Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "Quarterly Report") contains "forward-looking statements" within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, made by, or respecting, SPAR Group, Inc. ("SGRP" or the "Corporation",) and its subsidiaries (SGRP together with its subsidiaries may be referred to as "SPAR Group" or the "Company"). There also are forward-looking statements contained in: (a) SGRP's 2025 Annual Report on Form 10-K for the year ended December 31, 2025 the ("2025 Annual Report"), which was filed with the Securities and Exchange Commission the ("SEC") on March 31, 2026; (b) the Corporation's Proxy Statement on Schedule DEF 14A for its 2026 Annual Stockholders Meeting, the ("2026 Proxy Statement"), which was filed with the SEC on April 30, 2026; and (c) SGRP's Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and statements as and when filed with the SEC (including this Quarterly Report, the 2025 Annual Report, and the 2026 Proxy Statement, each a "SEC Report"). "Forward-looking statements" are defined in Section 27A of the Securities Act of 1933, as amended the ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended the ("Exchange Act"), and other applicable federal and state securities laws, rules and regulations, as amended (together with the Securities Act and Exchange Act, the "Securities Laws").

Readers can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Words such as "may," "will," "expect," "intend," "believe," "estimate," "anticipate," "continue," "plan," "project," or the negative of these terms or other similar expressions also identify forward-looking statements. Forward-looking statements made by the Company in this Quarterly Report and the Annual Report may include (without limitation) statements regarding: risks, uncertainties, cautions, circumstances and other factors ("Risks"). Those Risks include (without limitation): the costs and effects of changing the Company's principal independent registered accounting firm; potential or continued revenue growth, gross margin expansion, and continued favorable shift in service mix from remodeling toward merchandising services; continued and new long-standing relationships with retailers, distributors and makers of consumer goods; successful results from merchandising partnerships and relationships with other companies, borrowing, repaying or guarantying the Company's recent unsecured loans or paying interest thereon; issuing the shares of the Corporation's 'Common Stock; the departure in 2025 of various of the Corporation's executives previously reported and the agreements made with them; the impact of the Company's strategic review process or any resulting action or inaction; the impact of selling certain of the Company's subsidiaries; the impact of adding new directors or new finance team members; the potential negative effects of any stock repurchase and/or payment; the potential continuing negative effects of the COVID pandemic on the Company's business; the Company's cash flow or financial condition; plans, intentions, expectations, guidance or other information respecting the pursuit or achievement of the Company's corporate objectives; and or any resulting impact on revenues, earnings, cash or financial condition resulting from our related to any such Risk. The Company's forward-looking statements also include (without limitation) statements made (as applicable) in this Quarterly Report and in the 2025 Annual Report in "Business", "Risk Factors", "Cybersecurity", "Legal Proceedings", "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Controls and Procedures", "Directors, Executive Officers and Corporate Governance", "Executive Compensation", "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters", and "Certain Relationships and Related Transactions, and Director Independence".

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

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

SPAR Group, Inc. and Subsidiaries

Overview of Our Business

SPAR Group is a leading merchandising and brand marketing services company, providing a broad range of sales enhancing services to retailers across most classes of trade and consumer goods manufacturers, distributors, and retailers in the United States ("U.S.") and Canada. The Company's goal is to be the most creative, energizing and effective retail services company that drives sales, margins and operating efficiency for our clients.

As of June 30, 2026, the Company operated in the U.S. and Canada.

With more than 50 years of experience and a diverse network of merchandising specialists around the world, the Company continues to grow its relationships with some of the world's leading businesses. The combination of resource scale, deep expertise, advanced technology and unwavering commitment to excellence, separates the Company from the competition.

The Company is dedicated to delivering a spectrum of specialized services tailored to enhance retail operations and profitability. Our team collaborates closely with clients to identify their primary goals, ensuring the execution of strategies that boost sales and profit margins. With a focus on merchandising and brand marketing, our specialists deploy a variety of programs aimed at maximizing product sell-through to consumers. These initiatives range from launching new products and setting up promotional displays to assembling fixtures and ensuring consistent stock availability, thus facilitating efficient reordering processes. Furthermore, we extend our expertise to sales enhancement and customer service improvement. As the retail landscape evolves, our team is adept at undertaking comprehensive store renovations and preparing new locations for their grand openings, ensuring they meet the modern consumer's expectations. Additionally, our distribution associates play a pivotal role in retail and consumer goods distribution centers, preparing these facilities for operation, optimizing system functionality, managing product logistics, and providing essential staffing solutions to meet our clients' needs effectively.

