UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
Form 10-Q
 
(Mark One)
 
x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the first quarterly period ended March 31, 2008.
OR
o       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from __________ to __________.
    
Commission file number: 0-27824	
SPAR Group, Inc.	
(Exact name of registrant as specified in its charter)	
Delaware	33-0684451	
State of Incorporation	IRS Employer Identification No.	
560 White Plains Road, Suite 210, Tarrytown, New York 10591	
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (914) 332-4100
Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   
xYes  	oNo	
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
Large Accelerated Filer o	Accelerated Filer  o	 	
Non-Accelerated Filer o	Smaller Reporting Company x	 	
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  o      NO x
 
On March 31, 2008 there were 19,129,177 shares of Common Stock outstanding.

SPAR Group, Inc.
Index
PART I:              FINANCIAL INFORMATION	 	
   	 	 	
Item 1.	Financial Statements	 	
 	 	 	
 	Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007	2

 	Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007	3	
 	 	 	
 	Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007	4	
 	 	 	
 	Notes to Consolidated Financial Statements	5	
 	 	 	
Item 2.	Management’s Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources	17	
 	 	 	
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23	
 	 	 	
Item 4.	Controls and Procedures	24	
 	 	 	
PART II:             OTHER INFORMATION	 	
 	 	 	
Item 1.
 	Legal Proceedings	25	
Item 1A.
 	Risk Factors	25	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25	
 	 	 	
Item 3.	Defaults upon Senior Securities	26	
 	 	 	
Item 4.	Submission of Matters to a Vote of Security Holders	26	
 	 	 	
Item 5.	Other Information	26	
 	 	 	
Item 6.	Exhibits	26	
 	 	 	
SIGNATURES	 	27	

1

PART I:	FINANCIAL INFORMATION	
Item 1. Financial Statements
SPAR Group, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)

 	 	March 31,
2008	 	December 31,
2007	 	
 	 	(Unaudited)	 	(Note)	 	
Assets    	 	 	 	 	 	 	 	
Current assets:    	 	 	 	 	 	 	 	
Cash and cash equivalents    	 	$	2,409	 	$	1,246	 	
Accounts receivable, net    	 	 	12,991	 	 	13,748	 	
Prepaid expenses and other current assets    	 	 	1,177	 	 	975	 	
Total current assets    	 	 	16,577	 	 	15,969	 	
     	 	 	 	 	 	 	 	
Property and equipment, net    	 	 	1,466	 	 	1,528	 	
Goodwill    	 	 	798	 	 	798	 	
Other assets    	 	 	1,679	 	 	1,648	 	
Total assets    	 	$	20,520	 	$	19,943	 	
     	 	 	 	 	 	 	 	
Liabilities and stockholders’ equity    	 	 	 	 	 	 	 	
Current liabilities:    	 	 	 	 	 	 	 	
Accounts payable    	 	$	4,654	 	$	3,631	 	
Accrued expenses and other current liabilities    	 	 	4,735	 	 	3,981	 	
Accrued expenses due to affiliates    	 	 	1,808	 	 	2,107	 	
Customer deposits    	 	 	747	 	 	580	 	
Lines of credit    	 	 	5,055	 	 	6,119	 	
Total current liabilities    	 	 	16,999	 	 	16,418	 	
     	 	 	 	 	 	 	 	
Other long-term liabilities    	 	 	266	 	 	299	 	
Minority interest    	 	 	741	 	 	676	 	
Total liabilities    	 	 	18,006	 	 	17,393	 	
     	 	 	 	 	 	 	 	
Commitments and contingencies (Note - 9)    	 	 	 	 	 	 	 	
     	 	 	 	 	 	 	 	
Stockholders’ equity:    	 	 	 	 	 	 	 	
Preferred stock, $.01 par value:	 	 	 	 	 	 	 	
Authorized shares - 3,000,000
Issued and outstanding shares -
89,286 - March 31, 2008    	 	 	1	 	 	-	 	
Common stock, $.01 par value:	 	 	 	 	 	 	 	
Authorized shares - 47,000,000    	 	 	 	 	 	 	 	
Issued and outstanding shares -
19,129,177 - March 31, 2008
19,089,177 - December 31, 2007    	 	 	191	 	 	191	 	
Treasury stock    	 	 	(1	)	 	(1	)	
Accumulated other comprehensive loss    	 	 	(46	)	 	(43	)	
Additional paid-in capital    	 	 	12,198	 	 	11,982	 	
Accumulated deficit    	 	 	(9,829	)	 	(9,579	)	
Total stockholders’ equity    	 	 	2,514	 	 	2,550	 	
Total liabilities and stockholders’ equity    	 	$	20,520	 	$	19,943	 	

Note:	The Balance Sheet at December 31, 2007, is an excerpt from the audited financial statements at that date but does not include certain information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.	
See accompanying notes.
 
2

SPAR Group, Inc.
Consolidated Statements of Operations
(unaudited)
(In thousands, except per share data)
 
 	 	Three Months Ended March 31,	 	
 	 	2008	 	2007	 	
Net revenues	 	$	17,454	 	$	15,413	 	
Cost of revenues	 	 	12,484	 	 	10,498	 	
Gross profit	 	 	4,970	 	 	4,915	 	
 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	4,658	 	 	5,005	 	
Depreciation and amortization	 	 	208	 	 	197	 	
Operating income (loss)	 	 	104	 	 	(287	)	
 	 	 	 	 	 	 	 	
Interest expense	 	 	81	 	 	89	 	
Other expense	 	 	43	 	 	21	 	
Loss before provision for income taxes and minority interest	 	 	(20	)	 	(397	)	
 	 	 	 	 	 	 	 	
Provision for income taxes	 	 	164	 	 	67	 	
Loss before minority interest	 	 	(184	)	 	(464	)	
 	 	 	 	 	 	 	 	
Minority interest	 	 	66	 	 	45	 	
Net loss	 	$	(250	)	$	(509	)	
 	 	 	 	 	 	 	 	
Basic/diluted net loss per common share:	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	
Net loss - basic/diluted	 	$	(0.01	)	$	(0.03	)	
 	 	 	 	 	 	 	 	
Weighted average common shares	 	 	 	 	 	 	 	
- basic/diluted	 	 	19,129	 	 	18,934	 	
 
See accompanying notes
 
3

SPAR Group, Inc.
Consolidated Statements of Cash Flows
(unaudited)(In thousands)
 
 	 	Three Months Ended March 31,	 	
 	 	2008	 	2007	 	
Operating activities	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	$	2,375	 	$	3,044	 	
 	 	 	 	 	 	 	 	
Investing activities	 	 	 	 	 	 	 	
Purchases of property and equipment	 	 	(146	)	 	(346	)	
 	 	 	 	 	 	 	 	
Financing activities	 	 	 	 	 	 	 	
Net payments on lines of credit	 	 	(1,064	)	 	(1,709	)	
Other long-term liabilities	 	 	(33	)	 	-	 	
Proceeds from employee stock purchase plan and options exercised	 	 	34	 	 	-	 	
Net cash used in financing activities	 	 	(1,063	)	 	(1,709	)	
 	 	 	 	 	 	 	 	
Translation loss	 	 	(3	)	 	(5	)	
 	 	 	 	 	 	 	 	
Net change in cash and cash equivalents	 	 	1,163	 	 	984	 	
Cash and cash equivalents at beginning of period	 	 	1,246	 	 	1,148	 	
Cash and cash equivalents at end of period	 	$	2,409	 	$	2,132	 	
 	 	 	 	 	 	 	 	
Supplemental disclosure of cash flows information	 	 	 	 	 	 	 	
Interest paid	 	$	96	 	$	64	 	
Taxes paid	 	$	4	 	$	5	 	
 
The Company acquired equipment by entering into capital leases in the amount of $358,000 in the first quarter of 2007.
The Company issued preferred stock in the first quarter of 2008. Upon issuance of the preferred shares the accrued expenses due to affiliates was reduced by $100,000.
See accompanying notes.
 
4

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
1.	Basis of Presentation	
The accompanying unaudited, consolidated financial statements of SPAR Group, Inc., a Delaware corporation (“SGRP”), and its subsidiaries (together with SGRP, collectively, the “Company” or the “SPAR Group”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in these interim financial statements. However, these interim financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the Company as contained in the Company’s Annual Report for 2007 on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2008, (the “Company’s Annual Report for 2007 on Form 10-K”). The Company’s results of operations for the interim periods are not necessarily indicative of its operating results for the entire year.
2.	Business and Organization	
The Company is a supplier of merchandising and other marketing services throughout the United States and internationally. The Company also provides in-store event staffing, product sampling, radio frequency identification (“RFID”) services, technology services and marketing research.
Today the Company operates in 13 countries whose population represents approximately 48% of the total world population. The Company’s operations are currently divided into two divisions: the Domestic Merchandising Services Division and the International Merchandising Services Division. The Domestic Merchandising Services Division provides merchandising and marketing services, in-store event staffing, product sampling, RFID services, technology services and marketing research to manufacturers and retailers in the United States. The various services are primarily performed in mass merchandisers, electronics store chains, drug store chains and convenience and grocery stores. The International Merchandising Services Division was established in July 2000 and through its subsidiaries, the Company currently provides similar merchandising and marketing services in Japan, Canada, Turkey, South Africa, India, Romania, China, Lithuania, Latvia, Estonia, Australia and New Zealand. The Company continues to focus on expanding its merchandising and marketing services business throughout the world.
5

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)

3.	Earnings Per Share	
The following table sets forth the computations of basic and diluted earnings per share (in thousands, except per share data):

 	Three Months Ended March 31,	
 	2008	2007	
Numerator:	 	 	
 	 	 	
Net loss	$    (250)	$     (509)	
 	 	 	
Denominator:	 	 	
Shares used in basic net lossper share calculation	19,129	18,934	
 	 	 	
Effect of diluted securities:	 	 	
Employee stock options	-  	- 	
 	 	 	
Shares used in diluted net lossper share calculation	19,129	18,934 	
 	 	 	
Basic and diluted net lossper common share	$    (0.01)	$     (0.03)	

4.	Lines of Credit	
In January 2003, the Company (other than SGRP’s foreign subsidiaries) and Webster Business Credit Corporation, then known as Whitehall Business Credit Corporation (“Webster”), entered into the Third Amended and Restated Revolving Credit and Security Agreement (as amended, collectively, the “Credit Facility”). The Credit Facility provides for a $7.0 million revolving line of credit maturing on January 23, 2009. In March 2007 the credit facility was further amended to, among other things, delay the Minimum Fixed Coverage ratio until the fourth quarter 2007, establish an EBITDA covenant and increase the interest rate by .25% beginning March 28, 2007. In May 2007 the credit facility was amended to provide for an availability reserve of $500,000. In August 2007 the credit facility was further amended to reduce the availability reserve to $250,000 until November 30, 2007. On November 16, 2007 Webster amended the credit facility to extend the availability reserve of $250,000 indefinitely and to reduce the revolving line of credit to $5.0 million. Borrowings are based upon a borrowing base formula as defined in the agreement (principally 85% of “eligible” domestic accounts receivable less certain reserves). The Credit Facility is secured by all of the assets of the Company and its domestic subsidiaries. The Credit Facility also limits certain expenditures, including, but not limited to, capital expenditures and other investments. In addition, Mr. Robert G. Brown, a Director, the Chairman and a major stockholder of SGRP, and Mr. William H. Bartels, a Director, the Vice Chairman and a major stockholder of SGRP, have provided personal guarantees of the Credit Facility totaling $1.0 million.
The basic interest rate under the Credit Facility is Webster’s “Alternative Base Rate” plus 1.0% per annum (a total of 6.25% per annum at March 31, 2008), which automatically changes with each change made by Webster in such Alternative Base Rate. The Company at its option, subject to certain conditions, may elect to have portions of its loans under the Credit Facility bear interest at various LIBOR rates plus 3.25% per annum based on fixed periods of one, two, three or nine months. The actual average interest rate under the Credit Facility was 7.06% per annum for the three months ended March 31, 2008.
 
6

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)
 
The domestic revolving loan balances outstanding under the Credit Facility were $3.9 million and $4.9 million at March 31, 2008 and December 31, 2007, respectively. As of March 31, 2008, the SPAR Group had unused availability under the Credit Facility of $120,000 out of the remaining maximum $1.1 million unused revolving line of credit after reducing the borrowing base by outstanding loans.
Because of the requirement to maintain a lock box arrangement with Webster and Webster’s ability to invoke a subjective acceleration clause at its discretion, borrowings under the Credit Facility are classified as current at March 31, 2008 and December 31, 2007, in accordance with EITF 95-22, Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a Lock-Box Agreement .
The Company was not in violation of any covenants at March 31, 2008, and does not expect to be in violation at future measurement dates. However, there are no assurances that the Company will not be in violation of certain covenants in the future. Should the Company be in violation, there are no assurances that Webster will issue waivers of any future violations.
The Japanese subsidiary, SPAR FM Japan, Inc., has line of credit agreements totaling 100 million Yen, or approximately $1.0 million (based upon the exchange rate at March 31, 2008). The outstanding balances under the line of credit agreements were 90 million Yen, or approximately $907,000 at March 31, 2008 and 90 million Yen, or approximately $802,000 at December 31, 2007 (based upon the exchange rate at those dates). The average interest rate was 1.88% per annum for the three months ended March 31, 2008. In addition, the Japan subsidiary had cash balances totaling 209 million Yen, or approximately $2.1 million and 137 million Yen, or approximately $1.2 million at March 31, 2008 and December 31, 2007 respectively (based upon the exchange rates at those dates).
The Australian subsidiary, SPARFACTS Australia Pty. Ltd., has a revolving line of credit arrangement with Oxford Funding Pty. Ltd. for $1.1 million (Australian) or approximately $1.0 million (based upon the exchange rate at March 31, 2008). There was no outstanding balance under the line of credit agreement at March 31, 2008 and a balance of $315,000 (Australian) or approximately $276,000 at December 31, 2007 (based upon the exchange rate at that date). The average interest rate was 12.6% per annum for the three months ended March 31, 2008.
SPAR Canada Company, a wholly owned subsidiary, has a credit agreement with Royal Bank of Canada providing for a Demand Operating Loan for a maximum borrowing of $1.0 million (Canadian) or approximately $978,000 (based upon the exchange rate at March 31, 2008). The Demand Operating Loan provides for borrowings based upon a borrowing base formula as defined in the agreement (principally 75% of eligible accounts receivable less certain deductions). The outstanding balances under the line of credit agreement were $236,000 (Canadian) or approximately $231,000 and $140,000 (Canadian) or approximately $143,000 at March 31, 2008 and December 31, 2007, respectively (based upon the exchange rate at those dates). The average interest rate was 6.25% per annum for the three months ended March 31, 2008.
5.	Capital Lease Obligations	
In 2007, the Company capitalized certain equipment leases. The economic substance of the leases is such that the Company is financing the acquisition of the assets through the leases. The equipment has a cost of $582,000, accumulated depreciation of $185,000 and a net book value of $397,000 at March 31, 2008.
 
