1.     Basis of Presentation

The unaudited, interim condensed consolidated financial statements of SPAR Group, Inc., a Delaware corporation ("SGRP"), and its subsidiaries (together with SGRP, collectively, the "Company" or the "SPAR Group"), accompanying this Quarterly Report on Form 10-Q for the third quarter ended September 30, 20172018 (this "Quarterly Report"), 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. The consolidated balance sheet as of December 31, 2016,2017, has been compiledprepared from the Company's audited consolidated balance sheet as of such date.   In the opinion of management, all normal and recurring 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 SGRP's Annual Report  on Form 10-K for the year ended December 31, 2016,2017, as filed with the Securities and Exchange Commission (the "SEC") on April 17, 20172, 2018 (the  "2016"2017 Annual Report"), and SGRP's Proxy Statement for its 20172018 Annual Meeting of Stockholders as filed with the SEC on April 28, 201718, 2018 (the "2017"2018 Proxy Statement").  Particular attention should be given to Items 1 and 1A of the 20162017 Annual Report respecting the Company's Business and Risk Factors, respectively, and the following parts of SGRP's 20172018 Proxy Statement: (i) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, (ii) CORPORATE GOVERNANCE, (iii) EXECUTIVE COMPENSATION, DIRECTORS AND OTHER INFORMATION and (iv) EXECUTIVE COMPENSATION, EQUITY AWARDS AND OPTIONS.  The Company's results of operations for the interim period are not necessarily indicative of its operating results for the entire year.

In connection with the preparation of the Company's consolidated financial statements Except for the three months ended March 31, 2017,changes below, the Company identified an error inhas consistently applied the recognition of accumulated other comprehensive loss both in the equity section of the consolidated balance sheet, consolidated statement of equity and the comprehensive loss portion of the consolidated statement of income and comprehensive loss. In accordance with Staff Accounting Bulletin ("SAB") No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the error and determined that the related impact was not materialaccounting policies to the results of operations or financial position for any prior annual or interim period. The correction of this error required reclassification of $1.6 million between comprehensive loss attributable to the Company and comprehensive loss attributable to non-controlling interest for the year ended December 31, 2016. Accordingly, the Company corrected the consolidated balance sheet and consolidated statement of income and comprehensive loss as of and for the year ended December 31, 2016, and will correct these errors for all prior periods presented by revising the appropriatein these condensed consolidated financial statements. The impactCompany adopted ASU 2014-09 with a date of the initial application of January 1, 2018. As a result, the Company changed its accounting policy for revenue recognition as detailed below.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605) and requires entities to recognize revenue when control of the consolidated balance sheetpromised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 as of September 30, 2016, and December 31, 2016, andJanuary 1, 2018 using the consolidated statements of income and comprehensive loss formodified retrospective transition method with the three and nine months ended September 30, 2016, and the year ended December 31, 2016, is as follows:impact upon adoption not significant.

Consolidated Balance Sheets (in thousands):The Company records revenue from contracts with it customers through the execution of Master Service Agreements (MSAs) that are effectuated through individual Statements of Work (SOW) (collectively, "Contracts"). The MSAs generally define the financial, service, and communication obligations between the client and SPAR while the SOWs state the project objective, scope of work, time frame, rate and driver in which SPAR will be paid. Only when the MSA and SOW are combined, can all five revenue standard criteria be met. The Company integrates a series of tasks promised within these Contracts into a bundle of services that represent the combined performance obligation of Merchandising Services. Such Merchandising Services are performed over the duration of the SOW. Most Merchandising Services are performed on a daily, weekly or monthly basis. Revenue from Merchandising Services are recognized as the services are performed based on a rate per driver basis (per hour, store visit or unit stocked) with services delivered as they are consumed.

All of the Company’s Contracts with customers have a duration of one year or less, with over 90% being completed in less than 30-days, and revenue is recognized as services are performed. Given the nature of the Company’s business, how the Contracts are structured and how the Company is compensated the Company has elected the right-to-invoice practical expedient allowed under the revenue standard.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Consolidated Statement of IncomeOn December 22, 2017, the U.S. Tax Cuts and Comprehensive Loss (in thousands):Jobs Act (the “Tax Act”) was enacted into law. The Company is continuing to evaluate the Tax Act and its requirements, as well as its application to the business and its impact on the effective tax rate.

The Company is applying the guidance to address the accounting for income taxes under accounting standards in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. Accounting standards provide a reasonable “measurement period” not to exceed twelve months from the date of enactment to complete the accounting of these provisional estimates. As disclosed in the Company’s Annual report on Form 10-K for the fiscal year ended December 31, 2017, two material provisional estimates that impacted the Company were the U.S. statutory rate reduction and the one-time transition tax. These amounts are considered provisional because they use reasonable estimates of which tax returns have not been filed and because estimated amounts may be impacted by future regulatory and accounting guidance if and when issued.

For the first nine months of 2018, there were no significant changes to the Company’s provisional estimates of the income tax effects reflected in 2017 for the changes in tax law and tax rate from the enactment of the Tax Act. The impact of tax law changes on the Company’s financial statements could differ from its reasonable estimates due to further analysis of the new law, regulatory guidance, technical corrections, legislation, or guidance under U.S. generally accepted accounting principles. If significant changes occur, the Company will provide updated information in connection with future regulatory filings or the Company will adjust these provisional amounts as further information becomes available and as we refine our calculations.

The Company is a supplier of merchandising and other marketing services throughout the United States and internationally. The Company provides merchandising and other marketing services to manufacturers, distributors and retailers worldwide, primarily in mass merchandiser, office supply, grocery, drug, dollar, independent, convenience, toy, home improvement and electronics stores, as well as providing furniture and other product assembly services, audit services, in-store events, technology services and marketing research.

Merchandising services primarily consist of regularly scheduled, special project and other product services provided at the store level, and the Company may be engaged by either the retailer or the manufacturer. Those services may include restocking and adding new products, removing spoiled or outdated products, resetting categories in accordance with client or store schematics, confirming and replacing shelf tags, setting new sale or promotional product displays and advertising, replenishing kiosks, providing in-store event staffing and providing assembly services in stores, homes and offices. Other merchandising services include whole store or departmental product sets or resets, including new store openings, new product launches and in-store demonstrations, audit services, special seasonal or promotional merchandising, focused product support and product recalls. The Company also provides technology services and marketing research services.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

As of September 30, 2017,2018, the Company operates in 10 countries and divides its operations into two reportable segments: its Domestic Division, which has provided services in the United States of America since certain of its predecessors were formed in 1979, and its International Division, which began operations in May 2001 and provides similar merchandising, marketing, audit, assembly and in-store event staffing services in Australia, Brazil, Canada, China, India, Japan, Mexico, South Africa, and Turkey.

