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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
ANNUAL REPORT ON FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the year ended December 31, 2000
Commission file number 0-27824
SPAR GROUP, INC.
Delaware 33-0684451
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
580 WHITE PLAINS ROAD, TARRYTOWN, NEW YORK 10591
Registrant's telephone number, including area code: (914) 332-4100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock, par
value $.01 per share
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K .
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on March 27, 2001, based on the closing price
of the Common Stock as reported by the Nasdaq SmallCap Market on such date, was
approximately $20,556,371.
The number of shares of the Registrant's Common Stock outstanding as of
March 27, 2001 was 18,272,330 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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SPAR GROUP, INC.
ANNUAL REPORT ON FORM 10-K
INDEX
PART I
PAGE
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 15
Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 24
Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation and Other Information of SPAR Group, Inc. 27
Item 12. Security Ownership of Certain Beneficial Owners and Management 30
Item 13. Certain Relationships and Related Transactions 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
Signatures 34
i
PART I
THIS ANNUAL REPORT ON FORM 10-K 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 "BUSINESS" AND "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. ALL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE SPAR GROUP OR PERSONS ACTING ON
ITS BEHALF ARE EXPRESSLY QUALIFIED BY THE CAUTIONARY STATEMENTS IN THE ANNUAL
REPORT ON FORM 10-K.
ITEM 1. BUSINESS.
GENERAL
The SPAR Group, Inc., a Delaware corporation formerly known as PIA
Merchandising Services, Inc. ("SPAR Group" or the "Company") is a supplier of
in-store merchandising and marketing services, and premium incentive marketing
services throughout the United States and Canada. The Company also provides
database marketing, teleservices, marketing research, and Internet-based
software. The Company's operations are divided into four divisions: the
Merchandising Services Division, the Incentive Marketing Division, the Internet
Division and the International Division. The Merchandising Services Division
provides merchandising services, database marketing, teleservices and marketing
research to manufacturers and retailers primarily in the mass merchandiser,
video, chain, discount drug store and grocery industries. The Incentive
Marketing Division designs and implements premium incentives, manages group
meetings, group travel and training programs principally for corporate clients.
In March 2000, the Company announced the formation of an Internet Division for
the purpose of marketing its proprietary Internet-based computer software. In
November 2000, the Company established its International Division to expand its
merchandising services business off shore, with an initial focus on Japan and
the Pacific Rim region.
Merchandising Services Division
The Company's Merchandising Services Division consists of (1) SPAR
Marketing, Inc. ("SMI") (an intermediate holding company), SPAR Marketing Force,
Inc. ("SMF"), SPAR Marketing, Inc., a Nevada corporation ("SMNEV"),
SPAR/Burgoyne Retail Services, Inc. ("SBRS"), and SPAR, Inc. ("SINC")
(collectively, the "SPAR Marketing Companies"), and (2) PIA Merchandising Co.
Inc., Pacific Indoor Display d/b/a Retail Resources, Pivotal Sales Company and
PIA Merchandising Ltd. (collectively, "PIA" or the "PIA Companies"). The SPAR
Marketing Companies, the original predecessor of which was founded in 1967,
provide nationwide retail merchandising and marketing services to home video,
consumer goods and food products companies. The PIA Companies, through a
predecessor of the Company first organized in 1943, also are suppliers of
in-store merchandising and sales services throughout the United States and
Canada, and were "acquired" by the SPAR Marketing Companies for accounting
purposes pursuant to the Merger on July 8, 1999 (See Merger and Restructuring,
below). The PIA Companies provide these services primarily on behalf of consumer
product manufacturers and retailers at mass merchandisers, drug and retail
grocery stores. The Company currently operates in all 50 states and Canada and
provides a broad range of in-store merchandising and other marketing services to
many of the nation's leading companies.
Merchandising services generally consist of special projects or
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 client products authorized for
distribution are in stock and on the shelf, adding new products that are
approved for distribution but not presently 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 client products and selling
new 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
-1-
services are used typically for large-scale implementations over 30 days. The
Company also provides database marketing, teleservices and research services.
Incentive Marketing Division
The Company's Incentive Marketing Division was created in January 1999
through the Company's purchase of the business and substantially all of the
assets of BIMA Group, Inc., a Texas corporation ("BIMA" or "MCI") originally
founded in 1987 and formerly known as MCI Performance Group, Inc. The purchase
was made by the Company's indirect subsidiary SPAR Performance Group, Inc.,
formerly known as SPAR MCI Performance Group, Inc. ("SPGI"). SPGI provides a
wide variety of consulting, creative, program administration, travel and
merchandise fulfillment, and training services to companies seeking to retain
and motivate employees, salespeople, dealers, distributors, retailers, and
consumers toward certain actions or objectives. SPGI's strategy enables
companies to outsource the entire design, implementation and fulfillment of
incentive programs in a one-stop, "umbrella" shopping approach. SPGI typically
consults with a client to design the most effective plan to achieve the client's
goals. SPGI then provides services necessary to implement the program, generates
detailed efficiency progress reports, and reports on the return on investment
upon completion of the program.
Internet Division
In March 2000, the Company established its Internet Division,
SPARinc.com, Inc., to separately market its application software products and
services. The Company has developed and is utilizing several Internet-based
software products. The Internet Division was established to market these
applications to businesses with multiple locations and large workforces desiring
to improve day-to-day efficiency and overall productivity.
International Division
In November 2000, the Company established its International Division,
SPAR Group International, Inc., to expand its merchandising services business
off shore, with an initial focus on Japan and the Pacific Rim region. The
Company believes there is a significant market for its merchandising services
throughout the world. The domestic merchandising services business has been
developed utilizing Internet-based technology that can be modified to
accommodate foreign markets. The International Division was established to
cultivate foreign markets, modify the necessary systems and implement the
Company's business model worldwide.
INDUSTRY OVERVIEW
Merchandising Services Division
According to industry estimates the merchandising industry generates
over two billion dollars annually. The merchandising industry includes
manufacturers, retailers, food brokers, and professional service merchandising
companies. The Company believes the current trend is that major manufacturers
are continuing to move to third parties to handle in-store merchandising. The
Company also believes that its merchandising services bring added value to
retailers, manufacturers and other businesses. Retail merchandising services
enhance sales by making a product more visible and available to consumers. These
services primarily include shelf maintenance, display placement, reconfiguring
products on store shelves, replenishing products and placing orders, and other
services, such as test market research, mystery shopping, teleservices, database
marketing and promotion planning and analysis.
Merchandising services previously undertaken by retailers, manufacturers
and independent brokers have been increasingly outsourced to third parties.
Historically, retailers staffed their stores as needed to ensure inventory
levels, the advantageous display of new items on shelves, and the maintenance of
shelf schematics. Manufacturers deployed their own sales representatives to
ensure that their products were displayed on the shelves and were properly
spaced and positioned. Independent brokers performed similar services on behalf
of the manufacturers they represented. The Company believes that in an effort to
improve their margins, retailers are increasing their reliance on manufacturers
and brokers to perform such services. Initially, manufacturers attempted
-2-
to satisfy their need for merchandising services in retail stores by utilizing
their own sales representatives. However, manufacturers discovered that using
their own sales representatives for this purpose was expensive and inefficient.
Therefore, manufacturers have increasingly outsourced the merchandising services
to third parties capable of operating at a lower cost by serving multiple
manufacturers simultaneously.
Another significant trend impacting the merchandising segment is the
tendency of consumers to make product purchase decisions once inside the store.
Accordingly, merchandising services and in-store product promotions have
proliferated and diversified. Retailers are continually re-merchandising and
remodeling entire stores to respond to new product developments and changes in
consumer preferences. The Company estimates that these activities have increased
in frequency over the last five years, such that most stores are re-merchandised
and remodeled approximately every twenty-four months. Both retailers and
manufacturers are seeking third parties to help them meet the increased demand
for these labor-intensive services.
Incentive Marketing Division
According to PROMO Magazine's 1999 annual report of the promotion
industry, spending on the promotion of products and services in 1998 was $85.4
billion, up $6 billion or 8% from the 1997 level. The Company participates in
the premium incentive and promotion fulfillment sectors. These sectors
collectively accounted for $28.7 billion or 34% of the promotion industry as a
whole and grew 5.0% and 17.2%, respectively, during 1998. The Company believes
that U.S. companies are increasingly using third party incentive providers as a
more efficient and cost effective means to increase the productivity of their
employees. Third party incentive premium providers can offer a customized,
unique, turnkey solution specifically tailored to a company's needs.
Additionally, incentive premium providers are able to capitalize on supplier
relationships and to realize volume discounts, particularly on travel and
merchandise.
Premium incentives are performance-determined rewards used to motivate
employees, salespeople, dealers, and consumers, and are also used to
differentiate a product, service or store. According to an Incentive Federation
Survey, only 26.0% of U.S. businesses are using premium incentives to motivate
employees and the majority of these businesses are large companies (with over
1,000 employees). The Company anticipates that this market segment will grow as
additional companies realize the value of using incentives to motivate
employees, sales forces and consumers.
