8.	Commitments and Contingencies

Legal Matters

The Company is a party to various legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company's management, resolution of these matters is

not

anticipated to have a material adverse effect on the Company or its estimated or desired affiliates, assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition.

RELATED PARTIES AND RELATED PARTY LITIGATION:

SBS, SAS, and Infotech, provided services up until

2018

to the Company and are related parties and affiliates of SGRP, but were

not

under the control or part of the consolidated Company. SBS was an affiliate because it is owned by an entity controlled by Mr. Robert G. Brown and prior to

November 2018

was owned by Mr. Robert G. Brown and Mr. William H. Bartels. SAS was an affiliate because it is owned by Mr. William H. Bartels, Mr. Peter W. Brown and certain other relatives of Mr. Robert G. Brown or entities controlled by them (each of whom are considered affiliates of the Company for related party purposes). Infotech was an affiliate because it is owned by Mr. Robert G. Brown. Messrs. Brown and Bartels (including, as applicable, certain related parties, the "

Majority Stockholders

") collectively own approximately

53.2%

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

13D

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

April 24, 2020,

pursuant to the written consents of Robert G. Brown, William H. Bartels and related parties, and became the Chairman of the SGRP Board again on

March 18, 2021.

Mr. William H. Bartels is a Director of SGRP. Mr. William H. Bartels retired as an employee of the Company as of

January 1, 2020.

Messrs. Brown, Bartels and related parties also are shareholders, directors and/or executive officers of various affiliates of SGRP.

Advancement Claims

From

October 2018

through

January 2019,

Robert G. Brown and William H. Bartels, in a series of correspondence, demanded from SGRP advancement and indemnification of their respective shares of legal fees and expenses incurred by them in connection with the Delaware Actions and other related party litigation matters.

SGRP denied Mr. Bartels' claims for advancement and indemnification because Mr. Bartels was sued predominately as a stockholder in the By-Laws Action and

not

as a director. Mr. Bartels sued SPAR for advancement as a sitting director. Counsel advised SGRP that generally advancement was somewhat different than indemnification as money was advanced on the condition to be repaid if indemnification was determined to be improper and that Mr. Bartels was a sitting director. In

April 2019,

SGRP settled with Mr. Bartels, pursuant to which his action was dismissed and Mr. Bartels' accepted allocated By-Laws expenses of approximately

$106,000

were paid by SGRP.

December 3, 2018,

Robert G. Brown demanded advancement from SGRP for his proportionate share of the legal fees and expenses incurred by him in the Delaware Actions (the "

Brown Advancement Demand

"). Counsel advised that Brown had been sued as a stockholder and conspirator in the By-Laws Action against him, and

not

as a director, Brown was

not

a director at the time, and they didn't believe Brown could reasonably succeed in a lawsuit for advancement. SGRP, with the support of its Audit Committee, reject the Brown Advancement Demand.

January 27, 2019,

Mr. Robert G. Brown sent a draft of his proposed Delaware litigation complaint threatening to sue SGRP respecting the Brown Advancement Demand, which he repeated on

February 2, 2019.

Mr. Brown on several occasions has sent copies of that complaint to SGRP in

2020;

and filed his complaint on his own behalf in the Delaware Court of Chancery on

September 17, 2020;

however, through

April 30, 2021,

such complaint has been properly served by Mr. Brown. SGRP continues to deny the Brown Advancement Demand.

SBS Bankruptcy, Settlement and

March 2020

Claim

2019,

the Company filed claims against Robert G, Brown's company, SBS, in its federal bankruptcy proceeding in Nevada (the "

SBS Chapter

Case

") seeking reimbursement for

$378,838

for SMF's funding of the Affinity Security Deposits and

$12,963

for SMF's funding of field payment checks, and

$1,839,459

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

Clothier"

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

The Company settled with SBS pursuant to their Compromise and Settlement Agreement, dated

July 26, 2019 (

the "

Settlement Agreement

"). The Settlement Agreement was submitted to the court in the SBS Chapter

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

Rodgers

"). See

SBS Clothier Litigation, SBS and SGRP Hogan Litigation, and SBS Rodgers Litigation

, below.

August 6, 2019,

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

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

Plan of Reorganization

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

not

released from Clothier, any related case or Rodgers. See

SBS Rodgers Litigation,

below

In the Settlement Agreement, except for the carve-out described below, SBS completely released the Company from all obligations that

may

be owed to SBS, and the Company's

$2.2

million in claims were settled for

$174,097,

payable by SBS over

monthly installments starting

January 1, 2020,

and without any interest (collectively, the "

Discounted Claim Payments

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

August 6, 2019,

with the support of the Clothier and Rodgers plaintiffs and the Company, the Court approved the SBS Settlement Agreement and the SBS Reorganization pursuant to the SBS Plan (as defined in the SBS Settlement Release).

