UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            _________________________

                                    FORM 10-K

                       FOR ANNUAL AND TRANSITIONAL REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)

   X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
  ---   ACT OF 1934 for the fiscal year ended December 31, 2005
                                                               OR
        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)

<TABLE>
<CAPTION>
<S>                                                                           <C>
                      Delaware                                                  33-0684451
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

        580 White Plains Road, Suite 600, Tarrytown, New York                    10591
               (Address of principal executive offices)                        (Zip Code)

</TABLE>
       Registrant's telephone number, including area code: (914) 332-4100

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to section 12(g) of the Act:
                     Common Stock, par value $.01 per share

        Indicate  by  check  mark if the  registrant  is a  well-known  seasoned
issuer, as defined in Rule 405 of the Securities Act. YES [ ] NO [X]

        Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES [ ] NO [X]

         Indicate by check mark 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  twelve  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. YES  [X]  NO  [ ]

        Indicate by check mark if disclosure of  delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.  [ ]

         Indicate by check mark whether the  registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer.  See definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act.) Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer[X]

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act.) YES  [ ]  NO  [X]

        The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on June 30, 2005, based on the closing price of
the Common  Stock as reported  by the Nasdaq  Capital  Market on such date,  was
approximately $10,083,534.

        The number of shares of the Registrant's  Common Stock outstanding as of
December 31, 2005, was 18,916,847 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.


<PAGE>



                                        SPAR GROUP, INC.


                                   ANNUAL REPORT ON FORM 10-K


                                              INDEX

                                             PART I
<TABLE>
<CAPTION>
                                                                                           Page

<S>             <C>                                                                        <C>
 Item 1.        Business                                                                     2
 Item 1A.       Risk Factors                                                                10
 Item 1B.       Unresolved Staff Comments                                                   15
 Item 2.        Properties                                                                  15
 Item 3.        Legal Proceedings                                                           16
 Item 4.        Submission of Matters to a Vote of Security Holders                         17

                                             PART II

 Item 5.        Market for Registrant's  Common Equity,  Related Shareholder Matters and
                Issuer Purchases of Equity Securities                                       18
 Item 6.        Selected Financial Data                                                     18
 Item 7.        Management's  Discussion and Analysis of Financial Condition and Results
                of Operations                                                               21
 Item 7A.       Quantitative and Qualitative Disclosures about Market Risk                  29
 Item 8.        Financial Statements and Supplementary Data                                 29
 Item 9.        Changes  in  and  Disagreements   with  Accountants  on  Accounting  and
                Financial Disclosure                                                        29
 Item 9A.       Controls and Procedures                                                     30
 Item 9B.       Other Information                                                           30

                                            PART III

 Item 10.       Directors and Executive Officers of the Registrant                          31
 Item 11.       Executive Compensation and Other Information of SPAR Group, Inc.            34
 Item 12.       Security Ownership of Certain Beneficial Owners and Management              38
 Item 13.       Certain Relationships and Related Transactions                              39
 Item 14.       Principal Accountant Fees and Services                                      40

                                             Part IV

 Item 15.       Exhibits, Financial Statement Schedules                                     41
                Signatures                                                                  47

</TABLE>





<PAGE>


                                     PART I

        Statements  contained in this Annual  Report on Form 10-K 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 and Section 21E of the Exchange Act (collectively, the
"Securities  Laws",  including,  in  particular  and  without  limitation,   the
statements  contained in the discussions  under the headings  "Business",  "Risk
Factors" and  "Management's  Discussion and Analysis of Financial  Condition and
Results of  Operations".  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 or 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",
"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.

        Although  the  Company   believes   that  its  plans,   intentions   and
expectations  reflected in or suggested by such  forward-looking  statements are
reasonable, it cannot assure that such plans, intentions or expectations will be
achieved  in whole or in part.  You should  carefully  review  the risk  factors
described below (see Item 1A - Risk Factors) and any other cautionary statements
contained in this Annual  Report on Form 10-K.  All  forward-looking  statements
attributable  to the  Company  or persons  acting on its  behalf  are  expressly
qualified  all such risk factors and other  cautionary  statements.  The Company
undertakes  no  obligation  to  publicly  update or revise  any  forward-looking
statements, whether as a result of new information,  future events or otherwise,
except as required by law.


Item 1.  Business.

GENERAL

        The SPAR Group, Inc. (formerly known as PIA Marketing Services, Inc.), a
Delaware  corporation  ("SGRP"),  and its subsidiaries  (together with SGRP, the
"SPAR  Group"  or the  "Company"),  is a  supplier  of  merchandising  and other
marketing services  throughout the United States and  internationally.  In 2002,
the Company sold its Incentive Marketing Division,  SPAR Performance Group, Inc.
("SPGI"). 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,
Radio  Frequency  Identification  ("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
currently provides similar merchandising and marketing services through a wholly
owned  subsidiary  in Canada,  through 51% owned joint venture  subsidiaries  in
India, South Africa, Turkey and Romania, and through 50% owned joint ventures in
Japan and China.  In September  2005, the Company entered into a 51% owned joint
venture  subsidiary in Lithuania  which is project to begin  operations in April
2006.  The  Company  continues  to  focus on  expanding  its  merchandising  and
marketing services business throughout the world.

Continuing Operations

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 products companies in the United States.

        Merchandising   services   primarily  consist  of  regularly   scheduled
dedicated routed services and special projects provided at the store level for a
specific retailer or single or




                                      -2-
<PAGE>

multiple  manufacturers  primarily  under  single  or  multi-year  contracts  or
agreements. 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,  and include new store openings, new
product launches, special seasonal or promotional merchandising, focused product
support and product recalls.  The Company also provides  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.   The  Company  has   expanded  its
international business as follows:

<TABLE>
<CAPTION>
                                          Percent Ownership in Subsidiary or
           Date Established                          Joint Venture                            Location
----------------------------------      --------------------------------------  -----------------------------
<S>                <C>                                    <C>
               May 2001                                   50%                               Osaka, Japan
               June 2003                                 100%                              Toronto, Canada
               July 2003                                  51%                             Istanbul, Turkey
              April 2004                                  51%                           Durban, South Africa
              April 2004                                  51%                             New Delhi, India
             December 2004                                51%                            Bucharest, Romania
             February 2005                                50%                             Hong Kong, China
            September 2005                                51%                            Siauliai, Lithuania
</TABLE>

The joint venture in Lithuania is projected to begin operations in April 2006.

Discontinued Operations

Incentive Marketing Division

        As part of a strategic  realignment  in the fourth  quarter of 2001, the
Company made the decision to divest its Incentive Marketing Division,  operating
through its subsidiary,  SPAR  Performance  Group,  Inc.  ("SPGI").  The Company
explored various  alternatives  for the sale of SPGI and  subsequently  sold the
business to SPGI's  employees  through the  establishment  of an employee  stock
ownership  plan on June 30, 2002. In December of 2003,  SPGI changed its name to
STIMULYS, Inc.

Technology Division

        In October 2002, the Company dissolved its Technology Division, which it
had  established  in March 2000 for the  purpose of  marketing  its  proprietary
Internet-based computer software.


INDUSTRY OVERVIEW

Domestic Merchandising Services Division

        According  to  industry  estimates  over two  billion  dollars are spent
annually  on  domestic  retail   merchandising  and  marketing   services.   The
merchandising and marketing services industry includes manufacturers, retailers,
food brokers,  and professional  service  merchandising  companies.  The Company
believes  there  is  a  continuing   trend  for  major   manufacturers  to  move
increasingly toward third parties to handle in-store merchandising.  The Company
also believes that its merchandising and marketing services bring added value to
retailers,   manufacturers  and  other  businesses.   Retail  merchandising  and
marketing  services enhance sales by making a product more visible and available
to  consumers.   These  services   primarily   include  placing  orders,   shelf
maintenance,  display  placement,   reconfiguring  products  on  store  shelves,
replenishing  products and  providing  in-store  event  staffing  services.  The
Company provides other marketing services such as test market research,  mystery
shopping, and promotion planning and analysis.



                                      -3-
<PAGE>

        The Company believes  merchandising  and marketing  services  previously
undertaken by retailers and manufacturers  have been increasingly  outsourced to
third parties. Historically,  retailers staffed their stores as needed to ensure
inventory  levels,  the  advantageous  display of new items on shelves,  and the
maintenance  of  shelf  schematics.  In an  effort  to  improve  their  margins,
retailers  decreased  their own store  personnel and increased their reliance on
manufacturers to perform such services.  Initially,  manufacturers  attempted to
satisfy the need for  merchandising  and marketing  services in retail stores by
utilizing their own sales  representatives.  However,  manufacturers  discovered
that using their own sales  representatives  for this purpose was  expensive and
inefficient.   Therefore,   manufacturers   have  increasingly   outsourced  the
merchandising and marketing  services to third parties capable of operating at a
lower   cost  by   (among   other   things)   serving   multiple   manufacturers
simultaneously.

        Another  significant  trend impacting the  merchandising  segment is the
tendency of consumers to make product purchase  decisions once inside the store.
Accordingly,   merchandising   and  marketing   services  and  in-store  product
promotions  have   proliferated  and  diversified.   Retailers  are  continually
remerchandising   and  remodeling  entire  stores  to  respond  to  new  product
developments  and changes in consumer  preferences.  The Company  estimates that
these activities have increased in frequency over the last five years, such that
most stores are  re-merchandised  or remodeled  approximately  every twenty-four
months.  Both retailers and manufacturers are seeking third parties to help them
meet the increased demand for these labor-intensive services.

International Merchandising Services Division

        The Company believes another current trend in business is globalization.
As  companies   expand  into  foreign  markets  they  will  need  assistance  in
merchandising  or marketing their  products.  As evidenced in the United States,
retailer and manufacturer  sponsored  merchandising  and marketing  programs are
both expensive and inefficient.  The Company also believes that the difficulties
encountered by these programs are only exacerbated by the logistics of operating
in foreign markets.  This environment has created an opportunity for the Company
to exploit its Internet-based  technology and business model that are successful
in the United States.  In July 2000, the Company  established its  International
Merchandising  Services  Division  to  cultivate  foreign  markets,  modify  the
necessary  systems and  implement  the  Company's  business  model  worldwide by
expanding its  merchandising  and  marketing  services  business off shore.  The
Company  formed an  International  Merchandising  Services  Division  task force
consisting of members of the Company's  information  technology,  operations and
finance groups to evaluate and develop foreign markets. In 2001, the Company and
a leading Japanese based distributor  established a joint venture to provide the
latest in-store  merchandising and marketing services to the Japanese market. In
2003, the Company  expanded its  international  presence to Canada and Turkey by
acquiring the business of a Canadian  merchandising  company and entering into a
start-up joint venture  subsidiary in Turkey.  In 2004, the Company  established
51% owned joint venture  subsidiaries  in South Africa and India.  In 2005,  the
Company  established  a 50% owned  joint  venture  in China and 51% owned  joint
venture subsidiaries in Romania and Lithuania. The joint venture in Lithuania is
projected to begin operations in April 2006. Key to the Company's  international
strategy  is  the  translation  of  several  of its  proprietary  Internet-based
logistical,  communications and reporting software  applications into the native
language of any market the Company enters.  As a result of this  requirement for
market  penetration,  the Company has  developed  translation  software that can
quickly convert its  proprietary  software into various  languages.  Through its
computer  facilities in Auburn Hills,  Michigan,  the Company provides worldwide
access to its proprietary logistical,  communications and reporting software. In
addition,  the Company maintains  personnel in Greece and Australia to assist in
its  international  efforts.  The Company is actively  pursuing  expansion  into
various other markets.


PIA ACQUISITION

        SPAR Acquisition,  Inc., and its subsidiaries (the "SPAR Companies") are
the original  predecessor  of the Company and were  founded in 1967.  On July 8,
1999,   SPAR   Companies   completed  a  reverse  merger  with  SGRP  (the  "PIA
Acquisition"),  and SGRP then  changed  its name to SPAR Group,  Inc.,  from PIA
Merchandising  Services,  Inc. (prior to such merger, "PIA"). The SPAR Companies
were deemed to have "purchased" PIA and its  subsidiaries  (the "PIA Companies")
for  accounting  purposes,  with the  books and  records  of the  Company  being
adjusted to reflect the historical operating results of the SPAR Companies.




                                      -4-
<PAGE>



BUSINESS STRATEGY

        As the marketing  services industry  continues to grow,  consolidate and
expand  both in the  United  States and  internationally,  large  retailers  and
manufacturers  are increasingly  outsourcing  their  merchandising and marketing
service  needs to  third-party  providers.  The Company  believes  that offering
marketing  services  on a  national  and  global  basis  will  provide it with a
competitive advantage. Moreover, the Company believes that successful use of and
continuous improvements to a sophisticated technology infrastructure,  including
its proprietary Internet-based software, is key to providing clients with a high
level of client service while maintaining  efficient,  low cost operations.  The
Company's  objective  is to become an  international  retail  merchandising  and
marketing  service  provider by pursuing its operating and growth  strategy,  as
described below.

        Increased Sales Efforts:

        The Company is seeking to increase  revenues by increasing  sales to its
current  clients,  as well as,  establishing  long-term  relationships  with new
clients,  many of which currently use other merchandising  companies for various
reasons.  The Company believes its technology,  field  implementation  and other
competitive  advantages  will allow it to capture a larger  share of this market
over time.  However,  there can be no assurance that any increased sales will be
achieved.

        New Products:

        The  Company  is seeking  to  increase  revenues  through  the  internal
development  and  implementation  of new products and services that add value to
its clients' retail  merchandising  related activities,  some of which have been
identified and are currently being tested for feasibility and market acceptance.
However,  there  can be no  assurance  that any new  products  of value  will be
developed or that any such new product can be successfully marketed.

        Acquisitions:

        The  Company  is  seeking  to  acquire  businesses  or enter  into joint
ventures or other  arrangements with companies that offer similar  merchandising
or  marketing  services  both in the United  States and  worldwide.  The Company
believes that increasing its industry  expertise,  adding product segments,  and
increasing  its  geographic  breadth  will allow it to service its clients  more
efficiently  and cost  effectively.  As part of its  acquisition  strategy,  the
Company is actively exploring a number of potential acquisitions,  predominately
in its  core  merchandising  and  marketing  service  businesses.  Through  such
acquisitions, the Company may realize additional operating and revenue synergies
and may leverage existing relationships with manufacturers,  retailers and other
businesses  to  create  cross-selling  opportunities.  However,  there can be no
assurance that any of the acquisitions will occur or whether, if completed,  the
integration  of the acquired  businesses  will be successful or the  anticipated
efficiencies and cross-selling opportunities will occur.

        Leverage and Improve Technology:

        The Company believes that providing merchandising and marketing services
in a timely,  accurate  and  efficient  manner,  as well as  delivering  timely,
accurate and useful reports to its clients, are key components that are and will
continue to be  critical to the  Company's  success.  The Company has  developed
Internet-based logistic deployment,  communications,  and reporting systems that
improve the  productivity  of its  merchandising  specialists and provide timely
data to its clients.  The  Company's  merchandising  specialists  use  hand-held
computers,  personal  computers or laptop computers to report the status of each
store or client  product they  service.  Merchandising  specialists  report on a
variety of issues such as store conditions,  status of client products (e.g. out
of stocks, inventory, display placement) or they may scan and process new orders
for certain products. This information is reported,  analyzed and displayed in a
variety of reports  that can be accessed by both the Company and its clients via
the Internet. These reports can depict the status of every merchandising project
in real time.

        Through the Company's automated labor tracking system, its merchandising
specialists  communicate work assignment completion information via the Internet
or  telephone,  enabling  the  Company  to report  hours  and  other  completion
information  for each work assignment on a daily basis and providing the Company
with daily,  detailed  tracking of work completion.  This technology  allows the
Company to schedule its  merchandising  specialists  more  efficiently,  quickly
quantify the benefits of its  services to clients,  rapidly  respond to clients'
needs  and  rapidly

                                      -5-
<PAGE>


implement  programs.  The Company believes that its  technological  capabilities
provide it with a competitive advantage in the marketplace.

        The Company intends to continue to utilize computer (including hand-held
computers), Internet, and other technology to enhance its efficiency and ability
to provide  real-time  data to its  clients,  as well as,  maximize the speed of
communication,  and  logistical  deployment  of its  merchandising  specialists.
Industry sources indicate that clients are increasingly relying on merchandising
and  marketing  service  providers  to  supply  rapid,  value-added  information
regarding the results of merchandising  and marketing  expenditures on sales and
profits. The Company (together with certain of its affiliates) has developed and
owns proprietary  Internet-based  software  technology that allows it to utilize
the  Internet  to   communicate   with  its  field   management,   schedule  its
store-specific  field  operations  more  efficiently,  receive  information  and
incorporate  the data  immediately,  quantify  the  benefits of its  services to
clients faster,  respond to clients' needs quickly and implement client programs
rapidly.  The Company  has  successfully  modified  and is  currently  utilizing
certain  of its  software  applications  in  connection  with its  international
ventures. The Company believes that it can continue to improve, modify and adapt
its  technology  to  support  merchandising  and other  marketing  services  for
additional clients and projects in the United States and in foreign markets. The
Company also believes that its proprietary  Internet-based  software  technology
gives it a competitive advantage in the marketplace.


        Improve Operating Efficiencies:

        The Company will continue to seek greater  operating  efficiencies.  The
Company believes that its existing field force and technology infrastructure can
support  additional clients and revenue in the Domestic  Merchandising  Services
Division.


DESCRIPTION OF SERVICES

       The  Company  currently  provides  a broad  array  of  merchandising  and
marketing services to some of the world's leading  companies,  both domestically
and  internationally.  The Company believes its full-line  capabilities  provide
fully  integrated  solutions that  distinguish the Company from its competitors.
These  capabilities  include  the  ability to develop  plans at one  centralized
division  headquarter  location,  effect chain wide  execution,  implement rapid
coordinated  responses to its clients'  needs and report on a real time Internet
enhanced  basis.   The  Company  also  believes  its   international   presence,
industry-leading   technology,   centralized   decision-making   ability,  local
follow-through,  ability to recruit, train and supervise merchandisers,  ability
to  perform  large-scale  initiatives  on  short  notice,  and  strong  retailer
relationships  provide  the Company  with a  significant  advantage  over local,
regional or other competitors.

        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,  product sampling and other in-store event
staffing,   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, convenience and grocery stores. The International Merchandising Services
Division established in July 2000, currently provides similar  merchandising and
marketing  services  through a wholly owned  subsidiary  in Canada,  through 51%
owned joint venture subsidiaries in India, South Africa, Turkey and Romania, and
through 50% owned joint  ventures in Japan and China.  In  September  2005,  the
Company entered into a 51% owned joint venture  subsidiary in Lithuania which is
projected to begin operations in April 2006.

Domestic Merchandising Services Division

        The  Company  provides  a broad  array of  merchandising  and  marketing
services on a national, regional, and local basis to manufacturers, distributors
and retailers in the United States.  The Company provides its  merchandising and
marketing  services  primarily on behalf of consumer product  manufacturers  and
distributors at mass merchandiser,  electronic,  drug and retail grocery chains.
The Company  currently  provides  three  principal  types of  merchandising  and
marketing  services:   syndicated  services,   dedicated  services  and  project
services.



                                      -6-
<PAGE>

        Syndicated Services

        Syndicated services consist of regularly scheduled, routed merchandising
and  marketing   services  provided  at  the  retail  store  level  for  various
manufacturers  and  distributors.  These  services  are  performed  for multiple
manufacturers  and  distributors,  including,  in some cases,  manufacturers and
distributors  whose  products  are  in the  same  product  category.  Syndicated
services may include activities such as:

         o        Reordering and replenishment of products
         o        Ensuring   that   the   clients'   products   authorized   for
                  distribution are in stock and on the shelf
         o        Adding new products that are approved for distribution but not
                  yet present on the shelf
         o        Designing and implementing store planogram schematics
         o        Setting product  category  shelves in accordance with approved
                  store schematics
         o        Ensuring that product shelf tags are in place
         o        Checking for overall salability of the clients' products
         o        Placing  new  product  and  promotional   items  in  prominent
                  positions

        Dedicated Services

        Dedicated  services  consist of  merchandising  and marketing  services,
generally as described  above,  which are performed  for a specific  retailer or
manufacturer  by a dedicated  organization,  including a management team working
exclusively for that retailer or  manufacturer.  These services  include many of
the above  activities  detailed in  syndicated  services,  as well as, new store
set-ups, store remodels and fixture installations.  These services are primarily
based on agreed-upon rates and fixed management fees.

        Project Services

        Project  services  consist   primarily  of  specific  in-store  services
initiated  by  retailers  and  manufacturers,  such as new store  openings,  new
product launches, special seasonal or promotional merchandising, focused product
support,  product recalls,  in-store product demonstrations and in-store product
sampling.  The Company also performs other project  services,  such as new store
sets  and  existing  store  resets,  re-merchandising,   remodels  and  category
implementations, under annual or stand-alone project contracts or agreements.

        In-Store Event Staffing Services

        In  February  of 2003,  the  Company  began to  provide  in-store  event
staffing services such as product  demonstrations and samplings when it acquired
the  business  and certain  assets of a regional  company  that  specialized  in
providing product samplings,  other in-store events and other  merchandising and
marketing  services in Texas and  Oklahoma.  In  December  of 2003,  the Company
expanded  this  business  through the  acquisition  of the  business and certain
assets of  another  regional  company  that  specialized  in  providing  similar
services in Louisiana and neighboring  areas.  The Company  continues to provide
in-store  product  samplings  in those  geographic  areas,  and is  beginning to
provide  certain  in-store  product  demonstrations  to national chains in other
target markets  nationwide.  The Company has also developed  additional  product
offerings in an effort to expand this segment of its business.


        Other Marketing Services

        Other marketing services performed by the Company include:

         Test Market Research - Testing promotion alternatives, new products and
         advertising  campaigns,  as well as  packaging,  pricing,  and location
         changes, at the store level.

         Mystery Shopping - Calling  anonymously on retail outlets (e.g. stores,
         restaurants,  banks) to check on distribution or display of a brand and
         to evaluate products, service of personnel, conditions of store, etc.

         Data Collection - Gathering sales and other information  systematically
         for analysis and interpretation.

         RFID - Utilizing technology to track merchandiser performance,  product
         inventory  at store level as well as other  related  merchandising  and
         marketing applications.



                                      -7-
<PAGE>

International Merchandising Services Division

        The Company believes another current trend in business is globalization.
As companies  expand into foreign markets they will need assistance in marketing
their  products.  As evidenced in the United States,  retailer and  manufacturer
sponsored merchandising programs are both expensive and inefficient. The Company
also  believes  that the  difficulties  encountered  by these  programs are only
exacerbated by the logistics of operating in foreign  markets.  This environment
has  created  an  opportunity  for the  Company to  exploit  its  Internet-based
technology and business model that are successful in the United States.

        In July 2000, the Company  established its  International  Merchandising
Services Division to cultivate foreign markets, modify the necessary systems and
implement the Company's  business model worldwide by expanding its merchandising
and marketing  services  business off shore. The Company formed an International
Merchandising  Services  Division  task  force  consisting  of  members  of  the
Company's information technology,  operations and finance groups to evaluate and
develop  foreign  markets.  In 2001,  the Company and a leading  Japanese  based
distributor established a 50% owned joint venture to provide the latest in-store
merchandising  and  marketing  services to the  Japanese  market.  In 2003,  the
Company  expanded its  international  presence to Canada by acquiring a Canadian
merchandising  company and Turkey by entering  into a 51% owned  start-up  joint
venture  subsidiary.  In 2004, the Company  established  51% owned joint venture
subsidiaries  in South  Africa and India.  In 2005,  the Company  announced  the
establishment of 51% owned joint venture  subsidiaries in Romania and Lithuania.
The joint venture  subsidiary  in Lithuania is projected to begin  operations in
April 2006. In 2005,  the Company also  announced the  establishment  of a joint
venture in China which is 50% owned by the Company.

        Key to the  Company's  international  strategy  is  the  translation  of
several  of  its  proprietary  Internet-based  logistical,   communications  and
reporting  software  applications  into the  native  language  of any market the
Company enters. As a result of this strategy for market penetration, the Company
has  developed  translation  software that can quickly  convert its  proprietary
software  into  various  languages.  Through its computer  facilities  in Auburn
Hills,  Michigan,  the  Company  provides  worldwide  access to its  proprietary
logistical,  communications  and reporting  software.  In addition,  the Company
maintains  personnel  in Greece  and  Australia  to assist in its  international
efforts. The Company is actively pursuing expansion into various other markets.


SALES AND MARKETING

Domestic Merchandising Services Division

        The Company's sales efforts within its Domestic  Merchandising  Services
Division are structured to develop new business in national,  regional and local
markets.  The Company's corporate business  development team directs its efforts
toward the senior management of prospective clients.  Sales strategies developed
at the Company's  headquarters are communicated to the Company's sales force for
execution. The sales force, located nationwide,  work from both Company and home
offices.  In  addition,  the  Company's  corporate  account  executives  play an
important  role in the Company's  new business  development  efforts  within its
existing manufacturer, distributor and retailer client base.

        As part of the retailer  consolidation,  retailers are centralizing most
administrative  functions,   including  operations,   procurement  and  category
management.  In response to this  centralization  and the growing  importance of
large retailers, many manufacturers have reorganized their selling organizations
around a retailer  team  concept  that  focuses on a  particular  retailer.  The
Company has responded to this emerging trend and currently has retailer teams in
place at select retailers.

        The  Company's  business  development  process  includes a due diligence
period to determine the objectives of the prospective  client, the work required
to satisfy those  objectives  and the market value of such work to be performed.
The  Company  employs  a formal  cost  development  and  proposal  process  that
determines the cost of each element of work required to achieve the  prospective
client's objectives. These costs, together with an analysis of market rates, are
used in the  development of a formal  quotation that is then reviewed at various
levels within the organization.  The pricing of this internal proposal must meet
the Company's objectives for profitability, which are established as part of the
business planning process. After approval of this quotation, a detailed proposal
is presented to and approved by the prospective client.



                                      -8-
<PAGE>

International Merchandising Services Division

       The Company's  marketing efforts within its  International  Merchandising
Services  Division are three fold.  First, the Company  endeavors to develop new
markets through  acquisitions.  The Company's  international  acquisition  team,
whose  primary  focus is to seek out and  develop  acquisitions  throughout  the
world, consists of personnel located in the United States, Greece and Australia.
Personnel from information  technology,  field  operations,  client services and
finance support the international  acquisition team.  Second, the Company offers
global merchandising solutions to clients that have worldwide distribution. This
effort is spearheaded  out of the Company's  headquarters  in the United States.
Third,  the Company  develops  local markets  through  various joint ventures or
subsidiaries throughout the world.

CLIENTS

Domestic Merchandising Services Division

        In its Domestic  Merchandising  Services Division, the Company currently
represents  numerous  manufacturers  and /or  retail  clients in a wide range of
retail chains and stores in the United States, including:

        o     Mass Merchandisers
        o     Electronics
        o     Drug
        o     Grocery
        o     Other retail outlets (such as discount stores, home centers, etc.)

        The Company  also  provides  event  staffing,  RFID,  research and other
marketing services to the consumer packaged goods industry.

        One client accounted for 20%, 14%, and 8% of the Company's  domestic net
revenues for the years ended December 31, 2005,  2004,  and 2003,  respectively.
This  client  also  accounted  for  approximately  13% and 29% of the  Company's
domestic accounts receivable at December 31, 2005 and 2004, respectively.

