Credit Facilities and Other Debt

PNC

Credit Facility:

January 16, 2018,

the Company repaid and replaced its credit facility with a new secured revolving credit facility in the United States and Canada (as amended the "PNC Credit Facility") with PNC Bank, National Association ("PNC").

In order to obtain, document and govern the new PNC Credit Facility: SGRP and certain of its direct and indirect subsidiaries in the United States and Canada, namely SPAR Marketing Force ("SMF"), Inc., SPAR Assembly & Installation, Inc., and SPAR Canada Company (each, a "PNC Borrower" and collectively, the "PNC Borrowers"), and SPAR Canada, Inc., SPAR Acquisition, Inc., SPAR Group International, Inc., and SPAR Trademarks, Inc. (together with SGRP, each a "PNC Guarantor" and collectively, the "PNC Guarantors), entered into a Loan Agreement with PNC dated as of

January 16, 2018 (

the "PNC Loan Agreement"); the PNC Borrowers issued their

million Committed Line Of Credit Note to PNC dated

January 16, 2018 (

the "Original PNC Note"), which evidences the PNC Borrowers' loans and other obligations to PNC; the PNC Guarantors entered into a Guaranty and Suretyship Agreement with PNC dated as of

January 16, 2018 (

the "PNC Guaranty"), which guaranties the PNC Borrowers' loans and other obligations to PNC; and the PNC Borrowers and PNC Guarantors (each, a "PNC Loan Party" and collectively, the "PNC Loan Parties") entered into a Security Agreement with PNC dated as of

January 16, 2018 (

the "PNC Security Agreement"), which secures the obligations of the PNC Loan Parties to PNC with pledges of substantially all of the assets of the PNC Loan Parties (other than SGRP's foreign subsidiaries, certain designated domestic subsidiaries, and their respective equity and assets).

January 16, 2018,

the Company drew down an initial advance under the PNC Credit Facility of approximately

$7.6

million, which was used to repay the existing credit facility.

An amendment to the PNC Credit Facility dated as of

July 3, 2018,

among other things, increased the maximum principal amount of the Revolving Loans to

$9.5

million.

The PNC Note currently requires the PNC Borrowers to pay interest on the loans thereunder equal to (A) the Daily LIBOR Rate (as defined therein) per annum, plus (B)

two hundred fifty

basis points (

2.50%

). On

September 30, 2018,

the aggregate interest rate under that formula was

4.756%

per annum, and the outstanding loan balance was

$8.2

million.

Revolving loans of up to

$9.5

million are available to the Company under the PNC Credit Facility based upon the borrowing base formula defined in the PNC Loan Agreement (principally

85%

of "eligible" accounts receivable less certain reserves) rendering a maximum borrowing amount of

$9.1

million as of

September 30, 2018.

The PNC Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the PNC Loan Parties, including, maintaining a minimum Tangible Net Worth of

$13.4

million and limits on capital expenditures and other investments.

September 30, 2018,

the PNC Loan Parties were

not

in compliance with the minimum Tangible Net Worth covenant, however PNC Bank issued a waiver for the reporting period. However, there can be

assurances that the Company will

not

be in violation of certain covenants in the future and should the Company be in violation; there can be

assurances that PNC will issue waivers for any future violations.

Subsequent to

September 30, 2018,

the Company is currently experiencing an unusually tight cash flow position and PNC has expressed a concern that even though the Company’s current discounted collateral value is in excess of

$11.3

million they are

not

willing to extend the maximum borrowing capacity above the current

$9.5

million limit. PNC has agreed to evaluate on a case by case basis funding its field specialist payments and Company payroll and related taxes until these short-term concerns are resolved by year end. In the meantime, the Company will be looking to secure a more traditional Asset Based Lending facility to take advantage of its excess collateral and thereby providing support for future growth expectations. Based on these current conditions the Company has reclassified its PNC credit facility as short-term debt for the period ended

September 30, 2018.

The Company believes it has adequate working capital and the ability to obtain alternate financing in order to work through these short term concerns.

Fifth Third Credit

Facility:

January 9, 2018,

the Company completed its acquisition of a

51%

interest in its new subsidiaries, Resource Plus, Inc., and related companies (collectively, "Resource Plus").

See Note

to the Company's Condensed Consolidated Financial Statements

–

Purchase of Interests in Subsidiaries

–

Resource Plus Acquisition

, below.

When acquired, Resource Plus was a party to a revolving line of credit facility it secured on

May 23, 2016, (

the "Fifth Third Credit Facility") from Fifth Third Bank for

$3.5

million, which was scheduled to expire on

May 23, 2018.

Effective

April 11, 2018,

the term of the Fifth Third Credit Facility was extended and is currently scheduled to become due on

April 23, 2020.

As there are

provisions (other than defaults) requiring the paydown of the loan until

April 23, 2020,

the amounts are classified as long-term debt.

Revolving loans of up to

$3.5

million are available to Resource Plus under the Fifth Third Credit Facility based upon the borrowing base formula defined in the agreement (principally

80%

of "eligible" accounts receivable less certain reserves). As of

September 30, 2018,

the outstanding balance was

$682,000.

The Fifth Third Credit Facility

is secured by substantially all assets of Resource Plus.

The Fifth Third Credit Facility

currently requires Resource Plus to pay interest on the loans thereunder equal to (A) the Daily LIBOR Rate (as defined in the agreement) per annum, plus (B)

two hundred fifty

basis points (

2.50%

). On

September 30, 2018,

the aggregate interest rate under that formula was

4.725%

per annum.