The SBS Settlement Agreement provides for a comprehensive mutual release of claims (the "

SBS Releases

"), including the SBS Claims and the SGRP Claims (as defined therein), except for the Discounted Claim Payments payable by SBS and the proven Unpaid A/R (as defined in the SBS Settlement Agreement) if any payable by the Company upon its determination. In the SBS Settlement Agreement, the parties agreed to have a

third

party financial and accounting services firm independently determine the Proven Unpaid A/R based on parameters set forth in the SBS Settlement Agreement and to accept that

third

party determination as final and binding. That

third

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

further obligation (the "

Independent Final Determination

").

The Company has recorded the total settlement amount of

$174,097

as of

December 31, 2019.

To date, SBS is in default of the

first

fifteen

payments totaling

$108,810

and formal default notices have been sent to SBS. As of this date the Company believes these SBS payments must ultimately be paid by SBS and will continue to evaluate its collectability from SBS and establish reserves as appropriate. As of

March 31, 2021,

the total settlement amount has been reserved.

March 6, 2020,

Robert G. Brown, President, Director and indirect owner of SBS, sent an email communication on behalf of SBS demanding payment of

$1,707,374

to SBS from the Company pursuant to the SBS Settlement Agreement (the "

March 2020

Claim

"). The Company has reviewed the

March 2020

Claim and disagrees that any such amount is owed. The Company has

not

accrued anything respecting Mr. Robert G. Brown's renewed claims.

At SGRP's

March 2020

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

March 17, 2020,

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

$1.3

million, bringing their total claims to approximately

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

The

March 2020

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

PAGA

") and Texas ("

Rodgers

") in cases that do

not

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

liability. The

March 2020

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

July 2019,

SBS has had

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

SBS Field Specialist Litigation, SBS Clothier Litigation

, and

SGRP Hogan Litigation

below. Mr. Bartels' list also includes payments of

$500,000

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

Mr. Robert G. Brown and Mr. Bartels have repeated their claims in discussions with SPAR's new CEO, Mike Matacunas, since he became SGRP's Chief Executive Officer in

February 2021.

They have also increased the amount of their claims to approximately

$5.6

million from

million, for alleged incremental costs from

April 2020

to-date of prior claims. The Company continues to reject these claims and maintains the same position.

At the Board Meeting on

March 18, 2021,

Mr. Bartels proposed a resolution that SGRP be responsible for the defense expenses of Mr. Bartels and Mr. Robert G. Brown in a series of arbitrations that stemmed from the claims of various former SBS independent contractors. The Company believes that those independent contractors also had been plaintiffs in the Rodgers lawsuit (see below), that in the SBS bankruptcy SBS settled with Rodgers and the Company, and that those independent contractors have sought arbitration against Mr. Bartels and Mr. Robert G. Brown as the SBS shareholders at the time, but have

not

sought and could

not

seek arbitration against SBS because of its bankruptcy. The Company reimbursed defense expenses incurred by SBS in Rodgers until SBS' services were terminated in

July 2018.

See

SBS Field Specialist Litigation

, below

The Company believes that SBS defended Robert G. Brown and William H. Bartels in Rodgers but is

longer doing so in Rodgers or the related arbitrations. On a motion duly made by Mr. Lazaretos and seconded, that resolution was approved by the Board with

four

votes in favor (Mr. Bartels, Mr. Robert G. Brown, Mr. Peter W Brown, and Mr. Lazaretos), Mr. Arthur H. Baer voting against, and the other

four

Board members abstained. The Company believes that this resolution requires Audit Committee approval as a related party transaction and would

not

be effective without it under either Nasdaq rules or the Audit Committee Charter. The Audit Committee has considered and rejected that proposal.

SBS Field Specialist Litigation

The Company's merchandising, audit, assembly and other services for its domestic clients are performed by field merchandising, auditing, assembly and other field personnel (each a "

Field Specialist

"), a significant portion of them were furnished by others and substantially all of whose services were provided to the Company from

2000

August 2018

by SBS.

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

not

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

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

two

class action lawsuits against SBS, namely Clothier and Hogan. SBS was separately dismissed from the Hogan class action prior to the Company's settlement. SBS settled with Clothier and Rodgers in the SBS Chapter

Case, but the Company believes that Robert G. Brown and William H. Bartels were

not

released from Clothier, any related case or Rodgers (see above). The Company has never been a party to the Rodgers case. The Company has been comprehensively released by SBS pursuant to the Settlement Agreement and SBS Releases, but Mr. Brown continues to make claims for SBS against the Company. See

SBS Bankruptcy, Settlement and

March 2020

Claim,

above, and

SBS Clothier Litigation

and

SBS Rodgers Litigation

, below.