3.     Settlement and Other Charges

During the nine month period ended September 30, 2018, the Company recorded approximately $2.0 million of one-time charges relating to the following:

On June 7, 2018, SGRP entered into mediation with the plaintiff's counsel in the SBS Clothier Litigation in order to settle any potential future liability for any possible judgment in that case.  After extensive discussions, SGRP reached a settlement and entered into a memorandum of settlement agreement, which is subject to court approval and not likely to become final until several months into 2019 if and when the settlement is approved by the court.  If approved, SGRP will pay a maximum settlement amount of $1.3 million, payable in four equal annual installments that commence 30 days after the settlement becomes final.  The Company believes that it will be approved by the Court and therefore has recorded this charge to its financial statements in the respective reporting period.  See Note 9 to the Company's Condensed Consolidated Financial Statements – Commitments and Contingencies -- Legal Matters, below.

Since November 2017, SMF has been in negotiations with SBS and SAS for reimbursement and security agreements to document, confirm and secure advances and repayment obligations for Affinity Insurance security deposits, which advances by SMF to SAS and SBS total approximately $675,000.  Although SBS and SAS had verbally accepted those agreements in principal, the negotiations have ended with their refusal to allow fully perfected first priority security interests in the Cash Collateral and SAS's policies with and equity interests in Affinity and their demands for post-termination payments and offsets potentially larger than the Cash Collateral.

Given the unwillingness of SBS and SAS to document, confirm and secure those advances and repayment obligations and the resulting material risk of non-payment by them to the Company, the Company has recorded a reserve for the full $675,000 in such receivables during the nine month period ended September 30, 2018. See Note 6 – Related-Party Transactions – Affinity Insurance, below.

4.     Earnings Per Share

The following table sets forth the computations of basic and diluted net income (loss) per share (in thousands, except per share data):

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

The following table sets forth the computations of basic5.     Credit Facilities and diluted net income per share (in thousands, except per share data):

5.     Credit FacilitiesOther Debt

Sterling PNCCredit Facility:

On January 16, 2018, the Company repaid and replaced its credit facility with a new secured revolving credit facility in the United States and Canada (as amended the "PNC Credit Facility") with PNC Bank, National Association ("PNC").

In order to obtain, document and govern the new PNC Credit Facility: SGRP and certain of its USdirect and Canadianindirect subsidiaries (namelyin the United States and Canada, namely SPAR Marketing Force ("SMF"), Inc., SPAR Assembly & Installation, Inc. (F/K/A, and SPAR National Assembly Services, Inc.Canada Company (each, a "PNC Borrower" and collectively, the "PNC Borrowers"), and SPAR Group International, Inc., SPAR Trademarks,Canada, Inc., SPAR Acquisition, Inc., SPAR Canada,Group International, Inc.), and SPAR Canada Company ("SCC")Trademarks, Inc. (together with SGRP, and SCC, each a "Borrower""PNC Guarantor" and collectively, the "PNC Guarantors), entered into a Loan Agreement with PNC dated as of January 16, 2018 (the "PNC Loan Agreement"); the PNC Borrowers issued their $9 million Committed Line Of Credit Note to PNC dated January 16, 2018 (the "Original PNC Note"), which evidences the PNC Borrowers' loans and other obligations to PNC; the PNC Guarantors entered into a Guaranty and Suretyship Agreement with PNC dated as of January 16, 2018 (the "PNC Guaranty"), which guaranties the PNC Borrowers' loans and other obligations to PNC; and the PNC Borrowers and PNC Guarantors (each, a "PNC Loan Party" and collectively, the "PNC Loan Parties") are parties toentered into a Revolving Loan and Security Agreement with PNC dated July 6, 2010, as amended in June 2011, July 2012,of January 2013, July 2013, October 2013, June 2014, September 2015, December 2016, March 2017, April 2017, June 2017 and September 2017 (as amended, the "Sterling Loan16, 2018 (the "PNC Security Agreement"), which secures the obligations of the PNC Loan Parties to PNC with Sterling National Bank (the "Lender"), and their Secured Revolving Loan Note in the amended maximum principal amountspledges of $9.0 million (see below) to the Lender (as amended by all loan amendments, the "Sterling Note"), to document and govern their credit facility with the Lender (including such agreement and note, the "Sterling Credit Facility"). The Sterling Credit Facility currently is scheduled to expire and the Borrowers' loans thereunder will become due on January 15, 2018.

The Sterling Loan Agreement currently requires the Borrowers to pay interest on the loans thereunder equal to the Agent's floating Prime Rate (as defined in such agreement) plus one half of one percent (1/2%) per annum, and a fee on the maximum unused line thereunder equal to one-eighth of one percent (0.125%) per annum.

Revolving loans of up to $9.0 million are available to the Borrowers under the Sterling Credit Facility based upon the borrowing base formula defined in the Sterling Loan Agreement (principally 85% of "eligible" US and Canadian accounts receivable less certain reserves). The Sterling Credit Facility is secured by substantially all of the assets of the BorrowersPNC Loan Parties (other than SGRP's non-CanadianSGRP's foreign subsidiaries, certain designated domestic subsidiaries, and their respective equity and assets).

TheOn January 16, 2018, the Company drew down an initial advance under the PNC Credit Facility of approximately $7.6 million, which was used to repay the existing credit facility.

An amendment to the Sterling Loan AgreementPNC Credit Facility dated as of December 22, 2016,July 3, 2018, among other things, increased the maximum principal amount of the Secured Revolving Loans to $9.5 million.

The PNC Note currently requires the PNC Borrowers to pay interest on the loans thereunder equal to (A) the Daily LIBOR Rate (as defined therein) per annum, plus (B) two hundred fifty basis points (2.50%). On September 30, 2018, the aggregate interest rate under that formula was 4.756% per annum, and the outstanding loan balance was $8.2 million.

