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, 2003

                                       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)

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

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

       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 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 an accelerated filer
(as defined in Exchange Rule 12b-2 of the 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, 2003, based on the closing price
of the Common Stock as reported by the Nasdaq  National Market on such date, was
approximately $20,892,441.

         The number of shares of the Registrant's Common Stock outstanding as of
December 31, 2003, was 18,858,972 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

<PAGE>

                                        SPAR GROUP, INC.


                                   ANNUAL REPORT ON FORM 10-K

<TABLE>
<CAPTION>
                                              INDEX

                                     PART I
                                                                                             Page
<S>             <C>                                                                         <C>
 Item 1.        Business                                                                       2
 Item 2.        Properties                                                                    14
 Item 3.        Legal Proceedings                                                             15
 Item 4.        Submission of Matters to a Vote of Security Holders                           15

                                             PART II

 Item 5.        Market for Registrant's Common Equity and Related Shareholder Matters         16
 Item 6.        Selected Financial Data                                                       16
 Item 7.        Management's  Discussion and Analysis of Financial Condition and Results
                of Operations                                                                 19
 Item 7A.       Quantitative and Qualitative Disclosures about Market Risk                    27
 Item 8.        Financial Statements and Supplementary Data                                   27
 Item 9.        Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure                                                          27
 Item 9A.       Controls and Procedures                                                       27
                                            PART III

 Item 10.       Directors and Executive Officers of the Registrant                            28
 Item 11.       Executive Compensation and Other Information of SPAR Group, Inc.              30
 Item 12.       Security Ownership of Certain Beneficial Owners and Management                34
 Item 13.       Certain Relationships and Related Transactions                                35
 Item 14.       Principal Accountant Fees and Services                                        36

                                             Part IV
 Item 15.       Exhibits, Financial Statement Schedules and Reports on Form 8-K               37
                Signatures                                                                    39

</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,  INCLUDING,  IN
PARTICULAR AND WITHOUT LIMITATION,  THE STATEMENTS  CONTAINED IN THE DISCUSSIONS
UNDER THE  HEADINGS  "BUSINESS"  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  WHICH CONTAIN  CAUTIONARY
STATEMENTS  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  HEREIN 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 BY THE RISK FACTORS (SEE
ITEM 1 - CERTAIN RISK  FACTORS) AND OTHER  CAUTIONARY  STATEMENTS IN THIS ANNUAL
REPORT ON FORM 10-K. 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.


Item 1.  Business.

GENERAL

         SPAR Group, Inc., a Delaware corporation ("SGRP", and together with its
subsidiaries, the "SPAR Group" or the "Company"), is a supplier of merchandising
and  other   marketing   services   both   throughout   the  United  States  and
internationally.  The Company's  operations are divided into two divisions:  the
Merchandising   Services   Division   and  the   International   Division.   The
Merchandising  Services  Division  provides  merchandising   services,   product
demonstrations, product sampling, database marketing, teleservices and marketing
research to manufacturers and retailers with product  distribution  primarily in
mass  merchandisers,  drug chains and grocery stores in the United  States.  The
International   Division,   established   in  July  2000,   currently   provides
merchandising services in Japan, Canada and Turkey.

Continuing Operations

Merchandising Services Division

         The  Company  provides  nationwide  merchandising  and other  marketing
services to home entertainment,  PC software,  general  merchandise,  health and
beauty care,  consumer goods and food products companies in mass  merchandisers,
drug  chains  and retail  grocery  stores 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 multiple
manufacturers  primarily  under single or  multi-year  contracts or  agreements.
Services also include stand-alone large-scale  implementations such as new store
openings, new product launches,  special seasonal or promotional  merchandising,
focused  product support and product  recalls.  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,  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.  In 2003, the Company added in-store product  demonstration
and in-store product sampling services


                                       -2-
<PAGE>

to its merchandising service offerings. Marketing services consist of database
marketing, teleservices and marketing research.

         The Company's Merchandising Services Division consists of the following
wholly owned  subsidiaries,  (1) SPAR Marketing,  Inc.  ("SMI") (an intermediate
holding  company),  SPAR Marketing Force, Inc.  ("SMF"),  SPAR Marketing,  Inc.,
("SMNEV"),   SPAR/Burgoyne  Retail  Services,  Inc.  ("SBRS"),  and  SPAR,  Inc.
("SINC"")  (collectively,  the "SPAR Marketing  Companies"),  and SPAR All Store
Marketing Services, Inc. ("SASMS"), SPAR Megaforce, Inc. ("SMEGA") and SPAR Bert
Fife,  Inc.  ("SFIFE");  and (2) PIA  Merchandising,  Co., Inc.,  Pacific Indoor
Display d/b/a Retail Resources, Pivotal Sales Company and PIA Merchandising Ltd.
(collectively,  "PIA" or the "PIA Companies").  The SPAR Marketing Companies are
the original  predecessor  of the current  Company and were founded in 1967. The
PIA  Companies,  first  organized in 1943, are also a predecessor of the Company
and a supplier of in-store  merchandising services throughout the United States,
and were  deemed  "acquired"  by the SPAR  Marketing  Companies  for  accounting
purposes  pursuant to the Merger on July 8, 1999 (see Merger and  Restructuring,
below).

International Division

         In July 2000,  the  Company  established  its  International  Division,
through a wholly owned subsidiary,  SPAR Group  International,  Inc. ("SGI"), to
focus on expanding its merchandising  services business worldwide.  In May 2001,
the Company  entered into a joint venture with a large  Japanese  distributor to
provide merchandising  services in Japan. In June 2003, the Company expanded its
merchandising  services  into Canada.  In July 2003,  the Company  established a
joint venture  based in Istanbul to provide  merchandising  services  throughout
Turkey. The start-up joint venture is 51% owned by the Company.

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,  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 that was
established  in  March  2000  for  the  purpose  of  marketing  its  proprietary
Internet-based computer software.


INDUSTRY OVERVIEW

Merchandising Services Division

         According  to industry  estimates  over two  billion  dollars are spent
annually on domestic retail merchandising  services.  The merchandising 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
services  bring added value to retailers,  manufacturers  and other  businesses.
Retail merchandising 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,  providing in-store  demonstrations and product sampling,
and also include other services such as test market research,  mystery shopping,
teleservices, database marketing and promotion planning and analysis.

         The Company believes  merchandising  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 services in retail


                                       -3-
<PAGE>

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 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  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
and  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 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  Division
to cultivate  foreign  markets,  modify the necessary  systems and implement the
Company's  business  model  worldwide by expanding  its  merchandising  services
business off shore.  The Company  formed an  International  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  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 in Turkey.  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  offices  in  Greece  and  Australia  to  assist  in its
international  efforts.  The Company is actively pursuing expansion into various
other markets.


MERGER AND RESTRUCTURING

         On July 8, 1999,  SG  Acquisition,  Inc.,  a Nevada  corporation  ("PIA
Acquisition"),  a  wholly  owned  subsidiary  of the  Company,  then  named  PIA
Merchandising  Services,  Inc.  ("PIA  Delaware"),  merged  into and  with  SPAR
Acquisition,  Inc., a Nevada corporation ("SAI") (the "Merger"), pursuant to the
Agreement  and Plan of Merger  dated as of February  28,  1999,  as amended (the
"Merger  Agreement"),  by and among the Company and certain of the PIA Companies
and SPAR Marketing  Companies (among others). In connection with the Merger, PIA
Delaware changed its name to SPAR Group,  Inc. (which is referred to post-Merger
individually  as "SGRP" and together with its  subsidiaries as the "SPAR Group",
or the  "Company").  Although  the SPAR  Marketing  Companies  and  SPGI  became
subsidiaries  of PIA Delaware (now SGRP) as a result of this  "reverse"  Merger,
the  transaction  has been  accounted  for as a purchase  by the SPAR  Marketing
Companies of the PIA Companies,  with the books and records of the Company being
adjusted  to reflect  the  historical  operating  results of the SPAR  Marketing
Companies (together with certain intermediate holding companies and subsidiaries
formed after the merger, the "SPAR Companies").


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 marketing 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


                                       -4-
<PAGE>

with a high level of customer  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 customers,  as well as,  establishing  long-term  relationships with new
customers, 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 customers' 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
services  both in the United  States and  worldwide.  The Company  believes that
increasing  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  service businesses (which includes in-store product demonstration
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.

         In February 2003, the Company purchased the business and certain assets
of All  Store  Marketing  Services,  Inc.  ("ASMS"),  a Texas  corporation  that
specialized in providing in-store product demonstrations. In connection with the
acquisition of ASMS, the Company  entered into an employment  agreement with the
President of ASMS for a period of two years. In June 2003, the Company purchased
the  business  and certain  assets of Impulse  Marketing  Solutions  ("IMS"),  a
Canadian company that specialized in providing merchandising services in Canada.
In connection  with the purchase of the business and certain  assets of IMS, the
Company  entered into a consulting  agreement with a corporation  that furnishes
the services of the former  President and a second senior  officer of IMS, which
agreement expires on December 31, 2006. In July 2003, the Company entered into a
joint   venture   agreement   with  a  company  based  in  Istanbul  to  provide
retail-merchandising  services  throughout  Turkey.  The start-up  joint venture
limited  liability  company will  operate  under the English name of SPAR Turkey
Ltd. and is 51% owned by the Company.  In December of 2003, the Company acquired
the business and certain assets of NMI Acquisition Partners,  LLC (also known as
Megaforce),   a  Georgia   company  that   specialized  in  providing   in-store
merchandising  services  throughout  the United  States,  and employs the former
President  of  Megaforce.  In December  of 2003,  the  Company  entered  into an
agreement to purchase the business and certain assets of Bert Fife & Associates,
Inc., and related Companies  ("Fife"),  which specialized in providing  in-store
product demonstrations.  As part of the agreement the Company entered into a one
year consulting agreement with the President of Fife. The purchase was completed
in January 2004.  The effect of these  acquisitions  and joint  ventures was not
considered  material  to  the  Company's  financial  statements  or  results  of
operations for 2003.


         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 customers and revenue in the Merchandising Services Division.
At the  corporate  level,  the  Company  will  continue  to  streamline  certain
administrative functions, such as accounting and finance,  insurance,  strategic
marketing and legal support.

                                       -5-
<PAGE>

         Leverage and Improve Technology:

         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 customers, as well as, maximize the
speed  of  communication,   and  logistical   deployment  of  its  merchandising
specialists.  Industry sources indicate that customers are increasingly  relying
on  marketing  service  providers  to  supply  rapid,   value-added  information
regarding  the  results of  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 customers faster, respond
to  customers'  needs quickly and implement  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 customers and projects
in the United  States and in other  foreign  markets.  The Company also believes
that its proprietary  Internet-based  software technology gives it a competitive
advantage in the marketplace.


DESCRIPTION OF SERVICES

         The Company currently provides a broad array of merchandising and other
marketing  services on a  national,  regional  and local  basis to leading  home
entertainment,  general merchandise, consumer goods, food, and health and beauty
care  manufacturers  and retail  companies  through its  Merchandising  Services
Division.

         The Company  currently  operates  throughout  the United States serving
some of the nation's  leading  companies.  The Company  believes  its  full-line
capabilities  provide fully integrated  national  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
national  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.

Merchandising Services Division

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

         Syndicated Services

         Syndicated   services   consist   of   regularly   scheduled,    routed
merchandising   services   provided  at  the  retail  store  level  for  various
manufacturers.   These  services  are  performed  for  multiple   manufacturers,
including,  in some cases,  manufacturers 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


                                       -6-
<PAGE>

         Dedicated Services

         Dedicated  services  consist of  merchandising  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.

         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.

         Database  Marketing - Managing  proprietary  information to permit easy
         access,   analysis  and   manipulation  for  use  in  direct  marketing
         campaigns.

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

         Teleservices - Maintaining a  teleservices  center in its Auburn Hills,
         Michigan,  facility  that performs  inbound and outbound  telemarketing
         services,  including  those  on  behalf  of  certain  of the  Company's
         manufacturing clients.

         The Company believes that providing  merchandising  and other marketing
services timely,  accurately and efficiently,  as well as, delivering timely and
accurate  reports to its clients,  are two key  components  of its 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  and  reports  to  its   customers.   The  Company's
merchandising specialists use hand-held computers, personal computers and laptop
computers to report through the Internet and Interactive Voice Response (IVR) to
report  through its Auburn  Hills  teleservices  center the status of each store
they  service upon  completion.  Merchandising  specialists  may report on store
conditions  (e.g.  out of  stocks,  inventory,  display  placement)  or scan and
process new orders for products.  This  information is analyzed and displayed on
graphical  execution  maps,  which can be  accessed  by both the Company and its
customers via the Internet.  These  execution maps visually 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,  mileage,  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 customers, rapidly
respond to customers' needs and rapidly implement programs. The Company believes
that its technological  capabilities provide it with a competitive  advantage in
the marketplace.

                                       -7-
<PAGE>

International 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  Division
to cultivate  foreign  markets,  modify the necessary  systems and implement the
Company's  business  model  worldwide by expanding  its  merchandising  services
business off shore.  The Company  formed an  International  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  services to the Japanese  market.  In 2003, the
Company expanded its international  presence to Canada and Turkey by acquiring a
Canadian  merchandising  company and entering  into a start-up  joint venture in
Turkey.  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  offices  in Greece  and  Australia  to  assist  in its  international
efforts. The Company is actively pursuing expansion into various other markets.


SALES AND MARKETING

Merchandising Services Division

         The Company's sales efforts within its 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 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 discount and drug chains.

         The Company's  business  development  process  includes a due diligence
period to determine the objectives of the prospective  client, the work required
to be performed 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.

International Division

         The Company's  marketing efforts within its International  Division are
designed to develop new business internationally.  The Company maintains offices
in Greece and Australia to assist in these  efforts.  The  Division's  corporate
business   development  team  targets  specific  areas  and  develops  strategic
relationships to cultivate business for worldwide expansion.

                                       -8-
<PAGE>

CUSTOMERS

Merchandising Services Division

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

         o       Mass Merchandisers
         o       Drug
         o       Grocery
         o       Other retail trade groups (e.g. Discount, Home Centers)

         The  Company  also  provides  database,  research  and other  marketing
services to the automotive and consumer packaged goods industries.

         One customer,  a division of a major  retailer,  accounted for 30%, 26%
and 25% of the  Company's  net revenues  for the years ended  December 31, 2003,
2002 and 2001, respectively. This customer also accounted for approximately 30%,
43% and 24% of  accounts  receivable  at  December  31,  2003,  2002  and  2001,
respectively.  In late 2003, the customer's parent company announced that it was
exploring strategic  opportunities,  including the sale of this division. In the
event of a sale,  there can be no assurances that any purchaser will continue to
use the services of the Company. The loss of this business could have a material
adverse  effect on the Company's  business,  results of operations and financial
condition.

         A second  customer  accounted  for 10%, 11% and 9% of the Company's net
revenues for the years ended  December 31,  2003,  2002 and 2001,  respectively.
This second customer also accounted for  approximately 9%, 5% and 4% of accounts
receivable at December 31, 2003, 2002 and 2001, respectively.  As of March 2004,
the Company will no longer be providing  services for this customer.  Failure to
attract  new  large  customers  could  significantly  impede  the  growth of the
Company's revenues,  which could have a material adverse effect on the Company's
future business, results of operations and financial condition.