The three most commonly used incentives are cash, travel and
merchandise. Consumer promotions, including direct premium offers (using travel
or merchandise in conjunction with a purchase of a product or service),
sweepstakes (promotions that require only chance to win) and self-liquidating
premiums (offering travel or merchandise premiums to consumers at a price that
covers the marketer's costs) generate the most attention. However, most
incentive expenditures are for trade incentives designed to motivate salespeople
to sell and retailers to buy and display products. Recent trends include the
growth of retail certificates or debit or cash cards in the merchandise
fulfillment sector (the segment of the premium incentive sector concerned with
providing merchandise as rewards in incentive programs). The travel fulfillment
sector (the segment of the premium incentive sector concerned with providing
travel as rewards in incentive programs) has seen growth in individual and group
travel as well as meeting registration services (fee-based services used to
simplify the process of signing up individuals to attend a meeting or seminar).
-3-
Internet Division
The Company believes there is a current trend towards consolidation in
business. This trend is creating larger, more complex companies that have
multiple locations and large workforces covering wide geographical areas. The
Company also believes there is a growing trend of companies utilizing the
Internet and Internet-based software. The Company has historically developed and
utilized Internet-based software to manage its national businesses, including
its national field force, with greater efficiency and communication speed than
previously possible with paper based systems. The Company believes this software
transcends the merchandising services industry and can be utilized in many other
industries that have businesses with multiple locations and large workforces.
International Division
The Company believes another current trend in business is globalization.
As companies expand into foreign markets they will need assistance in marketing
their products. As evidenced in the United States, retailer and manufacturer
sponsored merchandising programs are both expensive and inefficient. The Company
also believes that the difficulties encountered by these programs will only be
exacerbated by the logistics of operating in foreign markets. The Company
believes this environment will create an opportunity to exploit its
Internet-based technology and business model that have been successful in the
United States. The Company has formed a task force consisting of information
technology, operations and finance to evaluate and develop foreign markets. The
initial focus of the International Division has been on Japan, through a joint
venture with a major Japanese wholesaler, and the Pacific Rim region. Upon
successful implementation of the Company's business model in these areas, the
Company intends to expand to other markets.
MERGER AND RESTRUCTURING
On July 8, 1999, SG Acquisition, Inc., a Nevada corporation ("PIA
Acquisition"), a wholly owned subsidiary of the Company, then named PIA
Merchandising Services, Inc. ("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 the Company and certain of the PIA Companies
and SPAR Marketing Companies (among others). 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 Marketing
Companies and SPGI became subsidiaries of PIA Delaware (now SGI) as a result of
this "reverse" Merger, the transaction has been accounted for as required under
GAAP as a purchase by SAI of the PIA Companies, with the books and records of
SGI being adjusted to reflect the historical operating results of the SPAR
Marketing Companies and SPGI (together with certain intermediate holding
companies, the "SPAR Companies").
BUSINESS STRATEGY
As the marketing services industry continues to grow, consolidate and
expand internationally large retailers and manufacturers are increasingly
outsourcing their marketing needs to third-party providers. The Company believes
that offering marketing services in multi-use sectors on a national and global
basis will provide it with a competitive advantage. Moreover, the Company
believes that developing a sophisticated technology infrastructure, including
proprietary Internet-based software, is key to providing clients with a high
level of customer service while maintaining efficient, low cost operations. The
Company's objective is to become an international integrated service provider by
pursuing its operating strategy, as described below.
Capitalize on Cross-Selling Opportunities. The Company intends to
leverage its current client relationships by cross-selling the range of services
offered by the Company. The Company believes that its retail merchandising and
database marketing services can be packaged with its premium incentive services
to provide a high level of customer service, and that additional cross-selling
opportunities will increase if, as management intends, the Company acquires
businesses in other sectors of the marketing services industry. The Company also
intends to offer its proprietary Internet-based software to existing
Merchandising Services and Incentive Marketing clients.
-4-
Achieve Operating Efficiencies. The Company intends to achieve greater
operating efficiencies within its Divisions. The Company believes that, its
existing field force and technology infrastructure can support additional
customers and revenue in the Merchandising Services Division. In the Incentive
Marketing Division, the Company believes that it can realize volume purchasing
advantages with respect to travel and merchandise fulfillment. At the corporate
level, the Company will seek to combine certain administrative functions, such
as accounting and finance, insurance, strategic marketing and legal support.
Leverage Divisional Autonomy. The Company intends to conduct its
operations on a decentralized basis whereby management of each Division will be
responsible for its day-to-day operations, sales relationships and the
identification of additional acquisition candidates in their respective sectors.
A company-wide team of senior management will provide the Divisions with
strategic oversight and guidance with respect to acquisitions, finance,
marketing, operations and cross-selling opportunities. The Company believes that
a decentralized management approach will result in better customer service by
allowing management of each Division the flexibility to implement policies and
make decisions based on the needs of their respective customers.
Leverage and Implement Technology. The Company intends to utilize
computer (including hand-held computers), Internet, and other technology to
enhance its efficiency and ability to provide real-time data to its customers.
Industry sources indicate that customers are increasingly relying on marketing
service providers to supply rapid, value-added information regarding the results
of marketing expenditures on sales and profits. The Company (together with
certain of its affiliates) has developed and owns proprietary Internet-based
software technology that allows it to communicate with its field management over
the Internet, schedule its store-specific field operations more efficiently,
receive information over the Internet and incorporate the data immediately,
quantify the benefits of its services to customers faster and respond to
customers' needs and implement programs more rapidly. The Company believes that
the usefulness of certain software applications it has developed transcends the
merchandising and marketing services industry and can be marketed to other
industries. The Company also believes that its technology can be modified and
adapted to support merchandising and marketing services in foreign markets. The
Company believes that its proprietary Internet-based software technology gives
them a competitive advantage in the marketplace.
DESCRIPTION OF SERVICES
The Company currently provides a broad array of merchandising and
marketing services on a national, regional and local basis to leading
entertainment, consumer goods, food products and retail companies through its
Merchandising Services Division, and also provides premium incentive services
through its Incentive Marketing Division.
The Company currently operates in all 50 states and Canada serving some
of the nation's leading companies. The Company believes its full-line capability
of developing plans at one centralized division headquarter location, executing
chain wide, fully integrated national solutions, and implementing rapid,
coordinated responses to its clients' needs on a real time basis differentiate
the Company from its competitors. The Company also believes its national
presence, centralized decision-making ability, local follow-through, ability to
recruit, train and supervise merchandisers, ability to perform large-scale
initiatives on short notice, and strong retailer relationships provide the
Company with a competitive advantage over local, regional or other competitors.
Merchandising Services Division
The Company provides a broad array of merchandising services on a
national, regional, and local basis to manufacturers and retailers. The Company
provides its merchandising and sales services primarily on behalf of consumer
product manufacturers at mass merchandiser, drug and retail grocery chains. The
Company currently provides three principal types of merchandising and sales
services: syndicated services, dedicated services and project services.
-5-
Syndicated Services
Syndicated services consist of regularly scheduled, routed merchandising
services provided at the store level for various manufacturers. These services
are performed for multiple manufacturers, including, in some cases,
manufacturers whose products are in the same product category. Syndicated
services may include activities such as:
o Reordering, replenishment of product
o Ensuring that the client's products authorized for distribution are
in stock and on the shelf
o Adding in new products that are approved for distribution but not
present on the shelf
o Designing store schematics o Setting category shelves in accordance
with approved store schematics
o Ensuring that shelf tags are in place
o Checking for overall salability of the client's products
o Placing new product and promotional items
Dedicated Services
Dedicated services consist of merchandising services, generally as
described above, that are performed for a specific retailer or manufacturer by a
dedicated organization, including a management team, working exclusively for
that retailer or manufacturer. These services are primarily based on agreed-upon
hourly rates and fixed management fees under multi-year contracts.
Project Services
Project services consist primarily of specific in-store services
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
requiring over 30 days. The Company also performs other project services, such
as new store sets and existing store resets, re-merchandising, remodels and
category implementations, under shared service contracts or stand-alone project
contracts.
Other Marketing Services
Other marketing services performed by the Company include:
Test Market Research - Testing promotion alternatives, new products and
advertising campaigns, as well as packaging, pricing, and location
changes, at the store level.
Mystery Shopping - Calling anonymously on retail outlets (e.g. stores,
restaurants, banks) to check on distribution or display of a brand and
to evaluate products, service of personnel, conditions of store, etc.
Database Marketing - Managing proprietary information to permit easy
access, analysis and manipulation for use in direct marketing
campaigns.
Data Collection - Gathering information systematically for analysis and
interpretation.
Teleservices - Maintaining a teleservices center in its Auburn Hills
facility that performs inbound and outbound telemarketing services,
including those on behalf of certain of the Company's manufacturer
clients.
