--------------------------------------------------------------------------------
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    Form 10-Q
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(Mark One)

X QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934 for the third quarterly period ended September 30, 2005

                                       OR

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the

transition period from                      to
                       --------------------    ---------------------

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                         Commission file number: 0-27824


                                SPAR Group, Inc.

             (Exact name of registrant as specified in its charter)

             Delaware                                    33-0684451
     State of Incorporation                    IRS Employer Identification No.

           580 White Plains Road, Suite 600, Tarrytown, New York 10591
          (Address of principal executive offices, including zip code)
--------------------------------------------------------------------------------
       Registrant's telephone number, including area code: (914) 332-4100


Indicate by check whether the registrant  (1) has filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days: [ X ] Yes [ ] No

--------------------------------------------------------------------------------

Indicate by check whether the registrant is an accelerated  filer (as defined in
Rule 12b-2 of the Exchange Act): [ ] Yes [ X ] No

        On September  30,  2005,  there were  18,916,847  shares of Common Stock
outstanding.

--------------------------------------------------------------------------------


<PAGE>


                                SPAR Group, Inc.

                                      Index

PART I:    FINANCIAL INFORMATION

Item 1:          Financial Statements

                 Consolidated Balance Sheets
                 as of September 30, 2005, and December 31, 2004...............3

                 Consolidated Statements of Operations for the three
                 months and nine months ended September 30, 2005, and 2004.....4

                 Consolidated Statements of Cash Flows for the
                 nine months ended September 30, 2005, and 2004................5

                 Notes to Consolidated Financial Statements....................6

Item 2:          Management's Discussion and Analysis of Financial
                 Condition and Results of Operations..........................17

Item 3:          Quantitative and Qualitative Disclosures about Market Risk...29

Item 4:          Controls and Procedures......................................30

Item 5:          Other Information............................................30

PART II:   OTHER INFORMATION

Item 1:          Legal Proceedings............................................31

Item 2:          Changes in Securities and Use of Proceeds....................31

Item 3:          Defaults upon Senior Securities..............................31

Item 4:          Submission of Matters to a Vote of Security Holders..........31

Item 5:          Other Information............................................32

Item 6:          Exhibits  ...................................................32

SIGNATURES....................................................................33





                                       2
<PAGE>

PART I:    FINANCIAL INFORMATION

Item 1:    Financial Statements

                                SPAR Group, Inc.
                           Consolidated Balance Sheets
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                          September 30,         December 31,
                                                                              2005                  2004
                                                                          -------------         ------------
                                                                           (Unaudited)             (Note)
<S>                                                                         <C>                 <C>
  Assets
  Current assets:
     Cash and cash equivalents                                              $  1,813            $    887
     Accounts receivable, net                                                  8,758              11,307
     Prepaid expenses and other current assets                                   662                 657
                                                                            --------            --------
  Total current assets                                                        11,233              12,851

  Property and equipment, net                                                  1,112               1,536
  Goodwill                                                                       798                 798
  Other assets                                                                    89                 636
                                                                            --------            --------
  Total assets                                                              $ 13,232            $ 15,821
                                                                            ========            ========

  Liabilities and stockholders' equity
  Current liabilities:
     Accounts payable                                                       $  1,592            $  2,158
     Accrued expenses and other current liabilities                            2,635               2,391
     Accrued expenses due to affiliates                                          770                 987
     Restructuring charges                                                        99                 250
     Customer deposits                                                         1,523               1,147
     Lines of credit                                                           2,418               4,956
                                                                            --------            --------
  Total current liabilities                                                    9,037              11,889

  Other long-term liabilities                                                     53                  12
  Minority interest                                                              209                 206
                                                                            --------            --------
  Total liabilities                                                            9,299              12,107

  Commitments and contingencies (Note - 11)
     Stockholders' equity:
     Preferred stock, $.01 par value:
       Authorized shares - 3,000,000
       Issued and outstanding shares - none                                        -                   -
       Common stock, $.01 par value:
       Authorized shares - 47,000,000
       Issued and outstanding shares -
         18,916,847 - September 30, 2005
         18,858,972 - December 31, 2004                                          189                 189
     Treasury stock                                                               (1)               (108)
     Accumulated other comprehensive loss                                       (184)                (86)
     Additional paid-in capital                                               11,077              11,011
     Accumulated deficit                                                      (7,148)             (7,292)
                                                                            --------            --------
  Total stockholders' equity                                                   3,933               3,714
                                                                            --------            --------
  Total liabilities and stockholders' equity                                $ 13,232            $ 15,821
                                                                            ========            ========
</TABLE>

Note:    The Balance  Sheet at December 31, 2004, is an excerpt from the audited
         financial  statements  at that  date but does  not  include  any of the
         information and footnotes required by accounting  principles  generally
         accepted in the United States for complete financial statements.

