Quarterly Report for Quarter Ending March 31, 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; satisfying Nasdaq's required minimum market value of listed securities, minimum net income from continuing operations or minimum market price in a timely fashion; 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; potential non-compliance with applicable Nasdaq rules regarding minimum bid prices, the filing of periodic financial reports, director independence, holding annual meetings, or other rules; 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 potential non-compliance with applicable Nasdaq director independence, bid price or other rules; 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 March 31, 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.

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 (loss) income 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 (loss) income to Adjusted EBITDA for the periods presented:

		Three Months Ended March 31,
(in thousands)		2026				2025
Consolidated net (loss) income		$	(553	)		$	462
Depreciation and amortization			410				367
Interest expense			499				469
Income tax expense			28				114
Subtotal of Adjustments to Consolidated Net Income			937				950
Consolidated EBITDA		$	384			$	1,412
Share based compensation			-				27
Restructuring costs and severance			245				-
Other one time expenses			(9	)			57
Legal costs/settlements - non-recurring			117				-
Adjusted EBITDA		$	737			$	1,496

RESULTS OF OPERATIONS

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

For the three months ended March 31, 2026, compared to the three months ended March 31, 2025

		Three Months Ended March 31,
		2026								2025
Net revenues		$	30,518				100.0	%		$	34,041				100.0	%
Cost of revenue			23,706				77.7				26,766				78.6
Gross profit			6,812				22.3				7,275				21.4
Selling, general and administrative expense			6,199				20.3				5,872				17.2
Restructuring costs and severance			245				0.8				-				-
Depreciation and amortization			410				1.3				367				1.1
Operating (loss) income			(42	)			(0.1	)			1,036				3.0
Interest expense			499				1.6				469				1.4
Other income, net			(16	)			(0.1	)			(9	)			-
(Loss) income before income tax benefit			(525	)			(1.7	)			576				1.7
Income tax expense			28				0.1				114				0.3
Net (loss) income		$	(553	)			(1.8	)%		$	462				1.4	%

Net Revenues

Net revenues for three months ended March 31, 2026 were $30.5 million, compared to $34.0 million for the three months ended March 31, 2025, a decrease of $3.5 million, or 10.3%. Net revenues decreased during the quarter primarily due to lower volume in the remodel business.

U.S. net revenues totaled $27.2 million and $30.8 million for the three months ended March 31, 2026 and 2025, respectively. The decrease of $3.4 million or 11.7% is driven by a soft quarter in our remodel business.

Canada net revenues totaled $3.3 million and $3.2 million for the three months ended March 31, 2026 and 2025, respectively.

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 77.7% of net revenue for the three months ended March 31, 2026 compared to 78.6% of net revenues for the three months ended March 31, 2025.

Cost of revenues for the three months ended March 31, 2026 were $23.7 million, compared to $26.8 million for the three months ended March 31, 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 $21.3 million and $24.5 million for the three months ended March 31, 2026 and 2025, respectively. The decrease of $3.2 million is in line with the reduction of revenue and driven by the mix of services in the U.S.

Canada cost of revenues totaled $2.4 million and $2.3 million for the three months ended March 31, 2026 and 2025, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("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 expenses were approximately $6.2 million, or 20.3% of net revenue, and approximately $5.9 million, or 17.2% of net revenue for the three months ended March 31, 2026 and 2025, respectively. The increase in selling, general and administrative expenses was primarily due to higher expenses related to legal and accounting services as a result of timing, subscription expenses related to the enterprise resource planning system that went live in early 2025 and increased consulting fees.

U.S. SG&A expenses totaled $5.7 million and $5.4 million for the three months ended March 31, 2026 and 2025, respectively.

Canada SG&A expenses totaled $0.5 million and $0.5 million for the three months ended March 31, 2026 and 2025, respectively.

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 March 31, 2026 the Company recognized expense of $0.2 million.

Depreciation and Amortization

For the three months ended March 31, 2026 and 2025, depreciation and amortization was approximately $0.4 million and $0.4 million, respectively.

Interest Expense

For the three months ended March 31, 2026 and 2025, interest expense was approximately $0.5 million and $0.5 million, respectively.

Other Income, Net

For the three months ended March 31, 2026 and 2025, other income, net was immaterial.

Income Tax Expense (Benefit)

For the three months ended March 31, 2026 income tax expense was $28 thousand with an effective rate of (5.3%), compared to expense of $114 thousand with an effective rate of 19.8% for the three months ended March 31, 2025. The first quarter 2026 effective tax rate differs from the statutory rate of 21% mostly due to permanent differences and a recording of a valuation allowance on deferred tax assets to the extent the Company believes that these assets are more likely than not to be realized.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with US 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 For the Three months ended March 31, 2026 and 2025

Net cash used in operating activities was $3.9 million compared to $4.0 million used in operating activities for the three months ended March 31, 2026 and 2025, respectively. The immaterial change was primarily due to the decrease in accounts receivable which correlates to the decrease in revenue period over period, offset by the decrease in accounts payable.

Net cash used in investing activities was approximately $0.5 million compared to $0.5 million used in investing activities for the three months ended March 31, 2026 and 2025, respectively.

Net cash provided by financing activities was approximately $5.5 million compared to $4.3 million provided by financing activities for the three months ended March 31, 2026 and 2025, respectively. This was primarily due to proceeds from the PC Group unsecured note during the three months ended March 31, 2026, offset by changes in the net borrowings under the 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 three months ended March 31, 2026 and 2025 of approximately $(48) thousand and $0 thousand, respectively.