fair value for these financial instruments, because of the
relatively short period of time between origination of the instruments and their
expected realization. The carrying amounts of long-term debt approximate fair
value because the obligation bears interest at a floating rate. The SPAR Group
monitors the risks associated with interest rates and financial instrument
positions. The SPAR Group's
18
<PAGE>
SPAR Group, Inc.
investment policy objectives require the preservation and safety of the
principal, and the maximization of the return on investment based upon the
safety and liquidity objectives.
The SPAR Group's revenue derived from international operations is not
material and, therefore, the risk related to foreign currency exchange rates is
not material.
Investment Portfolio
The SPAR Group has no derivative financial instruments or derivative
commodity instruments in its cash and cash equivalents and investments. The SPAR
Group invests its cash and cash equivalents in investments in high-quality and
highly liquid investments consisting of taxable money market instruments.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 23, 1999, Information Leasing Corporation ("ILC") filed a
complaint for breach of contracts, claim and delivery, and conversion against
the Company in Orange County Superior Court, Santa Ana, California, Case No.
814820, with respect to certain equipment leased to the PIA Companies by ILC,
which complaint sought judgment to recover the principal sum of $1,535,869.68,
plus taxes, fees, liens, and late charges, immediate possession of the leased
equipment, compensation for the reasonable value thereof, and costs and
attorneys' fees. The Company is currently attempting to negotiate a settlement.
Pursuant to that certain Asset Purchase Agreement dated as of December
22, 1998, among BIMA Group, Inc. (f/k/a MCI Performance Group, Inc.) ("BIMA"),
John H. Wile, SPAR Performance Group, Inc.(f/k/a SPAR MCI Performance Group,
Inc.) ("SPGI"), and a company formerly known as SPAR Group, Inc., as amended by
the First Amendment thereto dated as of January 15, 1999, Second Amendment dated
as of September 22, 1999 (the "Second Amendment"), and Third Amendment dated as
of October 1, 1999 (the "Third Amendment"), SPGI would be obligated to pay
"Earn-Out Consideration" to BIMA if BIMA met certain financial performance
criteria as set forth therein. SPGI has fully paid the amount outstanding under
the Promissory Note pursuant to the Asset Purchase Agreement with respect to the
original purchase price, as adjusted by the Second Amendment. Based upon the
unaudited balance sheet of BIMA as of January 15, 1999, SPGI estimates that no
"Earn-Out Consideration" is due to BIMA. BIMA has asserted that it is owed
approximately $5,000,000 in Earn-Out Consideration, but such Earn-Out
Consideration calculation has not been agreed to by SPGI. If the parties cannot
agree upon such amount, BIMA has threatened that legal proceedings may ensue
with respect to this matter. If sued, SPGI would vigorously contest such matter.
SPGI and BIMA intend to continue negotiations, and have orally agreed to use
arbitrators (assuming mutually acceptable procedures can be adopted), in order
to resolve such "Earn-Out Consideration" dispute.
19
<PAGE>
SPAR Group, Inc.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Item 2(a): Not applicable
-------------------------
Item 2(b): Not applicable
-------------------------
Item 2(c): Not Applicable
-------------------------
Item 2(d): Use of Past Proceeds
-------------------------------
Not applicable.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5: OTHER INFORMATION
Not applicable.
20
<PAGE>
SPAR Group, Inc.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of SPAR Group, Inc.,
as amended. (incorporated by reference to the
Company's Registration Statement on Form S-1
(Registration No. 33-80429) as filed with the
Securities and Exchange Commission on December 14,
1995 (the "Form S-1") and to Exhibit 3.1 to the
Company's Form 10-Q for the 3rd Quarter ended
September 30, 1999).
3.2 By-laws of PIA (incorporated by reference to the
Form S-1).
4.1 Registration Rights Agreement entered into as of
January 21, 1992 by and between RVM Holding
Corporation. RVM/PIA, a California Limited
Partnership, The Riordan Foundation and
Creditanstalt-Bankverine (incorporated by
reference to the Form S-1).
10.1 1990 Stock Option Plan (incorporated by reference
to the Form S-1).