7

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)
 
Annual future minimum lease payments required under the leases, together with their present value as of March 31, 2008 are as follows:

Year Ending
December 31:	 	Amount	
 	 	 	 	
2008	 	$	167,000	
2009	 	 	223,000	
2010	 	 	96,000	
 	 	 	486,000	
Less amount representing interest	 	 	61,000	
Present value of net minimum lease payments	 	 	425,000	
Less current portion included with other current liabilities	 	 	176,000	
Long-term portion included with other long-term liabilities	 	$	249,000	
 
6.	Related-Party Transactions	
Mr. Robert G. Brown, a Director, the Chairman and a major stockholder of SGRP, and Mr. William H. Bartels, a Director, the Vice Chairman and a major stockholder of SGRP, are executive officers and the sole stockholders and directors of SPAR Marketing Services, Inc. (“SMS”), SPAR Management Services, Inc. (“SMSI”), and SPAR Infotech, Inc. (“SIT”).
SMS and SMSI provided approximately 99% of the Company’s domestic merchandising specialists field force (through independent contractors) for both the three months ended March 31, 2008 and 2007, and approximately 80% and 78% of the Company’s domestic field management, at a total cost to the Company of approximately $4.4 million and $4.7 million for the three months ended March 31, 2008 and 2007, respectively. Pursuant to the terms of the Amended and Restated Field Service Agreement dated as of January 1, 2004, SMS provides the services of SMS’s merchandising specialist field force of approximately 4,200 independent contractors to the Company. Pursuant to the terms of the Amended and Restated Field Management Agreement dated as of January 1, 2004, SMSI provides 53 full-time national, regional and district managers to the Company. For those services, the Company has agreed to reimburse SMS and SMSI for all of their costs of providing those services and to pay SMS and SMSI each a premium equal to 4% of their respective costs. Total net premiums (4% of SMS and SMSI costs) paid to SMS and SMSI for services rendered were approximately $170,000 and $189,000 for the three months ended March 31, 2008, and 2007, respectively. The Company has been advised that Messrs. Brown and Bartels are not paid any salaries as officers of SMS or SMSI so there were no salary reimbursements for them included in such costs or premium. However, since SMS and SMSI are “Subchapter S” corporations and are owned by Messrs. Brown and Bartels, they benefit from any income of such companies allocated to them.
SIT provided substantially all of the Internet computer programming services purchased by the Company at a total cost of approximately $188,000 and $166,000 for the three months ended March 31, 2008 and 2007, respectively. SIT provided approximately 6,100 and 5,400 hours of Internet computer programming services to the Company for the three months ended March 31, 2008 and 2007, respectively. Pursuant to the Amended and Restated Programming and Support Agreement dated as of September 15, 2007, SIT continues to provide programming services to the Company for which the Company has agreed to pay SIT competitive hourly wage rates for time spent on Company matters and to reimburse the related out-of-pocket expenses of SIT and its personnel. The average hourly billing rate was $30.96 and $30.69 for the three months ended March 31, 2008 and 2007, respectively. The Company has been advised that no hourly charges or business expenses for Messrs. Brown and Bartels were charged to the Company by SIT for the three months ended March 31, 2008 and 2007, respectively. However, since SIT is a “Subchapter S” corporation and is owned by Messrs. Brown and Bartels, they benefit from any income of such company allocated to them.
 
8

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)
 
In November 2004 and January 2005, the Company entered into separate operating lease agreements between SMS and the Company’s wholly owned subsidiaries, SPAR Marketing Force, Inc. (“SMF”) and SPAR Canada Company (“SPAR Canada”), respectively. In March 2005 SMF entered into an additional operating lease with SMS. Each lease had a term of 36 months. The equipment leased by SMF and SPAR Canada was handheld computers and the total monthly lease expense for SMF and SPAR Canada was $20,232 and $2,972, respectively.
By March 31, 2008, all of the operating leases noted above had expired. Both SMF and SPAR Canada elected to notify SMS of its intention to continue to lease the equipment for an additional twelve month period. The extended lease payments are based upon the fair market value of the equipment as of the expiration dates and an effective interest rate of 10% per annum. The revised monthly lease payments are $10,050 for SMF and $1,500 for SPAR Canada. SMF and SPAR Canada accrued the cost of the revised lease payments since the expiration of the original leases and in March 2008 SMS forgave the total indebtedness for the accrued monthly lease amounts that were due as of March 31, 2008 totaling $39,000.
In addition to the $39,000 in operating lease payments SMS forgave, SMSI also forgave $100,000 that was owed by the Company for field management expenses as of March 31, 2008. It should also be noted that SMSI forgave an additional $100,000 of the Company's indebtedness in exchange for 89,286 shares of Preferred Stock (see Note 16, Preferred Stock).
Through arrangements with the Company, SMS, SMSI and SIT participate in various benefit plans, insurance policies and similar group purchases by the Company, for which the Company charges them their allocable shares of the costs of those group items and the actual costs of all items paid specifically for them. All transactions between the Company and the above affiliates are paid and/or collected by the Company in the normal course of business.
The following transactions occurred between the Company and the above affiliates (in thousands):
 
 	 	Three Months Ended March 31,	
 	 	2008	 	2007	
Services provided by affiliates:	 	 	 	 	 	 	
Independent contractor services (SMS)	 	$	3,441	 	$	3,871	
 	 	 	 	 	 	 	
Field management services (SMSI)	 	$	996	 	$	793	
 	 	 	 	 	 	 	
Handheld computer leases (SMS)	 	$	7	 	$	70	
 	 	 	 	 	 	 	
Internet and software program Consulting services (SIT)	 	$	188	 	$	166	

 	March 31,	December 31,	
Accrued expenses due to affiliates:	2008	2007	
 	 	 	
SPAR Marketing Services, Inc.(SMS)	$      1,327	$     1,490	
SPAR Management Services, Inc. (SMSI)	398	457	
SPAR Infotech, Inc. (SIT)	83	160	
Total accrued expenses due to affiliates	$     1,808	$     2,107	

In addition to the above, through the services of Affinity Insurance, Ltd. (“Affinity”), the Company purchases insurance coverage for its casualty and property insurance risk. The Company’s Chairman and Vice Chairman own, through SMSI, a minority (less than 5%) equity interest in Affinity.

9

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)
 
7.	Stock-Based Compensation	
The Company grants options to purchase shares of the Company’s common stock to its employees and certain employees of its affiliates. Under SFAS No. 123(R), the Company accounts for its employee and affiliate employee stock option expense as compensation expense in the Company’s financial statements when the stock options are granted. Share-based compensation cost is measured on the grant date, based on the fair value of the award calculated at that date, and is recognized over the requisite service period, which generally is the options’ vesting period. Fair value is calculated using the Black-Scholes option pricing model. The fair value of the option continues to be updated through the vesting date. The options granted have a ten (10) year life and vest over four-year periods at a rate of 25% per year, beginning on the first anniversary of the date of grant.
Based upon the Black-Scholes calculation, share-based compensation expense related to employee stock option grants totaled approximately $49,000 and $80,000 for the three months ended March 31, 2008 and 2007 respectively. Compensation expense related to non-employee stock option grants awarded to the employees of the Company’s affiliates, was approximately $34,000 and $37,000 for the three months ended March 31, 2008 and 2007, respectively. The impact of the total share-based compensation expense on basic/diluted earnings per share was approximately $0.004and $0.006 for the three months ended March 31, 2008 and 2007, respectively.
8.	Customer Deposits	
Customer deposits at March 31, 2008, were approximately $747,000 (approximately $28,000 from domestic operations and approximately $719,000 from international operations) compared to approximately $580,000 at December 31, 2007 (approximately $120,000 from domestic operations and approximately $460,000 from international operations).
9.	Commitments and Contingencies	
International Commitments
The Company’s international business model is to partner with local merchandising companies and combine the Company’s proprietary software and expertise in the merchandising and marketing services business with their partner’s knowledge of the local market. In 2001, the Company established its Japanese subsidiary to provide the latest in-store merchandising and marketing services to the Japanese market. Since 2003, the Company has expanded its international presence to Canada, Turkey, South Africa, India, Romania, China, Lithuania, Latvia, Estonia, Australia, and New Zealand. Today the Company has nine subsidiaries operating in 13 countries whose population represents approximately 48% of the total world population.
Certain of these subsidiaries are profitable, while others are operating at a loss. In the event certain subsidiaries have continued losses, the Company may be required to make additional cash infusions into those subsidiaries.
Legal Matters
Safeway Inc. (“Safeway”) filed a Complaint against PIA Merchandising Co., Inc. (“PIA Co.”), a wholly owned subsidiary of SPAR Group, Inc. (“SGRP”), Pivotal Sales Company (“Pivotal”), a wholly owned subsidiary of PIA Co., and SGRP in Alameda Superior Court, case no. 2001028498 on October 24, 2001. Safeway claims, as subsequently amended, alleged causes of action for breach of contract and breach of implied contract. PIA Co. and Pivotal filed cross-claims against Safeway on or about March 11, 2002, and amended them on or about October 15, 2002, alleging causes of action by PIA Co. and Pivotal against Safeway for breach of contract, interference with economic relationship, unfair trade practices and unjust enrichment. Trial commenced in March 2006.
 
10

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)
 
On May 26, 2006, the jury in this case returned a verdict resulting in a net award of $1,307,700 to Pivotal, a SGRP subsidiary. This net award is to be paid by Safeway and resulted from separate jury findings that awarded damages to those SGRP subsidiaries on certain claims and damages to Safeway on other claims. In particular, the jury awarded damages to Pivotal of $5,760,879 for Safeway’s interference with Pivotal’s contractual relationships with third party manufacturers and also awarded $782,400 to Pivotal and PIA for Safeway’s breach of contract with those SGRP subsidiaries. The jury awarded damages to Safeway of $5,235,579 for breach of contract by SGRP and those SGRP subsidiaries. Judgment was entered in favor of Pivotal in September 2006 for $1,307,700. Both parties filed post trial motions but all post trial motions were denied. Notices of Appeal were thereafter filed by both Safeway and Pivotal. Pivotal/SGRP is seeking to have Safeway’s judgment overturned, thereby increasing the award to Pivotal by over $5 million. Safeway has asked for a new trial on the judgment found against it. The appellate process is expected to take fourteen to twenty four months to complete. In the interim, the court ordered a mediation of the dispute, which took place but was not successful in resolving the matter. Accordingly, the appeals will proceed. The Company has recorded the net $1.3 million settlement award in other assets.
Briefing on the appeals commenced in the first quarter of 2008. It is expected that opposition and reply briefs will be completed by July, 2008. Thereafter, an oral argument hearing date will be assigned by the court of appeal.
In addition to the above, the Company is a party to various other legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company’s management, disposition of these other matters are not anticipated to have a material adverse effect on the financial position, results of operations or cash flows of the Company.
10.	Geographic Data	
A summary of the Company’s net revenues, operating income (loss) and long lived assets by geographic area for the three months ended March 31, 2008 and 2007, respectively, and at March 31, 2008 and December 31, 2007, are as follows (in thousands):
 
 	 	Three Months Ended March 31,	
 	 	2008	 	2007	
Net revenues:	 	 	 	 	 	 	
United States	 	$	7,443	 	$	8,433	
International	 	 	10,011	 	 	6,980	
Total net revenues	 	$	17,454	 	$	15,413	

 	 	Three Months Ended March 31,	 	
 	 	2008	 	2007	 	
Operating income (loss):	 	 	 	 	 	 	 	
United States	 	$	(233	)	$	(273	)	
International	 	 	337	 	 	(14	)	
Total operating income (loss)	 	$	104	 	$	(287	)	

11

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)

 	 	March31,
2008	 	 	 	December31,
2007	 	
Long lived assets:	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
United States	 	$	3,648	 	 	 	$	3,706	 	
International	 	 	295	 	 	 	 	268	 	
Total long lived assets	 	$	3,943	 	 	 	$	3,974	 	
 
International revenues disclosed above were based upon revenues reported by the Company’s nine international subsidiaries. The Japan subsidiary contributed 19% and 18% of the consolidated net revenues of the Company for the three months ended March 31, 2008 and 2007, respectively. The Canadian subsidiary contributed 10% and 8% of the consolidated net revenues of the Company for the three months ended March 31, 2008 and 2007, respectively. The Australian subsidiary contributed 11% and 9% of the consolidated net revenues of the Company for the three months ended March 31, 2008 and 2007, respectively. Each of the remaining foreign subsidiaries contributed less than 7% of the consolidated net revenues of the Company for the three ended March 31, 2008 and 2007, respectively.
11.	Supplemental Balance Sheet Information	
 
 	 	March 31,
2008	 	December 31,
2007	 	
Accounts receivable, net, consists of the following (in thousands):	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	
Trade	 	$	8,935	 	$	9,833	 	
Unbilled	 	 	3,813	 	 	3,789	 	
Non-trade	 	 	415	 	 	289	 	
 	 	 	13,163	 	 	13,911	 	
Less allowance for doubtful accounts	 	 	(172	)	 	(163	)	
Accounts receivable, net	 	$	12,991	 	$	13,748	 	

 	 	March 31,
2008	 	December 31,
2007	
Property and equipment, net, consists of the following (in thousands):	 	 	 	 	 	 	
 	 	 	 	 	 	 	
Equipment	 	$	6,810	 	$	6,781	
Furniture and fixtures	 	 	630	 	 	625	
Leasehold improvements	 	 	245	 	 	245	
Capitalized software development costs	 	 	1,936	 	 	1,837	
 	 	 	9,621	 	 	9,488	
Less accumulated depreciation and amortization	 	 	8,155	 	 	7,960	
Property and equipment, net	 	$	1,466	 	$	1,528	

12

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)

 	 	March 31,
2008	 	December 31,
2007	
Accrued expenses and other current liabilities consist of the following (in thousands):	 	 	 	 	 	 	
 	 	 	 	 	 	 	
Taxes payable	 	$	900	 	$	664	
Accrued accounting and legal expense	 	 	440	 	 	227	
Accrued salaries payable	 	 	1,366	 	 	1,304	
Other	 	 	2,029	 	 	1,786	
Accrued expenses and other current liabilities	 	$	4,735	 	$	3,981	
 
12.	Foreign Currency Rate Fluctuations	
The Company has foreign currency exposure associated with its international subsidiaries. In both 2008 and 2007, these exposures are primarily concentrated in the Canadian Dollar, Australian Dollar and Japanese Yen. At March 31, 2008, international assets totaled $10.1 million and international liabilities totaled $14.2 million. International revenues for the three months ended March 31, 2008 and 2007 were $10.0 million and $7.0 million, respectively. The international division reported a net income (loss) of approximately $69,000 and $(118,000) for the three months ended March 31, 2008 and 2007, respectively.
In those countries where the Company had the greater risk for currency exposure, the total assets and liab ilities are as follows (in thousands):
 
Country	Total Assets	Total Liabilities	
Canada	$	1,221	$	897	
Australia	 	1,873	 	1,396	
Japan	 	4,093	 	3,765	

 
 
13.	Interest Rate Fluctuations	
The Company is exposed to market risk related to the variable interest rate on its lines of credit. At March 31, 2008, the Company’s outstanding lines of credit totaled approximately $5.0 million, as noted in the table below (in thousands):
Location	Variable Interest Rate (1)	Local Currency Amount	US Dollars Equivalent  (2)	
United States	6.25%	  3,917 USD	$3,917	
Japan	1.88%	90,000 YEN	907	
Canada	6.25%	    236 CAD	231	
 	 	 	$5,055	
 
(1)	Based on interest rate at March 31, 2008.	