Revolving loans of up to $9.5 million are available to the Company under the PNC Credit Facility based upon the borrowing base formula defined in the PNC Loan NoteAgreement (principally 85% of "eligible" accounts receivable less certain reserves) rendering a maximum borrowing amount of $9.1 million as of September 30, 2018.

The PNC Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the PNC Loan Parties, including, maintaining a minimum Tangible Net Worth of $13.4 million and limits on capital expenditures and other investments.

On September 30, 2018, the PNC Loan Parties were not in compliance with the minimum Tangible Net Worth covenant, however PNC Bank issued a waiver for the reporting period. However, there can be no assurances that the Company will not be in violation of certain covenants in the future and should the Company be in violation; there can be no assurances that PNC will issue waivers for any future violations.

Subsequent to $9.0September 30, 2018, the Company is currently experiencing an unusually tight cash flow position and PNC has expressed a concern that even though the Company’s current discounted collateral value is in excess of $11.3 million they are not willing to extend the maximum borrowing capacity above the current $9.5 million limit.  PNC has agreed to evaluate on a case by case basis funding its field specialist payments and Company payroll and related taxes until these short-term concerns are resolved by year end.  In the meantime, the Company will be looking to secure a more traditional Asset Based Lending facility to take advantage of its excess collateral and thereby providing support for future growth expectations.  Based on these current conditions the Company has reclassified its PNC credit facility as short-term debt for the period ended September 30, 2018.  The Company believes it has adequate working capital and the ability to obtain alternate financing in order to work through these short term concerns.

Fifth Third Credit Facility:

On January 31, 20179, 2018, the Company completed its acquisition of a 51% interest in its new subsidiaries, Resource Plus, Inc., and increased the interest rate to Prime plus one half of one percent. The amendmentrelated companies (collectively, "Resource Plus").See Note 11 to the Sterling Loan Agreement dated asCompany's Condensed Consolidated Financial Statements –Purchase of March 3, 2017, among other things, extendedInterests in Subsidiaries–Resource Plus Acquisition, below. When acquired, Resource Plus was a party to a revolving line of credit facility it secured on May 23, 2016, (the "Fifth Third Credit Facility") from Fifth Third Bank for $3.5 million, which was scheduled to expire on May 23, 2018. Effective April 11, 2018, the Secured Revolving Loan Note of $9.0 million until July 6, 2017, and the amendment dated as of April 13, 2017, among other things, provided for a waiverterm of the Company's defaultFifth Third Credit Facility was extended and is currently scheduled to become due on its Fixed Charge Ratio ("FCR") forApril 23, 2020. As there are no provisions (other than defaults) requiring the year ended December 31, 2016, and provided for an adjustment to its FCR for 2017. The June 27, 2017, amendment topaydown of the Sterling Loan Agreement extendedloan until April 23, 2020, the termination date to September 6, 2017. The September 6, 2017, amendment to the Sterling Loan Agreement extended the termination date to January 15, 2018.amounts are classified as long-term debt.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

Revolving loans of up to $3.5 million are available to Resource Plus under the Fifth Third Credit Facility based upon the borrowing base formula defined in the agreement (principally 80% of "eligible" accounts receivable less certain reserves). As of September 30, 2018, the outstanding balance was $682,000. The Sterling Loan AgreementFifth Third Credit Facilityis secured by substantially all assets of Resource Plus.

The Fifth Third Credit Facilitycurrently requires Resource Plus to pay interest on the Borrowersloans thereunder equal to maintain certain financial covenants, including maintenance by(A) the BorrowersDaily LIBOR Rate (as defined in the agreement) per annum, plus (B) two hundred fifty basis points (2.50%). On September 30, 2018, the aggregate interest rate under that formula was 4.725% per annum.

Other Debt:

Effective with the closing of a minimum combined tangible net worththe Resource Plus acquisition, the Company entered into promissory notes with the sellers totaling $2.7 million. The notes are payable in annual installments at various amounts due on December 31^st of $7.4 million and minimum consolidated tangible net worth of $10.0 million, with those figures increasing by at least 50% of combined and consolidated net profit each year respectively. In addition, the Borrowersstarting with December 31, 2018 and the Company must not exceed a maximum combined indebtedness to tangible net worth ratio of 3.0 to 1.0,continuing through December 31, 2023. As such these notes are classified as both short term and the Borrowers must maintain a minimum fixed charge coverage ratio of 1.5 to 1.0. Also, capital expenditureslong term for the Borrowers cannot exceed $2.0 million during any fiscal year, and, on a consolidated basis, the Company's year-end operations may not result in a loss or deficit, as determined in accordance with GAAP. The Company was in compliance with its financial covenants at September 30, 2017.appropriate amounts.

International Credit Facilities: 

SPARFACTS Australia Pty. Ltd. has a secured line of credit facility with Oxford Funding Pty Ltd.National Australia Bank, effective October 31, 2017, for $1.2 million$800,000 (Australian) or approximately $940,000$578,000 USD (based upon the exchange rate at September 30, 2017)2018).  The facility provides for borrowing based upon a formula, as defined in the agreement (principally 80% of eligible accounts receivable less certain deductions).  The outstanding balance with National Australia Bank as of September 30, 2018 was $554,000 (Australian) or $400,000 USD and is due on demand.

SPAR Todopromo has obtained a temporary, interest bearing working capital loan from a shareholder for a maximum amount of 4.5 million Mexican Pesos or approximately $241,000 USD (based upon the exchange rate at September 30, 2018) effective September 14, 2018. The effective annual interest rate is 7.75%. The outstanding balance at September 30, 2018 was 3.0 million Mexican Pesos or approximately $161,000 USD.  The loan was paid in full on October 2, 2018 after receiving payment for services rendered in the ordinary course of business.

SPAR Todopromo has secured a line of credit facility with BBVA Bancomer Bank for 5.0 million Mexican Pesos or approximately $267,000 USD (based upon the exchange rate at September 30, 2018).  The revolving line of credit was secured on March 15, 2016, and originally expired March 2018.  The facility has been amended to extend the terms to March 2020.  The variable interest rate is TIIE (Interbank Interest Rate) +4%, which resulted in an annual interest rate of 12.11% as of September 30, 2018.  The outstanding balance at September 30, 2018 was 3.2 million Mexican Pesos or approximately $171,000 USD.