10.2 Amended and Restated 1995 Stock Option Plan
(incorporated by reference of Exhibit 10.2 to the
Company's Form 10-Q for the 2nd Quarter ended July
3, 1998).
10.3 1995 Stock Option Plan for Non-employee Directors
(incorporated by reference to the Form S-1).
10.4+* Employment Agreement dated as of June 25, 1997
between PIA and Terry R. Peets (incorporated by
reference to Exhibit 10.5 to the Company's Form
10-Q for the 2nd Quarter ended June 30, 1997)
10.5+* Severance Agreement dated as of February 20, 1998
between PIA and Cathy L. Wood (incorporated by
reference to Exhibit 10.5 to the Company's Form
10-Q for the 1st Quarter ended April 30, 1998)
10.6* Severance Agreement dated as of August 10, 1998
between PIA and Clinton E. Owens (incorporated by
reference to Exhibit 10.6 to the Company's Form
10-Q for the 3rd Quarter ended October 2, 1998)
21
<PAGE>
SPAR Group, Inc.
10.7+* Amendment No. 1 to Employment Agreement dated as
of October 1, 1998 between PIA and Terry R. Peets.
10.8+* Amended and Restated Severance Compensation
Agreement dated as of October 1, 1998 between PIA
and Cathy L. Wood.
10.9+ Loan and Security Agreement dated December 7, 1998
among Mellon Bank, N.A., PIA Merchandising Co.,
Inc., Pacific Indoor Display Co. and PIA.
10.10+ Agreement and Plan of Merger dated as of February
28, 1999 among PIA, SG Acquisition, Inc., PIA
Merchandising Co., Inc., SPAR Acquisition, Inc.,
SPAR Marketing, Inc., SPAR Marketing Force, Inc.,
SPAR, Inc., SPAR/Burgoyne Retail Services, Inc.,
SPAR Incentive Marketing, Inc., SPAR MCI
Performance Group, Inc. and SPAR Trademarks, Inc.
10.11+ Voting Agreement dated as of February 28, 1999
among PIA, Clinton E. Owens, RVM/PIA, California
limited partnership, Robert G. Brown and William
H. Bartels.
10.12* Amendment No. 2 to Employment Agreement dated as
of February 11, 1999 between PIA and Terry R.
Peets (incorporated by reference to Exhibit 10.12
to the Company's Form 10-Q for the 2nd Quarter
ended April 2, 1999).
10.13 Special Purpose Stock Option Plan (incorporated by
reference to Exhibit 10.13 of the Company's Form
10-Q for the 2nd Quarter ended July 2, 1999.
10.14 Amendment No. 1 to Severance Agreement dated as of
May 18, 1999 between the Company and Cathy L. Wood
(incorporated by reference to Exhibit 10.14 of the
Company's Form 10-Q for the 3rd Quarter ended
September 30, 1999).
10.15++ Second Amended and Restated Revolving Credit, Term
Loan and Security Agreement by and among IBJ
Whitehall Business Credit Corporation with SPAR
Marketing Force, Inc., SPAR Group, Inc., SPAR,
Inc., SPAR/Burgoyne Retail Services, Inc., SPAR
Incentive Marketing, Inc., SPAR Trademarks, Inc.,
SPAR MCI Performance Group, Inc., SPAR Marketing,
Inc. (DE), SPAR Marketing, Inc. (NV), SPAR
Acquisition, Inc., PIA Merchandising, Co., Inc.,
Pacific Indoor Display Co., Inc., and Pivotal
Sales Company dated as of September 22, 1999.
22
<PAGE>
SPAR Group, Inc.
10.16++ Waiver and Amendment No. 1 ("Amendment") is entered
into as of December 8, 1999, by and between SPAR
Marketing Force, Inc., SPAR, Inc., SPAR/Burgoyne
Retail Services, Inc., SPAR Group, Inc., SPAR
Incentive Marketing, Inc., SPAR Trademarks, Inc.,
SPAR Performance Group, Inc. (f/k/a SPAR MCI
Performance Group, Inc.), SPAR Marketing, Inc. (DE),
SPAR Marketing, Inc. (NV), SPAR Acquisition, Inc.,
PIA Merchandising Co., Inc., Pacific Indoor Display
Co., Inc. and Pivotal Sales Company (each a
"Borrower" and collectively, the "Borrowers") and IBJ
Whitehall Business Credit Corporation ("Lender").
