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Note 8 - Long-lived Assets, Including Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Text Block]

8.	Long-Lived Assets, including Goodwill and Intangible Assets

The Company’s goodwill balance was $4.2 million as of September 30, 2022 and December 31, 2021. The Company is required to test goodwill for impairment annually or more frequently, whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit with goodwill below its carrying amount. The Company annually tests goodwill impairment during the fourth quarter.

The Company’s long-lived intangible assets balance was $2.1 million as of September 30, 2022 and $2.3 million as of September 30, 2021. The Company is only required to test intangible assets whenever events occur or circumstances change that would more likely than not reduce the fair value of the assets below its carrying value.

The Company acquired Resource Plus in 2018 as a joint venture partnership and currently owns 51% of the Resource Plus business. As of September 30, 2022, the Company has recorded $2.0 million of goodwill and $1.2 million of intangible assets relating to brand and technology. In early 2021, Resource Plus lost a significant customer, Lowes Live Nursery Business. Resource Plus revenue was $15.3 million in 2021 comparing to $28.0 million in 2020, and net loss attributable to SPAR in 2021 was $116,000 comparing to net income attributable to SPAR of $679,000 in 2020. During the second and third quarters of 2022, Resource Plus did not meet original forecast and reduced forecasts for the remainder of 2022.

As a result of these circumstances, the Company concluded it was more likely than not that the fair value of the reporting unit was less than it's carrying amount, and performed an interim quantitative assessment. The quantitative assessment was performed utilizing the income approach. The analysis required the comparison of the Company’s carrying value with its fair value, with an impairment recorded for any excess of carrying value over the fair value. The discounted cash flow method was used to determine the fair value of the reporting unit under the income approach. The results of the quantitative analysis performed indicated the fair value of the reporting unit exceeded the carrying value of the reporting unit as of September 30, 2022. As a result, the Company has determined goodwill impairment is not needed.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, and other market factors. Our current expectations also include certain assumptions that could be negatively impacted if we are unable to meet our cost expectations in relation to inflation. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, inflation, or any factors that could be affected by COVID-19, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our reporting units might become impaired in the future

The Company also performed an interim quantitative assessment for the intangible assets. The Company evaluates the need to adjust the carrying value of the underlying assets if the sum of the expected cash flows is less than the carrying value. The Company’s projections of future cash flows, the level of actual cash flows, the methods of estimation used for determining fair values and salvage values can impact impairment. Based on the assessment, the Company concluded no impairment or write-down is required.