(2)	Based on exchange rate at March 31, 2008.	
Based on the 2008 average outstanding borrowings under variable-rate debt, a one-percentage point increase in interest rates would negatively impact pre-tax earnings and cash flows for the three months ended March 31, 2008 by approximately $14,000.
 
13

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)
 
14.	Recently Issued Accounting Standards	
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” The statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. SFAS No. 157 is effective January 1, 2008 for financial assets and liabilities and January 1, 2009 for non-financial assets and liabilities. There was no material impact from this statement on our financial condition and results of operations.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS No. 157 and SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. There was no material impact from this statement on our financial condition and results of operations.
 
In December 2007, the FASB issued SFAS No. 141(Revised), “Business Combinations” (“SFAS No. 141(R)”), which replaces SFAS No. 141, “Business Combinations,” and requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This statement also requires the acquirer in a business combination achieved in stages to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values. SFAS No. 141(R) makes various other amendments to authoritative literature intended to provide additional guidance or to confirm the guidance in that literature to that provided in this statement. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We expect to adopt this statement on January 1, 2009. SFAS No. 141(R)’s impact on accounting for business combinations is dependent upon acquisitions after the effective date.
In December 2007, FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements,” which amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. SFAS No. 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. This statement also requires the amount of consolidated net income attributable to the parent and to the non-controlling interest to be clearly identified and presented on the face of the consolidated statement of income. Changes in a parent’s ownership interest while the parent retains its controlling financial interest must be accounted for consistently, and when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary must be initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity investment. The statement also requires entities to provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. This statement applies prospectively to all entities that prepare consolidated financial statements and applies prospectively for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We don’t believe this statement will impact our financial condition or results of operations but may impact the format of our financial statements.
 
14

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)
 
In March 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about Derivative Investments and Hedging Activities, an amendment of FASB Statement No. 133”, which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. SFAS No. 161 is effective for us beginning January 1, 2009. We are currently assessing the potential impact, if any, that adoption of SFAS No. 161 may have in our financial statements.
15.	Taxes	
In July 2006, the FASB issued FASB interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109,  Accounting for Income Taxes . Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 is effective for fiscal years beginning after December 15, 2006 and the provisions of FIN 48 will be applied to all tax positions upon initial adoption of the Interpretation. FIN 48 requires that interest and penalties that the tax law requires to be paid on the underpayment of taxes should be accrued on the difference between the amount claimed or expected to be claimed on the return and the tax benefit recognized in the financial statements. The Company’s policy is to record this interest and penalties as additional tax expense.
SPAR and its subsidiaries file numerous consolidated, combined and separate company income tax returns in the U.S. Federal jurisdiction and in many U.S. state and foreign jurisdictions. With few exceptions, SPAR is subject to U.S. Federal, state and local income tax examinations for the years 2004 through the present. However, tax authorities have the ability to review years prior to the position taken by the Company to the extent that SPAR utilized tax attributes carried forward from those prior years.
The Company adopted the provisions of FASB Interpretation No. 48 Accounting for uncertainty in Income Taxes, on January 1, 2007. In management’s view, the Company’s tax reserves at March 31, 2008, totaling $182,000 for potential domestic state tax and federal tax liabilities were sufficient to meet the requirements of FIN 48. The reserve for potential international tax liabilities totaling $180,000 was also deemed sufficient to satisfy FIN 48. For the first quarter of 2008 the reserve for FIN 48 exposures increased $23,000.
Details of the Company’s FIN 48 reserves at March 31, 2008 are outlined in the table below (in thousands):
 
 	 	Taxes	 	Interest	 	Penalty	 	Total Tax Liability	
Domestic	 	 	 	 	 	 	 	 	 	 	 	 	
State	 	$	116	 	$	43	 	$	23	 	$	182	
Federal	 	 	-	 	 	-	 	 	-	 	 	-	
International	 	 	125	 	 	32	 	 	23	 	 	180	
Total FIN 48 Reserve	 	$	241	 	$	75	 	$	46	 	$	362	
 
16.	Preferred Stock	
On March 28, 2008, SGRP filed a “Certificate of Designation of Series “A” Preferred Stock of SPAR Group, Inc.” (the “Preferred Designation”), creating a series of 3,000,000 shares of Preferred Stock designated as “Series A Preferred Stock” with a par value of $0.01 per share (the “Preferred Stock”), which designation had been approved by SGRP’s Board of Directors (the “Board”) on March 27, 2008.
The Preferred Designation provides that each share of Preferred Stock is to be issued at a value equal to the closing bid price of SGRP’s common stock (the “Common Stock”) immediately preceding the day SGRP and the purchaser(s) entered into a binding commitment to issue and acquire Preferred Stock. The Preferred Stock will
 
15

SPAR Group, Inc.
Notes to Consolidated Financial Statements
(unaudited) (continued)
 
accrue a 10% dividend payable in either cash (when permitted by law and Nasdaq and authorized by the Board) or common stock when authorized by the Board (valued at the current market price of a share of common stock at the time paid but not less that the initial purchase price of a share of such preferred). All accrued and unpaid dividends and potential dividends must be paid to the holders of the Preferred Stock before any dividends can be paid to the holders of the Common Stock. The face value (purchase price) of the Preferred Stock and all accrued and unpaid dividends and potential dividends must be paid to the holders of the Preferred Stock before any liquidating distributions can be made to the holders of the Common Stock. The consent of all of the holders of the Preferred Stock is required for SGRP to make any changes in the Preferred Designation or issue any other class of preferred stock senior to or pari passu with the Preferred Stock.
The Preferred Stock is redeemable, at the discretion of the Corporation only, for a cash redemption price equal to its face value (purchase price) plus all accrued and unpaid dividends and potential dividends. Each share of Preferred Stock is convertible into one share of Common Stock at the rate of one to one at the option of the holder, which option would be exercisable for so long as the Preferred Stock is outstanding (even if the Corporation has elected to redeem). Such a conversion also requires that the Corporation satisfy all accrued and unpaid dividends and potential dividends at the same time. The Preferred Stock votes with the Common Stock (no class voting) and have voting rights equal to one vote per share of Preferred Stock.
On March 27, 2008, the Board also authorized the issuance of up to 530,000 shares of Preferred Stock to its affiliates, Robert G. Brown and William H. Bartels (who are officers, directors and significant shareholders of SGRP - see Note 6, Related-Party Transactions) in return for (among other things) cash or the reduction of an equivalent debt owed by the Company to SPAR Management Services, Inc. (“SMSI”), an affiliate of SGRP wholly owned by Mr. Brown and Mr. Bartels. On March 31, 2008, the Corporation, Mr. Brown, Mr. Bartels and SMSI entered into an agreement to issue and purchase 89,286 shares of Preferred Stock at $1.12 per share (the closing bid price of SGRP’s Common Stock for the most recent trading day available immediately preceding such agreement date). Pursuant to that agreement, SGRP’s payable to SMSI was reduced by $100,000, and SGRP issued 54,564 shares of Preferred Stock to Mr. Brown and 34,722 shares of Preferred Stock to Mr. Bartels, all effective March 31, 2008. SGRP’s Audit Committee reviewed and unanimously approved this transaction, including the terms of the Preferred Stock and the affiliated relationship of the parties. The offer and sale of such Preferred Stock have not been registered under the Securities Act or other securities laws, as they were a non-public offer and sale made in reliance upon (among other things) Section 4 (2) of the Securities Act.
17.	Reclassifications	
Certain reclassifications have been made to the 2007 financial statements to conform with the 2008 presentation.
 
16

SPAR Group, Inc.
 
Item 2.	Management’s Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources	
Forward-Looking Statements
Statements contained in this Quarterly Report on Form 10-Q for the three months ended March 31, 2008 (this “Quarterly Report”), of SPAR Group, Inc. (“SGRP” , and together with its subsidiaries, the “SPAR Group” or the “Company “), include “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”, and together with the Securities Act, the “Securities Laws”) that are based on the Company’ s best estimates. In particular and without limitation, this “Management ‘s Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources” contains such forward-looking statements, which are included in (among other places) the discussions respecting net revenues from significant clients, significant chain work and international joint ventures, federal taxes and net operating loss carryforwards, commencement of operations and future funding of international joint ventures, credit facilities and covenant compliance, cost savings initiatives, liquidity and sources of cash availability. Forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the Company’s actual results, performance and achievements, whether expressed or implied by such forward-looking statements, to not occur, to not be realized or to be less than expected. Such forward-looking statements generally are based upon the Company’ s best estimates of future results, performance or achievement, current conditions and the most recent results of operations. Forward-looking statements may be identified by the use of forward-looking terminology such as “may”, “will”, “likely”, “expect”, “intend”, “believe”, “estimate”, “anticipate”, “continue” or similar terms, variations of those terms or the negative of those terms. You should carefully consider such risks, uncertainties and other information, disclosures and discussions containing cautionary statements or identifying important factors that could cause actual results to differ materially from those provided in the forward-looking statements.
You should carefully review this management discussion and analysis together with the risk factors and other cautionary statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2008 (the “Company’s Annual Report for 2007 on Form 10-K”), including the risk factors described in Item 1A of that annual report under the caption “Certain Risk Factors” and the changes (if any) in such risk factors described in Item IA of Part II of this Quarterly Report (collectively, “Risk Factors” ), as well as the cautionary statements contained in this Quarterly Report. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified by the Risk Factors and other cautionary statements in this Quarterly Report and in the Company’ s Annual Report for 2007 on Form 10-K, which are incorporated by reference into this Quarterly Report. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, the Company cannot assure that such plans, intentions or expectations will be achieved in whole or in part, that it has identified all potential risks or that it can successfully avoid or mitigate such risks in whole or in part. The Company undertakes no obligation to publicly update or revise any forward-looking statements, or any Risk Factors or other cautionary statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
Today the Company operates in 13 countries whose population represents approximately 48% of the total world population. The Company’s operations are currently divided into two divisions: the Domestic Merchandising Services Division and the International Merchandising Services Division. The Domestic Merchandising Services Division provides merchandising and marketing services, in-store event staffing, product sampling, RFID services, technology services and marketing research to manufacturers and retailers in the United States. The various services are primarily performed in mass merchandisers, electronics store chains, drug store chains and convenience and grocery stores. The International Merchandising Services Division was established in July 2000 and through its subsidiaries, the Company currently provides similar merchandising and marketing services in Japan, Canada, Turkey, South Africa, India, Romania, China, Lithuania, Latvia, Estonia, Australia and New Zealand.
 
17

SPAR Group, Inc.
 
Domestic Merchandising Services Division
The Company’s Domestic Merchandising Services Division provides nationwide merchandising and other marketing services primarily on behalf of consumer product manufacturers and retailers at mass merchandisers, electronics store chains, drug store chains and grocery stores. Included in its clients are home entertainment, general merchandise, health and beauty care, consumer goods and food product companies in the United States.
Merchandising and marketing services primarily consist of regularly scheduled dedicated routed services and special projects provided at the store level for a specific retailer or single or multiple manufacturers or distributors. Services also include stand-alone large-scale implementations. These services may include sales enhancing activities such as ensuring that client products authorized for distribution are in stock and on the shelf, adding new products that are approved for distribution but not presently on the shelf, setting category shelves in accordance with approved store schematics, ensuring that shelf tags are in place, checking for the overall salability of client products and setting new and promotional items and placing and/or removing point of purchase and other related media advertising. Specific in-store services can be initiated by retailers or manufacturers or distributors, and include new store openings and existing store resets, re-merchandising, remodels and category implementations, new product launches, special seasonal or promotional merchandising, focused product support and product recalls. The Company also provides in-store product demonstrations, in-store product sampling and other in-store event staffing services, RFID services, technology services and marketing research services.
International Merchandising Services Division
In July 2000, the Company established its International Merchandising Services Division, operating through a wholly owned subsidiary, SPAR Group International, Inc. (“SGI”), to focus on expanding its merchandising and marketing services business worldwide. Currently, the Company’s international subsidiaries are as follows:
Headquarter
Location	Ownership Percentage	Date
Established	
Osaka, Japan	50%	May 2001	
Toronto, Canada	100%	June 2003	
Istanbul, Turkey	51%	July 2003	
Durban, South Africa	51%	April 2004	
New Delhi, India	51%	April 2004	
Bucharest, Romania	51%	December 2004	
Hong Kong, China	50%	February 2005	
Siauliai, Lithuania	51%	September 2005	
Melbourne, Australia	51%	April 2006	
 
Critical Accounting Policies
There were no material changes during the three months ended March 31, 2008, to the Company’s critical accounting policies as reported in the Company’s Annual Report for 2007 on Form 10-K.
 
18

SPAR Group, Inc.
 
Results of Operations
Three months ended March 31, 2008, compared to three months ended March 31, 2007
The following table sets forth selected financial data and data as a percentage of net revenues for the periods indicated (in thousands, except percent data).
 
 	 	Three Months Ended March 31,	 	
 	 	2008	 	2007	 	Increase/	 	
 	 	$	 	%	 	$	 	%	 	(decrease)	 	
Net revenues	 	$	17,454	 	100.0	%	$	15,413	 	100.0	%	13.2	%	
Cost of revenues	 	 	12,484	 	71.5	 	 	10,498	 	68.1	 	18.9	 	
Selling, general & administrative expense	 	 	4,658	 	26.7	 	 	5,005	 	32.5	 	(7.0	)	
Depreciation and amortization	 	 	208	 	1.2	 	 	197	 	1.3	 	5.5	 	
Interest expense	 	 	81	 	0.5	 	 	89	 	0.6	 	(8.8	)	
Other expense	 	 	43	 	0.3	 	 	21	 	0.1	 	110.5	 	
Loss before income tax provision and minority interest	 	 	(20	)	(0.1	)	 	(397	)	(2.6	)	(95.0	)	
Provision for income taxes	 	 	164	 	0.9	 	 	67	 	0.4	 	144.1	 	
Loss before minority interest	 	 	(184	)	(1.1	)	 	(464	)	(3.0	)	(60.2	)	
Minority interest	 	 	66	 	0.4	 	 	45	 	0.3	 	48.1	 	
Net loss	 	$	(250	)	1.4	%	$	(509	)	(3.3	)%	(50.8	)%	
 
Net Revenues
Net revenues for the three months ended March 31, 2008, were $17.5 million, compared to $15.4 million for the three months ended March 31, 2007, an increase of $2.1 million or 13.2%.
International net revenues totaled $10.0 million for the three months ended March 31, 2008, compared to $7.0 million for the same period in 2007, an increase of $3.0 million or 43.4%. The increase in 2008 international net revenues was due to net revenue increases from Australia $618,000, India $515,000, Turkey $287,000, Canada $548,000, Japan $551,000, South Africa $123,000 and China $409,000, partially offset by net revenue decreases in Romania $16,000 and Lithuania $5,000.
Domestic net revenues totaled $7.5 million in the three months ended March 31, 2008, compared to $8.4 million for the same period in 2007. Domestic net revenues decreased $900,000 primarily as a result of the loss of a significant client. Approximately 9% and 12% of the Company’s net revenues for the three months ended March 31, 2008 and 2007, respectively, resulted from merchandising services performed for clients at a leading domestic electronics chain. Services performed for these clients in that electronics chain also accounted for approximately 5% and 10% of the Company’s accounts receivable at March 31, 2008 and December 31, 2007, respectively. The Company’s contractual relationships or agreements are with various clients and not that retail electronics chain.
One client accounted for 7% and 6% of the Company’s net revenues for the three months ended March 31, 2008 and 2007, respectively. The client accounted for approximately 6% and 3% of the Company’s accounts receivable at March 31, 2008 and December 31, 2007, respectively.
The loss of the ability to provide merchandising and marketing services in the above and/or other chains or the loss of this client or other clients could significantly decrease the Company’s revenues and could have a material adverse effect on the Company’s business, results of operations and financial condition.
Cost of Revenues
Cost of revenues consists of in-store labor and field management wages, related benefits, travel and other direct labor-related expenses. Cost of revenues was 71.5% of net revenues for the three months ended March 31, 2008 and 68.1% for the three months ended March 31, 2007. The increase in cost of revenues as a percent of net revenues of 3.4% is primarily a result of international operations.
 