On November 29, 2016, SPAR Brazil established a line of credit facility with Itau Bank for 4.0 million Brazilian Real or approximately $987,000 USD (based upon the exchange rate at September 30, 2018). The facility provides for borrowing with no formal guarantees. The agreement is from month to month at the Company's request. As of September 30, 2018, there was no outstanding balance.

On December 26, 2016, SPAR Brazil secured a line of credit facility with Daycoval Bank for 5.0 million Brazilian Real or approximately $1.2 million USD (based upon the exchange rate at September 30, 2018).  The facility provides for borrowing based upon a formula, as defined in the agreement (principally 80% of eligible accounts receivable less certain deductions).  The agreement expired on October 31, 2012, but was extendedis from month to month at the Company’sCompany's request.  A new credit facility was signed in July 2017 with National Australia Bank Limited and went into effect on October 31, 2017. The outstanding balance with Oxford asAs of September 30, 20172018, 2.0 million Brazilian Real or $483,000 USD was $334,000 USD.outstanding.

On March 7, 2011, the Japanese subsidiary,May 29, 2018, SPAR FM Japan, Inc.,Brazil established a wholly owned subsidiary, secured a term loanline of credit facility with Mizuho Bank in the amount of 20.0Banco Bradesco for 1.2 million Yen (Japanese),Brazilian Real or approximately $178,000 USD. The loan is payable in monthly installments of 238,000 Yen or approximately $2,100 USD at an interest rate of 0.1% per annum with a maturity date of February 28, 2018. The outstanding balance at September 30, 2017, was approximately 1.2 million Yen or $11,000$296,000 USD (based upon the exchange rate at September 30, 2017), all of which is now classified as short term.2018). The facility provides for borrowing with no formal guarantees. The agreement expires on November 29, 2019. The outstanding balance at September 30, 2018, was approximately 168,000 Brazilian Real or approximately $41,000 USD.

On November 29, 2016,May 25, 2018, SPAR Brazil established a temporary line of credit facility with Itau BankBanco Safra for 1.53.0 million Brazilian Real or approximately $475,000$741,000 USD (based upon the exchange rate at September 30, 2017)2018). The line of credit expires November 29, 2017, andagreement was from month to month at the current interest rate is 2.08% per month. The outstanding balance at September 30, 2017 was zero.

On December 26, 2016, SPAR Brazil secured a term loan with Bradesco Bank for 2.0 million Brazilian Real or approximately $633,000 USD (based upon the exchange rate at September 30, 2017). The term loan is payable in monthly installments of 184,000 Brazilian Real or approximately $58,000 USD at an annual interest rate of 17.3% with a maturity date of December 15, 2017.Company’s request. As of September 30, 2017, 497,000 Brazilian Real or $157,000 USD2018, there was outstanding (based upon the exchange rate at September 30, 2017).

SPAR Todopromo has secured a line of credit facility with BBVA Bancomer Bank for 5.0 million Mexican Pesos or approximately $274,000 USD (based upon the exchange rate at September 30, 2017). The revolving line of credit was secured on March 15, 2016, and expires March 2018. The variable interest rate is TIIE (Interbank Interest Rate) +4%, which resulted in an annual interest rate of 11.4% at the end of September 2017. Theno outstanding balance at September 30, 2017and the loan was zero.closed.

The Company had scheduled future maturities of loans as of September 30, 2017, approximately as follows (dollars in thousands):

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

The Company had scheduled future maturities of loans as of September 30, 2018, approximately as follows (dollars in thousands):

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

Management believes that based upon the continuation of the Company'sCompany's existing credit facilities, projected results of operations, vendor payment requirements and other financing available to the Company (including amounts due to affiliates), sources of cash availability while extremely tight through the balance of the year, should be manageable and sufficient to support ongoing operations overinto next year as the next year.Company pursues a more traditional Asset Based Lending facility.  However, delays in collection of receivables due from any of the Company's major clients, or a significant reduction in business from such clients, and possible litigation expenses could have a material adverse effect on the Company's cash resources and its ongoing ability to fund operations. See Note 9 - to the Company's Condensed Consolidated Financial Statements – Commitments and Contingencies:Contingencies – Legal Matters,and Potential Adverse Effects of the SBS Litigation, below.

SGRP'sSPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

6.     Related-Party Transactions

SGRP's policy respecting approval of transactions with related persons, promoters and control persons is contained in the SPAR Group Code of Ethical Conduct for its Directors, Senior Executives, Officers, Employees, Consultants and Employeesother Representatives Amended and Restated (as of) August 13, 2015March 15, 2018 (the "Ethics Code"). The Ethics Code is intended to promote and reward honest, ethical, respectful and professional conduct by each director, executive, officer, employee, consultant and other representative of any of SGRP and its subsidiaries (together with SGRP, the "Company") and each other Covered Person (as defined in the Ethics CodeCode) in his or her position with the Company anywhere in the world, including (among other things) serving each customer, dealing with each vendor and treating each other with integrity and respect, and behaving honestly, ethically and professionally with each customer, each vendor, each other and the Company. Article II of the Ethics Code specifically prohibits various forms of self-dealing (including dealing with relatives) and collusion and Article V of the Ethics Code generally prohibits each "Covered Person" (including SGRP's officers and directors) from using or disclosing the Confidential Information of the Company or any of its customers or vendors, seeking or accepting anything of value from any competitor, customer, vendor, or other person relating to doing business with the Company, or engaging in any business activity that conflicts with his or her duties to the Company, and directs each "Covered Person" to avoid any activity or interest that is inconsistent with the best interests of the SPAR Group, in each case except for any "Approved Activity" (as such terms are defined in the Ethics Code). Examples of violations include (among other things) having any ownership interest in, acting as a director or officer of or otherwise personally benefiting from business with any competitor, customer or vendor of the Company other than pursuant to any Approved Activity. Approved Activities include (among other things) any contract with an affiliated person (each an "Approved Affiliate Contract") or anything else disclosed to and approved by SGRP's Board of Directors (the "Board"), its Governance Committee or its Audit Committee, as the case may be, as well as the ownership, board, executive and other positions held in and services and other contributions to affiliates of SGRP and its subsidiaries by certain directors, officers or employees of SGRP, any of its subsidiaries or any of their respective family members. The Company's senior management is generally responsible for monitoring compliance with the Ethics Code and establishing and maintaining compliance systems, including those related to the oversight and approval of conflicting relationships and transactions, subject to the review and oversight of SGRP's Governance Committee as provided in clause IV.11 of the Governance Committee's Charter, and SGRP's Audit Committee as provided in clause I.2(l) of the Audit Committee's Charter. The Governance Committee and Audit Committee each consist solely of independent outside directors.directors (see Domestic Related Party Services, International Related Party Services, Related Party Transaction Summary, Related Party Transaction Summary, Affinity Insurance, and Other Related Party Transactions and Arrangements, below).

