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Note 5 - Credit Facilities and Other Debt
 6 Months Ended
Jun. 30, 2022
Notes to Financial Statements  
Debt Disclosure [Text Block]

5.

Credit Facilities and Other Debt

 

Domestic Credit Facilities

 

North Mill Capital Credit Facility

 

The Company, under SPAR Marketing Force (“SMF”) and SPAR Canada Company ("SCC"), has a secured revolving credit facility in the United States and Canada (the "NM Credit Facility") with North Mill Capital, LLC, d/b/a SLR Business Credit ("NM"). 

 

In order to obtain, document and govern the NM Credit Facility, SGRP and certain of its direct and indirect subsidiaries in the United States and Canada, entered into an 18-month individual Loan and Security Agreements with NM dated as of April 10, 2019. 

 

On January 5, 2021, the Company and NM entered into an agreement as of January 4, 2021, and effective as of December 31, 2020 (the "First Modification Agreement"), to extend the NM Credit Facility from October 10, 2021 to April 10, 2022, and increased the amounts of the credit facilities to $14.5 (USD) million in the United States and decreased the facility to $1.5 (CDN) million in Canada; in addition the First Modification Agreement increased SMF's borrowing base availability for unbilled receivables to up to 70% from January 1, 2021 through June 30, 2021, and increased the unbilled cap for SMF to $4.5 million (USD) from $3.9 million (USD). 

 

The NM Credit Facility, as amended by the First Modification Agreement continued to require the Company to pay interest on the loans equal to: (A) Prime Rate designated by Wells Fargo Bank; plus (B) one hundred twenty-five basis points (1.25%) or a minimum of 6.75%. In addition, the Company continues to pay a facility fee to NM of 1.5% for the first $10.5 million loan balance, or $157,500 per year over the term of the agreement, plus a $15,000 one-time fee for each incremental $1 million increase in loan balance up to $14.5 million. Additionally, for the First Modification Agreement, SPAR paid NM a fee of $7,500 and agreed to reimburse NM's legal and documentation fees.

 

On March 22, 2021, the Company and NM executed and delivered a Second Modification Agreement effective as of April 1, 2021 (the "Second Modification Agreement"), pursuant to which NM and the Company agreed to extend the NM Loan Agreements from April 10, 2022 to October 10, 2023, and increased the amounts of the credit facilities for SMF to $16.5 (USD) million in the USA while the SCC facility remained at $1.5 (CDN) million in Canada; in addition, the Second Modification Agreement increased SMF's borrowing base availability for unbilled receivables to up to 70% permanently, and increased the unbilled cap for SMF to $5.5 (USD) million from $4.5 (USD) million. The NM Loan Agreements as amended by the Second Modification Agreement will require the Company to pay interest on the loans equal to: (A) Prime Rate designated by Wells Fargo Bank; plus; (B) one hundred twenty-five basis points (1.25%) or a minimum of 5.25%. In addition, the Company continues to pay a facility fee to NM of 0.8% (decreased from 1.5%) for the first $10.5 million loan balance, or $84,000 per year, over the term of the agreement, plus a $15,000 one-time fee for each incremental $1 million increase in loan balance up to $16.5 million. Additionally, the early termination fee has decreased from 1.0% to 0.85% of the advance limit.

 

On July 1, 2022, the Company and NM executed and delivered a Fourth Modification Agreement effective as of June 30, 2022 (the "Fourth Modification Agreement"), pursuant to which NM and the Company agreed to extend the NM Loan Agreements from October 10, 2023 to October 10, 2024, and increased the amounts of the credit facilities for SMF to $17.5 (USD) million in the USA while the SCC facility remained at $1.5 (CDN) million in Canada; in addition, the Fourth Modification Agreement increased SMF's borrowing base availability for billed receivables to up to 90% from 85%, and unbilled receivables to up to 80% from 70% permanently, and increased the unbilled cap for SMF to $6.5 (USD) million from $5.5 (USD) million. The NM Loan Agreements as amended by the Fourth Modification Agreement will require the Company to establish a permanent $500,000 availability reserve against the US Advance Limit. The remaining terms and conditions remain the same as the Second Modification Agreement.

 

On June 30, 2022, the aggregate interest rate was 5.25% per annum, and the outstanding loan balance was $15.5 million. Outstanding amounts are classified as short-term debt.

 

The NM Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the Company, including maintaining a positive trailing EBITDA for each Borrower, limits on non-ordinary course payments and transactions, incurring or guarantying indebtedness, increases in executive, officer or director compensation, capital expenditures and other investments. The Company was in compliance with such covenants as of June 30, 2022.

 

Resource Plus – Seller Notes

 

Effective with the closing of the Resource Plus acquisition in January 2018, 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 annual interest rate is 1.85% and the total balance owed at June 30, 2022 was approximately $1.0 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 $551,000 USD (based upon the exchange rate at June 30, 2022). The facility provides for borrowing based upon a formula, as defined in the applicable loan agreement (principally 80% of eligible accounts receivable less certain deductions). The outstanding balance with National Australia Bank as of  June 30, 2022 was $132,000 (Australian) or $92,000 USD and is due on demand.

 

SPAR China has secured a loan with Industrial and Commercial Bank of China, effective December 21, 2021, for 2.0 million Chinese Yuan or approximately $299,000 USD (based upon the exchange rate at June 30, 2022). The loan expires on November 4, 2022. The outstanding balance with Industrial and Commercial Bank of China as of June 30, 2022 was 2.0 million Chinese Yuan or $299,000 USD and is due on demand.

 

SPAR China has secured a loan with People's Bank of China for 1.0 million Chinese Yuan or approximately $149,000 USD (based upon the exchange rate at June 30, 2022). The loan expired on June 7, 2022 and subsequently was not renewed. 

 

SPAR China has secured a loan with Industrial Bank for 3.0 million Chinese Yuan or approximately $448,000 USD (based upon the exchange rate at June 30, 2022). The loan expires on December 18, 2022. The annual interest rate was 4.0% as of June 30, 2022. The outstanding balance with Industrial Bank as of June 30, 2022 was 3.0 million Chinese Yuan or $448,000 USD and is due on demand.

 

SGRP Meridian has secured a loan with Investec Bank Ltd, for 30.0 million South African Rand or approximately $1.8 million USD (based upon the exchange rate at June 30, 2022). The loan expires on July 13, 2023. The outstanding balance with Investec Bank Ltd as of June 30, 2022 was approximately 30.0 million South African Rand or $1.8 million USD.

 

  

Interest Rate

                         
  

as of

                         
  

June 30, 2022

  

2022

  

2023

  

2024

  

2025

  

2026

  

2027

 

Australia - National Australia Bank

  8.31%  92   -   -   -   -   - 

China- Industrial and Commercial Bank

  4.15%  299   -   -   -   -   - 

China- Industrial Bank

  4.00%  448   -   -   -   -   - 
South Africa - Investec Bank Ltd.  7.75%  1,817   -   -   -   -   - 

USA - North Mill Capital

  5.25%  15,525   -   -   -   -   - 

USA - Resource Plus Seller Notes

  1.85%  300   700   -   -   -   - 

Total

     $18,481  $700  $-  $-  $-  $– 

 

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

 

  

June 30,

  

December 31,

 
  

2022

  

2021

 

Unused Availability:

        

United States / Canada

 $2,474  $5,319 

Australia

  460   455 
South Africa  26   - 

China

  -   157 

Mexico

  373   743 

Total Unused Availability

 $3,333  $6,674 

 

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.