         In  addition,  approximately  17%,  24% and 31% of net revenues for the
years ended  December  31,  2003,  2002 and 2001,  respectively,  resulted  from
merchandising  services  performed for manufacturers and others at Kmart.  Kmart
filed for  protection  under the U.S.  Bankruptcy  Code in  January  of 2002 and
emerged from  bankruptcy in May of 2003.  During its time in  bankruptcy,  Kmart
closed a number of stores in the United  States.  While the Company's  customers
and the resultant  contractual  relationships are with various manufacturers and
not Kmart,  a significant  reduction of this  retailer's  stores or cessation of
this retailer's  business would negatively impact the Company.  As of August 31,
2003, one customer  discontinued  its  merchandising  programs with the Company.
Some,  but not all, of these  programs  were  performed  at Kmart  stores.  This
customer accounted for 10%, 17% and 12% of the business generated from Kmart for
the twelve-months ended December 31, 2003, 2002 and 2001, respectively.

International Division

         The Company  believes  that the potential  international  customers for
this  division  have similar  profiles to its  Merchandising  Services  Division
customers.  The Company is currently  operating in Japan, Canada and Turkey. The
Company is actively pursuing expansion to Europe and other markets.

COMPETITION

         The marketing services industry is highly competitive.

         Competition in the Company's  Merchandising  Services  Division  arises
from a number of large  enterprises,  many of which are  national in scope.  The
Company also competes with a large number of relatively  small  enterprises 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  and chain drug store  channels  of trade.  The
Company  also  believes it has the ability to execute  major  national  in-store
initiatives and develop and administer national retailer programs.  Finally, the
Company believes

                                       -9-
<PAGE>

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  and  consistently  over  a  wide
geographic area. See "Industry Overview" and "Competition".

EMPLOYEES

         As  of  December  31,  2003,  the  Company's   Merchandising   Services
Division's  labor  force  consisted  of  approximately  6,750  people,  of which
approximately 170 full-time  employees and approximately 500 part-time employees
are employed by the Company and approximately 6,000 independent  contractors and
approximately 80 full-time  employees are furnished  principally through related
parties, (see Item 13 - Certain Relationships and Related Transactions,  below),
of which 243 full-time  employees were engaged in operations and 13 were engaged
in sales. The Company considers its relations with its employees to be good. The
Company's  Merchandising  Services  Division  also  utilized the services of its
affiliate,  SPAR Management Services,  Inc. ("SMSI"),  to schedule and supervise
its  field  force,  including  its  own  part-time  employees  as  well  as  the
independent  contractors furnished by another affiliate SPAR Marketing Services,
Inc.  ("SMS")  (see Item 13 - Certain  Relationships  and Related  Transactions,
below).

         The Company currently  utilizes its existing  Merchandising  Division's
employees, as well as, the services of certain employees of its affiliates, SMSI
and SPAR Infotech, Inc. ("SIT"), to staff the International  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).

CERTAIN RISK FACTORS

         There are  various  risks  associated  with the  Company's  growth  and
operating strategy. Certain (but not all) of these risks are discussed below.

Dependency on Largest Customers

         One customer,  a division of a major  retailer,  accounted for 30%, 26%
and 25% of the  Company's  net revenues  for the years ended  December 31, 2003,
2002 and 2001, respectively. This customer also accounted for approximately 30%,
43% and 24% of  accounts  receivable  at  December  31,  2003,  2002  and  2001,
respectively.  In late 2003, the customer's parent company announced that it was
exploring strategic  opportunities  including the sale of this division.  In the
event of a sale,  there can be no assurances that any purchaser will continue to
use the services of the Company. The loss of this business could have a material
adverse  effect on the Company's  business,  results of operations and financial
condition.

         A second  customer  accounted  for 10%, 11% and 9% of the Company's net
revenues for the years ended  December 31,  2003,  2002 and 2001,  respectively.
This second customer also accounted for  approximately 9%, 5% and 4% of accounts
receivable at December 31, 2003, 2002 and 2001, respectively.  As of March 2004,
the Company will no longer be providing  services for this customer.  Failure to
attract  new  large  customers  could  significantly  impede  the  growth of the
Company's revenues,  which could have a material adverse effect on the Company's
future business, results of operations and financial condition.

         In  addition,  approximately  17%,  24% and 31% of net revenues for the
years ended  December  31,  2003,  2002 and 2001,  respectively,  resulted  from
merchandising  services  performed for manufacturers and others at Kmart.  Kmart
filed for  protection  under the U.S.  Bankruptcy  Code in  January  of 2002 and
emerged from  bankruptcy in May of 2003.  During its time in  bankruptcy,  Kmart
closed a number of stores in the United  States.  While the Company's  customers
and the resultant  contractual  relationships are with various manufacturers and
not Kmart,  a significant  reduction of this  retailer's  stores or cessation of
this retailer's  business would negatively impact the Company.  As of August 31,
2003, one customer  discontinued  its  merchandising  programs with the Company.
Some but not all of these programs were performed at Kmart stores. This customer
accounted  for 10%,  17%, and 12% of the business  generated  from Kmart for the
twelve-months ended December 31, 2003 2002 and 2001, respectively.

                                      -10-
<PAGE>

Dependence on Trend Toward Outsourcing

         The  business  and growth of the  Company  depends in large part on the
continued  trend toward  outsourcing  of 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 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  customer,  channel or geographic
coverage;  (ii) the  internal  marketing  and  merchandising  operations  of its
customers and prospective customers; (iii) independent brokers; and (iv) smaller
regional providers.  Remaining  competitive in the highly competitive  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  marketing
services companies, or additional 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 Customer 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 customer  projects;
(ii) customer delays,  changes and  cancellations in projects;  (iii) the timing
requirements  of  customer  projects;  (iv) the  completion  of  major  customer
projects;  (v) the timing of new engagements;  (vi) the timing of personnel cost
increases;  and (vii) the loss of major customers. 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 of
customers.  In the event that a particular 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  customer  work and the failure of  customers  to pay.  The Company
attempts to mitigate these risks by dealing  primarily with large  credit-worthy
customers,  by entering into written  agreements with its customers 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.


                                      -11-
<PAGE>

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  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 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 customers
of the acquired business;  (ii) the lingering effects of poor customer 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 customer,  employee and
other legal claims for activities of the acquired business prior to acquisition.
And of course,  any acquired  business  could perform  significantly  worse than
expected.

         The  inability to identify,  acquire 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. 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.

Reliance on the Internet

         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.  Any  protracted
disruption in Internet  service would 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.

                                      -12-
<PAGE>

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 customers to accurately
forecast and plan future business activities. Substantially all of the Company's
key customers 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 customers
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  45.7% of the
Company's  outstanding  Common  Stock,  and Mr.  William  H.  Bartels,  founder,
director, and Vice Chairman of the Company beneficially owns approximately 29.7%
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
National  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  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   field
representatives  used by the Company in  conducting  its business  (85% of field
expense in 2003),  and SMSI provides  substantially  all of the field management
services 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.

         SMS, SMSI, SIT and certain other  affiliated  companies  (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, who
also are each directors and executive  officers 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.

                                      -13-
<PAGE>

         While the Company's  relationships  with SMS,  SMSI,  SIT and the other
SPAR Affiliates are excellent,  there can be no assurance that the Company could
(if necessary under the  circumstances)  replace the field  representatives  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 customer 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.

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.

Item 2.  Properties.

         The Company maintains its corporate headquarters in approximately 6,000
square feet of leased office space located in Tarrytown, New York, under a lease
with a term  expiring in May 2004.  The  Company is  exploring  various  leasing
options, including an extension of its existing lease.

         The  Company  leases  certain  office and  storage  facilities  for its
divisions and subsidiaries under operating leases, which expire at various dates
during the next five  years.  Most of these  leases  require  the Company to pay
minimum rents, subject to periodic  adjustments,  plus other charges,  including
utilities, real estate taxes and common area maintenance.

         The  following is a list of the locations  where the Company  maintains
leased facilities for its division offices and subsidiaries:

<TABLE>
<CAPTION>
        Location                        Office Use
        ------------------------------- ----------------------------------------
        <S>                             <C>
        Tarrytown, NY                   Corporate Headquarters
        Auburn Hills, MI                Regional Office, Warehouse and Teleservices Center
        Eden Prairie, MN                Regional Office
        Cincinnati, OH                  Regional Office
        Largo, FL                       Regional Office
        Toronto, Ontario CAN            Regional Office
</TABLE>

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

                                      -14-
<PAGE>

Item 3.  Legal Proceedings.

         On  October  24,  2001,  Safeway  Inc.,  a former  customer  of the PIA
Merchandising  Co., Inc., and Pivotal Sales Company,  filed a complaint alleging
damages of  approximately  $3.6  million  plus  interest  and costs and  alleged
punitive damages in an unspecified  amount against the Company in Alameda County
Superior  Court,  California,  Case No.  2001028498 with respect to (among other
things)  alleged  breach of contract.  On or about  December 30, 2002, the Court
approved the filing of Safeway  Inc.'s Second Amended  Complaint,  which alleges
causes of action  for  (among  other  things)  breach of  contract  against  the
Company,  PIA  Merchandising  Co.,  Inc. and Pivotal Sales  Company.  The Second
Amended  Complaint  was filed with the Court on January 13,  2003,  and does not
specify the amount of monetary damages sought.  No punitive or exemplary damages
are  sought in  Safeway  Inc.'s  Second  Amended  Complaint.  This case is being
vigorously contested by the Company.

         The  Company is a party to various  legal  actions  and  administrative
proceedings arising in the normal course of business.  In the opinion of Company
management,  disposition of these 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.


                                      -15-
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters.

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
National Market.

<TABLE>
<CAPTION>
                                          2002                          2003
                                -------------------------    ---------------------------
                                      High       Low               High         Low
<S>                              <C>           <C>            <C>           <C>
          First Quarter          $  2.41       $  1.60        $  3.60       $  2.42
          Second Quarter            2.50          2.00           5.55          3.05
          Third Quarter             2.82          1.96           5.32          3.17
          Fourth Quarter            4.92          1.91           4.57          3.00
</TABLE>

         As of  December  31,  2003,  there were  approximately  600  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.

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  financial  statements,  which have been  audited by  independent
public accountants.


                                      -16-
<PAGE>

                                SPAR Group, Inc.
                 Condensed Consolidated Statements of Operations

                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                          ------------------------------------------------------------
                                                            2003         2002         2001         2000        1999(2)
                                                          --------     --------     --------     --------     --------
<S>                                                       <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Net revenues                                              $ 64,859     $ 69,612     $ 70,891     $ 81,459     $ 79,613
Cost of revenues                                            42,338       40,331       40,883       50,278       50,499
                                                          --------     --------     --------     --------     --------
Gross profit                                                22,521       29,281       30,008       31,181       29,114
Selling, general and administrative expenses                20,967       18,804       19,380       24,761       23,213
Depreciation and amortization                                1,529        1,844        2,682        2,383        1,204
                                                          --------     --------     --------     --------     --------
Operating income                                                25        8,633        7,946        4,037        4,697
Other expense (income)                                         237          (26)         107         (790)         (90)
Interest expense                                               269          363          561        1,326          976
                                                          --------     --------     --------     --------     --------
(Loss) income from continuing operations before
   provision for income taxes                                 (481)       8,296        7,278        3,501        3,811
Income tax provision                                            58        2,998        3,123          780        3,743
                                                          --------     --------     --------     --------     --------
(Loss) income from continuing operations                      (539)       5,298        4,155        2,721           68

Discontinued operations:
Loss from discontinued operations net of tax benefits
   of $935, $858 and $595, respectively                          -            -       (1,597)      (1,399)        (563)
Estimated 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 (loss) income                                         $   (539)    $  5,298     $ (1,714)    $  1,322     $   (495)
                                                          ========     ========     ========     ========     ========

Unaudited pro forma data (1)
                                                                                                              --------
Income from continuing operations before provision for
   income taxes                                                                                               $  3,811
Pro forma income tax provision                                                                                   1,840
                                                                                                              --------
Pro forma income from continuing operations                                                                      1,971
Pro forma loss from discontinued operations net of
   pro forma tax benefit of $429                                                                                  (729)
Pro forma net income                                                                                          $  1,242
                                                                                                              ========
Basic/diluted net (loss) income per common share:
Actual/Pro forma (loss) income from continuing
operations                                                $ (0.03 )    $   0.28     $   0.23     $   0.15     $   0.13
                                                          --------     --------     --------     --------     --------
Discontinued operations:
Actual/Pro forma loss from discontinued operations               -            -        (0.09)       (0.08)       (0.05)
Estimated loss on disposal of discontinued operations            -            -        (0.23)           -            -
                                                          --------     --------     --------     --------     --------
Loss from discontinued operations                                -            -        (0.32)       (0.08)       (0.05)
                                                          --------     --------     --------     --------     --------
Actual/Pro-forma net (loss) income                        $  (0.03)    $   0.28     $  (0.09)    $   0.07     $   0.08
                                                          ========     ========     ========     ========     ========
Actual/Pro forma weighted average shares outstanding
  - basic                                                   18,855       18,761       18,389       18,185       15,361
Actual/Pro forma weighted average shares outstanding
  - diluted                                                 18,855       19,148       18,467       18,303       15,367
</TABLE>


                                      -17-
<PAGE>
<TABLE>
<CAPTION>
                                                                    December 31,
                                            -------------------------------------------------------
                                             2003        2002        2001        2000        1999(2)
                                            ------      ------      ------      ------       ------
BALANCE SHEET DATA:
-------------------
<S>                                       <C>         <C>         <C>         <C>          <C>
Working capital (deficiency)              $  4,085    $  6,319    $  8,476    $ (2,273)    $   (639)
Total assets                                27,870      28,800      41,155      48,004       54,110
Current portion of long-term debt            4,084           -          57       1,143        1,147
Line of credit and long-term debt, net         270         383      13,287      10,093       16,009
Total stockholders' equity                  16,023      16,592      10,934      12,240       10,886
                                          ========    ========    ========    ========     ========
</TABLE>

(1)  The unaudited pro forma income tax  information  is presented in accordance
     with Statement of Financial  Accounting  Standards No. 109, "Accounting for
     Income  Taxes," as if the  Company  had been  subject to federal  and state
     income taxes for all periods presented.
(2)  In July 1999,  PIA and the Spar  Companies  merged with the SPAR  Companies
     deemed the  accounting  acquirer.  The  results of  operations  include the
     results of PIA from the acquisition date forward.


                                      -18-
<PAGE>

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

Overview

         In the United States,  the Company provides  merchandising  services to
manufacturers  and  retailers  principally  in mass  merchandiser,  drug  store,
grocery,  and other  retail trade  classes  through its  Merchandising  Services
Division. Internationally,  the Company provides in-store merchandising services
through a wholly  owned  subsidiary  in Canada and a 50% owned joint  venture in
Japan.  The Company also owns a 51% interest in a joint venture  established  to
provide  merchandising   services  in  Turkey.  The  Company  accounts  for  its
investment  in the  Japanese  joint  venture  utilizing  the  equity  method and
consolidates both Canada and Turkey into the Company's financial statements.

         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 and 2000 consolidated
statement  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, and the following discussions reflect such
restatement.

         In October 2002, the Company dissolved its Technology Division that was
established  in  March  2000  for  the  purpose  of  marketing  its  proprietary
Internet-based  computer  software.  The operations of this  subsidiary were not
material.