SGRP'sSGRP's Audit Committee has the specific duty and responsibility to review and approve the overall fairness and terms of all material related-party transactions. The Audit Committee receives affiliate contracts and amendments thereto for its review and approval (to the extent approval is given), and these contracts are periodically (often annually) again reviewed, in accordance with the Audit Committee Charter, the Ethics Code, the rules of the Nasdaq Stock Market, Inc. ("Nasdaq"), and other applicable law to ensure that the overall economic and other terms will be (or continue to be) no less favorable to the Company than would be the case in an arms-length contract with an unrelated provider of similar services (i.e., its overall fairness to the Company, including pricing, payments to related parties, and the ability to provide services at comparable performance levels). The Audit Committee periodically reviews all related party relationships and transactions described below.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

In addition, in order to (among other things) assist the Board and the Audit Committee in connection with an overall review of the Company'sCompany's related party transactions and certain worker classification-related litigation matters, in April 2017 the Board formed a special subcommittee of the Audit Committee (the "Special Subcommittee") to (among other things) review the structure, documentation, fairness, conflicts, fidelity, appropriateness, and practices respecting each of the relationships and transactions discussed in this Note 6 (including those described in this Note under Domestic Related Party Services, below). Note.

The Special Subcommittee commenced thatengaged Morrison Valuation & Forensic Services, LLC ("Morrison"), to perform a third-party financial evaluation of certain domestic related party relationships and transactions (principally with SAS and SBS of the Company, which included the review of certain financial records of the Company (but not those of its affiliates)) and discussions with management of the Company.  Their task included (among other things) the identification and mapping of and apparent purposes for and benefits from cash flows between the Company and its affiliates.  Morrison identified a number of transactions between the parties, while not material, were inefficient, time consuming and of limited business value to the parties.  They included expense reimbursement for indirect charges for supply purchases, corporate vendor service cost and use of corporate credit cards in the first quarterpayment of 2017vendor services. These inefficiencies have largely resolved themselves since the relationship with SAS and SBS has ended and others have been and will continue to be addressed by the assistanceCompany.  The Special Subcommittee also engaged Holland & Knight to provide ongoing legal advice on related party issues, and Paul Hastings to provide ongoing legal advice on independent contractor classification issues (including the SBS Clothier Case).  See Note 9 to the Company's Condensed Consolidated Financial Statements – Commitments and Contingencies – Legal Matters, below.

The Special Committee also has been involved in the review of special auditorsthe Proposed Amendments to SGRP's By-Laws and counselthe By-Laws Action and is currently reviewing225 Action (see Note 9 to the preliminary results of such review, including the feedback received from its special auditorsCompany's Condensed Consolidated Financial Statements – Commitments and counsel. Contingencies -- Legal Matters, below).

The Company is currently unable to predict the remaining duration and final results of this review by the Special Subcommittee. See Note 9

SPAR Group, Inc. and Subsidiaries

Notes to the Company's Consolidated Financial Statements – Commitments and Contingencies – Legal Matters, below.

(unaudited) (continued)

Domestic Related Party Services: 

SPAR Business Services, Inc. ("SBS"), SPAR Administrative Services, Inc. ("SAS"), and SPAR InfoTech, Inc. ("SIT") Infotech "), have provided services from time to time to the Company and are related parties and affiliates of SGRP, but are not under the control or part of the consolidated Company. Mr.SBS is an affiliate because it is owned by Robert G. Brown a Director, Chairman and a major stockholder of SGRP, and Mr.William H. Bartels. SAS is an affiliate because it is owned by William H. Bartels a Director, Vice Chairman and a major stockholdercertain relatives of SGRP, are the sole stockholders of SBS. Mr.Robert G. Brown is the sole stockholder of SIT. Mr. Brown is a director and officer of SBS and SIT. Mr. Bartels is a director and officer of SAS. The stockholders of SAS were Mr. Bartels and parties related to Mr. Brown, eachor entities controlled by them (each of whom isare considered an affiliateaffiliates of the Company for related party purposespurposes).  Infotech is an affiliate because it is owned by Robert G. Brown and certain relatives of their family relationships withRobert G. Brown or entities controlled by them (each of whom are considered affiliates of the Company for related party purposes).  Mr. Brown.Brown and Mr. Bartels are the Majority Stockholders (see below) and founders of SGRP, Mr. Brown was Chairman and an officer and director of SGRP through May 3, 3018 (when he retired), and Mr. Bartels was and continues to be Vice Chairman and a director and officer of SGRP.  Mr. Brown and Mr. Bartels also have been and are stockholders, directors and executive officers of various other affiliates of SGRP. 

TheThrough July 27, 2018, the Company executesexecuted the services it provides to its domestic clients primarily through independent field merchandising, auditing, assembly and other field personnel (each a "Field Specialist"), substantially all of whom arehad been independent contractors provided by SBS, and administersadministers those services through local, regional, district and regional administrators,other personnel (each a "Field Administrator"), substantially all of whom arehad been provided by SAS.  The Company paid $19.6$15.4 million and $15.8$19.6 million during the nine months ended September 30, 20172018 and 2016,2017, respectively, to SBS for its provision as needed of approximately 6,4003,900 of SBS's available Field Specialists in the U.S.A. (which amounted to approximately 75%36% and 78%75% of the Company's total domestic Field Specialist expense for the nine months ended September 30, 20172018 and 2016,2017, respectively).  The Company paid $3.2$2.7 million and $3.1$3.2 million for the nine months ended September 30, 20172018 and 2016,2017, respectively, to SAS for its provision of its 6054 and 6160 full-time regional and district and office administrators as of September 30, 2017 and 2016, respectively (which amounted to approximately 90%68% and 92%90% of the Company's total domestic field administrative service cost for the nine months ended September 30, 20172018 and 2016, respectively)2017).  In addition to these field service and administration expenses, SAS also incursincurred other administrative expenses related to benefit and employment tax expenses of SAS and payroll processing, legal and other administrative expenses and SBS incursincurred expenses for processing vendor payments, legal defense and other administrative expenses (but those expenses arewere only reimbursed by SGRP to the extent approved by the Company as described below).  The total cost recorded by the Company for the expenses of SBS and SAS in providing their services to the Company, including the "Cost Plus Fee" arrangement (as defined and discussed below) and other expenses paid directly by the Company on behalf of and invoiced to SBS and SAS, was $22.8$18.2 million and $19.0$22.8 million, for the nine months ended September 30, 2018 and 2017, and 2016, respectively.