        In addition,  approximately  16%, 16%, and 17% of the Company's domestic
net  revenues  for  the  years  ended   December  31,  2005,   2004,  and  2003,
respectively,  resulted from merchandising  services performed for manufacturers
and others in stores  operated  by a leading  mass  merchandising  chain.  These
clients also accounted for approximately  23% and 22% of the Company's  domestic
accounts receivable at December 31, 2005 and 2004, respectively.

        Also,  approximately  17% and 4% of the Company's  domestic net revenues
for the years ended  December  31, 2005 and 2004,  respectively,  resulted  from
merchandising services performed for manufacturers and others in stores operated
by a leading  electronics chain. These clients also accounted for 24% and 16% of
Company's   domestic  accounts   receivable  at  December  31,  2005  and  2004,
respectively.

        Another client accounted for 10% of the Company's  domestic net revenues
for  the  year  ended  December  31,  2005.   This  client  also  accounted  for
approximately 5% of the Company's  domestic accounts  receivable at December 31,
2005.

International Merchandising Services Division

        The Company believes that the potential  international  clients for this
division have similar profiles to its Domestic  Merchandising  Services Division
clients.  The Company is currently  operating in Japan,  Canada,  Turkey,  South
Africa, India, Romania,  China and in Lithuania as of April 2006. The Company is
actively pursuing expansion into Europe, Asia, South America and other markets.


COMPETITION

        The marketing  services  industry is highly  competitive.  The Company's
competition in the Domestic and International  Merchandising  Services Divisions
arises  from a  number  of large  enterprises,  many of which  are  national  or
international  in  scope.  The  Company  also  competes  with a large  number of
relatively  small  enterprises



                                      -9-
<PAGE>

with  specific  client,  channel  or  geographic  coverage,  as well as with the
internal  marketing and merchandising  operations of its clients and prospective
clients. The Company believes that the principal  competitive factors within its
industry include  development and deployment of technology,  breadth and quality
of client services,  cost, and the ability to execute specific client priorities
rapidly and consistently  over a wide geographic area. The Company believes that
its current structure  favorably addresses these factors and establishes it as a
leader in the mass  merchandiser,  electronics  and chain drug store channels of
trade.  The Company also believes it has the ability to execute  major  national
and international  in-store  initiatives and develop and administer national and
international retailer programs. Finally, the Company believes that, through the
use and  continuing  improvement of its  proprietary  Internet  software,  other
technological  efficiencies  and various cost controls,  the Company will remain
competitive in its pricing and services.


TRADEMARKS

        The Company has  numerous  registered  trademarks.  Although the Company
believes its  trademarks may have value,  the Company  believes its services are
sold primarily based on breadth and quality of service, cost, and the ability to
execute specific client priorities rapidly,  efficiently and consistently over a
wide geographic area. See "Industry Overview" and "Competition".


EMPLOYEES

        Worldwide  the  Company  utilizes a labor force of  approximately  7,900
people.

        As of December 31, 2005, the Company's Domestic  Merchandising  Services
Division's  labor force consisted of approximately  5,800 people.  Approximately
113 were full-time  employees and 53 were part-time employees of the Company. Of
the 113 full-time Company  employees,  107 were engaged in operations and 6 were
engaged in sales.  Of the 53  part-time  Company  employees,  40 were engaged in
field  merchandising.  The Company's  Domestic  Merchandising  Services Division
utilizes the services of its affiliate, SPAR Management Services, Inc. ("SMSI"),
to schedule and supervise its field force of  merchandising  specialists,  which
consists of independent  contractors furnished by SPAR Marketing Services,  Inc.
("SMS"),  another affiliate of the Company (see Item 13 - Certain  Relationships
and Related Transactions,  below) as well as the Company's field employees.  SMS
and SMSI furnish approximately 5,600 merchandising  specialists (all of whom are
independent contractors of SMS) and 44 field managers (all of whom are full-time
employees of SMSI), respectively.

        As of December  31,  2005,  the  Company's  International  Merchandising
Services  Division's  labor  force  consisted  of  approximately  2,125  people.
Approximately  52 full-time  employees  were engaged in  operations  and 10 were
engaged in sales.  The  International  Division's  field force of  merchandising
specialists  consisted of  approximately  74 full time employees,  150 part time
employees and approximately 1,835 independent contractors.

        The Company  currently  utilizes  certain of its Domestic  Merchandising
Services Division's employees,  as well as, the services of certain employees of
its  affiliates,   SMSI  and  SPAR  Infotech,   Inc.  ("SIT"),  to  support  the
International Merchandising Services Division. However, dedicated employees will
be added to that division as the need arises. The Company's affiliate, SIT, also
provides  programming and other  assistance to the Company's  various  divisions
(see Item 13 - Certain Relationships and Related Transactions, below).

        The Company,  SMS,  SMSI and SIT  consider  their  relations  with their
respective employees and independent contractors to be good.


Item 1A. Risk Factors

        There  are  various  risks  associated  with the  Company's  growth  and
operating  strategy.  The risks  factors  presented  below are the ones that the
Company  currently  considers  material  based on best  estimates  and  includes
"forward-looking   statements"  within  the  meaning  of  the  Securities  Laws.
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 or be realized or to be less than expected. Additional risks may be
facing  the  Company,  the  industry,   or  the  economy  in  general,   whether
domestically or internationally.  The Company may not be aware of some risks and
may currently  consider other



                                      -10-
<PAGE>

risks  immaterial,  but any risk may develop at any time into actual events that
adversely affect the Company. There also may be risks that a particular investor
would view differently from the Company,  and current analysis may be wrong. The
Company   expressly   disclaims   any   obligation   to  update  or  revise  any
forward-looking statements or any of these risks in whole or in part, whether as
a result of new information,  future events or otherwise,  except as required by
law.

        You should  carefully  consider each of the risks described below before
deciding to invest in the Company's  common stock. If any of the following risks
develops  into actual  events,  or any other risks arise and develop into actual
events,  the Company's  business,  financial  condition or results of operations
could be negatively  affected,  the market price of the  Company's  common stock
could decline and you may lose all or part of your investment.


Dependency on Largest Clients

        As discussed above in Clients,  the Company does a significant amount of
business  with two clients and  performs a  significant  amount of services in a
leading mass  merchandising  chain and a leading  electronics chain. The loss of
these clients,  the loss of the ability to provide  merchandising  and marketing
services in those  chains,  or the failure to attract  new large  clients  could
significantly  decrease the Company's revenues and such decreased revenues could
have a material adverse effect on the Company's business,  results of operations
and financial condition.

Dependence on Trend Toward Outsourcing

        The  business  and  growth of the  Company  depends in large part on the
continued  trend toward  outsourcing of  merchandising  and marketing  services,
which the Company believes has resulted from the  consolidation of retailers and
manufacturers,  as well as the desire to seek outsourcing specialists and reduce
fixed  operation  expenses.  There  can  be no  assurance  that  this  trend  in
outsourcing  will  continue,  as companies  may elect to perform  such  services
internally.  A significant change in the direction of this trend generally, or a
trend in the retail,  manufacturing or business services industry not to use, or
to reduce the use of,  outsourced  marketing  services such as those provided by
the  Company,  could  significantly  decrease  the  Company's  revenues and such
decreased  revenues  could  have a  material  adverse  effect  on the  Company's
business, results of operations and financial condition or the desired increases
in the Company's business, revenues and profits.

Failure to Successfully Compete

        The merchandising and marketing  services industry is highly competitive
and the  Company  has  competitors  that are larger  (or part of larger  holding
companies) and may be better financed.  In addition,  the Company competes with:
(i) a large number of relatively small enterprises with specific client, channel
or geographic coverage; (ii) the internal merchandising and marketing operations
of its clients and prospective  clients;  (iii)  independent  brokers;  and (iv)
smaller  regional  providers.  Remaining  competitive in the highly  competitive
merchandising and marketing  services industry requires that the Company monitor
and respond to trends in all industry  sectors.  There can be no assurance  that
the Company will be able to anticipate and respond  successfully  to such trends
in a timely manner. If the Company is unable to successfully  compete,  it could
have a material adverse effect on the Company's business,  results of operations
and  financial  condition or the desired  increases in the  Company's  business,
revenues and profits.

        If certain competitors were to combine into integrated merchandising and
marketing services companies, or additional  merchandising and marketing service
companies  were to enter into this  market,  or  existing  participants  in this
industry  were to become  more  competitive,  it could have a  material  adverse
effect on the Company's business,  results of operations and financial condition
or the desired increases in the Company's business, revenues and profits.

Variability of Operating Results and Uncertainty in Client Revenue

        The  Company  has  experienced  and,  in  the  future,   may  experience
fluctuations  in  quarterly  operating  results.  Factors  that  may  cause  the
Company's  quarterly  operating  results  to vary and from  time to time and may
result in reduced  revenue  include:  (i) the number of active client  projects;
(ii)  seasonality  of  client  products;   (iii)  client  delays,   changes  and
cancellations in projects;  (iv) the timing requirements of client projects; (v)
the  completion of major client  projects;  (vi) the timing of new  engagements;
(vii) the  timing of  personnel  cost  increases;  and  (viii) the loss of major
clients. In particular,  the timing of revenues is difficult to forecast for the
home  entertainment  industry  because  timing is  dependent  on the  commercial
success of particular  product releases.  In the event that a particular



                                      -11-
<PAGE>

release is not widely  accepted by the public,  the  Company's  revenue could be
significantly   reduced.  In  addition,   the  Company  is  subject  to  revenue
uncertainties  resulting from factors such as  unprofitable  client work and the
failure of clients to pay.  The  Company  attempts  to  mitigate  these risks by
dealing primarily with large credit-worthy  clients, by entering into written or
oral agreements with its clients and by using project budgeting  systems.  These
revenue  fluctuations  could  materially  and  adversely  affect  the  Company's
business, results of operations and financial condition or the desired increases
in the Company's business, revenues and profits.

Failure to Develop New Products

        A key element of the Company's  growth  strategy is the  development and
sale of new products.  While several new products are under current development,
there can be no assurance that the Company will be able to successfully  develop
and market new  products.  The  Company's  inability or failure to devise useful
merchandising   or  marketing   products  or  to  complete  the  development  or
implementation of a particular  product for use on a large scale, or the failure
of such  products  to achieve  market  acceptance,  could  adversely  affect the
Company's  ability to achieve a significant  part of its growth strategy and the
absence of such growth  could have a material  adverse  effect on the  Company's
business, results of operations and financial condition or the desired increases
in the Company's business, revenues and profits.

Inability to Identify, Acquire and Successfully Integrate Acquisitions

        Another  key  component  of  the  Company's   growth   strategy  is  the
acquisition  of businesses  across the United  States and  worldwide  that offer
similar  merchandising or marketing services.  The successful  implementation of
this  strategy  depends  upon  the  Company's   ability  to  identify   suitable
acquisition candidates, acquire such businesses on acceptable terms, finance the
acquisition  and  integrate  their  operations  successfully  with  those of the
Company. There can be no assurance that such candidates will be available or, if
such  candidates  are  available,  that the price will be attractive or that the
Company will be able to identify,  acquire, finance or integrate such businesses
successfully.  In addition,  in pursuing  such  acquisition  opportunities,  the
Company may compete with other  entities with similar growth  strategies,  these
competitors  may be larger and have greater  financial and other  resources than
the Company.  Competition  for these  acquisition  targets  could also result in
increased  prices of acquisition  targets and/or a diminished  pool of companies
available for acquisition.

        The  successful  integration  of these  acquisitions  also may involve a
number of additional risks,  including:  (i) the inability to retain the clients
of the acquired business; (ii) the lingering effects of poor client relations or
service performance by the acquired business, which also may taint the Company's
existing businesses; (iii) the inability to retain the desirable management, key
personnel and other  employees of the acquired  business;  (iv) the inability to
fully realize the desired efficiencies and economies of scale: (v) the inability
to establish,  implement or police the Company's existing  standards,  controls,
procedures and policies on the acquired  business;  (vi) diversion of management
attention;  and (vii)  exposure to client,  employee  and other legal claims for
activities  of the acquired  business  prior to  acquisition.  In addition,  any
acquired business could perform significantly worse than expected.

        The inability to identify,  acquire,  finance and successfully integrate
such  merchandising or marketing services business could have a material adverse
effect on the Company's growth strategy and could limit the Company's ability to
significantly increase its revenues and profits.

Uncertainty of Financing for, and Dilution Resulting from, Future Acquisitions

        The timing,  size and success of acquisition  efforts and any associated
capital  commitments  cannot be readily  predicted.  Future  acquisitions may be
financed by issuing shares of the Company's Common Stock, cash, or a combination
of Common  Stock and cash.  If the  Company's  Common  Stock does not maintain a
sufficient  market value, or if potential  acquisition  candidates are otherwise
unwilling to accept the Company's Common Stock as part of the  consideration for
the sale of their  businesses,  the Company may be required to obtain additional
capital through debt or equity  financings.  To the extent the Company's  Common
Stock is used for all or a portion  of the  consideration  to be paid for future
acquisitions, dilution may be experienced by existing stockholders. In addition,
there can be no assurance that the Company will be able to obtain the additional
financing  it may need for its  acquisitions  on terms  that the  Company  deems
acceptable. Failure to obtain such capital would materially adversely affect the
Company's ability to execute its growth strategy.


                                      -12-
<PAGE>


Reliance on the Internet and Third Party Vendors

        The Company relies on the Internet for the scheduling,  coordination and
reporting  of  its  merchandising  and  marketing  services.  The  Internet  has
experienced,  and is expected to continue to experience,  significant  growth in
the  numbers  of users and amount of  traffic  as well as  increased  attacks by
hackers  and other  saboteurs.  To the extent  that the  Internet  continues  to
experience  increased numbers of users,  frequency of use or increased bandwidth
requirements   of  users,   there  can  be  no   assurance   that  the  Internet
infrastructure  will  continue to be able to support  the demands  placed on the
Internet by this continued  growth or that the performance or reliability of the
Internet  will  not  be  adversely  affected.   Furthermore,  the  Internet  has
experienced a variety of outages and other delays as a result of accidental  and
intentional  damage to  portions  of its  infrastructure,  and  could  face such
outages  and delays in the future of similar  or  greater  effect.  The  Company
relies on third-party  vendors to provide its Internet access and other services
used in its  business,  and the  Company  has no control  over such  third-party
providers.  Any protracted  disruption or material slowdown in Internet or other
services could increase the Company's  costs of operation and reduce  efficiency
and  performance,  which could have a material  adverse  effect on the Company's
business, results of operations and financial condition or the desired increases
in the Company's business, revenues and profits.

Economic and Retail Uncertainty

        The markets in which the Company  operates  are  cyclical and subject to
the effects of economic  downturns.  The current political,  social and economic
conditions, including the impact of terrorism on consumer and business behavior,
make it  difficult  for the Company,  its vendors and its clients to  accurately
forecast and plan future business activities. Substantially all of the Company's
key clients are either retailers or those seeking to do product merchandising at
retailers. If the retail industry experiences a significant economic downturn, a
reduction in product sales could significantly  decrease the Company's revenues.
The Company also has risks  associated with its clients  changing their business
plans  and/or  reducing  their   marketing   budgets  in  response  to  economic
conditions, which could also significantly decrease the Company's revenues. Such
revenue  decreases  could  have a  material  adverse  effect  on  the  Company's
business, results of operations and financial condition or the desired increases
in the Company's business, revenues and profits.

Significant Stockholders: Voting Control and Market Illiquidity

        Mr. Robert G. Brown, founder,  director,  Chairman,  President and Chief
Executive  Officer of the Company,  beneficially  owns  approximately 46% of the
Company's  outstanding  Common  Stock,  and Mr.  William  H.  Bartels,  founder,
director,  and Vice Chairman of the Company  beneficially owns approximately 29%
of the Company's  outstanding Common Stock. These stockholders have, should they
choose to act together,  and under certain  circumstances Mr. Brown acting alone
has,  the  ability  to  control  all  matters  requiring  stockholder  approval,
including  the  election  of  directors  and the  approval  of mergers and other
business combination transactions.

        In addition,  although the Company  Common Stock is quoted on the Nasdaq
Capital  Market,  the  trading  volume  in  such  stock  may be  limited  and an
investment in the Company's  securities may be illiquid because the founders own
a significant amount of the Company's stock.

Dependence Upon and Potential Conflicts in Services Provided by Affiliates

        The success of the  Company's  domestic  business is dependent  upon the
successful  execution of its field  services by SPAR  Marketing  Services,  Inc.
("SMS"), and SPAR Management Services, Inc. ("SMSI"), as well as the programming
services provided by SPAR Infotech, Inc. ("SIT"), each of which is an affiliate,
but not a subsidiary,  of the Company,  and none of which is consolidated in the
Company's  financial   statements.   SMS  provides   substantially  all  of  the
merchandising  specialists  used  by the  Company  in  conducting  its  domestic
business (86% of field expense in 2005), and SMSI provides  substantially all of
the field  management  services  (91% in 2005) used by the Company in conducting
its business.  These  services  provided to the Company by SMS and SMSI are on a
cost-plus  basis  pursuant to contracts  that are  cancelable  on 60 days notice
prior to December 31 of each year,  commencing  in 1997, or with 180 days notice
at any other time. SIT provides  substantially  all of the Internet  programming
services and other computer  programming needs used by the Company in conducting
its  business  (see Item 13 - Certain  Relationships  and Related  Transactions,
below),  which are  provided  to the  Company by SIT on an hourly  charge  basis
pursuant to a contract  that is  cancelable  on 30 days notice.  The Company has
determined  that  the  services  provided  by SMS,  SMSI  and  SIT are at  rates
favorable to the Company.



                                      -13-
<PAGE>

        SMS, SMSI and SIT (collectively, the "SPAR Affiliates") are owned solely
by Mr.  Robert  G.  Brown,  founder,  director,  Chairman,  President  and Chief
Executive Officer of the Company, and Mr. William H. Bartels, founder, director,
and Vice Chairman of the Company,  each of whom are also directors and executive
officers of each of the SPAR Affiliates (see Item 13 - Certain Relationships and
Related  Transactions,  below).  In the  event of any  dispute  in the  business
relationships between the Company and one or more of the SPAR Affiliates,  it is
possible  that  Messrs.  Brown and  Bartels  may have one or more  conflicts  of
interest with respect to those  relationships and could cause one or more of the
SPAR  Affiliates to  renegotiate  or cancel their  contracts with the Company or
otherwise act in a way that is not in the Company's best interests.

        While the Company's  relationships with SMS, SMSI and SIT are excellent,
there  can be no  assurance  that the  Company  could  (if  necessary  under the
circumstances)  replace  the  field  merchandising  specialists  and  management
currently  provided by SMS and SMSI,  respectively,  or replace the Internet and
other  computer  programming  services  provided by SIT, in  sufficient  time to
perform its client  obligations or at such favorable rates in the event the SPAR
Affiliates  no  longer  performed  those  services.   Any  cancellation,   other
nonperformance  or material  pricing  increase under those  affiliate  contracts
could have a  material  adverse  effect on the  Company's  business,  results of
operations  and  financial  condition or the desired  increases in the Company's
business, revenues and profits.

The Company has not paid and does not intend to pay cash Dividends

        The Company has not paid  dividends  in the past,  intends to retain any
earnings or other cash  resources  to finance the  expansion of its business and
for general  corporate  purposes,  and does not intend to pay  dividends  in the
future. In addition,  the Company's Credit Facility with Webster Business Credit
Corporation  ("Webster") (see Note 5 to the Consolidated  Financial Statements -
Lines of Credit and  Subsequent  Events)  restricts  the  payment  of  dividends
without Webster's prior consent.

Risks Associated with International Joint Ventures

        While the Company  endeavors to limit its exposure for claims and losses
in any international  joint ventures through contractual  provisions,  insurance
and use of single purpose entities for such ventures,  there can be no assurance
that the Company will not be held liable for the claims  against and losses of a
particular  international  joint  venture  under  applicable  local law or local
interpretation of any joint venture or insurance provisions.  If any such claims
and losses  should  occur,  be material in amount and be  successfully  asserted
against the Company, such claims and losses could have a material adverse effect
on the Company's business,  results of operations and financial condition or the
desired increases in the Company's business, revenues and profits.

Risks Associated with Foreign Currency

        The  Company  also has foreign  currency  exposure  associated  with its
international  joint venture  subsidiaries  and joint ventures.  In 2005,  these
exposures are primarily  concentrated in the Canadian  dollar,  Japanese yen and
South African rand.

Risks Associated with International Business

        The  Company's   expansion  strategy  includes  expansion  into  various
countries around the world. While the Company endeavors to limit its exposure by
entering only countries  where the political,  social and economic  environments
are conducive to doing business in that country there can be no assurances  that
the respective business  environments will remain favorable.  In the future, the
Company's  international  operations  and sales may be affected by the following
risks,  which may  adversely  affect  United  States  companies  doing  business
internationally:

        o       Political and economic risks, including political instability;
        o       Various forms of protectionist trade legislation which currently
                exist, or have been proposed, in some foreign countries;
        o       Expenses associated with customizing products for foreign
                countries;
        o       Laws and business practices that favor local competition;
        o       Dependence on local vendors;
        o       Multiple, conflicting and changing governmental laws and
                regulations;
        o       Potentially adverse tax consequences;
        o       Foreign currency exchange rate fluctuations.



                                      -14-
<PAGE>

Item 1B.  Unresolved Staff Comments

        Not applicable.


Item 2.  Properties.

        The Company does not own any real  property.  The Company leases certain
office space and storage  facilities for its corporate  headquarters,  divisions
and subsidiaries  under various operating leases,  which expire at various dates
during the next five years.  These leases  generally  require the Company to pay
minimum rents, subject to periodic  adjustments,  plus other charges,  including
utilities,  real estate taxes and common area maintenance.  The Company believes
that its  relationships  with its landlords  generally to be good.  However,  as
these leased facilities  generally are used for offices and storage, the Company
believes that other leased spaces could be readily found and utilized on similar
terms should the need arise.

        The Company maintains its corporate  headquarters in approximately 6,000
square feet of leased  office space  located in  Tarrytown,  New York,  under an
operating  lease with a term  expiring  in May 2006.  The  Company is  exploring
various leasing options, including an extension of its existing lease.

        The Company  maintains  its data  processing  center and warehouse at it
regional office in Auburn Hills, Michigan,  under an operating lease expiring in
November 2006. The Company is exploring  various leasing  options,  including an
extension of its existing lease.

        The Company  believes that its existing  facilities are adequate for its
current business.  However, new facilities may be added should the need arise in
the future.



                                      -15-
<PAGE>

        The  following is a list of the  locations  where the Company  maintains
leased facilities for the listed offices and countries:

<TABLE>
<CAPTION>
        Location                        Office Use                             Approximate Square Footage
        ---------------------------     -----------------------------          --------------------------
        Domestic:
        ---------

<S>     <C>                             <C>                                               <C>
        Tarrytown, NY                   Corporate Headquarters                             6,000
        Auburn Hills, MI                Regional Office and Warehouse                     27,000
        Cincinnati, OH                  Regional Office                                    5,300

        International:
        --------------

        Canada
        ------
        Toronto, Ontario                Headquarters                                       4,000

        Japan
        -----
        Osaka                           Headquarters                                       1,000
        Tokyo                           Regional Office                                    1,700
        Nagoya                          Regional Office                                      800

        Turkey
        ------
        Istanbul                        Headquarters                                       1,500

        South Africa
        ------------
        Durban                          Headquarters                                       2,800
        Port Elizabeth                  Regional Office                                      900
        Epping                          Regional Office                                    3,000
        Midrand                         Regional Office                                    1,700

        India
        -----
        New Delhi                       Headquarters                                       1,280
        Mumbai                          Regional Office                                      500
        Bangalore                       Regional Office                                      200

        Romania
        -------
        Bucharest                       Headquarters                                         770

        China
        -----
        Shanghai                        Headquarters                                         400
        Beijing                         Regional Office                                       70
        Guangzhou                       Regional Office                                      400
        Shenzhen                        Regional Office                                      130

        Lithuania
        ---------
        Siauliai                        Headquarters                                       1,150
</TABLE>


Item 3.  Legal Proceedings.

        Safeway Inc. ("Safeway") filed a Complaint against the PIA Merchandising
Co., Inc.  ("PIA Co."),  a wholly owned  subsidiary  of SGRP,  and Pivotal Sales
Company  ("Pivotal"),  a wholly owned subsidiary of PIA Co., and SGRP in Alameda
Superior Court,  case no.  2001028498 on October 24, 2001, and has  subsequently
amended it.  Safeway  alleges causes of action for breach of contract and breach
of implied  contract.  Safeway has most recently alleged monetary damages in the
principal sum of  $3,000,000  and alleged  interest of  $1,500,000  and has also
demanded  unspecified  costs.  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 them against Safeway for breach of contract,
interference  with  economic  relationship,  unfair trade  practices  and unjust
enrichment and is seeking



                                      -16-
<PAGE>

damages and injunctive  relief.  Mediation between the parties occurred in 2004,
but did not result in a  settlement.  PIA Co.,  Pivotal and SGRP are  vigorously
defending  against  Safeway's  allegations.  It is not  possible at this time to
determine the  likelihood of the outcome of this  lawsuit.  However,  if Safeway
prevails  respecting  its  allegations,  and PIA Co. and  Pivotal  lose on their
cross-claims and counterclaims, that result could have a material adverse effect
on the  Company.  The Company  anticipates  that this matter will be resolved in
2006.

        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 4.  Submission of Matters to a Vote of Security Holders.
        None.



                                      -17-
<PAGE>



                                     PART II

Item 5.  Market for Registrant's Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities.

Price Range of Common Stock

        The following table sets forth the reported high and low sales prices of
the Common  Stock for the quarters  indicated as reported on the Nasdaq  Capital
Market.

                                        2005                         2004
                               ---------------------       ---------------------
                                 High          Low           High           Low
                                 ----          ---           ----           ---
         First Quarter         $  1.55       $  0.81       $  3.44       $  2.30
         Second Quarter           2.48          1.20          2.33          0.85
         Third Quarter            2.89          1.50          1.50          0.75
         Fourth Quarter           1.80          0.89          1.80          0.36

        As of December  31,  2005,  there were  approximately  1,100  beneficial
shareholders of the Company's Common Stock.

Dividends

        The Company has never declared or paid any cash dividends on its capital
stock and does not  anticipate  paying cash dividends on its Common Stock in the
foreseeable  future.  The Company currently intends to retain future earnings to
finance  its  operations  and fund the growth of the  business.  Any  payment of
future  dividends  will be at the  discretion  of the Board of  Directors of the
Company and will  depend  upon,  among other  things,  the  Company's  earnings,
financial condition,  capital requirements,  level of indebtedness,  contractual
restrictions  in respect to the payment of dividends  and other factors that the
Company's Board of Directors deems relevant.

        The Company's Credit Facility with Webster  Business Credit  Corporation
(see Note 5 to the  Consolidated  Financial  Statements  - Lines of  Credit  and
Subsequent  Events)  restricts the payment of dividends  without Webster's prior
consent.

Issuer Purchases of Equity Securities

        During the fiscal year ended December 31, 2005,  SGRP did not repurchase
any of its equity securities.


Item 6. Selected Financial Data.

        The following selected condensed consolidated financial data sets forth,
for the periods and the dates indicated,  summary  financial data of the Company
and its  subsidiaries.  The selected  financial  data have been derived from the
Company's consolidated financial statements.