19

SPAR Group, Inc.
 
Domestic cost of revenues was 67.4% of net revenues for the three months ended March 31, 2008 and 67.3% of net revenues for the three months ended March 31, 2007. In the first quarter of 2008, SPAR Management Services, Inc. (“SMS”), an affiliate of the Company, forgave $100,000 of debt owed by the Company for field management expenses. Excluding this transaction, domestic cost of revenue as a percent of net revenues was 68.7%, an increase of 1.4% directly attributed to a mix in higher cost project work in the quarter ended March 31, 2008 compared to the same period in 2007.
Internationally, the cost of revenues was 74.6% of net revenues for the three months ended March 31, 2008 and 69.0% of net revenues for the three months ended March 31, 2007. The international cost of revenues percentage increase was primarily attributed to higher cost of revenues as a percentage of net revenues in Canada, China and Turkey.
Approximately 89% and 87% of the Company’s domestic cost of revenues in the three months ended March 31, 2008 and 2007, respectively, resulted from in-store independent contractor and field management services purchased from certain of the Company’s affiliates, SPAR Marketing Services, Inc. (“SMS”), and SPAR Management Services, Inc. (“SMSI”), respectively (see Note 6 - Related-Party Transactions).
Selling, General and Administrative Expenses
Selling, general and administrative expenses include corporate overhead, project management, information technology, executive compensation, human resources, and legal and accounting expenses. Selling, general and administrative expenses decreased by $347,000, or 7.0%, for the three months ended March 31, 2008, to $4.7 million compared to $5.0 million for the same period in 2007.
International selling, general and administrative expenses totaled $2.2 million for the three months ended March 31, 2008, compared to $2.1 million for the same period in 2007. The $44,000 increase in international selling, general and administrative expenses was primarily due to Japan $132,000 and Canada $24,000, partially offset by decreased expenses from Australia of $126,000. All other international subsidiaries resulted in a net increase of $14,000.
Domestic selling, general and administrative expenses totaled $2.5 million for the three months ended March 31, 2008, compared to $2.9 million for the same period in 2007. The decrease in domestic selling, general and administrative expenses of $391,000 was primarily due to a decrease in payroll related expenses of $179,000 and reduced building related expenses of $149,000 ($73,000 was related to a one-time charge in 2007 for relocation expenses). In addition, there was a reduction in operating lease expense for equipment provided by the Company’s affiliate SMS totaling $63,000 (see Note 6, Related-Party Transactions).
Depreciation and Amortization
Depreciation and amortization charges for the three months ended March 31, 2008, totaled $208,000 and were comparable to $197,000 for the same period in 2007.   
Interest Expense
Interest expense totaled $81,000 and $89,000 for the three months ended March 31, 2008 and 2007, respectively.
Other Expense
Other expense totaled $43,000 and $21,000 for the three months ended March 31, 2008 and 2007, respectively.
Income Taxes
Income taxes for the three months ended March 31, 2008 were approximately $164,000 for taxes due on international profits and minimum domestic state taxes. Income taxes for the three months ended March 31, 2007 were approximately $67,000 for minimum domestic state taxes. There were no tax provisions for federal tax as the Company reported a loss for the three months ended March 31, 2008, and provides a valuation allowance against any benefits from operating loss carryforwards.
 
20

SPAR Group, Inc.
 
Minority Interest
Minority interest of approximately $66,000 and $45,000 resulted from the net operating profits of the Company’s 51% owned subsidiaries and 50% owned subsidiaries for the three months ended March 31, 2008 and 2007, respectively.
Net Loss
The Company had a net loss of $250,000 for the three months ended March 31, 2008, or $0.01 per diluted share, compared to a net loss of $509,000, or $0.03 per diluted share, for the corresponding period last year.
Liquidity and Capital Resources
In the three months ended March 31, 2008 the Company had a net loss of $250,000.
Net cash provided by operating activities for the three months ended March 31, 2008 was $2.4 million compared to $3.0 million for the prior year. The decrease in net cash provided by operating activities was primarily due to a smaller decrease in total dollars in accounts receivable, an increase in prepaid expenses and a decrease in accrued expenses due affiliates. This was partially offset by a larger increase in accounts payable and accrued expenses in 2008 as compared to the first quarter of 2007.
Net cash used in investing activities for the three months ended March 31, 2008 and March 31, 2007, was approximately $146,000 and $346,000, respectively. The decrease in net cash used in investing activities was a result of decreased purchases of property and equipment.
Net cash used in financing activities for the three months ended March 31, 2008 and 2007, was approximately $1.1 million and $1.7 million, respectively. The decrease in net cash used in financing activities was primarily a result of reduced net payments on lines of credit.
The above activity resulted in an increase in cash and cash equivalents for the three months ended March 31, 2008, of approximately $1.2 million.
At March 31, 2008, the Company had negative working capital of $422,000, as compared to a negative $449,000 at December 31, 2007. The Company’s current ratio was 0.98 at March 31, 2008, and 0.97 at December 31, 2007.
In January 2003, the Company (other than SGRP’s foreign subsidiaries) and Webster Business Credit Corporation, then known as Whitehall Business Credit Corporation (“Webster”), entered into the Third Amended and Restated Revolving Credit and Security Agreement (as amended, collectively, the “Credit Facility”). The Credit Facility provides for a $7.0 million revolving line of credit maturing on January 23, 2009. In March 2007 the credit facility was further amended to, among other things, delay the Minimum Fixed Coverage ratio until the fourth quarter 2007, establish an EBITDA covenant and increase the interest rate by .25% beginning March 28, 2007. In May 2007 the credit facility was amended to provide for an availability reserve of $500,000. In August 2007 the credit facility was further amended to reduce the availability reserve to $250,000 until November 30, 2007. On November 16, 2007 Webster amended the credit facility to extend the availability reserve of $250,000 indefinitely and to reduce the revolving line of credit to $5.0 million. Borrowings are based upon a borrowing base formula as defined in the agreement (principally 85% of “eligible” domestic accounts receivable less certain reserves). The Credit Facility is secured by all of the assets of the Company and its domestic subsidiaries. The Credit Facility also limits certain expenditures, including, but not limited to, capital expenditures and other investments.   In addition, Mr. Robert G. Brown, a Director, the Chairman and a major stockholder of SGRP, and Mr. William H. Bartels, a Director, the Vice Chairman and a major stockholder of SGRP, have provided personal guarantees of the Credit Facility totaling $1.0 million.
 
21

SPAR Group, Inc.

The basic interest rate under the Credit Facility is Webster’s “Alternative Base Rate” plus 1.0% per annum (a total of 6.25% per annum at March 31, 2008), which automatically changes with each change made by Webster in such Alternative Base Rate.  The Company at its option, subject to certain conditions, may elect to have portions of its loans under the Credit Facility bear interest at various LIBOR rates plus 3.25% per annum based on fixed periods of one, two, three or nine months. The actual average interest rate under the Credit Facility was 7.06% per annum for the three months ended March 31, 2008.
The domestic revolving loan balances outstanding under the Credit Facility were $3.9 million and $4.9 million at March 31, 2008 and December 31, 2007, respectively. As of March 31, 2008, the SPAR Group had unused availability under the Credit Facility of $120,000 out of the remaining maximum $1.1 million unused revolving line of credit after reducing the borrowing base by outstanding loans.
Because of the requirement to maintain a lock box arrangement with Webster and Webster’s ability to invoke a subjective acceleration clause at its discretion, borrowings under the Credit Facility are classified as current at March 31,2008 and December 31, 2007, in accordance with EITF 95-22, Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a Lock-Box Agreement .
The Company was not in violation of any covenants at March 31, 2008, and does not expect to be in violation at future measurement dates. However, there are no assurances that the Company will not be in violation of certain covenants in the future. Should the Company be in violation, there are no assurances that Webster will issue such waivers in the future.
The Japanese subsidiary, SPAR FM Japan, Inc., has line of credit agreements totaling 100 million Yen, or approximately $1.0 million (based upon the exchange rate at March 31, 2008). The outstanding balances under the line of credit agreements were 90 million Yen, or approximately $907,000 at March 31, 2008 and 90 million Yen, or approximately $802,000 at December 31, 2007 (based upon the exchange rate at those dates). The average interest rate was 1.88% per annum for the three months ended March 31, 2008. In addition, the Japan subsidiary had cash balances totaling 209 million Yen, or approximately $2.1 million and 137 million Yen, or approximately $1.2 million at March 31, 2008 and December 31, 2007 respectively (based upon the exchange rates at those dates).
The Australian subsidiary, SPARFACTS Australia Pty. Ltd., has a revolving line of credit arrangement with Oxford Funding Pty. Ltd. for $1.1 million (Australian), or approximately $1.0 million (based upon the exchange rate at March 31, 2008). There was no outstanding balance under the line of credit agreement at March 31, 2008 and a balance of $315,000 (Australian), or approximately $276,000 at December 31, 2007 (based upon the exchange rate at that date). The average interest rate was 12.6% per annum for the three months ended March 31, 2008.
SPAR Canada Company, a wholly owned subsidiary, has a credit agreement with Royal Bank of Canada providing for a Demand Operating Loan for a maximum borrowing of $1.0 million (Canadian), or approximately $978,000 (based upon the exchange rate at March 31, 2008). The Demand Operating Loan provides for borrowings based upon a borrowing base formula as defined in the agreement (principally 75% of eligible accounts receivable less certain deductions). The outstanding balances under the line of credit agreement were $236,000 (Canadian), or approximately $231,000 and $140,000 (Canadian), or approximately $143,000 at March 31, 2008 and December 31, 2007, respectively (based upon the exchange rate at those dates). The average interest rate was 6.25% per annum for the three months ended March 31, 2008.
The Company’s international business model is to partner with local merchandising companies and combine the Company’s proprietary software and expertise in the merchandising and marketing services business with their partner’s knowledge of the local market. In 2001, the Company established its first subsidiary in Japan and has continued this strategy. As of this filing, the Company is currently operating in 13 countries and has 9
 
22

SPAR Group, Inc.
 
international subsidiaries. Certain of these subsidiaries are profitable, while others are operating at a loss. In the event of continued losses, the Company may be required to provide additional cash infusions into those subsidiaries with losses.
Management believes that based upon the Company’s existing credit facilities, projected results of operations and other financing available to the Company (including amounts due to affiliates), sources of cash availability should be sufficient to support ongoing operations over the next twelve months. However, continued losses, 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.
Certain Contractual Obligations
The following table contains a summary of certain of the Company’s contractual obligations by category as of March 31, 2008 (in thousands).
Contractual Obligations	Period inwhich payments are due	 	
 	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years	 	
Credit Facilities	$ 5,055	$ 5,055	$       -	$      -	$ -	 	
Capital Lease Obligations	486	223	263	-	-	 	
Operating Lease Obligations	3,414	713	1,957	744	-	 	
Total	$ 8,955	$ 5,991	$ 2,220	$  744	$ -	 	
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company’s accounting policies for financial instruments and disclosures relating to financial instruments require that the Company’s consolidated balance sheets include the following financial instruments: cash and cash equivalents, accounts receivable, accounts payable and lines of credit. The Company carries current assets and liabilities at their stated or face amounts in its consolidated financial statements, as the Company believes those amounts approximate the fair value for these items because of the relatively short period of time between origination of the asset or liability and their expected realization or payment. The Company monitors the risks associated with asset and liability positions, as well as interest rates. The Company’s investment policy objectives require the preservation and safety of the principal, and the maximization of the return on investment based upon its safety and liquidity objectives.
The Company is exposed to market risk related to the variable interest rate on its lines of credit. At March 31, 2008, the Company’s outstanding lines of credit totaled $5.0 million, as noted in the table below (in thousands):
Location	Variable Interest Rate (1)	Local Currency Amount	US Dollars Equivalent (2)	
United States	6.25%	3,917 USD	 	$3,917	
Japan	1.88%	90,000 YEN	 	907	
Canada	6.25%	236 CAD	 	231	
 	 	 	$5,055	
 
(1)	Based on interest rate at March 31, 2008.	

(2)	Based on exchange rate at March 31, 2008.	
Based on the 2008 average outstanding borrowings under variable-rate debt, a one-percentage point increase in interest rates would negatively impact pre-tax earnings and cash flows for the three months ended March 31, 2008 by approximately $14,000.
 
23

SPAR Group, Inc.
 
The Company has foreign currency exposure associated with its international subsidiaries. In both 2008 and 2007, these exposures are primarily concentrated in the Canadian Dollar, Australian Dollar and Japanese Yen. At March 31, 2008, international assets totaled $10.1 million and international liabilities totaled $14.2 million. International revenues for the three months ended March 31, 2008 and 2007 were $10.0 million and $7.0 million, respectively. The international division reported a net income (loss) of approximately $69,000 and $(118,000) for the three months ended March 31, 2008 and 2007, respectively.
In those countries where the Company had the greater risk for currency exposure, the total assets and liabilities are as follows (in thousands):
Country	Total Assets	Total Liabilities	
Canada	$	1,221	$	897	
Australia	 	1,873	 	1,396	
Japan	 	4,093	 	3,765	
 
Item 4.  Controls and Procedures	
The Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as of the end of the period covering this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.
There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls during the three months covered by this report or from the end of the reporting period to the date of this Form 10-Q.
The Company has established a plan, documented and tested its domestic internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 and has developed a plan to document and test its internal controls as they pertain to its material international subsidiaries.
 
24

SPAR Group, Inc.
 