The Company's business is led and operated from its headquarters in Charlotte, North Carolina, with local leadership and offices in the U.S. and Canada.

Recent Developments

On March 29, 2026, the Company entered into an amendment with ReposiTrak, Inc., an affiliate of PC Group (the "TRAK") (the "Amendment"), to that certain Services Agreement dated March 13, 2026 (the "Agreement") entered into and between the Company and TRAK. Under the terms of the Agreement, the Company agreed to provide certain services to the Company related to (i) data analytics and internal reporting of the Company's merchandising services that support consumer brands and retailers; (ii) out-of-stocks verification and remediation; (iii) scanned based trading merchandising; (iv) merchandising route optimization; (v) IT and technical optimization; and (v) consulting and training (together, the "Services") for a one-year term beginning March 13, 2026 with an aggregate contract value of $2,325,000. In accordance with the terms of the Agreement, the Company was to pay TRAK in cash for the Services provided thereunder.

Under the terms of the Amendment, TRAK had the option to elect to receive payment for the Services in cash, shares of common stock of the Company, or a combination thereof. Any issuance of common stock pursuant to the Amendment was valued based upon the volume weighted average price ("VWAP") of common stock for the five trading days immediately preceding the applicable issuance date.

On May 29, 2026, TRAK elected to receive payment of the outstanding balance owed to TRAK under the Amendment in shares of common stock, resulting in the issuance by the Company to the TRAK of 3,190,569 shares of common stock at a deemed value of $0.728710119 per share, in consideration of the payment of $2,325,000 otherwise payable to TRAK under the terms of the Agreement.

Effective June 1, 2026, the Company and TRAK entered into a further IT & Development Services Agreement for a term beginning on June 1, 2026 through May 31, 2027 ("IT Agreement"). Under the terms of the IT Agreement, TRAK will (i) develop, configure, and implement the TRAK application framework to support the functional capabilities of the SPAR View; (ii) evaluate the SPAR View application and define the technical approach for migrating its functionality to the upgraded platform; (iii) access the capabilities, skills, and organizational fit of current IT and development personnel; (iv) review SPAR's existing IT organization, systems and processes; and (v) provide recommendations regarding SPAR's technology architecture, staffing and suggest operational improvements (together, "IT Services"). The consideration to be paid for the IT Services is $151,500 per month.

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA is a non-GAAP measure of our operating performance and should not be considered as an alternative to net income as a measure of financial performance or any other performance measure derived in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). "EBITDA" is defined as net income before (i) depreciation and amortization, (ii) interest expense, net, and (iii) income tax expense. "Adjusted EBITDA" is defined as net income (loss) before (i) depreciation and amortization of long-lived assets, (ii) interest expense (iii) income tax expense, (iv) restructuring expenses, (v) impairment, (vi) nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations, (vii) special items as determined by management, and (viii) review of strategic alternatives, which includes primarily legal, consulting, and investment bank fees. This metric is a supplemental measure of our operating performance that is neither required by, nor presented in accordance with, U.S. GAAP.

We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in future periods, and any such modification may be material. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

Our management believes Adjusted EBITDA is helpful in highlighting trends in our core operating performance compared to other measures, which can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We also use Adjusted EBITDA to supplement U.S. GAAP measures of performance in the evaluation of the effectiveness of our business strategies and to make budgeting decisions.

Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations include:

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Adjusted EBITDA does not reflect our cash expenditure or future requirements for capital expenditures or contractual commitments;

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Adjusted EBITDA does not reflect changes in our cash requirements for our working capital needs;

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Adjusted EBITDA does not reflect the interest expense and the cash requirements necessary to service interest or principal payments on our debt;

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Adjusted EBITDA does not reflect cash requirements for replacement of assets that are being depreciated and amortized;

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Adjusted EBITDA does not reflect non-cash compensation, which is a key element of our overall long-term compensation;

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Adjusted EBITDA does not reflect the impact of certain cash charges or cash receipts resulting from matters we do not find indicative of our ongoing operations; and

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Other companies in our industry may calculate Adjusted EBITDA differently than we do.

