| The risks factors presented below are the ones that the Company currently considers material based on best estimates and includes "e forward-looking statements "e within the meaning of the Securities Laws |
| Forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the Companyapstas actual results, performance and achievements, whether expressed or implied by such forward-looking statements, to not occur or be realized or to be less than expected |
| Additional risks may be facing the Company, the industry, or the economy in general, whether domestically or internationally |
| The Company may not be aware of some risks and may currently consider other -10- risks immaterial, but any risk may develop at any time into actual events that adversely affect the Company |
| There also may be risks that a particular investor would view differently from the Company, and current analysis may be wrong |
| The Company expressly disclaims any obligation to update or revise any forward-looking statements or any of these risks in whole or in part, whether as a result of new information, future events or otherwise, except as required by law |
| You should carefully consider each of the risks described below before deciding to invest in the Companyapstas common stock |
| If any of the following risks develops into actual events, or any other risks arise and develop into actual events, the Companyapstas business, financial condition or results of operations could be negatively affected, the market price of the Companyapstas common stock could decline and you may lose all or part of your investment |
| Dependency on Largest Clients As discussed above in Clients, the Company does a significant amount of business with two clients and performs a significant amount of services in a leading mass merchandising chain and a leading electronics chain |
| The loss of these clients, the loss of the ability to provide merchandising and marketing services in those chains, or the failure to attract new large clients could significantly decrease the Companyapstas revenues and such decreased revenues could have a material adverse effect on the Companyapstas business, results of operations and financial condition |
| Dependence on Trend Toward Outsourcing The business and growth of the Company depends in large part on the continued trend toward outsourcing of merchandising and marketing services, which the Company believes has resulted from the consolidation of retailers and manufacturers, as well as the desire to seek outsourcing specialists and reduce fixed operation expenses |
| There can be no assurance that this trend in outsourcing will continue, as companies may elect to perform such services internally |
| A significant change in the direction of this trend generally, or a trend in the retail, manufacturing or business services industry not to use, or to reduce the use of, outsourced marketing services such as those provided by the Company, could significantly decrease the Companyapstas revenues and such decreased revenues could have a material adverse effect on the Companyapstas business, results of operations and financial condition or the desired increases in the Companyapstas business, revenues and profits |
| Failure to Successfully Compete The merchandising and marketing services industry is highly competitive and the Company has competitors that are larger (or part of larger holding companies) and may be better financed |
| In addition, the Company competes with: (i) a large number of relatively small enterprises with specific client, channel or geographic coverage; (ii) the internal merchandising and marketing operations of its clients and prospective clients; (iii) independent brokers; and (iv) smaller regional providers |
| Remaining competitive in the highly competitive merchandising and marketing services industry requires that the Company monitor and respond to trends in all industry sectors |
| There can be no assurance that the Company will be able to anticipate and respond successfully to such trends in a timely manner |
| If the Company is unable to successfully compete, it could have a material adverse effect on the Companyapstas business, results of operations and financial condition or the desired increases in the Companyapstas business, revenues and profits |
| If certain competitors were to combine into integrated merchandising and marketing services companies, or additional merchandising and marketing service companies were to enter into this market, or existing participants in this industry were to become more competitive, it could have a material adverse effect on the Companyapstas business, results of operations and financial condition or the desired increases in the Companyapstas business, revenues and profits |
| Variability of Operating Results and Uncertainty in Client Revenue The Company has experienced and, in the future, may experience fluctuations in quarterly operating results |
| Factors that may cause the Companyapstas quarterly operating results to vary and from time to time and may result in reduced revenue include: (i) the number of active client projects; (ii) seasonality of client products; (iii) client delays, changes and cancellations in projects; (iv) the timing requirements of client projects; (v) the completion of major client projects; (vi) the timing of new engagements; (vii) the timing of personnel cost increases; and (viii) the loss of major clients |
| In particular, the timing of revenues is difficult to forecast for the home entertainment industry because timing is dependent on the commercial success of particular product releases |
| In the event that a particular -11- release is not widely accepted by the public, the Companyapstas revenue could be significantly reduced |
| In addition, the Company is subject to revenue uncertainties resulting from factors such as unprofitable client work and the failure of clients to pay |
| The Company attempts to mitigate these risks by dealing primarily with large credit-worthy clients, by entering into written or oral agreements with its clients and by using project budgeting systems |
| These revenue fluctuations could materially and adversely affect the Companyapstas business, results of operations and financial condition or the desired increases in the Companyapstas business, revenues and profits |
| Failure to Develop New Products A key element of the Companyapstas growth strategy is the development and sale of new products |
| While several new products are under current development, there can be no assurance that the Company will be able to successfully develop and market new products |