See accompanying notes.

                                       3
<PAGE>


                                SPAR Group, Inc.
                      Consolidated Statements of Operations
                                   (unaudited)

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                                 Three Months Ended                     Nine Months Ended
                                                            --------------------------------      --------------------------------
                                                            September 30,      September 30,      September 30,      September 30,
                                                               2005               2004               2005               2004
                                                               ----               ----               ----               ----
<S>                                                          <C>                <C>                <C>               <C>
  Net revenues                                               $ 11,060           $ 10,683           $ 38,381          $ 35,418
  Cost of revenues                                              7,595              6,963             24,414            24,474
                                                             --------           --------           --------          --------
  Gross profit                                                  3,465              3,720             13,967            10,944

  Selling, general and administrative expenses                  4,214              4,028             12,712            14,471
  Impairment charges                                                -                  -                  -             8,141
  Depreciation and amortization                                   261                275                812             1,005
                                                             --------           --------           --------          --------
  Operating (loss) income                                      (1,010)              (583)               443           (12,673)

  Interest expense                                                 29                 29                102               127
  Other income                                                      -                773                 14               764
                                                             --------           --------           --------          --------
  (Loss) income before provision for income taxes
  and minority interest                                        (1,039)               161                355           (12,036)
  Provision for income taxes                                       15                 15                 45               783
                                                             --------           --------           --------          --------
  (Loss) income before minority interest                       (1,054)               146                310           (12,819)
  Minority interest                                                88                (64)               166               (64)
                                                             --------           --------           --------          --------
  Net (loss) income                                          $ (1,142)          $    210           $    144          $(12,755)
                                                             ========           ========           ========          ========

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

    Net (loss) income- basic/diluted                         $  (0.06)          $   0.01           $   0.01          $  (0.68)
                                                             ========           ========           ========          ========

  Weighted average common shares - basic                       18,899             18,859             18,876            18,859
                                                             ========           ========           ========          ========

  Weighted average common shares - diluted                     18,899             19,026             19,388            18,859
                                                             ========           ========           ========          ========
</TABLE>

See accompanying notes.



                                       4
<PAGE>

                                SPAR Group, Inc.
                      Consolidated Statements of Cash Flows
                           (unaudited) (in thousands)

<TABLE>
<CAPTION>

                                                                         Nine Months Ended
                                                                  -------------------------------
                                                                  September 30,     September 30,
                                                                       2005              2004
                                                                       ----              ----
<S>                                                                   <C>               <C>
  Operating activities
  Net cash provided by operating activities                           3,676             2,708

  Investing activities
  Purchases of property and equipment                                  (388)           (1,014)
  Acquisition of businesses                                               -              (399)
                                                                    -------           -------
  Net cash used in investing activities                                (388)           (1,413)

  Financing activities
  Net payments on lines of credit                                    (2,538)           (1,275)
  Other long-term liabilities                                             3               206
  Proceeds from employee stock purchase plan and exercised
     options                                                            173                10
                                                                    -------           -------
  Net cash used in financing activities                              (2,362)           (1,059)

  Net change in cash and cash equivalents                               926               236
  Cash and cash equivalents at beginning of period                      887                 -
                                                                    -------           -------
  Cash and cash equivalents at end of period                        $ 1,813           $   236
                                                                    =======           =======

  Supplemental disclosure of cash flows information
  Interest paid                                                     $   104           $   124
</TABLE>



See accompanying notes.


                                       5
<PAGE>


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



1.      Basis of Presentation

        The accompanying  unaudited,  consolidated  financial statements of SPAR
Group, Inc., a Delaware  corporation  ("SGRP"),  and its subsidiaries  (together
with SGRP,  collectively,  the "Company" or the "SPAR Group") have been prepared
in accordance with accounting principles generally accepted in the United States
for interim  financial  information  and with the  instructions to Form 10-Q and
Article  10 of  Regulation  S-X.  Accordingly,  they do not  include  all of the
information and footnotes required by accounting  principles  generally accepted
in the United  States  for  complete  financial  statements.  In the  opinion of
management,  all adjustments  considered  necessary for a fair presentation have
been  included in these interim  financial  statements.  However,  these interim
financial  statements should be read in conjunction with the annual consolidated
financial  statements  and notes  thereto  for the Company as  contained  in the
Company's  Annual  Report for 2004 on Form 10-K for the year ended  December 31,
2004,  as filed with the  Securities  and Exchange  Commission on April 12, 2005
(the "Company's Annual Report for 2004 on Form 10-K").  The Company's results of
operations  for the  interim  periods  are  not  necessarily  indicative  of its
operating results for the entire year.