SBS Clothier Litigation

Melissa Clothier provided services to SBS (then known as SPAR Marketing Services, Inc.) pursuant to an "Independent Merchandiser Agreement" (prepared solely by SBS) acknowledging her engagement as an independent contractor. In

2014,

Ms. Clothier sued SBS and the Company in Alameda County, California (the "

Clothier Case

"), in which Ms. Clothier asserted claims on behalf of herself and a putative class of similarly situated merchandisers in California who were classified by SBS as independent contractors. Ms. Clothier alleged that she and other class members were misclassified by SBS as independent contractors (instead of as employees) and that, as a result of this misclassification, the defendants improperly underpaid them in violation of various California minimum wage and overtime laws. The Company was originally a defendant in the Clothier Case but was subsequently dismissed from the action without prejudice (meaning it could have been joined back into the case).

SGRP entered into mediation on

June 7, 2018,

to try to settle any potential future liability for any possible judgment against SGRP related to that case. SGRP asked SBS to participate financially and provide its knowledge in that mediation, but SBS and its stockholders wanted Mr. Brown to lead that mediation and for SGRP to bear the full cost of any settlement, and on several occasions they declined or failed to participate in that mediation. SGRP disagreed, insisting on the economic participation of the Majority Shareholders and SBS. SGRP reached a settlement and entered into a memorandum of settlement agreement, pursuant to which the Company would pay a maximum settlement amount of

$1.3

million, payable in

four

equal annual installments of

$325,000

each that commenced in

December 2019,

subject to the final court approval (the "

Clothier Settlement

"). Final approval was granted on

September 20, 2019,

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

$1.3

million charge for the Clothier Settlement during

2018,

when the agreement in the Clothier Settlement was reached. To date, the Company has made

two

installment payments totaling

$650,000

under the Clothier Settlement, and

$650,000

is accrued as of

March 31, 2021

SBS and SGRP Hogan Litigation

Paradise Hogan and others provided services to SBS pursuant to the terms of their separate Independent Contractor Master Agreements with SBS (prepared solely by SBS), and in such agreements acknowledging their engagement as an independent contractor. In

January 2017,

Hogan sued SBS and SGRP in the U.S. District Court in Massachusetts asserting claims on behalf of himself and an alleged nationwide class of similarly situated individuals who provided services to SBS. Hogan alleged that he and other alleged class members were misclassified by SBS as independent contractors (instead of as employees), and as a result of this purported misclassification, Hogan asserted claims on behalf of himself and the alleged Massachusetts class members under federal and state law for failure to pay overtime and minimum wages and other state law claims. On

March 28, 2017,

SGRP moved to refer Hogan's claim to arbitration pursuant to his agreement, to dismiss or stay Hogan's case pending arbitration, and to dismiss Hogan's case for failure to state a specific claim upon which relief could be granted.

March 12, 2018,

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

not

reference or protect SGRP according to the Court. However, the Court eventually granted SBS the right to arbitrate without SGRP. SGRP appealed to the First Circuit but lost as the appeals court decided that the arbitration clause (as written by SBS) did

not

protect SGRP. As a result, SGRP would have been required to go to trial without SBS.

Facing litigation and potential damages in the Hogan Case, on

March 27, 2019,

SGRP entered into mediation with the plaintiffs and plaintiff's counsel in the Hogan Case to try to settle any potential future liability for any possible judgment against SGRP in that case. SBS and its stockholders were

longer involved in that case and so were

not

involved in that mediation. SGRP reached a settlement and entered into a memorandum of settlement agreement (the "

Hogan Settlement

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

November 2019,

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

$250,000

(in

three

installments), which payments commenced in

December 2019

with the

first

payment of

$150,000.

$50,000

was paid in

March 2020

and the remaining

$50,000

was paid in

June 2020.

SBS Rodgers Litigation

Maceo Rodgers provided services to SBS pursuant to the terms of his "Master Agreements", and in such agreements acknowledging his engagement as an independent contractor. On

February 21, 2014,

Rodgers filed suit against SBS, Robert G. Brown and William H. Bartels in the U.S. District Court for the Southern District of Texas (“

Rogers

”). Plaintiff asserted claims on behalf of himself and an alleged class of similarly situated individuals who provided services to SBS as independent contractors, claiming they all were misclassified by SBS independent contractors and that, as a result of this misclassification, the Defendants improperly underpaid them in violation of the Fair Labor Standards Act's overtime and minimum wage provisions. The Company reimbursed defense expenses incurred by SBS in Rodgers until SBS' services were terminated in

July 2018.

The Company believes that SBS defended Robert G. Brown and William H. Bartels in Rodgers but is

longer doing so in Rodgers or the related arbitrations. See

SBS Bankruptcy, Settlement and

March 2020

Claim

and

SBS Field Specialist Litigation,

above.

Rodgers settled for a claim of approximately

$618,000

against SBS (but

not

any claims against Brown or Bartels), in the SBS Chapter

11,

and in full settlement of that claim they agreed upon a discounted payment amount of approximately

$48,000,

payable in equal quarterly installments over a

five

-year period. See

SBS Bankruptcy, Settlement and

March 2020

Claim

above.