Critical Accounting Policy & Estimates

         The Company's critical accounting  policies,  including the assumptions
and  judgments  underlying  them,  are  disclosed in the Note 2 to the Financial
Statements.  These  policies  have been  consistently  applied  in all  material
respects and address such matters as revenue recognition,  depreciation methods,
asset impairment recognition,  business combination accounting, and discontinued
business  accounting.  While the  estimates and  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. Three critical accounting
policies are revenue  recognition,  allowance  for  doubtful  accounts and sales
allowance, and internal use software development costs:

         Revenue Recognition

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


                                      -19-
<PAGE>

         Allowance for Doubtful Accounts and Sales Allowance

         The Company  continually  monitors the  collectability  of its accounts
         receivable  based upon current  customer  credit  information and other
         information  available.  Utilizing  this  information,  the Company has
         established an allowance for doubtful accounts of $515,000 and $301,000
         at December 31, 2003 and 2002, respectively.  The Company also recorded
         a sales allowance of $448,000 to properly  reflect  potential  customer
         credits as of December 31, 2003.

         Internal Use Software Development Costs

         The Company  under the rules of SOP 98-1,  Accounting  for the Costs of
         Computer Software  Developed or Obtained for Internal Use,  capitalizes
         certain  costs  incurred in  connection  with  developing  or obtaining
         internal  use  software.  Capitalized  software  development  costs are
         amortized over three years.

         The Company  capitalized  $1,004,000,  $772,000  and  $430,000 of costs
         related to software  developed for internal use in 2003, 2002 and 2001,
         respectively.


Results of operations

         The following table sets forth selected financial data and such data as
a percentage of net revenues for the periods indicated.

<TABLE>
<CAPTION>
                                                         Year Ended                Year Ended                 Year Ended
                                                      December 31, 2003         December 31, 2002         December 31, 2001
                                                  -------------------------------------------------------------------------------
                                                                              (dollars in millions)
                                                     Dollars          %         Dollars         %          Dollars          %
                                                  --------------  ----------  -----------  -----------  ------------  -----------
<S>                                                 <C>             <C>         <C>          <C>         <C>            <C>
Net revenues                                        $  64.9         100.0%      $  69.6      100.0%      $   70.9       100.0%
Cost of revenues                                       42.3          65.3          40.3       57.9           40.9        57.7
Selling, general & administrative expenses             21.0          32.3          18.8       27.0           19.4        27.4
Depreciation & amortization                             1.5           2.3           1.8        2.6            2.7         3.8
Other income & expenses, net                            0.5           0.8           0.4        0.6            0.6         0.8
                                                  --------------  ----------  -----------  -----------   -----------  -----------
(Loss) income from continuing operations before        (0.4)         (0.7)          8.3       11.9            7.3        10.3
   income tax provision
Income tax provision                                    0.1           0.1           3.0        4.3            3.1         4.4
                                                  --------------  ----------  -----------  -----------   -----------  -----------
(Loss) income from continuing operations               (0.5)         (0.8)%         5.3        7.6%           4.2         5.9%

Discontinued operations:
Loss  from  discontinued  operations,  net of tax
benefits                                                 -                           -                       (1.6)
Estimated   loss  on  disposal  of   discontinued
   operations, net of tax benefits                       -                           -                       (4.3)
                                                  --------------              -----------               ------------
Net (loss) income                                 $    (0.5)                  $     5.3                   $  (1.7)
                                                  ==============              ===========               ============
</TABLE>


                                      -20-
<PAGE>

Results from  continuing  operations  for the twelve  months ended  December 31,
2003, compared to twelve months ended December 31, 2002


Net Revenues

         Net Revenues from  operations  for the twelve months ended December 31,
2003, were $64.9 million,  compared to $69.6 million for the twelve months ended
December  31,  2002,  a 6.8%  decrease.  The decrease of 6.8% in net revenues is
primarily  attributed to decreased  business in mass  merchandiser  chains.  The
decrease in net revenues was caused by decreased per unit fee revenue  resulting
from  lower  retail  sales of  customer  products  and the loss of a  particular
client, partially offset by increases in service fee revenue.


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 increased by $2.0 million in 2003 and as a percentage
of net  revenues  was 65.3% for the  twelve  months  ended  December  31,  2003,
compared  to 57.9%  for the  twelve  months  ended  December  31,  2002,  a 5.0%
increase.  Approximately  85% and 76% of the field  services were purchased from
the  Company's  affiliate,  SMS, in 2003 and 2002,  respectively  (see Item 13 -
Certain Relationships and Related Transactions, below). SMS's increased share of
field services resulted from its more favorable cost structure.  The increase in
cost as a percentage  of net revenues is primarily a result of a decrease in per
unit  fee  revenues  that do not  have a  proportionate  decrease  in  cost.  As
discussed  above under Critical  Accounting  Policies/Revenue  Recognition,  the
Company's revenue consists of: (1) service fee revenue, which is earned when the
merchandising services are performed and, therefore,  has proportionate costs in
the period the services are  performed;  and (2) 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 and, therefore,  does not have proportionate costs in the
period the revenue is earned.  Since the  merchandising  service and the related
costs  associated with per unit fee revenue are normally  performed prior to the
retail sale, and the retail sales of client  products are influenced by numerous
factors  including  consumer  tastes  and  preferences,  and not  solely  by the
merchandising  service performed,  in any given period, the cost of per unit fee
revenues may not be directly proportionate to the per unit fee revenue.

Operating Expenses

         Operating expenses include selling, general and administrative expenses
as well as depreciation and amortization.  Selling,  general and  administrative
expenses include corporate overhead,  project management,  information  systems,
executive compensation,  human resource expenses, legal and accounting expenses.
The  following  table sets forth the  operating  expenses as a percentage of net
revenues for the time periods indicated:

<TABLE>
<CAPTION>
                                             Year Ended                 Year Ended          Increase
                                          December 31, 2003         December 31, 2002       (decrease)
                                         -------------------       -------------------      ---------
                                                            (dollars in millions)
                                         Dollars          %        Dollars          %            %
                                         -------        ----       -------        ----         ----
<S>                                      <C>            <C>        <C>            <C>          <C>
Selling, general & administrative        $  21.0        32.3%      $  18.8        27.0%        12.0%
Depreciation and amortization                1.5         2.3           1.8         2.6        (17.1)%
                                         -------        ----       -------        ----         ----

Total operating expenses                 $  22.5        34.6%      $  20.6        29.6%         9.4%
                                         =======        ====       =======        ====         ====
</TABLE>


         Selling, general and administrative expenses increased by $2.2 million,
or 12.0%,  for the twelve  months  ended  December 31,  2003,  to $21.0  million
compared to $18.8  million for the twelve months ended  December 31, 2002.  This
increase was due primarily to increases in travel related  expense $0.4 million,
postage  and  material   expense  $0.6   million,   stock  option   expense  for
non-employees $0.4 million and increase in bad debt expense $0.6 million.

         Depreciation  and  amortization  decreased  by $315,000  for the twelve
months ended  December 31, 2003,  primarily  due to older,  higher priced assets
becoming fully depreciated.


                                      -21-
<PAGE>

Interest Expense

         Interest  expense  decreased  $94,000 to $269,000 for the twelve months
ended December 31, 2003,  from $363,000 for the twelve months ended December 31,
2002, due to decreased debt levels as well as decreased interest rates in 2003.

Income Taxes

         The  provision  for income  taxes was $0.1 million and $3.0 million for
the twelve months ended  December 31, 2003 and December 31, 2002,  respectively.
The tax provision for 2003 reflects  minimum tax requirements for state filings.
The effective tax rate was 36.1% for 2002.

Net (Loss) Income

         The SPAR Group had a net loss of  approximately  $539,000  or $0.03 per
basic and diluted share for the twelve months ended December 31, 2003,  compared
to a net income of  approximately  $5.3  million or $0.28 per basic and  diluted
shares for the twelve  months  ended  December  31, 2002  because of the factors
described above.

Off Balance Sheet Arrangements

         None.


                                      -22-
<PAGE>

Results from  continuing  operations  for the twelve  months ended  December 31,
2002, compared to twelve months ended December 31, 2001


Net Revenues

         Net Revenues  from  continuing  operations  for the twelve months ended
December 31, 2002, were $69.6 million,  compared to $70.9 million for the twelve
months ended  December 31,  2001, a 1.8%  decrease.  The decrease of 1.8% in net
revenues is primarily  attributed to decreased business in mass merchandiser and
drug store chains.

Cost of Revenues

         Cost of revenues from continuing  operations 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 of
57.9% for the twelve months ended  December 31, 2002,  was  consistent  with the
57.7% for the twelve months ended December 31, 2001.  Approximately  76% and 37%
of the field services were purchased from the Company's affiliate,  SMS, in 2002
and  2001,  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
as well as depreciation and amortization.  Selling,  general and  administrative
expenses include corporate overhead,  project management,  information  systems,
executive compensation,  human resource expenses, legal and accounting expenses.
The  following  table sets forth the  operating  expenses as a percentage of net
revenues for the time periods indicated:


<TABLE>
<CAPTION>
                                                 Year Ended                      Year Ended               Increase
                                              December 31, 2002               December 31, 2001          (decrease)
                                         ----------------------------   ------------------------------  -------------
                                                            (dollars in millions)
                                            Dollars           %            Dollars            %              %
                                         --------------  ------------   ---------------  -------------  -------------
<S>                                         <C>             <C>            <C>              <C>            <C>
Selling, general & administrative           $ 18.8          27.0%          $ 19.4           27.4%          (3.0) %
Depreciation and amortization                  1.8           2.6              2.7            3.8          (31.3)
                                         --------------  ------------   ---------------  -------------

Total operating expenses                    $ 20.6          29.6%          $ 22.1           31.2%          (6.4)%
                                         ==============  ============   ===============  =============
</TABLE>

         Selling, general and administrative expenses decreased by $0.6 million,
or 3.0%,  for the twelve  months  ended  December  31,  2002,  to $18.8  million
compared to $19.4  million for the twelve months ended  December 31, 2001.  This
decrease  was due  primarily  to a reduction  in the SG&A work force and related
expenses, as well as lower information technology costs.


         Depreciation and amortization  decreased by $0.9 million for the twelve
months ended December 31, 2002,  primarily due to the change in accounting rules
for goodwill amortization adopted by the Company effective January 1, 2002.


Interest Expense

         Interest expense  decreased $0.2 million to $0.4 million for the twelve
months ended  December 31, 2002,  from $0.6 million for the twelve  months ended
December 31, 2001, due to decreased debt levels,  as well as decreased  interest
rates in 2002.

                                      -23-
<PAGE>

Income Taxes

         The  provision  for income  taxes was $3.0 million and $3.1 million for
the twelve months ended  December 31, 2002 and December 31, 2001,  respectively.
The effective tax rate was 36.1% and 42.9% for 2002 and 2001, respectively.  The
decrease  in  the   effective   tax  rate  in  2002  is  primarily  due  to  the
non-amortization   of  goodwill  (as  discussed  in  Note  2  to  the  financial
statements) that was previously  expensed in 2001 and was not deductible for tax
purposes.

Discontinued Operations

<TABLE>
<CAPTION>
                                                           Six Months Ended            Year Ended
                                                             June 30, 2002         December 31, 2001
                                                         ----------------------  -----------------------
                                                                     (dollars in millions)
                                                          Dollars        %        Dollars         %
                                                         -----------  ---------  -----------  ----------
<S>                                                      <C>           <C>      <C>             <C>
     Net revenues                                        $   15.7      100.0%   $  31.2         100.0%
     Cost of revenues                                        13.1       83.2       26.0          83.4
     Selling, general and administrative expenses             2.8       17.9        5.7          18.4
     Depreciation and amortization                            0.1        0.8        1.2           3.4
</TABLE>


         The Incentive Marketing Division was divested in June 2002 under a plan
adopted in 2001. Net revenues from the Incentive  Marketing Division for the six
months ended June 30, 2002,  were $15.7  million,  compared to $31.2 million for
the twelve months ended December 31, 2001.

         Cost of revenues in the Incentive Marketing Division consists of direct
labor,  independent  contractor  expenses,  food,  beverages,  entertainment and
travel costs.  Cost of revenue as a percentage of net revenues of 83.2%, for the
six months ended June 30, 2002, was consistent  with 83.4% for the twelve months
ended December 31, 2001.

         Operating expenses include selling, general and administrative expenses
as well as depreciation and amortization.  Selling,  general and  administrative
expenses  which include  corporate  overhead,  project  management,  information
systems,  executive compensation,  human resource expenses, legal and accounting
expenses  were $2.8  million for the six months  ended June 30,  2002,  and $5.7
million  for the  twelve  months  ended  December  31,  2001.  Depreciation  and
amortization was $0.1 million for the six months ended June 30, 2002 compared to
$1.2 million for the twelve  months ended  December  31,  2001,  reflecting  the
change in accounting rules for goodwill adopted by the Company effective January
1, 2002.

Net Income/(Loss)

         The  SPAR  Group  had  a  net  income  from  continuing  operations  of
approximately  $5.3 million or $0.28 per basic and diluted  share for the twelve
months  ended  December  31,  2002,  compared  to a net income  from  continuing
operations of  approximately  $4.2 million or $0.23 per basic and diluted shares
for the twelve months ended  December 31, 2001.  The increase in net income from
continuing  operations  is primarily  the result of  substantial  reductions  in
selling,  general and  administrative  expenses and a change in  accounting  for
goodwill  amortization.  The SPAR Group had a net income of  approximately  $5.3
million  or $0.28 per basic  and  diluted  share  for the  twelve  months  ended
December 31, 2002, compared to a net loss of $1.7 million or $0.09 per basic and
diluted  share for the twelve  months ended  December 31, 2001.  The increase in
total  net  income  includes  the  effect  of the $4.3  million  loss in 2001 on
disposal of discontinued operations.

Liquidity and Capital Resources

         In the twelve  months ended  December  31, 2003,  the Company had a net
loss of  $539,000.  Net cash  provided by  operating  activities  for the twelve
months  ended  December  31,  2003,  was $3.4  million,  compared  with net cash
provided by operations of $12.7 million for the twelve months ended December 31,
2002.  Cash  provided by operating  activities in 2003 was primarily a result of
decreases  in  accounts  receivable,  increases  in  accounts  payable and other
current liabilities, partially offset by decreases in restructuring charges, and
by  increases in prepaid  expenses  and  deferred  tax assets and net  operating
losses.

                                      -24-
<PAGE>

         Net cash used in  investing  activities  for the  twelve  months  ended
December 31, 2003, was $2.9 million, compared with net cash used of $1.2 million
for the twelve  months ended  December 31, 2002.  The net cash used in investing
activities  in 2003  resulted  primarily  from the  purchases  of  property  and
equipment and acquisition of businesses.

         Net cash used in  financing  activities  for the  twelve  months  ended
December 31, 2003,  was $0.5  million,  compared with net cash used in financing
activities of $11.5 million for the twelve months ended  December 31, 2002.  The
net cash used in financing  activities  in 2003 was primarily due to payments to
shareholders and purchases of treasury stock,  partially offset by borrowings on
the line of credit.

         The above activity  resulted in no change in cash and cash  equivalents
for the twelve months ended  December 31, 2003 as all excess cash is utilized to
pay down the line of credit.