The terms of the Amended and Restated Field Service Agreement with SBS dated as of January 1, 2004, as amended in 2011, and the Amended and Restated Field Management Agreement with SAS dated as of January 1, 2004 (each a "Prior Agreement"), defined reimbursable expenses and established a "Cost Plus Fee" arrangement where the Company paid SBS and SAS for their costs of providing those services plus a fixed percentage of such reimbursable expenses (the "Cost Plus Fee"). The parties have had negotiations respecting replacement agreements since the Prior Agreements expired on November 30, 2014. As further described below, a new Field Administration Agreement was entered into with SAS in 2016.

The Company and SBS had agreed to an arrangement for a revised Cost Plus Fee equal to 2.96% of the Field Specialists costs and certain other approved reimbursable expenses incurred by SBS in performing services for the Company, subject to certain offsetting credits.  This arrangement went into effect on and had applied since December 1, 2014.  The Company had offered a new agreement to SBS confirming that reimbursable expenses were subject to review and approval by the Company, but SBS had rejected that proposal.

Due to (among other things) the Clothier Determination and the ongoing proceedings against SBS, which could have had a material adverse effect on SBS's ability to provide future services needed by the Company, and the Company's location of an independent third party company who would provide comparable services on substantially better terms, on May 23, 2018, the Company gave a termination notice to SBS specifying on or before August 15, 2018, as the end of the Service Term.  The actual termination of services occurred on July 27, 2018, and the Company has engaged that independent third party company to replace those services formerly provided by SBS.

Even though the Company had paid SBS for all services provided through that date, SBS notified the Company that there may not be sufficient funds in their bank accounts to honor all payments they had made to their Field Specialists.  Based on this notice, the Company withheld approximately $125,000 of final mark-up compensation due SBS and had been making payments, on a daily basis, into the SBS bank account designated for Field Specialist payments to insure all SBS Field Specialists that had provided services to the Company are properly compensated for those services.  The $125,000 has been completely exhausted and the Company was required to fund an additional $11,000 to cover these duplicate Field Specialist payments.  The Company believes that there may be checks for Field Service payments for as much as an additional $120,000 that the Company believes may not be honored by SBS.  The Company has made plans to ensure that all of the current Field Specialists are properly paid and is exploring its legal options for recovery of all duplicate payments it is making on SBS’s behalf.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

The Company and SBS have agreed in principlehas reached a non-exclusive agreement with an independent third-party vendor to a revised Cost Plus Fee arrangement equal to 2.96%provide substantially all of the domestic Field SpecialistsSpecialist services used by the Company.  The Company transitioned to such new vendor during July 2018, and certain other approved reimbursable expenses incurred by SBS in performing services forsuch transition was virtually unnoticeable to the Company, subject to certain offsetting credits. This agreement in principle went into effect on and has applied since December 1, 2014.Company's clients.

No SBS compensation to any officer, director or other related party hashad been reimbursed or approved to date by the Company, and no such compensation reimbursements were made or approved under SBS's Prior Agreement.  This is not a restriction on SBS since SBS is not controlled by the Company and may pay any compensation to any person that SBS desires out of its own funds.  However, SBS hashad in the past invoiced the Company monthly for certain such compensation payments, from July of 2015 through December 2016, and again from July 2017 to September 30, 2017, but the Company hashad rejected those invoices as non-reimbursable expenses.  Since SBS is a "Subchapter S" corporation, all income from SBS is allocated to its stockholders (see above).

The Company has determined that the rates charged by SBS for the services of its field merchandising, auditing, assembly and other field personnel (each a "Field Specialist") are favorable to the Company when compared to other possible non-affiliate providers. SBS has advised the Company that those favorable rates are dependent (at least in part) on SBS's ability to continue to use independent contractors as its Field Specialists, that such Field Specialists generally provide greater flexibility and performance quality at lower total costs as a result of their business independence and initiative, and that it has an agreement with each Field Specialist clearly confirming his, her, or its status as an independent contractor.

The appropriateness of SBS'sSBS's treatment of its Field Specialists as independent contractors hashad been periodically subject to legal challenge (both currently and historically) by various states and others, SBS's expenses of defending those challenges and other proceedings havehad historically been reimbursed by the Company under SBS's Prior Agreement, and SBS's expenses of defending those challenges and other proceedings were reimbursed by the Company for the nine months ended September 30, 20172018 and 20162017 (in the amounts of $218,000$105,000 and $587,000,$218,000, respectively), after determination (on a case by case basis) that those defense expenses were costs of providing services to the Company. The

On May 15, 2017, the Company has advised SBS that, since there iswas no currently effective comprehensive written services agreement with SBS, the Company willwould continue to review and decide each request by SBS for reimbursement of its legal defense expenses (including appeals) on a case-by-case basis in its discretion, including the relative costs and benefits to the Company.  TheSBS has disputed the right of the Company and SGRP's Audit Committee to review and decide the appropriateness of the reimbursement of any of those related party defense and other expense reimbursements. 

On June 13, 2018, the Company gave SBS notice that it would no longer reimburse any such expenses as a result of SGRP's separate settlement of the Clothier Case.  