2.      Business and Organization

        The Company is a supplier of merchandising and other marketing  services
throughout  the United  States and  internationally.  The Company also  provides
in-store  event  staffing,  product  sampling,  database  marketing,  technology
services, teleservices and marketing research.

        The Company's  operations are divided into two  divisions:  the Domestic
Merchandising  Services  Division and the International  Merchandising  Services
Division.  The Domestic  Merchandising  Services Division provides merchandising
services,   in-store  event  staffing,  product  sampling,  database  marketing,
technology  services,  teleservices and marketing  research to manufacturers and
retailers in the United States. The various services are primarily  performed in
mass  merchandisers,  drug store and electronic chains,  convenience and grocery
stores. The International  Merchandising Services Division,  established in July
2000,  currently  provides   merchandising   services  through  a  wholly  owned
subsidiary in Canada,  through 51% owned joint venture  subsidiaries  in Turkey,
South Africa,  India, Romania and through a 50% owned joint venture in Japan. In
February  2005,  the Company  announced the  establishment  of a 50% owned joint
venture  in  China.   In  September   2005,   the  Company  also  announced  the
establishment  of a 51% owned joint  venture in Lithuania.  The Company's  joint
ventures in China and Lithuania are expected to be operational before the end of
2005.

3.      Principles of Consolidation

        The Company consolidates its 100% owned subsidiaries.  In addition,  the
Company  has  determined  that  under  Financial   Accounting   Standards  Board
Interpretation  Number 46, as revised  December 2003,  Consolidation of Variable
Interest Entities ("FIN 46(R)"),  the Company is the primary  beneficiary of its
51% owned  joint  venture  subsidiaries  and its 50% owned  joint  venture,  and
accordingly,   consolidates   those   entities  into  the  Company's   financial
statements.   The  Japan  joint   venture's   fiscal  year  ends


                                       6
<PAGE>

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


September  30.  Accordingly,   the  consolidation  of  the  Company's  financial
statements  include the  results of the Japan joint  venture for the nine months
ended  June 30,  2005.  In the  corresponding  period in 2004,  the Japan  joint
venture was accounted for on the equity  method.  All  significant  intercompany
accounts and transactions have been eliminated.

4.      Restructuring Charges

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

5.      Earnings Per Share

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

<TABLE>
<CAPTION>

                                                 Three Months Ended                      Nine Months Ended
                                            ---------------------------------       -----------------------------
                                            September 30,       September 30,       September 30,   September 30,
                                            -------------       -------------       -------------   -------------
                                                2005                2004             2005               2004
                                                ----                ----             ----               ----
<S>                                           <C>                <C>               <C>               <C>
  Numerator:
     Net (loss) income                        $ (1,142)          $    210          $    144          $(12,755)

  Denominator:
     Shares used in basic (loss) earnings
     per share calculation                      18,899             18,859            18,876            18,859

  Effect of diluted securities:
     Employee stock options                          -                167               512                 -
                                              --------           --------          --------          --------

     Shares used in diluted (loss) earnings
     per share calculation                      18,899             19,026            19,388            18,859
                                              ========           ========          ========          ========

  Basic and diluted earnings (loss)
  per common share:

     Net (loss) income - basic and
     diluted                                  $  (0.06)          $   0.01          $   0.01          $  (0.68)
                                              ========           ========          ========          ========
</TABLE>

                                       7
<PAGE>

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


        The computation of dilutive loss per share excluded  anti-dilutive stock
options to purchase  approximately  830,000  shares for the three  months  ended
September 30, 2005, and approximately  591,000 shares for the nine months ending
September 30, 2004.

6.      Lines of Credit

        In January 2003,  the Company and Webster  Business  Credit  Corporation
("Webster"),  then known as Whitehall Business Credit Corporation,  entered into
the Third  Amended and  Restated  Revolving  Credit and Security  Agreement  (as
amended,  collectively,  the "Credit Facility").  The Credit Facility provides a
$7.0 million  revolving  credit  facility that matures on January 23, 2006.  The
Company may borrow up to $7.0  million  based upon a borrowing  base  formula as
defined in the agreement  (principally 85% of "eligible"  accounts receivable of
its domestic  subsidiaries).  The Credit Facility bears interest at a rate based
in part upon the earnings before interest,  taxes, depreciation and amortization
and depending  upon the type of borrowing,  is calculated  based upon  Webster's
"Alternative  Base Rate" or the London Inter Bank  Offering Rate  ("LIBOR").  At
September  30,  2005,  there were no LIBOR  based  loans and the  interest  rate
calculated at Webster's  Alternative Base Rate plus 0.75% which totaled 7.5% per
annum.  The average  interest rate for the nine months ended September 30, 2005,
was 6.65% per annum.  The Credit Facility is secured by all of the assets of the
Company  and its  domestic  subsidiaries.  In  addition,  Mr.  Robert  Brown,  a
Director,  the  Chairman,  President  and Chief  Executive  Officer  and a major
stockholder  of the  Company  and Mr.  William  Bartels,  a  Director,  the Vice
Chairman and a major  stockholder of the Company,  provide  personal  guarantees
totaling  $1.0  million to Webster.  The Credit  Facility  requires  the Company
satisfy certain financial covenants,  including a minimum "Net Worth", a minimum
"Fixed Charge Coverage Ratio", and a minimum "EBITDA", as such terms are defined
in the Credit Facility.  The Credit Facility also limits certain expenditures by
the Company, including capital expenditures and other investments.