         At December 31, 2003, the Company had positive  working capital of $4.1
million as  compared to $6.3  million at  December  31,  2002.  The  decrease in
working  capital is due to decreases in accounts  receivable and deferred taxes,
increases in other current liabilities and accounts payable,  and an increase in
the Company's  bank line of credit,  partially  offset by,  increases in prepaid
expenses. The Company's current ratio was 1.35 and 1.53 at December 31, 2003 and
2002, respectively.

         In January 2003, the Company and Whitehall  Business Credit Corporation
("Whitehall"),  as successor to the business of IBJ  Whitehall  Business  Credit
Corporation,  entered into the Third Amended and Restated  Revolving  Credit and
Security  Agreement and related  documents (as amended,  collectively,  the "New
Credit  Facility").  The New Credit  Facility  provides the Company with a $15.0
million  revolving  credit  facility  that matures on January 23, 2006.  The New
Credit  Facility  allows 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).  The New Credit  Facility  bears  interest at
Whitehall's  "Alternative  Base Rate" (a total of 4.0% per annum at December 31,
2003) or LIBOR plus two and one-half percent and is secured by all the assets of
the Company and its subsidiaries.

         The New Credit Facility replaces a previous 1999 agreement, as amended,
between the Company and Whitehall (the "Old Credit Facility") that was scheduled
to mature on February 28,  2003.  The Old Credit  Facility  provided for a $15.0
million revolving credit facility, as well as, a $2.5 million term loan. The old
revolving  facility allowed the Company to borrow up to $15.0 million based upon
a borrowing  base formula as defined in the old  agreement  (principally  85% of
"eligible"  accounts  receivable).  The term loan under the Old Credit  Facility
amortized in equal monthly  installments of $83,334 and was repaid in full as of
December 31, 2001.

         Both  Credit  Facilities  contain an option for  Whitehall  to purchase
16,667  shares of Common  Stock of the  Company for $0.01 per share in the event
that the Company's  average closing share price over a ten  consecutive  trading
day period exceeds $15.00 per share. This option expired on July 31, 2003.

         The New Credit Facility contains certain financial covenants (amending,
restating,  and replacing those contained in the Old Credit  Facility) that must
be met by the Borrowers on a consolidated  basis, among which are a minimum "Net
Worth", a "Fixed Charge Coverage Ratio", a capital expenditure  limitation and a
minimum  EBITDA,  as such terms are  defined in the  respective  agreement.  The
Company was in compliance  with such  financial  covenants at December 31, 2003,
except for the "Fixed Charge Coverage Ratio" and minimum "EBITDA", for which the
Company has secured a waiver from Whitehall.

         The  balances  outstanding  on the  revolving  line of credit were $4.1
million  under the New  Revolving  Facility at December 31,  2003,  and $148,000
under the Old  Revolving  Facility as of December  31, 2002.  In  addition,  the
Company had outstanding  Letters of Credit of $737,337 at December 31, 2003, and
$842,418 at December 31, 2002. As of December 31, 2003, based upon the borrowing
base formula,  the Company had availability of $4.6 million of the $10.9 million
unused revolving line of credit under the New Revolving Facility.

         In  April  2003,  all  previously   outstanding   amounts  due  certain
stockholders under certain notes were paid in full.

         Management  believes  that based  upon the  Company's  current  working
capital position and the existing credit facilities,  funding will be sufficient
to support ongoing  operations over the next twelve months.  However,  delays in
collection of  receivables  due from any of the Company's  major  clients,  or a
significant reduction in business from such clients, or the inability to acquire
new  clients,  could  have a  material  adverse  effect  on the  Company's  cash
resources and its ongoing ability to fund operations.

                                      -25-
<PAGE>

         In  connection  with  the sale of SPGI on June 30,  2002,  the  Company
agreed to provide a discretionary revolving line of credit to SPGI not to exceed
$2.0 million  (the  "Revolver")  through  September  30,  2005.  The Revolver is
secured by a pledge of all the assets of SPGI and is guaranteed by PHI. The SPGI
Revolver provides 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  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.  Under the Revolver  terms,  SPGI is
required to deposit all of its cash to the  Company's  lockbox.  At December 31,
2003, the Company had cash deposits due SPGI totaling approximately $794,000.

Certain Contractual Obligations

         The  following  table  contains a summary  of certain of the  Company's
contractual obligations by category as of December 31, 2003 (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>
New Credit Facility                            $ 4,084       $ 4,084      $      -       $     -      $        -
--------------------------------------------------------------------------------------------------------------------
Operating Lease Obligations                      2,221           947         1,163           111
--------------------------------------------------------------------------------------------------------------------
Total                                          $ 6,305       $ 5,031       $ 1,163         $ 111       $       -
--------------------------------------------------------------------------------------------------------------------
</TABLE>


         In  addition  to the above  table,  the Company had agreed to provide a
discretionary  line of  credit  to  SPGI  not to  exceed  $2.0  million  through
September  30,  2005.  At  December  31,  2003,  the  Company  had  $737,337  in
outstanding Letters of Credit.

         In May 2001, the Company and Paltac, Inc. ("Paltac"),  a large Japanese
distributor, entered into a joint venture to create a Japanese company, SPAR FM.
SPAR FM  entered  into a Yen  300  million  Revolving  Credit  Agreement  with a
Japanese bank. The bank required Paltac guarantee the outstanding balance on the
revolving credit facility. As part of the joint venture agreement, should Paltac
be required to make a payment on its guarantee to the bank, then the Company has
agreed to remit to Paltac  50% of any such  payment  up to a maximum  of Yen 150
million or  approximately  $1.4  million.  As of December 31, 2003,  SPAR FM has
borrowed Yen 100 million under its Revolving Credit  Agreement.  Therefore,  the
Company's current exposure to Paltac respecting  outstanding loans to SPAR FM at
December 31, 2003 would be Yen 50 million or approximately $470,000.


                                      -26-
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

         The Company is exposed to market risk related to the variable  interest
rate  on the  line of  credit  and the  variable  yield  on its  cash  and  cash
equivalents.  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 long term debt.
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 carrying
amount of debt due to certain  stockholders  approximates fair value because the
obligation  bears  interest at a market  rate.  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.

         Currently, the Company's international operations are not material and,
therefore, the risk related to foreign currency exchange rates is not material.

Investment Portfolio

         The Company  has no  derivative  financial  instruments  or  derivative
commodity  instruments in its cash and cash equivalents and investments.  Excess
cash is normally used to pay down its revolving line of credit.

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.

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 material  changes in the Company's  internal  control over
financial reporting during the fourth quarter of 2003.


                                      -27-
<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,  2003,  an  executive  officer  and/or
director for the Company or performing  an  equivalent  function for the Company
through an affiliate.

<TABLE>
<CAPTION>
Name                                     Age        Position with SPAR Group, Inc. and its affiliates
----                                     ---        -------------------------------------------------
<S>                                      <C>        <C>
Robert G.  Brown. ................       61         Chairman, Chief Executive Officer, President and Director

William  H.  Bartels .............       60         Vice Chairman and Director

Robert O.  Aders  (1) ............       76         Director, Chairman Governance Committee

Jack W.  Partridge (1) ...........       58         Director, Chairman Compensation Committee

Jerry B.  Gilbert  (1) ...........       69         Director

Lorrence  T.  Kellar (1) .........       66         Director, Chairman Audit Committee

Charles Cimitile .................       49         Chief Financial Officer, Treasurer and Secretary

Kori G. Belzer ...................       38         Chief Operating Officer, SPAR Management Services, Inc.

Patricia Franco ..................       43         Sr. Vice President, SPAR Infotech, Inc.

James R. Segreto .................       55         Controller
</TABLE>

--------------------------
(1) Member of the Board's Governance, Compensation and Audit Committees


         Robert  G.  Brown  serves as the  Chairman,  Chief  Executive  Officer,
President and a Director of the Company 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 the
Company and has held such  positions  since July 8, 1999 (the  effective date of
the PIA 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 the  Company  and has done so
since July 8, 1999.  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  1957-1974 and was Chairman of the Board from 1970 to 1974.  Mr.
Aders also serves as a Director of  Source-Interlink  Co.,  Checkpoint  Systems,
Inc., Sure Beam Corporation and Telepanel Systems, Inc.


                                      -28-
<PAGE>

         Jack W.  Partridge  serves as a Director of the Company and has done so
since  January 29, 2001.  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 two 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 has also served as Vice Chairman of the
Cincinnati  Museum  Center  and a member  of the  boards  of the  United  Way of
Cincinnati, the Childhood Trust, Second Harvest and the Urban League.

         Jerry B.  Gilbert  serves as a Director  of the Company 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 1958-1989 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 the Company 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 K-Mart.  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,  Treasurer and
Secretary of the Company 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,  Treasurer  and  Secretary  of American  Recreation  Company
Holdings, Inc. and its predecessor company.

         Kori G. Belzer  serves as the de facto chief  operating  officer of the
Company's  field force through her position as Chief  Operating  Officer of SPAR
Management  Services,  Inc.  ("SMSI"),  and of  SPAR  Marketing  Services,  Inc.
("SMS"),  each an affiliate of the Company (see Item 13 - Certain  Relationships
and Related Transactions),  and has done so since January 1, 2003, as determined
by the  Company's  Audit  Committee.  Prior to 2003,  Ms. Belzer served as Chief
Operating  Officer of SMSI and SMS from 2000  through  2002,  as Vice  President
Operations of SMS from 1997 through 2000,  and as Regional  Director of SMS from
1995 through  1997.  Prior to 1995,  she served as Client  Services  Manager for
SPAR/Servco, Inc.

         Patricia Franco serves as the de facto chief information officer of the
Company  through her position as Senior Vice  President of SPAR  Infotech,  Inc.
("SIT"),  an affiliate of the Company (see Item 13 - Certain  Relationships  and
Related   Transactions),   also  serves  as  the  de  facto   President  of  the
International  Division, and has done so since January 1, 2003, as determined by
the  Company's  Audit  Committee.  Prior to 2003,  Ms.  Franco served in various
management capacities with SIT, SMS and their affiliates.

         James R. Segreto serves as Vice President and Controller of the Company
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 through 1997 and LM Capital,  LLP from 1990 through 1992. Prior to 1992, he
served as controller of Dorman Roth Foods, Inc.

Section 16(a) Beneficial Ownership Reporting Compliance.

         Section  16(a) of the  Exchange  Act  ("Section  16(a)")  requires  the
Company's  directors  and certain of its  officers and persons who own more than
10% of the Company's Common Stock (collectively, "Insiders"), to file reports of
ownership and changes in their ownership of the Company'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, 2003, 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, William H. Bartels, Jack W. Partridge, Robert O.
Aders,  and Jerry B. Gilbert  untimely  filed  certain  Statements of Changes in
Beneficial Ownership on Form 4. Kori Belzer and Patricia Franco became filers in
March of 2004.  All such  Section  16(a)  filing  requirements  have  since been
completed by each of the aforementioned individuals.

                                      -29-
<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 the Company in all capacities for the years ended December 31, 2003,
2002 and 2001 (i) by the Company's Chief Executive Officer, and (ii) each of the
other four most  highly  compensated  executive  officers of the Company and its
affiliates,  who were serving as executive officers of the Company or performing
equivalent functions for the Company through an affiliate,  at December 31, 2003
(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                                            2003           180,000             --            --          2,200
     Chief  Executive  Officer,  Chairman  of the          2002           164,340             --            --          2,040
     Board, President, and Director                        2001           141,202             --        765,972            --


William H. Bartels                                         2003           180,000             --            --          2,007
     Vice Chairman and Director                            2002           164,340             --            --          2,040
                                                           2001           139,230             --       471,992            --

Charles Cimitile                                           2003           221,700         20,000        20,000          2,200
     Chief Financial Officer,  Treasurer and Secretary     2002           215,564         15,000        20,000          2,040
                                                           2001           188,000            --         75,000             --

Kori G. Belzer                                             2003           147,067         19,000        26,750          1,843
     Chief  Operating  Officer,  SPAR  Management
     Services, Inc.

Patricia Franco                                            2003           145,875         20,000        37,500          1,718
     Sr. Vice President, SPAR Infotech, Inc.

</TABLE>
         ------------------------
(1)      In January 2001, each of the above officers voluntarily surrendered for
         cancellation their options for the purchase of the following numbers of
         shares of common stock under the 1995 Plan:  Mr.  Brown - 765,972;  Mr.
         Bartels - 471,992;  Mr.  Cimitile - 75,000.
(2)      Other compensation represents the Company's 401k contribution.


Summary Additional Compensation Table (from affiliated Companies)

         Robert G. Brown and William H. Bartels (the "SMS  Principals")  are the
sole owners of SPAR Marketing Services,  Inc. ("SMS"), SPAR Management Services,
Inc.  ("SMSI"),  and SPAR  Infotech,  Inc.  ("SIT"),  which provide  significant
services  to  the  Company  as  more  fully  described  in  Item  13  -  Certain
Relationships  and Related  Transactions.  Although the SMS Principals  were not
paid any salaries as officers of SMS, SMSI or SIT,  each of those  companies are
"Subchapter S" corporations, and accordingly the SMS Principals benefit from any
income  of  such   companies   allocated  to  them,  all  of  which  income  (or
substantially  all of which income,  but not loss, in the case of SIT) is earned
from the performance of services for the Company. The following table sets forth
all income  allocated to the SMS  Principals  by SMS,  SMSI or SIT for the years
ended December 31, 2003, 2002 and 2001.


                                      -30-
<PAGE>

<TABLE>
<CAPTION>
                                                                                           SIT Income
                 Name             Year           SMS Income          SMSI Income           (Loss) (1)
        ------------------------ --------      ---------------     -----------------     ----------------
<S>                              <C>            <C>                  <C>                   <C>
        Robert G. Brown          2003           $ 667,756            $ 177,214             $ 33,591
                                 2002             494,987              174,092              (85,183)
                                 2001             211,117               16,477             (227,370)


        William H. Bartels       2003           $ 424,937            $ 112,773             $ 21,376
                                 2002             314,992              110,787              (54,208)
                                 2001             134,348               10,486             (144,690)
</TABLE>


(1)  The  subchapter  "S"  income/loss  allocated to the SMS  Principals  by SIT
     includes losses on activities unrelated to the Company's business.


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, 2003, 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      Exercise     Expiration     Price Appreciation for Option (1)
                         Options      Employees in   Price ($/Sh)      Date       ----------------------------------
Name                 Granted (2)(#)     Period (%)                                 5% ($)          10% ($)
----                 ----------------------------------------------------------------------------------------------
<S>                      <C>                <C>         <C>         <C>            <C>            <C>
Charles Cimitile         20,000             5.0         2.99        2/13/13        37,608         95,306

Kori G. Belzer           20,500             5.0         2.99        2/13/13        38,548         97,688
                          6,000             1.5         3.80        5/9/13         14,339         36,337
                            250             0.1         4.65        8/7/13            731          1,853
                     ---------------  ---------------                          -------------  -----------------
                         26,750             6.6                                    53,618        135,878

Patricia Franco          20,500             5.1         2.99        2/13/13        38,548         97,688
                         16,000             4.0         3.80        5/9/13         38,237         96,900
                            750             0.2         4.65        8/7/13          2,193          5,558
                            250             0.1         3.89        11/5/13           612          1,550
                     ---------------  ---------------                          -------------  -----------------
                         37,500             9.4                                    79,590        201,696
</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.


                                      -31-
<PAGE>

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
the Company purchased by each of the Named Executive Officers in the exercise of
stock options during the year ended December 31, 2003, 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, 2003.