Information Technology Services
The Company has developed Internet-based information tracking and data
accumulation system applications that improve productivity of merchandising
specialists and provide timely data to its customers. The Company's
merchandising specialists use Interactive Voice Response (IVR) and hand-held
computers to report (through the
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Internet) the status of each store they service upon completion. Merchandising
specialists may report on store conditions (e.g. out of stocks, inventory,
display placement) or process new orders for scanned products. This information
is analyzed and displayed on graphical execution maps, which can be accessed by
both the Company and its customers via the Internet, that visually depict the
status of every merchandising project in real time. The Company has also
developed an automated labor tracking system. Company associates communicate
work assignment completion information via the Internet or telephone, enabling
the Company to report hours, mileage, and other completion information for each
work assignment on a daily basis and providing the Company with daily, detailed
tracking of work completion. This technology allows the Company to schedule its
merchandising specialists more efficiently, quickly quantify the benefits of its
services to customers, rapidly respond to customers' needs and rapidly implement
programs. The Company believes that its technological capabilities provide it
with a competitive advantage in the marketplace.
Incentive Marketing Division
SPGI provides a wide variety of consulting, creative, program
administration, and travel and merchandise fulfillment services to companies
seeking to retain and motivate employees, salespeople, dealers, distributors,
retailers, and consumers toward certain actions or objectives. SPGI's strategy
is to allow companies to outsource the entire design, implementation and
fulfillment of incentive programs in a one-stop, "umbrella" shopping approach.
SPGI consults with a client to design the most effective plan to achieve the
client's goals. SPGI then provides the services necessary to implement the
program, generates detailed efficiency progress reports and calculates the
return on investment upon completion of the program.
The SPGI process typically begins when a client desires assistance in
developing a performance improvement program. SPGI's senior consultants work
with the client to develop programs that improve productivity by delivering
positive reinforcement in ways that are meaningful to employees and supportive
of the client's business strategy. A wide range of reward options is available,
including cash, travel, and merchandise. Most formal compensation programs
deliver cash to plan participants, while premium incentives tend to make greater
use of non-financial rewards. SPGI has experience in all forms of incentives and
therefore can provide its clients with the most appropriate program design. SPGI
is capable of assisting its clients in the writing, designing and printing of
the program elements. Teams of creative directors, copywriters, graphic
designers and print specialists develop campaigns for incentive programs,
meetings, trade shows and consumer promotions.
In addition, SPGI provides its clients with travel or merchandise
fulfillment alternatives as well as a series of innovative product specific
alternatives. While the majority of SPGI's product fulfillment is in the travel
area, SPGI provides a wide variety of catalog merchandise awards. Through an
informal arrangement with some of the country's largest mass merchandise
retailers, SPGI can provide its clients with programs that offer the flexibility
of in-home reward ordering. SPGI also provides its clients with custom
merchandise, special catalogs, retail certificates and a Local Purchase Option
("LPO"). The LPO allows winning participants to select and redeem merchandise
from a series of participating merchants.
-7-
Internet Division
The Company believes there is a current trend towards consolidation in
business. This trend is creating larger, more complex companies that have
multiple locations and large workforces covering wide geographical areas. The
Company also believes there is a growing trend of companies utilizing the
Internet and Internet-based software. The Company has historically developed and
utilized Internet-based software to manage its national businesses, including
its national field force, with greater efficiency and communication speed than
previously possible with paper based systems. The Company believes this software
transcends the merchandising services industry and can be utilized in many other
industries that have businesses with multiple locations and large workforces.
International Division
The Company believes another current trend in business is globalization.
As companies expand into foreign markets they will need assistance in marketing
their products. As evidenced in the United States, retailer and manufacturer
sponsored merchandising programs are both expensive and inefficient. The Company
believes that the difficulties encountered by these programs will only be
exacerbated by the logistics of operating in foreign markets. The Company
believes this environment will create an opportunity to exploit its
Internet-based technology and business model that have been successful in the
United States. The Company has formed a task force consisting of information
technology, operations and finance to evaluate and develop foreign markets. The
initial focus of the International Division has been on Japan, through a joint
venture with a major Japanese wholesaler, and the Pacific Rim region. Upon
successful implementation of the Company's business model in these areas, the
Company intends to expand to other markets.
SALES AND MARKETING
Merchandising Services Division
The Company's sales efforts within its Merchandising Services Division
are structured to develop new business in national and local markets. The
Company's corporate business development team directs its efforts toward the
senior management of prospective clients. Sales efforts are principally guided
through the Company's sales workforce, located nationwide, who primarily work
from company and home offices. In addition, the Company's corporate account
executives play an important role in the Company's new business development
efforts within its existing manufacturer and retailer client base.
As part of the retailer consolidation, retailers are centralizing most
administrative functions, including operations, procurement and category
management. In response to this centralization and the growing importance of
large retailers, many manufacturers have reorganized their selling organizations
around a retailer team concept that focuses on a particular retailer. The
Company has responded to this emerging trend and currently has retailer teams in
place at several discount and drug chains.
The Company's business development process encompasses a due diligence
period to determine the objectives of the prospective client, the work to be
performed to satisfy those objectives and the market value of the work to be
performed. The Company employs a formal cost development and proposal process
that determines the cost of each element of work required to achieve the
prospective client's objectives. These costs, together with an analysis of
market rates, are used in the development of a quotation approval form that is
presented to the Company's proposal committee for approval. The pricing of this
internal proposal must meet the Company's objectives for profitability, which
are established as part of the business planning process. After approval of this
quotation by the proposal committee, a detailed proposal is presented to the
prospective client. Following agreement regarding the elements of service and
corresponding rates, a contract is prepared and executed.
For the year ended December 31, 2000, net revenues from Merchandising
Services and Incentive Marketing Services accounted for 74.4% and 25.6%
respectively of total net revenues compared to 68.3% and 31.7% for 1999. Prior
to 1999 Merchandising Services comprised 100% of total net revenues.
-8-
Incentive Marketing Division
The Company's Incentive Division sales effort is organized on a regional
basis to serve national clients. Today SPGI has three regional sales operations,
each with a senior sales person working from their home office. All selling is
done on a local market basis, while all program design and execution is
completed at the Dallas headquarters.
As in the Merchandising Services Division, the Incentive Division's
business development process encompasses a due diligence period to determine the
objectives of the prospective client, the work to be performed to satisfy those
objectives and the market value of the work to be performed. The Company employs
a formal cost development and proposal process that determines the cost of each
element of work required to achieve the prospective client's objectives. These
costs, together with an analysis of market rates, are used in the development of
a quotation approval form that is presented to the Company's proposal committee
for approval. The pricing of this internal proposal must meet the Company's
objectives for profitability, which are established as part of the business
planning process. After approval of this quotation by the proposal committee, a
detailed proposal is presented to the prospective client. Following agreement
regarding the elements of service and corresponding rates, a contract is
prepared and executed.
Internet Division
The Company's sales effort within its Internet Division is structured to
develop new business in national and local markets. The Division's corporate
business development team directs its efforts toward the senior management of
prospective clients. Current sales efforts are principally guided through the
Company's corporate headquarters in Tarrytown, New York. The Company intends to
leverage existing clients as well as generate new clients through a focused
sales and marketing approach.
International Division
The Company's marketing efforts within its International Division are
designed to develop new business internationally. The Division's corporate
business development team, located in the Company's corporate headquarters,
targets specific areas and develops strategic relationships to cultivate
business.
CUSTOMERS
Merchandising Services Division
In its Merchandising Services Division, the Company currently represents
numerous manufacturers and retail clients in a wide range of retail outlets
including:
o Mass Merchandisers
o Chain and drug stores
o Retail grocery
o Other retail trade groups (e.g. Discount, Home Centers)
The Company also provides database, research and other marketing services to the
automotive and consumer packaged goods industries.
Incentive Marketing Division
In its Incentive Marketing Division, the Company currently provides
services to various clients. These clients are principally large corporate
clients that encompass a broad range of industries including the food, drug,
communications, and automotive manufacturing industry.
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Internet Division
The Company has historically developed and utilized Internet-based
software to manage its national businesses, including its national field force,
with greater efficiency and communication speed than previously possible with
paper based systems. The Company believes this software transcends the
merchandising services industry and can be utilized in many other industries
that have businesses with multiple locations and large workforces.
International Division
The Company believes that the potential international customers for this
division have similar profiles to its Merchandising Services Division customers.
The initial focus of the International Division has been on Japan and the
Pacific Rim region. Upon successful implementation of the Company's business
model in these areas, the Company intends to expand to other markets.
COMPETITION
The marketing services industry is highly competitive.