        The Company was in violation of certain covenants at September 30, 2005,
and Webster has issued a waiver for those  violations.  The Company is currently
negotiating  with Webster to amend the existing  covenants and extend the Credit
Facility.  If amended,  the Company expects that it will comply with the amended
covenants  in  future  periods.  However,  there can be no  assurances  that the
Company  will be able to  comply  with  the  amended  covenants  and that if the
Company  violates the amended  covenants,  Webster  will  continue to issue such
waivers in the future.

        The revolving loan balances  outstanding  under the Credit Facility were
$1.7  million and $4.1 million at  September  30,  2005,  and December 31, 2004,
respectively. There were letters of credit outstanding under the Credit Facility
of  approximately  $700,000 at September 30, 2005,  and December 31, 2004. As of
September  30,  2005,  the SPAR Group had unused  availability  under the Credit
Facility of $1.6  million  out of the  remaining  maximum  $4.6  million  unused
revolving line of credit after reducing the borrowing base by outstanding  loans
and letters of credit.

        In 2001, the Japanese joint venture SPAR FM Japan,  Inc.  entered into a
revolving line of credit  arrangement with Japanese banks for 300 million Yen or
$2.7 million (based upon the exchange rate at


                                       8
<PAGE>

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


June 30,  2005).  At June 30,  2005,  SPAR FM Japan,  Inc. had 80 million Yen or
approximately  $724,000 loan balance outstanding under the line of credit (based
upon the exchange  rate at that date).  The line of credit is  guarantied by the
joint venture partner, Paltac Corporation ("Paltac").  The Company has agreed to
reimburse  Paltac  for 50% of any  payment  made by  Paltac  as a result of this
Guaranty. The average interest rate on the borrowings under the Japanese line of
credit for the nine months ended September 30, 2005, was 1.375% per annum.

7.      Related-Party Transactions

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

        SMS  and  SMSI  provided   approximately  99%  of  the  Company's  field
representatives   (through   its   independent   contractor   field  force)  and
approximately  86% of the  Company's  field  management  at a total  cost to the
Company of  approximately  $15.5  million and $19.5  million for the nine months
ended September 30, 2005, and 2004,  respectively.  Pursuant to the terms of the
Amended and Restated  Field Service  Agreement  dated as of January 1, 2004, SMS
provides the services of SMS's field force of  approximately  5,200  independent
contractors  to the  Company.  Pursuant to the terms of the Amended and Restated
Field  Management   Agreement  dated  as  of  January  1,  2004,  SMSI  provides
approximately  40 full-time  national,  regional  and  district  managers to the
Company.  For those  services,  the Company has agreed to reimburse SMS and SMSI
for all of their costs of providing  those services and to pay SMS and SMSI each
a  premium  equal to 4% of their  respective  costs,  except  that for 2004 SMSI
agreed to concessions  that reduced the premium paid by  approximately  $470,000
for the nine months ended September 30, 2004.  Total net premiums (4% of SMS and
SMSI costs less 2004  concessions)  paid to SMS and SMSI for  services  rendered
were approximately $596,000 and $750,000 for the nine months ended September 30,
2005, and 2004,  respectively.  The Company has been advised that Messrs.  Brown
and Bartels  are not paid any  salaries as officers of SMS or SMSI so there were
no salary  reimbursements  for them included in such costs or premium.  However,
since SMS and SMSI are  "Subchapter S" corporations  owned by Messrs.  Brown and
Bartels, they benefit from any income of such companies allocated to them.