<TABLE>
<CAPTION>
                                                                Number of Securities Underlying        Value of Unexercised
                                                                 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           382,986         $181,917        $702,779
William H. Bartels                  --                 --          58,999           235,996          112,098         437,713
Charles Cimitile                    --                 --          98,750            41,250          196,206          36,569
Kori G. Belzer                      --                 --          81,000            76,140          156,134          86,603
Patricia Franco                     --                 --          97,250            66,250          168,122          46,996
</TABLE>


Stock Option and Purchase Plans

         The Company has four stock option plans:  the Amended and Restated 1995
Stock Option Plan (1995 Plan), the 1995 Director's Plan  (Director's  Plan), the
Special Purpose Stock Option Plan, and the 2000 Stock Option Plan (2000 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 the Company'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. At December 31, 2003,  options to purchase  43,250
shares of the Company's  common stock remain  outstanding  under this Plan.  The
1995 Plan was  superseded  by the 2000 Stock Option 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 the  Company's  common
stock.  Since 2000, the Company has not granted any new options under this Plan.
During 2003, no options to purchase  shares of the  Company's  common stock were
exercised  under this Plan.  At December  31, 2003,  20,000  options to purchase
shares of the Company'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.

         On July 8, 1999, in connection with the merger, the Company established
the Special  Purpose Stock Option 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, the Company has not granted any new options
under this plan.  During 2003,  no options to purchase  shares of the  Company's
common stock were  exercised  under this Plan. At December 31, 2003,  options to
purchase 25,750 shares of the Company's  common stock remain  outstanding  under
this Plan.

         On  December  4,  2000,  the  Company  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 the Company'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 the  Company's  common stock at the date of
grant.  During 2003,  options to purchase 401,020 shares of the Company's common
stock were granted,  options to purchase  143,641 shares of the Company's common
stock were exercised and

                                      -32-
<PAGE>

options to purchase  86,500 shares of the Company's  stock were cancelled  under
this Plan.  At December 31, 2003,  options to purchase  2,180,060  shares of the
Company's  common  stock  remain  outstanding  under  this Plan and  options  to
purchase  743,344 shares of the Company's  common stock were available for grant
under this Plan.

         In 2001, the Company adopted its 2001 Employee Stock Purchase Plan (the
"ESP Plan"),  which replaces 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 its subsidiaries,  and
the CSP Plan allows  employees  of the  affiliates  of the Company (see Item 13-
Certain  Relationships  and  Related  Transactions,   below),  to  purchase  the
Company's  Common  Stock from the Company  without  having to pay any  brokerage
commissions.  On August 8, 2002, the Company's Board of Directors 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 Company's  Compensation Committee administers the compensation plan
for its outside  Directors as well as the compensation for its executives.  Each
member of the Company's Board who is not otherwise an employee or officer of the
Company or any  subsidiary  or  affiliate  of the Company  (each,  an  "Eligible
Director") is eligible to receive the compensation contemplated under such plan.

         In January 2001, the Company  adopted the Director  Compensation  Plan,
which was amended by the  Compensation  Committee in February of 2003. Under the
amended plan,  each  non-employee  director  receives  thirty  thousand  dollars
($30,000) per annum (increased from twenty thousand dollars  ($20,000) per annum
for 2002 and 2001) and the  Chairman  of the Audit  Committee  will  receive  an
additional $5,000 per annum.  Payments are made quarterly in equal installments.
It is intended that each quarterly payment will be 50% in cash ($3,750,  up from
$2,500 for 2002 and 2001) and 50% ($3,750,  up from $2,500 for 2002 and 2001) in
stock options to purchase shares of the Company's  common stock with an exercise
price of $0.01 per share (plus an additional $1,250 per quarter for the Chairman
of the Audit Committee, half in cash and half in $.01 stock options). The number
of shares of the  Company's  common stock that can be purchased  under each $.01
stock option  granted will be  determined  based upon the closing stock price at
the end of each quarter.  In addition upon acceptance of the directorship,  each
non-employee  director  receives  options  to  purchase  10,000  shares  of  the
Company's  common stock with an exercise  price equal to 100% of the fair market
value of the  Company's  common  stock at the date of grant,  10,000  additional
options to purchase shares of the Company's  common stock with an exercise price
equal to 100% of the fair market value of the Company's common stock at the date
of grant  after one year of service  and 10,000  additional  options to purchase
shares of the Company's common stock with an exercise price equal to 100% of the
fair market  value of the  Company's  common stock at the date of grant for each
additional year of service thereafter.  All of the options have been and will be
granted under the 2000 Plan described above, under which each member of the SPAR
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.

Compensation Committee Interlocks and Insider Participation

         No member of the Board's Compensation  Committee was at any time during
the year ended December 31, 2003, or at any other time an officer or employee of
the  Company.  No executive  officer or board member of the Company  serves as a
member of the board of directors or compensation  committee of any other entity,
that has one or more  executive  officers  serving as a member of the  Company's
Board or Compensation  Committee,  except for the positions of Messrs. Brown and
Bartels  as  directors  and  officers  of the  Company  (including  each  of its
subsidiaries) and each of its affiliates,  including SMS, SMSI and SIT (see Item
13 - Certain Relationships and Related Transactions, below).


                                      -33-
<PAGE>

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

Security Ownership of Certain Beneficial Owners of the Company

         The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of March 22, 2004 by: (i) each person
(or group of affiliated persons) who is known by the Company to own beneficially
more  than  5% of the  Company's  common  stock;  (ii)  each  of  the  Company's
directors;   (iii)  each  of  the  Named  Executive   Officers  in  the  Summary
Compensation  Table;  and (iv) the Company'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
                                                                                      Beneficially
               Title of Class            Name and Address of Beneficial Owner             Owned         Percentage
               --------------            ------------------------------------       ----------------    ----------
<S>                                  <C>                                                <C>               <C>
        Common Shares                Robert G. Brown (1)                                8,727,266 (2)      45.7%

        Common Shares                William H. Bartels (1)                             5,638,379 (3)      29.7%

        Common Shares                Robert O. Aders (1)                                   86,203 (4)        *

        Common Shares                Jack W. Partridge (1)                                 30,668 (5)        *

        Common Shares                Jerry B. Gilbert (1)                                  24,009 (6)        *

        Common Shares                Lorrence T. Kellar (1)                                14,310 (7)        *

        Common Shares                Charles Cimitile (1)                                 109,647 (8)        *

        Common Shares                Kori G. Belzer (1)                                   116,718 (9)        *

        Common Shares                Patricia Franco (1)                                  162,675 (10)       *

        Common Shares                Heartland Advisors, Inc. (11)                      1,300,000           6.9%
                                     790 North Milwaukee Street
                                     Milwaukee, Wisconsin 53202

        Common Shares                Executive Officers and Directors                  14,909,875          79.4%
</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
         325,539 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  229,275
         shares issuable upon exercise of options.
(4)      Includes 36,203 shares issuable upon exercise of options.
(5)      Includes 19,700 shares issuable upon exercise of options.
(6)      Includes 24,009 shares issuable upon exercise of options.
(7)      Includes 13,310 shares issuable upon exercise of options.
(8)      Includes 108,750 shares issuable upon exercise of options.
(9)      Includes 115,515 shares issuable upon exercise of options.
(10)     Includes 109,875 shares issuable upon exercise of options.
(11)     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, 2003.


                                      -34-
<PAGE>

Equity Compensation Plans

         The  following  table  contains  a summary  of the  number of shares of
Common Stock of the Company to be issued upon the exercise of options,  warrants
and rights outstanding at December 31, 2003, 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, 2003.

<TABLE>
<CAPTION>
                                         Equity Compensation Plan Information
    ----------------------------- -------------------------- ------------------------- -------------------------
           Plan category           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
                                                                                              rights (#)
    ----------------------------- -------------------------- ------------------------- -------------------------
<S>                                       <C>                           <C>                     <C>
    Equity compensation plans             2,269,060                     $1.85                   743,344
    approved by security
    holders
    ----------------------------- -------------------------- ------------------------- -------------------------
    Equity compensation plans
    not approved by security
    holders                                      --                        --                        --
    ----------------------------- -------------------------- ------------------------- -------------------------
    Total                                 2,269,060                     $1.85                   743,344
    ----------------------------- -------------------------- ------------------------- -------------------------
</TABLE>

Item 13.   Certain Relationships and Related Transactions.

         Mr. Robert G. Brown, a Director,  the Chairman and the Chief  Executive
Officer of the  Company,  and Mr.  William H.  Bartels,  a Director and the Vice
Chairman  of the  Company  (collectively,  the "SMS  Principals"),  are the sole
stockholders  and executive  officers and directors of SPAR Marketing  Services,
Inc. ("SMS") and SPAR Management  Services,  Inc.  ("SMSI"),  and SPAR Infotech,
Inc. ("SIT").

         SMS and SMSI (through SMS) provided  approximately 92% of the Company's
field  representatives  (through  its  independent  contractor  field force) and
substantially all of the Company's field management  services at a total cost of
approximately  $36.0  million  and $30.5  million  for the twelve  months  ended
December 31, 2003, and 2002, respectively.  Under the terms of the Field Service
Agreement,   SMS   provides   the   services   of   approximately   6,000  field
representatives and SMSI provides approximately 80 full-time national,  regional
and district  managers to the Company as they may request from time to time, for
which the Company has agreed to pay SMS and SMSI  (through SMS) for all of their
costs of  providing  those  services  plus 4%.  However,  SMS may not charge the
Company for any past taxes or associated costs for which the SMS Principals have
agreed to indemnify the Company.  Although the SMS Principals  were not paid any
salaries  as  officers  of  SMS  or  SMSI,  SMS  and  SMSI  are  "Subchapter  S"
corporations,  and  accordingly,  the SMS Principals  benefit from any income of
such companies allocated to them (see Item 11 - Summary Additional  Compensation
Table - Affiliated Companies above).

         Ms. Kori  Belzer is the Chief  Operating  Officer of SMSI and SMS.  The
Company's  Audit  Committee has  determined  that Ms. Belzer  functions (and has
functioned since January 1, 2003) as the de facto chief operating officer of the
Company's  field  force,  which as noted  above,  is managed by SMSI and largely
provided by SMS, and accordingly,  Ms. Belzer has been included in the Company's
list of Named Executive Officers in Item 10 above. Ms. Belzer's compensation and
business  expenses  are part of the costs  covered by the "cost  plus"  contract
described above, and accordingly, are indirectly paid by the Company. Ms. Belzer
also  participates in the CSP Plan and, from time to time,  receives  options to
purchase the Company's stock pursuant to the 2000 Plan (see Item 10-Stock Option
and Purchase  Plans).  Ms.  Belzer's  compensation  is reviewed  annually by the
Company's Compensation Committee.

         SIT provided Internet computer programming services to the Company at a
total cost of  approximately  $1,607,400  and  $1,626,000  for the twelve months
ended  December  31,  2003  and  2002,  respectively.  Under  the  terms  of the
programming  agreement  between the Company and SIT  effective  as of October 1,
1998,  as  amended  (the  "Programming  Agreement"),  SIT  continues  to provide
programming  services to the  Company as the  Company  may request  from time to
time, for which the Company has agreed to pay SIT competitive  hourly wage rates
and to reimburse SIT's out-of-pocket expenses.  Although the SMS Principals were
not paid any salaries as officers of SIT, SIT is a "Subchapter  S"  corporation,
and  accordingly the SMS Principals  would benefit from any income  allocated to
them.

                                      -35-
<PAGE>

         Ms.  Patricia Franco is a Senior Vice President of SIT and is in charge
of its day-to-day operations.  The Company's Audit Committee has determined that
Ms. Franco  functions (and has functioned since January 1, 2003) as the de facto
chief information  officer of the Company,  as well as the de facto President of
the International Division and accordingly,  Ms. Franco has been included in the
Company's  list of Named  Executive  Officers  in Item 10  above.  Ms.  Franco's
compensation  is paid by SIT, which charges the Company $80.00 per hour for time
spent by Ms. Franco on Company  matters.  For the year ended  December 31, 2003,
the Company  paid  $132,600  to SIT for the use of Ms.  Franco's  services.  Ms.
Franco  also  participates  in the CSP Plan  and,  from  time to time,  receives
options to purchase the Company's stock pursuant to the 2000 Plan (see Item 10 -
Stock Option and Purchase Plans). Ms. Franco's compensation is reviewed annually
by the Company's Compensation Committee.


         The  Company's  agreements  with  SMS,  SMSI  and SIT are  periodically
reviewed by the Company's Audit Committee,  which includes an examination of the
overall  fairness  of the  arrangements  and  the  resulting  income  to the SMS
Principals.  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 a temporary reduction in SMSI's fees for 2004.

         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.

         The SMS  Principals  also own,  through SMSI, a minority (less than 5%)
equity interest in Affinity  Insurance Ltd., which provides certain insurance to
the Company.

         In  April  2003,  all  previously   outstanding   amounts  due  certain
stockholders under certain notes were paid in full.

         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 that could have a material adverse effect on the
Company.

Item 14. Principal Accountant Fees and Services.

         The  Company  and its  subsidiaries  did not  engage  Ernst & Young LLP
("E&Y") to provide  advice  regarding  financial  information  systems design or
implementation,  but did engage E&Y for tax consulting  services  related to the
PHI/SPGI  ESOP in 2003 and 2002  (for  which  E&Y was paid  $3,778  and  $13,500
respectively),  due diligence  services for the IMS acquisition during 2003 (for
which E&Y was paid $14,334) and for tax services in 2003 and 2002 (for which E&Y
was paid $2,295 and $13,500  respectively).  No other  non-audit  services  were
performed by E&Y in 2003 or 2002. 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 E&Y.

Audit Fees

         During the  Company's  fiscal  year ended  December  31, 2003 and 2002,
respectively,  fees billed by Ernst & Young LLP for all audit services  rendered
to the Company and its  subsidiaries  were $179,362 and $143,000,  respectively.
Audit services principally include fees for the Company's 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.

                                      -36-
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

<TABLE>
<CAPTION>
(a) 1. Index to Financial Statements filed as part of this report:

<S>                                                                                                           <C>
         Independent Auditors' Report.                                                                          F-1

         Consolidated Balance Sheets as of December 31, 2003, and December 31, 2002.                            F-2

         Consolidated Statements of Operations for the years ended
         December 31, 2003, December 31, 2002, and December 31, 2001.                                           F-3

         Consolidated Statements of Stockholders' Equity for the years
         ended December 31, 2003, December 31, 2002, and December 31, 2001.                                     F-4

         Consolidated Statements of Cash Flows for the years ended
         December 31, 2003, December 31, 2002, and December 31, 2001.                                           F-5

         Notes to Financial Statements.                                                                         F-6

    2.   Financial Statement Schedules.

         Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 2003.          F-27
</TABLE>

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      By-laws of the Company  (referred to therein  under its former
                  name PIA)  (incorporated  by reference to the above referenced
                  Form S-1).

         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     Service Agreement dated as of January 4, 1999, by and between
                  SPAR Marketing Force, Inc., and SPAR Marketing Services, Inc.
                  (incorporated by reference to the Company's Form 10-K/A
                  (Amendment No. 1) for the fiscal year ended December 31,
                  1999).

         10.5     Business Manager Agreement dated as of July 8, 1999, by and
                  between SPAR Marketing Force, Inc., and SPAR Marketing
                  Services, Inc. (incorporated by reference to the Company's
                  Form 10-K/A (Amendment No. 1) for the fiscal year ended
                  December 31, 1999).