Merchandising Services Division
Competition in the Company's Merchandising Services Division arises from
a number of large enterprises, many of which are national in scope. The Company
also competes with a large number of relatively small enterprises with specific
client, channel or geographic coverage, as well as with the internal marketing
and merchandising operations of its clients and prospective clients. The Company
believes that the principal competitive factors within its industry include
development and deployment of technology, breadth and quality of client
services, cost, and the ability to execute specific client priorities rapidly
and consistently over a wide geographic area. The Company believes that its
current structure favorably addresses these factors and establishes it as a
leader in the mass merchandise and chain drug channels of trade, as well as a
leading provider of in-store services to the video industry. The Company also
believes it has the ability to execute major national in-store initiatives and
develop and administer national retailer programs. Finally, the Company believes
that, through the use of its proprietary Internet software, other technological
efficiencies and various cost controls, the Company will remain competitive in
its pricing and services.
Incentive Marketing Division
The incentive marketing industry is populated by large national
players, each of which has significantly greater financial and marketing
resources than the Company, and hundreds of small regional and local companies.
The Company believes that the principle competitive factors in the industry are
client service and innovation. By bundling its merchandising, travel and
database capabilities, the Company is able to offer its clients comprehensive,
innovative and flexible programs at a competitive price.
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Internet Division
Competition in the Company's Internet Division arises from a number of
large business application software developers, many of which are national and
international in scope. The Company also competes with a large number of
relatively small enterprises with specific industry, system or geographic
coverage, as well as with the internal information technology of its prospective
clients. The Company has historically developed and utilized Internet-based
software to manage its national businesses, including its national field force,
with greater efficiency and communication speed than previously possible with
paper based systems. The Company believes this software transcends the
merchandising services industry and can be utilized in many other industries
that have businesses with multiple locations and large workforces. The Company
believes it can be competitive in its pricing and services.
International Division
Competition in the Company's International Division arises from a
number of large enterprises, many of which are national and international in
scope. The Company also competes with a large number of relatively small
enterprises with specific client, channel or geographic coverage, as well as
with the internal marketing and merchandising operations of its clients and
prospective clients. The Company believes that the principal competitive factors
within its industry include development and deployment of technology, breadth
and quality of client services, cost, and the ability to execute specific client
priorities rapidly and consistently over a wide geographic area. The Company
believes its Internet-based technology and current business model are
competitive advantages that will allow it to compete in this area.
TRADEMARKS
The Company has numerous registered trademarks. Although the Company
believes its trademarks may have value, the Company believes its services are
sold primarily based on breadth and quality of service, cost, and the ability to
execute specific client priorities rapidly and consistently over a wide
geographic area. See "--Industry Overview" and "--Competition".
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 13 to the Financial Statements included in this Annual Report
on Form 10-K.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Revenues generated outside of the United States, accounted for less than
1% of the total revenues for the twelve months ended December 31, 2000.
EMPLOYEES
As of December 31, 2000, the Company's Merchandising Services Division's
labor force consisted of approximately 7,870 people, approximately 270 full-time
employees, approximately 4,700 part-time employees and 2,900 independent
contractors (furnished principally through related parties, see Item 13) , of
which approximately 200 full-time employees were engaged in operations and 11
were engaged in sales. As of December 31, 2000, the Company's Incentive
Marketing Division employed approximately 68 full-time employees, of which
approximately 15 employees were engaged in operations and approximately 7 were
engaged in sales. Approximately 26 of the Company's employees are covered by
contracts with labor unions. The Company considers its relations with its
employees and its employees' unions to be good. The Company's Internet Division
had one employee engaged in sales. The Company currently utilizes its existing
Merchandising & Incentive Marketing Divisions' employees to staff the Internet
and International Division, however, dedicated employees will be added as the
need arises.
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ITEM 2. PROPERTIES.
The Company maintains its corporate headquarters in approximately 12,000
square feet of leased office space located in Tarrytown, New York, under a lease
with a term expiring in May 2004.
The Company leases certain office and storage facilities for its
divisions and subsidiaries under operating leases, which expire at various dates
during the next five years. Most of these leases require the Company to pay
minimum rents, subject to periodic adjustments, plus other charges, including
utilities, real estate taxes and common area maintenance.
The following is a list of the locations where the Company maintains
leased facilities for its division offices and subsidiaries:
Location Office Use
- ----------------------------- --------------------------------------------------
Tarrytown, NY Corporate Headquarters and Administration
Auburn Hills, MI Regional Office, Warehouse and Teleservices Center
Eden Prairie, MN Regional Office
Mahwah, NJ Regional Office
Cincinnati, OH Regional Office
Tampa, FL Regional Office
Irvine, CA Regional Office
Carrollton, TX Regional Office and Warehouse
Although the Company believes that its existing facilities are adequate
for its current business, new facilities may be added should the need arise in
the future.
ITEM 3. 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. On November
16, 2000 this case was settled.
On June 14, 2000, Argonaut Insurance Co. filed a complaint for
approximately $700,000 plus interest against the Company in Orange County
Superior Court, Santa Ana, California, Case No. 00CC07125 with respect to
alleged breach of contract. The Company is attempting to negotiate a settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The following table sets forth the reported high and low sales prices of
the Common Stock for the quarters indicated as reported on the Nasdaq National
Market. Prior to July 9, 1999, the Company's stock was traded on the Nasdaq
National Market under the symbol "PIAM".
1998 1999
High Low High Low
First Quarter $6.500 $5.000 $5.630 $2.750
Second Quarter 8.156 3.688 5.000 1.880
Third Quarter 6.844 4.125 - -
Fourth Quarter 4.875 2.000 - -
Subsequent to July 9, 1999, the Company's stock was traded on the Nasdaq
National market under the symbol "SGRP" until November 15, 1999, when it moved
to the Nasdaq Small Cap Market.
1998 1999 2000
High Low High Low High Low
First Quarter $ - $ - $ - $ - $5.5000 $2.6250
Second Quarter - - - - 3.3750 1.2500
Third Quarter - - 5.8100 3.0000 2.0625 1.2188
Fourth Quarter - - 5.1300 2.5000 1.8750 .2188
As of December 31, 2000 there were approximately 139 holders of record
of the SPAR Group's Common Stock.
The SPAR Group has never declared or paid any cash dividends on its
capital stock and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company currently intends to retain future
earnings to finance its operations and fund the growth of the business. Any
payment of future dividends will be at the discretion of the Board of Directors
of the SPAR Group and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions in respect to the payment of dividends and other
factors that the Company's Board of Directors deems relevant.
On April 5, 2001, the Company received a Nasdaq Staff Determination
indicating that the Company failed to comply with Marketplace Rule 4310(c)(4),
which requires that the Company's common stock have a minimum bid price of $1.00
per share. Therefore, its common stock is subject to delisting from the Nasdaq
SmallCap Market. The Company has requested a hearing from Nasdaq to appeal the
Staff Determination. As of the filing date of this Form 10-K, a hearing date has
not been scheduled. Until Nasdaq rules on the appeal, the Company's common stock
will remain listed and will continue to trade on the Nasdaq SmallCap Market.
There can be no assurance as to when the Nasdaq will rule on the appeal, or that
such ruling will be favorable to the Company. An unfavorable ruling would result
in the immediate delisting of the Company's common stock from the Nasdaq
SmallCap Market. If the Company's common stock is delisted from Nasdaq, the
Company expects that its common stock will trade on the OTC Bulletin Board.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated or combined financial data sets
forth, for the periods and the dates indicated, summary financial data of the
Company and its subsidiaries. Included below are the statements of operations
with respect to the years ending December 31, 2000 and December 31, 1999 and the
nine-month period ending December 31, 1998, and the balance sheet data as of
December 31, 2000 and December 31, 1999. This data was derived from the
financial statements included in this Form 10-K and should be read in
conjunction with the financial statements and the related notes thereto as well
as "Management's Discussion and Analysis of Financial Condition and Results of
Operations", also included in this Form 10-K.