        SIT  provided  substantially  all of the Internet  computer  programming
services to the Company at a total cost of  approximately  $610,000 and $953,000
for the nine months  ended  September  30,  2005,  and 2004,  respectively.  SIT
provided  approximately 20,000 and 27,000 hours of Internet computer programming
services to the Company for the nine months ended  September 30, 2005, and 2004,
respectively.  Pursuant  to the  Amended and  Restated  Programming  and Support
Agreement  dated as of January 1, 2004,  SIT  continues  to provide  programming
services to the Company for which the Company has agreed to pay SIT  competitive
hourly wage rates for time spent on Company matters and to reimburse the related
out-of-pocket expenses of SIT and its personnel. The average hourly billing rate
was $30.53 and $34.90 for the nine months ended  September  30, 2005,  and 2004,
respectively.  The Company has


                                       9
<PAGE>

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


been advised that no hourly charges or business  expenses for Messrs.  Brown and
Bartels were  charged to the Company by SIT for the nine months ended  September
30,  2005,  and  2004,  respectively.  However,  since SIT is a  "Subchapter  S"
corporation owned by Messrs. Brown and Bartels,  they benefit from any income of
such company allocated to them.

        In November  2004 and January  2005,  the Company  entered into separate
operating  lease   agreements   between  SMS  and  the  Company's  wholly  owned
subsidiaries,  SPAR Marketing Force, Inc. ("SMF") and SPAR Canada Company ("SPAR
Canada").  Each lease has a 36 month  term and  representations,  covenants  and
defaults  customary  for the  leasing  industry.  The SMF lease is for  handheld
computers  to be used by  field  merchandisers  in the  performance  of  various
merchandising  services  in the  United  States  and had a  monthly  payment  of
$20,318.  These handheld  computers had an original  purchase price of $632,200.
The  SPAR  Canada  lease  is also  for  handheld  computers  to be used by field
merchandisers in the performance of various merchandising services in Canada and
had a monthly  payment of  $3,326.  These  handheld  computers  had an  original
purchase  price of $105,000.  In May 2005, the Company and SMS amended the lease
agreements  reducing the total  monthly  payment from $20,318 to $17,891 for SMF
and from $3,326 to $2,972 for SPAR  Canada.  The amended  monthly  payments  are
based upon a lease factor of 2.83%.

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

        Through arrangements with the Company,  SMS, SMSI and SIT participate in
various  benefit plans,  insurance  policies and similar group  purchases by the
Company,  for which the Company charges them their allocable shares of the costs
of those group  items and the actual  costs of all items paid  specifically  for
them.  All  transactions  between the Company and the above  affiliates are paid
and/or collected by the Company in the normal course of business.

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

<TABLE>
<CAPTION>

                                           Three Months Ended September 30,     Nine Months Ended September 30,
                                           --------------------------------     -------------------------------
                                                2005             2004               2005             2004
                                                ----             ----               ----             ----
<S>                                           <C>              <C>                <C>              <C>
  Services provided by affiliates:
    Independent contractor services
      (SMS)                                   $ 3,567          $ 4,183            $12,721          $15,941
                                              =======          =======            =======          =======
    Field management services (SMSI)          $   906          $   946            $ 2,785          $ 3,561
                                              =======          =======            =======          =======
    Handheld computer leases (SMS)            $    72          $    -             $   199          $     -
                                              =======          =======            =======          =======
    Internet and software program
    consulting services (SIT)                 $   186          $   238            $   610          $   953
                                              =======          =======            =======          =======
</TABLE>

                                       10
<PAGE>


Accrued expenses due to affiliates (in thousands):  September 30,   December 31,
                                                        2005           2004
                                                        ----           ----

  SPAR Marketing Services, Inc.                         $770           $987
                                                        ====           ====


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

8.      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. If compensation  cost had been recognized,  the Company's net income (loss)
and pro forma net income (loss) per share from continuing  operations would have
been reduced to the adjusted amounts  indicated below (in thousands,  except per
share data):

                                                           Nine Months Ended
                                                              September 30,
                                                           -----------------
                                                          2005            2004

  Net income (loss), as reported                        $    144       $(12,755)
  Stock based employee compensation expense
    under the fair market value method                       341            367
                                                        --------       --------
  Pro forma net (loss)                                  $   (197)      $(13,122)

  Basic and diluted net income (loss) per share, as
    reported                                            $   0.01       $  (0.68)
  Basic and diluted net (loss) per share, pro forma     $  (0.01)      $  (0.70)


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



                                       11
<PAGE>

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

        Under the  provision  of SFAS No. 123 dealing  with  non-employee  stock
option grants awarded to the employees of the Company's affiliates, for the nine
months  ended   September  30,  2005,   the  Company   recorded  an  expense  of
approximately $90,000. For the nine months ended September 30, 2004, as a result
of the decrease in the market  price of the  Company's  stock from  December 31,
2003 to September 30, 2004, there was a recovery of amounts previously  expensed
of  approximately  $114,000  under the  provision  of SFAS No. 123.  The Company
determines  the fair value of the  options  granted to  non-employees  using the
Black-Scholes  valuation  model and  recovers  amounts  previously  expensed  or
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.