                                      -37-
<PAGE>

         10.6     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.)

         10.7     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.)

         10.8     [Reserved.]

         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).

         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).

         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
                  the Company's Form 10-Q for the quarter ended June 30, 2002).

         10.12    Amendment  No. 7 to  Second  Amended  and  Restated  Revolving
                  Credit, Term Loan and Security Agreement by and among the SPAR
                  Borrowers  and the  Lender,  effective  as of October 31, 2002
                  (incorporated  by reference to the Company's Form 10-Q for the
                  quarter ended September 30, 2002).

         10.13    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).

         10.14    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,
                  as filed herewith.

         21.1     List of Subsidiaries.

         23.1     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.

(b) Reports on Form 8-K.

        None.

                                      -38-
<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 30, 2004

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 30, 2004

/s/ William H. Bartels           Vice Chairman and Director
-----------------------------
     William H. Bartels
Date: March 30, 2004

/s/ Robert O. Aders              Director
-----------------------------
     Robert O. Aders
Date: March 30, 2004

/s/ Jack W. Partridge            Director
-----------------------------
     Jack W. Partridge
Date: March 30, 2004

/s/ Jerry B. Gilbert             Director
-----------------------------
     Jerry B. Gilbert
Date: March 30, 2004

/s/ Lorrence T. Kellar           Director
-----------------------------
     Lorrence T. Kellar
Date: March 30, 2004

/s/ Charles Cimitile             Chief Financial Officer
-----------------------------    Treasurer and Secretary (Principal Financial
     Charles Cimitile            and Accounting Officer)
Date: March 30, 2004


                                      -39-

<PAGE>

                         Report of Independent Auditors

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

We have  audited  the  consolidated  balance  sheets  of SPAR  Group,  Inc.  and
Subsidiaries,  as of December  31,  2003 and 2002 and the  related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended  December 31, 2003. Our audits also included the
financial  statement schedule listed in the Index at Item 15(a). These 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 conducted our audits in accordance with auditing standards generally accepted
in the 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 also 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 audits 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  SPAR  Group,  Inc.  and
Subsidiaries  at December 31, 2003 and 2002 and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 2003, in conformity with  accounting  principles  generally  accepted in the
United States.  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  materiel  respects  the  information  set forth
therein.

As discussed in Note 2, the Company  adopted  Statement of Accounting  Standards
No. 142, effective January 1, 2002.



                                               /s/ Ernst & Young LLP


Minneapolis, Minnesota
February 13, 2004


                                       F-1
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

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

                                                          December 31,
                                                     ---------------------
                                                       2003         2002
                                                     --------     --------
Assets
Current assets:
   Cash and cash equivalents                         $      -     $      -
   Accounts receivable, net                            13,942       16,458
   Prepaid expenses and other current assets              415          783
   Deferred income taxes                                1,305          903
                                                     --------     --------
Total current assets                                   15,662       18,144

Property and equipment, net                             2,099        1,972
Goodwill                                                8,749        7,858
Deferred income taxes                                     434          705
Other assets                                              926          121
                                                     --------     --------
Total assets                                         $ 27,870     $ 28,800
                                                     ========     ========


Liabilities and stockholders' equity Current liabilities:
   Accounts payable                                  $  1,445     $    422
   Accrued expenses and other current liabilities       4,367        5,140
   Accrued expenses, due to affiliates                    996          958
   Restructuring charges, current                         685        1,354
   Due to certain stockholders                              -        3,951
   Line of credit, short term                           4,084            -
                                                     --------     --------
Total current liabilities                              11,577       11,825

Line of credit                                              -          148
Restructuring charges, long term                            -          235
Other long term liabilities                               270            -

Commitments and Contingencies
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 -
       18,858,972 - 2003
       18,824,527 - 2002                                  189          188
   Additional paid-in capital                          11,249       10,919
   Accumulated other comprehensive loss                    (7)           -
   Retained earnings                                    4,976        5,515
   Treasury stock                                        (384)         (30)
                                                     --------     --------
Total stockholders' equity                             16,023       16,592
                                                     --------     --------
Total liabilities and stockholders' equity           $ 27,870     $ 28,800
                                                     ========     ========

See accompanying notes.


                                       F-2
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

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

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                     ----------------------------------
                                                       2003         2002         2001
                                                     --------     --------     --------
<S>                                                  <C>          <C>          <C>
Net revenues                                         $ 64,859     $ 69,612     $ 70,891
Cost of revenues                                       42,338       40,331       40,883
                                                     --------     --------     --------
Gross profit                                           22,521       29,281       30,008

Selling, general, and administrative expenses          20,967       18,804       19,380
Depreciation and amortization                           1,529        1,844        2,682
                                                     --------     --------     --------
Operating income                                           25        8,633        7,946

Other expense (income)                                    237          (26)         107
Interest expense                                          269          363          561
                                                     --------     --------     --------

(Loss) income from continuing operations before
   provision for income taxes                            (481)       8,296        7,278
Provision for income taxes                                 58        2,998        3,123
                                                     --------     --------     --------
Net (loss) income from continuing operations             (539)       5,298        4,155
                                                     ========     ========     ========

Discontinued operations:
   Loss from discontinued operations, net of tax
     benefit of $938                                        -            -       (1,597)
   Estimated loss on disposal of discontinued
     operations, net of tax benefit of $2,618               -            -       (4,272)
                                                     --------     --------     --------
Net (loss) income                                    $   (539)    $  5,298     $ (1,714)
                                                     ========     ========     ========

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

   (Loss) income from continuing operations          $  (0.03)    $   0.28     $   0.23
   Loss from discontinued operations                        -            -        (0.32)
                                                     --------     --------     --------
   Net (loss) income                                 $  (0.03)    $   0.28     $  (0.09)
                                                     ========     ========     ========


   Weighted average shares outstanding - basic         18,855       18,761       18,389
                                                     ========     ========     ========

   Weighted average shares outstanding - diluted       18,855       19,148       18,467
                                                     ========     ========     ========
</TABLE>

See accompanying notes.


                                       F-3
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

                 Consolidated Statement of Stockholders' Equity
                                 (In thousands)

<TABLE>
<CAPTION>
                                                      Common Stock                                       Accumulated      Total
                                          ------------------------------------ Additional                   Other         Stock-
                                                                    Treasury     Paid-In      Retained   Comprehensive   holders'
                                             Shares      Amount      Stock       Capital       Earnings     (Loss)        Equity
                                          ------------------------------------------------------------------------------------------
<S>                                          <C>         <C>        <C>          <C>           <C>        <C>           <C>
Balance at December 31, 2000                 18,272      $   182    $      -     $ 10,127      $ 1,931    $     -       $  12,240

   Stock options exercised and employee
     stock purchase plan purchases              311            4           -          404            -                        408
   Net loss                                       -            -           -            -       (1,714)                    (1,714)
                                          ------------------------------------------------------------------------------------------
Balance at December 31, 2001                 18,583          186           -       10,531          217          -          10,934

   Stock options exercised and employee
     stock purchase plan purchases              242            2           -          388            -                        390
   Purchase of treasury stock                     -            -         (30)           -            -                        (30)
   Net income                                     -            -           -            -        5,298                      5,298
                                          ------------------------------------------------------------------------------------------
Balance at December 31, 2002                 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
                                          ==========================================================================================
</TABLE>

See accompanying notes.


                                       F-4
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                          --------------------------------
                                                           2003         2002         2001
                                                          ------       ------       ------
<S>                                                     <C>          <C>          <C>
 Operating activities
 Net (loss) income                                      $   (539)    $  5,298     $ (1,714)
 Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities:
      Depreciation                                         1,529        1,844        2,217
      Amortization                                             -            -        1,630
      Estimated loss on disposal of discontinued
         operations                                            -            -        4,272
      Issuance of stock options for services                 416            -            -
      Share of loss in joint venture                         270            -            -
      Changes in operating assets and liabilities:
        Accounts receivable                                2,516        4,686           13
        Prepaid expenses and other current assets            (87)        (354)         318
        Deferred income taxes                               (131)       2,022        1,710
        Accounts payable, accrued expenses and other
          current liabilities                                288         (191)      (7,202)
        Restructuring charges                               (904)        (593)      (1,487)
                                                          ------       ------       ------
 Net cash provided by (used in) operating activities       3,358       12,712         (243)

 Investing activities
 Purchases of property and equipment                      (1,456)      (1,172)      (1,744)
 Deposit related to acquisition                             (350)           -            -
 Acquisition of businesses                                (1,091)           -            -
                                                          ------       ------       ------
 Net cash used in investing activities                    (2,897)      (1,172)      (1,744)

 Financing activities
 Net borrowings (payments) on line of credit               3,936      (11,139)       3,526
 Payments on long-term debt                                    -          (57)      (1,465)
 Payments to certain stockholders                         (3,951)        (704)        (482)
 Proceeds from employee stock purchase plan and
    exercised options                                        485          390          408
 Purchase of treasury stock                                 (924)         (30)           -
                                                          ------       ------       ------
 Net cash (used in) provided by financing activities        (454)     (11,540)       1,987

 Net effect of exchange rates on cash                         (7)           -            -

 Net decrease in cash                                          -            -            -
 Cash at beginning of year                                     -            -            -
                                                          ------       ------       ------

 Cash at end of year                                           -       $    -       $    -
                                                          ======       ======       ======

 Supplemental disclosure of cash flow information
 Interest paid                                            $  241       $  686       $1,892
                                                          ======       ======       ======

 Income taxes paid                                        $  578       $  200       $   68
                                                          ======       ======       ======
</TABLE>

See accompanying notes



                                       F-5
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements
                                December 31, 2003


1. Business and Organization

The SPAR Group,  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 database marketing, teleservices and
marketing research.  In 2002, the Company sold its Incentive Marketing Division,
SPAR Performance Group, Inc. ("SPGI").  The Company's continuing  operations are
now divided into two  divisions:  the  Merchandising  Services  Division and the
International   Division.   The   Merchandising   Services   Division   provides
merchandising  services,  in-store  product  demonstrations,  product  sampling,
database  marketing,  teleservices and marketing  research to manufacturers  and
retailers with product distribution primarily in mass merchandisers,  drug store
chains and  grocery  stores in the United  States.  The  International  Division
established in July 2000,  currently provides  merchandising  services through a
joint venture in Japan and the acquisition of a merchandising  company in Canada
in June 2003.  The  Company has also  established  a start-up  joint  venture in
Turkey.  The Company continues to focus on expanding its merchandising  services
business throughout the world.

Merchandising Services Division

The Company's Merchandising Services Division provides nationwide  merchandising
and  other  marketing   services   primarily  on  behalf  of  consumer   product
manufacturers and retailers at mass merchandisers,  drug store chains and retail
grocery stores.  Included in its customers are home entertainment,  PC software,
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.  In 2003, the Company added in-store product  demonstration
and in-store product sampling services to its merchandising  service  offerings.
The  Company  also  provides  database  marketing,  teleservices  and  marketing
research services.



                                       F-6
<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003


1.  Business and Organization (continued)

International Division

In July 2000, the Company  established  its  International  Division to focus on
expanding  its  merchandising  services  business  worldwide.  In May 2001,  the
Company  entered  into a joint  venture  with a large  Japanese  distributor  to
provide merchandising  services in Japan. In June 2003, the Company expanded its
merchandising  services  into Canada  through the  purchase of the  business and
certain  assets of Impulse  Marketing  Services  Inc. In July 2003,  the Company
entered  into a joint  agreement  with a company  based in  Istanbul  to provide
retail-merchandising services throughout Turkey. The start-up joint venture will
operate under the name SPAR Turkey Ltd. and is 51% owned by the Company.

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. SIM sold all of the stock of its subsidiary, SPGI, 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. In December of 2003,
SPGI changed its name to STIMULYS, Inc.

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 are  guarantied  by SPGI and
secured  by  pledges  of all the  assets of PHI and SPGI.  The Term  Loans  bear
interest at a rate of 12% per annum  through  December 31,  2003.  On January 1,
2004,  and on January 1 each year  thereafter,  the interest rate is adjusted to
equal the higher of the median or mean of the High Yield Junk Bond interest rate
as reported in the Wall Street Journal (or similar publication or service if the
Wall Street Journal no longer reports such rate) on the last business day in the
immediately  preceding December.  The Initial Term Loan is required to be repaid
in quarterly  installments  that increase over the term of the loan,  commencing
March 31, 2003, with a balloon payment required at maturity on June 30, 2007. In
addition to the preceding  payments of the Initial Term Loan, PHI is required to
make annual  mandatory  prepayments  of the Term Loans on February  15th of each
year, commencing on February 15, 2004, equal to:

         o        40% of the  amount of  Adjusted  Cash Flow (as  defined in the
                  Revolver)  for the  immediately  preceding  fiscal  year ended
                  December 31; and

         o        35% of the amount of excess  targeted  Adjusted  Cash Flow (as
                  defined in the Revolver) for the immediately  preceding fiscal
                  year ended December 31.

These payments will be applied first to accrued and unpaid  interest on the Term
Loans and Revolver,  then to the Additional Term Loan until repaid,  and then to
the Initial Term Loan.  Because  collection  of the notes  depends on the future
operations  of  PHI,  the  $6.0  million  notes  were  fully  reserved   pending
collection.  At  December  31,  2003,  PHI and SPGI were in  default  of various
covenants under the agreements.

                                       F-7
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003


1.  Business and Organization (continued)

In addition to the Term Loans,  SIM agreed to provide a discretionary  revolving
line of credit to SPGI not to exceed $2.0 million (the "Revolver"). The Revolver
is secured by a pledge of all the assets of SPGI and is  guarantied  by PHI. The
Revolver provides for advances in excess of the borrowing base through September
30, 2005.  Through September 30, 2003, the Revolver  calculated  interest at the
higher of the Term Loans interest rate or the prime  commercial  lending rate as
announced  in the Wall Street  Journal plus 4.0% per annum.  In September  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. As of October 1,
2003, the Revolver  includes a borrowing base  calculation  (principally  85% of
eligible accounts receivable).

Due to the speculative  nature of the loan, and as a result of various defaults,
the Company has included in other current  liabilities  an $0.8 million  reserve
against the $2.0 million Revolver commitment.

In December 2001,  the Company  reviewed the goodwill  associated  with SPGI and
recorded  an  impairment  of  goodwill  totaling  $4.3  million,  net of  taxes,
including  a $1.0  million  reserve  recorded in 2001 for the cost to dispose of
SPGI and the anticipated losses through the date of divestiture, June 30, 2002.

The Company continues to assess whether SPGI is a variable interest entity under
FASB Interpretation No. 46 "Consolidation of Variable Interest  Entities",  and,
if so,  whether or not the Company may be  required to  consolidate  SPGI in its
financial statements.