                                      -18-
<PAGE>


                                SPAR Group, Inc.
                 Condensed Consolidated Statements of Operations

                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                       ----------------------------------------------------------------
                                                          2005          2004          2003         2002          2001
                                                       ----------    ----------   ------------   ----------   ---------
<S>                                                    <C>           <C>          <C>            <C>          <C>
STATEMENT OF OPERATIONS DATA:
Net revenues                                           $   51,586    $   51,370   $    64,859    $  69,612    $  70,891
Cost of revenues                                           31,939        33,644        42,338       40,331       40,883
                                                       ----------    ----------   ------------   ----------   ---------
Gross profit                                               19,647        17,726        22,521       29,281       30,008
Selling, general and administrative expenses               17,561        20,222        20,967       18,804       19,380
Impairment charges                                              -         8,141             -            -            -
Depreciation and amortization                               1,031         1,399         1,529        1,844        2,682
                                                       ----------    ----------   ------------   ----------   ---------
Operating income (loss)                                     1,055       (12,036)           25        8,633        7,946
Other (income) expense                                       (424)         (754)          237          (26)         107
Interest expense                                              191           220           269          363          561
                                                       ----------    ----------   ------------   ----------   ---------
Income (loss) from continuing operations before
   provision for income taxes and minority interest         1,288       (11,502)         (481)       8,296        7,278
Provision for income taxes                                    242           853            58        2,998        3,123
                                                       ----------    ----------   ------------   ----------   ---------
Income (loss) from continuing operations before
minority interest                                           1,046       (12,355)         (539)       5,298        4,155
Minority interest                                             168           (87)            -            -            -

Discontinued operations:
Loss from discontinued operations net of tax
   benefits of $935                                            -             -             -            -        (1,597)
Loss on disposal of discontinued operations,
   including provision of $1,000 for losses during
   phase-out period and disposal costs net of tax
   benefit of $2,618                                           -             -             -            -        (4,272)
                                                       ----------    ----------   ------------   ----------   ---------

Net income (loss)                                         $  878    $  (12,268)   $     (539)   $   5,298     $  (1,714)
                                                      ===========   ===========   ============  ==========   ==========

Basic/diluted net income(loss) per common share:
------------------------------------------------

Net income (loss) from continuing operations          $      0.05   $    (0.65)   $    (0.03)   $    0.28     $    0.23
                                                       ----------    ----------   ------------  ----------   ----------
Discontinued operations:
Loss from discontinued operations                             -             -             -            -          (0.09)
Estimated loss on disposal of discontinued
   operations                                                 -             -             -            -          (0.23)
                                                       ----------    ----------   ------------  ----------   ----------
Net loss from discontinued operations                         -             -             -            -          (0.32)
                                                       ----------    ----------   ------------  ----------   ----------
Basic/diluted net income (loss)                       $      0.05   $    (0.65)   $    (0.03)   $    0.28     $   (0.09)
                                                      ===========   ===========   ============  ==========   ==========

Weighted average shares outstanding
     - basic                                               18,904       18,859        18,855       18,761        18,389
     - diluted                                             19,360       18,859        18,855       19,148        18,467
</TABLE>



                                      -19-
<PAGE>


<TABLE>
<CAPTION>
                                                                       December 31,
                                                ----------------------------------------------------------
                                                  2005        2004         2003        2002        2001
                                                ---------   ---------  ---------    ----------  ----------

BALANCE SHEET DATA:
-------------------
<S>                                             <C>         <C>        <C>          <C>         <C>
Working capital                                 $   3,120   $     962  $   4,085    $    6,319  $    8,476
Total assets                                       15,417      15,821     28,137        28,800      41,155
Lines of credit, current                            2,969       4,956      4,084             -           -
Lines of credit, long term(1)                           -           -          -           148      11,287
Other long-term debt                                  415         218        270           235       2,585
Total stockholders' equity                          4,850       3,714     16,023        16,592      10,934

</TABLE>






(1) Prior to 2003, the Company's lines of credit were recorded as long-term.



                                      -20-
<PAGE>


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

        Statements  contained in this  "Management's  Discussion and Analysis of
Financial  Condition  and  Results  of  Operations"   include   "forward-looking
statements"  within the meaning of the Securities Laws and are based on our best
estimates.   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 or 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",
"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  described above (see Item 1A - Risk Factors) and
the other  cautionary  statements  contained in this Annual Report on Form 10-K.
All forward-looking  statements attributable to the Company or persons acting on
its behalf are  expressly  qualified by such risk  factors and other  cautionary
statements.  Although  the  Company  believes  that its  plans,  intentions  and
expectations  reflected in or suggested by such  forward-looking  statements are
reasonable, it cannot assure that such plans, intentions or expectations will be
achieved in whole or in part.  The Company  undertakes no obligation to publicly
update or revise  any  forward-looking  statements,  whether  as a result of new
information, future events or otherwise, except as required by law.


Overview
--------

        In the United States,  the Company provides  merchandising and marketing
services  to  manufacturers  and  retailers  principally  in mass  merchandiser,
electronics,  drug store,  grocery,  and other retail trade classes  through its
Domestic Merchandising Services Division. Internationally,  the Company provides
in-store  merchandising and marketing services through a wholly owned subsidiary
in Canada, 51% owned joint venture  subsidiaries in Turkey,  South Africa, India
and Romania and 50% owned joint  ventures in Japan and China.  In 2005 and 2004,
the Company consolidated Canada,  Turkey, South Africa, India and Japan into the
Company's financial  statements.  Also in 2005, the Company consolidated Romania
and China.

        In December 2001, the Company decided to divest its Incentive  Marketing
Division and recorded an estimated loss on disposal of SPAR  Performance  Group,
Inc., now called STIMULYS,  Inc. ("SPGI"), of approximately $4.3 million, net of
taxes,  including a $1.0 million reserve  recorded for the  anticipated  cost to
divest SPGI and any anticipated losses through the divestiture date.

        On June 30, 2002, SPAR Incentive Marketing, Inc. ("SIM"), a wholly owned
subsidiary of the Company, entered into a Stock Purchase and Sale Agreement with
Performance  Holdings,  Inc. ("PHI"),  a Delaware  corporation  headquartered in
Carrollton,  Texas.  Pursuant  to that  agreement,  SIM sold all of the stock of
SPGI, its subsidiary,  to PHI for $6.0 million.  As a condition of the sale, PHI
issued  and  contributed  1,000,000  shares of its common  stock to  Performance
Holdings,  Inc. Employee Stock Ownership Plan, which became the only shareholder
of PHI.

        SIM's  results   (including   those  of  SPGI)  were   reclassified   as
discontinued operations for all periods presented.  The results of operations of
the  discontinued  business  segment are shown  separately below net income from
continuing  operations.   Accordingly,   the  2002  consolidated  statements  of
operations  of the  Company  have  been  prepared,  and  its  2001  consolidated
statements  of  operations  have  been  restated,   to  report  the  results  of
discontinued  operations of SIM (including  those of SPGI)  separately  from the
continuing  operations  of the Company  (see Item 6 - Selected  Financial  Data,
above).

Critical Accounting Policies & Estimates
----------------------------------------

        The Company's critical  accounting  policies,  including the assumptions
and judgments  underlying  them, are disclosed in the Note 2 to the Consolidated
Financial  Statements.  These  policies  have been  consistently  applied in all
material respects and address such matters as revenue recognition,  depreciation
methods, asset impairment  recognition,  consolidation of subsidiaries and other
companies,  and  discontinued  business  accounting.  While  the  estimates  and


                                      -21-
<PAGE>

judgments  associated  with the application of these policies may be affected by
different  assumptions  or  conditions,  the Company  believes the estimates and
judgments   associated  with  the  reported   amounts  are  appropriate  in  the
circumstances.   Four  critical   accounting   policies  are   consolidation  of
subsidiaries,  revenue  recognition,  allowance for doubtful  accounts and sales
allowances, and internal use software development costs:

        Consolidation of subsidiaries and other companies

        The Company  consolidates its 100% owned subsidiaries.  The Company also
        consolidates its 51% owned joint venture  subsidiaries and its 50% owned
        joint  ventures  where  the  Company  is  the  primary   beneficiary  in
        accordance  with Financial  Accounting  Standards  Board  Interpretation
        Number 46, as revised December 2003,  Consolidation of Variable Interest
        Entities ("FIN 46(R)").

        Revenue Recognition

        The Company's  services are provided under contracts or agreements.  The
        Company  bills  its  clients  based  upon  service  fee and per unit fee
        billing  arrangements.  Revenues under service fee billing  arrangements
        are recognized when the service is performed. The Company's per unit fee
        arrangements  provide for fees to be earned based on the retail sales of
        a client's products to consumers.  The Company  recognizes per unit fees
        in the period such amounts become  determinable  and are reported to the
        Company.

        Allowance for Doubtful Accounts and Sales Allowances

        The Company continually monitors the validity of its accounts receivable
        based upon current client credit  information  and financial  condition.
        Balances  that are  deemed to be  uncollectible  after the  Company  has
        attempted reasonable collection efforts are written off through a charge
        to the bad debt allowance and a credit to accounts receivable.  Accounts
        receivable balances,  net of any applicable reserves or allowances,  are
        stated  at the  amount  that  management  expects  to  collect  from the
        outstanding  balances.  The Company provides for probable  uncollectible
        amounts  through a charge to earnings and a credit to bad debt allowance
        based  in part on  management's  assessment  of the  current  status  of
        individual  accounts.  Based on  management's  assessment,  the  Company
        established an allowance for doubtful  accounts of $616,000 and $761,000
        at  December  31,  2005 and  2004,  respectively.  Bad  debt  and  sales
        allowance expenses were $38,000,  $366,000,  and $825,000 in 2005, 2004,
        and 2003, respectively.

        Internal Use Software Development Costs

        In  accordance  with SOP  98-1,  Accounting  for the  Costs of  Computer
        Software Developed or Obtained for Internal Use, the Company capitalizes
        certain  costs  associated  with  its  internally   developed  software.
        Specifically,  the  Company  capitalizes  the  costs  of  materials  and
        services  incurred in  developing  or obtaining  internal use  software.
        These  costs  include  (but are not  limited  to) the  cost to  purchase
        software,  the cost to write program code,  payroll and related benefits
        and travel expenses for those  employees who are directly  involved with
        and who devote  time to the  Company's  software  development  projects.
        Capitalized software development costs are amortized over three years.

        The Company  capitalized  $346,000,  $559,000,  and  $1,004,000 of costs
        related to software  developed for internal use in 2005, 2004, and 2003,
        respectively,   and  amortized  capitalized  software  of  approximately
        $516,000,  $638,000 and $690,000 for the years ended  December 31, 2005,
        2004, and 2003, respectively.

        The  Company  also  recorded  a net  impairment  charge  of  capitalized
        software  related to lost  clients  totaling  approximately  $442,000 in
        2004.






                                      -22-
<PAGE>







Results of operations

        The following table sets forth selected  financial data and such data as
a percentage of net revenues for the years indicated (in millions).
<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                   ----------------------------------------------------------------------------
                                                      2005            %           2004           %           2003           %
                                                   --------         -----       --------       -----       --------      ------

<S>                                                <C>              <C>         <C>            <C>         <C>           <C>
Net revenues                                       $   51.6         100.0%      $   51.4       100.0%      $   64.9      100.0%
Cost of revenues                                       31.9          61.9           33.6        65.5           42.3       65.3
Selling, general & administrative expenses             17.6          34.0           20.2        39.4           21.0       32.3
Impairment charges                                      -             -              8.1        15.8            -          -
Depreciation & amortization                             1.0           2.0            1.4         2.7            1.5        2.3
Other (income) expenses, net                           (0.2)         (0.4)          (0.4)       (1.0)           0.5        0.8
                                                   --------         -----       --------       -----       --------      -----
Income (loss) before income tax provision and
   minority interest                                    1.3           2.5          (11.5)      (22.4)          (0.4)      (0.7)
Provision for income taxes                              0.2           0.5            0.9         1.7            0.1        0.1
                                                   --------         -----       --------       -----       --------      -----
Income (loss) before minority interest                  1.1           2.0          (12.4)      (24.1)          (0.5)      (0.8)
Minority interest                                       0.2           0.3           (0.1)       (0.2)            -          -
                                                   --------         -----       --------       -----       --------      -----
Net income (loss)                                  $    0.9           1.7%     $   (12.3)      (23.9)%      $  (0.5)      (0.8)%
                                                   ========         =====      =========       =====        =======      =====

</TABLE>



                                      -23-
<PAGE>


Results from  continuing  operations  for the twelve  months ended  December 31,
--------------------------------------------------------------------------------
2005, compared to twelve months ended December 31, 2004
-------------------------------------------------------

Net Revenues

        Net revenues from  operations  for the twelve months ended  December 31,
2005, were $51.6 million,  compared to $51.4 million for the twelve months ended
December 31, 2004, an increase of $0.2 million.  The increase of $0.2 million in
net revenues  consists of an increase in  international  revenue of $6.7 million
offset  by  decreases   in  domestic   revenue  of  $6.5  million  or  15%.  The
international  revenue  increase of $6.7  million was  primarily  attributed  to
increases  in Japan  of $3.0  million,  Canada  of $2.6  million,  India of $1.2
million and all others of $0.2 million,  partially offset by revenue decrease in
South Africa of $0.3  million.  The decrease in domestic  revenue is a result of
the loss of several  significant  clients  partially  offset by revenue from new
clients in 2005.

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 as a percentage  of net revenues was 61.9% for the twelve  months ended
December 31, 2005,  compared to 65.5% for the twelve  months ended  December 31,
2004.  Domestic  cost of revenues as a percentage  of net revenues was 62.9% and
65.8% for the twelve months ended December 31, 2005, and 2004, respectively. The
decrease in cost as a  percentage  of net  revenues is  primarily a result of an
increase in per unit fee revenues that do not have a  proportionate  increase in
cost. As discussed above under Critical Accounting Policies/Revenue Recognition,
the Company's revenue consists of per unit fee revenue, which is earned when the
client's  product is sold to the  consumer at retail,  not when the services are
performed.  Retail sales of client  products are influenced by numerous  factors
including  consumer tastes and preferences,  and not solely by the merchandising
and marketing service  performed,  in any given period, the cost of per unit fee
revenues  may  not be  directly  proportionate  to the  per  unit  fee  revenue.
Internationally,  the cost of revenues as a percentage of net revenues was 59.6%
and 63.7% for the twelve months ended December 31, 2005, and 2004, respectively.
The  international  cost of revenue  percentage  was  favorably  impacted by the
increase in  international  revenue,  which  enabled the Company to leverage its
infrastructure.

        Approximately 87% of the Company's  domestic cost of revenue in both the
twelve  months  ended  December  31,  2005  and  2004,  resulted  from  in-store
independent   contractor  and  field  management  services  purchased  from  the
Company's affiliates,  SPAR Marketing Services, Inc. ("SMS") and SPAR Management
Services,  Inc. ("SMSI") respectively.  (See Item 13 - Certain Relationships and
Related Transactions, below)

Operating Expenses

        Operating expenses include selling, general and administrative expenses,
impairment  charges,   depreciation  and  amortization.   Selling,  general  and
administrative   expenses  include  corporate   overhead,   project  management,
information  technology,  executive  compensation,  human  resource,  legal  and
accounting  expenses.  The following table sets forth the operating expenses for
the years indicated (in millions):

<TABLE>
<CAPTION>
                                                           Year Ended December 31,                        Increase
                                         -------------------------------------------------------------   (decrease)
                                             2005             %              2004             %              %
                                         --------------  ------------   ---------------  -------------  -------------

<S>                                        <C>               <C>          <C>                <C>          <C>
Selling, general & administrative          $  17.6           34.0%        $  20.2            39.4%        (13.2)%
Impairment charges                             -              -               8.1            15.8            -
Depreciation and amortization                  1.0            2.0             1.4             2.7         (26.3)%
                                         --------------  ------------   ---------------  -------------
Total operating expenses                   $  18.6           36.0%        $  29.7            57.9%        (37.5)%
                                         ==============  ============   ===============  =============
</TABLE>

        Selling,  general and administrative expenses decreased by $2.6 million,
or 13%, for the twelve months ended December 31, 2005, to $17.6 million compared
to $20.2  million  for the twelve  months  ended  December  31,  2004.  Domestic
selling,  general and administrative expenses totaled $12.2 million for 2005 and
were reduced $4.5 million from $16.7 million in 2004. The reduction of 27% was a
result of cost  reduction  programs  initiated  in the second  half of 2004 as a
result of the loss of certain large clients.  The domestic cost  reductions were
partially offset by increases of $1.9 million in international selling,  general
and  administrative  expenses primarily a result of increased spending in Canada
of



                                      -24-
<PAGE>

approximately $800,000, and in Japan of approximately $500,000, with the balance
attributable to the joint venture startups in Romania and China, and a full year
of operations in South Africa, Turkey, and India.

        Impairment  charges  were  $8.1  million  for  2004  (see  Note 3 to the
Consolidated  Financial  Statements  -Impairment  Charges).  Impairment  charges
resulting  from the loss of certain large  clients  consisted of $7.6 million of
goodwill  impairment,  $1.2 million for the impairment of other assets partially
offset by the  reduction  of $1.4  million  (net of taxes) of other  liabilities
related to the PIA Acquisition.  In addition there was approximately $700,000 of
goodwill impairment associated with the Canadian subsidiary.

        Depreciation and  amortization  charges were $1.0 million for the twelve
months ended  December 31, 2005,  compared to $1.4 million for the twelve months
ended  December  31,  2004.  The  decrease  was a result of reduced  capitalized
software.

Other Income/Other Expense

        Other income was  approximately  $424,000 and $754,000 for twelve months
ended December 31, 2005 and 2004,  respectively.  In 2005, other income consists
primarily of the release of a reserve  associated  with the PIA  Acquisition  in
July 1999. In 2004, other income consisted of approximately  $640,000  resulting
from the release of specific  reserves  related to the  refinancing  of the SPGI
notes and approximately $114,000 of foreign currency translation gains.

Interest Expense

        Interest  expense  totaled  approximately  $191,000 for 2005 compared to
interest expense of  approximately  $220,000 for 2004. The decrease was a result
of lower debt levels in 2005 partially offset by increased rates.

Income Taxes

        The  provision  for income  taxes was $242,000 and $853,000 for 2005 and
2004,  respectively.  The 2005 provision is primarily for state taxes.  The 2004
provision  consists primarily of a valuation  allowance  totaling  approximately
$750,000  against its net deferred  tax assets and state taxes of  approximately
$103,000.

Net Income (Loss)

        The SPAR Group had a net income of  approximately  $878,000 or $0.05 per
basic and diluted share for 2005,  compared to a net loss of approximately $12.3
million or $0.65 per basic and diluted shares for 2004.

Off Balance Sheet Arrangements

        None.



                                      -25-
<PAGE>



Results from  continuing  operations  for the twelve  months ended  December 31,
--------------------------------------------------------------------------------
2004, compared to twelve months ended December 31, 2003
-------------------------------------------------------

Net Revenues

        Net revenues from  operations  for the twelve months ended  December 31,
2004, were $51.4 million,  compared to $64.9 million for the twelve months ended
December 31, 2003, a decrease of $13.5  million or 20.8%.  The decrease of $13.5
million in net  revenues  consists of a decrease  in  domestic  revenue of $21.1
million or 32.9% partially offset by increases in international  revenue of $7.7
million.  The  decrease in  domestic  revenue is a result of the loss of several
significant  clients  partially  offset by revenue from new clients in 2004. The
international  revenue  increase of $7.7  million was  primarily a result of the
South African  acquisition,  the Japan consolidation and a full year of Canadian
operations.

Cost of Revenues

        Cost of revenues from  operations  consists of in-store  labor and field
management  wages,  related  benefits,  travel  and other  direct  labor-related
expenses. Cost of revenues decreased by $8.7 million in 2004 and as a percentage
of net revenues was 65.5% for the twelve months ended  December 31, 2004,  which
was  consistent  with 65.3% for the  twelve  months  ended  December  31,  2003.
Approximately  87%  and  85% of the  field  services  were  purchased  from  the
Company's affiliate,  SMS, in 2004 and 2003, respectively (see Item 13 - Certain
Relationships and Related  Transactions,  below). SMS's increased share of field
services resulted from its more favorable cost structure

Operating Expenses

        Operating expenses include selling, general and administrative expenses,
impairment  charges,   depreciation  and  amortization.   Selling,  general  and
administrative   expenses  include  corporate   overhead,   project  management,
information  technology,  executive  compensation,  human  resource,  legal  and
accounting expenses.  The following table sets forth the operating expenses as a
percentage of net revenues for years indicated (in millions):

<TABLE>
<CAPTION>
                                                           Year Ended December 31,                        Increase
                                         -------------------------------------------------------------   (decrease)
                                             2004             %              2003             %              %
                                         --------------  ------------   ---------------  -------------  -------------

<S>                                        <C>               <C>           <C>               <C>           <C>
Selling, general & administrative          $  20.2           39.4%         $ 21.0            32.3%         (3.6)%
Impairment charges                             8.1           15.8             -               -             -
Depreciation and amortization                  1.4            2.7             1.5             2.3          (8.5)%
                                         --------------  ------------   ---------------  -------------
Total operating expenses                   $  29.7           57.9%         $ 22.5            34.6%         32.3%
                                         ==============  ============   ===============  =============
</TABLE>

        Selling,  general and administrative expenses decreased by $0.8 million,
or 3.6%,  for the twelve  months  ended  December  31,  2004,  to $20.2  million
compared  to $21.0  million  for the twelve  months  ended  December  31,  2003.
Domestic selling,  general and administrative expenses totaled $16.7 million for
2004 and were reduced $3.3 million from $19.9 million in 2003.  The reduction of
16.1% was a result of cost reduction  programs  initiated in 2004 as a result of
the loss of certain  large  clients  partially  offset by  restructure  costs of
$480,000  expensed  in 2004  compared to no expense in 2003.  Restructure  costs
included office lease and employee severance costs. The domestic cost reductions
were  partially  offset by increases of $2.5 million in  international  selling,
general and  administrative  expenses resulting from the consolidation of Japan,
the acquisition of South Africa, and a full year of Canadian operations, as well
as, the Turkey and India joint venture startups.

        Impairment  charges  were  $8.1  million  for  2004  (see  Note 3 to the
Consolidated  Financial  Statements  -Impairment  Charges).  Impairment  charges
resulting  from the loss of certain large  clients  consisted of $7.6 million of
goodwill  impairment,  $1.2 million for the impairment of other assets partially
offset by the  reduction  of $1.4  million  (net of taxes) of other  liabilities
related to the PIA Acquisition.  In addition there was approximately $700,000 of
goodwill impairment associated with the Canadian subsidiary.

        Depreciation  and  amortization  charges  of $1.4  million  in 2004  was
consistent with $1.5 million in 2003.



                                      -26-
<PAGE>

Other Income/Other Expense

        Other income was approximately $754,000 for 2004 versus other expense of
$237,000 for 2003. In 2004,  other income  consisted of  approximately  $640,000
resulting from the release of specific  reserves  related to the  refinancing of
the SPGI notes and approximately $114,000 of foreign currency translation gains.
In 2003,  other expense  consisted  primarily of the Company's  share of its 50%
owned Japan joint venture losses  accounted for on the equity  method.  In 2004,
the  Japan  joint  venture  was  consolidated   into  the  Company's   financial
statements.

Interest Expense

        Interest  expense  totaled  $220,000  for 2004 and was  consistent  with
interest expense of $269,000 for 2003.

Income Taxes

        The  provision  for income  taxes was  $853,000 and $58,000 for 2004 and
2003, respectively.  During 2004, as a result of the loss of several significant
clients,  current  year  losses  and  the  lack  of  certainty  of a  return  to
profitability  in the next twelve months,  the Company recorded a full valuation
allowance  against its net  deferred tax assets  resulting in a charge  totaling
approximately  $750,000.  The 2004 tax  provision  of  $853,000  consists of the
valuation allowance and minimum state taxes of approximately  $103,000.  The tax
provision for 2003 reflects minimum tax requirements for state filings.

Net (Loss) Income

        The SPAR Group had a net loss of  approximately  $12.3  million or $0.65
per basic and diluted  share for 2004,  compared to a net loss of  approximately
$539,000 or $0.03 per basic and diluted shares for 2003.

Off Balance Sheet Arrangements

None.

Liquidity and Capital Resources

        In the twelve  months ended  December  31,  2005,  the Company had a net
income of $878,000.

        Net cash provided by operating  activities  for the year ended  December
31,  2005 and  2004,  was $3.4  million,  and $1.4  million,  respectively.  The
increase of $2.0 million in cash  provided by operating  activities is primarily
due to increases in net income and lower decreases in accounts receivable.

        Net cash used in investing  activities  for the year ended  December 31,
2005, was $0.6 million, compared with net cash used of $1.3 million for the year
for December 31, 2004. The decrease in net cash used in investing activities was
a result  of lower  purchases  of  property  and  equipment  primarily  computer
software and equipment and fewer acquisitions of new businesses in 2005.

        Net cash used in financing  activities  for the year ended  December 31,
2005 was $1.9 million,  compared with net cash provided by financing  activities
of $0.9 million for the year ended  December 31, 2004. The increase in cash used
was a result of the Company paying down on its lines of credit.

        The above activity resulted in a change in cash and cash equivalents for
the twelve months ended December 31, 2005 of $1.0 million.

        At December 31, 2005, the Company had positive  working  capital of $3.1
million as  compared to $1.0  million at  December  31,  2004.  The  increase in
working capital is due to increases in cash,  decreases in accounts  payable and
lines of credit,  partially  offset by a decrease  in  accounts  receivable  and
increases in accrued expenses and other current liabilities and accrued expenses
due to affiliates. The Company's current ratio was 1.31 and 1.08 at December 31,
2005 and 2004, respectively.

        In January 2003, the Company 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 provided a
$15.0 million  revolving  credit  facility



                                      -27-
<PAGE>

that matured on January 23,  2006.  The Credit  Facility  allowed the Company to
borrow up to $15.0 million based upon a borrowing base formula as defined in the
agreement (principally 85% of "eligible" accounts receivable).  On May 17, 2004,
the Credit  Facility  was amended to among other  things,  reduce the  revolving
credit  facility from $15.0 million to $10.0  million,  change the interest rate
and increase reserves against collateral. The amendment provides for interest to
be charged at a rate based in part upon the  earnings  before  interest,  taxes,
depreciation and  amortization.  The average interest rate for 2005 was 6.9%. At
December 31, 2005, the Credit Facility bears interest at Webster's  "Alternative
Base Rate"  plus 0.75% (a total of 8.0% per  annum),  or LIBOR plus  3.25%.  The
Credit  Facility is secured by all of the assets of the Company and its domestic
subsidiaries.  In connection with the May 17, 2004, amendment, Mr. Robert Brown,
a Director,  the  Chairman,  President and Chief  Executive  Officer and a major
stockholder  of the  Company  and Mr.  William  Bartels,  a  Director,  the Vice
Chairman and a major stockholder of the Company,  provided  personal  guarantees
totaling $1.0 million to Webster.  On August 20, 2004,  the Credit  Facility was
further  amended in connection  with the waiver of certain  covenant  violations
(see below).  The amendment,  among other things,  reduced the revolving  credit
facility  from $10.0 million to $7.0  million,  changed the covenant  compliance
testing for certain  covenants  from  quarterly  to monthly and reduced  certain
advance rates.  On November 15, 2004, the Credit Facility was further amended to
delete any required  Minimum Net Worth and minimum Fixed Charge  Coverage  Ratio
covenant levels for the year ended December 31, 2004.  Those  amendments did not
change the future covenant levels for 2005.