Other Debt

Effective with the closing of the Resource Plus acquisition, the Company entered into promissory notes with the sellers totaling

$2.7

million. The notes are payable in annual installments at various amounts due on

December 31

of each year starting with

December 31, 2018

and continuing through

December 31, 2023.

As such these notes are classified as both short term and long term for the appropriate amounts.

International Credit Facilities:

SPARFACTS Australia Pty. Ltd. has a secured line of credit facility with National Australia Bank, effective

October 31, 2017,

for

$800,000

(Australian) or approximately

$578,000

USD (based upon the exchange rate at

September 30, 2018).

The facility provides for borrowing based upon a formula, as defined in the agreement (principally

80%

of eligible accounts receivable less certain deductions). The outstanding balance with National Australia Bank as of

September 30, 2018

was

$554,000

(Australian) or

$400,000

USD and is due on demand.

SPAR Todopromo has obtained a temporary, interest bearing working capital loan from a shareholder for a maximum amount of

4.5

million Mexican Pesos or approximately

$241,000

USD (based upon the exchange rate at

September 30, 2018)

effective

September 14, 2018.

The effective annual interest rate is

7.75%.

The outstanding balance at

September 30, 2018

was

3.0

million Mexican Pesos or approximately

$161,000

USD. The loan was paid in full on

October 2, 2018

after receiving payment for services rendered in the ordinary course of business.

SPAR Todopromo has secured a line of credit facility with BBVA Bancomer Bank for

5.0

million Mexican Pesos or approximately

$267,000

USD (based upon the exchange rate at

September 30, 2018).

The revolving line of credit was secured on

March 15, 2016,

and originally expired

March 2018.

The facility has been amended to extend the terms to

March 2020.

The variable interest rate is TIIE (Interbank Interest Rate) +

4%,

which resulted in an annual interest rate of

12.11%

as of

September 30, 2018.

The outstanding balance at

September 30, 2018

was

3.2

million Mexican Pesos or approximately

$171,000

USD.

November 29, 2016,

SPAR Brazil established a line of credit facility with Itau Bank for

4.0

million Brazilian Real or approximately

$987,000

USD (based upon the exchange rate at

September 30, 2018).

The facility provides for borrowing with

formal guarantees. The agreement is from month to month at the Company's request. As of

September 30, 2018,

there was

outstanding balance.

December 26, 2016,

SPAR Brazil secured a line of credit facility with Daycoval Bank for

5.0

million Brazilian Real or approximately

$1.2

million USD (based upon the exchange rate at

September 30, 2018).

The facility provides for borrowing based upon a formula, as defined in the agreement (principally

80%

of eligible accounts receivable less certain deductions). The agreement is from month to month at the Company's request. As of

September 30, 2018,

2.0

million Brazilian Real or

$483,000

USD was outstanding.

May 29, 2018,

SPAR Brazil established a line of credit facility with Banco Bradesco for

1.2

million Brazilian Real or approximately

$296,000

USD (based upon the exchange rate at

September 30, 2018).

The facility provides for borrowing with

formal guarantees. The agreement expires on

November 29, 2019.

The outstanding balance at

September 30, 2018,

was approximately

168,000

Brazilian Real or approximately

$41,000

USD.

May 25, 2018,

SPAR Brazil established a temporary line of credit facility with Banco Safra for

3.0

million Brazilian Real or approximately

$741,000

USD (based upon the exchange rate at

September 30, 2018).

The agreement was from month to month at the Company’s request. As of

September 30, 2018,

there was

outstanding balance and the loan was closed.

The Company had scheduled future maturities of loans as of

September 30, 2018,

approximately as follows (dollars in thousands):

	Interest Rate as of September 30 , 2018				2018		2019		2020		2021		2022		2023
USA - PNC Bank			4.756%		$	8,217	$	–	$	–	$	–	$	–	$	–
USA – Fifth Third Bank			4.725%			–		–		682		–		–		–
USA – Resource Plus Seller Notes			1.85%			333		333		334		300		300		1,100
Australia - National Australia Bank			6.6%			400		–		–		–		–		–
Mexico – Bancomer and shareholder		7.75	–	12.11%		161		–		171		–		–		–
Brazil – Various Banks		11.04	–	14.28%		524		–		–		–		–		–
Total					$	9,635	$	333	$	1,187	$	300	$	300	$	1,100

Summary of Unused Company Credit and Other Debt Facilities (in thousands):

	September 30, 2018		December 31, 2017
Unused Availability:
United States	$	3,694	$	3,530
Australia		178		731
Mexico		177		254
Brazil		1,994		1,554
Total Unused Availability	$	6,043	$	6,069

Management believes that based upon the continuation of the Company's existing credit facilities, projected results of operations, vendor payment requirements and other financing available to the Company (including amounts due to affiliates), sources of cash availability while extremely tight through the balance of the year, should be manageable and sufficient to support ongoing operations into next year as the Company pursues a more traditional Asset Based Lending facility. However, delays in collection of receivables due from any of the Company's major clients, or a significant reduction in business from such clients, and possible litigation expenses could have a material adverse effect on the Company's cash resources and its ongoing ability to fund operations. See Note

to the Company's Condensed Consolidated Financial Statements –

Commitments and Contingencies

–

Legal Matters

below