10.17** Service Agreement dated as of January 4, 1999 by
and between SPAR Marketing Force, Inc. and SPAR
Marketing Services, Inc.
10.18** Business Manager Agreement dated as of July 8,
1999 by and between SPAR Marketing Force, Inc. and
SPAR Marketing Services, Inc.
21.1++ Subsidiaries of the Company
23.1++ Consent of Ernst & Young LLP
27.0*** Financial Data Schedule
+ Previously filed with initial Form 10-K for
the fiscal year ended January 1, 1999.
++ Previously filed with initial Form 10-K for
the fiscal year ended December 31, 1999.
* Management contract or compensatory plan or
arrangement required to be filed as an
exhibit pursuant to applicable rules of the
Securities and Exchange Commission.
** Previously filed with Form 10-K/A for the
fiscal year ended December 31, 1999
*** Filed herewith
REPORTS ON FORM 8-K.
None.
23
<PAGE>
SPAR Group, Inc.
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: May 22, 2000 SPAR Group, Inc., Registrant
By: /s/ Charles Cimitile
----------------------------
Charles Cimitile
Chief Financial Officer
and Secretary
24
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of SPAR Group, Inc.,
as amended. (incorporated by reference to the
Company's Registration Statement on Form S-1
(Registration No. 33-80429) as filed with the
Securities and Exchange Commission on December 14,
1995 (the "Form S-1") and to Exhibit 3.1 to the
Company's Form 10-Q for the 3rd Quarter ended
September 30, 1999).
3.2 By-laws of PIA (incorporated by reference to the
Form S-1).
4.1 Registration Rights Agreement entered into as of
January 21, 1992 by and between RVM Holding
Corporation. RVM/PIA, a California Limited
Partnership, The Riordan Foundation and
Creditanstalt-Bankverine (incorporated by
reference to the Form S-1).
10.1 1990 Stock Option Plan (incorporated by reference
to the Form S-1).
10.2 Amended and Restated 1995 Stock Option Plan
(incorporated by reference of Exhibit 10.2 to the
Company's Form 10-Q for the 2nd Quarter ended July
3, 1998).
10.3 1995 Stock Option Plan for Non-employee Directors
(incorporated by reference to the Form S-1).
10.4+* Employment Agreement dated as of June 25, 1997
between PIA and Terry R. Peets (incorporated by
reference to Exhibit 10.5 to the Company's Form
10-Q for the 2nd Quarter ended June 30, 1997)
10.5+* Severance Agreement dated as of February 20, 1998
between PIA and Cathy L. Wood (incorporated by
reference to Exhibit 10.5 to the Company's Form
10-Q for the 1st Quarter ended April 30, 1998)
10.6* Severance Agreement dated as of August 10, 1998
between PIA and Clinton E. Owens (incorporated by
reference to Exhibit 10.6 to the Company's Form
10-Q for the 3rd Quarter ended October 2, 1998)
SPAR Group, Inc.
10.7+* Amendment No. 1 to Employment Agreement dated as
of October 1, 1998 between PIA and Terry R. Peets.
10.8+* Amended and Restated Severance Compensation
Agreement dated as of October 1, 1998 between PIA
and Cathy L. Wood.
10.9+ Loan and Security Agreement dated December 7, 1998
among Mellon Bank, N.A., PIA Merchandising Co.,
Inc., Pacific Indoor Display Co. and PIA.
10.10+ Agreement and Plan of Merger dated as of February
28, 1999 among PIA, SG Acquisition, Inc., PIA
Merchandising Co., Inc., SPAR Acquisition, Inc.,
SPAR Marketing, Inc., SPAR Marketing Force, Inc.,
SPAR, Inc., SPAR/Burgoyne Retail Services, Inc.,
SPAR Incentive Marketing, Inc., SPAR MCI
Performance Group, Inc. and SPAR Trademarks, Inc.