        In January 2006, the Credit  Facility was amended to extend its maturity
to January 2009 and to reset the Fixed Charge  Coverage  Ratio,  and Minimum Net
Worth  covenants.  It  further  stipulated  that  should  the  Company  meet its
covenants  for the year ended  December 31, 2005,  which it has,  Webster  would
release Mr.  Robert  Brown and Mr.  William  Bartels  from their  obligation  to
provide  personal  guarantees  totaling  $1.0 million and certain  discretionary
reserves. The Credit Facility also limits certain expenditures,  including,  but
not limited to, capital expenditures and other investments.

        The Company was not in violation of any  covenants at December 31, 2005,
and does not expect to be in violation  at future  measurement  dates.  However,
there can be 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.

        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
December 31, 2005, and December 31, 2004, 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 revolving loan balances  outstanding  under the Credit Facility were
$2.4  million and $4.1  million at December  31,  2005,  and  December 31, 2004,
respectively. There were letters of credit outstanding under the Credit Facility
of $0.6 million and $0.7  million at December  31, 2005,  and December 31, 2004,
respectively. As of December 31, 2005, the Company had unused availability under
the Credit  Facility of $3.2 million out of the  remaining  maximum $4.0 million
unused revolving line of credit after reducing the borrowing base by outstanding
loans and letters of credit.

        In 2001, the Japanese joint venture SPAR FM Japan,  Inc.  entered into a
revolving line of credit  arrangement with Japanese banks for 300 million yen or
$2.7 million (based upon the exchange rate at September 30, 2005).  At September
30, 2005, SPAR FM Japan, Inc. had 70 million yen or approximately  $600,000 loan
balance outstanding under the line of credit. The average interest rate for 2005
and the interest rate at September 30, 2005 were 1.4%.

        The Company's international model is to partner with local merchandising
companies  and combine  their  knowledge of the local market with the  Company's
proprietary  software and expertise in the merchandising and marketing business.
In 2001, the Company  established its first joint venture and has continued this
strategy.  As of this  filing,  the  Company is  currently  operating  in Japan,
Canada,  Turkey,  South  Africa,  India,  Romania and China.  The  Company  also
announced the establishment of a joint venture subsidiary in Lithuania, which is
projected to begin operations in April 2006.

        Certain of these  joint  ventures  and joint  venture  subsidiaries  are
marginally  profitable and certain others are operating at a loss. None of these
entities  have excess  cash  reserves.  In the event of  continued  losses,  the
Company may be required to provide  additional  cash  infusions into these joint
ventures and joint venture subsidiaries.

        Management believes that based upon the results of Company's cost saving
initiatives and the existing  credit  facilities,  sources of cash  availability
will be sufficient to support  ongoing  operations  over the next twelve months.


                                      -28-
<PAGE>

However, delays in collection of receivables due from any of the Company's major
clients,  or a significant  further reduction in business from such clients,  or
the  inability  to acquire new  clients,  or the  Company's  inability to remain
profitable,  or the  inability  to obtain  bank  waivers  in the event of future
covenant  violations  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 December 31, 2005 (in thousands).

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
              Contractual Obligations                                   Payments due by Period
--------------------------------------------------------------------------------------------------------------------
                                               Total       Less than 1    1-3 years      3-5 years    More than 5
                                                              year                                       years
--------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>           <C>           <C>         <C>
        Credit Facilities                      $ 2,969       $ 2,969       $     -       $     -     $        -
--------------------------------------------------------------------------------------------------------------------
        Operating Lease Obligations              1,987         1,086           840            61              -
--------------------------------------------------------------------------------------------------------------------
        Total                                  $ 4,956       $ 4,055       $   840       $    61     $        -
--------------------------------------------------------------------------------------------------------------------
</TABLE>

        In addition to the above table,  at December  31, 2005,  the Company had
approximately $550,000 in outstanding Letters of Credit.

Item 7A.  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 considers  carrying amounts of current assets and liabilities in the
consolidated  financial  statements  to  approximate  the fair  value  for these
financial  instruments  because of the  relatively  short period of time between
origination  of the  instruments  and their  expected  realization.  The Company
monitors the risks  associated  with  interest  rates and  financial  instrument
positions.  The Company's  investment policy objectives require the preservation
and safety of the principal,  and the  maximization  of the return on investment
based upon the safety and liquidity objectives.

        The Company is exposed to market risk related to the  variable  interest
rate on its lines of credit.  At December 31, 2005,  the  Company's  outstanding
debt totaled $3.0 million,  which consisted of domestic  variable-rate (8%) debt
of $2.4 million and  international  variable  rate (1.4%) debt of $0.6  million.
Based  on 2005  average  outstanding  borrowings  under  variable-rate  debt,  a
one-percentage  point increase in interest rates would negatively  impact annual
pre-tax earnings and cash flows by approximately $25,000.

        The  Company  has  foreign   currency   exposure   associated  with  its
international  100% owned subsidiary,  its 51% owned joint venture  subsidiaries
and its 50% owned joint  ventures.  In both 2005 and 2004,  these  exposures are
primarily  concentrated in the Canadian dollar,  South African rand and Japanese
yen. At  December  31,  2005,  international  assets  totaled  $5.0  million and
international liabilities totaled $7.5 million. For 2005, international revenues
totaled  $14.9   million  and  the  Company's   share  of  the  net  income  was
approximately $167,000.

        Investment Portfolio

        The  Company  has no  derivative  financial  instruments  or  derivative
commodity  instruments  in  its  cash  and  cash  equivalents  and  investments.
Domestically,  excess cash is normally  used to pay down its  revolving  line of
credit. Internationally, excess cash is used to fund operations.

Item 8.  Financial Statements and Supplementary Data.

        See Item 15 of this Annual Report on Form 10-K.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

        None.


                                      -29-
<PAGE>


Item 9A.  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
twelve months covered by this report or from the end of the reporting  period to
the date of this Form 10-K.

        The Company has  established  a plan and has begun to document  and test
its domestic internal controls over financial  reporting required by Section 404
of the Sarbanes-Oxley Act of 2002.

Item 9B.  Other Information.

        None.




                                      -30-
<PAGE>


                                    PART III

Item 10.   Directors and Executive Officers of the Registrant.


Directors and Executive Officers

        The following  table sets forth certain  information in connection  with
each person who is or was at December 31,  2005,  an  executive  officer  and/or
director for the Company.

<TABLE>
<CAPTION>
Name                                     Age        Position with SPAR Group, Inc.
----                                     ---        ------------------------------

<S>                                      <C>        <C>
Robert G.  Brown.  . . . . . . . . .     63         Chairman, Chief Executive Officer, President and Director

William  H.  Bartels . . . . . . . .     62         Vice Chairman and Director

Robert O.  Aders  (1). . . . . . . .     78         Director, Chairman Governance Committee

Jack W.  Partridge (1) . . . . . . .     60         Director, Chairman Compensation Committee

Jerry B.  Gilbert  (1) . . . . . . .     71         Director

Lorrence  T.  Kellar (1) . . . . . .     68         Director, Chairman Audit Committee

Charles Cimitile.  . . . . . . . . .     51         Chief Financial Officer, Treasurer and Secretary

Kori G. Belzer ....................      40         Chief Operating Officer

Patricia Franco ...................      45         Chief  Information  Officer,  President  of the  SPAR  International
                                                    Merchandising Division

James R. Segreto ..................      57         Vice President, Controller
__________________________
(1) Member of the Board's Governance, Compensation and Audit Committees
</TABLE>


        Robert  G.  Brown  serves  as the  Chairman,  Chief  Executive  Officer,
President and a Director of SGRP and has held such positions since July 8, 1999,
the  effective  date of the  merger  of the SPAR  Marketing  Companies  with PIA
Merchandising Services,  Inc. (the "Merger").  Mr. Brown served as the Chairman,
President  and  Chief  Executive   Officer  of  the  SPAR  Marketing   Companies
(SPAR/Burgoyne  Retail Services,  Inc.  ("SBRS") since 1994, SPAR, Inc. ("SINC")
since 1979,  SPAR  Marketing,  Inc.  ("SMNEV")  since  November  1993,  and SPAR
Marketing Force, Inc. ("SMF") since 1996).

        William H.  Bartels  serves as the Vice  Chairman and a Director of SGRP
and has held  such  positions  since  July 8, 1999  (the  effective  date of the
Merger).  Mr.  Bartels  served as the Vice  Chairman,  Secretary,  Treasurer and
Senior Vice President of the SPAR  Marketing  Companies  (SBRS since 1994,  SINC
since 1979, SMNEV since November 1993 and SMF since 1996).

        Robert O. Aders  serves as a Director of SGRP and has done so since July
8, 1999. He has served as the Chairman of the Governance  Committee since May 9,
2003.  Mr.  Aders  has  served as  Chairman  of The  Advisory  Board,  Inc.,  an
international consulting organization since 1993, and also as President Emeritus
of the Food Marketing  Institute  ("FMI") since 1993.  Immediately  prior to his
election to the  Presidency  of FMI in 1976,  Mr. Aders was Acting  Secretary of
Labor in the Ford  Administration.  Mr. Aders was the Chief Executive Officer of
FMI from 1976 to 1993.  He also served in The Kroger  Co., in various  executive
positions from 1957 to 1974 and was Chairman of the Board from 1970 to 1974.




                                      -31-
<PAGE>


        Jack W.  Partridge  serves as a  Director  of SGRP and has done so since
January 29, 2001. He has served as the Chairman of the Compensation Committee of
SGRP since May 9, 2003.  Mr.  Partridge  is  President  of Jack W.  Partridge  &
Associates.  He  previously  served as Vice  Chairman  of the Board of The Grand
Union  Company  from 1998 to 2000.  Mr.  Partridge's  service  with Grand  Union
followed a distinguished 23-year career with The Kroger Company, where he served
as Group  Vice  President,  Corporate  Affairs,  and as a member  of the  Senior
Executive Committee, as well as various other executive positions. Mr. Partridge
has been a leader in industry and community  affairs for over three decades.  He
has served as Chairman of the Food Marketing  Institute's  Government  Relations
Committee,  the Food and Agriculture  Policy Task Force,  and as Chairman of the
Board of The Ohio Retail  Association.  He  currently  serves as a member of the
board of Checkpoint Systems, Inc.

        Jerry B. Gilbert serves as a Director of SGRP and has done so since June
4, 2001. Mr. Gilbert served as Vice President of Customer  Relations for Johnson
& Johnson's Consumer and Personal Care Group of Companies from 1989 to 1997. Mr.
Gilbert  joined  Johnson  & Johnson  in 1958 and from 1958 to 1989 held  various
executive positions.  Mr. Gilbert also served on the Advisory Boards of the Food
Marketing  Institute,  the  National  Association  of Chain Drug  Stores and the
General Merchandise  Distributors  Council (GMDC) where he was elected the first
President  of the GMDC  Educational  Foundation.  He was honored  with  lifetime
achievement  awards from GMDC,  Chain Drug Review,  Drug Store News and the Food
Marketing Institute. He is the recipient of the prestigious National Association
of Chain Drug Stores  (NACDS)  Begley Award,  as well as the National  Wholesale
Druggists Association (NWDA) Tim Barry Award. In June 1997, Mr. Gilbert received
an Honorary Doctor of Letters Degree from Long Island University.

        Lorrence T. Kellar  serves as a Director  and the  Chairman of the Audit
Committee of SGRP and has done so since April 2, 2003.  Mr. Kellar had a 31-year
career with The Kroger  Co.,  where he served in various  financial  capacities,
including  Group Vice  President  for real estate and finance,  and earlier,  as
Corporate  Treasurer.  He was  responsible  for  all  of  Kroger's  real  estate
activities,  as  well as  facility  engineering,  which  coordinated  all  store
openings and remodels.  Mr. Kellar subsequently  served as Vice President,  real
estate,  for Kmart.  He currently is Vice  President of  Continental  Properties
Company,  Inc. Mr. Kellar also serves on the boards of Frisch's  Restaurants and
Multi-Color  Corporation and is a trustee of the Acadia Realty Trust. He also is
a major  patron  of the arts and has  served  as  Chairman  of the  Board of the
Cincinnati Ballet.

         Charles Cimitile serves as the Chief Financial  Officer,  Secretary and
Treasurer of SGRP and has done so since November 24, 1999. Mr.  Cimitile  served
as Chief  Financial  Officer for GT Bicycles from 1996 to 1999 and Cruise Phone,
Inc.  from 1995 through  1996.  Prior to 1995,  he served as the Vice  President
Finance,  Secretary and Treasurer of American Recreation Company Holdings,  Inc.
and its predecessor company.

         Kori G. Belzer  serves as the Chief  Operating  Officer of SGRP and has
done so since January 1, 2004. Ms. Belzer also serves as Chief Operating Officer
of SPAR Management Services,  Inc. ("SMSI"),  and SPAR Marketing Services,  Inc.
("SMS"),  each an  affiliate  of SGRP (see Item 13 - Certain  Relationships  and
Related  Transactions,  below),  and has done so since 2000. The Audit Committee
determined  that Ms.  Belzer  also  served  during  2003 as the de  facto  chief
operating  officer of SGRP  through her position as Chief  Operating  Officer of
SMSI and SMS. From 1997 to 2000, Ms. Belzer served as Vice President  Operations
of SMS and as  Regional  Director of SMS from 1995 to 1997.  Prior to 1995,  she
served as Client Services Manager for SPAR/Servco, Inc.

        Patricia  Franco  serves as the Chief  Information  Officer  of SGRP and
President of the SPAR International Merchandising Services Division and has done
so since  January 1, 2004.  Ms.  Franco also serves as Senior Vice  President of
SPAR  Infotech,  Inc.  ("SIT"),  an  affiliate  of SGRP  (see  Item 13 - Certain
Relationships and Related Transactions, below), and has done so since January 1,
2003. The Audit Committee  determined that Ms. Franco also served during 2003 as
the de  facto  chief  information  officer  of  SGRP as well  as,  the de  facto
President of the SPAR International Merchandising Services Division, through her
position as Senior Vice  President of SIT.  Prior to 2003,  Ms. Franco served in
various management capacities with SIT, SMS and their affiliates.




                                      -32-
<PAGE>


        James R. Segreto  serves as Vice  President,  Controller of SGRP and has
done so since July 8, 1999, the effective date of the Merger.  From 1997 through
the Merger,  he served in the same capacity for SMS. Mr. Segreto served as Chief
Financial Officer for Supermarket Communications Systems, Inc. from 1992 to 1997
and LM Capital, LLP from 1990 to 1992. Prior to 1992, he served as Controller of
Dorman Roth Foods, Inc.

Audit Committee Composition and Financial Expert

        The Audit Committee currently consists of Messrs. Kellar (its Chairman),
Aders, Gilbert and Partridge, each of whom has been determined by the Governance
Committee  and the  Board  to  meet  the  independence  requirements  for  audit
committee  members  under  Nasdaq  Rule  4200(a)(14).  In  connection  with  his
re-nomination   as  a  Director,   the   Governance   Committee  and  the  Board
re-determined that Mr. Kellar was qualified to be the "audit committee financial
expert" as required by applicable law and the SEC Rules.

Section 16(a) Beneficial Ownership Reporting Compliance.

        Section  16(a) of the Exchange Act  ("Section  16(a)")  requires  SGRP's
directors  and  certain of its  officers  and  persons  who own more than 10% of
SGRP's Common Stock (collectively, "Insiders"), to file reports of ownership and
changes in their ownership of SGRP's Common Stock with the Commission.  Insiders
are required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.

        Based  solely on its review of the copies of such forms  received  by it
for the year ended  December 31, 2005, or written  representations  from certain
reporting persons for such year, the Company believes that its Insiders complied
with all applicable  Section 16(a) filing  requirements  for such year, with the
exception  that Robert G. Brown and William H. Bartels  untimely  filed  certain
Statements of Changes in Beneficial  Ownership on Form 4. All such Section 16(a)
filing  requirements  have since been  completed  by each of the  aforementioned
individuals.

Ethics Codes

        SGRP has  adopted  codes of  ethical  conduct  applicable  to all of its
directors,  officers and  employees,  as approved and  recommended  by the Audit
Committee and  Governance  Committee and adopted by the Board on May 3, 2004, in
accordance  with Nasdaq Rules.  These codes of conduct  consist of: (1) the SPAR
Group Code of Ethical Conduct for its Directors, Senior Executives and Employees
Dated (as of) May 1, 2004; and (2) the SPAR Group Statement of Policy  Regarding
Personal Securities  Transaction in SGRP Stock and Non-Public Information Dated,
Amended and Restated as of May 1, 2004,  which amends,  restates and  completely
replaces its existing similar statement of policy. Both Committees were involved
because  authority  over ethics codes  shifted  from the Audit  Committee to the
Governance  Committee  with the  adoption of the  committee  charters on May 18,
2004.  Copies of these  codes and  policies  are  posted  and  available  on the
Company's web site (www.SPARinc.com).




                                      -33-
<PAGE>


Item 11.   Executive Compensation and Other Information of SPAR Group, Inc.


Executive Compensation

        The following  table sets forth all  compensation  received for services
rendered to SGRP in all capacities for the years ended December 31, 2005,  2004,
and 2003  (except for amounts  paid to SMS,  SMSI and SIT, see Item 13 - Certain
Relationships  and Related  Transactions,  below) (i) by SGRP's Chief  Executive
Officer,  and (ii) each of the  other  four most  highly  compensated  executive
officers of SGRP and its  affiliates  who were serving as executive  officers of
SGRP or  performing  equivalent  functions  for SGRP  through an  affiliate,  at
December 31, 2005 (collectively, the "Named Executive Officers").

Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                                             Long Term
                                                                         Annual Compensation            Compensation Awards
                                                                   ------------------------------    ----------------------------
                                                                                                     Securities
                                                                                                     Underlying      All Other
                                                                                                      Options      Compensation
Name and Principal Positions                               Year           Salary ($)    Bonus ($)      (#)(1)         ($)(2)
-------------------------------------------------                        ------------  -----------   -----------   -------------
<S>                                                        <C>            <C>             <C>          <C>                <C>
Robert G. Brown                                            2005           191,100 (3)         --            --          1,230
     Chief  Executive  Officer,  Chairman  of the          2004           114,000 (3)         --            --          1,800
     Board, President, and Director                        2003           180,000 (3)         --            --          2,200

William H. Bartels                                         2005           191,100 (3)         --            --            698
     Vice Chairman and Director                            2004           114,000 (3)         --            --          1,620
                                                           2003           180,000 (3)         --            --          2,007

Charles Cimitile                                           2005           227,700         20,000        95,000          1,230
          Chief Financial Officer,  Treasurer and          2004           220,000             --        25,000          1,800
     Secretary                                             2003           221,700         20,000        20,000          2,200

Kori G. Belzer                                             2005           152,975         30,000       111,140            888
     Chief Operating Officer                               2004           147,990             --        25,000          1,495
                                                           2003           147,067         19,000        26,750          1,843


Patricia Franco                                            2005           152,975         30,000       137,500            947
     Chief Information Officer                             2004           147,900         10,000        25,000          1,493
                                                           2003           145,875         20,000        37,500          1,718
</TABLE>
________________________

(1)  In June  2004,  Mr.  Brown  and Mr.  Bartels  voluntarily  surrendered  for
     cancellation  their  options for the  purchase of the  following  shares of
     common  stock under the 2000 Plan:  382,986 and 235,996,  respectively.  In
     September  2004,  Mr.  Cimitile,  Ms.  Belzer  and Ms.  Franco  voluntarily
     surrendered  for  cancellation  their  options  for  the  purchase  of  the
     following  shares of common stock under the 2000 Plan:  55,000,  76,140 and
     87,500  respectively.  Also  in  September  2004,  Ms.  Franco  voluntarily
     surrendered for  cancellation her options for the purchase 10,000 shares of
     common stock under the 1995 Plan.
(2)  Other compensation represents the Company's 401k contribution.
(3)  Does not include amounts paid to SMS, SMSI, SIT and Affinity Insurance Ltd.
     (see Item 13 - Certain Relationships and Related Transactions, below)





                                      -34-
<PAGE>


Stock Option Grants in Last Fiscal Year

        The following table sets forth information regarding each grant of stock
options  made  during the year ended  December  31,  2005,  to each of the Named
Executive  Officers.  No stock appreciation rights ("SAR's") were granted during
such period to such person.

<TABLE>
<CAPTION>
                                         Individual Grants
                     ----------------------------------------------------------
                        Number of      Percent of                                 Potential Realizable Value at
                       Securities     Total Options                               Assumed Annual Rates of Stock
                       Underlying      Granted to                                Price Appreciation for Option(1)
                         Options      Employees in    Exercise     Expiration   ---------------------------------
Name                 Granted(2) (#)    Period (%)    Price ($/Sh)     Date         5% ($)          10% ($)
----                 --------------    ----------    ------------     ----        ------          -------

<S>                      <C>               <C>          <C>         <C>            <C>           <C>
Charles Cimitile         55,000            16.0         1.26        4/14/15        43,582        110,446
                         20,000             2.5         1.75        5/12/15        22,011         55,781
                         20,000             2.5         1.10        11/9/15        13,836         35,062

Kori G. Belzer           76,140            22.2         1.26        4/14/15        60,334        152,898
                         20,000             5.8         1.75        5/12/15        22,011         55,781
                         15,000             4.4         1.10        11/9/15        10,377         26,297

Patricia Franco          97,500            28.4         1.26        4/14/15        77,260        195,791
                         25,000             7.3         1.75        5/12/15        27,514         69,726
                         15,000             4.4         1.10        11/9/15        10,377         26,297
____________
</TABLE>

(1)      The potential realizable value is calculated based upon the term of the
         option at its time of grant.  It is  calculated  by  assuming  that the
         stock price on the date of grant  appreciates  at the indicated  annual
         rate, compounded annually for the entire term of the option.
(2)      These  options vest over  four-year  periods at a rate of 25% per year,
         beginning on the first anniversary of the date of grant.


Aggregated Stock Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

        The  following  table sets forth the number of shares of Common Stock of
SGRP purchased by each of the Named Executive  Officers in the exercise of stock
options  during the year ended  December  31,  2005,  the value  realized in the
purchase  of such shares  (the  market  value at the time of  exercise  less the
exercise  price to purchase such  shares),  and the number of shares that may be
purchased and value of the exercisable and unexercisable options held by each of
the Named Executive Officers at December 31, 2005.

<TABLE>
<CAPTION>
                                                                                                       Value of Unexercised
                                                                Number of Securities Underlying    ------------------------------
                                                                 Unexercised Options at Fiscal    In-the-Money Options at Fiscal
                                                                         Year-End (#)                      Year-End ($)
                           Shares Acquired        Value        ---------------------------------  --------------------------------
Name                       on Exercise (#)     Realized ($)      Exercisable      Unexercisable    Exercisable     Unexercisable
----                       ----------------   --------------   ---------------   ---------------  -------------   ---------------
<S>                                  <C>                <C>         <C>                <C>              <C>                 <C>

Robert G. Brown                      --                 --           95,746                  --             --              --
William H. Bartels                   --                 --           58,999                  --             --              --
Charles Cimitile                     --                 --          107,500              97,500          6,875              --
Kori G. Belzer                       --                 --          101,000             116,140          2,800              --
Patricia Franco                      --                 --           91,000             137,500          2,800              --
</TABLE>


Stock Option and Purchase Plans

        SGRP has four stock  option  plans:  the 2000 Stock  Option  Plan ("2000
Plan"),  the Special  Purpose Stock Option Plan ("Special  Purpose  Plan"),  the
Amended  and  Restated  1995  Stock  Option  Plan  ("1995  Plan")  and the  1995
Director's Plan ("Director's Plan").



                                      -35-
<PAGE>

        On December 4, 2000,  SGRP adopted the 2000 Plan as the successor to the
1995 Plan and the Director's  Plan with respect to all new options  issued.  The
2000 Plan provides for the granting of either  incentive or  nonqualified  stock
options to specified  employees,  consultants,  and directors of the Company for
the purchase of up to 3,600,000 (less those options still  outstanding under the
1995 Plan or exercised after December 4, 2000 under the 1995 Plan).  The options
have a term of ten years,  except in the case of incentive stock options granted
to greater than 10%  stockholders  for whom the term is five years. The exercise
price of  nonqualified  stock  options must be equal to at least 85% of the fair
market value of SGRP's common stock at the date of grant (although typically the
options are issued at 100% of the fair market value),  and the exercise price of
incentive  stock  options  must be equal to at least  the fair  market  value of
SGRP's  common  stock at the date of grant.  During  2005,  options to  purchase
1,334,973 shares of SGRP's common stock were granted, options to purchase 57,625
shares of SGRP's  common stock were  exercised  and options to purchase  440,975
shares of SGRP's stock were  voluntarily  surrendered  and cancelled  under this
plan.  At December  31,  2005,  options to purchase  2,088,256  shares of SGRP's
common stock remain  outstanding under this plan and options to purchase 724,221
shares of SGRP's common stock were available for grant under this plan.

        On July 8, 1999, in connection  with the merger,  SGRP  established  the
Special  Purpose  Plan of PIA  Merchandising  Services,  Inc. to provide for the
issuance of substitute options to the holders of outstanding  options granted by
SPAR  Acquisition,  Inc. There were 134,114  options granted at $0.01 per share.
Since July 8, 1999, SGRP has not granted any new options under this plan. During
2005, no options to purchase  shares of SGRP's common stock were exercised under
this plan.  At December  31,  2005,  options to purchase  4,750 shares of SGRP's
common stock remain outstanding under this plan.

        The  1995  Plan  provided  for  the  granting  of  either  incentive  or
nonqualified stock options to specific employees,  consultants, and directors of
the Company for the purchase of up to 3,500,000  shares of SGRP's  common stock.
The  options  had a term of ten years from the date of  issuance,  except in the
case of incentive  stock options  granted to greater than 10%  stockholders  for
which the term was five years. The exercise price of nonqualified  stock options
must have been equal to at least 85% of the fair market  value of SGRP's  common
stock at the date of grant.  Since  2000,  SGRP has not  granted any new options
under this plan.  During 2005,  250 options to purchase  shares of SGRP's common
stock were exercised. At December 31, 2005, options to purchase 14,375 shares of
SGRP's  common  stock  remain  outstanding  under this  plan.  The 1995 Plan was
superseded by the 2000 Plan with respect to all new options issued.

        The Director's Plan was a stock option plan for  non-employee  directors
and provided for the purchase of up to 120,000  shares of SGRP's  common  stock.
Since 2000,  SGRP has not granted any new options under this plan.  During 2005,
no options to purchase  shares of SGRP's common stock were exercised  under this
plan. At December 31, 2005,  20,000 options to purchase  shares of SGRP's common
stock  remained  outstanding  under  this  plan.  The  Director's  Plan has been
replaced by the 2000 Plan with respect to all new options issued.

        In 2001,  SGRP adopted its 2001 Employee  Stock  Purchase Plan (the "ESP
Plan"),  which replaced its earlier existing plan, and its 2001 Consultant Stock
Purchase  Plan (the "CSP Plan").  These plans were each  effective as of June 1,
2001.  The ESP Plan allows  employees  of the  Company,  and the CSP Plan allows
employees of the affiliates of the Company (see Item 13 - Certain  Relationships
and Related  Transactions,  below),  to purchase  SGRP's  Common Stock from SGRP
without  having  to pay any  brokerage  commissions.  On  August  8,  2002,  the
Company's  Board approved a 15% discount for employee  purchases of Common Stock
under the ESP Plan and recommended  that its affiliates pay a 15% cash bonus for
affiliate consultant purchases of Common Stock under the CSP Plan.