9.      Treasury Stock

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

        The following  table  summarizes  the Company's  treasury stock activity
from January 1, 2005, to September 30, 2005.

                                                  Quantity          Amount
                                                  --------          ------

  Treasury Stock, January 1, 2005                 21,908           $ 108,100

    Used to fulfill options exercised            (21,654)           (106,888)
                                                 -------            --------

  Treasury Stock, September 30, 2005                 254           $   1,212
                                                 =======            ========

10.     Customer Deposits

        Customer  deposits  at  September  30,  2005,  were  approximately  $1.5
million;  $1.1 million from domestic operations and approximately  $400,000 from
international  operations.  Approximately  $870,000  of the  $1.1  million  from
domestic operations is associated with a non-refundable  deposit received by the
Company in June 2004 from one  customer.  The deposit is to be applied to future
invoices  if  services  are  provided  by the  Company  under a  master  service
agreement  through  December 31, 2006. Each invoice will be reduced by 20% until
the deposit is depleted.

11.     Commitments and Contingencies

        International Commitments

        The Company's international model is to partner with local merchandising
companies  and combine the Company's  proprietary  software and expertise in the
merchandising  business with their partner's


                                       12
<PAGE>

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

knowledge of the local market. In 2001, the Company  established its first joint
venture and has  continued  this  strategy.  As of this  filing,  the Company is
currently operating in Japan,  Canada,  Turkey, South Africa, India and Romania.
In February 2005, the Company  announced the  establishment of a 50% owned joint
venture  in  China.   In  September   2005,   the  Company  also  announced  the
establishment  of a 51% owned joint  venture in Lithuania.  The Company's  joint
ventures in China and Lithuania are expected to be operational before the end of
2005.

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

        Legal Matters

        Safeway Inc. ("Safeway") filed a Complaint against the PIA Merchandising
Co., Inc.  ("PIA Co."),  a wholly owned  subsidiary  of SGRP,  and Pivotal Sales
Company  ("Pivotal"),  a wholly owned subsidiary of PIA Co., and SGRP in Alameda
Superior Court,  case no.  2001028498 on October 24, 2001, and has  subsequently
amended it.  Safeway  alleges causes of action for breach of contract and breach
of implied  contract.  Safeway has most recently alleged monetary damages in the
principal sum of  $3,000,000  and alleged  interest of  $1,500,000  and has also
demanded  unspecified  costs.  PIA Co. and Pivotal  filed  cross-claims  against
Safeway on or about March 11,  2002,  and amended  them on or about  October 15,
2002,  alleging causes of action by them against Safeway for breach of contract,
interference  with  economic  relationship,  unfair trade  practices  and unjust
enrichment and is seeking damages and injunctive  relief.  Mediation between the
parties  occurred in 2004, but did not result in a settlement.  PIA Co., Pivotal
and SGRP are  vigorously  defending  against  Safeway's  allegations.  It is not
possible  at this  time to  determine  the  likelihood  of the  outcome  of this
lawsuit.  However, if Safeway prevails  respecting its allegations,  and PIA Co.
and Pivotal lose on their cross-claims and counterclaims, that result could have
a material  adverse  effect on the Company.  The Company  anticipates  that this
matter will be resolved in 2006.

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

12.     Geographic Data

        A summary of the Company's net revenue, operating income (loss) and long
lived  assets by  geographic  area for the three  months and nine  months  ended
September  30, 2005,  and 2004,  respectively,  and at September  30, 2005,  and
December 31, 2004, are as follows (in thousands):

                                       13
<PAGE>

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

<TABLE>
<CAPTION>

                                         Three Months Ended September 30,     Nine Months Ended September 30,
                                         --------------------------------     -------------------------------
                                             2005                2004             2005                2004
                                             ----                ----             ----                ----
<S>                                      <C>                <C>                <C>                <C>
  Net revenue:
  ------------
  United States                          $  7,467           $  9,236           $ 27,446           $ 32,467
  International                             3,593              1,447             10,935              2,951
                                         --------           --------           --------           --------
  Total net revenue                      $ 11,060           $ 10,683           $ 38,381           $ 35,418
                                         ========           ========           ========           ========


                                         Three Months Ended September 30,     Nine Months Ended September 30,
                                         --------------------------------     -------------------------------
                                             2005                2004             2005                2004
                                             ----                ----             ----                ----