The following is a reconciliation of our net income (loss) to Adjusted EBITDA for the periods presented:

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2026				2025				2026				2025
Net income (loss)		$	409			$	(1	)		$	(144	)		$	461
Add back:
Depreciation and amortization			433				413				843				780
Interest expense, net			642				589				1,141				1,058
Provision for income taxes			112				120				140				234
Subtotal of add backs to net income (loss)			1,187				1,122				2,124				2,072
EBITDA		$	1,596			$	1,121			$	1,980			$	2,533
Adjustments:
Share based compensation			-				27				-				54
Restructuring costs and severance			-				-				245				-
Other one time expenses			341				151				340				208
Legal costs/settlements - non-recurring			202				14				319				14
Total adjustments			543				192				904				276
			-				-				-				-
Adjusted EBITDA		$	2,139			$	1,313			$	2,884			$	2,809

RESULTS OF OPERATIONS

The following table sets forth selected financial data and data as a percentage of Net revenues for the periods indicated:

For the three months ended June 30, 2026, compared to the three months ended June 30, 2025

		Three Months Ended June 30,
(dollars in thousands)		2026				2025				$ Change				% Change
Net revenue		$	36,906			$	38,629			$	(1,723	)			(4.5	%)
Cost of revenue			28,497				29,567				(1,070	)			(3.6	%)
Gross profit			8,409				9,062				(653	)			(7.2	%)
Operating expenses:
Selling, general and administrative expense			6,767				7,934				(1,167	)			(14.7	%)
Depreciation and amortization			433				413				20				4.8	%
Total operating expenses			7,200				8,347				(1,147	)			(13.7	%)
Operating income			1,209				715				494				69.1	%
Interest expense, net			642				589				53				9.0	%
Other expense, net			46				7				39				NM
Income before income tax expense			521				119				402				NM
Provision for income taxes			112				120				(8	)			(6.7	%)
Net income (loss)		$	409			$	(1	)		$	410				NM
Percent of net revenue:
Gross profit			22.8	%			23.5	%
Selling, general and administrative expense			18.3	%			20.5	%
Depreciation and amortization			1.2	%			1.1	%
Total operating expenses			19.5	%			21.6	%

Net Revenues

Net revenues for three months ended June 30, 2026 were $36.9 million, compared to $38.6 million for the three months ended June 30, 2025, a decrease of $1.7 million, or 4.5%. Net revenues decreased during the quarter primarily due to lower volume in the remodel business.

U.S. net revenues totaled $32.5 million and $35.2 million for the three months ended June 30, 2026 and 2025, respectively. The decrease of $2.7 million or 7.7% is driven by a soft quarter in our remodel business.

Canada net revenues totaled $4.4 million and $3.4 million for the three months ended June 30, 2026 and 2025, respectively. The increase of $1.0 million or 29.4% is driven by the merchandising business.

Cost of Revenues

The Company's cost of revenues consists of its in-store labor and field management wages, related benefits, travel and other direct labor-related expenses and was 77.2% of net revenue for the three months ended June 30, 2026 compared to 76.7% of net revenues for the three months ended June 30, 2025.

Cost of revenues for the three months ended June 30, 2026 were $28.5 million, compared to $29.6 million for the three months ended June 30, 2025. The decrease is in line with the reduction of revenue and driven by the mix of services in the U.S. partially offset by a reduction in the field management expenses.

U.S. cost of revenues totaled $25.1 million and $27.1 million for the three months ended June 30, 2026 and 2025, respectively. The decrease of $2.0 million is in line with the reduction of revenue and driven by the mix of services in the U.S. partially offset by a reduction in the field management expenses.

Canada cost of revenues totaled $3.4 million and $2.5 million for the three months ended June 30, 2026 and 2025, respectively. The increase of $0.9 million is driven by the increased revenue for the quarter along with a mix in services.