| The Companyapstas inability or failure to devise useful merchandising or marketing products or to complete the development or implementation of a particular product for use on a large scale, or the failure of such products to achieve market acceptance, could adversely affect the Companyapstas ability to achieve a significant part of its growth strategy and the absence of such growth could have a material adverse effect on the Companyapstas business, results of operations and financial condition or the desired increases in the Companyapstas business, revenues and profits |
| Inability to Identify, Acquire and Successfully Integrate Acquisitions Another key component of the Companyapstas growth strategy is the acquisition of businesses across the United States and worldwide that offer similar merchandising or marketing services |
| The successful implementation of this strategy depends upon the Companyapstas ability to identify suitable acquisition candidates, acquire such businesses on acceptable terms, finance the acquisition and integrate their operations successfully with those of the Company |
| There can be no assurance that such candidates will be available or, if such candidates are available, that the price will be attractive or that the Company will be able to identify, acquire, finance or integrate such businesses successfully |
| In addition, in pursuing such acquisition opportunities, the Company may compete with other entities with similar growth strategies, these competitors may be larger and have greater financial and other resources than the Company |
| Competition for these acquisition targets could also result in increased prices of acquisition targets and/or a diminished pool of companies available for acquisition |
| The successful integration of these acquisitions also may involve a number of additional risks, including: (i) the inability to retain the clients of the acquired business; (ii) the lingering effects of poor client relations or service performance by the acquired business, which also may taint the Companyapstas existing businesses; (iii) the inability to retain the desirable management, key personnel and other employees of the acquired business; (iv) the inability to fully realize the desired efficiencies and economies of scale: (v) the inability to establish, implement or police the Companyapstas existing standards, controls, procedures and policies on the acquired business; (vi) diversion of management attention; and (vii) exposure to client, employee and other legal claims for activities of the acquired business prior to acquisition |
| In addition, any acquired business could perform significantly worse than expected |
| The inability to identify, acquire, finance and successfully integrate such merchandising or marketing services business could have a material adverse effect on the Companyapstas growth strategy and could limit the Companyapstas ability to significantly increase its revenues and profits |
| Uncertainty of Financing for, and Dilution Resulting from, Future Acquisitions The timing, size and success of acquisition efforts and any associated capital commitments cannot be readily predicted |
| Future acquisitions may be financed by issuing shares of the Companyapstas Common Stock, cash, or a combination of Common Stock and cash |
| If the Companyapstas Common Stock does not maintain a sufficient market value, or if potential acquisition candidates are otherwise unwilling to accept the Companyapstas Common Stock as part of the consideration for the sale of their businesses, the Company may be required to obtain additional capital through debt or equity financings |
| To the extent the Companyapstas Common Stock is used for all or a portion of the consideration to be paid for future acquisitions, dilution may be experienced by existing stockholders |
| In addition, there can be no assurance that the Company will be able to obtain the additional financing it may need for its acquisitions on terms that the Company deems acceptable |
| Failure to obtain such capital would materially adversely affect the Companyapstas ability to execute its growth strategy |
| -12- Reliance on the Internet and Third Party Vendors The Company relies on the Internet for the scheduling, coordination and reporting of its merchandising and marketing services |
| The Internet has experienced, and is expected to continue to experience, significant growth in the numbers of users and amount of traffic as well as increased attacks by hackers and other saboteurs |
| To the extent that the Internet continues to experience increased numbers of users, frequency of use or increased bandwidth requirements of users, there can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on the Internet by this continued growth or that the performance or reliability of the Internet will not be adversely affected |
| Furthermore, the Internet has experienced a variety of outages and other delays as a result of accidental and intentional damage to portions of its infrastructure, and could face such outages and delays in the future of similar or greater effect |
| The Company relies on third-party vendors to provide its Internet access and other services used in its business, and the Company has no control over such third-party providers |
| Any protracted disruption or material slowdown in Internet or other services could increase the Companyapstas costs of operation and reduce efficiency and performance, which could have a material adverse effect on the Companyapstas business, results of operations and financial condition or the desired increases in the Companyapstas business, revenues and profits |
| Economic and Retail Uncertainty The markets in which the Company operates are cyclical and subject to the effects of economic downturns |
| The current political, social and economic conditions, including the impact of terrorism on consumer and business behavior, make it difficult for the Company, its vendors and its clients to accurately forecast and plan future business activities |
| Substantially all of the Companyapstas key clients are either retailers or those seeking to do product merchandising at retailers |
| If the retail industry experiences a significant economic downturn, a reduction in product sales could significantly decrease the Companyapstas revenues |
| The Company also has risks associated with its clients changing their business plans and/or reducing their marketing budgets in response to economic conditions, which could also significantly decrease the Companyapstas revenues |
| Such revenue decreases could have a material adverse effect on the Companyapstas business, results of operations and financial condition or the desired increases in the Companyapstas business, revenues and profits |
