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Note 4 - Credit Facilities and Other Debt | 3 Months Ended
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Mar. 31, 2019
Notes to Financial Statements |
Debt Disclosure [Text Block] |
4. | Credit Facilities and Other Debt
Domestic Credit Facilities North Mill Capital Credit Facility On April 10, 2019, the Company repaid and replaced its 2018 credit facility with PNC Bank, National Association ("PNC"), with a new secured revolving credit facility in the United States and Canada (the "NM Credit Facility") with North Mill Capital, LLC ("NM"). In order to obtain, document and govern the new NM Credit Facility: SGRP and certain of its direct and indirect subsidiaries in the United States and Canada, namely SPAR Marketing Force ("SMF"), Inc., and SPAR Canada Company ("SCC") (each, a "NM Borrower" and collectively, the "NM Borrowers"), and SPAR Canada, Inc., SPAR Acquisition, Inc., SPAR Assembly and Installation, Inc., and SPAR Trademarks, Inc. (together with SGRP, each a "NM Guarantor" and collectively, the "NM Guarantors), entered into eighteen ( 18 ) month individual Loan and Security Agreements with NM dated as of April 10, 2019 ( the "NM Loan Agreements"), which governs the obligations of the NM Loan Parties to NM and secures them with pledges of substantially all of the assets of the NM Loan Parties (other than SGRP's foreign subsidiaries, certain designated domestic subsidiaries, and their respective equity and assets); the SMF Borrower issued its $10.5 million Revolving Credit Master Promissory Note to NM dated April 10, 2019, and the SCC Borrower issued its $1.5 million Revolving Credit Master Promissory Note to NM dated April 10, 2019 ( the "NM Notes"), which evidences the NM Borrowers' loans and other obligations to NM; the NM Guarantors entered into a Guaranty Agreement with NM dated as of April 10, 2019 ( the "NM Guaranty"), which guaranties the NM Borrowers' loans and other obligations to NM. The NM Loan Agreements have an approved maximum borrowing capacity of $12.5 million for the SMF Borrower and $2.5 million for the SCC Borrower. On April 10, 2019, the Company drew down an initial advance under the NM Credit Facility of approximately $9.8 million, which was used to repay the Company's existing credit facility with PNC. The NM Note currently requires the NM Borrowers to pay interest on the loans thereunder equal to (A) Prime Rate designated by Wells Fargo Bank, plus (B) one hundred twenty five basis points ( 1.25% ). In addition, the Company is paying a fee to NM in the amount of 1.5% of the Promissory Notes or $180,000 payable at $10,000 per month over the term of the agreement. The Company utilized a broker to assist in this financing and has paid a fee of $120,000 for their services. Revolving loans are available to the Borrowers under the NM Credit Facility based upon the borrowing base formula defined in the NM Loan Agreement (principally 85% of "eligible" accounts receivable less certain reserves and 60% of eligible unbilled accounts receivable at a maximum limit of $4.5 million). The NM Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the NM Loan Parties, including, maintaining a positive trailing EBITDA for each Borrower and limits on capital expenditures and other investments. In January 2018, the Company repaid and replaced its credit facility with Sterling Bank with a secured revolving credit facility in the United States and Canada (as amended the "PNC Credit Facility") with PNC Bank, National Association. PNC Credit Facility In order to obtain, document and govern the 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 $9 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). 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 required 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 March 31, 2019, the aggregate interest rate under that formula was 4.99% per annum, and the outstanding loan balance was $8.4 million. Revolving loans of up to $9.5 million were 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 $9.5 million as of March 31, 2019. The PNC Credit Facility contained certain financial and other restrictive covenants and also limited 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. On March 31, 2019, the PNC Loan Parties were not in compliance with the minimum Tangible Net Worth covenant. The Company had entered into the NM Credit Facility effective April 2019 and did not pursue a waiver. Fifth Third Credit Facility On January 9, 2018, the Company completed its acquisition of a 51% interest in its new subsidiaries, Resource Plus of North Florida, Inc., and related companies (collectively, "Resource Plus"). 