Operating  losses of $682,000  incurred  from January 1, 2002,  through June 30,
2002, the date of divestiture,  were charged against such $1.0 million  reserve.
In addition, $318,000 of costs to dispose of SPGI were also charged against such
reserve. The 2001 consolidated  statements of operations were restated to report
the results of discontinued  operations  separately from continuing  operations.
Operating  results of the discontinued  operations are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
                                               Six Months      Year Ended
                                              Ended June 30,   December 31,
                                                  2002             2001
                                                --------         --------
<S>                                             <C>              <C>
Net sales                                       $ 15,735         $ 31,202
Less:
Cost of sales                                     13,092           26,032
Selling, general and administrative expenses       2,814            5,736
Interest expense                                     383              804
Depreciation                                         128              306
Amortization                                           -              859
                                                --------         --------
Operating loss                                      (682)          (2,535)
Provision for income tax benefit                    (259)            (938)
                                                --------         --------
Net loss                                        $   (423)        $ (1,597)
                                                ========         ========
</TABLE>

                                       F-8
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003


2.  Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated  financial  statements include the accounts of SPAR Group, Inc.
and its wholly owned  subsidiaries.  All intercompany  accounts and transactions
have been eliminated in consolidation.

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.

Revenue Recognition

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

Unbilled Accounts Receivable

Unbilled accounts receivable represent services performed but not billed.

Allowance for Doubtful Accounts and Sales Allowance

The Company  continually  monitors the collectability of its accounts receivable
based upon current customer credit information and other information  available.
Utilizing  this  information,  the  Company has  established  an  allowance  for
doubtful  accounts of  $515,000  and  $301,000  at  December  31, 2003 and 2002,
respectively.  The  Company  also  recorded a sales  allowance  of  $448,000  to
properly reflect potential customer credits as of December 31, 2003.

Property and Equipment

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

Internal Use Software Development Costs

The Company  under the rules of SOP 98-1,  Accounting  for the Costs of Computer
Software  Developed or Obtained  for Internal  Use,  capitalizes  certain  costs
incurred in  connection  with  developing  or obtaining  internal use  software.
Capitalized software development costs are amortized over three years.

The Company  capitalized  $1,004,000,  $772,000 and $430,000 of costs related to
software developed for internal use in 2003, 2002 and 2001, respectively.


                                       F-9
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003


2.  Summary of Significant Accounting Policies (continued)

Impairment of Long-Lived Assets

The Company  reviews its long-lived  assets for  impairment,  whenever events or
changes  in  circumstances  indicate  that  the  carrying  amounts  may  not  be
recoverable and the  undiscounted  cash flows estimated to be generated by those
total  assets are less than the  assets'  carrying  amount.  If such  assets are
considered  to be impaired,  the  impairment to be recognized is measured by the
amount by which the carrying  amount of the assets exceeds the fair value of the
assets.

Fair Value of Financial Instruments

The  Company's  balance  sheets  include the  following  financial  instruments:
accounts  receivable,  accounts  payable  and a  line  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 line of credit  approximates  fair value  because  the  obligation
bears  interest at a floating  rate.  The carrying  amount of long-term  debt to
certain  stockholders  approximates  fair value  because the  current  effective
interest rates reflect the market rate for unsecured debt with similar terms and
remaining maturities.

Concentration of Credit Risk and Other Risks

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist  primarily of accounts  receivable.  The Company has minimal
cash, as excess cash is generally utilized to pay its bank line of credit.

One customer, a division of a major retailer,  accounted for 30%, 26% and 25% of
the Company's net revenues for the years ended December 31, 2003, 2002 and 2001,
respectively. This customer also accounted for approximately 30%, 43% and 24% of
accounts receivable at December 31, 2003, 2002 and 2001,  respectively.  In late
2003, the customer's  parent company  announced that it was exploring  strategic
opportunities including the sale of this division. In the event of a sale, there
can be no assurances that any purchaser will continue to use the services of the
Company.  The loss of this business could have a material  adverse effect on the
Company's business, results of operations and financial condition.

A second  customer  accounted  for 10%, 11% and 9% of the Company's net revenues
for the years ended December 31, 2003, 2002 and 2001, respectively.  This second
customer also accounted for approximately  9%, 5% and 4% of accounts  receivable
at December 31, 2003, 2002 and 2001, respectively. As of March 2004, the Company
will no longer be providing  services for this customer.  Failure to attract new
large customers could significantly impede the growth of the Company's revenues,
which could have a material  adverse  effect on the Company's  future  business,
results of operations and financial condition.


                                      F-10
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003


2.  Summary of Significant Accounting Policies (continued)

In addition,  approximately 17%, 24% and 31% of net revenues for the years ended
December 31, 2003,  2002 and 2001,  respectively,  resulted  from  merchandising
services  performed  for  manufacturers  and  others at Kmart.  Kmart  filed for
protection  under the U.S.  Bankruptcy  Code in January of 2002 and emerged from
bankruptcy in May of 2003. During its time in bankruptcy,  Kmart closed a number
of stores in the United States.  While the Company's customers and the resultant
contractual  relationships  are with  various  manufacturers  and not  Kmart,  a
significant  reduction of this retailer's stores or cessation of this retailer's
business  would  negatively  impact  the  Company.  As of August 31,  2003,  one
customer discontinued its merchandising  programs with the Company. Some but not
all of these  programs were performed at Kmart stores.  This customer  accounted
for 10%, 17% and 12% of the business  generated from Kmart for the twelve-months
ended December 31, 2003, 2002 and 2001, respectively.

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 also are
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 financial reporting basis
and tax basis of the Company's assets and liabilities result in net deferred tax
assets,  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.

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  (loss)  income  and pro forma net  (loss)  income per share from
continuing  operations would have been reduced to the adjusted amounts indicated
below (in thousands, except per share data):


                                      F-11
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003


2.  Summary of Significant Accounting Policies (continued)

<TABLE>
<CAPTION>
                                                             Twelve Months Ended December 31,
                                                              ----------------------------
                                                               2003        2002      2001
                                                              -----       -----     ------
<S>                                                         <C>         <C>        <C>
Net (loss) income, as reported                              $  (539)    $ 5,298    $(1,714)
Stock based employee compensation (benefit) expense
  Under the fair market value method                          1,005       1,844     (1,129)
                                                              -----       -----     ------

Pro forma net (loss) income                                 $(1,544)    $ 3,454    $  (585)

Basic and diluted net (loss) income per share, as           $ (0.03)    $  0.28    $ (0.09)
  reported
Basic and diluted net (loss) income per share, pro forma    $ (0.08)    $  0.18    $ (0.03)
</TABLE>


The pro forma effect on net (loss) income is not representative of the pro forma
effect on net income 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 154%,  172% and 187% for 2003,  2002 and 2001,
respectively;  risk-free  interest rate of 4.27%,  4.03% and 5.14%; and expected
lives of six years.

Net (Loss) Income Per Share

Basic net (loss)  income per share  amounts are based upon the weighted  average
number of common shares outstanding. Diluted net (loss) income 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, 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  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.


                                      F-12
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

2.  Summary of Significant Accounting Policies (continued)

Goodwill

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 142,
Goodwill and Other  Intangible  Assets,  in the first quarter of 2002. Under the
new rules,  goodwill  will no longer be amortized  but will be subject to annual
impairment  tests in accordance  with the  Statement.  During 2003,  the Company
performed the required impairment tests of goodwill. As a result of these tests,
there was no effect on the earnings and financial position of the Company.

The  following  table  presents  the  results  of the  Company  for all  periods
presented on a comparable basis (in thousands except per share information):

<TABLE>
<CAPTION>
                                                  2003                   2002                   2001
                                           -------------------    -------------------    --------------------
<S>                                          <C>                  <C>                     <C>
Reported net (loss) income                   $     (539)          $      5,298            $   (1,714)
Add: Goodwill amortization                            -                      -                   771
                                           -------------------    -------------------    --------------------
Adjusted net (loss) income                   $     (539)          $      5,298           $      (943)
                                           ===================    ===================    ====================

Basic and diluted net (loss) income per share:
Reported net (loss) income                  $      (0.03)         $         0.28         $      (0.09)
Add: Goodwill amortization                             -                       -                 0.04
                                           -------------------    -------------------    --------------------
Adjusted net (loss) income                  $      (0.03)         $         0.28         $      (0.05)
                                           ===================    ===================    ====================
</TABLE>

Prior to 2002, the Company amortized all goodwill over 15 years.

Changes to  goodwill  for the years  ended  December  31,  2003 and 2002 were as
follows:

<TABLE>
<CAPTION>
                                                    2003                 2002
                                              -----------------    ------------------
<S>                                               <C>                  <C>
Beginning of the year                             $  7,858             $  8,357
Changes in  deferred  tax assets  related
   to  use of PIA  net  operating  losses
   acquired                                              -                 (499)
Adjustment   to   merger    related   and
   restructure liabilities                             (89)                   -
Acquisitions                                           980                    -
                                              -----------------    ------------------
End of the year                                   $  8,749             $  7,858
                                              =================    ==================
</TABLE>

In 2003, the Company  completed two  acquisitions  totaling  approximately  $1.1
million.  The  purchase  prices were  allocated  to the fair value of the assets
acquired with  approximately $0.1 million in equipment and the remainder of $1.0
million allocated to tax deductible goodwill.

In 2003, the Company also paid  approximately  $0.4 million as a deposit related
to a third  acquisition  that  closed in 2004.  The total  purchase  price  will
approximate $0.9 million.


                                      F-13
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

2.  Summary of Significant Accounting Policies (continued)

Reclassifications

Certain   reclassifications  have  been  made  to  the  prior  years'  financial
statements to conform to the 2003 presentation.

3.  Supplemental Balance Sheet Information

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

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                               2003              2002
                                                                       ------------------------------------
<S>                                                                        <C>               <C>
    Trade                                                                  $   10,333        $  11,016
    Unbilled                                                                    4,551            5,743
    Non-trade                                                                      21                -
                                                                       ------------------------------------
                                                                               14,905           16,759
    Less:
      - Allowance for doubtful accounts                                          (515)            (301)
      - Sales allowance                                                          (448)               -
                                                                       ------------------------------------
                                                                           $   13,942        $  16,458
                                                                       ====================================
</TABLE>

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                             2003              2002
                                                                       ------------------------------------
<S>                                                                        <C>              <C>
    Equipment                                                              $   4,784        $   4,175
    Furniture and fixtures                                                       550              509
    Leasehold improvements                                                       141              138
    Capitalized software development costs                                     2,128            2,216
                                                                       ------------------------------------
                                                                               7,603            7,038
    Less accumulated depreciation and amortization                             5,504            5,066
                                                                       ------------------------------------
                                                                           $   2,099        $   1,972
                                                                       ====================================
</TABLE>


                                      F-14
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

3.  Supplemental Balance Sheet Information (continued)


Accrued  expenses and other  current  liabilities  consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                             2003              2002
                                                                       ------------------------------------
<S>                                                                       <C>               <C>
    Accrued salaries and other related costs                              $       343       $      623
    Accrued merger related costs                                                1,495            1,945
    Due to SPGI (STIMULYS) (cash deposits)                                        794              917
    Other                                                                       1,735            1,655
                                                                       ------------------------------------
                                                                           $    4,367        $   5,140
                                                                       ====================================
</TABLE>

4.  Line of Credit and Long-Term Liabilities

In  January  2003,  the  Company  and  Whitehall   Business  Credit  Corporation
("Whitehall"),  entered into the Third Amended and Restated Revolving Credit and
Security Agreement (as amended,  collectively,  the "Credit Facility") including
amendments made by the Consent,  Joinder,  Release and Amendment Agreement dated
as of October 31, 2003. The Credit Facility  provides a $15.0 million  revolving
credit facility that matures on January 23, 2006. The Credit Facility allows 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).
The Credit  Facility bears interest at  Whitehall's  "Alternative  Base Rate" (a
total of 4.0% per annum at  December  31,  2003) or LIBOR plus two and  one-half
percent and is secured by all the assets of the Company and its subsidiaries.

The Credit Facility  contains certain  financial  covenants which must be met by
the Company on a consolidated  basis,  among which are a minimum "Net Worth",  a
"Fixed Charge Coverage  Ratio", a capital  expenditure  limitation and a minimum
EBITDA,  as  such  terms  are  defined  in the  agreement.  The  Company  was in
compliance  with such financial  covenants at December 31, 2003,  except for the
"Fixed Charge Coverage  Ratio",  and minimum  EBITDA,  for which the Company has
secured a waiver from Whitehall.

Because of the requirement to maintain a lock box arrangement with Whitehall and
Whitehall's   ability  to  invoke  a  subjective   acceleration  clause  at  its
discretion,  borrowings  are  classified  as current at December  31,  2003,  in
accordance with EITF 95-22.

The  balances  outstanding  on the  revolving  line of credit  under the  Credit
Facility  were $4.1  million and  $148,000 at December 31, 2003 and December 31,
2002,  respectively.  As of December 31,  2003,  based upon the  borrowing  base
formula,  the SPAR  Group had  availability  under the Credit  Facility  of $4.6
million of the $10.9 million unused revolving line of credit.

A prior credit  facility  contained an option for  Whitehall to purchase  16,667
shares of Common  Stock of the Company for $0.01 per share in the event that the
Company's average closing share price over a ten consecutive  trading day period
exceeds $15.00 per share. This option expired on July 31, 2003.


                                      F-15
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

5.  Income Taxes

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


<TABLE>
<CAPTION>
                                                        December 31,
                                        2003                2002                2001
                                  -----------------  ------------------  -------------------
<S>                                 <C>                  <C>                 <C>
    Current                         $      189           $    476            $    109
    Deferred                              (131)             2,522               3,014
                                  -----------------  ------------------  -------------------
                                    $       58           $  2,998             $ 3,123
                                  =================  ==================  ===================
</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,
                                                        2003                2002                2001
                                                   ---------------     ----------------    ----------------
<S>                                                <C>                 <C>                 <C>
   Provision for income taxes at federal
     statutory rate                                     $  (77)            $ 2,821              $ 2,475
   State income taxes, net of federal benefit               95                 175                  317
   Permanent differences                                    41                 (48)                 317
   Other                                                    (1)                 50                   14
                                                   ---------------     ----------------    ----------------
   Provision for income taxes                         $     58             $ 2,998              $ 3,123
                                                   ===============     ================    ================
</TABLE>


                                      F-16
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

5.  Income Taxes (continued)

Deferred taxes consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                             2003              2002
                                                                       ------------------------------------
<S>                                                                    <C>                    <C>
    Deferred tax assets:
      Net operating loss carryforwards                                      $   3,876          $ 3,876
      Restructuring                                                               309              454
      Accrued compensation and related benefits                                     -              160
      SIM reserve against loan commitment                                         304              320
      Allowance for doubtful accounts and other receivable                        323              114
      Other                                                                       559              206
      Valuation allowance                                                      (3,126)          (3,126)
                                                                       ------------------------------------
    Total deferred tax assets                                                   2,245            2,004

    Deferred tax liabilities:
      Capitalized software development costs                                      506              396
                                                                       ------------------------------------
    Total deferred tax liabilities                                                506              396
                                                                       ------------------------------------
    Net deferred tax assets                                                  $  1,739          $ 1,608
                                                                       ====================================
</TABLE>


At December 31, 2003, the Company has net operating loss  carryforwards  (NOL's)
of $10.2  million,  primarily  related to the PIA reverse  merger,  available to
reduce  future  federal  taxable  income.   The  Company's  net  operating  loss
carryforwards  begin to expire in the year  2012.  Section  382 of the  Internal
Revenue Code  restricts the annual  utilization of the NOL's 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.

The Company has  established  a valuation  allowance for the deferred tax assets
related to the available NOL's that are deductible for years  subsequent to 2005
totaling  $3,126,000.  The $3,126,000  valuation allowance at December 31, 2003,
when  realized  will result in a reduction of goodwill  associated  with the PIA
acquisition.  Due to the loss in 2003,  the Company did not reduce the valuation
allowance or goodwill  associated  with PIA NOL's.  In 2002, the Company reduced
the valuation allowance and goodwill by $499,000.