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NINE MONTHS
YEARS ENDED ENDED YEARS ENDED
--------------------- --------------------------------------------
DEC 31, DEC 31, DEC 31, MAR 31, MAR 31,
2000 1999 1998 1998 1997
---- ---- ---- ---- ----
(in thousands except per share data)
STATEMENT OF OPERATIONS DATA:
Net revenues $ 109,529 $ 116,525 $ 32,601 $ 36,804 $35,574
Cost of revenues 72,970 81,288 16,217 19,417 21,754
------------ ------------ ----------- ------------ ---------
Gross profit 36,559 35,237 16,384 17,387 13,820
Selling, general and administrative expenses 30,415 28,830 9,978 12,087 13,250
Depreciation and amortization 3,564 2,182 142 161 227
------------ ------------ ----------- ------------ ---------
Operating income 2,580 4,225 6,264 5,139 343
Other Income (expense) 790 90 149 (36) (253)
Interest expense 2,126 1,662 304 354 513
------------ ------------ ----------- ------------ --------
Income (loss) before provision (benefit) for income
taxes 1,244 2,653 6,109 4,749 (423)
Income tax provision (benefit) (78) 3,148 - - -
------------ ------------ ----------- ------------ ---------
Net income (loss) $ 1,322 $ (495) $ 6,109 $ 4,749 $ (423)
=========== =========== ========== =========== =========
Unaudited pro forma information (1)
Net income (loss) before income tax provision $ 2,653 $ 6,109 $ 4,749 $ (423)
Pro forma income tax provision (benefit) 1,411 2,253 1,751 (156)
------------ ----------- ------------ ---------
Pro forma net income (loss) $ 1,242 $ 3,856 $ 2,998 $ (267)
=========== ========== =========== =========
Actual/Pro forma net income (loss) per share - basic(2) $ 0.07 $ 0.08 $ 0.30 $ 0.24 $ (0.02)
======== ========= ======== ========== =========
Actual/Pro forma weighted average shares - basic (2) 18,185 15,361 12,659 12,659 12,659
======== ========= ======== ========== =========
Actual/Pro forma net income (loss) per share - diluted
(2) $ 0.07 $ 0.08 $ 0.30 $ 0.24 $ (0.02)
======== ========= ========= ========== =========
Actual/Pro forma weighted average shares - diluted (2) 18,303 15,367 12,659 12,659 12,659
======== ========= ======== ========== =========
DEC 31, DEC 31, DEC 31, MAR 31, MAR 31,
2000 1999 1998 1998 1997
---- ---- ---- ---- ----
BALANCE SHEET DATA: (in thousands)
Working capital $ (2,182) $ (639) $ (2,214) $ 3,412 $ 1,319
Total assets 55,618 62,754 14,865 10,896 8,868
Current portion of long-term debt 1,211 2,192 685 675 656
Long-term debt net of current portion 11,849 16,009 311 828 937
Total stockholders' equity 12,240 10,886 (1,405) 3,142 935
==========================================================================================================================
(1) The unaudited pro forma income tax information is presented in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," as if the Company had been subject to federal and state
income taxes for all periods presented.
(2) Net income (loss) per share is presented for all applicable periods in
accordance with the adoption of SFAS No. 128 Earnings per share.
-14-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 group meetings and group travel principally for corporate clients. In
March 2000, the Company established its Internet Division to separately market
its software applications, 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. For 2000, the revenues for the Internet Division were not
significant and have been included below in the discussion of the condition and
results of the Incentive Marketing Division. In November 2000, the Company
established its International Division to expand its merchandise services
business offshore. There were no revenues for the International Division in
2000.
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
Marketing companies acquired substantially all of the assets of BIMA on January
15, 1999 (the "MCI Acquisition"). (see Notes 1 and 3 to the Financial
Statements). Under GAAP, the SPAR/PIA merger completed on July 8, 1999 was
deemed to be an acquisition of PIA by SPAR. (see Notes 1 and 3 to the 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.
-15-
RESULTS OF OPERATIONS
The following table sets forth selected financial data and data as a
percentage of net revenues for the periods indicated.
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------
Amount % Amount % Amount %
------ - ------ - ------ -
Net revenues $ 109.5 100.0% $ 116.5 100.0% $ 32.6 100.0%
Cost of revenues 73.0 66.6 81.3 69.8 16.2 49.7
Selling, general &
administrative expenses 30.4 27.8 28.8 24.7 10.0 30.7
Depreciation & amortization 3.6 3.3 2.2 1.9 0.1 0.3
Other expenses 1.3 1.2 1.6 1.4 0.2 0.6
Income before income tax
provision 1.2 1.1 2.6 2.2 6.1 18.7
Provision for income taxes (.1) (.1) 3.1 2.7 - -
----- ----- ---------- ---------- --------- ---------
Net income (loss) $ 1.3 1.2% $ (0.5) (0.4)% $ 6.1 18.7%
========= ======== ========== ========= ========= =========
Unaudited pro forma
information:
Pro forma Income
before income tax provision $ 2.6 2.2% $ 6.1 18.7%
Pro forma provision for income
taxes 1.4 1.2 2.3 7.1
--- --- --- ---
Pro forma Net income $ 1.2 1.0% $ 3.8 11.6%
========== ======== ========= ========
-16-
TWELVE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO TWELVE MONTHS ENDED DECEMBER
- --------------------------------------------------------------------------------
31, 1999
- --------
NET REVENUES
The twelve months ended December 31, 2000 included a full year of PIA
and SPGI revenues. The twelve months ended December 31, 1999 included only PIA
and MCI revenues since their respective dates of acquisition.
The following table sets forth net revenues by division in dollars and
as a percentage of total net revenues for the periods indicated:
Year Ended Year Ended
December 31, 2000 December 31, 1999 Change
------------------------ ---------------------
(amounts in millions)
Amount % Amount % %
------ - ------ - -
Merchandising Services $ 81.4 74.4% $ 79.6 68.3% 2.3%
Incentive Marketing 28.1 25.6 36.9 31.7 (24.0)
-------- ------- -------- ---- ------
Net revenues $ 109.5 100.0% $ 116.5 100.0% (6.0)%
======== ======= ======== ========= ======
Net revenues for the twelve months ended December 31, 2000, decreased
by $7.0 million or 6.0% from the twelve months ended December 31, 1999, due
principally to a reduction in project revenue.
Merchandising Services net revenues for the twelve months ended
December 31, 2000, were $81.4 million, compared to $79.6 million for the twelve
months ended December 31, 1999, a 2.3% increase. The increase in net revenues is
primarily attributed to an increase in the former SPAR Companies merchandising
net revenue of approximately $2.5 million for the twelve months ended December
31, 2000 vs. the twelve months ended December 31, 1999. In addition, net
revenues for the twelve months ended December 31, 2000 included $23.4 million of
net revenues of the former PIA Companies' merchandising operations for the first
six months of 2000 with no comparable revenue in the first six months of 1999,
offset by discontinued PIA programs in 2000.
Incentive Marketing net revenues for the twelve months ended December
31, 2000 were $28.1 million, compared to $36.9 million for the twelve months
ended December 31, 1999, a 24.0% decrease. The decrease in net revenues is
primarily due to a decrease in project revenue principally from a single
customer.
-17-
COST OF REVENUES
The following table sets forth cost of revenues by division in dollars
and as a percentage of net revenues for the periods indicated:
Year Ended Year Ended
December 31, 2000 December 31, 1999 Change
------------------------ -----------------------
(amounts in millions)
Amount % Amount % %
------ - ------ - -
Merchandising Services $50.3 61.7% $ 50.5 63.4% (0.4)%
Incentive Marketing 22.7 81.0 30.8 83.5 (26.3)
----- ----- ------- ------- -------
Total cost of revenue $73.0 66.6% $ 81.3 69.8% (10.2)%
===== ===== ======= ======= =======
Cost of revenues in the Merchandising Services segment consists of
in-store labor (including travel expenses) and field management. Cost of
revenues in the Company's Incentive Marketing segment consists of direct labor,
independent contractor expenses, food, beverage, entertainment and travel costs.
Cost of revenues for the twelve months ended December 31, 2000, were $73.0
million or 66.6% of net revenues, compared to $81.3 million or 69.8% of net
revenues for the twelve months ended December 31, 1999.
Merchandising Services cost of revenues as a percentage of net revenues
decreased 1.7% to 61.7% for the twelve months ended December 31, 2000, compared
to 63.4% for the twelve months ended December 31, 1999. This decrease is
principally attributable to reduced labor costs due to efficiencies realized in
2000.
Incentive Marketing cost of revenues, as a percentage of net revenues
decreased 2.5% to 81.0% for the twelve months ended December 31, 2000, compared
to 83.5% for the twelve months ended December 31, 1999, primarily due to a more
favorable product mix in 2000.
OPERATING EXPENSES
Operating expenses include selling, general and administrative expenses
as well as depreciation and amortization. Selling, general and administrative
expenses include corporate overhead, project management, information systems,
executive compensation, human resources expenses, legal and accounting expenses.
The following table sets forth the operating expenses as a percentage of net
revenues for the time periods indicated:
Year Ended Year Ended
December 31, 2000 December 31, 1999 Change
----------------------------------------------
(amounts in millions)
Amount % Amount % %
------ - ------ - -
Selling, general & administrative $ 30.4 27.8% $ 28.8 24.7% 5.5%
Depreciation and amortization 3.6 3.3 2.2 1.9 63.3
------ ----- ------ ----- ------
Total operating expenses $ 34.0 31.1% $ 31.0 26.6% 9.6%
====== ===== ====== ===== ======
Selling, general and administrative expenses increased by $1.6 million,
or 5.5%, for the twelve months ended December 31, 2000, to $30.4 million
compared to $28.8 million for the twelve months ended December 31, 1999. This
increase was primarily due to the inclusion of the PIA Companies' selling,
general and administrative expenses for the first six months of 2000 totaling
$5.9 million with no comparable PIA expenses in the first six months of 1999, as
well as Internet Division and International Division selling, general and
administration expenses
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in 2000 totaling $0.4 million offset by reductions in PIA selling, general and
administration expenses in 2000 and non recurring expenses totaling $1.4 million
in 1999.