Compensation of Directors

         The Compensation  Committee  administers the compensation  plan for its
outside Directors as well as the compensation for its executives. Each member of
SGRP's  Board  who is not  otherwise  an  employee  or  officer  of  SGRP or any
subsidiary  or affiliate of SGRP (each,  an "Eligible  Director") is eligible to
receive the compensation contemplated under such plan.

         The  Compensation  Committee  administers the compensation of directors
pursuant to SGRP's  Director  Compensation  Plan for its outside  Directors,  as
approved and amended by the Board (the "Directors  Compensation  Plan"), as well
as the compensation for SGRP's executives.

          In November 2005, the Compensation  Committee approved and recommended
and the Board adopted a change in the Directors Compensation Plan to provide for
the payment of Director  Compensation  all in cash.  Each member of SGRP's Board
who is not  otherwise  an  employee  or  officer  of SGRP or any  subsidiary  or
affiliate  of SGRP  (each a  "Non-Employee  Director")  is  eligible  to receive
director's  fees of $30,000 per annum (plus an  additional  $5,000 per annum for


                                      -36-
<PAGE>

the Audit  Committee  Chairman),  payable  quarterly.  Prior to  November  2005,
Director  Compensation  was  paid  half in cash and  half in  stock  options  to
purchase shares of SGRP's common stock.

         In addition,  upon acceptance of the  directorship,  each  Non-Employee
Director  receives  options to purchase  10,000  shares of SGRP's  common stock,
options to purchase  10,000  additional  shares of SGRP's common stock after one
year of service  and  options to  purchase  10,000  additional  shares of SGRP's
common stock for each additional year of service  thereafter.  All options above
have an  exercise  price  equal to 100% of the fair  market  value of the SGRP's
common stock at the date of grant.

         All of those options to  Non-Employee  Directors  have been and will be
granted  under the 2000 Plan  described  below,  under  which each member of the
Board is eligible to participate.  Non-Employee Directors will be reimbursed for
all reasonable expenses incurred during the course of their duties.  There is no
additional  compensation for committee  participation,  phone meetings, or other
Board activities.

Severance Agreements

        SGRP has entered into a Change of Control Severance  Agreement with each
of Patricia Franco, SGRP's Chief Information Officer, and Kori G. Belzer, SGRP's
Chief  Operating  Officer,  each providing for a lump sum severance  payment and
other   accommodations   from  the  Company  to  the  employee   under   certain
circumstances if, pending or following a change in control,  the employee leaves
for good reason or is  terminated  other than in a  termination  for cause.  The
payment is equal to the sum of the  employee's  monthly  salary times a multiple
equal to 24  months  less the  number of  months  by which  the  termination  of
employment followed the change in control plus the maximum bonus that would have
been paid to the employee (not to exceed 25% of the employee's annual salary).

Compensation Committee Interlocks and Insider Participation

        No member of the Board's Audit, Compensation or Governance Committee was
at any time during the year ended  December  31,  2005,  or at any other time an
officer or employee of the Company. No executive officer of the Company or Board
member  serves as a member of the board of  directors,  audit,  compensation  or
governance committee of any other entity that has one or more executive officers
serving as a member of SGRP's Board, Audit Committee,  Compensation Committee or
Governance  Committee,  except for the positions of Messrs. Brown and Bartels as
directors and officers of the Company  (including each of its  subsidiaries) and
as directors and officers of each of its affiliates, including SMS, SMSI and SIT
(see - Certain Relationships and Related Transactions, below).



                                      -37-
<PAGE>


Item 12.       Security Ownership of Certain Beneficial Owners and Management.

Security Ownership of Certain Beneficial Owners of SGRP

        The following table sets forth certain information  regarding beneficial
ownership  of SGRP's  common  stock as of March 15, 2006 by: (i) each person (or
group of affiliated  persons) who is known by SGRP to own beneficially more than
5% of SGRP's  common  stock;  (ii) each of SGRP's  directors;  (iii) each of the
Named  Executive  Officers in the Summary  Compensation  Table;  and (iv) SGRP's
directors and such Named Executive  Officers as a group.  Except as indicated in
the  footnotes  to  this  table,  the  persons  named  in the  table,  based  on
information provided by such persons, have sole voting and sole investment power
with respect to all shares of common stock shown as beneficially  owned by them,
subject to community property laws where applicable.

<TABLE>
<CAPTION>
                                                                                    Number of Shares
               Title of Class        Name and Address of Beneficial Owner          Beneficially Owned   Percentage
               --------------        ------------------------------------          ------------------   ----------

<S>                                  <C>                                               <C>                 <C>
        Common Shares                Robert G. Brown (1)                               8,644,218 (2)       45.5%

        Common Shares                William H. Bartels (1)                            5,570,161 (3)       29.4%

        Common Shares                Robert O. Aders (1)                                 164,929 (4)         *

        Common Shares                Jack W. Partridge (1)                               109,019 (5)         *

        Common Shares                Jerry B. Gilbert (1)                                102,360 (6)         *

        Common Shares                Lorrence T. Kellar (1)                              102,387 (7)         *

        Common Shares                Charles Cimitile (1)                                128,750 (8)         *

        Common Shares                Kori G. Belzer (1)                                  133,235 (9)         *

        Common Shares                Patricia Franco (1)                                 175,122 (10)        *

        Common Shares                Richard J. Riordan (11)
                                     300 South Grand Avenue, Suite 2900
                                     Los Angeles, California 90071                     1,209,922            6.4%

        Common Shares                Heartland Advisors, Inc. (12)
                                     790 North Milwaukee Street
                                     Milwaukee, Wisconsin 53202                        1,228,000            6.5%

        Common Shares                Executive Officers and Directors                 15,130,181           80.0%
</TABLE>

* Less than 1%
(1)      The  address of such owners is c/o SPAR Group,  Inc.  580 White  Plains
         Road, Tarrytown, New York 10591.
(2)      Includes  1,800,000  shares held by a grantor  trust for the benefit of
         certain  family  members of Robert G. Brown over which Robert G. Brown,
         James R. Brown,  Sr. and  William H.  Bartels  are  trustees.  Includes
         95,747 shares issuable upon exercise of options.
(3)      Excludes  1,800,000  shares held by a grantor  trust for the benefit of
         certain  family  members of Robert G. Brown over which Robert G. Brown,
         James R. Brown,  Sr. and William H.  Bartels are  trustees,  beneficial
         ownership  of which are  disclaimed  by Mr.  Bartels.  Includes  58,999
         shares issuable upon exercise of options.
(4)      Includes 93,275 shares issuable upon exercise of options.
(5)      Includes 98,051 shares issuable upon exercise of options.
(6)      Includes 102,360 shares issuable upon exercise of options.
(7)      Includes 96,239 shares issuable upon exercise of options.
(8)      Includes 128,750 shares issuable upon exercise of options.
(9)      Includes 131,285 shares issuable upon exercise of options.
(10)     Includes 121,025 shares issuable upon exercise of options.
(11)     Share  ownership was confirmed with SGRP's stock transfer agent and the
         principal.
(12)     All  information  regarding share ownership is taken from and furnished
         in reliance upon the Schedule 13G (Amendment No. 9), filed by Heartland
         Advisors,  Inc. with the Securities and Exchange Commission on December
         31, 2005.




                                      -38-
<PAGE>


Equity Compensation Plans

        The following table contains a summary of the number of shares of Common
Stock of SGRP to be issued upon the  exercise of  options,  warrants  and rights
outstanding at December 31, 2005, the  weighted-average  exercise price of those
outstanding options, warrants and rights, and the number of additional shares of
Common  Stock  remaining  available  for future  issuance  under the plans as at
December 31, 2005.
<TABLE>
<CAPTION>
                                                      Equity Compensation Plan Information
    ----------------------------- -------------------------- ------------------------- -------------------------
                                   Number of securities to       Weighted average        Number of securities
                                   be issued upon exercise      exercise price of      remaining available for
                                   of outstanding options,     outstanding options,       future issuance of
                                   warrants and rights (#)   warrants and rights ($)    options, warrants and
           Plan category                                                                      rights (#)
    ----------------------------- -------------------------- ------------------------- -------------------------

    ----------------------------- -------------------------- ------------------------- -------------------------
<S>                                       <C>                           <C>                     <C>
    Equity compensation plans             2,127,381                     $1.53                   724,221
    approved by security
    holders
    ----------------------------- -------------------------- ------------------------- -------------------------
    Equity compensation plans
    not approved by security
    holders                                      --                        --                        --
    ----------------------------- -------------------------- ------------------------- -------------------------
    Total                                 2,127,381                     $1.53                   724,221
    ----------------------------- -------------------------- ------------------------- -------------------------
</TABLE>

Item 13.   Certain Relationships and Related Transactions.

        Mr.  Robert G. Brown,  a Director,  the  Chairman,  President  and Chief
Executive  Officer  of the  Company  and a major  stockholder  of SGRP,  and Mr.
William H. Bartels,  a Director and the Vice Chairman of the Company 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  merchandising
specialists in the field (through its  independent  contractor  field force) and
approximately  86%  of  the  Company's  field  management  at a  total  cost  of
approximately  $20.0 million,  $24.4 million,  and $36.0 million for 2005, 2004,
and 2003, 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  5,600 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
approximately  44 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,  except  that for 2004 SMSI
agreed to concessions  that reduced the premium paid by  approximately  $640,000
for 2004.  Total net premiums  (4% of SMS and SMSI costs less 2004  concessions)
paid  to SMS  and  SMSI  for  services  rendered  were  approximately  $770,000,
$320,000, and $1,350,000 for 2005, 2004, and 2003, 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,  Messrs.  Brown  and  Bartels  benefit  from  any  income  of such
companies allocated to them.

        SIT  provided  substantially  all of the Internet  computer  programming
services to the Company at a total cost of approximately  $771,000,  $1,170,000,
and  $1,610,000  for  2005,   2004,   and  2003,   respectively.   SIT  provided
approximately 25,000,  34,000, and 47,000 hours of Internet computer programming
services to the Company for 2005, 2004, and 2003, respectively.  Pursuant to the
Amended and Restated  Programming  and Support  Agreement dated as of January 1,
2004, 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 $30.34,  $34.71,  and $34.24
for 2005,  2004,  and 2003,  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  2005.  However,  since  SIT  is a  "Subchapter  S"
corporation,  Messrs.  Brown and Bartels benefit from any income of such company
allocated to them.

        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"). In May 2005, the Company and SMS amended the lease agreements reducing
the total  monthly  payment.  Each lease,  as  amended,  has a 36 month term and
representations,  covenants and defaults customary for the leasing industry. The
SMF lease is for  handheld  computers to be used by field  merchandisers  in the
performance of various merchandising and marketing services in the United States
and has a monthly payment of $17,891.  These



                                      -39-
<PAGE>

handheld  computers had an original purchase price of $632,200.  The SPAR Canada
lease is also for handheld  computers to be used by field  merchandisers  in the
performance of various  merchandising and marketing services in Canada and has a
monthly  payment of $2,972.  These handheld  computers had an original  purchase
price of  $105,000.  The monthly  payments,  as amended,  are based upon a lease
factor of 2.83%.

        In March 2005,  SMF entered into an  additional  36 month lease with SMS
for handheld  computers.  The lease  factor is 2.83% and the monthly  payment is
$2,341. These handheld computers had an original purchase price of $82,727.

        The  Company's  agreements  with  SMS,  SMSI  and SIT  are  periodically
reviewed by SGRP's Audit Committee, which includes an examination of the overall
fairness of the  arrangements.  In February 2004, the Audit  Committee  approved
separate  amended  and  restated  agreements  with  each of SMS,  SMSI  and SIT,
effective  as of January 1, 2004.  The restated  agreements  extend the contract
maturities for four years,  strengthened various contractual  provisions in each
agreement  and continued the basic  economic  terms of the existing  agreements,
except that the restated agreement with SMSI provides for temporary  concessions
to the Company by SMSI totaling approximately $640,000 for 2004. In February and
May of 2005, the Audit Committee  approved the separate handheld computer leases
and amendments.

        In July  1999,  SMF,  SMS  and SIT  entered  into a  Software  Ownership
Agreement with respect to Internet job scheduling  software jointly developed by
such parties. In addition,  SPAR Trademarks,  Inc. ("STM"),  SMS and SIT entered
into  trademark  licensing  agreements  whereby  STM has  granted  non-exclusive
royalty-free  licenses to SIT, SMS and SMSI for their  continued use of the name
"SPAR" and certain other  trademarks  and related  rights  transferred to STM, a
wholly owned subsidiary of the Company.

        Messrs.  Brown and  Bartels  also  collectively  own,  through  SMSI,  a
minority  (less than 5%) equity  interest  in  Affinity  Insurance  Ltd.,  which
provides certain insurance to the Company.

        In the  event of any  material  dispute  in the  business  relationships
between the Company and SMS, SMSI, or SIT, it is possible that Messrs.  Brown or
Bartels  may  have one or more  conflicts  of  interest  with  respect  to these
relationships  and such  dispute  could  have a material  adverse  effect on the
Company.

Item 14. Principal Accountant Fees and Services.

        On  October  4,  2004,  Ernst  &  Young  LLP  ("E&Y")  resigned  as  the
independent   registered   public  accounting  firm  for  the  Company  and  its
subsidiaries.  The  resignation was effective upon completion of E&Y's review of
the interim  financial  information for the Company's third fiscal quarter ended
September  30, 2004,  and the filing of the Company's  quarterly  report on Form
10-Q for such period.

        In January 2005, the Company,  with the approval of the Company's  Audit
Committee,  appointed Rehmann Robson  ("Rehmann") as its independent  registered
public accounting firm.

        During the  Company's  fiscal  year ended  December  31,  2005 and 2004,
respectively,  the Company and its subsidiaries did not engage Rehmann or E&Y to
provide advice regarding financial information systems design or implementation,
but did  engage  Rehmann  in 2005 to review  the  Company's  2004 tax return and
preliminary  404  documentation  for which  Rehmann was paid $17,502 and $3,525,
respectively.  No other non-audit  services were performed by Rehmann in 2005 or
2004.  Since 2003, as required by law, each non-audit  service  performed by the
Company's auditor either (i) was approved in advance on a case-by-case  basis by
the Company's  Audit  Committee,  or (ii) fit within a pre-approved  "basket" of
non-audit services of limited amount,  scope and duration established in advance
by  the  Company's  Audit  Committee.  In  connection  with  the  standards  for
independence of the Company's independent public accountants  promulgated by the
Securities and Exchange  Commission,  the Audit Committee considers (among other
things)  whether the provision of such  non-audit  services  would be compatible
with maintaining the independence of Rehmann.

Audit Fees

        During the  Company's  fiscal  year ended  December  31,  2005 and 2004,
respectively,  fees  billed by Rehmann  for all audit  services  rendered to the
Company and its subsidiaries were $111,002 and $132,225, respectively. Fees paid
to E&Y for all audit services  rendered to the Company and its  subsidiaries for
the fiscal year ended December 31, 2004 was $100,203. Audit services principally
include fees for the Company's year end and 401K audits and 10-Q filing reviews.
Since  2003,  as required by law,  the choice of the  Company's  auditor and the
audit  services  to be  performed  by it have been  approved  in  advance by the
Company's Audit Committee.



                                      -40-
<PAGE>


                                     PART IV

Item 15.  Exhibits and Financial Statement Schedules.

      1. Index to Financial Statements filed as part of this report:

         Reports of Independent Registered Public Accounting Firms
                  - Rehmann Robson.                                         F-1

                  - Gureli Yeminli Mali/Musavirlik A.S.                     F-2

                  - Baker Tilly Klitou and Partner S.R.L.                   F-3

                  - S.S. Kothari Mehta & Co.                                F-4

                  - Ernst & Young LLP.                                      F-5

         Consolidated Balance Sheets as of December 31, 2005, and
         December 31, 2004.                                                 F-6

         Consolidated Statements of Operations for the years ended
         December 31, 2005, December 31, 2004, and December 31, 2003.       F-7

         Consolidated Statements of Stockholders' Equity for the years
         ended December 31, 2005, December 31, 2004, and December 31, 2003. F-8

         Consolidated Statements of Cash Flows for the years ended
         December 31, 2005, December 31, 2004, and December 31, 2003.       F-9

         Notes to Consolidated Financial Statements.                        F-10

2.       Financial Statement Schedules.

         Schedule II - Valuation and Qualifying Accounts for the three
         years ended December 31, 2005.                                     F-33

3.       Exhibits.

         Exhibit
         Number            Description
         ------            -----------

         3.1      Certificate of Incorporation of SPAR Group, Inc.  (referred to
                  therein under its former name PIA),  as amended  (incorporated
                  by reference to the Company's  Registration  Statement on Form
                  S-1 (Registration No. 33-80429),  as filed with the Securities
                  and  Exchange  Commission  ("SEC") on  December  14, 1995 (the
                  "Form S-1")),  and the Certificate of Amendment filed with the
                  Secretary  of State of the State of  Delaware  on July 8, 1999
                  (which, among other things, changes the Company's name to SPAR
                  Group, Inc.)  (incorporated by reference to Exhibit 3.1 to the
                  Company's  Form 10-Q for the 3rd Quarter  ended  September 30,
                  1999).

         3.2      Amended and Restated  By-Laws of SPAR Group,  Inc.  adopted on
                  May 18,  2004  (incorporated  by  reference  to the  Company's
                  report on Form 8-K, as filed with the SEC on May 27, 2004).

         3.3      Amended and  Restated  Charter of the Audit  Committee  of the
                  Board of Directors of SPAR Group,  Inc.,  adopted May 18, 2004
                  (incorporated  by  reference to the  Company's  report on Form
                  8-K, as filed with the SEC on May 27, 2004).

         3.4      Charter  of  the  Compensation   Committee  of  the  Board  of
                  Directors  of  SPAR  Group,  Inc.  adopted  on  May  18,  2004
                  (incorporated  by  reference to the  Company's  report on Form
                  8-K, as filed with the SEC on May 27, 2004).

         3.5      Charter of the Governance  Committee of the Board of Directors
                  of SPAR Group,  Inc. adopted on May 18, 2004  (incorporated by
                  reference to the  Company's  report on Form 8-K, as filed with
                  the SEC on May 27, 2004).



                                      -41-
<PAGE>

         3.6      SPAR Group, Inc.  Statement of Policy  Respecting  Stockholder
                  Communications  with  Directors,   adopted  on  May  18,  2004
                  (incorporated  by  reference to the  Company's  report on Form
                  8-K, as filed with the SEC on May 27, 2004).

         3.7      SPAR  Group,  Inc.  Statement  of  Policy  Regarding  Director
                  Qualifications  and  Nominations,  adopted  on  May  18,  2004
                  (incorporated  by  reference to the  Company's  report on Form
                  8-K, as filed with the SEC on May 27, 2004).

         4.1      Registration  Rights Agreement  entered into as of January 21,
                  1992,  by and  between  RVM Holding  Corporation,  RVM/PIA,  a
                  California  Limited  Partnership,  The Riordan  Foundation and
                  Creditanstalt-Bankverine  (incorporated  by  reference  to the
                  Form S-1).

         10.1     2000 Stock Option Plan, as amended, (incorporated by reference
                  to the Company's  Proxy  Statement  for the  Company's  Annual
                  meeting held on August 2, 2001,  as filed with the SEC on July
                  12, 2001).

         10.2     2001 Employee Stock Purchase Plan  (incorporated  by reference
                  to the Company's  Proxy  Statement  for the  Company's  Annual
                  meeting held on August 2, 2001,  as filed with the SEC on July
                  12, 2001).

         10.3     2001 Consultant Stock Purchase Plan (incorporated by reference
                  to the Company's  Proxy  Statement  for the  Company's  Annual
                  meeting held on August 2, 2001,  as filed with the SEC on July
                  12, 2001).

         10.4     Amended  and  Restated  Field  Service   Agreement  dated  and
                  effective as of January 1, 2004, by and between SPAR Marketing
                  Services,  Inc., and SPAR Marketing Force, Inc.  (incorporated
                  by reference to the  Company's  quarterly  report on Form 10-Q
                  for the quarter ended March 31, 2004, as filed with the SEC on
                  May 21, 2004).

         10.5     Amended and  Restated  Field  Management  Agreement  dated and
                  effective  as  of  January  1,  2004,   by  and  between  SPAR
                  Management  Services,  Inc.,  and SPAR Marketing  Force,  Inc.
                  (incorporated  by reference to the Company's  quarterly report
                  on Form 10-Q for the quarter  ended March 31,  2004,  as filed
                  with the SEC on May 21, 2004).

         10.6     Amended and Restated  Programming and Support  Agreement dated
                  and  effective  as of  January 1, 2004,  by and  between  SPAR
                  InfoTech,  Inc., and SPAR Marketing Force, Inc.  (incorporated
                  by reference to the  Company's  quarterly  report on Form 10-Q
                  for the quarter ended March 31, 2004, as filed with the SEC on
                  May 21, 2004).

         10.7     Trademark  License  Agreement dated as of July 8, 1999, by and
                  between SPAR Marketing  Services,  Inc., and SPAR  Trademarks,
                  Inc. (incorporated by reference to the Company's Form 10-K for
                  the fiscal year ended December 31, 2002, as filed with the SEC
                  on March 31, 2002).

         10.8     Trademark  License  Agreement dated as of July 8, 1999, by and
                  between  SPAR  Infotech,  Inc.,  and  SPAR  Trademarks,   Inc.
                  (incorporated  by reference to the Company's Form 10-K for the
                  fiscal year ended  December 31, 2002, as filed with the SEC on
                  March 31, 2002).

         10.9     Stock  Purchase and Sale  Agreement  by and among  Performance
                  Holdings,  Inc. and SPAR Incentive Marketing,  Inc., effective
                  as  of  June  30,  2002  (incorporated  by  reference  to  the
                  Company's  Form 10-Q for the quarter  ended June 30, 2002,  as
                  filed with the SEC on August 14, 2002).

         10.10    Revolving Credit, Guaranty and Security Agreement by and among
                  Performance Holdings, Inc. and SPAR Incentive Marketing, Inc.,
                  effective  as of June 30, 2002  (incorporated  by reference to
                  the  Company's  Form 10-Q for the quarter ended June 30, 2002,
                  as filed with the SEC on August 14, 2002).

         10.11    Term  Loan,  Guaranty  and  Security  Agreement  by and  among
                  Performance Holdings, Inc. and SPAR Incentive Marketing, Inc.,
                  effective  as of June 30, 2002  (incorporated  by reference to


                                      -42-
<PAGE>

                  the  Company's  Form 10-Q for the quarter ended June 30, 2002,
                  as filed with the SEC on August 14, 2002).

         10.12    Promissory  Note in the  principal  amount of  $764,271.00  by
                  STIMULYS,  Inc., in favor of SPAR Incentive  Marketing,  Inc.,
                  dated as of September 10, 2004  (incorporated  by reference to
                  the Company's Form 10-K for the fiscal year ended December 31,
                  2004, as filed with the SEC on April 12, 2005).

         10.13    Payoff and Release Letter by and between  STIMULYS,  Inc., and
                  SPAR Incentive Marketing, Inc., dated as of September 10, 2004
                  (incorporated  by reference to the Company's Form 10-K for the
                  fiscal year ended  December 31, 2004, as filed with the SEC on
                  April 12, 2005).

         10.14    Sales  Proceeds  Agreement by and between  STIMULYS,  Inc. and
                  SPAR Incentive Marketing, Inc., dated as of September 10, 2004
                  (incorporated  by reference to the Company's Form 10-K for the
                  fiscal year ended  December 31, 2004, as filed with the SEC on
                  April 12, 2005).

         10.15    Third  Amended  and  Restated  Revolving  Credit and  Security
                  Agreement by and among Whitehall  Business Credit  Corporation
                  (the "Lender") with SPAR Marketing  Force,  Inc.,  SPAR Group,
                  Inc., SPAR, Inc.,  SPAR/Burgoyne  Retail Services,  Inc., SPAR
                  Incentive  Marketing,   Inc.,  SPAR  Trademarks,   Inc.,  SPAR
                  Marketing,   Inc.  (DE),  SPAR  Marketing,   Inc.  (NV),  SPAR
                  Acquisition,  Inc.,  SPAR  Group  International,   Inc.,  SPAR
                  Technology Group, Inc., SPAR/PIA Retail Services, Inc., Retail
                  Resources,    Inc.,   Pivotal   Field   Services   Inc.,   PIA
                  Merchandising  Co.,  Inc.,  Pacific  Indoor  Display  Co.  and
                  Pivotal   Sales   Company    (collectively,    the   "Existing
                  Borrowers"),  dated as of January  24, 2003  (incorporated  by
                  reference to the Company's Form 10-K for the fiscal year ended
                  December 31, 2002, as filed with the SEC on March 31, 2003).

         10.16    Waiver  And  Amendment  No. 3 To Third  Amended  And  Restated
                  Revolving  Credit And  Security  Agreement  entered into as of
                  March 26, 2004  (incorporated  by reference  to the  Company's
                  report on Form 8-K, as filed with the SEC on May 26, 2004).

         10.17    Joinder,  Waiver  And  Amendment  No. 4 To Third  Amended  And
                  Restated  Revolving Credit And Security Agreement entered into
                  as of May 17, 2004 (incorporated by reference to the Company's
                  report on Form 8-K, as filed with the SEC on May 26, 2004).

         10.18    Waiver and Amendment to Third  Amended and Restated  Revolving
                  Credit and Security  Agreement by and among the Lender and the
                  Borrowers dated as of January 2004  (incorporated by reference
                  to the  Company's  report on Form  10-K/A  for the year  ended
                  December 31, 2003, as filed with the SEC on June 28, 2004).

         10.19    Waiver  and  Amendment  No. 5 to Third  Amended  and  Restated
                  Revolving Credit and Security Agreement among Webster Business
                  Credit  Corporation,  SPAR  Group,  Inc.,  and  certain of its
                  subsidiaries  dated as of August  20,  2004  (incorporated  by
                  reference  to the  Company's  quarterly  report of the quarter
                  ended  June 30,  2004,  as filed  with the SEC on  August  23,
                  2004).

         10.20    Waiver  and  Amendment  No. 6 to Third  Amended  and  Restated
                  Revolving Credit and Security Agreement among Webster Business
                  Credit  Corporation,  SPAR  Group,  Inc.,  and  certain of its
                  subsidiaries  dated as of November 12, 2004  (incorporated  by
                  reference to the  Company's  quarterly  report for the quarter
                  ended  September  30, 2004,  as filed with the SEC on November
                  17, 2004).

         10.21    Waiver to the Third Amended and Restated  Revolving Credit and
                  Security Agreement among Webster Business Credit  Corporation,
                  SPAR Group,  Inc., and certain of its subsidiaries dated as of
                  March 31, 2004  (incorporated  by reference  to the  Company's
                  Form 10-K for the fiscal  year ended  December  31,  2004,  as
                  filed with the SEC on April 12, 2005).

         10.22    Consent,  Joinder, Release and Amendment Agreement dated as of
                  October  31,  2003,  by and among  the  Lender,  the  Existing
                  Borrowers  and SPAR All Store  Marketing,  Inc., as a Borrower
                  (incorporated  by reference to the Company's Form 10-K for the
                  fiscal year ended  December 31, 2003, as filed with the SEC on
                  March 31, 2004).