                                      F-17
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

6.  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 $1.0 million for the
years ended  December 31,  2003,  2002 and 2001,  respectively.  At December 31,
2003,  future  minimum  commitments  under all  non-cancelable  operating  lease
arrangements are as follows (in thousands):

                             2004                      $ 947
                             2005                        651
                             2006                        512
                             2007                         91
                             2008                         20

Joint Venture Guarantee

In May  2001,  the  Company  and  Paltac,  Inc.  ("Paltac"),  a  large  Japanese
distributor, entered into a joint venture to create a Japanese company, SPAR FM.
SPAR FM  entered  into a Yen  300  million  Revolving  Credit  Agreement  with a
Japanese bank. The bank required Paltac guarantee the outstanding balance on the
revolving credit facility. As part of the joint venture agreement, should Paltac
be required to make a payment on its guarantee to the bank, then the Company has
agreed to remit to Paltac  50% of any such  payment  up to a maximum  of Yen 150
million or  approximately  $1.4  million.  As of December 31, 2003,  SPAR FM has
borrowed Yen 100 million under its Revolving Credit  Agreement.  Therefore,  the
Company's current exposure to Paltac respecting  outstanding loans to SPAR FM at
December 31, 2003 would be Yen 50 million or approximately $470,000. The Company
has  recorded  approximately  Yen 0.3 million in long-term  liabilities  for its
share of the cumulative losses associated with this joint venture.

Legal Matters

On October 24, 2001,  Safeway Inc., a former  customer of the PIA  Merchandising
Co.,  Inc. and Pivotal  Sales  Company,  filed a complaint  alleging  damages of
approximately  $3.6 million plus interest and costs and alleged punitive damages
in an unspecified  amount against the Company in Alameda County  Superior Court,
California,  Case No.  2001028498  with respect to (among other things)  alleged
breach of contract. On or about December 30, 2002, the Court approved the filing
of Safeway Inc.'s Second Amended  Complaint,  which alleges causes of action for
(among other things) breach of contract against the Company,  PIA  Merchandising
Co., Inc. and Pivotal Sales Company. The Second Amended Complaint was filed with
the Court on January  13,  2003,  and does not  specify  the amount of  monetary
damages  sought.  No punitive or exemplary  damages are sought in Safeway Inc.'s
Second  Amended  Complaint.  This  case is  being  vigorously  contested  by the
Company.

The Company is a party to various legal actions and  administrative  proceedings
arising in the normal course of business.  In the opinion of Company management,
disposition  of these  matters are not  anticipated  to have a material  adverse
effect on the  financial  position,  results of  operations or cash flows of the
Company.


                                      F-18
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

7.  Employee Benefits

Retirement/Pension Plans

The Company has a 401(k) Profit Sharing Plan covering substantially all eligible
employees.  Employer  contributions  were  approximately  $87,000,  $117,000 and
$118,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

Certain of the Company's employees are covered by union-sponsored,  collectively
bargained,  multi-employer pension plans. Pension expense related to these plans
was approximately $32,000,  $60,000 and $77,000 for the years ended December 31,
2003, 2002 and 2001, respectively.

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  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. During 2003,
the Company transferred from Treasury Stock, for purchase under the plans, 9,848
shares at a weighted  average  price of $3.04 and  purchased  12,713 shares at a
weighted average price of $3.57. During 2002 and 2001, the Company issued 10,104
shares,  and 2,638 shares of common stock, at a weighted  average price of $2.51
and $1.90 per share, respectively.

8.  Related-Party Transactions

The  Company.  is  affiliated  through  common  ownership  with  SPAR  Marketing
Services,  Inc.  ("SMS"),  SPAR  Management  Services,  Inc.  ("SMSI")  and SPAR
Infotech,  Inc. ("SIT").  The Company's CEO and Vice Chairman are sole owners of
these affiliates.  SMS and SMSI (through SMS) provided  approximately 92% of the
Company's field representatives (through its independent contractor field force)
and  substantially  all of the Company's field  management  services.  Under the
terms of the Field Service Agreement, SMS provides the services of approximately
6,000  field  representatives  and  SMSI  provides  approximately  80  full-time
national, regional and district managers to the Company as they may request from
time to time,  for which the  Company has agreed to pay SMS for all of its costs
of providing those services plus 4%.

SIT provided Internet  computer-programming  services to the Company.  Under the
terms of the programming  agreement  between the Company and SIT effective as of
October 1, 1998, SIT continues to provide  programming  services to the Company,
for which the Company has agreed to pay SIT competitive hourly wage rates and to
reimburse SIT's out-of-pocket expenses.


                                      F-19
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

8.  Related-Party Transactions (continued)

The following transactions occurred between the Company and the above affiliates
(in thousands):

<TABLE>
<CAPTION>
                                                                  Twelve Months Ended December 31,
                                                               2003           2002             2001
                                                          -------------------------------------------------
<S>                                                       <C>               <C>              <C>
    Services provided by affiliates:
      Independent contractor services (SMS)                   $28,411        $ 23,262         $ 8,337
                                                          =================================================

      Field management services (SMSI)                        $ 7,600        $  7,280         $ 6,779
                                                          =================================================

      Internet and software program
      consulting services (SIT)                               $ 1,607        $  1,626         $ 1,185
                                                          =================================================

    Services provided to affiliates:
      Field management services (SMSI)                        $   805        $    732         $   390
                                                          =================================================


    Balance due to affiliates included in
      accrued expenses (in thousands):                                     December 31,
                                                               2003            2002             2001
                                                          -------------------------------------------------

    SPAR Marketing Services, Inc.                             $   996        $     932        $   611
    SPAR Infotech, Inc.                                             -               26              -
                                                          -------------------------------------------------
                                                              $   996        $     958        $   611
                                                          =================================================
</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, 2003, 2002 and 2001. The Company's CEO and Vice Chairman own,  through SMSI,
a minority (less than 5%) equity interest in Affinity.

9.  Stock Options

The Company has four stock option  plans:  the Amended and  Restated  1995 Stock
Option Plan (1995 Plan), the 1995 Director's Plan (Director's Plan), the Special
Purpose Stock Option Plan, and the 2000 Stock Option Plan (2000 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 the Company'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. At December 31, 2003, options to purchase 43,250 shares
of the Company's common stock remain  outstanding under this Plan. The 1995 Plan
was  superseded  by the 2000 Stock  Option Plan with  respect to all new options
issued.


                                      F-20
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

9.  Stock Options (continued)

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 the Company's common stock.
Since 2000, the Company has not granted any new options under this Plan.  During
2003, no options to purchase shares of the Company's common stock were exercised
under this Plan. At December 31, 2003,  20,000 options to purchase shares of the
Company'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.

On July 8, 1999,  in connection  with the merger,  the Company  established  the
Special Purpose Stock Option 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, the Company has not granted any new options under
this plan.  During 2003, no options to purchase  shares of the Company's  common
stock were exercised under this Plan. At December 31, 2003,  options to purchase
25,750 shares of the Company's common stock remain outstanding under this Plan.

On December 4, 2000, the Company  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 the  Company'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 the  Company's  common stock at the date of grant.  During 2003,
options to purchase  401,020 shares of the Company's  common stock were granted,
options to purchase  143,641 shares of the Company's common stock were exercised
and options to purchase  86,500  shares of the  Company's  stock were  cancelled
under this Plan. At December 31, 2003,  options to purchase  2,180,060 shares of
the  Company's  common stock remain  outstanding  under this Plan and options to
purchase  743,344 shares of the Company's  common stock were available for grant
under this Plan.


                                      F-21
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

9.  Stock Options (continued)


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

<TABLE>
<CAPTION>
                                                                                        Weighted Average
                                                                                         Exercise Price
                                                                          Shares
                                                                   ----------------------------------------
<S>                                                                      <C>                 <C>
    Granted                                                              2,564,844           $ 1.31
    Exercised                                                             (309,492)            1.30
    Canceled or expired                                                 (2,761,474)            5.00
                                                                   ---------------------
    Options outstanding, December 31, 2001                               2,483,727           $ 1.42

    Granted                                                                332,792           $ 2.01
    Exercised                                                             (230,463)            1.23
    Canceled or expired                                                   (487,875)            5.05
                                                                   ---------------------
    Options outstanding, December 31, 2002                               2,098,181           $ 1.52


    Granted                                                                401,020           $ 3.51
    Exercised                                                             (143,641)            1.17
    Canceled or expired                                                    (86,500)            2.38
                                                                   ---------------------
    Options outstanding, December 31, 2003                               2,269,060           $ 1.85

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


<TABLE>
<CAPTION>
                                                               2003            2002             2001
                                                         --------------------------------------------------
<S>                                                          <C>             <C>             <C>
    Grant Date weighted average fair value of
      options granted during the year                        $ 2.33           $ 1.60         $ 1.28
</TABLE>


                                      F-22
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003


9.  Stock Options (continued)

The following table summarizes  information  about stock options  outstanding at
December 31, 2003:

<TABLE>
<CAPTION>
                                       Options Outstanding                        Options Exercisable
                        -------------------------------------------------- --------------------------------
                                            Weighted
                             Number          Average         Weighted           Number
                         Outstanding at     Remaining        Average        Exercisable at      Weighted
        Range of          December 31,     Contractual       Exercise        December 31,        Average
     Exercise Prices         2003              Life           Price              2003        Exercise Price
   -------------------- -------------------------------------------------- --------------------------------
<S>            <C>             <C>          <C>                <C>                <C>             <C>
     Less than $1.00           184,972      7.2 years          $0.45              147,222         $0.38
      $1.01 - $2.00          1,513,088      6.5 years           1.35            1,270,614          1.32
      $2.01 - $4.00            473,750      8.9 years           3.02               62,194          2.61
   Greater than $4.00           97,250      7.8 years           6.69               27,000         11.67
                        ------------------                                 -----------------
   Total                     2,269,060                                          1,507,030
                        ==================                                 =================
</TABLE>


<TABLE>
<CAPTION>
    Outstanding warrants are summarized below:                          Shares Subject    Exercise Price
                                                                          to Warrants       Per Share
                                                                       ------------------------------------
<S>                                                                            <C>        <C>
    Balance, December 31, 2003                                                 96,395     $2.78 - $8.51
</TABLE>

The above warrants expire at various dates during 2004.

In 2003, the Company recorded an expense of $415,000 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.

10. Notes Payable to Certain Stockholders

In April 2003, all previously outstanding amounts due certain stockholders under
certain notes bearing interest at 8.0% were paid in full.

11. Segments

As a result of the Company's  divestiture of its Incentive  Marketing  Division,
the Company now operates solely in the  Merchandising  Services Industry Segment
both in the domestic and international markets.


                                      F-23
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

12. Restructuring Charges

In 1999, 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.

The following table displays a roll forward of the liabilities for restructuring
charges from December 31, 2000 to December 31, 2003 (in thousands):

<TABLE>
<CAPTION>
                                                                 Equipment         Office
                                                 Employee          Lease            Lease
                                                Separation      Settlements      Settlements        Total
                                              --------------- ---------------- ---------------- --------------
<S>                                           <C>              <C>              <C>              <C>
December 31, 2000 balance                     $       487      $      2,770     $        544    $      3,801

Adjustments in restructuring charges                 (132)                -                -            (132)
2001 payments                                        (355)           (1,008)            (124)         (1,487)
                                              --------------- ---------------- ---------------- --------------
December 31, 2001 balance                     $         -      $      1,762     $        420    $      2,182


2002 payments                                           -              (593)               -            (593)
                                              --------------- ---------------- ---------------- --------------
December 31, 2002 balance                     $         -     $       1,169     $        420    $      1,589


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


All  remaining  restructuring  charges at December  31, 2003 are  expected to be
utilized  in  2004.   Management   believes  that  the  remaining  reserves  for
restructuring are adequate to complete its plan.

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

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

13. Net (Loss) Income Per Share

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

<TABLE>
<CAPTION>
                                                                 Twelve Months Ended December 31,
                                                               2003            2002             2001
                                                         --------------------------------------------------
<S>                                                      <C>                <C>              <C>
    Numerators:
      Net (loss) income from continuing operations          $    (539)      $   5,298         $  4,155
      Loss from operations of discontinued division                 -               -           (5,869)
                                                         --------------------------------------------------
      Net (loss) income                                     $    (539)      $   5,298         $ (1,714)
                                                         ==================================================

    Denominator:
      Shares used in basic net (loss) income per share
        calculation                                            18,855          18,761           18,389
      Effect of diluted securities:
        Employee stock options                                      -             387               78
                                                         --------------------------------------------------
      Shares used in diluted net (loss) income per
         share calculations                                    18,855          19,148           18,467
                                                         ==================================================

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

      (Loss) income from continuing operations              $   (0.03)     $     0.28        $    0.23
      Loss from operations of discontinued division                 -               -            (0.32)
                                                         --------------------------------------------------
      Net (loss) income                                     $   (0.03)     $     0.28        $   (0.09)
                                                         ==================================================
</TABLE>

The computation of dilutive loss per share excluded  anti-dilutive stock options
to purchase 657,000 shares as of December 31, 2003.

                                      F-25
<PAGE>
                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2003

14. Quarterly Financial Data (Unaudited)

Quarterly data for 2003 and 2002 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, 2003:
Net revenues                           $ 18,738    $ 17,351    $ 16,615     $ 12,155
Gross profit                              7,487       6,205       5,235        3,594
                                       --------    --------    --------     --------
Net income (loss)                      $  1,278    $    608    $   (345)    $ (2,080)
                                       ========    ========    ========     ========

Basic/diluted net income (loss) per
  common share                         $   0.07    $   0.03    $  (0.02)    $  (0.11)
                                       ========    ========    ========     ========

Year Ended December 31, 2002:
Net revenues                           $ 16,046    $ 17,542    $ 17,775     $ 18,249
Gross profit                              6,295       6,951       7,015        9,020
                                       --------    --------    --------     --------
Net income                             $    482    $  1,068    $  1,213     $  2,535
                                       ========    ========    ========     ========

Basic/diluted net income per
  common share                         $   0.03    $   0.06    $   0.06     $   0.13
                                       ========    ========    ========     ========
</TABLE>

In the fourth quarter 2003, the Company  experienced  certain charges to revenue
and cost of sales that are not  expected to recur in the future.  These  charges
accounted for approximately 50% of the loss in 2003 fourth quarter.

However,  the Company did experience  lower revenues from per unit fee contracts
in the fourth quarter caused by decreased  retail sales of some of the Company's
larger clients products and the loss of a particular client earlier in the year.


                                      F-26
<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 (1)     of Period
                                  ------------------------------------------------------------------------
<S>                                     <C>              <C>                    <C>             <C>
Year ended December 31, 2003: Deducted from asset accounts:
     Allowance for doubtful
       accounts                            $  301            $  377            $  163            $  515
     Sales allowances                      $    -            $  448            $    -            $  448

Year ended December 31, 2002: Deducted from asset accounts:
     Allowance for doubtful
       accounts                            $  325            $  262            $  286            $  301

Year ended December 31, 2001: Deducted from asset accounts:
     Allowance for doubtful
       accounts                            $2,648            $  472            $2,795            $  325
</TABLE>


        (1) Uncollectible accounts written off, net of recoveries.


                                      F-27