PART II: OTHER INFORMATION
Item 1.  	Legal Proceedings	
 
Safeway Inc. (“Safeway”) filed a Complaint against PIA Merchandising Co., Inc. (“PIA Co.”), a wholly owned subsidiary of SPAR Group, Inc. (“SGRP”), Pivotal Sales Company (“Pivotal”), a wholly owned subsidiary of PIA Co., and SGRP in Alameda Superior Court, case no. 2001028498 on October 24, 2001. Safeway claims, as subsequently amended, alleged causes of action for breach of contract and breach of implied contract. PIA Co. and Pivotal filed cross-claims against Safeway on or about March 11, 2002, and amended them on or about October 15, 2002, alleging causes of action by PIA Co. and Pivotal against Safeway for breach of contract, interference with economic relationship, unfair trade practices and unjust enrichment. Trial commenced in March 2006.
On May 26, 2006, the jury in this case returned a verdict resulting in a net award of $1,307,700 to Pivotal, a SGRP subsidiary. This net award is to be paid by Safeway and resulted from separate jury findings that awarded damages to those SGRP subsidiaries on certain claims and damages to Safeway on other claims. In particular, the jury awarded damages to Pivotal of $5,760,879 for Safeway’s interference with Pivotal’s contractual relationships with third party manufacturers and also awarded $782,400 to Pivotal and PIA for Safeway’s breach of contract with those SGRP subsidiaries. The jury awarded damages to Safeway of $5,235,579 for breach of contract by SGRP and those SGRP subsidiaries. Judgment was entered in favor of Pivotal in September 2006 for $1,307,700. Both parties filed post trial motions but all post trial motions were denied. Notices of Appeal were thereafter filed by both Safeway and Pivotal. Pivotal/SGRP is seeking to have Safeway’s judgment overturned, thereby increasing the award to Pivotal by over $5 million. Safeway has asked for a new trial on the judgment found against it. The appellate process is expected to take fourteen to twenty four months to complete. In the interim, the court ordered a mediation of the dispute, which took place but was not successful in resolving the matter. Accordingly, the appeals will proceed. The Company has recorded the net $1.3 million settlement award in other assets.
Briefing on the appeals commenced in the first quarter of 2008. It is expected that opposition and reply briefs will be completed by July, 2008. Thereafter, an oral argument hearing date will be assigned by the court of appeal.
In addition to the above, the Company is a party to various other legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company’s management, disposition of these other matters are not anticipated to have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Item 1A.  	Risk Factors	
The Company’s Annual Report for 2007 on Form 10-K describes various risk factors applicable to the Company and its businesses in Item 1 under the caption “Certain Risk Factors”, which risk factors are incorporated by reference into this Quarterly Report. There have been no material changes in the Company’s risk factors since the Company’s Annual Report for 2007 on Form 10-K.
Item 2.  	Unregistered Sales of Equity Securities and Use of Proceeds	
 
Item 2(a): Not applicable
Item 2(b): Not applicable
Item 2(c): Not applicable
 
25

SPAR Group, Inc.
 
Item 3.  	Defaults upon Senior Securities	

Item 3(a): Defaults under Indebtedness: None.
Item 3(b): Defaults under Preferred Stock: Not applicable.
Item 4.  	Submission of Matters to a Vote of Security Holders	
Not applicable.
Item 5.  	Other Information	
Not applicable.
Item 6.  	Exhibits	
 
 	10.1	Series A Preferred Stock Subscription Agreement dated as of March 31, 2008 by and among SPAR Group, Inc., each of Robert G. Brown and William H. Bartels and SPAR Management Services, Inc., as filed herewith.
  	
 	10.2	Debtor Finance Agreement dated as of May 24, 2006 by and among Bendingo Bank Limited ACN and Sparfacts Pty Ltd. together with  Bendingo Bank Limited ACN Standard Terms and Conditions, as filed herewith.
   	
 	31.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
  	
 	31.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
  	
 	32.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
  	
 	32.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.	
 
26

SPAR Group, Inc.
 
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Date: May 15, 2008  	SPAR Group, Inc., Registrant	

 	By:/s/ James R. Segreto	
 	James R. Segreto
Chief Financial Officer, Treasurer, Secretary
and duly authorized signatory	

 
 
27

 

 
SPAR Group, Inc.
 
EXHIBIT INDEX
 
 	10.1	Series A Preferred Stock Subscription Agreement dated as of March 31, 2008 by and among SPAR Group, Inc., each of Robert G. Brown and William H. Bartels and SPAR Management Services, Inc., as filed herewith.
  	
 	10.2	Debtor Finance Agreement dated as of May 24, 2006 by and among Bendingo Bank Limited ACN and Sparfacts Pty Ltd. together with  Bendingo Bank Limited ACN Standard Terms and Conditions, as filed herewith.
   	
 	31.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
  	
 	31.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
  	
 	32.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
  	
 	32.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.	

 

 
 
28

Exhibit 10.1
SERIES A PREFERRED STOCK
SUBSCRIPTION AGREEMENT
This Series A Preferred Stock Subscription Agreement (this “Agreement”) is made as of this 31st day of March, 2008, by and among  SPAR Group, Inc. , a Delaware corporation (the “ Corporation ”), each of  Robert G. Brown  and  William H. Bartels (each a “ Purchaser ”, and collectively, the “ Purchasers ”), and  SPAR Management Services, Inc. , a Nevada corporation wholly owned by the Purchasers (“ SMSI ”).
Section 1.           Purchase and Sale of the Preferred Shares. Subject to the terms and conditions of this Agreement, each Purchaser subscribes for and hereby purchases and acquires from the Corporation, and the Corporation hereby sells and issues to each Purchaser, the number of shares of the Corporation’s Series A Preferred Stock, par value $0.01 per share, specified for such Purchaser (collectively, the “ Preferred Shares ”), at a purchase price of $1.12 per Share:
 	(a)	54,564 Preferred Shares to Robert G. Brown, and	
 	(b)	34,722 Preferred Shares to William H. Bartels.	
 
The Purchasers shall cause SMSI to reduce the Corporation’s payable to it by the aggregate purchase price of $100,000.32 (the “Purchase Price ”), as payment in full for all such Preferred Shares. The Purchasers hereby direct SMSI to reduce, and by its signature below, SMSI hereby agrees to reduce and hereby reduces, the outstanding balance of SMSI’s receivables owed by the Corporation in the amount of the Purchase Price (applied oldest to youngest) and will reflect the same on its books and records.
Section 2.           Representations and Covenants of the Corporation. In order to induce them to enter into this Agreement, the Corporation represents and warrants the following to each Purchaser: (a) the Corporation is and will continue to be a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Corporation has and will maintain full and unrestricted power, authority and legal capacity, and it has been duly authorized and empowered, to the extent necessary to execute and deliver this Agreement and make this Agreement enforceable against it; (c) the Corporation has obtained and will maintain all qualifications, authorizations, approvals and waivers, and it has satisfied and will continue to satisfy all other applicable legal, governance and contractual requirements, to the extent necessary to execute and deliver this Agreement and make this Agreement enforceable against it; (d) this Agreement has been duly executed and delivered by the Corporation, and, upon its execution by the Purchasers, shall constitute the legal, valid and binding obligation of the Corporation, enforceable in accordance with its terms, except to the extent that its enforcement is limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors’ rights generally and by general principles of equity; (e) the authorized capital stock of the Corporation is 50,000,000 shares, consisting of (i) 47,000,000 shares of common stock, par value $.01 per share, and (ii) 3,000,000 shares of preferred stock, par value $.01 per share; (f) the holder’s conversion rights, Corporation’s redemption rights, payment and liquidation preferences over common, and other terms, provisions and conditions respecting the Preferred Shares are stated in the Series A Preferred Stock Designation as filed with the Delaware Secretary of State on March 28, 2008 (the “ Series A Designation ”); and (g) upon issuance in accordance with the terms of this Agreement, the Preferred Shares will be duly and validly authorized and issued and fully paid and nonassessable.
Section 3.           Representations and Warranties of the Purchaser. In order to induce it to enter into this Agreement, each Purchaser represents and warrants (as to himself only) the following to the Corporation as of the date hereof: (a) the Purchaser has and will maintain full and unrestricted power, authority and legal capacity to the extent necessary to execute and deliver this Agreement and make this Agreement enforceable against him; (b) the Purchaser has obtained and will maintain all qualifications, authorizations, approvals and waivers, and he has satisfied and will continue to satisfy all other applicable legal, governance and contractual requirements, to the extent necessary to execute and deliver this Agreement and make this Agreement enforceable against him; (c) this Agreement has been duly executed and delivered by the Purchaser, and, upon its execution by the Corporation, shall constitute the legal, valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except to the extent that its enforcement is limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors’ rights generally and by general principles of equity; (d) the Purchaser has knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of his investment in the Preferred Shares; (e) the Purchaser understands
 	- 1 -	

that an investment in the Corporation represents a high degree of risk and there is no assurance that the Corporation’s business or operations will be successful; (f) as an officer and director, the Purchaser regularly receives and reviews information pertaining to the Corporation, including (without limitation) the Corporation’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2008 (the “ 2007 Annual Report ”), the Purchaser has received all of the information that he requested in connection with the decision to purchase the Preferred Shares, the Purchaser has independently reviewed and evaluated the 2007 Annual Report, the Series A Designation, and other information provided by the Corporation in connection with the decision to purchase the Preferred Shares, the Purchaser has had an opportunity to ask questions and receive answers from the Corporation regarding the business, properties, prospects and financial condition of the Corporation, and all such questions have been answered to the full satisfaction of the Purchaser; (g) the Purchaser has considered carefully the risks attendant to an investment in the Corporation and the Preferred Shares (including, without limitation, the Risk Factors described in the 2007 Annual Report), and that, as a consequence of such risks, the Purchaser understands he could lose his entire investment in the Preferred Shares; (h) the Purchaser further understands that (i) neither the offering nor the sale of the Preferred Shares has been registered under the Securities Act of 1933, as amended (the “ Securities Act ”) or any applicable state laws in reliance upon exemptions from the registration requirements of such laws, (ii) the Preferred Shares must be held by him indefinitely unless the sale or transfer thereof is subsequently registered under the Securities Act and any applicable state laws, or an exemption from such registration requirements is available, and (iii) the Corporation will rely upon the representations and warranties made by the Purchaser in this Agreement in order to establish such exemptions from the registration requirements of the Securities Act and any applicable state laws; (i) the Preferred Shares are being acquired for investment for the Purchaser’s own account, and not as a nominee or agent and not with a view to the resale, transfer or distribution of all or any part of the Preferred Shares; (j) the Purchaser has no present intention of selling, transferring or distributing any of the Preferred Shares, or granting any participation in any of the Preferred Shares, to any individual, entity or other person within the meaning of the Securities Act; and (k) the Purchaser does not have any contracts, understandings, agreements or arrangements to sell, transfer or distribute any of the Preferred Shares, or grant any participation in any of the Preferred Shares, to any individual, entity or other person.
Section 4.           Further Assurances. The parties will, upon reasonable request, execute and deliver all such further assignments, endorsements and other documents as may be necessary in order to implement and perfect the purchase by the Purchasers of the Preferred Shares.
Section 5.           Successors and Assigns; No Third Party Benefits; Headings, Etc. The representations, warranties, covenants and other agreements made by or on behalf of each party in this Agreement shall be binding upon the successors, permitted assigns, heirs and legal representatives of such party and shall inure to the benefit of the successors, permitted assigns, heirs and legal representatives of each other party. The provisions of this Agreement are for the exclusive benefit of the parties hereto, and, except as otherwise expressly provided herein, no other person (including creditors of any party hereto) shall have any right or claim against any party by reason of any of those provisions or be entitled to enforce any of those provisions against any party. The section headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
Section 6.           Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, (a) to the extent applicable, the General Corporation Law and Article 8 of the Uniform Commercial Code of the State of Delaware, each as amended, and (b) to the extent that such Delaware laws are not applicable, the applicable law of the State of New York other than those conflict of law rules that would defer to the substantive laws of any other jurisdiction.
Section 7.           Counterparts and Amendments. This Agreement or any amendment hereto may have been executed in two or more counterparts of the entire document or its signatures pages, any of which may have been delivered by telecopy, pdf or other electronic means, and all of which, when taken together, shall constitute a single agreement binding upon all of the parties hereto. Except for a party’s consent or waiver hereunder (which need only be signed by it), each and every supplement, modification and amendment respecting this Agreement shall be in writing and signed by all of the parties hereto.
Section 8.           Entire Agreement. This Agreement contains the entire agreement of the parties, and supersedes and completely replaces all prior and other communications, discussions and other representations, warranties, promises, assurances, agreements and understandings (whether written, oral, express, implied or otherwise) between the parties, with respect to the matters contained in this Agreement.
 
 	- 2 -	

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
 
 	/s/ Robert G. Brown	
 	Robert G. Brown

 	
 	/s/ William H. Bartels	
 	William H. Bartels	

 

 	SPAR Group, Inc.	

 	By:	/s/ James R. Segreto	
 	 	Name:	James R. Segreto	
 	 	Title:	Chief Financial Officer	

 
 
ACKNOWLEDGED AND AGREED TO:
 
SPAR Management Services, Inc.

By:	/s/ Robert G. Brown	 	
 	Name: Robert G. Brown	
 	Title: Chairman, Chief Executive Officer and President	

 
 	- 3 -	

Exhibit 10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 
BENDIGO BANK LIMITED
ACN 068 049 178
ABN 11 068 049 178

 

STANDARD TERMS
&
CONDITIONS

 

 

STANDARD TERMS AND CONDITIONS
 
1.	APPLICATION OF STANDARD TERMS	3	

2.	COSTS AND OTHER AMOUNTS	3	

3.	GENERAL OBLIGATIONS	4	

4.	YOUR WARRANTIES AND UNDERTAKINGS AS TO ASSIGNED DEBTS	4	

5.	OUR RIGHT OF ENTRY AND INSPECTION	5	
6.	LIMITATIONS ON YOUR RIGHTS UNDER ANY SALE OF GOODS OR OTHER AGREEMENTS	5	

7.	LIMITATIONS ON YOUR RIGHTS TO DEAL WITH DEBTS	5	

8.	RESTRICTIONS ON PAYMENTS TO DIRECTORS	5	

9.	GENERAL ACCOUNTING OBLIGATIONS	5	

10.	ACCOUNTING OBLIGATIONS FOR DEBTS	6	

11.	YOUR DUTY TO INDEMNIFY US	7	

12.	WHAT IS THE PERIOD OF THE AGREEMENT AND HOW CAN IT BE ENDED	7	

13.	YOUR OBLIGATION TO REPURCHASE ASSIGNED DEBTS	8	

14.	WHAT YOU MUST PAY AT THE END OF THIS AGREEMENT	8	

15.	CONVERSION TO NON SELECTIVE FACTORING	8	

16.	OUR DISCRETION TO VARY THIS AGREEMENT	8	

17.	YOU MUST APPOINT US AS ATTORNEY	9	

18.	CHARGE	9	

19.	FURTHER ASSURANCE	9	

20.	PROPER LAW	10	

21.	CERTIFICATE, STATEMENT, ETC	10	

22.	WAIVER AND RIGHTS OF SET OFF	10	

23.	NOTICES	10	

24.	NO FINANCIAL ADVICE	11	

25.	ASSIGNMENT	11	

26.	CONSENT	11	

27.	TERMS OF THIS AGREEMENT TO PREVAIL	11	

28.	TIME FOR PAYMENT	11	

29.	SECURITIES	11	

30.	THE COLLATERAL AGREEMENTS	11	

31.	GOODS AND SERVICES TAX	11	

32.	KEY WORDS AND EXPRESSIONS	11	

33.	INTERPRETATION	13	

Bendigo Bank Limited	Page2of 18	

 

STANDARD TERMS AND CONDITIONS
 
1.	APPLICATION OF STANDARD TERMS	
 
Onyousigning and returning tousthe offer set out in theLetter of Offerand these Standard Terms, a legally binding contract comes into existence between you and us. You should carefully consider and ensure that you fully understands the terms of the Letter of Offer and these Standard Terms before you sign and accept the Letter of Offer. We recommend that you obtain legal and financial advice before you sign and accept the Letter of Offer . The Standard Terms will also apply to each Security Provider and each Security Provider should carefully consider and ensure that it understands its obligations before signing any documents. We recommend that each Security Provider obtains legal and financial advice before signing the Letter of Offer and any Security.