Depreciation and amortization increased by $1.4 million for the twelve
months ended December 31, 2000, due primarily to the amortization of goodwill
associated with the purchases of the PIA Companies and the business and assets
of MCI, as well as, an increase in depreciation and amortization of customized
internal software costs capitalized (under SOP 98-1).
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 $0.8
million, which is included in other income.
INTEREST EXPENSE
Interest expense increased $0.5 million for the twelve months ended
December 31, 2000, over the twelve months ended December 31, 1999, due to
increased debt associated with the PIA & MCI acquisitions, as well as increased
interest rates in 2000.
INCOME TAXES
Income taxes decreased to a benefit of $0.1 million for the twelve
months ended December 31, 2000, from an expense of $3.1 million for the twelve
months ended December 31, 1999. The decrease was primarily due to a one time
charge in 1999 totaling $3.1 million resulting from the termination of the
subchapter S status of certain of the SPAR companies for federal and state tax
purposes. The 2000 results also reflect the $0.8 million deferred tax benefit
that resulted from a change in the Company's valuation allowance. At December
31, 2000, the Company recognized that it is more likely than not that certain
future tax benefits will be realized through future income. In 2000, as a result
of restructure payments and post merger costs, the Company did not generate any
tax liability for federal income tax purposes. The $0.8 million change in
valuation allowance allocated to operations relates to net deferred tax assets
generated by SPAR Group operations. Management expects these net deferred tax
assets to be realized from the Company's taxable recurring operations in the
next three years.
ACTUAL/PRO FORMA NET INCOME
The SPAR Group had actual net income of approximately $1.3 million or
$0.07 per basic and diluted share for the twelve months ended December 31, 2000,
compared to pro forma net income of $1.2 million or $0.08 per pro forma basic
and diluted share for the twelve months ended December 31, 1999. The decrease in
net income per basic and diluted share is the result of the shares issued in
conjunction with the reverse merger on July 8, 1999 being outstanding for all of
2000.
TWELVE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1998
- ----
NET REVENUES
Net revenues for the twelve months ended December 31, 1999, increased by
$83.9 million or 257.4% from the nine months ended December 31, 1998, due
principally to the merger with the PIA Companies and the MCI Acquisition as well
as the inclusion of twelve months of SPAR's revenues in 1999. All of the net
revenues derived from the acquisition of the PIA Companies and the MCI
Acquisition since their respective dates of acquisition were included in the
twelve months ended December 31, 1999, with no comparable revenues in the nine
months ended December 31, 1998.
The following table sets forth net revenues by division in dollars and
as a percentage of total net revenues for the periods indicated:
-19-
Year Ended Nine Months Ended
December 31, 1999 December 31, 1998 Change
-----------------------------------------------
(amounts in millions)
Amount % Amount % %
------ - ------ - -
Merchandising Services $ 79.6 68.3% $ 32.6 100.0% 144.2%
Incentive Marketing 36.9 31.7 - - -
---- ---- ----- ----- -------
Net revenues $ 116.5 100.0% $ 32.6 100.0% 257.4%
======= ====== ======== ====== ======
Merchandising Services net revenues for the twelve months ended
December 31, 1999, were $79.6 million, compared to $32.6 million for the nine
months ended December 31, 1998, a 144.2% increase. The increase in net revenues
is primarily attributed to the inclusion of $38.0 million of net revenues of the
PIA Companies' merchandising operations since their acquisition, as well as the
inclusion of twelve months of SPAR's revenues in 1999. Subsequent to the PIA
merger, the Company determined certain PIA merchandising programs were expensive
to manage, required high fixed costs and did not provide maximum value to the
respective customers. Attempts to reduce the costs of these programs and satisfy
the customer were unsuccessful. Consequently, these programs no longer continued
in the year 2000. These programs represented approximately 29% of 1999
Merchandising Services' net revenues.
Incentive Marketing net revenues for the twelve months ended December
31, 1999, were $36.9 million, with no comparable net revenues for the nine
months ended December 31, 1998. The increase in net revenues is attributable
entirely to the inclusion of net revenues of SPGI since the MCI Acquisition.
COST OF REVENUES
Cost of revenues in the Merchandising Services segment consists of
in-store labor (including travel expenses) and field management. Cost of
revenues in the Company's Incentive Marketing segment consists of direct labor,
independent contractor expenses, food, beverage, entertainment and travel costs.
Cost of revenues for the twelve months ended December 31, 1999, were $81.3
million or 69.8% of net revenues, compared to $16.2 million or 49.7% of net
revenues for the nine months ended December 31, 1998.
The following table sets forth cost of revenues by segment in dollars and
as a percentage of segment net revenues for the periods indicated:
Year Ended December Nine Months Ended
31, 1999 December 31, 1998 Change
------------------------ -----------------------
(amounts in millions)
Amount % Amount % %
------ - ------ - -
Merchandising Services $ 50.5 63.4% $ 16.2 49.7% 211.7%
Incentive Marketing 30.8 83.5 - - -
---- ---- ----- ------ ------
Total cost of revenues $ 81.3 69.8% $ 16.2 49.7% 401.9%
======== ===== ======== ===== ======
Merchandising Services cost of revenues as a percentage of net revenues
increased 13.7% to 63.4% for the twelve months ended December 31, 1999, compared
to 49.7% for the nine months ended December 31, 1998. This increase is
principally attributable to the higher labor cost structure of the PIA
Companies' field organization.
Incentive Marketing cost of revenues as a percentage of net revenues
was 83.5 % for the twelve months ended December 31, 1999, with no comparable
cost of revenues for the nine months ended December 31, 1998.
-20-
OPERATING EXPENSES
Operating expenses include selling, general and administrative expenses
as well as depreciation and amortization. Selling, general and administrative
expenses include corporate overhead, project management, information systems,
executive compensation, human resources expenses and accounting expenses. The
following table sets forth the operating expenses as a percentage of net
revenues for the periods indicated:
Year Ended Nine Months Ended
December 31, 1999 December 31, 1998 Change
-------------------------------------------------
(amounts in millions)
Amount % Amount % %
------ - ------ - -
Selling, general & administrative $ 28.8 24.7% $ 10.0 30.7% 188.0%
Depreciation and amortization 2.2 1.9 0.1 0.3 2100.0%
---------- -------- ---------- -------- ---------
Total operating expenses $ 31.0 26.6% $ 10.1 31.0% 206.9%
========== ========= ========== ========= ======
Selling, general and administrative expenses increased by 188.0% for
the twelve months ended December 31, 1999, to $28.8 million compared to $10.0
million for the nine months ended December 31, 1998. As a percentage of net
revenues, selling, general and administrative expenses decreased to 24.7% for
the twelve months ended December 31, 1999, from 30.7% for the nine months ended
December 31, 1998. This increase in dollars was due primarily to the inclusion
of both SPGI and the PIA Companies' higher overhead structure during 1999, a non
recurring expense of $0.8 million resulting from the grant of options and
issuance of stock to a consultant, the result of approximately $0.6 million of
non recurring merger related selling, general and administrative expenses, as
well as the inclusion of twelve months of SPAR's selling, general and
administrative expenses in 1999. The decrease in selling, general and
administrative expenses as percentage of net revenue reflects the results of the
partial implementation of the Company's restructuring plan during 1999, and the
increase in revenue resulting from the acquisitions of the PIA and SPGI
businesses. Through December 1999, operating initiatives reduced selling,
general and administrative expenses by approximately $0.9 million per month.
Depreciation and amortization increased by $2.1 million for the twelve
months ended December 31, 1999, due primarily to the amortization of goodwill
recognized by the purchases of the PIA Companies and the business and assets of
MCI, as well as from depreciation and amortization of customized internal
software costs capitalized (under SOP 98-1).
INTEREST EXPENSE
Interest expense increased $1.4 million for the twelve months ended
December 31, 1999, over the nine month period ended December 31, 1998, due to
increased borrowings on the bank revolving line of credit and term loan and MCI
seller financing.
INCOME TAXES
Income taxes increased to $3.1 million for the twelve months ended
December 31, 1999, from zero for the nine months ended December 31, 1998. The
increase was a result of the termination of the subchapter S status of certain
of the SPAR companies for federal and state tax purposes.
PRO FORMA INCOME TAXES
The pro forma income tax provisions for the twelve months ended
December 31, 1999, and nine months ended December 31, 1998, have been computed
using a combined federal and state income tax rate of 36.9% after adjusting for
the effects of non-tax deductible items.
PRO FORMA NET INCOME
The SPAR Group had pro forma net income of approximately $1.2 million
for the twelve months ended December 31, 1999, or $0.08 per pro forma basic and
diluted share compared to pro forma net income of $3.8
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million or $0.30 per pro forma basic and diluted share for the nine months ended
December 31, 1998. The decrease in pro forma net income is primarily the result
of the inclusion of approximately $1.9 million in losses generated by the PIA
Companies and Incentive Marketing Division for the six and eleven and one half
months, respectively, ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
In the twelve months ended December 31, 2000, the SPAR Group had pre-tax
income of $1.2 million and experienced positive operating cash flow of $6.3
million.