  Operating (loss) income:
  ------------------------
  United States                          $ (1,145)          $   (260)          $   (249)          $(10,821)
  International                               135               (323)               692             (1,852)
                                         --------           --------           --------           --------
  Total operating (loss) income          $ (1,010)          $   (583)          $    443           $(12,673)
                                         ========           ========           ========           ========
</TABLE>


                                     September 30,         December 31,
                                     -------------         ------------
   Long lived assets:                    2005                  2004
                                         ----                  ----

  United States                         $1,811               $2,484
  International                            188                  486
                                        ------               ------
  Total long lived assets               $1,999               $2,970
                                        ======               ======


        International revenues disclosed above were based upon revenues reported
by the  Company's  100% owned  foreign  subsidiary,  its 51% owned foreign joint
venture  subsidiaries and its 50% owned foreign joint venture. The joint venture
in Japan  contributed 11% of the consolidated net revenue of the Company for the
nine months ended  September 30 , 2005. In 2004,  the joint venture in Japan was
accounted  for on the equity  method.  For the nine months ended  September  30,
2005,  and 2004,  the wholly owned  Canadian  subsidiary  contributed  8% and 2%
respectively of the consolidated  net revenue of the Company.  The joint venture
subsidiary  in South  Africa  contributed  7% and 7%,  to the  consolidated  net
revenue of the Company for the nine months ended  September 30, 2005,  and 2004,
respectively.   Each  of  the  remaining  foreign  joint  venture   subsidiaries
contributed  less than 5% to the  consolidated  net  revenue  for the nine month
period ending September 30, 2005, and 2004.

13.     Supplemental Balance Sheet Information

<TABLE>
<CAPTION>

                                                                         September 30,      December 31,
                                                                         -------------      ------------
Accounts receivable, net, consists of the following (in thousands):          2005               2004
                                                                             ----               ----
<S>                                                                      <C>                 <C>
  Trade                                                                  $  6,253            $  8,178
  Unbilled                                                                  2,991               3,600
  Non-trade                                                                   245                 290
                                                                         --------            --------
                                                                            9,489              12,068
  Less allowance for doubtful accounts                                       (731)               (761)
                                                                         --------            --------
                                                                         $  8,758            $ 11,307
                                                                         ========            ========
</TABLE>


                                       14
<PAGE>

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

<TABLE>
<CAPTION>

                                                                 September 30,            December 31,
                                                                 -------------            ------------
Prepaid expenses and other current assets consist of the              2005                    2004
following (in thousands):                                             ----                    ----
<S>                                                                 <C>                       <C>
  Prepaid insurance                                                 $  282                    $  214
  Tax refund due                                                        62                        62
  Prepaid rents                                                         49                        49
  Other                                                                269                       332
                                                                    ------                    ------
                                                                    $  662                    $  657
                                                                    ======                    ======


                                                                 September 30,            December 31,
                                                                 -------------            ------------
Property and equipment consists of the following (in thousands):     2005                     2004
                                                                     ----                     ----

  Equipment                                                         $5,517                    $5,397
  Furniture and fixtures                                               547                       547
  Leasehold improvements                                               138                       138
  Capitalized software development costs                             1,906                     1,629
                                                                    ------                    ------
                                                                     8,108                     7,711
  Less accumulated depreciation and amortization                     6,996                     6,175
                                                                    ------                    ------
                                                                    $1,112                    $1,536
                                                                    ======                    ======


                                                                 September 30,            December 31,
                                                                 -------------            ------------
Accrued expenses and other current liabilities consist of the        2005                     2004
following (in thousands):                                            ----                     ----

  Merger related payables                                           $  450                    $  450
  Accrued medical expenses                                             225                       225
  Taxes payable                                                        332                       345
  Accrued accounting and legal expense                                 338                       192
  Accrued salaries payable                                             392                       328
  Other                                                                898                       851
                                                                    ------                    ------
                                                                    $2,635                    $2,391
                                                                    ======                    ======
</TABLE>


14.      Foreign Currency Rate Fluctuations

         The  Company  has  foreign  currency   exposure   associated  with  its
international  100% owned subsidiary,  its 51% owned joint venture  subsidiaries
and its 50% owned joint  venture.  In the nine months ended  September 30, 2005,
these  exposures  were  primarily  concentrated  in the Canadian  dollar,  South
African Rand and  Japanese  Yen. At September  30,  2005,  international  assets
totaled  approximately  $2.9  million  and  international   liabilities  totaled
approximately  $2.6  million.  For the nine months  ended  September  30,  2005,
international  revenues totaled $10.9 million and the Company's share of the net
income was approximately $489,000.