As provided in SBS's Prior Agreement, the Company is not obligated or liable, and the Company has not otherwise agreed and does not currently intend, to reimburse SBS for any judgment or similar amount (including any damages, settlement, or related tax, penalty, or interest) in any legal challenge or other proceeding against or involving SBS, and the Company does not believe it has ever done so (other than in insignificant nuisance amounts). However, there

There can be no assurance that SBS will be able to satisfy any such judgment or similar amount resulting from any adverse legal determination, that SBS or someone else will not claim, or that SBS will be able to successfully defend any claim, that the Company is liable (through reimbursement, indemnification or otherwise) for any such judgment or similar amount imposed against SBS. Furthermore, there can be no assurance that SBS will succeed in defending any such legal challenge, the legal expenses of prolonged litigation and appeals could continue to be (and have from time to time been) significant, and prolonged litigation and appeals and any adverse determination in any such challenge could have a material adverse effect on SBS's ability to provide services needed by the Company and the Company's costs of doing business.   

Current material and potentially material proceedings against SBS and, in one instance, the Company are described in Note 9 to the Company's Consolidated Financial Statements – Commitments and Contingencies – Legal Matters, below. These descriptions are based on an independent review by the Company and do not reflect the views of SBS, its management or its counsel.

Any prolonged continuation of or material increase in the legal defense costs of SBS (and thus the reimbursable expensesdetermination.  In addition, SBS may charge to and that may be paid by the Company to the extent reimbursement is approved by the Company in its discretion), the failure of SBS to satisfy any such judgment or similar amount resulting from any adverse legal determination against SBS, any claim by SBS, SAS, any other related party or any third party that the Company is somehow liable for any such judgment or similar amount imposed against SBS or SAS or any other related party, any judicial determinationand pursue that claim with litigation, there can be no assurance that someone else will not claim that the Company is somehow liable (under applicable law, through reimbursement or indemnification, or otherwise) for any such judgment or similar amount imposed against SBS, or SAS or any other related party (in whole or in part), any decrease in SBS's or SAS's performance (quality or otherwise), any inability by SBS or SAS to execute the services forand there can be no assurance that the Company orwill be able to successfully defend any increase inclaim.  Any imposition of liability on the Company's use of employees (rather than independent contractors) as its domestic Field Specialists, in each case in whole or in part,Company for any such amount could have a material adverse effect on the Company or its performance or condition (including its assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition), whether actual or as planned, intended, anticipated, estimated or otherwise expected.  See Note 9 to the Company's Condensed Consolidated Financial Statements – Commitments and Contingencies -- Legal Matters, below.

Current material and potentially material legal proceedings impacting the Company are described in Note 9 to the Company's Condensed Consolidated Financial Statements – Commitments and Contingencies – Legal Matters, below.  These descriptions are based on an independent review by the Company and do not reflect the views of SBS, its management or its counsel.  SBS continues to claim that the Company is somehow liable to reimburse SBS for its expenses in those proceedings.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

On June 14, 2016, SAS and SPAR Marketing Force, Inc. ("SMF")SMF entered into a new Field Administration Agreement (the "SAS Agreement"). In order to provide continuity with SAS's Prior Agreement, the SAS Agreement is effective and governs the relationship of the parties as of December 1, 2014, and amends, restates and completely replaces SAS's Prior Agreement. The SAS Agreement more clearly defines reimbursable and excluded expenses and the budget and approval procedures and continues the indemnifications and releases provided by SAS's Prior Agreement (which indemnifications and releases were and are comparable to those applicable to SGRP's directors and executive officers under its By-Laws and applicable law). Specifically, the SAS Agreement reduced the Cost Plus Fee from 4% to 2% effective as of June 1, 2016.

SGRP'sOn May 7, 2018, the Company gave a termination notice to SAS specifying July 31, 2018, as the end of the Service Term under (and as defined in) SAS Agreement.  The Company has reached a non-exclusive agreement with an independent third party vendor to provide substantially all of the domestic Field Administrators used by the Company.  The Company transitioned to such new vendor during July 2018, and it was virtually unnoticeable to the Company’s clients.    

SGRP's Audit Committee has approved the SAS Agreement pursuant to its specific duty and responsibility to review and approve the overall fairness of all material related-party transactions, as more fully provided above in this Note 6 to the Company's Consolidated Financial Statements.note.

No SAS compensation to any officer, director or other related party (other(other than to Mr. Peter W. Brown, a related party as noted below, pursuant to previously approved budgets) hashad been reimbursed or approved to date by the Company, and no such compensation reimbursements were made or approved under SAS's Prior Agreement. This is not a restriction on SAS since SAS is not controlled by the Company and may pay any compensation to any person that SAS desires out of its own funds. Since SAS is a "Subchapter S" corporation, all income from SAS is allocated to its stockholders (see above).

Although neither SBS nor SAS has provided any services to the Company after their terminations described above,  effective on or before July 31, 2018, they have apparently continued to operate and claim that the Company owes them for all of their post-termination expenses in perpetuity.  For August and September, SBS has invoiced the Company for approximately $105,000, and SAS has invoiced the Company for approximately $42,000.  All such invoices have been rejected by the Company.  The Company has determined that it is not obligated to reimburse any such post-termination expense (other than for potentially reimbursing mutually approved reasonable short term ordinary course transition expenses in previously allowed categories needed by SAS to wind down its business, if any), and that such a payment would be an impermissible gift to a related party under applicable law, which determinations have been supported by SGRP's Audit Committee.  The SBS invoices included legal expenses for its continuing defense in the Clothier Case even though SGRP on June 13, 2018, gave SBS notice that it would no longer reimburse any such expenses as a result of SGRP's separate settlement of the Clothier Case.  The Company expects that SBS and SAS will use every available means to attempt to collect reimbursement in perpetuity from the Company for all of their post-termination expense, including repeated litigation in the event that the SGRP prevails in the By-Laws Action or 225 Action (see Note 9 to the Company's Condensed Consolidated Financial Statements – Commitments and Contingencies -- Legal Matters, below).

Peter W. Brown ("was appointed as a Director on the SGRP Board as of May 3, 2018, replacing Mr. Robert G. Brown upon his retirement from the Board and Company at that date.  He is not considered independent because Peter Brown")Brown an affiliate and related party in respect of SGRP and was proposed by Mr. Robert G. Brown to represent the Brown family interests.  He worked for and is an employeea stockholder of SAS (see above) and certain of its affiliates, he is the nephew of SGRP's Chairman, Mr. Robert G. Brown an officer(a current significant stockholder of SGRP and employee of the Company's affiliate, SIT (which is owned by Mr. Robert G. Brown)SGRP's former Chairman and director), andhe is a director of SPAR BSMTBrasil Serviços de Merchandising e Tecnologia S.A., a Brazilian corporation ("SPAR BSMT") and owns EILLC (see International Related Party ServicesEarth Investments LLC, ("EILLC"), below).which owns 10% interest in the SGRP's Brazilian subsidiary.  Peter W. Brown was an official observer at the meetings of SGRP's Board from 2014 through December 2016.  Accordingly, Peter W. Brown also is, and since 2013 has been, a related party in respectdirector of the Company.Affinity Insurance, Ltd (see Affinity Insurance, below).