2.	COSTS AND OTHER AMOUNTS	
 
 	2.1	Youmust payus:	
 
 	2.1.1	all fees, charges, bank charges and other expenses incurred byusunder or specified in thisAgreementor incidental to it or in connection with any transactions contemplated by it;	
 
 	2.1.2	all stamp duty, tax and other government or semi-government charges payable in respect of theTransaction Documentsor any transactions entered into under them;	
 
 	2.1.3	all costs and charges (including legal fees on the higher of a solicitor/own client basis and a full indemnity basis) incurred by us in negotiation, preparation, execution, stamping and (where necessary) registration of the Transaction Documents;	
 
 	2.1.4	all costs and charges (including legal fees on the higher of a solicitor/own client basis and a full indemnity basis) incurred by us in either or both of the following circumstances :	

 	(a)	where anEvent or Defaulthas occurred under anyTransaction Document;or	

 	(b)	in preserving or protectingourposition or enforcing or attempting to enforce all or any ofourrights under any Transaction Document;	
 
including the costs ofouragents, consultants or contractors aswereasonably determine and including such time spent byourand/orour agents' employees at the rate from time to time applicable to our and/or our agents' employees as stipulated by us from time to time but if not otherwise stipulated, at the following rates:
 
Executive Director and Chief Executive Officer or any person performing some or all of the functions of any of those positions - at $380 plus GST per hour;
 
National Sales & Marketing Manager, Chief Financial Officer and Chief Operations Officer or any person performing some or all of the functions of any of those positions - at $292 plus GST per hour;
 
Account Manager, Risk Manager, Technology Manager, Sales or State Manager, Business Development Manager, or any person performing some or all of the functions of any of those positions -at $264 plus GST per hour;
 
Senior Client Services Officer, Risk Officer, Accounts Receivable Manager,
Senior Accounts Officer or any person performing some or all of the functions of any of those positions - at $171 plus GST per hour;
 
Client Services Officer, Accounts Receivable Officer, Accounts Officer,

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STANDARD TERMS AND CONDITIONS
 
Personal Assistant or any person performing some or all of the functions of any of those positions - at $127 plus GST per hour;
 
Team Support Officer, Receptionist or any person performing some or all of the functions of any of those positions - at $98 plus GST per hour.
 
 	2.2	Youmust promptly comply with all ofourrequests and those ofourlawyers in connection with any payments required in respect of the charges in clause 2.1.	
 
 	2.3	Youindemnifyusagainst any liability resulting from delay or failure to pay any of the charges in clause 2.1.	
 
 	2.4	Unless otherwise specified in theTransaction Documentsall costs charges and other payments due tousare payable on demand.	
 
 	2.5	Youmust payustheSecurity Release Feeupon release or discharge of any one or moresecurities.	
 
 	2.6	Youmust payusthe sum as set out in Part 18 of theDetailsfor each newDebtorwhoseDebts youoffer to sell tousafter the initial sale of Debts to us under this Agreement, plus any costs (calculated on an indemnity basis) we incur in assessing the credit risk of the Debtor, whether or not we accept your offer in relation to that Debtor.	
 
 	2.7	Ifweagree in ourabsolute discretion, followingyourrequest, to release any part of theCash Reserve/ Reserve Releasewhere there are insufficient funds available in the Reserve Account, or otherwise prior to the date set out in Part 11 of the Details, you must pay us the greater of:	

 	2.7.1	$100 plus GST; or	
 
 	2.7.2	1.5% of the funds to be made available plus GST; or	
 
 	2.7.3	the charges set out in Part 25 of theDetails.	

3.	GENERAL OBLIGATIONS	
 
3.1	Youmust not do anything that would prevent anyAssigned Debtsbeing paid tousbyyour Debtors.In particularyoushall not ask or require your Debtors to pay Assigned Debts to any person other than ourselves unless we direct you in writing to do so.	
 
3.2	Youshall requireyour Debtorsto payAssigned Debtsdirectly tousby the placing of a notice to such effect in the form annexed as Schedule A to these Terms and Conditions on each invoice.	
 
3.3	Any payment received byyouin respect of aAssigned Debtis received byyouon trust forusandyoumust deliver it tousin original form or bank it as we direct whether or not, in the case of cheques, drafts or notes, it may, in addition to the payment of the Debt include an additional amount. If made payable to you it must be endorsed by you to us or as we direct, provided that if you are not in default of the terms of this Agreement we shall reimburse to you any amount received by us not in respect of Assigned Debts.	
 
3.4	Wheneverwerequestyouto do soyoushall execute a legal assignment tousof anyAssigned Debtsand giveyour Debtorswritten notice of such assignment.	
 
4.	YOUR WARRANTIES AND UNDERTAKINGS AS TO ASSIGNED DEBTS	
 
 	4.1	Youwarrant tousin relation to eachDebt youoffer tousthat (except as disclosed in writing tousat the time of offering the Debt):	
 
 	4.1.1	theDebtis fully valid and enforceable for theFull Face Valuefree of any cross claims, set offs, charges, discounts or any other rights whatsoever;	
 
 	4.1.2	theDebtwas incurred in the ordinary course ofyour Debtor'sbusiness onyourstandard terms of trade as disclosed tous and that the terms provide for payment in Australia in Australian dollars;	
 
 	4.1.3	your Debtorshave not and will not during the term of theAssigned Debthave or claim any set off or other claim by way of cross action against you or dispute their liability to	

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STANDARD TERMS AND CONDITIONS
 
pay theDebton any ground whatsoever;
 
 	4.1.4	youhave investigated the financial status and credit of each ofyour Debtorsand are satisfied that eachDebtoris able to pay the relevant Debt before the due date;	
 
 	4.1.5	youare not aware of any matter in relation to any ofyour Debtorsthat may affectourdecision to purchase thatDebtor's Debts;	
 
 	4.1.6	youhave disclosed tousany fact or matteryouknow or ought to know would influenceourdecision whether or not to accept any offer you make to us;	
 
 	4.1.7	youhave full power to sell the legal and equitable title to eachDebtand thatyouwill transfer eachDebttousfree from any third party rights whatsoever;	
 
 	4.1.8	noAssigned Debtis owed by anAssociateorRelated Companyor person ofyou;	
 
 	4.1.9	no supplier toyouis entitled to or claims any interest in respect of anyAssigned Debtunder any retention of title or similar provisions;	
 
 	4.1.10	the particulars included in theInvoice, and all other documents relating to theDebtsubmitted byyoutousare correct;	
 
 	4.1.11	youhave paid all applicable Taxes (other than GST whichyouwarrantsyouwill pay in accordance with the GST Act) in respect of the sale represented by the Debt; and	
 
 	4.1.12	the transaction creating theDebtis not governed by the Consumer Credit Code, unlessyoudisclose tousin writing that the Transaction creating the debt is governed by the applicable Consumer Credit Code, and provide full written details to us of the terms, conditions, and circumstances of such Transaction creating the Debt and we waive this warranty in writing to you .	
 
 	4.2	Youundertake tousin relation to eachDebt you offertousthat (except as disclosed in writing tousat the time of offering the Debt):	
 
 	4.2.1	youshall duly and promptly perform and observe all the terms of the agreement giving rise to theDebtand do everything necessary to ensure that the Debt is recoverable by action at law;	
 
 	4.2.2	youwill not make any arrangements withyour Debtorsto compromise, set off or discharge anyDebt;	
 
 	4.2.3	youshall not make any arrangements for or accept the return of any goods withoutourconsent in writing where the sale of those goods gave rise to an Assigned Debt;	
 
 	4.2.4	youwill not issue a credit note in relation to aAssigned Debtwithout proper cause. Any credit note issued byyouwill be promptly notified to us. You will deliver any credit note and any other information in relation to it to us before issuing it if we require you to do so. We shall have total discretion to deliver such a credit note to your Debtor but if we deliver it, the delivery shall be without prejudice to any rights we have under this Agreement ;	
 
 	4.2.5	youwill keepusfully informed of all information concerning disputes or possible disputes about anyAssigned Debtor that may affect the credit worthiness of any of your Debtors; and	
 
 	4.2.6	youwill do everything necessary to validly assign eachDebttous.	
 
 	4.3	Youindemnifyusagainst any failure byyouto fulfilyourobligations under this clause and against any loss arising by reason of any actions whatsoever brought by Debtors against you in relation to any agreement giving rise to a Assigned Debt.	
 
5.	OUR RIGHT OF ENTRY AND INSPECTION	
 
Youagree thatwe(or anAuthorised Officerorournominee) is at any time able to enter land or buildings occupied byyouwithout notice to inspect and take copies of any documents relating in any way to any Assigned Debts.

 
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STANDARD TERMS AND CONDITIONS
 
 	6.	LIMITATIONS ON YOUR RIGHTS UNDER ANY SALE OF GOODS OR OTHER AGREEMENTS	
 
Subject to clause 4.2.4,youagree thatyouwill not rescind, cancel or vary any sale of goods or other agreement between aDebtorandyou which gave rise to an Assigned Debt, without our express consent in writing.

7.	LIMITATIONS ON YOUR RIGHTS TO DEAL WITH DEBTS	
 
Subject to clause 4.2.4,youagree thatyouwill notassign,charge or otherwise encumber any ofyour Debtsor enter into any other agreement for factoring or discounting them without our prior written consent.

8.	RESTRICTIONS ON PAYMENTS TO DIRECTORS	
 
Unlessyouhave givenussix months prior notice in writing ofyourintention to do so,youmay not pay, lend or credityourdirectors any amounts without our prior written consent other than the following:

 	8.1	director's fees, salaries, expenses or benefits (including superannuation benefits) in whatever form for an amount which is no greater than that disclosed in your last balance sheet and profit and loss account before this Agreement ;	
 
 	8.2	money payable under any agreement now in force which has been disclosed tousprior toourexecution of thisAgreement and where we have given our prior written approval to the payment; and	
 
 	8.3	dividends to whichwehave given prior written approval for payment of same.	

9.	GENERAL ACCOUNTING OBLIGATIONS	
 
9.1	Youmust:	
 
 	9.1.1	give tousall accounts and financial information provided for in thisAgreement. The accounts and information must be prepared in accordance with all accounting standards in force or recommended by the Australian Society of Accountants or the Institute of Chartered Accountants and kept so as to give a true and fair view of your financial position and that of your Group;	
 
 	9.1.2.	keep proper books of account containing entries of all transactions in relation toyour Group'sbusiness. Books of account, delivery receipts and all other documents relating to your Group's business must be kept at your principal place of business and be open for inspection at all reasonable times by us or anyone we authorises in writing; and	
 
 	9.1.3	appoint an accountant approved byusto maintainyourdebtors ledger and such other accounts aswerequires if requested to do so by us in writing. If you does not do so for whatever reason we shall be entitled to appoint an accountant on your behalf. We is irrevocably authorised to pay for an appointment we makes and any work performed by the accountant we appoints out of any money due to you under this Agreement .	
 
 	9.2	Youmust give touswithin 30Business Daysof the end of each financial year and half year the following statements for the next year certified as correct by at least one of your directors or if you are not a corporation, by an owner or principal of your business :	
 
 	9.2.1	the estimated consolidated after tax profit of theGroup;and	
 
 	9.2.2	the budgets of theGroup.	

 
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STANDARD TERMS AND CONDITIONS
 
 	9.3	Any material revisions of the statements in clause 9.2 must be given touswithin 30 days.	
 
 	9.4	Youmust give touswithin 180 days of the end of each financial year and half year:	

 	9.4.1	a consolidated balance sheet and individual balance sheets foryouand for each of the companies inyour Group;	
 
 	9.4.2	consolidated profit and loss account and detailed audited individual profit and loss accounts foryouand each of the companies in your Group; and	
 
 	9.4.5	an individual reconciliation of profit and loss appropriation accounts together with a consolidated profit summary foryouand each of the companies in your Group.	
 
9.5	Subject to clause 9.6 all accounts referred to in clause 9.4 must be prepared and audited by an independent chartered accountant agreed upon in writing between you and us. If you and we fail to agree upon a named accountant within 30 Business Days after a written request by either of you or us to the other we shall nominate one.	
 
9.6	Ifyouand each of the companies inyour Groupare a small proprietary company under Section 45A(2) of the Corporations Actwemay exempt you from the requirements in clause 8.6 on your request in writing to us. Even if we grant you an exemption you must still supply the accounts reports and other information referred to in Section 292 and 293 of the Corporations Act if Section 292(2) of the Corporations Act applies.	
 
 	9.7	All statements given pursuant to clauses 9.2, 9.3, 9.4, and 9.5 must be certified as correct by at least one ofyourdirectors or ifyou are not a corporation, by an owner or principal of your business .	
 
 	9.8	Youmust if requested bywegive tousmanagement accounts and any other financial informationwerequires aboutyouor a company in your Group to enable us to make an assessment of your financial position and that of your Group. The management accounts and any other information shall be for each month or such other periods as we may from time to time nominate and must be given to us within 30 days of the end of each period.	
 
10.	ACCOUNTING OBLIGATIONS FOR DEBTS	
 
10.1	Youmust keep all proper books and accounts necessary to disclose the following matters tousin relation toAssigned Debtsat all times:	
 
 	10.1.1	the amount;	
 
 	10.1.2.	the terms of payment;	
 
 	10.1.3	the amounts collected and the time of each collection; and	
 
 	10.1.4	the balance due by theDebtor	
 
10.2	When requested byusyouagree:	
 
 	10.2.1	to annotate in such manner aswerequireyourdebtors’ ledger so as to indicate whichDebtshave becomeoursand agree to otherwise deal with the Debts in your books as directed by us ; and	
 
 	10.2.2	to keep a separate ledger to record allAssigned Debts. The ledger is and remainsourproperty.	

10.3	Youagree that ifyouare requested to keep the accounts referred to in clause 10.1 and all other records and documents relating to the Assigned Debts the accounts will be kept at your expense, as agent for us and that we may remove them at any time for any period we think fit.	
 
10.4	Youmust deliver touson demand the following documents in relation toAssigned Debts:	
 
 	10.4.1	all agreements,Debtorinvoices, delivery receipts and ledger cards;	

 
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STANDARD TERMS AND CONDITIONS
 
 	10.4.2	all invoices, vouchers and accounts issued byyou;	
 
 	10.4.3	all writing evidencing the agreement betweenyouandyour DebtorsandDebtorreceipts for any goods delivered byyou; and	
 
 	10.4.5	all other evidence or documents which would be required byusto enforce theDebtin a court of law or thatwemay from time to require. If you maintains accounts on computer, your obligations include providing to us copies of all computer software and all other programs and information necessary to enable us to inspect and efficiently use and maintain them.	
 
10.5	Youwarrant in relation to the documents and information in clause 10.4 that as at the time they are provided byyoutousthey contain correct and sufficient details of:	
 
 	10.5.1	the names and addresses ofDebtorswho oweyou Debts;	
 
 	10.5.2	the goods sold and services rendered toyour Debtorsbyyouand the dates of the sales or services; and	
 
 	10.5.3	the amounts payable byyour Debtorsand the terms of such payments.	

10.6	Without prejudice toourrights under this clausewemay permityouto retain any documents referred to in clause 10.4 for the convenience of your business or lend them to you for such periods as we think fit.	
 