                                      -43-
<PAGE>

         10.23    Change in Control Severance  Agreement between Kori Belzer and
                  SPAR Group, Inc., dated as of August 12, 2004 (incorporated by
                  reference  to the  Company's  quarterly  report of the quarter
                  ended  June 30,  2004,  as filed  with the SEC on  August  23,
                  2004).

         10.24    Change in Control Severance  Agreement between Patricia Franco
                  and  SPAR   Group,   Inc.,   dated  as  of  August  12,   2004
                  (incorporated  by reference to the Company's  quarterly report
                  of the quarter  ended June 30, 2004,  as filed with the SEC on
                  August 23, 2004).

         10.25    Master Lease Agreement by and between SPAR Marketing Services,
                  Inc. and SPAR Marketing Force,  Inc. dated as of November 2004
                  relating to lease of handheld computer equipment (incorporated
                  by  reference to the  Company's  Form 10-K for the fiscal year
                  ended  December 31,  2004,  as filed with the SEC on April 12,
                  2005).

         10.26    Master Lease Agreement by and between SPAR Marketing Services,
                  Inc. and SPAR Canada Company dated as of January 2005 relating
                  to lease  of  handheld  computer  equipment  (incorporated  by
                  reference to the Company's Form 10-K for the fiscal year ended
                  December 31, 2004, as filed with the SEC on April 12, 2005).

         10.27    Joint  Venture  Agreement  dated as of March 26, 2004,  by and
                  between Solutions  Integrated Marketing Services Ltd. and SPAR
                  Group  International,  Inc.  (incorporated by reference to the
                  Company's  Form 10-K for the fiscal  year ended  December  31,
                  2004, as filed with the SEC on April 12, 2005).

         10.28    Joint Venture  Shareholders  Agreement between  Friedshelf 401
                  (Proprietary)  Limited, SPAR Group International,  Inc., Derek
                  O'Brien,  Brian  Mason,  SMD  Meridian  CC,  Meridian  Sales &
                  Mnrechandisign  (Western Cape) CC, Retail  Consumer  Marketing
                  CC,  Merhold   Holding  Trust  in  respect  of  SGRP  Meridian
                  (Proprietary) Limited, dated as of June 25, 2004 (incorporated
                  by  reference to the  Company's  Form 10-K for the fiscal year
                  ended  December 31,  2004,  as filed with the SEC on April 12,
                  2005).

         10.29    Joint  Venture  Agreement  dated as of July 21,  2003,  by and
                  between CEO  Produksiyon  Tanitim ve Arastirma  Hizmetleri Ltd
                  Sti  and  SPAR  Group  International,  Inc.  (incorporated  by
                  reference to the Company's Form 10-K for the fiscal year ended
                  December 31, 2004, as filed with the SEC on April 12, 2005).

         10.30    Joint  Venture  Agreement  dated  as of  May 1,  2001,  by and
                  between Paltac Corporation and SPAR Group, Inc.  (incorporated
                  by  reference to the  Company's  Form 10-K for the fiscal year
                  ended  December 31,  2004,  as filed with the SEC on April 12,
                  2005).

         10.31    Agreement  on  Amendment  dated as of August 1,  2004,  by and
                  between SPAR Group, Inc. and SPAR FM Japan, Inc. (incorporated
                  by  reference to the  Company's  Form 10-K for the fiscal year
                  ended  December 31,  2004,  as filed with the SEC on April 12,
                  2005).

         10.32    Joint Venture  Agreement  dated as of January 26, 2005, by and
                  between  Best  Mark   Investments   Holdings   Ltd.  and  SPAR
                  International Ltd. (incorporated by reference to the Company's
                  Form 10-K for the fiscal  year ended  December  31,  2004,  as
                  filed with the SEC on April 12, 2005).

         10.33    Joint Venture  Agreement dated as of December 14, 2004, by and
                  between Field Insights  S.R.L.  and SPAR Group  International,
                  Inc. (incorporated by reference to the Company's Form 10-K for
                  the fiscal year ended December 31, 2004, as filed with the SEC
                  on April 12, 2005).

         10.34    Amended and Restated  Equipment Leasing Schedule 001 to Master
                  Lease Agreement by and between SPAR Marketing Services,  Inc.,
                  and SPAR Marketing Force,  Inc., dated as of November 1, 2004,
                  relating to lease of handheld computer equipment (incorporated
                  by reference to the  Company's  quarterly  report on Form 10-Q
                  for quarter ended March 31, 2005, as filed with the SEC on May
                  18, 2005).

         10.35    Amended and Restated  Equipment Leasing Schedule 002 to Master
                  Lease Agreement by and between SPAR Marketing Services,  Inc.,
                  and SPAR Marketing  Force,  Inc., dated as of January 4,



                                      -44-
<PAGE>

                  2005,   relating  to  lease  of  handheld  computer  equipment
                  (incorporated  by reference to the Company's  quarterly report
                  on Form 10-Q for quarter  ended March 31, 2005,  as filed with
                  the SEC on May 18, 2005).

         10.36    Amended and Restated  Equipment Leasing Schedule 003 to Master
                  Lease Agreement by and between SPAR Marketing Services,  Inc.,
                  and SPAR Marketing Force,  Inc., dated as of January 31, 2005,
                  relating to lease of handheld computer equipment (incorporated
                  by reference to the  Company's  quarterly  report on Form 10-Q
                  for quarter ended March 31, 2005, as filed with the SEC on May
                  18, 2005).

         10.37    Amended and Restated  Equipment Leasing Schedule 001 to Master
                  Lease Agreement by and between SPAR Marketing Services,  Inc.,
                  and SPAR Canada Company dated as of January 4, 2005,  relating
                  to lease  of  handheld  computer  equipment  (incorporated  by
                  reference to the Company's  quarterly  report on Form 10-Q for
                  quarter ended March 31, 2005, as filed with the SEC on May 18,
                  2005).

         10.38    Equipment  Leasing  Schedule 004 to Master Lease  Agreement by
                  and between SPAR Marketing Services,  Inc., and SPAR Marketing
                  Force, Inc., dated as of March 24, 2005,  relating to lease of
                  handheld computer equipment  (incorporated by reference to the
                  Company's  quarterly  report  on Form 10-Q for  quarter  ended
                  March 31, 2005, as filed with the SEC on May 18, 2005).

         10.39    Waiver to the Third Amended and Restated  Revolving Credit and
                  Security Agreement among Webster Business Credit  Corporation,
                  SPAR Group,  Inc., and certain of its subsidiaries dated as of
                  March 31, 2005  (incorporated  by reference  to the  Company's
                  quarterly  report on Form  10-Q for  quarter  ended  March 31,
                  2005, as filed with the SEC on May 18, 2005).

         10.40    Waiver to the Third Amended and Restated  Revolving Credit and
                  Security Agreement among Webster Business Credit  Corporation,
                  SPAR Group,  Inc., and certain of its subsidiaries dated as of
                  May 11,  2005  (incorporated  by  reference  to the  Company's
                  quarterly  report on Form  10-Q for  quarter  ended  March 31,
                  2005, as filed with the SEC on May 18, 2005).

         10.41    Waiver to the Third Amended and Restated  Revolving Credit and
                  Security Agreement among Webster Business Credit  Corporation,
                  SPAR Group,  Inc., and certain of its subsidiaries dated as of
                  August 10, 2005, with respect to the fiscal quarter ended June
                  30, 2005 (incorporated by reference to the Company's quarterly
                  report on Form 10-Q for quarter  ended June 30, 2005, as filed
                  with the SEC on August 15, 2005).

         10.42    Waiver to the Third Amended and Restated  Revolving Credit and
                  Security Agreement among Webster Business Credit  Corporation,
                  SPAR Group,  Inc., and certain of its subsidiaries dated as of
                  November 10, 2005,  with respect to the fiscal  quarter  ended
                  September 30, 2005 (incorporated by reference to the Company's
                  quarterly  report on Form 10-Q for quarter ended September 30,
                  2005, as filed with the SEC on November 14, 2005).

         10.43    Amendment  No. 7 to the Third  Amended and Restated  Revolving
                  Credit and Security Agreement dated as of January 18, 2006, by
                  and  among,   SPAR  Marketing   Force,   Inc.,   SPAR,   Inc.,
                  SPAR/Burgoyne  Retail  Services,  Inc., the  Registrant,  SPAR
                  Incentive  Marketing,   Inc.,  SPAR  Trademarks,   Inc.,  SPAR
                  Marketing,   Inc.  (DE),  SPAR  Marketing,   Inc.  (NV),  SPAR
                  Acquisition,  Inc.,  SPAR  Technology  Group,  Inc.,  SPAR/PIA
                  Retail Services,  Inc., Retail Resources,  Inc., Pivotal Field
                  Services,  Inc., PIA Merchandising  Co., Inc.,  Pacific Indoor
                  Display, Inc., Pivotal Sales Company, SPAR All Store Marketing
                  Services, Inc., and SPAR Bert Fife, Inc., each as a "Borrower"
                  and  collectively as the "Borrowers"  thereunder,  and Webster
                  Business  Credit  Corporation  (formerly  known  as  Whitehall
                  Business  Credit  Corporation),  as  the  "Lender"  thereunder
                  (incorporated by reference to the Company's report on the Form
                  8-K, as filed with the SEC on January 26, 2006).

         14.1     Code of Ethical Conduct for the Directors,  Senior  Executives
                  and  Employees,  of  SPAR  Group,  Inc.,  dated  May  1,  2004
                  (incorporated by reference to the Company's Form 8-K, as filed
                  with the SEC on May 5, 2004).



                                      -45-
<PAGE>

         14.2     Statement of Policy Regarding Personal Securities  Transaction
                  in Company Stock and  Non-Public  Information,  as amended and
                  restated  on May 1, 2004  (incorporated  by  reference  to the
                  Company's Form 8-K, as filed with the SEC on May 5, 2004).

         21.1     List of Subsidiaries.

         23.1     Consent of Rehmann Robson.

         23.2     Consent of Gureli Yeminli Mali Musavirlik A.S.

         23.3     Consent of Baker Tilly Klitou and Partners S.R.L.

         23.4     Consent of S.S. Kothari Mehta & Co.

         23.5     Consent of Ernst & Young LLP.

         31.1     Certification of the CEO pursuant to 18 U.S.C. Section 1350 as
                  adopted pursuant to Section 302 of the  Sarbanes-Oxley  Act of
                  2002, and filed herewith.

         31.2     Certification of the CFO pursuant to 18 U.S.C. Section 1350 as
                  adopted pursuant to Section 302 of the  Sarbanes-Oxley  Act of
                  2002, and filed herewith.

         32.1     Certification of the CEO pursuant to 18 U.S.C. Section 1350 as
                  adopted pursuant to Section 906 of the  Sarbanes-Oxley  Act of
                  2002, and filed herewith.

         32.2     Certification of the CFO pursuant to 18 U.S.C. Section 1350 as
                  adopted pursuant to Section 906 of the  Sarbanes-Oxley  Act of
                  2002, and filed herewith.







                                      -46-
<PAGE>


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant has duly caused this amendment to the report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                SPAR Group, Inc.

                                By:    /s/ Robert G. Brown
                                       -----------------------------------------
                                       Robert G. Brown
                                       President, Chief Executive Officer and
                                       Chairman of the Board

                                Date:  March 31, 2006
                                       -----------------------------------------

Pursuant  to the  requirements  of the  Securities  Exchange  Act of 1934,  this
amendment to the report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated.

SIGNATURE                           TITLE

/s/ Robert G. Brown          President, Chief Executive Officer, Director,
---------------------------  and Chairman of the Board
    Robert G. Brown
Date: March 31, 2006

/s/ William H. Bartels       Vice Chairman and Director
---------------------------
    William H. Bartels
Date: March 31, 2006

/s/ Robert O. Aders          Director
---------------------------
    Robert O. Aders
Date: March 31, 2006

/s/ Jack W. Partridge        Director
---------------------------
    Jack W. Partridge
Date: March 31, 2006

/s/ Jerry B. Gilbert         Director
---------------------------
    Jerry B. Gilbert
Date: March 31, 2006

/s/ Lorrence T. Kellar       Director
---------------------------
    Lorrence T. Kellar
Date: March 31, 2006

/s/ Charles Cimitile         Chief Financial Officer,
---------------------------  Treasurer and Secretary (Principal Financial and
    Charles Cimitile         Accounting Officer)
Date: March 31, 2006





                                      -47-
<PAGE>




              Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
SPAR Group, Inc. and Subsidiaries
Tarrytown, New York

We have audited the accompanying consolidated balance sheets of SPAR Group, Inc.
and Subsidiaries as of December 31, 2005 and 2004, and the related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
then ended. Our audits also included the financial  statement schedule for these
years listed in the index at Item 15. These  consolidated  financial  statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements  and  schedule  based on our audits.  We did not audit the  financial
statements of SPAR  Merchandising  Romania,  Ltd.; SPAR Turkey,  Ltd. (SPAR Alan
Pazarlama  Hizmetleri Limited Sirketi);  or SPAR Solutions India Private Limited
as of and for the year ended December 31, 2005. These  statements  reflect total
assets  constituting 4.9% of consolidated  total assets as of December 31, 2005,
and total revenues  constituting 2.7% of total consolidated revenue for the year
then ended.  Such  financial  statements  were audited by other  auditors  whose
reports have been furnished to us, and our opinion, insofar as it relates to the
amounts included for SPAR Merchandising  Romania,  Ltd.; SPAR Turkey, Ltd. (SPAR
Alan Pazarlama  Hizmetleri  Limited  Sirketi);  and SPAR Solutions India Private
Limited for 2005, is based solely on the reports of the other auditors.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  based on our audits and the reports of the other  auditors for
2005, the consolidated financial statements referred to above present fairly, in
all material respects,  the consolidated  financial position of SPAR Group, Inc.
and Subsidiaries as of December 31, 2005 and 2004, and the consolidated  results
of their operations and their cash flows for the years then ended, in conformity
with U.S. generally accepted accounting  principles.  Also, in our opinion,  the
related  financial  schedule for those years, when considered in relation to the
consolidated  financial  statements  taken as a whole  presents  fairly,  in all
material respects, the information set forth therein.

                                     /s/ Rehmann Robson

Troy, Michigan
 March 16, 2006




                                      F-1
<PAGE>


             Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders
SPAR Alan Pazarlama Hizmetleri Limited Sirketi
Istanbul, Turkey

We  have  audited  the  accompanying  balance  sheets  of  Spar  Alan  Pazarlama
Hizmetleri  Limited  Sirketi  (the  "Company")  as at December  31, 2005 and the
related  statement  of  operations  and  stockholders'  equity for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the Company as of December 31,
2005 and the result of its operations for the year then ended in conformity with
U.S. generally accepted accounting principles.



                   /s/ Gureli Yeminli Mali Musavirlik A.S.
                       An independent member of Baker Tilly International





Istanbul, Turkey
March 10, 2006



                                      F-2
<PAGE>




             Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
SPAR Merchandising Romania S.R.L.
Bucharest, Romania

We have audited the accompanying balance sheet of Spar Merchandising Romania SRL
as of December 31, 2005,  and related  statements of  operations,  stockholders'
equity,  and cash flows for the period from April 20, 2005 to December 31, 2005.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amount and  disclosures  in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the company as of December 31,
2005,  and the results of its  operations and its cash flows for the period from
April 20, 2005 to December 31, 2005 in conformity with U.S.  generally  accepted
accounting principles.

                                      /s/ Baker Tilly Klitou and Partners S.R.L.


Bucharest, Romania
March 29, 2006



                                       F-3


<PAGE>


             Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
SPAR Solutions Merchandising Private Limited
New Delhi, India

We have  audited the attached  balance  sheets of SPAR  Solutions  Merchandising
Private Limited, a company incorporated in India, as at 31st December,  2005 and
2004 and also the Statements of Income, Changes in shareholders' equity and Cash
Flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of the company as at 31st December
2005 and 2004,  and the  results  of its  operations  and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.

                                 /s/ S.S. Kothari Mehta & Co.





New Delhi, India
March 30, 2006








                                      F-4
<PAGE>

             Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
SPAR Group, Inc. and Subsidiaries
Tarrytown, New York

We have audited the consolidated statements of operations,  stockholders' equity
and cash flows of SPAR Group,  Inc. and Subsidiaries for the year ended December
31, 2003. Our audit also included the financial statement schedule listed in the
Index at Item 15. These consolidated  financial  statements and schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and schedule based on our
audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated results of SPAR Group, Inc.'s
operations  and its  cash  flows  for the  year  ended  December  31,  2003,  in
conformity with U.S.  generally  accepted  accounting  principles.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

                                              /s/ Ernst & Young LLP

Minneapolis, Minnesota
February 13, 2004


                                      F-5
<PAGE>


                        SPAR Group, Inc. and Subsidiaries

                           Consolidated Balance Sheets
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                           December 31,
                                                               -------------------------------------
                                                                    2005                   2004
                                                               -------------          --------------

<S>                                                            <C>                    <C>
 Assets
 Current assets:
    Cash and cash equivalents                                  $      1,914           $         887
    Accounts receivable, net                                         10,656                  11,307
    Prepaid expenses and other current assets                           702                     657
                                                               -------------          --------------
 Total current assets                                                13,272                  12,851

 Property and equipment, net                                          1,131                   1,536
 Goodwill                                                               798                     798
 Other assets                                                           216                     636
                                                               -------------          --------------
 Total assets                                                  $     15,417           $      15,821
                                                               =============          ==============

 Liabilities and stockholders' equity
 Current liabilities:
    Accounts payable                                           $      1,597           $       2,158
    Accrued expenses and other current liabilities                    2,639                   2,391
    Accrued expenses due to affiliates                                1,190                     987
    Restructuring charges                                                99                     250
    Customer deposits                                                 1,658                   1,147
    Lines of credit                                                   2,969                   4,956
                                                               -------------          --------------
 Total current liabilities                                           10,152                  11,889

 Other long-term liabilities                                             10                      12
 Minority interest                                                      405                     206
                                                               -------------          --------------
 Total liabilities                                                   10,567                  12,107

 Commitments and contingencies (Note 7)

 Stockholders' equity:
    Preferred stock, $.01 par value:
      Authorized shares - 3,000,000
      Issued and outstanding shares - none                                -                       -
    Common stock, $.01 par value:
      Authorized shares - 47,000,000
      Issued and outstanding shares -
        18,916,847 - 2005
        18,858,972 - 2004                                               189                     189
    Treasury stock                                                       (1)                   (108)
    Accumulated other comprehensive gain (loss)                          17                     (86)
    Additional paid-in capital                                       11,059                  11,011
    Accumulated deficit                                              (6,414)                 (7,292)
                                                               -------------          --------------
 Total stockholders' equity                                           4,850                   3,714
                                                               -------------          --------------
 Total liabilities and stockholders' equity                    $     15,417           $      15,821
                                                               =============          ==============
</TABLE>

See accompanying notes.



                                      F-6
<PAGE>


                        SPAR Group, Inc. and Subsidiaries

                      Consolidated Statements of Operations
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                      -------------------------------------------------
                                                           2005             2004              2003
                                                      -------------------------------------------------

<S>                                                   <C>               <C>              <C>
Net revenues                                          $      51,586     $      51,370    $      64,859
Cost of revenues                                             31,939            33,644           42,338
                                                      -------------------------------------------------
Gross profit                                                 19,647            17,726           22,521

Selling, general and administrative expenses                 17,561            20,222           20,967
Impairment charges                                                -             8,141                -
Depreciation and amortization                                 1,031             1,399            1,529
                                                      -------------------------------------------------
Operating income (loss)                                       1,055           (12,036)              25

Interest expense                                                191               220              269
Other (income) expense                                         (424)             (754)             237
                                                      -------------------------------------------------
Income (loss) before provision for income taxes and           1,288           (11,502)            (481)
minority interest
Provision for income taxes                                      242               853               58
                                                      -------------------------------------------------
Net income (loss) before minority interest                    1,046           (12,355)            (539)
Minority interest                                               168               (87)               -
                                                      -------------------------------------------------
Net income (loss)                                     $         878     $     (12,268)   $        (539)
                                                      =================================================

Basic/diluted net income (loss) per common share:

Net income (loss) - basic/diluted                     $        0.05     $       (0.65)   $       (0.03)
                                                      =================================================

Weighted average common shares - basic                       18,904            18,859           18,855
                                                      =================================================

Weighted average common shares - diluted                     19,360            18,859           18,855
                                                      =================================================
</TABLE>

See accompanying notes.



                                      F-7
<PAGE>


                        SPAR Group, Inc. and Subsidiaries

                 Consolidated Statements of Stockholders' Equity
                                 (In thousands)


<TABLE>
<CAPTION>
                                                      Common Stock                                       Accumulated
                                             -------------------------------    Additional                  Other         Total
                                                                    Treasury     Paid-In     Retained   Comprehensive Stockholders'
                                             Shares      Amount      Stock       Capital     Earnings     (Loss)Gain      Equity
                                             --------------------------------------------------------------------------------------

<S>                                          <C>      <C>                <C>  <C>           <C>        <C>            <C>
Balance at January 1, 2003                   18,825   $      188         (30) $    10,919   $    5,515 $        -     $    16,592

   Stock options exercised and employee
     stock purchase plan purchases               34            1         570          (86)           -          -             485
   Issuance of stock options to non-
     employees for services                       -            -           -          416            -          -             416
   Purchase of treasury stock                     -            -        (924)           -            -          -            (924)
   Comprehensive loss:
   Foreign currency translation loss                                                                           (7)             (7)
   Net loss                                                                                       (539)                      (539)
                                                                                                                         ----------
Comprehensive loss                                                                                                           (546)
                                             --------------------------------------------------------------------------------------
Balance at December 31, 2003                 18,859          189        (384)      11,249        4,976         (7)         16,023

   Stock options exercised and employee
     stock purchase plan purchases                -            -         276         (316)           -          -             (40)
   Issuance of stock options to non-
     employees for services                       -            -           -           78            -          -              78
   Comprehensive loss:
   Foreign currency translation loss                                                                          (79)            (79)
   Net loss                                                                                    (12,268)                   (12,268)
                                                                                                                         ----------
Comprehensive loss                                                                                                        (12,347)
                                             --------------------------------------------------------------------------------------
Balance at December 31, 2004                 18,859           189       (108)      11,011       (7,292)        (86)         3,714

   Stock options exercised and employee
     stock purchase plan purchases               58            -         107          (22)           -          -              85
   Issuance of stock options to non-
     employees for services                       -            -           -           70            -          -              70
   Comprehensive gain:
   Foreign currency translation gain                                                                          103             103
   Net income                                                                                      878                        878
                                                                                                                         ----------
Comprehensive gain                                                                                                            981
                                             --------------------------------------------------------------------------------------
Balance at December 31, 2005                 18,917   $        189 $      (1) $    11,059   $   (6,414)$        17    $      4,850
                                             =====================================================================================
</TABLE>

See accompanying notes.



                                      F-8
<PAGE>


                        SPAR Group, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                              ------------------------------------------------
                                                                     2005             2004              2003
                                                              ------------------------------------------------
<S>                                                           <C>               <C>              <C>
 Operating activities
 Net income (loss)                                            $        878      $    (12,268)    $       (539)
 Adjustments to reconcile net income (loss) to net cash
     provided by operating activities
       Impairment charges                                                -             8,141                -
       Minority interest earnings in subsidiaries                      168               (87)               -
       Share of loss in joint venture                                    -                 -              270
       Deferred tax asset adjustments                                    -               710             (131)
       Depreciation                                                  1,031             1,399            1,529
       Issuance of stock options for service                            70                78              416

       Changes in operating assets and liabilities:
       Accounts receivable                                             650             2,635            2,516
       Prepaid expenses and other assets                               375              (126)            (330)
       Accounts payable, accrued expenses, other current
         liabilities and customer deposits                             201               756              422
       Accrued expenses due to affiliates                              203              (104)             133
       Restructuring charges                                          (151)              250             (904)
                                                              ------------------------------------------------
 Net cash provided by operating activities                           3,425             1,384            3,382

 Investing activities
 Purchases of property and equipment                                  (628)           (1,260)          (1,456)
 Deposit related to acquisition                                          -               350             (350)
 Acquisition of businesses                                               -              (399)          (1,091)
                                                              ------------------------------------------------
 Net cash used in investing activities                                (628)           (1,309)          (2,897)

 Financing activities
 Net (payments) borrowings on lines of credit                       (1,987)              872            3,936
 Other long-term liabilities                                            29                35                -
 Proceeds from employee stock purchase plan and exercised
    options                                                             85               (40)             485
 Payments of loans from stockholders                                     -                 -           (3,951)
 Purchase of treasury stock                                              -                 -             (924)
                                                              ------------------------------------------------
 Net cash (used in) provided by financing activities                (1,873)              867             (454)

 Translation gain (loss)                                               103               (79)              (7)

 Net change in cash and cash equivalents                             1,027               863               24
 Cash and cash equivalents at beginning of year                        887                24                -
                                                              ------------------------------------------------
 Cash and cash equivalents at end of year                     $      1,914      $        887     $         24
                                                              =================================================
 Supplemental disclosure of cash flows information
 Interest paid                                                $        132      $        180     $        241
                                                              =================================================

 Income taxes paid                                            $        127      $         86     $        578
                                                              =================================================
</TABLE>

See accompanying notes.




                                      F-9
<PAGE>


                        SPAR Group, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements
                                December 31, 2005


1. Business and Organization

The SPAR Group,  Inc.  (formerly known as PIA Merchandising  Services,  Inc.), a
Delaware  corporation  ("SGRP"),  and its subsidiaries  (together with SGRP, the
"SPAR  Group"  or 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
services.

SPAR  Acquisition,  Inc., and its  subsidiaries  (the "SPAR  Companies") are the
original  predecessor  of the Company and were founded in 1967. On July 8, 1999,
SPAR Companies completed a reverse merger with SGRP (the "PIA Acquisition"), and
SGRP then changed its name to SPAR Group, Inc., from PIA Merchandising Services,
Inc.  (prior to such  merger,  "PIA").  The SPAR  Companies  were deemed to have
"purchased"  PIA and its  subsidiaries  (the  "PIA  Companies")  for  accounting
purposes,  with the books and records of the Company  being  adjusted to reflect
the historical  operating  results of the SPAR  Companies.  In 2002, the Company
sold its Incentive Marketing Division, SPAR Performance Group, Inc. ("SPGI").

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, convenience and
grocery stores. The International  Merchandising Services Division,  established
in July 2000,  currently  provides similar  merchandising and marketing services
through a wholly owned  subsidiary  in Canada,  through 51% owned joint  venture
subsidiaries  in Turkey,  South Africa,  India and Romania and through 50% owned
joint ventures in Japan and China. In September 2005, the Company entered into a
51% owned joint  venture  subsidiary  in  Lithuania  which is projected to begin
operations  in April  2006.  The Company  continues  to focus on  expanding  its
merchandising and marketing services business throughout the world.

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 products companies in the United States.

Merchandising 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   primarily  under  single  or
multi-year   contracts  or   agreements.   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,  and  include  new  store  openings,  new  product
launches, special seasonal or promotional merchandising, focused product support
and product recalls. The Company also provides in-store event staffing services,
RFID services, technology services and marketing research services.