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 no provisions (other than defaults) requiring the pay down of the loan until April 23, 2020, any amounts outstanding 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 March 31, 2019, there was no outstanding balance. 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 March 31, 2019, the aggregate interest rate under that formula was 5.23% per annum. Other Debt Effective with the closing of the Resource Plus acquisition, the Company entered into promissory notes with the sellers totaling $2.3 million. The notes are payable in annual installments at various amounts due on December 31st 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. The total balance owed at March 31, 2019 was approximately $2.0 million. 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 $568,000 USD (based upon the exchange rate at March 31, 2019). 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 March 31, 2019 was $608,000 (Australian) or $431,000 USD and is due on demand. SPAR Todopromo has secured a line of credit facility with BBVA Bancomer Bank for 5.0 million Mexican Pesos or approximately $258,000 USD (based upon the exchange rate at March 31, 2019). 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 April 2020. The variable interest rate is TIIE (Interbank Interest Rate) + 4%, which resulted in an annual interest rate of 12.5% as of March 31, 2019. The outstanding balance at March 31, 2019 was 5 million Mexican Pesos or approximately $258,000 USD. On May 29, 2018, SPAR Brazil established a line of credit facility with Banco Bradesco for 1.2 million Brazilian Real or approximately $306,000 USD (based upon the exchange rate at March 31, 2019). The facility provides for borrowing with no formal guarantees. The agreement expires on November 29, 2019. The outstanding balance at March 31, 2019, was approximately 100,000 Brazilian Real or approximately $26,000 USD. On October 5, 2018 SPAR Brazil secured a line of credit facility with Branco Bradesco for approximately 3.5 million Brazilian Real or approximately $900,000 USD (based upon the exchange rate at March 31, 2019). The outstanding balance as of March 31, 2019 was approximately 2.9 million Brazilian Real or approximately $727,000 USD. The note is due December 19, 2019, with varying monthly payments. On October 5, 2018 SPAR Brazil secured a line of credit facility with Branco Santander for approximately 381,000 Brazilian Real or approximately $97,000 USD (based upon the exchange rate at March 31, 2019). The outstanding balance as of March 31, 2019 was approximately 321,000 Brazilian Real or approximately $82,000 USD.
|  | Interest Rate as of March 31, 2019 |  |  | 2019 |  |  | 2020 |  |  | 202 1 |  |  | 2022 |  |  | 2023 |  |  | 2024 |
Brazil - Bradesco |  |  | 0.37 | - | 0.92% |  |  | $ | 753 |  |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | – |
Brazil – Santander |  |  |  | 1.38% |  |  |  |  | 82 |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
USA - PNC Bank |  |  |  | 5.02% |  |  |  |  | 8,450 |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
USA – Fifth Third Bank |  |  |  | 5.23% |  |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
USA – Resource Plus Seller Notes |  |  |  | 1.85% |  |  |  |  | 333 |  |  |  | 334 |  |  |  | 300 |  |  |  | 300 |  |  |  | 700 |  |  |  | – |
Australia - National Australia Bank |  |  |  | 6.56% |  |  |  |  | 431 |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Mexico – BBVA Shareholder |  |  |  | 12.5% |  |  |  |  | – |  |  |  | 258 |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |
Total |  |  |  |  |  |  |  | $ | 10,049 |  |  | $ | 592 |  |  | $ | 300 |  |  | $ | 300 |  |  | $ | 700 |  |  | $ | – |
Summary of Unused Company Credit and Other Debt Facilities (in thousands):
|  | March 31, 2019 |  |  | December 31, 2018 |
Unused Availability: |  |  |  |  |  |  |  |
United States |  | $ | 4,550 |  |  | $ | 4,253 |
Australia |  |  | 137 |  |  |  | 238 |
Brazil |  |  | 280 |  |  |  | 304 |
Mexico |  |  | – |  |  |  | 102 |
Total Unused Availability |  | $ | 4,967 |  |  | $ | 4,897 |
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 should be manageable and sufficient to support ongoing operations over the next year. However, delays in collection of receivables due from any of the Company's major clients, or a significant reduction in business from such clients could have a material adverse effect on the Company's cash resources and its ongoing ability to fund operations.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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