10.7	Ifwerequestyouto do soyoumust by the 15th day of each month deliver tousa full aged debtor trial balance of allyour Debtsfor the previous month together with a full reconciliation and any other information we may reasonably require in relation to the Assigned Debts.	
 
10.8	Youshall not deal inyourbooks of account or financial statements or deal with anyAssigned Debtin any way thatwedirectyounot to do so.	
 
10.9	Where goods are the subject of a sale which gave rise to aAssigned Debtand the goods are returned toyoufor whatever reasonyou shall hold such goods on trust for us and deal with them in accordance with our directions.	
 
10.10	Ifwedirectyouto do soyoumust deliver the goods referred to in clause 10.9 tous.	
 
11.	YOUR DUTY TO INDEMNIFY US	
 
11.1	Youindemnifyusand keepusindemnified against any failure for whatever reason by aDebtorto pay theNet Invoice Valueof an Assigned Debt by the Recourse Date.	
 
 	11.2	Without limiting the generality ofyourobligations under clause 11.1youagree thatyouwill payustheNet Invoice Valueof any Assigned Debt less any money received by us in respect of it without the need for any demand from us if:	

 	11.2.1	anyAssigned Debtremains unpaid or has not been paid touswholly or partlybytheRecourse Date;	
 
 	11.2.2	any warranty given byyouabout aAssigned Debthas been breached whether at the time of offering it tousor subsequently;	
 
 	11.2.3	in our absolute discretion it is of the opinion that theAssigned Debtis unlikely to be paid in full by theRecourse Datefor that Debt and we notifies you of that fact;	
 
 	11.2.4	theDebtorin relation to aAssigned Debt;	

 	(a)	is an individual and commits an act of bankruptcy as defined in theBankruptcy Act1966 (C'th); or	

 	(b)	is a company and any application is filed or an order is made or a resolution passed for its winding up or if any meeting is called for the purpose of considering such a resolution;	
 
 	11.2.5	an administrator or other controller is appointed to theDebtoror a receiver, receiver	
 
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STANDARD TERMS AND CONDITIONS
 
and manager or other controller is appointed to all or part of the undertaking or property of theDebtor;
 
 	11.2.6	the holder of any mortgage charge or encumbrance takes possession of any of theDebtor'sassets; or	
 
 	11.2.7	any execution or other process of a court or any authority is levied over theDebtor'sproperty.	

 	11.3	Legal and beneficial title to anyAssigned Debtremains withuseven ifyouhave made a payment under clauses 11.1 or 11.2 andwe are entitled to receive the full proceeds from the Assigned Debt subject only to the terms of this Agreement , which proceeds will be credited to your Drawdown Account or your Reserve Account at our discretion.	
 
 	11.4	Ifyouissue aDebtorwith a credit note or accept the return of goods in relation to the whole or any part of aAssigned Debt you must immediately pay to us the Full Face Value of the credit note. Our rights under this clause are without prejudice to the obligations imposed on you under clause 6 and clause 7.	
 
12.	WHAT IS THE PERIOD OF THE AGREEMENT AND HOW CAN IT BE ENDED	
 
 	12.1	ThisAgreementoperates until it is ended byyouorusin a way set out in thisAgreement.	
 
 	12.2	Either ofyouoruscan end thisAgreementfor future transactions by giving the other 60 days prior written notice.	
 
 	12.3	Youcan end thisAgreementwithout giving 60 days prior written notice ifyoupayustheShort Notice Fee.	
 
 	12.4	Wecan end thisAgreementatouroption without notice if anEvent of Defaultoccurs.	
 
 	12.5	AnEvent of Defaultoccurs if:	

 	12.5.1	youbreach any obligation under thisAgreement;	
 
 	12.5.2	in ourabsolute discretionweare of theopinion that any warrantyyouhave givenusunder anyTransaction Document is or becomes incorrect;	
 
 	12.5.3	in ourabsolute discretionweare of the opinion thatyouhave not disclosed toussomething known toyouthatyou know or ought to know might influence our decision whether or not to enter into this Agreement ;	
 
 	12.5.4	youor any other person breach any obligation under any of theCollateral Securities;or	
 
 	12.5.5	anEvent of Defaultspecified in any of theCollateral Securitiesoccurs.	
 
 	12.6	Except as specifically provided the ending of thisAgreementdoes not affectyourobligations under it prior to its end including without limitation your obligation to pay interest, fees and charges as provided for in this Agreement and your obligations under clauses 10 and 11 in respect of Assigned Debts.	
 
13.	YOUR OBLIGATION TO REPURCHASE ASSIGNED DEBTS	
 
 	13.1	If thisAgreementis ended for whatever reasonyoumust repurchase allAssigned Debts,(including anyDebtsfor whichyouhave made a payment under clause 11) immediately, without any need for demand from us.	
 
 	13.2	The repurchase price for anyAssigned Debtshall be itsFull Face Valueless any money (including any payment)wehave received in relation to it.	
 
 	13.3.	Legal and beneficial title to allAssigned Debtsremains withusuntilwehave received all money due tousor payable byyouin the future under the Transaction Documents.	
 
14.	WHAT YOU MUST PAY AT THE END OF THIS AGREEMENT	

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STANDARD TERMS AND CONDITIONS
 
 	14.1	Youagree to payuson demand theTermination Fee(if applicable) if thisAgreementis terminated byyouor byusfor any reason whatsoever.	
 
 	14.2	Unlessyougiveus60 days prior written notice of termination,youmust payuson demand aShort Notice Feein lieu of such notice calculated as follows:	
 
 	14.2.1	if less than 30 days written notice is given the sum equivalent to 5% of theFull FaceValueof allAssigned Debts purchased by us from you which remain unpaid at the date you give notice;	
 
 	14.2.2	if 30 days or more but less than 60 days written notice is given the sum equivalent to 3% of theFull Face Valueof all Assigned Debts purchased by us from you which remain unpaid at the date you gave notice.	
 
 	14.3	Youagree that theTermination Feeand theShort Notice Feehave been calculated byusafter consideration of the loss whichwe would suffer if this Agreement was terminated early and/or without the giving of 60 days prior notice in writing and represent a genuine pre-estimate of the loss which the termination would cause us in such circumstances.	
 
15.	CONVERSION TO NON SELECTIVE FACTORING	
 
 	15.1	Wemay requireyouto offer to sellusallyourDebtsby givingyoua notice in writing in any of the following circumstances:	
 
 	15.1.1	if anEvent of Defaultoccurs;	
 
 	15.1.2	if in our absolute discretionweare of the opinion that theSecuritiesare at risk; or	
 
 	15.1.3	if in our absolute discretionweare of the opinion that there has been a material adverse change toyouoryourbusiness or the Assigned Debts.	

 	15.2	From service of aNoticeunder clause 15.1,youmust offer to sellusallyourDebtsno less than once each month. EachDebtmust be included in the first offer made after the date the Debt arose.	
 
 	15.3	The provisions of thisAgreementapply toDebtspurchased byusafter aNoticehas been issued unless specified otherwise.	
 
 	15.4	Youmust requireyour Debtorsto pay directly tous:	
 
 	15.4.1	allAssigned Debtsunlesswespecifies otherwise in writing; and	
 
 	15.4.2	after anEvent of Defaulthas occurred, allAssigned Debts	
 
by the placing of a notice to that effect in the form annexed as Schedule A to theseTerms and Conditionson each invoice.
 
16.	OUR DISCRETION TO VARY THIS AGREEMENT	
 
 	16.1	Wemay give notice of its intention to amend, add to or delete any term of thisAgreementat any time by written notice toyou.	
 
 	16.2	Without limiting the generality of whatwecan do under clause 15.1wecan give notice of an:	

 	16.2.1	increase or decrease in theAdvance Rate,theReserve Amountor any fees or charges payable under thisAgreement; or	
 
 	16.2.2	imposition of any additional fees or charges.	
 
 	16.3	Youmust accept or reject any amendments, additions or deletionsweproposes to make by notice in writing touswithin seven days of the date of our notice to you.	
 
 	16.4	Ifyoureject any amendment, addition or deletionyoushall be deemed to have givenusnotice to terminate thisAgreementunder clause 14.2.	
 
 	16.5	Ifyoufail to notifyuswithin seven days ofyouracceptance or rejection ofouramendment, addition or deletion,youis deemed to have accepted the amendment, addition or deletion.	
 
 	16.6	Any amendment, addition or deletion if accepted shall only be applicable toDebtspurchased after the date ofournotice toyou.	

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STANDARD TERMS AND CONDITIONS
 
 	17.	YOU MUST APPOINT US AS ATTORNEY	
 
 	17.1	By this clauseyouirrevocably appointsusand eachAuthorised Officersor any one or more of them jointly and severally to beyour true and lawful attorneys. As your attorneys we and each Authorised Officer can in your name and on your behalf:	
 
 	17.1.1	render accounts toDebtorswho oweAssigned Debts;	
 
 	17.1.2	contact or communicate by letter, telephone, electronic mail, or in person any ofyour Debtorsfor the purposes of verifying the terms and collecting payment of any Assigned Debt owed by such Debtor;	
 
 	17.1.3	demand, commence or defend any action or other proceedings in any court for the recovery or otherwise in relation to any Assigned Debt which has not been legally assigned to us and bring action or proceedings to prosecute or discontinue or become non suit at our absolute discretion;	
 
 	17.1.4	bring any action to wind up or bankrupt anyDebtor;	
 
 	17.1.5	do everything necessary to prepare and complete formal or legal assignments of anyAssigned Debtstousor otherwise to perfect our title to a Assigned Debt;	
 
 	17.1.6	write to any debtors inyourname to require payment of anyAssigned Debtswhenever and in any mannerwethink fit;	
 
 	17.1.7	give inyourname and onyourbehalf notice of the assignment, formal, legal or equitable of anyAssigned Debt;	
 
 	17.1.8	draw, accept and endorse cheques, bills or other negotiable instruments in relation to anyAssigned Debt;	
 
 	17.1.9	enter into or execute transactions, documents, mortgages, charges and agreements which, inouropinionyoushould enter or execute pursuant to the Agreement ; and	
 
 	17.1.10	do anything whatsoever necessary to secure performance byyouofyourobligations under thisAgreementor otherwise in relation to the Assigned Debts	
 
17.2	Youratify anything done by an attorney under the power of attorney in this document.	
 
17.3	The power of attorney conferred onusand eachAuthorised Officerby this clause is irrevocable as long asyouremains under any obligation actual or contingent under this Agreement despite any termination or purported termination of the Agreement .	
 
18.	CHARGE	
 
As security for all moneys owing from time to time byyoutous,youas beneficial owner charge in favour ofusall freehold and leasehold interests in land and all personal property of whatever description and wherever situated which you now have or during the currency of the Agreement may acquire.
 
19.	FURTHER ASSURANCE	
 
 	19.1	Youwill whenever so requested byus:	

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STANDARD TERMS AND CONDITIONS
 
 	19.1.1	hand tousall certificates or other documents of title relating to the land and property charged under theAgreementand transfers for any such land or property duly executed you as transferor to be held by us until the charge created by the Agreement is released except during any period that a prior encumbrancer has and is entitled to hold such documents of title;	
 
 	19.1.2	execute in favour ofusin writing legal assignments of any or all of theAssigned Debtsand give to anyDebtororDebtors in respect of such Assigned Debts written notice of such assignment;	
 
 	19.1.3	execute mortgages in favour ofus, in such form aswedetermine of any land and or real or personal property now or in the future owned by you or in which you may have an interest and where such mortgage secures all money owing from time to time by you to us; and	
 
 	19.1.4	deliver or cause to be executed and delivered such deeds, instruments, mortgages and other documents and cause to be done all such other acts and things as we may consider necessary or desirable for further or more satisfactorily assuring or securing to us or as we direct the land and property charged under the Agreement in such form as is necessary in order to obtain any necessary or desirable registration of such documents.	
 
20.	PROPER LAW	
 
The proper law for thisAgreementis that of theRelevant Stateandyouandweagree to submit to the jurisdiction of its courts.
 
21.	CERTIFICATE, STATEMENT, ETC	
 
21.1	Under no circumstances areweobliged to provide to any party to anAgreementor any of theTransaction DocumentsorSecuritiesany statement or accounting as to amounts paid or payable (in this clause 21 "Statement") under an Agreement or any of the Transaction Documents or Securities , or any information as to the basis of arriving at any amount payable to us by a party to an Agreement or any of the Transaction Documents or Securities .	
 
21.2	Ifweat any time and for any purpose serve a Statement on a party to anAgreementor any of theTransaction DocumentsorSecurities in respect of any period and that party or any other party to the relevant an Agreement or any of the Transaction Documents or Securities does not by written notice given to us not later than 30 days after the Statement is served by us on the party, challenge the contents of that Statement and provide particulars of alleged inaccuracies in that Statement, that Statement is, in the absence of manifest error, admissible in proceedings and is conclusive evidence of its subject matter.	
 
 	21.3	A Certificate or notice from or demand signed by anAuthorised Officerstating any of the following:	
 
 	21.3.1	that a specified sum of money is owing or payable (or both) under anAgreementor any of theTransaction Documentsor Securities ; or	
 
 	21.3.2	that the party providing aSecuritytoushas not complied with their obligations under anAgreementor any of the Transaction Documents or Securities ; or	
 
 	21.3.3	something relevant toourrights or obligations ofusunder anAgreementor any of theTransaction Documentsor Securities ,	
 
is, in the absence of manifest error, admissible in proceedings and is conclusive evidence of the matters stated.

Bendigo Bank Limited	Page12of 18	

 

STANDARD TERMS AND CONDITIONS
 
 	22.	WAIVER AND RIGHTS OF SET OFF	
 
 	22.1	Ifyoubreach thisAgreementyouare not entitled to claim any waiver byusofyourdefault unlesswegiveyoua certificate in writing signed by an Authorised Officer expressly waiving your breach.	
 
 	22.2	Weare entitled to set off any amounts whatsoeveryouoweusunder thisAgreementor otherwise against any sumweoweyou.	
 
 	22.3	Ourright to set off continues despite the occurrence of anEvent of Defaultis given in respect of any ofyourassets or undertaking.	
 
 	22.4	All warranties and indemnities given byyoutousare absolute and unconditional in all circumstances and are not affected by any delay, concession or indulgence on our part to exercise any of our rights.	
 
23.	NOTICES	
 
23.1	A notice or demand or other communication contemplated by thisAgreementmay be given byyouorusby prepaid post, facsimile or email transmission to the last known address, facsimile number of the other or email address or by written notice left at that address.	
 
23.2	Such a notice demand or other communication is deemed to be properly given and received:	

 	23.2.1	if by letter on the secondBusiness Dayafter the day of posting;	
 
 	23.2.1	if by facsimile or electronic mail on production of a transmission confirmation from the transmitting facsimile indicating that the facsimile or electronic mail was sent in its entirety to the facsimile number or electronic mail address of the recipient; or	
 
 	23.2.2	if delivered by hand, upon delivery;	
 
but if a receipt is not on aBusiness Dayor is after 4.00 pm at the place of receipt, it is deemed to be given and received on the nextBusiness Day.
 
23.3	Whereyouconsists of more than one party service byuson one ofyouis deemed to be service on all ofyou.	
 
23.4	Any notice or demand toyoufromusis deemed to be properly signed if it is in writing and signed by anAuthorised Officer.	
 