National Merchandising Services, LLC ("NMS"), is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect ownership of 51% of the NMS membership interests and by National Merchandising of America, Inc. ("NMA"), through its ownership of the other 49% of the NMS membership interests. Mr. Edward Burdekin is the Chief Executive Officer and President and a director of NMS and also is an executive officer and director of NMA. Ms. Andrea Burdekin, Mr. Burdekin'sBurdekin's wife, is the sole stockholder and a director of NMA and a director of NMS. NMA is an affiliate of the Company but is not under the control of or consolidated with the Company.

Resource Plus, Inc. ("RPI"), is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect ownership of 51% of the RPI membership interests and by Mr. Richard Justus through his ownership of the other 49% of the RPI membership interests. (See Note 11 to the Company's Condensed Consolidated Financial Statements – Purchase of Interest in Subsidiaries, below).

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

International Related Party Services:

SGRP Meridian (Pty), Ltd. ("Meridian") is a consolidated international subsidiary of the Company and is owned 51% by SGRP and 49% by the following individuals: Mr. Brian Mason, Mr. Garry Bristow, and Mr. Adrian Wingfield. Mr. Mason is President and a director and Mr. Bristow is an officer and director of Meridian. Mr. Mason is also an officer and director and 50% shareholder of Merhold Property Trust ("MPT"). Mr. Mason and Mr. Bristow are both officers and directors and both own 50% of Merhold Cape Property Trust ("MCPT"). Mr. Mason, Mr. Bristow and Mr. Wingfield are all officers and own 46.7%, 20% and 33.3%, respectively of Merhold Holding Trust ("MHT"), which provides similar services similar to those provided bylike MPT. MPT owns the building where Meridian is headquartered and isalso owns 20 vehicles all of which are subleased to Meridian. MCPT provides a fleet of approximately 160172 vehicles to Meridian under a 4 year lease program. These leases are provided to Meridian at local market rates included in the summary table below.

SPAR Todopromo is a consolidated international subsidiary of the Company and is owned 51% by SGRP and 49% by the following individuals: Mr. Juan F. Medina Domenzain, Juan Medina Staines, Julia Cesar Hernandez Vanegas, and Jorge Medina Staines. Mr. Juan F. Medina Domenzain is an officer and director of SPAR Todopromo and is also majority shareholder (90%) of CONAPAD ("CON"), which supplied administrative and operational consulting support to SPAR Todopromo for the three and nine month periods ended September 30, 2017 andin 2016.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited) (continued)

In August 2016, Mr. Juan F. Medina Domenzain ("JFMD"), partner in SPAR Todopromo, purchased the warehouse that was being leased by SPAR Todopromo. A newThe lease expiringexpires on December 31, 2017, was entered into with SPAR Todopromo with the same terms and cost as with the previous owner.2020.

On September 8, 2016, the Company (through one of its subsidiaries, SPAR International Ltd.) acquired 100% ownership of SGRP Brasil Participações Ltda. ("SGRP Holdings"), a Brazilian limitada (which is a form of limited liability company), from its affiliate, SIT, at cost (including approved expenses). SGRP Holdings then completed the formation and acquired a majority of the stock of SPAR Brasil Serviços de Merchandising e Tecnologia S.A., a Brazilian corporation ("SPAR BSMT"). SGRP Holdings and SPAR BSMT are consolidated subsidiaries of the Company. SPAR BSMT is owned 51% by the Company, 39% by JK Consultoria Empresarial Ltda.-ME, a Brazilian limitada ("JKC"), and 10% by Earth Investments, LLC, a Nevada limited liability company ("EILLC").

JKC is owned by Mr. Jonathan Dagues Martins, a Brazilian citizen and resident ("JDM") and his sister, Ms. Karla Dagues Martins, a Brazilian citizen and resident. JDM is the Chief Executive Officer and President of each SPARThe Company’s subsidiary in Brazil, company pursuant to a Management Agreement between JDM and SPAR BSMT dated September 13, 2016. JDM also is a director of SPAR BSMT. Accordingly, JKC and JDM are each a related party in respect of the Company. EILLC is owned by, Peter Brown who is a citizen and resident of the USA and a related party in respect of the Company (SeeDomestic Related Party Services, above).    Accordingly, EILLC also is a related party in respect of the Company.

SPAR BSMT, has contracted with Ms. Karla Dagues Martins, a Brazilian citizen and resident sister to Mr. Jonathan Dagues Martins, President and JDM's sistera part owner of SPAR BSMT, to handle the labor litigation cases for SPAR BSMT and its subsidiaries.  These legal services are being provided to them at local market rates by Ms. Martins'sMartins' company, Karla Martins Sociedade de Advogados ("KMSA"). Accordingly, Mr. Jonathan Dagues Martins and Ms. Karla Dagues Martins are each an affiliate and a related party in respect of the Company.

The NM Acquisition (as defined below in Note 11 to the Company's Consolidated Financial Statement - PurchaseSummary of Interest in SubsiRelated Party Transactions:diaries) and associated related party transactions were reviewed and approved by the Audit Committee of SGRP's Board of Directors.

The Company believes it is the largest and most important customer of SBS, SAS, NRS, MPT, MCPT, MHT, CON, JFMD and KMSA (and from time to time may be each entity'stheir only customer), and accordingly the Company generally has been able to negotiate better terms, receives more personal and responsive service and is more likely to receive credits and other financial accommodations from SBS, SAS, NRS, MPT, MCPT, MHT, CON, JFMD and KMSA than the Company could reasonably expect to receive from an unrelated service provider who has significant other customers and business. SBS, SAS and other material affiliate contracts and arrangements are annually reviewed and considered for approval by SGRP's Audit Committee, subject to the ongoing negotiations with SBS as described above. 

Summary of Related Party Services:

The following costs of affiliates were charged to the Company (in thousands):