The SPAR Group experienced a net decrease in cash and cash equivalents
of $2.1 million for the twelve months ended December 31, 2000 primarily due to
repayment of debt. Management believes that based upon SPAR Group's current
working capital position and the existing credit facilities, funding will be
sufficient to support ongoing operations over the next twelve months.
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 as amended (the "Bank Loan Agreement"). The
Bank Loan Agreement provides the Borrowers with a $15 million Revolving Credit
facility and a $2.5 million term loan. The Revolving Credit facility allows the
Borrowers to borrow up to $15 million based upon a borrowing base formula as
defined in the Agreement (principally 85% of "eligible" accounts receivable).
The Bank Loan Agreement's revolving credit loans of $15.0 million are scheduled
to mature on September 21, 2002. The Term Loan amortizes in equal monthly
installments of $83,334. The revolving loans bear interest at IBJ Whitehall's
"Alternate Base Rate" plus one-half of one percent (0.50%) (a total of 10.0% per
annum at December 31, 2000), and the Term Loan bears interest at such "Alternate
Based Rate" plus three-quarters of one percent (0.75%) (a total of 10.25% per
annum at December 31, 2000). 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 $7.8
million and $13.3 million at December 31, 2000, and 1999, respectively. As of
December 31, 2000, based upon the borrowing base formula, the SPAR Group had
availability of $4.2 million of the $7.2 million unused revolving line of
credit.
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CASH AND CASH EQUIVALENTS
Net cash provided by operating activities for the twelve months ended
December 31, 2000, was $6.3 million, compared with net cash used of $5.0 million
for the twelve months ended December 31, 1999. Cash provided by operating
activities in 2000 was primarily a result of operating profits, a decrease in
accounts receivable, and increased deferred revenue, offset by a decrease in
restructuring charges, an increase in prepaid expenses and a decrease in
accounts payable and other liabilities.
Net cash used in investing activities for the twelve months ended
December 31, 2000, was $0.5 million, compared with net cash provided of $5.0 for
the twelve months ended December 31, 1999. The net cash used in investing
activities resulted primarily from the purchases of property and equipment
partially offset by cash received from the sale of an investment.
Net cash used in financing activities for the twelve months ended
December 31, 2000, was $7.9 million, compared with net cash provided by
financing activities of $1.1 million for the twelve months ended December 31,
1999. The net cash used by financing activities was primarily due to repayments
of debt.
The above activity resulted in a net decrease in cash and cash
equivalents of $2.1 million for the twelve months ended December 31, 2000,
compared to a net increase of $1.2 million for the twelve months ended December
31, 1999.
At December 31, 2000, the Company had negative working capital of $2.2
million as compared to negative working capital of $0.6 million at December 31,
1999, availability under its revolving credit facility was $4.2 million at
December 31, 2000, compared to $0.7 million at December 31, 1999 and a current
ratio of 0.93 and 1.0 as of December 31, 2000 and 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.
As of December 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 (restructure charges) of approximately $3.8 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 as of December 31, 2000 of approximately
$1.5 million. The SPAR Group has also accrued approximately $2.2 million for
expenses incurred by PIA prior to the Merger, which have not been paid as of
December 31, 2000. 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 working to secure additional
long-term capital to meet the non-operational credit needs. However, there can
be no assurances that the Company will be successful in these negotiations.
In 1999 and prior, 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 PIA Companies and the assets
of Old MCI. These stockholders were also owed $1.9 million in unpaid
distributions relating to the former status of certain of the operating SPAR
Companies as Subchapter S Corporations (see Note 12 to the Financial
Statements). 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 December 31, 2000, a total of $5.7 million
remained outstanding under these notes, of which approximately $3.5 million have
an interest rate of 8% and are due on demand. The long-term portion totaling
$2.2 million have a fluctuating interest rate equal to the sum of the prime rate
(as reported in The Wall Street Journal from time to time) plus 1%. The current
bank agreements contain certain restrictions on the repayment of stockholder
debt.
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ITEM 7A. 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 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
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.
Currently, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information in connection with
each person who is or was at December 31, 2000, an executive officer and/or
director for SPAR.
NAME AGE POSITION WITH SPAR GROUP, INC.
Robert G. Brown. . . . . . . . . . 58 Chairman, Chief Executive Officer, President and Director
William H. Bartels . . . . . . . . 57 Vice Chairman and Director
Robert O. Aders(1)(2). . . . . . . 73 Director
Jack W. Partridge(1)(2)(3) . . . . . 55 Director
Charles Cimitile . . . . . . . . . 46 Chief Financial Officer and Secretary
James H. Ross. . . . . . . . . . . 67 Treasurer and Vice President
- --------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Mr. Partridge is appointed Director on January 29, 2001
ROBERT G. BROWN serves as the Chairman, the Chief Executive Officer,
the President and a Director of the Company and has held such positions since
July 8, 1999 (the effective date of the Merger). Mr. Brown served as the
Chairman, President and Chief Executive Officer of the SPAR Marketing Companies
(SBRS since 1994, SINC since 1979, SMNEV since November 1993, and SMF since SMF
acquired its assets and business in 1996).
WILLIAM H. BARTELS serves as the Vice Chairman and a Director of the
Company and has held such positions since July 8, 1999 (the effective date of
the Merger). Mr. Bartels served as the Vice-Chairman, Secretary, Treasurer and
Senior Vice President of the SPAR Marketing Companies (SBRS since 1994, SINC
since 1979, SMNEV since November 1993 and SMF since SMF acquired its assets and
business in 1996), and has been responsible for the Company's sales and
marketing efforts, as well as for overseeing joint ventures and acquisitions.
ROBERT O. ADERS serves as a Director of the Company and has done so
since July 8, 1999. Mr. Aders has served as Chairman of The Advisory Board,
Inc., an international consulting organization since 1993, and also as President
Emeritus of the Food Marketing Institute ("FMI") since 1993. Immediately prior
to his election to the presidency of FMI in 1976, Mr. Aders was Acting Secretary
of Labor in the Ford Administration. Mr. Aders was the Chief Executive Officer
of FMI from 1976 to 1993. He also served in The Kroger Co., in various executive
positions from 1957-1974 and was Chairman of the Board from 1970 to 1974. Mr.
Aders also serves as a Director of FMI, the Stedman Nutrition Foundation at Duke
Medical Center, Coinstar, Inc., The Source Information Management Company and
Telepanel Systems, Inc.
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JACK W. PARTRIDGE serves as a Director of the Company and has done so
since January 29, 2001. Mr. Partridge is President of Jack W. Partridge &
Associates. He previously served as Vice Chairman of the Board of The Grand
Union Company and as Group Vice President-Corporate affairs and a member of the
Senior Executive Committee of The Kroger Company. Mr. Partridge has been a
leader in industry and community affairs for over two decades. He served as
Chairman of the Food Marketing Institute's Government Relations Committee, the
Food and Agriculture Policy Task Force, and as Chairman of the Board of The Ohio
Retail Association. He has also served as Vice Chairman of the Cincinnati Museum
Center and a member of the boards of the United Way of Cincinnati, the Childhood
Trust, Second Harvest and the Urban League.
CHARLES CIMITILE serves as the Chief Financial Officer and Secretary of
the Company and has done so since November 24, 1999. Mr. Cimitile served as
Chief Financial Officer for GT Bicycles from 1996 to 1999 and Cruise Phone, Inc.
from 1995 through 1996. Prior to 1995, he served as the Vice President Finance,
Treasurer and Secretary of American Recreation Company Holdings, Inc. and its
predecessor company.
JAMES H. ROSS serves as the Treasurer of the Company and has held such
positions since July 8, 1999 (the effective date of the Merger). Mr. Ross has
been the Chief Financial Officer of the SPAR Marketing Companies since 1991, and
was the General Manager of SBRS from 1994-1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors and certain of its officers and persons who own more than 10% of SPAR
Common Stock (collectively, "Insiders"), to file reports of ownership and
changes in their ownership of SPAR Common Stock with the Commission. Insiders
are required by Commission regulations to furnish SPAR with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, SPAR believes that its Insiders complied with all
applicable Section 16(a) filing requirements for fiscal 2000, with the exception
of Mr. William H. Bartels who purchased 10,000 shares of the Company's stock on
December 8, 2000 but failed to file the requisite Form 4 on a timely basis.
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ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION OF SPAR GROUP, INC.