24.	NO FINANCIAL ADVICE	
 
Youacknowledge and agree thatwehave not provided or held itself out as providing any financial advice toyouwhatsoever and that the responsibility of determining the type and amount of any facilities you want is entirely your.
 
25.	ASSIGNMENT	
 
25.1	Youmust not assignyourrights or obligations under thisAgreementwithout first obtainingourprior written consent.	
 
25.2	Wecan assignourrights and obligations under thisAgreementat any time without restriction.	
 
26.	CONSENT	
 
Unless any provision of thisAgreementspecifies otherwise, any consent required to be given byusunder thisAgreementmay be given or refused absolutely or subject to any conditions that we may determine in ourabsolute discretion.

Bendigo Bank Limited	Page13of 18	

 

STANDARD TERMS AND CONDITIONS
 
 	27.	TERMS OF THIS AGREEMENT TO PREVAIL	
 
Wemay from time to time giveyouwritten notice of the terms on which the facility provided under thisAgreementis to operate. If there is a conflict between such a notice including our original facility letter and this Agreement the terms and conditions of this Agreement prevail unless we determine otherwise.
 
28.	TIME FOR PAYMENT	
 
Time is of the essence in relation to any payment fromyoutousunder thisAgreement.
 
29.	SECURITIES	
 
29.1	Youagree that for the purposes of securingyourobligations under thisAgreementyouwill ensure that the following is granted tous:	
 
 	29.1.1	theSecurities;and	
 
 	29.1.2	theGuaranteesof theGuarantorsif any specified in Part 13 of theDetails.	
 
29.2	Youacknowledge thatyourobligations under thisAgreementare secured by theCollateral Securities.	
 
29.3	Weare not obliged to purchase anyDebtor provide any financial accommodation toyouuntil we are in receipt of duly executed and registrable Securities.	
 
30.	THE COLLATERAL AGREEMENTS	
 
ThisAgreementis collateral to theCollateral SecuritiesandTransaction Documents.

31.	GOODS AND SERVICES TAX	
 
All amounts, rates and other payments payable byyouunder thisAgreementare exclusive of any goods and services tax, broad based consumption tax, value added tax or similar tax ("GST"). If GST is imposed on any supply made by us under or in connection with this Agreement (a "taxable supply") then you must pay to us an additional amount equal to the GST paid by us.
 
32.	KEY WORDS AND EXPRESSIONS	
 
 	In thisAgreementunless the context requires otherwise:	
 
 	•	Administration Feemeans the fee set out in Part 15 of theDetails;	
 
 	•	Application Feemeans the fee set out in Part 5 of theDetails;	
 
 	•	Advancemeans the amount calculated in accordance with the formula set out in Part 27 of theDetails;	
 
 	•	Advance Ratemeans in respect of eachDebtpurchased byus,the rate used to calculate theAdvancefor thatDebtin accordance with Part 27 of the Details;	
 
 	•	Agreementmeans the agreement entered into betweenyouandusincorporating these Terms and Conditions by reference, the Letter of Offer and the Schedules and Details attached to any of them;	
 
 	•	Assigned Debtsmeans those ofyour Debtsoffered for sale tousand in respect of whichwehave accepted the offer;	
 
Bendigo Bank Limited	Page14of 18	

 

STANDARD TERMS AND CONDITIONS
 
 	•	Associateincludes an associate in accordance with Section 12 and Section 15 of the Corporations Act and includes any related entity within the meaning of Section 9 of the Corporations Act;	
 
 	•	Audit Feemeans the fee specified in Part 21 of theDetails;	
 
 	•	Authorised Officermeans any one ofourdirectors,ourcompany secretary, any person employed byuswhose title includes the word "manager", or any other person authorised by us to sign documents or give notices or communications or certificates including but not limited to our solicitors, accountants and duly appointed agents and their employees;	
 
 	•	Batch Feemeans the fee set out in Part 16 of theDetails;	
 
 	•	Businessmeans the business carried on byyoufrom time to time during the term of thisAgreementas specified in your application form; ##	
 
 	•	Business Daymeans any day other than a Saturday or Sunday that banks in the capital city of theRelevant Stateare open for normal business;	
 
 	•	Cash Reserve/Reserve Releasemeans the amount available for payment toyoufrom theReserve Account;	
 
 	•	Certificatemeans a certificate in the terms described in Clause 21 given by anour Authorised Officer;	
 
 	•	Chargebackmeans the amount referred to in Clause 7.2 of theAgreement youmust payusin respect of anyAssigned Debt;	
 
 	•	Collateral Securitiesmeans and includes theGuaranteesandSecurities;	
 
 	•	Conditions Precedentmeans the conditions precedent to the facility being granted toyouas set out in theLetter of Offer;	
 
 	•	Current Drawingsmeans at any time, the total amount whichyouhave drawn down from theDrawdown Accountin respect of Eligible Assigned Debts;	
 
 	•	DebtorsmeansyourDebtors from time to time and any person liable toyouin respect ofDebtsand every one of them;	
 
 	•	Debtsmeansyourbook debts from time to time	
 
 	•	Debtor;	
 
 	•	Detailsmeans the Detailspart of theAgreement;	
 
 	•	Discounting chargemeans the fee set out in Part 4 of theDetails;	
 
 	•	Drawdown Accountmeans the account maintained onourbooks to show amounts available for drawdown in respect of Eligible Assigned Debts;	
 
 	•	Drawdown Feemeans the fee set out in Part 17 of theDetails;	
 
 	•	Early Retention Release Feemeans the fee set out in clause 2.7 of theseTerms and Conditions;	
 
 	•	Electronic Funds Transfer Feemeans the fee set out in Part 8 of theDetails;	
 
 	•	Eligible Assigned Debtsmeans allAssigned Debtswhich remain unpaid excluding theAssigned Debtsin any of the categories in Part 28 of the Details;	
 
 	•	Event of Defaultmeans any event described as such in theseTerms and Conditionsor any of theTransaction Documents;	
 
 	•	Facility Limitmeans the amount set out in Part 22 of theDetails;	
 
 	•	Groupmeansyouand all companies that areRelated Companiestoyou;	
 
 	•	GST Actmeans the A New Tax System (Goods and Services Tax) Act 1999 and the elated imposition Acts of the Commonwealth;	
 
 	•	Guaranteesmeans the guarantees (if any) specified in Part 13 of theDetailsand any other guarantee from time to time ofyour obligations under this Agreement;	
 
Bendigo Bank Limited	Page15of 18	

 

STANDARD TERMS AND CONDITIONS
 
 	•	Full Face Valuein respect of anyDebtmeans the gross amount charged to theDebtorless any allowances made or allowable or which may on the terms of that invoice become allowable to the Debtor in respect of the Debt;	
 
 	•	Ineligible Assigned Debtsmeans theDebtsdescribed as excluded from eligibility in Part 28 of theDetails;	
 
 	•	Invoicemeans means each invoice created or deemed to be created byyouevidencing aDebtand all other evidence whatever of the existence of a Debt and containing all information the statutory provisions of the GST Act require for the giving of a valid tax invoice;	
 
 	•	Letter of Offermeans the Letter of Offer addressed toyoufromuswhich offer is accepted byyouand eachSecurity Provider signing and returning to us the Letter of Offer which sets out the Facilities that we have offered to make available;	
 
 	•	Minimum Feemeans the fee set out in Part 19 of theDetails;	
 
 	•	Misbanking Feemeans the fee set out in Part 14 of theDetails;	
 
 	•	Net Invoice Valuemeans the dollar value of theInvoiceas presented tousas part of anOfferwhich has been accepted byus and assigned to us ;	
 
 	•	New Debtor Application Feemeans the fee set out in clause 2.6 of theTerms and Conditions;	
 
 	•	Notification Noticemeans a notice given toyoubyusthatyoumust effect a notice in the form annexed as Schedule A, pursuant to Clauses 3.1 and 3.2 of the Terms and Conditions and 10.3 of the Agreement;	
 
 	•	Offermeans theDebtsand orInvoicesyouwish to sell tousas presented on theScheduleofDebtswhether these are in a written form or sent to us via our web interface or any other electronic means such as facsimile or electronic mail under the terms of this Agreement;	
 
 	•	Related Companymeans a related body corporate within the meaning of theCorporations Act;	
 
 	•	Relevant Statemeans the state or territory in whichouroffice is situated as specified in Part 1ofthe Details;	
 
 	•	Recourse Datemeans the date set out in Part 12 of theDetails;	
 
 	•	Recourse Feemeans the fee set out in Part 23 of theDetails;	
 
 	•	Reserve Accountmeans the account so styled inyourname inourrecords to whichReserve Amountsare credited;	
 
 	•	Reserve Amountmeans the amount calculated and set out in Part 10 ofthe Details;	
 
 	•	Schedulemeans the Schedule of Debts that you must provide tousin accordance with Clause 3 of theAgreement;	
 
 	•	Security Providermeans any person a party to aTransaction Documentwho at any time grants aSecuritytous.	
 
 	•	Security Release Feemeans the amount/s set out in Part 26 of theDetails;	
 
 	•	Securitiesmeans the securities specified in Part 13 of theDetailsand any other security provided tousfrom time to time for the performance by you of your obligations under this Agreement;	
 
 	•	Service Fee meansthe fee calculated in accordance with Part 6 of theDetails	
 
 	•	Settlement Feemeans the fee calculated in accordance with Part 7 of theDetails	
 
 	•	Short Notice Feemeans the short notice fee payable in accordance with clause 14.2 of theseTerms and Conditions;	
 
 	•	Termination Feemeans the amounts set out in Part 9 of theDetails;	
 
 	•	Terms andConditionsmeans these our standard terms and conditions applicable to general business factoring as at the date of this Agreement;	
 
Bendigo Bank Limited	Page16of 18	

 

STANDARD TERMS AND CONDITIONS
 
 	•	Total Eligible Assigned Debt Limitmeans the amount specified in Part 29 of theDetails;	
 
 	•	Transaction Documentsmeans thisAgreement,any other agreement betweenus, the Letter of Offerand theCollateral Securities;	
 
 	•	Unused Facility Fee meansthe fee set out in Part 20 of theDetails;	
 
 	•	Usmeans the person described as us as set out in Part 1 of theDetailsand anAssociateofus.Us, ourand similar parts of speech have corresponding meanings;         	
 
 	•	Youmeanstheperson referred to as such on the first page of thisAgreementand in Part 1 of theDetails.You, yourand similar parts of speech have corresponding meanings.	
 
33.	INTERPRETATION	
 
In thisAgreementunless there is something inconsistent with the context or circumstances:
 
 	33.1	Words importing any one gender include the other genders;	
 
 	33.2	Words importing persons are deemed to include all bodies and associations, whether corporate or unincorporated, and vice versa;	
 
 	33.3	Words (including defined terms) importing the singular include the plural and vice versa;	
 
 	33.4	The headings in thisAgreementare for convenience and reference only and will not be construed as affecting the meaning or interpretation of this Agreement ;	
 
 	33.5	A reference to a statute or regulation, or to a provision of a statute or regulation, includes a reference to that statute, regulation or provision as amended, consolidated, replaced or re-enacted from time to time;	
 
 	33.6	The obligations imposed and the benefits conferred under thisAgreementonyouanduswill be binding and continue for the benefit of the respective parties and each of their respective successors in title, legal personal representatives and permitted assigns;	
 
 	33.7	A reference to any party to thisAgreementincludes that party's successors in title, legal personal representatives and permitted assigns;	
 
 	33.8	A reference to dollars and "$" will be taken as referring to amounts in Australian currency;	
 
 	33.9	Where a party comprises two or more persons, all covenants and agreements by that party binds such two or more persons jointly and severally unless expressed to be only several;	
 
 	33.10	The interpretation of any covenant clause or word mentioned in thisAgreementshall not be restricted by reference to any other covenant clause or word or by the position of such covenants clauses or words and in the event of any ambiguity all of the covenants clauses and words shall be construed in such a way as to widen and not restrict our powers, rights and remedies under this Agreement ;	
 
 	33.11	Where the day on or by which anything is to be done under thisAgreementis not aBusiness Daysuch act, matter or thing may be done on the next succeeding day which is a Business Day;	
 
 	33.12	Reference in thisAgreementto a month shall be a reference to a calendar month;	
 
 	33.13	if a word or expression is defined, cognate words and expressions have corresponding definitions;	
 
 	33.14	unless otherwise stated, a reference to a clause, recital or schedule is to a clause, recital or schedule in the document in which the reference is made;	
 
 	33.15	Words such as “including” are not to be construed as being words of limitation.	

Bendigo Bank Limited	Page17of 18	

 

STANDARD TERMS AND CONDITIONS
 
Schedule A

#

 
INVOICE ASSIGNED
 
THE DEBT SUBJECT TO THIS INVOICE HAS BEEN ASSIGNED TO
BENDIGO BANK LIMITED
ACN 068 049 178
 
FOUNTAIN COURT BENDIGO 3550
 
DIRECT PAYMENT TO BENDIGO BANK LIMITED
SHALL BE THE ONLY DISCHARGE OF THIS DEBT	

 
 
 	Bendigo Bank Limited	Page18of 18	

SPAR Group, Inc.
 
EXHIBIT 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary S. Raymond , certify that:
1.         I have reviewed this quarterly report on Form 10-Q for the three-month period ended March 31, 2008 (this “report”), of SPAR Group, Inc. (the “registrant”);
2.         Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.         Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.         The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a)        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)        Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)        Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d)        Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.         The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)        Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 15, 2008	/s/ Gary S. Raymond
Gary S. Raymond
President and Chief Executive Officer	
 
Ex-1

SPAR Group, Inc.
 
EXHIBIT 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James R. Segreto , certify that:
1.         I have reviewed this quarterly report on Form 10-Q for the three-month period ended March 31, 2008 (this “report”), of SPAR Group, Inc. (the “registrant”);
2.         Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.         Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.         The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:
(a)        Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)        Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)        Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d)        Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.         The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)        All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)        Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 15, 2008	/s/ James R. Segreto
James R. Segreto, Chief Financial Officer,
Treasurer and Secretary	

Ex-2

SPAR Group, Inc.
 
EXHIBIT 32.1
Certification of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report on Form 10-Q for the three month period ended March 31, 2008 (this “report”), of SPAR Group, Inc. (the “registrant”), the undersigned hereby certifies that, to his knowledge:
1.         The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2.         The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.
 
 	/s/ Gary S. Raymond
Gary S. Raymond
President and Chief Executive Officer

May 15, 2008	
 
A signed original of this written statement required by Section 906 has been provided to SPAR Group, Inc. and will be retained by SPAR Group, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.
 
Ex-3

 SPAR Group, Inc.
 
EXHIBIT 32.2
Certification of the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report on Form 10-Q for the three month period ended March 31, 2008 (this “report”), of SPAR Group, Inc. (the “registrant”), the undersigned hereby certifies that, to his knowledge:
1.         The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2.         The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.
 	/s/ James R. Segreto
James R. Segreto
Chief Financial Officer, Treasurer and
Secretary

May 15, 2008	

A signed original of this written statement required by Section 906 has been provided to SPAR Group, Inc. and will be retained by SPAR Group, Inc., and furnished to the Securities and Exchange Commission or its staff upon request.

Ex-4