| Robert G Brown, founder, director, Chairman, President and Chief Executive Officer of the Company, beneficially owns approximately 46prca of the Companyapstas outstanding Common Stock, and Mr |
| William H Bartels, founder, director, and Vice Chairman of the Company beneficially owns approximately 29prca of the Companyapstas outstanding Common Stock |
| These stockholders have, should they choose to act together, and under certain circumstances Mr |
| Brown acting alone has, the ability to control all matters requiring stockholder approval, including the election of directors and the approval of mergers and other business combination transactions |
| In addition, although the Company Common Stock is quoted on the Nasdaq Capital Market, the trading volume in such stock may be limited and an investment in the Companyapstas securities may be illiquid because the founders own a significant amount of the Companyapstas stock |
| Dependence Upon and Potential Conflicts in Services Provided by Affiliates The success of the Companyapstas domestic business is dependent upon the successful execution of its field services by SPAR Marketing Services, Inc |
| ( "e SMS "e ), and SPAR Management Services, Inc |
| ( "e SMSI "e ), as well as the programming services provided by SPAR Infotech, Inc |
| ( "e SIT "e ), each of which is an affiliate, but not a subsidiary, of the Company, and none of which is consolidated in the Companyapstas financial statements |
| SMS provides substantially all of the merchandising specialists used by the Company in conducting its domestic business (86prca of field expense in 2005), and SMSI provides substantially all of the field management services (91prca in 2005) used by the Company in conducting its business |
| These services provided to the Company by SMS and SMSI are on a cost-plus basis pursuant to contracts that are cancelable on 60 days notice prior to December 31 of each year, commencing in 1997, or with 180 days notice at any other time |
| SIT provides substantially all of the Internet programming services and other computer programming needs used by the Company in conducting its business (see Item 13 - Certain Relationships and Related Transactions, below), which are provided to the Company by SIT on an hourly charge basis pursuant to a contract that is cancelable on 30 days notice |
| The Company has determined that the services provided by SMS, SMSI and SIT are at rates favorable to the Company |
| -13- SMS, SMSI and SIT (collectively, the "e SPAR Affiliates "e ) are owned solely by Mr |
| William H Bartels, founder, director, and Vice Chairman of the Company, each of whom are also directors and executive officers of each of the SPAR Affiliates (see Item 13 - Certain Relationships and Related Transactions, below) |
| In the event of any dispute in the business relationships between the Company and one or more of the SPAR Affiliates, it is possible that Messrs |
| Brown and Bartels may have one or more conflicts of interest with respect to those relationships and could cause one or more of the SPAR Affiliates to renegotiate or cancel their contracts with the Company or otherwise act in a way that is not in the Companyapstas best interests |
| While the Companyapstas relationships with SMS, SMSI and SIT are excellent, there can be no assurance that the Company could (if necessary under the circumstances) replace the field merchandising specialists and management currently provided by SMS and SMSI, respectively, or replace the Internet and other computer programming services provided by SIT, in sufficient time to perform its client obligations or at such favorable rates in the event the SPAR Affiliates no longer performed those services |
| Any cancellation, other nonperformance or material pricing increase under those affiliate contracts could have a material adverse effect on the Companyapstas business, results of operations and financial condition or the desired increases in the Companyapstas business, revenues and profits |
| The Company has not paid and does not intend to pay cash Dividends The Company has not paid dividends in the past, intends to retain any earnings or other cash resources to finance the expansion of its business and for general corporate purposes, and does not intend to pay dividends in the future |
| In addition, the Companyapstas Credit Facility with Webster Business Credit Corporation ( "e Webster "e ) (see Note 5 to the Consolidated Financial Statements - Lines of Credit and Subsequent Events) restricts the payment of dividends without Websterapstas prior consent |
| Risks Associated with International Joint Ventures While the Company endeavors to limit its exposure for claims and losses in any international joint ventures through contractual provisions, insurance and use of single purpose entities for such ventures, there can be no assurance that the Company will not be held liable for the claims against and losses of a particular international joint venture under applicable local law or local interpretation of any joint venture or insurance provisions |
| If any such claims and losses should occur, be material in amount and be successfully asserted against the Company, such claims and losses could have a material adverse effect on the Companyapstas business, results of operations and financial condition or the desired increases in the Companyapstas business, revenues and profits |
| Risks Associated with Foreign Currency The Company also has foreign currency exposure associated with its international joint venture subsidiaries and joint ventures |
| In 2005, these exposures are primarily concentrated in the Canadian dollar, Japanese yen and South African rand |
| Risks Associated with International Business The Companyapstas expansion strategy includes expansion into various countries around the world |
| While the Company endeavors to limit its exposure by entering only countries where the political, social and economic environments are conducive to doing business in that country there can be no assurances that the respective business environments will remain favorable |
| In the future, the Companyapstas international operations and sales may be affected by the following risks, which may adversely affect United States companies doing business internationally: o Political and economic risks, including political instability; o Various forms of protectionist trade legislation which currently exist, or have been proposed, in some foreign countries; o Expenses associated with customizing products for foreign countries; o Laws and business practices that favor local competition; o Dependence on local vendors; o Multiple, conflicting and changing governmental laws and regulations; o Potentially adverse tax consequences; o Foreign currency exchange rate fluctuations |