10.11+ Voting Agreement dated as of February 28, 1999
among PIA, Clinton E. Owens, RVM/PIA, California
limited partnership, Robert G. Brown and William
H. Bartels.
10.12* Amendment No. 2 to Employment Agreement dated as
of February 11, 1999 between PIA and Terry R.
Peets (incorporated by reference to Exhibit 10.12
to the Company's Form 10-Q for the 2nd Quarter
ended April 2, 1999).
10.13 Special Purpose Stock Option Plan (incorporated by
reference to Exhibit 10.13 of the Company's Form
10-Q for the 2nd Quarter ended July 2, 1999.
10.14 Amendment No. 1 to Severance Agreement dated as of
May 18, 1999 between the Company and Cathy L. Wood
(incorporated by reference to Exhibit 10.14 of the
Company's Form 10-Q for the 3rd Quarter ended
September 30, 1999).
10.15++ Second Amended and Restated Revolving Credit, Term
Loan and Security Agreement by and among IBJ
Whitehall Business Credit Corporation with SPAR
Marketing Force, Inc., SPAR Group, Inc., SPAR,
Inc., SPAR/Burgoyne Retail Services, Inc., SPAR
Incentive Marketing, Inc., SPAR Trademarks, Inc.,
SPAR MCI Performance Group, Inc., SPAR Marketing,
Inc. (DE), SPAR Marketing, Inc. (NV), SPAR
Acquisition, Inc., PIA Merchandising, Co., Inc.,
Pacific Indoor Display Co., Inc., and Pivotal
Sales Company dated as of September 22, 1999.
<PAGE>
10.16++ Waiver and Amendment No. 1 ("Amendment") is
entered into as of December 8, 1999, by and
between SPAR Marketing Force, Inc., SPAR, Inc.,
SPAR/Burgoyne Retail Services, Inc., SPAR Group,
Inc., SPAR Incentive Marketing, Inc., SPAR
Trademarks, Inc., SPAR Performance Group, Inc.
(f/k/a SPAR MCI Performance Group, Inc.), SPAR
Marketing, Inc. (DE), SPAR Marketing, Inc. (NV),
SPAR Acquisition, Inc., PIA Merchandising Co.,
Inc., Pacific Indoor Display Co., Inc. and Pivotal
Sales Company (each a "Borrower" and collectively,
the "Borrowers") and IBJ Whitehall Business Credit
Corporation ("Lender").
10.17** Service Agreement dated as of January 4, 1999 by
and between SPAR Marketing Force, Inc. and SPAR
Marketing Services, Inc.
10.18** Business Manager Agreement dated as of July 8,
1999 by and between SPAR Marketing Force, Inc. and
SPAR Marketing Services, Inc.
21.1++ Subsidiaries of the Company
23.1++ Consent of Ernst & Young LLP
27.0*** Financial Data Schedule
+ Previously filed with initial Form 10-K for
the fiscal year ended January 1, 1999.
++ Previously filed with initial Form 10-K for
the fiscal year ended December 31, 1999.
* Management contract or compensatory plan or
arrangement required to be filed as an
exhibit pursuant to applicable rules of the
Securities and Exchange Commission.
** Previously filed with Form 10-K/A for the
fiscal year ended December 31, 1999
*** Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,314
<SECURITIES> 0
<RECEIVABLES> 30,390
<ALLOWANCES> 1,946
<INVENTORY> 0
<CURRENT-ASSETS> 34,004
<PP&E> 4,982
<DEPRECIATION> 1,454
<TOTAL-ASSETS> 61,260
<CURRENT-LIABILITIES> 34,196
<BONDS> 0
0
0
<COMMON> 182
<OTHER-SE> 11,120
<TOTAL-LIABILITY-AND-EQUITY> 61,260
<SALES> 0
<TOTAL-REVENUES> 32,447
<CGS> 0
<TOTAL-COSTS> 22,473
<OTHER-EXPENSES> 790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 456
<INCOME-PRETAX> 739
<INCOME-TAX> 323
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 416
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