                                      F-10
<PAGE>


                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


1. Business and Organization (continued)

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.  The Company has  expanded  its  international  business as
follows:

<TABLE>
<CAPTION>
                                        Percent Ownership in Subsidiary
          Date Established                      or Joint Venture                       Location
        -----------------------         --------------------------------        ---------------------
<S>                                                   <C>                       <C>
              May 2001                                50%                            Osaka, Japan
              June 2003                               100%                          Toronto, Canada
              July 2003                               51%                          Istanbul, Turkey
             April 2004                               51%                        Durban, South Africa
             April 2004                               51%                          New Delhi, India
            December 2004                             51%                         Bucharest, Romania
            February 2005                             50%                          Hong Kong, China
           September 2005                             51%                         Siauliai, Lithuania
</TABLE>

The joint venture in Lithuania is projected to begin operations in April 2006.

Discontinued Operations - Incentive Marketing Division

In the fourth  quarter of 2001,  the  Company  made the  decision  to divest its
interest in SPGI.

On June 30,  2002,  SPAR  Incentive  Marketing,  Inc.  ("SIM"),  a  wholly-owned
subsidiary of the Company, entered into a Stock Purchase and Sale Agreement with
Performance  Holdings,  Inc. ("PHI"),  a Delaware  corporation  headquartered in
Carrollton,  Texas.  Pursuant  to that  agreement,  SIM sold all of the stock of
SPGI, its subsidiary,  to PHI for $6.0 million.  As a condition of the sale, PHI
issued  and  contributed  1,000,000  shares of its common  stock to  Performance
Holdings,  Inc. Employee Stock Ownership Plan, which became the only shareholder
of PHI.

The $6.0 million  sales price was  evidenced by two Term Loans,  an Initial Term
Loan  totaling  $2.5 million and an  Additional  Term Loan totaling $3.5 million
(collectively  the "Term  Loans").  The Term Loans were  guarantied  by SPGI and
secured by pledges  of all assets of PHI and SPGI.  The Term Loans had  interest
rates of 12% per  annum  through  December  31,  2003.  On  January  1, 2004 the
interest  rate changed to 8.9% per annum.  Because the  collection  of the notes
depended on the future  operations  of PHI,  the $6.0  million  notes were fully
reserved.

Also in connection  with the sale, the Company agreed to provide a discretionary
revolving  line  of  credit  to SPGI  not to  exceed  $2.0  million  (the  "SPGI
Revolver") through September 30, 2005. The SPGI Revolver was secured by a pledge
of all the  assets  of SPGI and was  guarantied  by SPGI's  parent,  Performance
Holdings,  Inc.  The SPGI  Revolver  provided  for  advances  in  excess  of the
borrowing  base  through  September  30, 2003.  As of October 1, 2003,  the SPGI
Revolver  was  adjusted,  as per the  agreement,  to  include a  borrowing  base
calculation (principally 85% of "eligible" accounts receivable). In September


                                      F-11
<PAGE>


                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


1. Business and Organization (continued)

2003,  SPGI requested and the Company  agreed to provide  advances of up to $1.0
million in excess of the borrowing base through  September 30, 2004. In December
of 2003, SPGI changed its name to STIMULYS, Inc ("STIMULYS"). On April 30, 2004,
as  a  result  of  various  defaults  by  STIMULYS,   the  Company  amended  the
discretionary  line of credit by  eliminating  advances  in excess of  STIMULYS'
borrowing  base and reducing  the maximum  amount of the  revolving  line to the
greater of $1.0 million or the borrowing  base.  Under the SPGI Revolver  terms,
STIMULYS was required to deposit all of its cash receipts to the Company's  lock
box.

On September  10, 2004,  in  consideration  for a new  Promissory  Note totaling
$764,271 (which  represented the amount  outstanding  under the SPGI Revolver at
that time) and in the event of a change in control of  STIMULYS,  a share in the
net proceeds  resulting from such change in control,  the Company terminated the
SPGI Revolver and the Term Loans.  SPAR also  released its security  interest in
any collateral  previously pledged by STIMULYS.  The first payment due under the
Promissory  Note was received on October 29, 2004.  Due to the  collection  risk
associated  with the Promissory  Note, the Company has established a reserve for
the  remaining  amount  due,  including  interest of  approximately  $355,000 at
December 31, 2004.

As a result of the termination of the SPGI Revolver,  the reserve for collection
of advances and accrued interest under the SPGI Revolver previously  established
by the Company  totaling  approximately  $984,000  was no longer  required.  The
release of this  reserve,  net of the new reserve  required  for the  Promissory
Note, resulted in Other Income totaling approximately $640,000 for 2004.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The  Company  consolidates  its  100%  owned  subsidiaries.   The  Company  also
consolidates  its 51% owned joint venture  subsidiaries  and its 50% owned joint
ventures  where the  Company  is the  primary  beneficiary  in  accordance  with
Financial  Accounting  Standards  Board  Interpretation  Number  46, as  revised
December 2003,  Consolidation of Variable Interest  Entities ("FIN 46(R)").

In 2004, due to the amendment of a royalty agreement between the Company and its
50% owned Japanese joint venture,  the Company has determined that in accordance
with FIN 46(R) it is the primary beneficiary of the Japanese joint venture,  and
has consolidated the Japanese  financial results for 2005 and 2004 in accordance
with the provisions of FIN 46(R).  In connection with the  consolidation  of the
Japanese  joint  venture's  financial  results as of and for the  period  ending
September 30, 2004, the Company's consolidated financial statements only include
the Japanese joint venture financial results for nine months ended September 30,
2004. In 2005, the Japanese joint venture changed its fiscal year from September
30 to December 31, this report reflects its  consolidation  for the fiscal years
ending  September  30,  2005 and 2004.  The  results  for the short  period from
October 1, 2005 to December 31, 2005 were not material and will be included with
the Company's 2006 first quarter  reporting on Form 10-Q. In 2003,  prior to the
amendment of the royalty agreement, the investment in the Japanese joint venture
was  accounted  for  using  the  equity  method  based  upon the  Company's  50%
ownership.

All significant intercompany accounts and transactions have been eliminated.

Cash Equivalents

The Company considers all highly liquid  short-term  investments with maturities
of three months or less at the time of acquisition to be cash equivalents.  Cash
equivalents are stated at a cost, which approximates fair value.



                                      F-12
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


2. Summary of Significant Accounting Policies (continued)

Revenue Recognition

The Company's  services are provided under contracts or agreements.  The Company
bills its clients based upon service fee or per unit fee arrangements.  Revenues
under service fee arrangements are recognized when the service is performed. The
Company's per unit fee  arrangements  provide for fees to be earned based on the
retail sales of a client's  products to consumers.  The Company  recognizes  per
unit fees in the period such amounts become determinable and are reported to the
Company.

Unbilled Accounts Receivable

Unbilled accounts receivable represent services performed but not billed and are
included as accounts receivable.

Doubtful Accounts, Sales Allowances and Credit Risks

The Company  continually  monitors the validity of its accounts receivable based
upon current client credit  information and financial  condition.  Balances that
are  deemed to be  uncollectible  after the  Company  has  attempted  reasonable
collection  efforts are  written off through a charge to the bad debt  allowance
and a credit to accounts receivable.  Accounts receivable  balances,  net of any
applicable  reserves or  allowances,  are stated at the amount  that  management
expects to collect  from the  outstanding  balances.  The Company  provides  for
probable  uncollectible amounts through a charge to earnings and a credit to bad
debt allowance based in part on management's assessment of the current status of
individual accounts. Based on management's  assessment,  the Company established
an allowance for doubtful accounts of $616,000 and $761,000 at December 31, 2005
and 2004,  respectively.  Bad debt and sales  allowance  expenses  were $38,000,
$366,000, and $825,000 in 2005, 2004, and 2003, respectively.

Property and Equipment

Property and equipment,  including leasehold  improvements,  are stated at cost.
Depreciation is calculated on a straight-line  basis over estimated useful lives
of the  related  assets,  which  range  from  three  to seven  years.  Leasehold
improvements are depreciated over the shorter of their estimated useful lives or
lease term, using the straight-line method.

Internal Use Software Development Costs

In  accordance  with SOP 98-1,  Accounting  for the Costs of  Computer  Software
Developed or Obtained for Internal  Use, the Company  capitalizes  certain costs
associated with its internally  developed  software.  Specifically,  the Company
capitalizes  the costs of  materials  and  services  incurred in  developing  or
obtaining  internal use  software.  These costs include (but are not limited to)
the cost to  purchase  software,  the cost to write  program  code,  payroll and
related  benefits  and travel  expenses  for those  employees  who are  directly
involved  with  and  who  devote  time  to the  Company's  software  development
projects. Capitalized software development costs are amortized over three years.





                                      F-13
<PAGE>


                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


2. Summary of Significant Accounting Policies (continued)

The Company capitalized $346,000,  $559,000,  and $1,004,000 of costs related to
software developed for internal use in 2005, 2004, and 2003,  respectively,  and
amortized capitalized software of approximately $516,000,  $638,000 and $690,000
for the years ended December 31, 2005, 2004, and 2003, respectively.

In 2004, the Company recorded an impairment charge against capitalized  software
costs  due to the  loss  of  certain  clients  during  the  year  (see  Note 3 -
Impairment Charges).

Impairment of Long-Lived Assets

The Company  reviews its  long-lived  assets for impairment  whenever  events or
changes in circumstances  indicate that an asset's carrying amount may be higher
than its fair value.  If an asset is considered to be impaired,  the  impairment
charge  recognized is the excess of the asset's  carrying value over the asset's
fair value (see Note 3 - Impairment Charges).

Fair Value of Financial Instruments

The  Company's  balance  sheets  include the  following  financial  instruments:
accounts receivable, accounts payable and lines of credit. The Company considers
the  carrying  amounts  of  current  assets  and  liabilities  in the  financial
statements  to  approximate  the fair  value  for these  financial  instruments,
because  of the  relatively  short  period of time  between  origination  of the
instruments  and their expected  realization or payment.  The carrying amount of
the lines of  credit  approximates  fair  value  because  the  obligations  bear
interest at a floating rate.

Excess Cash

The Company's domestic cash balances are generally utilized to pay its bank line
of credit.  International  cash balances are  maintained in liquid cash accounts
and are utilized to fund daily operations.

 Major Clients - Domestic

One client accounted for 20%, 14%, and 8% of the Company's domestic net revenues
for the years ended December 31, 2005, 2004, and 2003, respectively. This client
also accounted for approximately 13% and 29% of the Company's  domestic accounts
receivable at December 31, 2005 and 2004, respectively.

In  addition,  approximately  16%,  16%, and 17% of the  Company's  domestic net
revenues for the years ended December 31, 2005,  2004,  and 2003,  respectively,
resulted from  merchandising and marketing  services performed for manufacturers
and others in stores  operated  by a leading  mass  merchandising  chain.  These
clients also accounted for approximately  23% and 22% of the Company's  domestic
accounts receivable at December 31, 2005 and 2004, respectively.

Also,  approximately  17% and 4% of the Company's  domestic net revenues for the
years  ended   December  31,  2005  and  2004,   respectively,   resulted   from
merchandising and marketing  services  performed for manufacturers and others in
stores operated by a leading electronics chain. These clients also accounted for
24% and 16% of the Company's  domestic accounts  receivable at December 31, 2005
and 2004, respectively.

Another client accounted for 10% of the Company's  domestic net revenues for the
years ended December 31, 2005. This client also accounted for  approximately  5%
of the Company's domestic accounts receivable at December 31, 2005.



                                      F-14
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

2. Summary of Significant Accounting Policies (continued)

Foreign Currency Rate Fluctuations

The Company has foreign currency exposure associated with its international 100%
owned  subsidiary,  its 51% owned joint venture  subsidiaries  and its 50% owned
joint  ventures.   In  both  2005  and  2004,   these  exposures  are  primarily
concentrated  in the Canadian  dollar,  South  African rand and Japanese yen. At
December 31, 2005,  international  assets totaled $5.0 million and international
liabilities totaled $7.5 million. For 2005, international revenues totaled $14.9
million and the Company's share of the net income was approximately $167,000.

Interest Rate Fluctuations

At December 31, 2005, the Company's outstanding debt totaled $3.0 million, which
consisted of domestic  variable-rate (8%) debt of $2.4 million and international
variable  rate (1.4%) debt of $0.6  million.  Based on 2005 average  outstanding
borrowings under variable-rate debt, a one-percentage point increase in interest
rates  would  negatively  impact  annual  pre-tax  earnings  and  cash  flows by
approximately $25,000.

Income Taxes

Deferred tax assets and liabilities represent the future tax return consequences
of certain timing differences that will either be taxable or deductible when the
assets  and  liabilities  are  recovered  or  settled.  Deferred  taxes are also
recognized  for operating  losses that are  available to offset  future  taxable
income and tax credits that are available to offset future income taxes.  In the
event the future  consequences  of differences  between the financial  reporting
basis and the tax basis of the Company's assets and liabilities  result in a net
deferred tax asset,  an evaluation is required of the  probability of being able
to realize the future benefits indicated by such asset. A valuation allowance is
provided  when it is more  likely  than  not that  some  portion  or the  entire
deferred tax asset will not be realized.

Stock-Based Compensation

Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock
Based  Compensation,  requires disclosure of the fair value method of accounting
for stock  options and other equity  instruments.  Under the fair value  method,
compensation  cost is  measured at the grant date based on the fair value of the
award and is recognized  over the service  period,  which is usually the vesting
period.  The  Company  has  chosen,  under the  provisions  of SFAS No.  123, to
continue to account  for  employee  stock-based  transactions  under  Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.




                                      F-15
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


2. Summary of Significant Accounting Policies (continued)

Under the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation,  as amended by SFAS 148, no compensation  cost has been recognized
for the stock  option  grants to Company  employees.  Compensation  cost for the
Company's  option grants to Company  employees has been determined  based on the
fair value at the grant date consistent with the provisions of SFAS No. 123, the
Company's  net  income  (loss)  and pro forma net  income  (loss) per share from
continuing  operations would have been reduced to the adjusted amounts indicated
below (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                             --------------------------------------------
                                                                  2005           2004           2003
                                                             --------------------------------------------

<S>                                                          <C>            <C>            <C>
    Net income (loss), as reported                           $        878   $    (12,268)  $       (539)
    Stock based employee compensation expense
      under the fair market value method                              426            454          1,005
                                                             --------------------------------------------
    Pro forma net income (loss)                              $        452   $    (12,722)  $     (1,544)

    Basic and diluted net income (loss) per share, as        $       0.05   $      (0.65)   $     (0.03)
      reported
    Basic and diluted net income (loss) per share, pro forma $       0.02   $      (0.67)   $     (0.08)
</TABLE>


The pro forma effect on net income (loss) is not representative of the pro forma
effect on net  income  (loss) in future  years  because  the  options  vest over
several years and additional awards may be made in the future.

The fair  value of each  option  grant is  estimated  based on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:  dividend yield of 0% for all years;  volatility factor of expected
market price of common stock of 145%,  150%, and 154% for 2005,  2004, and 2003,
respectively;  risk-free interest rate of 4.37%,  4.23%, and 4.27%; and expected
lives of six years.

Net Income (Loss) Per Share

Basic net income  (loss) per share  amounts are based upon the weighted  average
number of common shares outstanding. Diluted net income (loss) per share amounts
are based upon the weighted average number of common and potential common shares
outstanding  except  for  periods  in which  such  potential  common  shares are
anti-dilutive. Potential common shares outstanding include stock options and are
calculated using the treasury stock method.

Use of Estimates

The  preparation of the  consolidated  financial  statements in conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets  and  liabilities,  the  amounts  disclosed  for  contingent  assets  and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses  during the reporting  year.  Actual  results could differ
from those estimates.

Goodwill

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 142,
Goodwill and Other Intangible  Assets, in the first quarter of 2002.  Therefore,
goodwill is no longer  amortized  but is subject to annual  impairment  tests in
accordance  with that  Statement.  At June 30, 2004,  the Company  performed the
required  impairment test discussed in FAS 142. The Company  calculated the fair
value of each business


                                      F-16
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


2. Summary of Significant Accounting Policies (continued)

unit for which  goodwill was  recorded to determine if there was an  impairment.
The fair value of each unit was based upon the estimate of the  discounted  cash
flow  generated  by  the  respective   business  unit.  As  a  result  of  these
calculations,  it was  determined  that there were  impairments  to the goodwill
associated  with the PIA  Acquisition  on July 8,  1999 and  acquisition  of the
Company's Canadian subsidiary in June 2003.  Therefore,  the Company recorded an
impairment  charge  of  approximately  $8.4  million  (see  Note 3 -  Impairment
Charges).

Changes to goodwill for the years ended  December 31, 2005,  2004, and 2003 were
as follows (in thousands):

<TABLE>
<CAPTION>
                                                        2005               2004                2003
                                                   ------------       -------------       -------------

<S>                                                <C>                <C>                 <C>
Beginning of the year                              $        798       $      8,749        $      7,858
Impairment charges                                            -             (8,350)                  -
Adjustment to merger related and restructure
   liabilities                                                -                  -                 (89)
Acquisitions                                                  -                399                 980
                                                   ------------       -------------       -------------
End of the year                                    $        798       $        798        $      8,749
                                                   ============       =============       =============
</TABLE>

Translation of Foreign Currencies

The financial  statements of the foreign entities  consolidated into SPAR Group,
Inc. consolidated financial statements were translated into United States dollar
equivalents at exchange rates as follows:  balance sheet accounts for assets and
liabilities  were converted at year-end  rates,  equity at historical  rates and
income statement  accounts at average exchange rates for the year. The resulting
translation  gains and losses are reflected in accumulated  other  comprehensive
gain or  losses in the  statement  of  stockholders'  equity.  Foreign  currency
transaction gains and losses are reflected in net earnings.

Recently Issued Accounting Standards

In December 2004, the FASB issued SFAS 123 (revised 2004),  Share-Based Payment,
(SFAS 123R).  SFAS 123R  addresses the accounting  for  share-based  payments to
employees,  including grants of employee stock options.  Under the new standard,
companies  will no  longer  be  able to  account  for  share-based  compensation
transactions  using the intrinsic  method in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees.  Instead, the Company will be required
to account for such  transactions  using a fair-value  method and  recognize the
expense in the consolidated statement of income. SFAS 123R will be effective for
years  beginning  after  January 1, 2006 and allows,  but does not require,  the
Company  to  restate  the full  fiscal  year of 2005 to  reflect  the  impact of
expensing  share-based  payments  under  SFAS  123R.  The  Company  has  not yet
determined  which fair-value  method and transitional  provision it will follow.
See Note 2 - Stock-Based Compensation for the pro forma impact on net income and
net income per share from calculating  stock-based  compensation costs under the
fair value  alternative of SFAS 123.  However,  the  calculation of compensation
cost for share-based payment  transactions after the effective date of SFAS 123R
may be different from the calculation of  compensation  cost under SFAS 123, but
such differences have not yet been quantified.




                                      F-17
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


2. Summary of Significant Accounting Policies (continued)

Reclassifications

Certain   reclassifications  have  been  made  to  the  prior  years'  financial
statements to conform to the 2005 presentation.

3. Impairment Charges

Goodwill

During  2004,  in  accordance  with the  requirements  of SFAS 142,  the Company
determined that there were impairments of the goodwill  amounts  associated with
certain of its reporting entities.

In  April  2004,  the  Company's  largest  client  announced  that  they  signed
definitive  agreements for the sale of its business to two purchasers.  The sale
was completed on August 2, 2004. This client  accounted for 10%, 26%, and 30% of
the  Company's  domestic net revenues for the twelve  months ended  December 31,
2005,  2004,  and  2003,  respectively  and was the  last  remaining  profitable
business  related to the PIA  Acquisition on July 8, 1999. At June 30, 2004, the
Company  had $7.6  million of  goodwill  remaining  that was  related to the PIA
Acquisition.  As a result of the loss of this major client, the Company does not
expect a positive cash flow from this business unit. Therefore,  the Company has
recorded an  impairment  of the PIA  related  goodwill  resulting  in a non-cash
charge of $7.6 million to the results of the operations for 2004.

In June 2003, the Company began its Canadian  operations through the acquisition
of substantially all of the business and assets of Impulse  Marketing  Services,
Inc. In  connection  with this  acquisition,  the Company  recorded  goodwill of
$712,000.  In June 2004, in  accordance  with the  requirements  of SFAS 142 the
Company  evaluated the recorded  goodwill.  From June 2003 through June 2004 the
Canadian  subsidiary had operated at a loss. At the time of the evaluation,  the
Canadian subsidiary was projecting a loss through the end of 2004 and its return
to profitability was uncertain.  Based upon its evaluation, the Company recorded
an impairment of the related goodwill resulting in a non-cash charge of $712,000
for 2004.

Capitalized Internal Use Software Development Costs

Historically,  the Company has capitalized costs of computer software  developed
for internal use. Some of the costs  capitalized  were  associated  with certain
clients  to whom the  Company no longer  provides  merchandising  and  marketing
services.  As a result of the loss of these  clients,  the  Company  recorded an
impairment charge for the net book value of internally  developed software costs
of approximately $442,000 for 2004.

Other Assets and Liabilities

The Company had approximately $2.1 million accrued for restructure costs and PIA
Acquisition  related  costs.  As a result of the PIA  business  impairment,  the
Company  evaluated  these  accruals  and  determined  that only $0.4 million was
required.  The Company applied the $1.7 million ($1.4 million net of tax effect)
reduction in PIA related acquisition  liabilities against the remaining goodwill
thereby reducing the impairment charges recognized for 2004.

In addition to the above, the Company has recorded an impairment of other assets
totaling $68,000 for 2004.




                                      F-18
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

3. Impairment Charges (continued)

The  above  net  impairment  of  $8.1  million  is  shown  in  the  accompanying
consolidated statement of operations in 2004 as "Impairment charges".

In connection  with the above  Impairment  Charges,  the Company also recorded a
$750,000  valuation  allowance related to deferred tax assets resulting from PIA
net operating loss carryforwards recorded as a result of the PIA Acquisition.

4. Supplemental Balance Sheet Information

Accounts receivable, net, consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                       ----------------------------------
                                                                             2005              2004
                                                                       ----------------------------------
<S>                                                                    <C>              <C>
 Trade                                                                 $      7,666     $      8,178
 Unbilled                                                                     3,461            3,600
 Non-trade                                                                      145              290
                                                                       ----------------------------------
                                                                             11,272           12,068
 Less:
 Allowance for doubtful accounts                                               (616)            (761)
                                                                       ----------------------------------
                                                                       $     10,656     $     11,307
                                                                       ==================================


Property and equipment consists of the following (in thousands):
<CAPTION>
                                                                                  December 31,
                                                                       ----------------------------------
                                                                             2005              2004
                                                                       ----------------------------------
<S>                                                                    <C>              <C>
  Equipment                                                            $      5,202     $      5,397
  Furniture and fixtures                                                        570              547
  Leasehold improvements                                                        568              138
  Capitalized software development costs                                      1,228            1,629
                                                                       ----------------------------------
                                                                              7,568            7,711
  Less accumulated depreciation and amortization                              6,437            6,175
                                                                       ----------------------------------
                                                                       $      1,131     $      1,536
                                                                       ==================================


<CAPTION>
                                                                                  December 31,
                                                                       ----------------------------------
   Accrued expenses and other current liabilities (in thousands):             2005              2004
                                                                       ----------------------------------

<S>                                                                     <C>              <C>
   Merger related payables                                              $          -     $        450
   Accrued medical expenses                                                      136              225
   Taxes payable                                                                 533              345
   Accrued accounting and legal expenses                                         286              192
   Accrued salaries payable                                                      937              328
   Other                                                                         747              851
                                                                       ----------------------------------
                                                                        $      2,639     $      2,391
                                                                       ==================================

</TABLE>



                                      F-19
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


5. Lines of Credit and Subsequent Events

In January 2003, the Company 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  provided a $15.0
million  revolving  credit facility that matured on January 23, 2006. The Credit
Facility  allowed  the  Company  to  borrow  up to $15.0  million  based  upon a
borrowing  base  formula  as  defined  in  the  agreement  (principally  85%  of
"eligible"  accounts  receivable).  On May 17,  2004,  the Credit  Facility  was
amended to among other things,  reduce the revolving  credit facility from $15.0
million to $10.0 million, change the interest rate and increase reserves against
collateral. The amendment provides for interest to be charged at a rate based in
part upon the earnings before interest,  taxes,  depreciation and  amortization.
The average  interest rate for 2005 was 6.9%.  At December 31, 2005,  the Credit
Facility bears interest at Webster's "Alternative Base Rate" plus 0.75% (a total
of 8.0% per annum),  or LIBOR plus 3.25%.  The Credit Facility is secured by all
of the assets of the Company and its domestic  subsidiaries.  In connection with
the May 17,  2004,  amendment,  Mr.  Robert  Brown,  a Director,  the  Chairman,
President and Chief Executive Officer and a major stockholder of the Company and
Mr. William Bartels,  a Director,  the Vice Chairman and a major  stockholder of
the Company,  provided personal  guarantees totaling $1.0 million to Webster. On
August 20, 2004, the Credit  Facility was further amended in connection with the
waiver of certain covenant  violations (see below).  The amendment,  among other
things,  reduced  the  revolving  credit  facility  from  $10.0  million to $7.0
million,  changed the covenant  compliance  testing for certain  covenants  from
quarterly to monthly and reduced  certain  advance rates.  On November 15, 2004,
the Credit Facility was further amended to delete any required Minimum Net Worth
and minimum  Fixed  Charge  Coverage  Ratio  covenant  levels for the year ended
December 31, 2004.  Those  amendments did not change the future  covenant levels
for 2005.

In January  2006,  the Credit  Facility  was  amended to extend its  maturity to
January 2009 and to reset the Fixed Charge  Coverage Ratio and Minimum Net Worth
covenants.  It further stipulated that should the Company meet its covenants for
the year ended December 31, 2005, which it has, Webster would release Mr. Robert
Brown  and Mr.  William  Bartels  from  their  obligation  to  provide  personal
guarantees totaling $1.0 million and certain discretionary  reserves. The Credit
Facility also limits certain expenditures including, but not limited to, capital
expenditures and other investments.

The Company was not in violation of any covenants at December 31, 2005, and does
not expect to be in violation at future measurement dates. However, there can be
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.

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 December 31,
2005 and 2004, 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 revolving  loan  balances  outstanding  under the Credit  Facility were $2.4
million  and  $4.1  million  at  December  31,  2005,  and  December  31,  2004,
respectively. There were letters of credit outstanding under the Credit Facility
of $0.6 million and $0.7  million at December  31, 2005,  and December 31, 2004,
respectively.  As of December 31, 2005,  the SPAR Group had unused  availability
under the Credit  Facility of $3.2  million out of the  remaining  maximum  $4.0
million  unused  revolving  line of credit after  reducing the borrowing base by
outstanding loans and letters of credit.




                                      F-20
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

5.  Lines of Credit and Subsequent Events (continued)

In 2001, the Japanese joint venture SPAR FM Japan, Inc. entered into a revolving
line of credit  arrangement  with  Japanese  banks for 300  million  yen or $2.7
million  (based upon the exchange rate at September 30, 2005).  At September 30,
2005,  SPAR FM Japan,  Inc. had 70 million yen or  approximately  $600,000  loan
balance outstanding under the line of credit. The average interest rate for 2005
and the interest rate at September 30, 2005 were 1.4%.