EXECUTIVE COMPENSATION
- ----------------------
The following table sets forth all compensation received for services
rendered to SPAR in all capacities for the years ended December 31, 2000,
December 31, 1999 and December 31, 1998.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------- -----------------------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
- ---------------------------- ---- ---------- --------- ---------- -------------
Robert G. Brown 2000 16,800 -- -- --
Chief Executive Officer, Chairman of 1999 7,500 -- 765,972 --
the Board, President, and Director 1998 125,000 -- -- 791
William H. Bartels 2000 16,800 -- -- --
Vice Chairman and Director 1999 16,307 -- 471,992 --
1998 75,000 -- -- 1,439
Charles Cimitile 2000 188,000 -- 25,000 --
Chief Financial Officer 1999 17,090 -- 75,000 --
James H. Ross 2000 94,800 9,000 5,000 3,337
Treasurer and Vice President 1999 99,237 12,408 92,665 2,187
1998 80,535 1,710 -- 1,897
------------------------
(1) Other compensation represents the Company's 401k contribution.
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STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each grant of
stock options made during the year ended December 31, 2000, to each of the Named
Executive Officers. No stock appreciation rights ("SAR's") were granted during
such period to such persons.
INDIVIDUAL GRANTS
------------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT
SECURITIES TOTAL OPTIONS EXERCISE ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO PRICE EXPIRATION STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN ($/SH) DATE FOR OPTION(2)
GRANTED (#) PERIOD (%) -----------------------------
5% ($) 10% ($)
------------ ------------- ------------ ------------ -------------- -------------
Charles Cimitile 25,000(1) 5.2 .625 12/04/10 14,544 22,106
James H. Ross 5,000(1) 1.0 .625 12/04/10 2,909 4,421
- ------------
(1) All such options vest over four-year periods at a rate of 25% per year,
beginning on the first anniversary of the date of grant.
(2) The potential realizable value is calculated based upon the term of the
option (ten years) at its time of grant. It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth the number and value of the exercisable
and unexercisable options held by each of the Named Executive Officers at
December 31, 2000.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END (#) FISCAL YEAR-END ($)
---------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------- ---------------- ------------- ----------------
Robert G. Brown 95,747 670,225 - -
William H. Bartels 58,999 412,993 - -
Charles Cimitile 18,750 81,250 - 20,313
James H. Ross (1) 10,000 35,000 - 4,063
- ------------
(1) James H. Ross exercised 52,665 options during 2000.
COMPENSATION PLANS
The Company has five stock option plans: the 1990 Stock Option Plan
("1990 Plan"), the Amended and Restated 1995 Stock Option Plan ("1995 Plan") and
the 1995 Director's Plan ("Director's Plan"), the Special Purpose Stock Option
Plan and the 2000 Stock Option Plan ("2000 Plan").
The 1990 plan is a nonqualified option plan providing for the issuance
of up to 830,558 shares of common stock to officers, directors and key
employees. The options have a term of ten years and one week and are either
fully vested or will vest ratably no later than five years from the grant date.
Since 1995, the Company has not granted options under this plan.
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The 1995 Plan provides for the granting of either incentive or
nonqualified stock options to specified employees, consultants and directors of
SPAR Group, Inc. for the purchase of up to 3,500,000 shares of SPAR's common
stock. The options have a term of ten years, except in the case of incentive
stock options granted to greater than 10% stockholders for which the term is
five years. The exercise price of nonqualified stock options must be equal to at
least 85% of the fair market value of SPAR's common stock at the date of grant,
the exercise price of incentive stock options must be equal to at least the fair
market value of SPAR's common stock at the date of grant. At December 31, 2000,
options to purchase 683,523 shares were available for grant under this plan.
The Director's Plan is a stock option plan for non-employee directors
and provides for the purchase of up to 100,000 shares of SPAR's common stock. An
option to purchase 1,500 shares of SPAR's common stock shall be granted
automatically each year to each director, following SPAR's annual stockholder's
meeting. The exercise price of options issued under this plan shall not be less
than the fair market value of SPAR's common stock on the date of grant. Each
option under this plan shall vest and become exercisable in full on the first
anniversary of its grant date, provided the optionee is reelected as a director
of SPAR. The maximum term of options granted under the plan is ten years and one
day, subject to earlier termination following an optionee's cessation of service
with SPAR. At December 31, 2000, options to purchase 91,000 shares were
available for grant under this plan.
On July 8, 1999, in connection with the merger, the Company established
the Special Purpose Stock Option Plan of PIA Merchandising Services, Inc. to
provide for the issuance of substitute options to the holders of outstanding
options granted by Spar Acquisition, Inc. There were 134,114 options granted at
$0.01 per share. During 2000, 108,364 options were exercised. At December 31,
2000, 25,750 options remain outstanding under the Plan. The Company did not
issue any new options under this plan in 2000.
In December of 2000, the Company adopted the 2000 Plan, as the
successor to the 1995 Plan with respect to all new options issued. The 2000 Plan
provides for the granting of either incentive or nonqualified stock options to
specified employees, consultants and directors of SPAR Group, Inc. for the
purchase of up to 3,500,000 (less those options still outstanding or previously
exercised under the 1995 Plan). The options have a term of ten years, except in
the case of incentive stock options granted to greater than 10% stockholders for
which the term is five years. The exercise price of nonqualified stock options
must be equal to at least 85% of the fair market value of SPAR's common stock at
the date of grant (although typically are issued at 100%), and the exercise
price of incentive stock options must be equal to at least the fair market value
of SPAR's common stock at the date of grant. In December 2000, options to
purchase (118,500) shares were granted. At December 31, 2000, 565,023 options to
purchase shares were available for grant under this plan.
In January 2001, options under the 1995 Plan to purchase 2,349,825
shares of the Company's common stock were voluntarily surrendered and cancelled
by 117 employees of and consultants to the Company. The cancelled options will
be available for future grant. The Company expects to grant similar quantities
of options at some future date(s) under the 2000 Plan.
COMPENSATION OF DIRECTORS
During the year ended December 31, 2000, SPAR paid $12,000 to Mr. Aders
for services as a member of the SPAR Board. Mr. Aders was also reimbursed for
certain expenses in connection with his attendance at SPAR Board and committee
meetings. During 2000, Mr. Aders was granted an option to purchase 1,500 shares
of SPAR's common stock at an exercise price of $1.2188 per share. The options
vest ratably over a four-year period. Compensation for each outside director
consists of $3,000 per meeting they attend, up to four meetings per year, and an
additional $500 per meeting for special meetings, including telephonic meetings.
All travel related expenses for these meetings will also be reimbursed.
SPAR 's Compensation Committee administers the Directors Plan. Each
member of the SPAR Board who is not otherwise an employee or officer of SPAR or
any subsidiary of SPAR (each, an "Eligible Director") is eligible to participate
in the Directors Plan. Directors who are consultants of, but not otherwise
employees or officers of, SPAR are Eligible Directors.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee was at any time during the year
ended December 31, 2000 or at any other time an officer or employee of SPAR. No
executive officer of SPAR serves as a member of the SPAR Board or Compensation
Committee of any other entity, which has one or more executive officers serving
as a member of the SPAR Board or Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF THE COMPANY
THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION WITH RESPECT TO THE
BENEFICIAL OWNERSHIP OF SPAR GROUP, INC. COMMON STOCK OUTSTANDING AS OF DECEMBER
31, 2000 BY: (I) EACH PERSON WHO BENEFICIALLY OWNED FIVE PERCENT OR MORE OF THE
OUTSTANDING SHARES OF SPAR GROUP, INC. COMMON STOCK, (II) EACH PERSON WHO WAS A
DIRECTOR OF SPAR GROUP, INC. AND (III) EACH PERSON WHO WAS AN EXECUTIVE OFFICER
OF THE SPAR GROUP, INC.
NUMBER OF SHARES
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE
------------------- --------------
Common Shares Robert G. Brown(1) 7,592,145(2) 39.3%
Common Shares William H. Bartels(1) 4,936,188(3) 25.6%
Common Shares James H. Ross(1) 93,865(4) *
Common Shares Charles Cimitile(1) 18,750(5) *
Common Shares Robert Aders(1) 14,500(6) *
Common Shares Richard J. Riordan(7) 1,209,922 6.3%
300 S. Grand Avenue, Suite 2900
Los Angeles, CA 90071
Common Shares Heartland Advisors, Inc.(8) 1,568,100 8.1%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Common Shares Executive Officers and Directors 12,655,448 65.6%
* Less than 1%
(1) The address of such owners is c/o SPAR Group, Inc. 580 White Plains Road,
Tarrytown, New York.
(2) Includes 1,813,000 shares held by a grantor trust for the benefit of
certain family members of Robert G. Brown over which Robert G. Brown, James
R. Brown, Sr. and William H. Bartels is a trustee, and includes 95,747
shares issuable upon exercise of options.
(3) Includes 58,999 shares issuable upon exercise of options.
(4) Includes 10,000 shares issuable upon exercise of options.
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(5) Includes 18,750 shares issuable upon exercise of options.
(6) Includes 2,500 shares issuable upon exercise of options.
(7) All information regarding share ownership is taken from and furnished in
reliance upon the Schedule 13G, filed by Richard J. Riordan with the
Securities and Exchange Commission on February 14, 2000.
(8) All information regarding share ownership is taken from and furnished in
reliance upon the Schedule 13G (Amendment No. 7), filed by