Note 13 - Purchase of Interest in Subsidiaries

12 Months Ended

Dec. 31, 2012

Business Combination Disclosure [Text Block]

13.  Purchase of Interests in Subsidiaries

The following contains descriptions of the Company's purchases of interests in its operating subsidiaries during the years ended December 31, 2012 and 2011.  In each of the subsidiaries noted below the Company, through its various agreements with the applicable Local Investor, has provided for appropriate exit strategies that are fair and equitable for each partner.  The terms "Global Contributions", "Local Investor" and "Local Contributions" are used in those purchase descriptions as such terms are described and defined in Item 1 - Acquisition Strategies and Strategic Acquisitions, above.

For each of the above, see generally Item 1 - The Company's Domestic and International Geographic Divisions and Acquisition Strategies and Strategic Acquisitions, above, and Item 1A - Risks Associated with International andDomestic Joint Venture Subsidiaries, Risks of Having Material Local Investors in International and Domestic Joint Venture Subsidiaries, Risks Associated with Foreign Currency and Risks Associated with International Business, above.

SPAR DSI (China)

In July 2011, the Company's subsidiary in China, SPAR (Shanghai) Marketing Management Company Ltd ("SPAR Shanghai") entered into an agreement with Beijing DSI Management Consulting Company Ltd. ("DSI"), creating a new consolidated subsidiary for the Company called SPAR DSI Human Resource Company ("SPAR DSI") in order to expand the Company's operations throughout the People's Republic of China.  SPAR Shanghai purchased a majority (51%) of the equity interests in SPAR DSI and the Company provided and provides its usual Global Contributions, while DSI as the Local Investor purchased the remaining minority (49%) non-controlling interest in SPAR DSI and provided and provides the usual Local Contributions.  The new company started operations in November 2011.  

SPAR Todopromo (Mexico)

In August 2011, the Company expanded its operations in North America by entering into an agreement with various companies and persons operating as Grupo TODOPROMO ("Grupo Todopromo") to create a new consolidated subsidiary of the Company in Mexico called SPAR TODOPROMO, SAPI, de CV. ("SPAR Todopromo"), which began operations in September 2011.  The Company purchased a majority (51%) of the equity interests in SPAR Todopromo and provided and provides its usual Global Contributions, while Grupo Todopromo as the Local Investor purchased the remaining minority (49%) non-controlling interest in SPAR Todopromo.  Grupo Todopromo also provides and continues to provide the usual Local Contributions.  The Company's initial investment in Mexico was $702,000 which consists of $2,000 in capital and $700,000 paid to Grupo for intangible assets.  $400,000 was paid in September 2011 and the balance of $300,000 was paid in August 2012.  The Company has recorded $400,000 as an intangible asset and $300,000 as goodwill in respect of this subsidiary.

In January 2012, the Company and Grupo Todopromo agreed to convert a portion of their respective initial working capital loans into equity.  As a result of this decision, the Company's equity position increased from $2,000 to $233,694.

In September 2012, the Company recorded additional goodwill and a contingent liability of $200,000 related to incentive consulting fee payments to Grupo Todopromo, resulting in total goodwill of $500,000.  Approximately $188,000 of that incentive consulting fee was earned in 2012.

The following is a pro forma calculation of the amounts of Grupo Todopromo’s revenue and earnings that would have been included in the Company’s consolidated income statement for the year ended December 31, 2011 and the revenue and net income of the combined entity, had the Todopromo acquisition date  been January  1, 2011, instead of September 2011 (in thousands):

	Revenue		Net Income
Actual from September 1 to December 31, 2011	$	4,649	$	(65	)
2011 Supplemental pro forma from January 1 to December 31, 2011	$	83,900	$	2,400
2011 Adjusted supplemental pro forma from January 1 to December 31, 2011	$	83,900	$	2,500

The adjusted supplemental pro forma earnings for 2011 excluded $118,000 of acquisition-related costs incurred in 2011.

SPAR NDS (Turkey)

In August 2011, the Company entered into an agreement with two companies in Turkey, NDS TANITIM DANIŞMANLIK HİZMETLERİ and GIDA TEKSTİL TURİZM PAZARLAMA TİCARET LİMİTED ŞİRKETİ (together, the "Turkish Investors"), to reestablish operations in this market.  The agreement created a new consolidated subsidiary for the Company called SPAR NDS ("SPAR NDS"). The new subsidiary started operations in November 2011.  The Company purchased a majority (51%) of the equity interests in SPAR NDS and provided and provides its usual Global Contributions, while the Turkish Investors as the Local Investor together purchased the remaining minority (49%) non-controlling interest in SPAR NDS and provided and provides the usual Local Contributions.  The Company's total investment in Turkey is approximately $344,232, which includes $206,497 recorded as a contingent liability for future incentive consulting fees, described below.