6. Income Taxes

The provision for income tax expense from continuing operations is summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                        December 31,
                                  ----------------------------------------------------
                                       2005              2004                2003
                                  -------------      -------------       -------------

<S>                               <C>                <C>                 <C>
    Current                       $        242       $        103        $        189
    Deferred                                 -                750                (131)
                                  -------------      -------------       -------------
                                  $        242       $        853        $         58
                                  =============      =============       =============
</TABLE>

The provision for income taxes from continuing operations is different from that
which would be obtained by applying  the  statutory  federal  income tax rate to
income before income taxes. The items causing this difference are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                       December 31,
                                                   ---------------------------------------------------
                                                       2005                2004                2003
                                                   -----------         -----------         -----------

<S>                                                <C>                 <C>                 <C>
   Provision (benefit) for income taxes at
     federal statutory rate, net of foreign tax    $      334          $   (3,911)         $      (77)
   State income taxes, net of federal benefit             153                 117                  95
   Permanent differences                                   14               1,613                  41
   Change in valuation allowance                         (349)              3,013                   -
   International tax provisions                            71                   -                   -
   Other                                                   19                  21                  (1)
                                                   -----------         -----------         -----------
   Provision for income taxes                      $      242          $      853          $       58
                                                   ===========         ===========         ===========
</TABLE>



                                      F-21
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


6. Income Taxes (continue)

Deferred taxes consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                       ------------------------------
                                                                             2005              2004
                                                                       ------------------------------
<S>                                                                    <C>              <C>
    Deferred tax assets:
      Net operating loss carryforwards                                 $      5,405     $      5,648
      Restructuring                                                              37              266
      Deferred revenue                                                          536              384
      SIM reserve against loan commitment                                       147              135
      Allowance for doubtful accounts and other receivable                      233              288
      Other                                                                      61              455
      Valuation allowance                                                    (6,208)          (6,557)
                                                                       ------------------------------
    Total deferred tax assets                                                   211              619

    Deferred tax liabilities:
      Capitalized software development costs                                    211              619
                                                                       ------------------------------
    Total deferred tax liabilities                                              211              619
                                                                       ------------------------------
    Net deferred tax assets                                            $          -     $          -
                                                                       ==============================
</TABLE>

At December 31, 2005, the Company has net operating loss carryforwards (NOLs) of
$8.2 million,  related to the PIA Acquisition available to reduce future federal
taxable  income.  The $8.2 million PIA related net operating loss  carryforwards
begin to expire in the year  2012.  Section  382 of the  Internal  Revenue  Code
restricts  the  annual  utilization  of the NOLs  incurred  prior to a change in
ownership.  Such a change in ownership had occurred in 1999, thereby restricting
the NOL's prior to such date available to the Company to approximately  $657,500
per year. In addition, the Company has NOLs related to its prior losses totaling
$6.0 million of which $1.3 million  expires in 2012 and $4.7 million  expires in
2023.

As a result of the loss of several significant clients, 2004 losses and the lack
of certainty of  continued  profitability  in 2005,  the Company  established  a
valuation  allowance  equal to the total of its net  deferred tax assets of $6.2
million.

The  Company  does  not  provide   currently  for  U.S.   income  taxes  on  the
undistributed  earnings of its foreign  subsidiaries since, at the present time,
management expects any earnings to be reinvested in the foreign subsidiaries and
not distributed.




                                      F-22
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


7. Commitments and Contingencies

Lease Commitments

The Company leases  equipment and certain office space in several cities,  under
non-cancelable operating lease agreements. Certain leases require the Company to
pay its share of any increases in operating expenses and real estate taxes. Rent
expense was approximately $0.9 million, $1.0 million, and $0.9 million for 2005,
2004, and 2003,  respectively.  At December 31, 2005, future minimum commitments
under  all  non-cancelable  operating  lease  arrangements  are as  follows  (in
thousands):

                             2006      $      1,086
                             2007               524
                             2008               245
                             2009                71
                             2010                61
                                       ------------
                            Total      $      1,987
                                       ============
International Commitments

The  Company's  international  model  is to  partner  with  local  merchandising
companies  and combine  their  knowledge of the local market with the  Company's
proprietary software and expertise in the merchandising  business.  In 2001, the
Company established its first joint venture and has continued this strategy.  As
of this filing,  the Company is currently  operating in Japan,  Canada,  Turkey,
South Africa,  India, Romania and China. In 2005, the Company also announced the
establishment of a joint venture subsidiary in Lithuania,  which is projected to
begin operations in April of 2006.

Certain of these joint  ventures and joint venture  subsidiaries  are marginally
profitable  while others are  operating at a loss.  None of these  entities have
excess  cash  reserves.  In the event of  continued  losses,  the Company may be
required to provide  additional  cash  infusions  into these joint  ventures and
joint venture subsidiaries.

Legal Matters

Safeway Inc.  ("Safeway") filed a Complaint  against the PIA Merchandising  Co.,
Inc. ("PIA Co."),  a wholly owned  subsidiary of SGRP, and Pivotal Sales Company
("Pivotal"),  a wholly owned subsidiary of PIA Co., and SGRP in Alameda Superior
Court, case no. 2001028498 on October 24, 2001, and has subsequently amended it.
Safeway  alleges  causes of action for breach of contract  and breach of implied
contract.  Safeway has most recently  alleged  monetary damages in the principal
sum of  $3,000,000  and alleged  interest of  $1,500,000  and has also  demanded
unspecified costs. 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 them against  Safeway for breach of  contract,  interference
with economic relationship,  unfair trade practices and unjust enrichment and is
seeking damages and injunctive relief. Mediation between the parties occurred in
2004,  but did not  result  in a  settlement.  PIA  Co.,  Pivotal  and  SGRP are
vigorously defending against Safeway's  allegations.  It is not possible at this
time to determine the  likelihood of the outcome of this  lawsuit.  However,  if
Safeway  prevails  respecting its  allegations,  and PIA Co. and Pivotal lose on
their cross-claims and counterclaims,  that result could have a material adverse
effect on the Company. The Company anticipates that this matter will be resolved
in 2006.



                                      F-23
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

7. Commitments and Contingencies (continued)

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.

8. Treasury Stock

The Company  initiated a share  repurchase  program in 2002,  which  allowed for
repurchase of up to 100,000 shares.  In 2003, the Board of Directors  authorized
the repurchase of an additional  122,000 shares  increasing the total to 222,000
shares.

The following  table  summarizes  the Company's  treasury stock activity for the
years 2005, 2004, and 2003.

                                                 Quantity           Amount
                                              --------------------------------
    Treasury Stock, January 1, 2003                 9,783     $     30,073
      Purchases                                   211,315          923,714
      Used to fulfill:
          Employee Stock Purchases                 (9,848)         (30,297)
          Options Exercised                      (135,194)        (539,383)
                                              --------------------------------

    Treasury Stock, December 31, 2003              76,056          384,107
      Used to fulfill:
          Options Exercised                       (54,148)        (276,007)
                                              --------------------------------

    Treasury Stock, December 31, 2004              21,908          108,100
      Used to fulfill:
          Options Exercised                       (21,654)        (106,888)
                                              --------------------------------
    Treasury Stock, December 31, 2005                 254     $      1,212
                                              ================================

9. Employee Benefits

Stock Purchase Plans

The Company has Employee and  Consultant  Stock Purchase Plans (the "SP Plans").
The SP Plans allow  employees and  consultants of the Company to purchase common
stock without having to pay any commissions on the purchases. On August 8, 2002,
the Company's Board of Directors  approved a 15% discount for employee purchases
and recommended  that its affiliates (see Note 10 - Related-Party  Transactions)
approve a 15% cash bonus for affiliate consultant purchases.  The maximum amount
that any employee or  consultant  can  contribute to the SP Plans per quarter is
$6,250,  and the total  number of shares  reserved by the  Company for  purchase
under the SP Plans is 500,000.

Shares  purchased by employees and  consultants  under the SP Plans were 28,065,
43,023, and 22,561 for 2005, 2004, and 2003, respectively.

The Company's  expense  resulting from the 15% discount offered to employees and
consultants was approximately $5,000,  $10,000, and $11,000 for the years ending
December 31, 2005, 2004, and 2003, respectively.



                                      F-24
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

9. Employee Benefits (continued)

Retirement/Pension Plans

The Company has a 401(k) Profit Sharing Plan covering substantially all eligible
employees.  Employer  contributions were  approximately  $27,000,  $97,000,  and
$87,000 for 2005, 2004, and 2003, respectively.

In 2003,  certain of the Company's  employees  were covered by  union-sponsored,
collectively bargained, multi-employer pension plans. Pension expense related to
these plans was  approximately  $32,000 for the year ended  December  31,  2003.
There were no employees under union contract in 2005 and 2004.

10. Related-Party Transactions

Mr. Robert G. Brown,  a Director,  the Chairman,  President and Chief  Executive
Officer and a major stockholder of SGRP, and Mr. William H. Bartels,  a Director
and the Vice  Chairman  of the  Company  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   merchandising
specialists in the field (through its  independent  contractor  field force) and
approximately  86%  of  the  Company's  field  management  at a  total  cost  of
approximately  $20.0 million,  $24.4 million,  and $36.0 million for 2005, 2004,
and 2003, 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  5,600 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
approximately  44 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,  except  that for 2004 SMSI
agreed to concessions  that reduced the premium paid by  approximately  $640,000
for 2004.  Total net premiums  (4% of SMS and SMSI costs less 2004  concessions)
paid  to SMS  and  SMSI  for  services  rendered  were  approximately  $770,000,
$320,000, and $1,350,000 for 2005, 2004, and 2003, 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,  Messrs.  Brown  and  Bartels  benefit  from  any  income  of such
companies allocated to them.

SIT provided  substantially all of the Internet computer programming services to
the  Company  at  a  total  cost  of  approximately  $771,000,  $1,170,000,  and
$1,610,000 for 2005, 2004, and 2003,  respectively.  SIT provided  approximately
25,000,  34,000, and 47,000 hours of Internet computer  programming  services to
the Company for 2005, 2004, and 2003, respectively.  Pursuant to the Amended and
Restated  Programming  and Support  Agreement  dated as of January 1, 2004,  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 $30.34,  $34.71,  and $34.24 for
2005, 2004, and 2003, 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 2005.  However,  since SIT is a "Subchapter  S"  corporation,
Messrs.  Brown and Bartels benefit from any income of such company  allocated to
them.


                                      F-25
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

10. Related-Party Transactions (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").  In May
2005,  the  Company  and SMS amended  the lease  agreements  reducing  the total
monthly   payment.   Each  lease,   as   amended,   has  a  36  month  term  and
representations,  covenants and defaults customary for the leasing industry. The
SMF lease is for  handheld  computers to be used by field  merchandisers  in the
performance of various merchandising and marketing services in the United States
and has a monthly payment of $17,891.  These handheld  computers had an original
purchase price of $632,200. The SPAR Canada lease is also for handheld computers
to be used by field  merchandisers  in the performance of various  merchandising
and  marketing  services  in Canada and has a monthly  payment of $2,972.  These
handheld  computers  had an original  purchase  price of  $105,000.  The monthly
payments, as amended, are based upon a lease factor of 2.83%.

In March  2005,  SMF  entered  into an  additional  36 month  lease with SMS for
handheld computers. The lease factor is 2.83% and the monthly payment is $2,341.
These handheld computers had an original purchase price of $82,727.

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):

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                          --------------------------------------------
                                                               2005           2004             2003
                                                          --------------------------------------------
<S>                                                       <C>           <C>              <C>
    Services provided by affiliates:
      Independent contractor services (SMS)               $     16,333  $     19,944     $     28,411
                                                          ============================================

      Field management services (SMSI)                    $      3,704  $      4,502     $      7,600
                                                          ============================================

      Handheld computer leases (SMS)                      $        266  $         25     $          -
                                                          ============================================
      Internet and software program
      consulting services (SIT)                           $        771  $       1,172    $      1,607
                                                          ============================================


    Accrued expenses due to affiliates (in thousands):              December 31,
                                                               2005            2004
                                                          ---------------------------------

    SPAR Marketing Services, Inc.                         $      1,190  $        987
                                                          =================================

</TABLE>
In addition to the above, through the services of Affinity Insurance,  Ltd., the
Company  purchased  insurance  coverage for its casualty and property  insurance
risk for  approximately  $1.1 million for each of the three years ended December
31, 2005, 2004, and 2003. The Company's CEO and Vice Chairman own, through SMSI,
a minority (less than 5%) equity interest in Affinity.



                                      F-26
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005
11. Stock Options

SGRP has four stock option plans: the 2000 Stock Option Plan ("2000 Plan"),  the
Special  Purpose Stock Option Plan  ("Special  Purpose  Plan"),  the Amended and
Restated  1995 Stock  Option Plan  ("1995  Plan") and the 1995  Director's  Plan
("Director's Plan").

On December 4, 2000,  SGRP  adopted the 2000 Plan as the  successor  to the 1995
Plan and the Director's  Plan with respect to all new options  issued.  The 2000
Plan provides for the granting of either incentive or nonqualified stock options
to  specified  employees,  consultants,  and  directors  of the  Company for the
purchase of up to 3,600,000 (less those options still outstanding under the 1995
Plan or exercised after December 4, 2000 under the 1995 Plan).  The options have
a term of ten years,  except in the case of incentive  stock options  granted to
greater  than 10%  stockholders  for whom the term is five years.  The  exercise
price of  nonqualified  stock  options must be equal to at least 85% of the fair
market value of SGRP's common stock at the date of grant (although typically the
options are issued at 100% of the fair market value),  and the exercise price of
incentive  stock  options  must be equal to at least  the fair  market  value of
SGRP's  common  stock at the date of grant.  During  2005,  options to  purchase
1,334,973 shares of SGRP's common stock were granted, options to purchase 57,625
shares of the  Company's  common  stock were  exercised  and options to purchase
440,975 shares of SGRP's stock were voluntarily  surrendered and cancelled under
this plan. At December 31, 2005,  options to purchase 2,088,256 shares of SGRP's
common stock remain  outstanding under this plan and options to purchase 724,221
shares of SGRP's common stock were available for grant under this plan.

On July 8, 1999, in connection  with the merger,  SGRP  established  the Special
Purpose Plan of PIA Merchandising  Services, Inc. to provide for the issuance of
substitute  options  to the  holders  of  outstanding  options  granted  by SPAR
Acquisition,  Inc. There were 134,114 options granted at $0.01 per share.  Since
July 8, 1999, SGRP has not granted any new options under this plan. During 2005,
no options to purchase shares of the Company's common stock were exercised under
this plan.  At December  31,  2005,  options to purchase  4,750 shares of SGRP's
common stock remain outstanding under this plan.

The 1995 Plan  provided  for the granting of either  incentive  or  nonqualified
stock options to specific employees,  consultants,  and directors of the Company
for the purchase of up to 3,500,000  shares of SGRP's common stock.  The options
had a term of ten  years  from  the  date of  issuance,  except  in the  case of
incentive stock options granted to greater than 10%  stockholders  for which the
term was five years. The exercise price of nonqualified  stock options must have
been  equal to at least 85% of the fair  market  value of the  Company's  common
stock at the date of grant.  Since  2000,  the  Company  has not granted any new
options under this plan.  During 2005, 250 options to purchase  shares of SGRP's
common stock were  exercised.  At December 31, 2005,  options to purchase 14,375
shares of the Company's  common stock remain  outstanding  under this plan.  The
1995  Plan was  superseded  by the 2000  Plan with  respect  to all new  options
issued.

The  Director's  Plan was a stock  option plan for  non-employee  directors  and
provided for the purchase of up to 120,000 shares of SGRP's common stock.  Since
2000,  SGRP has not granted any new options  under this plan.  During  2005,  no
options to purchase  shares of SGRP's  common  stock were  exercised  under this
plan. At December 31, 2005,  20,000 options to purchase  shares of SGRP's common
stock  remained  outstanding  under  this  plan.  The  Director's  Plan has been
replaced by the 2000 Plan with respect to all new options issued.






                                      F-27
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

11. Stock Options (continued)

The following table summarizes stock option activity under SGRP's plans:

<TABLE>
<CAPTION>
                                                                                        Weighted Average
                                                                          Shares         Exercise Price
                                                                     -------------------------------------
<S>                                                                      <C>                  <C>
    Options outstanding, January 1, 2003                                 2,098,181            $  1.52

    Granted                                                                401,020            $  3.51
    Exercised                                                             (143,641)              1.17
    Canceled or expired                                                    (92,750)              2.38
                                                                     ---------------
    Options outstanding, December 31, 2003                               2,262,810            $  1.85

    Granted                                                                476,417            $  1.47
    Exercised                                                              (75,802)              0.49
    Canceled or expired                                                 (1,372,167)              6.18
                                                                     ---------------
    Options outstanding, December 31, 2004                               1,291,258            $  1.66

    Granted                                                              1,334,973            $  1.32
    Exercised                                                              (57,875)              1.20
    Canceled or expired                                                   (440,975)              1.30
                                                                     ---------------
    Options outstanding, December 31, 2005                               2,127,381            $  1.53

    Option price range at end of year                                          $0.01 to $14.00
</TABLE>


<TABLE>
<CAPTION>
                                                               2005            2004             2003
                                                            -----------------------------------------
<S>                                                         <C>             <C>              <C>
    Grant Date weighted average fair value of
      options granted during the year                       $   1.32        $   1.43         $   2.33
</TABLE>

The following table summarizes  information  about stock options  outstanding at
December 31, 2005:

<TABLE>
<CAPTION>
                                Options Outstanding                                Options Exercisable
                       ----------------------------------------             -----------------------------
                                             Weighted        Weighted           Number         Weighted
                             Number           Average        Average        Exercisable at     Average
        Range of         Outstanding at     Remaining        Exercise        December 31,      Exercise
     Exercise Prices    December 31, 2005 Contractual Life    Price             2005            Price
     ---------------    ----------------- ----------------   ---------      --------------     ----------
<S>            <C>             <C>          <C>              <C>                  <C>           <C>
     Less than $1.00           293,536      7.3 years        $  0.74              242,862       $  0.71
      $1.01 - $2.00          1,569,540      7.8 years           1.32              751,549          1.32
      $2.01 - $4.00            222,805      7.8 years           2.66              132,374          2.65
   Greater than $4.00           41,500      4.1 years           9.37               41,252          9.40
                        ----------------                                    --------------
   Total                     2,127,381                                          1,168,037
                        ================                                    ==============
</TABLE>


                                      F-28
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

11.  Stock Options (continued)

In 2005,  the Company  recorded an expense of  approximately  $70,000  under the
provision of SFAS No. 123 dealing with stock option grants to non-employees  for
stock  option  grants  that  were  awarded  to the  employees  of the  Company's
affiliates.  The Company  determines  the fair value of the  options  granted to
non-employees  using the  Black-Scholes  valuation model and expenses that value
over the service period. Until an option is vested, 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.

12. Geographic Data

A summary of the Company's net revenue,  operating  income (loss) and long lived
assets  by  geographic  area as of and for the year  ended  December  31,  is as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                             ----------------------------------------------
                                                                  2005           2004           2003
                                                             ----------------------------------------------
    Net revenue:
    ------------
<S>                                                          <C>            <C>             <C>
    United States                                            $     36,701   $     43,163    $    64,305
    International                                                  14,885          8,207            554
                                                             ----------------------------------------------
    Total net revenue                                        $     51,586   $     51,370    $    64,859
                                                             ==============================================




<CAPTION>
                                                                    Year Months Ended December 31,
                                                             ----------------------------------------------
                                                                  2005           2004           2003
                                                             ----------------------------------------------
    Operating income (loss):
    ------------------------
<S>                                                          <C>            <C>                <C>
    United States                                            $         577  $    (10,559)      $    893
    International                                                      478        (1,477)          (868)
                                                             ----------------------------------------------
    Total operating income (loss)                            $       1,055  $    (12,036)      $     25
                                                             ==============================================


<CAPTION>

                                                                                 December 31,
                                                                     -------------------------------------
     Long lived assets:                                                     2005              2004
     ------------------                                              -------------------------------------

<S>                                                                       <C>               <C>
     United States                                                        $   1,799         $   2,484
     International                                                              346               486
                                                                     -------------------------------------
     Total long lived assets                                              $   2,145         $   2,970
                                                                     =====================================
</TABLE>


International  revenues disclosed above were based upon revenues reported by the
Company's  100% owned  foreign  subsidiary,  its 51% owned foreign joint venture
subsidiaries  and its 50% owned  foreign  joint  ventures.  The joint venture in
Japan  contributed 11% and 5% of the consolidated net revenue of the Company for
the twelve  months  ended  December 31, 2005,  and 2004,  respectively.  For the
twelve  months  ended  December 31, 2005,  and 2004,  the wholly owned  Canadian
subsidiary contributed 8% and 3% respectively of the consolidated net revenue of
the Company.  The joint venture subsidiary in South Africa contributed 7% and 8%
to the consolidated net revenue of the Company for the twelve months ended



                                      F-29
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

12. Geographic Data (continued)

December 31, 2005, and 2004,  respectively.  Each of the remaining foreign joint
venture  subsidiaries  contributed  less than 5% to the consolidated net revenue
for the years ending December 31, 2005, and 2004.

13. Restructuring Charges

In  1999,  in  connection  with  the PIA  Acquisition,  the  Company's  Board of
Directors  approved a plan to  restructure  the operations of the PIA Companies.
Restructuring  costs were composed of committed  costs required to integrate the
SPAR Companies' and the PIA Companies' field organizations and the consolidation
of administrative  functions to achieve beneficial  synergies and costs savings.
At  June  30,  2004,  the  Company  evaluated  its  restructuring  reserves  and
determined  that certain  restructuring  reserves were no longer  necessary (see
Note 3 - Impairment Charges).

In July 2004,  as a result of the loss of several  significant  clients  and the
pending sale of the Company's largest client, the Company entered into a plan to
restructure  and reduce its field force,  as well as, its  selling,  general and
administrative   cost  structure  to  reflect  its  lower  revenue  base.  These
reductions  consist of  personnel  reductions,  personnel  related  expenses and
office  closings.  As a result of the July  restructuring,  the Company expensed
approximately  $480,000 in the quarter ending September 30, 2004,  approximately
$230,000 for  severance  benefits and  approximately  $250,000 for office leases
that  the  Company  ceased  using.   At  December  31,  2005,  the  Company  had
approximately $99,000 reserved for future restructure payments that are expected
to be paid in 2006.  The Company  records  restructure  expenses in the selling,
general and administrative section of its consolidated operating statements.

The following table displays a roll forward of the liabilities for restructuring
charges from January 1, 2003 to December 31, 2005 (in thousands):

<TABLE>
<CAPTION>
                                                                 Equipment         Office
                                                 Employee          Lease           Lease
                                                Separation      Settlements      Settlements      Total
                                              --------------- ---------------- ---------------- ----------

<S>                                           <C>             <C>              <C>              <C>
January 1, 2003 balance                       $         -     $      1,169     $        420     $   1,589

Adjustments in restructuring charges                    -               98             (185)          (87)
2003 payments                                           -             (817)               -          (817)
                                              ------------    -------------    -------------    ----------
December 31, 2003, balance                    $         -     $        450     $        235     $     685

Impairment charge (see Note 3 - Impairment
Charges)                                                -             (450)            (235)         (685)
2004 restructure plan                                 230                -              250           480
2004 payments                                        (230)               -                -          (230)
                                              ------------    -------------    -------------    ----------
December 31, 2004, balance                    $         -     $          -     $        250     $     250

2005 payments                                           -                -             (151)         (151)
                                              ------------    -------------    -------------    ----------
December 31, 2005, balance                    $         -     $          -     $         99     $      99
                                              ============    =============    =============    ==========
</TABLE>



                                      F-30
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005


14. Net Income (Loss) Per Share

The following table sets forth the  computations of basic and diluted net income
(loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                         --------------------------------------------------
                                                               2005            2004             2003
                                                         --------------------------------------------------

<S>                                                          <C>         <C>                 <C>
    Numerator:
      Net income (loss)                                      $    878    $    (12,268)       $    (539)

    Denominator:
      Shares used in basic net income (loss) per share
        calculation                                            18,904          18,859           18,855
      Effect of diluted securities:
        Employee stock options                                    456               -                -
                                                         --------------------------------------------------
      Shares used in diluted net income (loss) per
         share calculations                                    19,360          18,859           18,855
                                                         ==================================================

    Basic and diluted net income (loss) per common
      share:                                                 $   0.05    $      (0.65)       $   (0.03)
</TABLE>

The  computation  of  dilutive  loss  per  share  for  2004  and  2003  excluded
anti-dilutive stock options to purchase approximately 430,000 and 657,000 shares
as of December 31, 2004 and 2003, respectively.

15. Quarterly Financial Data (Unaudited)

Quarterly data for 2005 and 2004 was as follows (in thousands,  except  earnings
per share data):

<TABLE>
<CAPTION>
                                                                        Quarter
                                              -------------------------------------------------------------
                                                   First         Second          Third         Fourth
                                              =============================================================

<S>                                               <C>             <C>           <C>            <C>
    Year Ended December 31, 2005:
    Net revenues                                 $  14,521      $  12,800       $   11,060      $  13,205
    Gross profit                                     5,870          4,631            3,466          5,680
                                              -------------------------------------------------------------
    Net income (loss)                            $   1,169      $     116       $   (1,140)     $     733
                                              =============================================================

    Basic/diluted net income (loss) per
      common share                               $    0.06      $    0.01       $    (0.06)     $    0.04
                                              =============================================================

    Year Ended December 31, 2004:
    Net revenues                                 $  12,803      $  11,932       $   10,683      $  15,952
    Gross profit                                     4,109          3,115            3,720          6,782
                                              -------------------------------------------------------------
    Net (loss) income                            $    (790)     $ (12,177)      $      210      $     489
                                              =============================================================

    Basic/diluted net (loss) income per
      common share                               $   (0.04)     $   (0.65)      $     0.01      $    0.03
                                              =============================================================
</TABLE>

2005
Included  in the net  income for the  fourth  quarter  of 2005 is  approximately
$400,000 of other income resulting form the release of a reserve associated with
the PIA Acquisition of July 1999.



                                      F-31
<PAGE>


                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2005

14. Net Income (Loss) Per Share (continued)

2004
The lost business and subsequent impairment charges were the primary factors for
the losses incurred in the first two quarters of 2004.  However,  primarily as a
result of the restructure  plan initiated in the third quarter,  the Company was
profitable in the second half of 2004.



                                      F-32
<PAGE>



                        SPAR Group, Inc. and Subsidiaries

                 Schedule II - Valuation and Qualifying Accounts

                                 (In thousands)

<TABLE>
<CAPTION>
                                              Balance at
                                             Beginning of   Charged to Costs                  Balance at End
                                                Period        and Expenses       Deductions      of Period
                                           -----------------------------------------------------------------
<S>                                             <C>                   <C>           <C> <C>    <C>
        Year ended December 31, 2005:
          Deducted from asset accounts:
             Allowance for doubtful
               accounts                         $   761               38            183 (1)    $   616

        Year ended December 31, 2004:
          Deducted from asset accounts:
             Allowance for doubtful
               accounts                         $   515              366            120 (1)    $   761
             Sales allowances                   $   448                -            448        $     -

        Year ended December 31, 2003:
          Deducted from asset accounts:
             Allowance for doubtful
               accounts                         $   301              377            163 (1)    $   515
             Sales allowances                   $     -              448              -        $   448
</TABLE>


(1) Uncollectible accounts written off, net of recoveries





                                      F-33