Selling, General and Administrative Expense

Selling, general and administrative expense ("SG&A") of the Company include its corporate overhead, project management, information technology, executive compensation, human resources, legal and accounting expenses. Selling, general and administrative expense was approximately $6.8 million, or 18.3% of net revenue, and approximately $7.9 million, or 20.5% of net revenue for the three months ended June 30, 2026 and 2025, respectively. The decrease in selling, general and administrative expense was primarily due to cost savings measures that have been implemented.

U.S. SG&A expense totaled $6.2 million and $7.1 million for the three months ended June 30, 2026 and 2025, respectively. The decrease of $0.9 million was primarily driven by lower compensation costs and lower consulting expenses.

Canada SG&A expense totaled $0.6 million and $0.8 million for the three months ended June 30, 2026 and 2025, respectively. The decrease was driven by lower compensation costs.

Restructuring Costs and Severance

Restructuring costs and severance include severance costs paid in connection with the reorganization of the Company's executive team and expenses related to the move of the Company's headquarters to Charlotte, NC. For the three months ended June 30, 2026 the Company recognized no expense.

Depreciation and Amortization

For the three months ended June 30, 2026 and 2025, depreciation and amortization was approximately $0.4 million and $0.4 million, respectively.

Interest Expense, Net

For the three months ended June 30, 2026 and 2025, interest expense was approximately $0.6 million and $0.6 million, respectively.

Other Expense, Net

For the three months ended June 30, 2026 and 2025, other expense, net was immaterial.

Provision for Income Taxes

For the three months ended June 30, 2026 income tax expense was $0.1 million with an effective rate of 21.5%, compared to expense of $0.1 million with an effective rate of 100.8% for the three months ended June 30, 2025.

For the six months ended June 30, 2026, compared to the six months ended June 30, 2025

		Six Months Ended June 30,
(dollars in thousands)		2026			2025			$ Change		% Change
Net revenue	$	67,424		$	72,671		$	(5,247	)	(7.2	%)
Cost of revenue		52,203			56,333			(4,130	)	(7.3	%)
Gross profit		15,221			16,338			(1,117	)	(6.8	%)
Operating expenses:
Selling, general and administrative expense		12,966			13,807			(841	)	(6.1	%)
Restructuring costs and severance		245			-			245		NM
Depreciation and amortization		843			780			63		8.1	%
Total operating expenses		14,054			14,587			(533	)	(3.7	%)
Operating income		1,167			1,751			(584	)	(33.4	%)
Interest expense, net		1,141			1,058			83		7.8	%
Other expense (income), net		30			(2	)		32		NM
(Loss) income before tax expense		(4	)		695			(699	)	NM
Provision for income taxes		140			234			(94	)	(40.2	%)
Net (loss) income	$	(144	)	$	461		$	(605	)	NM
Percent of net revenue:
Gross profit		22.6	%		22.5	%
Selling, general and administrative expense		19.2	%		19.0	%
Restructuring costs and severance		0.4	%		0.0	%
Depreciation and amortization		1.3	%		1.1	%
Total operating expenses		20.8	%		20.1	%

Net Revenues

Net revenues for six months ended June 30, 2026 were $67.4 million, compared to $72.7 million for the six months ended June 30, 2025, a decrease of $ 5.3 million, or 7.2%. Net revenues decreased primarily due to lower volume in the remodel business.

U.S. net revenues totaled $59.7 million and $66.2 million for the six months ended June 30, 2026 and 2025, respectively. The decrease of $6.5 million or 9.8% is driven by a soft quarter in our remodel business.

Canada net revenues totaled $7.7 million and $6.5 million for the six months ended June 30, 2026 and 2025, respectively. The increase of $1.2 million or 18.5% is driven by the merchandising business.

Cost of Revenues

The Company's cost of revenues consists of its in-store labor and field management wages, related benefits, travel and other direct labor-related expenses and was 77.4% of net revenue for the six months ended June 30, 2026 compared to 77.4% of net revenues for the six months ended June 30, 2025.

Cost of revenues for the six months ended June 30, 2026 were $52.2 million, compared to $56.3 million for the six months ended June 30, 2025. The decrease is in line with the reduction of revenue and driven by the mix of services in the U.S.

U.S. cost of revenues totaled $46.4 million and $51.7 million for the six months ended June 30, 2026 and 2025, respectively. The decrease of $5.3 million is in line with the reduction of revenue and driven by the mix of services in the U.S. partially offset by a reduction in the field management expenses.