During the first three years of operations, SPAR NDS may be required to pay NDS owners an Incentive Consulting Fee (“Consulting Fee”) calculated at 25% of EBITDA in excess of base earnings of approximately $148,000 per year.  The maximum Consulting Fee for the three year period is not to exceed $424,000.  A projected consulting fee of $206,497 was calculated and  recorded as a contingent liability at December 31, 2012.  The Company has completed its purchase price valuation, including the impact of the potential Consulting Fee, at their related fair market values and as a result has recorded the following allocation of these costs between identifiable intangibles and goodwill in 2012:

Intangible asset	$	258,060
Goodwill		86,172
	$	344,232

BIP (Romania)

In May 2012, the Company finalized the purchase (effective as of April 1, 2012), for $60,000, of 51% ownership in Business Ideas Provider GRUP SRL ("BIP"), a Romanian limited liability company in Bucharest, Romania, which became a consolidated subsidiary of the Company.  The Company purchased a majority (51%) of the equity interests in BIP and provided and provides its usual Global Contributions, while Business Ideas Provider SRL as the Local Investor owes the remaining minority (49%) non-controlling interest in BIP and provided and provides the usual Local Contributions.  The fair market value of the stock purchased by the Company was approximately $79,000, therefore the Company recorded a gain of $19,000 on the acquisition.

The following is a pro forma calculation of the amounts of BIP's revenue and earnings that would have been included in the Company's consolidated income statement for the years ended December 31, 2012 and 2011, and the revenue and net income for the combined entity, had the BIP acquisition date been January 1, 2011, instead of as of April 1, 2012 (in thousands):

	Revenue		Net Income
Actual from April 1 to December 31, 2012	$	4,140	$	172
2012 Supplemental pro forma from January 1 to December 31, 2012	$	108,175	$	3,077
2011 Supplemental pro forma from January 1 to December 31, 2011	$	78,413	$	2,257

NMS (USA)

In September 2012, the Company made a domestic acquisition that also used its international strategy of seeking a minority (i.e., non-controlling) non-affiliated Local Investor for the Company's new consolidated subsidiary in Georgia, U.S.A.  As with most of its international counterparts, the Company acquired a 51% interest in National Merchandising Services, LLC, a newly formed Nevada limited liability company ("NMS"), and provided and provides its usual Global Contributions, and since then NMS has been a part of the Company's consolidated financial reports.  NMS provides merchandising services in the U.S.A. to multiple Fortune 500 companies previously supplied by its Local Investor.  The Local Investor in this case is National Merchandising of America, Inc., a Georgia corporation ("NMA"), which owns a 49% interest in NMS and will provide field merchandising services to NMS pursuant to a Field Services Agreement with NMS.  In addition, NMA contributed substantially all of its customers to NMS and provided and provides the usual Local Contributions.

NMS is part of the Company's consolidated financial reports and the business acquired by NMS is currently generating approximately $3 million in annual revenue, specializing primarily on in-store merchandising and new store opening and remodeling projects.  In its first four months of operations, NMS generated $1,922,000 in revenue and $138,000 in net income attributable to the Company.  The Company's total investment in NMS is $859,050, which consists of the following (1) $510 in capital, (2) a cash payment of $400,000 to NMA and a $200,000 non-interest bearing promissory note paid on January 2, 2013, (3) issuance of SPAR common stock worth $165,000 to NMA, and (4) a contingent liability of $93,540 described below.  

NMS agreed to pay an incentive consulting fee ("Consulting Fee") to NMA based on NMS achieving certain earnings goals in each of the next three 12 month periods.  The Consulting Fee is calculated based on 50% of NMS earnings in excess of an annual base earnings of $500,000. The maximum consideration for the Consulting Fee could be as much as $600,000.  The projected consulting fee is approximately $93,540 and has been recorded as a contingent liability at December 31, 2012.  The Company has completed its valuation of the fair value and related allocation between identifiable intangibles and goodwill, and recorded the following in 2012:

Intangible asset	$	526,320
Goodwill		332,730
	$	859,050

The following is a pro forma calculation of the amounts of NMS’s revenue and earnings that would have been included in the Company's consolidated income statement for the years ended December 31, 2012 and 2011, and the revenue and net income for the combined entity, had the NMS acquisition date been January 1, 2011, instead of as of April 1, 2012 (in thousands):

	Revenue		Net Income
Actual from September 1 to December 31, 2012	$	1,922	$	138
2012 Supplemental pro forma from January 1 to December 31, 2012	$	106,396	$	3,190
2011 Supplemental pro forma from January 1 to December 31, 2011	$	76,839	$	1,326

CMR-Meridian (South Africa)

In September 2012, the Company's existing local consolidated subsidiary, SGRP Meridian (Pty) Ltd. ("SGRP Meridian"), acquired a majority (51%) of the equity interests in CMR Meridian (Pty) Ltd. ("CMR-Meridian"), while the Company provided and provides its usual Global Contributions.  Combined Manufacturers National (Pty) Ltd ("CMR") acquired the remaining minority (49%) non-controlling interest in CMR-Meridian as its Local Investor, contributed substantially all of its customers to CMR-Meridian and provided the usual Local Contributions.  SGRP Meridian and CMR-Meridian are both are part of the Company's consolidated financial reports.

CMR-Meridian initiated operations on October 1, 2012 and the Company provided approximately $380,000 in a working capital loan to assist SGRP Meridian in this new joint venture.  SGRP Meridian, through the joint venture agreement with CMR, paid approximately $73,000 at closing and recorded a contingent liability in the amount of $154,000 respecting the fair value of potential future payments required to be made by SGRP Meridian to CMR provided certain financial conditions are achieved by CMR-Meridian in 2013 and 2014. The required payments based on an exchange rate of Rand to US Dollars at December 31, 2012, are as follows:   (a) $66,000 if CMR-Meridian achieves $247,000 of earnings before interest and taxes for the twelve month period ending December 31, 2013; and (b) $88,000 if CMR-Meridian achieves $435,000 of earnings before interest and taxes for the twelve month period ending December 31, 2014.  If during these two periods the earnings before interest and taxes is lower than $435,000 the payment in each year will be reduced proportionately.

In addition to the above payments, CMR-Meridian may be required to pay CMR an Incentive Consulting Fee provided CMR-Meridian meets the following financial criteria.   Should CMR-Meridian's earnings before interest and taxes exceed $435,000 in each of the following twelve month periods ending December 31, CMR-Meridian will pay to CMR:

· For 2013, the payment will be 50% of the excess earnings up to a maximum of $304,000,

· For 2014,– the payment will be 25% of the excess earnings up to a maximum of $176,000, and

· For 2015, the payment will be 10% of the excess earnings up to a maximum of $84,000.

At the end of the first three full years of operations, an additional bonus of $108,000 will be paid by CMR-Meridian to CMR if the combined cumulative earnings before interest and taxes exceed $1.3 million provided that in each year, a minimum $435,000 in earnings is achieved.  Based on current projections, the Company does not believe at this time that CMR-Meridian will meet the criteria to earn the Incentive Consulting Fee, therefore no contingent liability has been recorded as of December 31, 2012.  However, the Company will continue to evaluate the potential for the Incentive Consulting Fee through 2013.

The following is a pro forma calculation of the amounts of CMR's revenue and earnings that would have been included in the Company's consolidated income statement for the years ended December 31, 2012 and 2011, and the revenue and net income for the combined entity, had the acquisition date for CMR been January 1, 2011, instead of as of October 1, 2012 (in thousands):

	Revenue		Net Income
Actual from October 1 to December 31, 2012	$	2,364	$	36
2012 Supplemental pro forma from January 1 to December 31, 2012	$	113,067	$	2,963
2011 Supplemental pro forma from January 1 to December 31, 2011	$	87,326	$	2,574

Aggregate Effects of Purchases of Subsidiary Interests

The aggregate effects of the above described purchases of subsidiary interests and related transactions on the net income attributed to the Company and transfers from the non-controlling interest are as follows (in thousands):

	Year Ended		Year Ended
	December 31, 2012		December 31, 2011
Net income attributed to SPAR Group, Inc.	$	2,930	$	2,214
Increase/(Decrease) in SPAR Group, Inc. paid in capital for sale/purchase of  subsidiaries common stock		164		(159	)
Change from net income attributed to SPAR Group, Inc. and transfer from/to non-controlling interest	$	3,094	$	2,055

The purpose of the above schedule is to disclose the effects of changes in the Company's ownership interest in its subsidiaries on the Company's equity.

For each of the above, see generally Item 1 - The Company's Domestic and International Geographic Divisions and Acquisition Strategies and Strategic Acquisitions, above, Item 1A - Risks Associated with International andDomestic Joint Venture Subsidiaries, Risks of Having Material Local Investors in International and Domestic Joint Venture Subsidiaries, above.