Canada cost of revenues totaled $5.8 million and $4.6 million for the six months ended June 30, 2026 and 2025, respectively. The increase of $1.2 million is driven by the increased revenue for the quarter along with a mix of services.

Selling, General and Administrative Expense

Selling, general and administrative expense ("SG&A") of the Company include its corporate overhead, project management, information technology, executive compensation, human resources, legal and accounting expenses. Selling, general and administrative expense was approximately $13.0 million, or 19.2% of net revenue, and approximately $13.8 million, or 19.0% of net revenue for the six months ended June 30, 2026 and 2025, respectively. The decrease in selling, general and administrative expense was primarily due to cost savings measures that have been implemented.

U.S. SG&A expense totaled $11.9 million and $12.2 million for the six months ended June 30, 2026 and 2025, respectively.

Canada SG&A expense totaled $1.1 million and $1.6 million for the six months ended June 30, 2026 and 2025, respectively. The decrease was driven by lower compensation costs.

Restructuring Costs and Severance

Restructuring costs and severance include severance costs paid in connection with the reorganization of the Company's executive team and expense related to the move of the Company's headquarters to Charlotte, NC. For the six months ended June 30, 2026 the Company recognized expense of $0.2 million. The Company incurred no restructuring charges for the six months ended June 30, 2026.

Depreciation and Amortization

For the six months ended June 30, 2026 and 2025, depreciation and amortization was approximately $0.8 million and $0.8 million, respectively.

Interest Expense, Net

For the six months ended June 30, 2026 and 2025, interest expense was approximately $1.1 million and $1.1 million, respectively.

Other Expense (Income), Net

For the six months ended June 30, 2026 and 2025, other expense (income), net was immaterial.

Provision for Income Taxes

For the six months ended June 30, 2026 income tax expense was $0.1 million with an effective rate of (3,500.0%), compared to expense of $0.2 million with an effective rate of 33.7% for the six months ended June 30, 2025.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and related notes thereto. However, we believe we have used reasonable estimates and assumptions in preparing the unaudited condensed consolidated financial statements. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.

The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Critical Accounting Estimates section of the MD&A in the 2025 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2026.

Liquidity and Capital Resources

Funding Requirements

Cash from operations could be affected by various risks and uncertainties, including, but not limited to risks detailed in the section titled "Risk Factors" included elsewhere in our 2025 Annual Report. The Company believes that based upon the continuation of the Company's existing credit facilities (for which the Company closed on a two year extension from its lender in October 2025), projected results of operations, vendor payment requirements and other financing available to the Company (including amounts due to affiliates), sources of cash availability should be manageable and sufficient to support ongoing working capital and capital expenditure requirements over the next 12 months. However, delays in collection of receivables due from any of the Company's major clients, a significant reduction in business from such clients, or a negative economic downturn, could have a material adverse effect on the Company's business, cash resources, and ongoing ability to fund operations.

The Company is a party to various domestic and international credit facilities. These various domestic and international credit facilities require compliance with their respective financial covenants. See Note 3 to the Company's unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Cash Flows for the Six months ended June 30, 2026 and 2025

Net cash used in operating activities was $8.7 million compared to $11.9 million used in operating activities for the six months ended June 30, 2026 and 2025, respectively. The change was primarily due to the decrease in accounts receivable which correlates to the decrease in revenue period over period and improved collection of outstanding customer balances, offset by the decrease in accounts payable.

Net cash used in investing activities was approximately $1.0 million compared to $1.0 million used in investing activities for the six months ended June 30, 2026 and 2025, respectively.

Net cash provided by financing activities was approximately $9.4 million compared to $8.5 million provided by financing activities for the six months ended June 30, 2026 and 2025, respectively. This was principally due to proceeds received from PC Group under the terms of an unsecured promissory note in the principal amount of $3.0M, which was offset by changes in borrowings under the Company's line of credit.

Reflecting the impact of foreign exchange rate changes on the activity above resulted in a decrease in cash and cash equivalents for the six months ended June 30, 2026 and 2025 of approximately $15 thousand and increase of $20 thousand, respectively.