                                       15
<PAGE>

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


15.     Interest Rate Fluctuations

        The Company is exposed to market risk related to the  variable  interest
rates on its lines of credit.  At September 30, 2005, the Company's  outstanding
debt  totaled   approximately   $2.4  million,   which   consisted  of  domestic
variable-rate (7.5%) debt of $1.7 million and international variable rate (1.4%)
debt of $0.7  million.  Based on the nine  months  ending  September  30,  2005,
average outstanding  borrowings under variable-rate debt, a one-percentage point
increase in interest rates would  negatively  impact  pre-tax  earnings and cash
flows for the nine months ended September 30, 2005, by approximately $20,000.


16.     Reclassification

        Certain amounts in the 2004 financial  statements have been reclassified
to conform to the 2005 presentation.








                                       16
<PAGE>


                                SPAR Group, Inc.


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Forward-Looking Statements
--------------------------

        Statements  contained in this Quarterly Report on Form 10-Q for the nine
months ended September 30, 2005 (this "Quarterly  Report"),  of SPAR Group, Inc.
("SGRP", and together with its subsidiaries, the "SPAR Group" or the "Company"),
include  "forward-looking  statements"  within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, including, in particular and
without  limitation,  the  statements  contained  in the  discussions  under the
heading "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 and any other cautionary  statements contained in the Company's Annual
Report on Form 10-K for the fiscal year ended  December 31, 2004,  as filed with
the Securities and Exchange  Commission on April 12, 2005 (the "Company's Annual
Report for 2004 on Form 10-K"), and the cautionary  statements contained in this
Quarterly Report. All forward-looking  statements attributable to the Company or
persons  acting on its behalf are  expressly  qualified by the risk factors (see
Item 1 - Certain Risk Factors) and other cautionary  statements in the Company's
Annual Report for 2004 on Form 10-K and in this  Quarterly  Report.  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.

Overview
--------

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


                                       17
<PAGE>


                                SPAR Group, Inc.


Company  also  announced  the  establishment  of a 51% owned  joint  venture  in
Lithuania.   For  the  nine  months  ended   September  30,  2005,  the  Company
consolidated  Canada,  Turkey,  South Africa,  India, Romania and Japan into the
Company's  financial  statements.   While  China  and  Lithuania  did  not  have
operations for the nine months ended September 30, 2005, they are both projected
to be operational by the end of 2005.

Domestic Merchandising Services Division

        The  Company's   Domestic   Merchandising   Services  Division  provides
nationwide  merchandising  and other marketing  services  primarily on behalf of
consumer product  manufacturers and retailers at mass merchandisers,  drug store
and  electronic  chains and grocery  stores.  Included in its customers are home
entertainment, general merchandise, electronic, health and beauty care, consumer
goods and food product companies in the United States.

        Merchandising   services   primarily  consist  of  regularly   scheduled
dedicated routed services and special projects provided at the store level for a
specific retailer or single or multiple manufacturers  primarily under single or
multi-year   contracts  or   agreements.   Services  also  include   stand-alone
large-scale   implementations.   These  services  may  include  sales  enhancing
activities such as ensuring that client products authorized for distribution are
in  stock  and  on  the  shelf,  adding  new  products  that  are  approved  for
distribution  but not  presently  on the  shelf,  setting  category  shelves  in
accordance  with  approved  store  schematics,  ensuring  that shelf tags are in
place,  checking for the overall  salability of client  products and setting new
and  promotional  items and placing and/or  removing point of purchase and other
related  media  advertising.  Specific  in-store  services  can be  initiated by
retailers  or  manufacturers,  and  include  new  store  openings,  new  product
launches, special seasonal or promotional merchandising, focused product support
and product recalls. The Company also provides in-store event staffing services,
database  marketing,  technology  services,  teleservices and marketing research
services.

International Merchandising Services Division

        In July 2000, the Company  established its  International  Merchandising
Services  Division,  operating  through a wholly  owned  subsidiary,  SPAR Group
International,  Inc. ("SGI"),  to focus on expanding its merchandising  services
business  worldwide.  The Company has  expanded  its  international  business as
follows:

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



                                       18
<PAGE>


                                SPAR Group, Inc.


The China and Lithuania joint ventures are expected to be operational before the
end of 2005.

Critical Accounting Policies

        The  Company's  critical  accounting  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.  Four  critical  accounting  policies are  consolidation  of
subsidiaries,  revenue  recognition,  allowance for doubtful  accounts and sales
allowances, and internal use software development costs:

        Consolidation of Subsidiaries

        The Company  consolidates its 100% owned subsidiaries.  The Company also
        consolidates its 51% owned joint venture  subsidiaries and its 50% owned
        joint ventures where the Company is the primary beneficiary. The Company
        has  determined   that  under  Financial   Accounting   Standards  Board
        Interpretation  Number 46, as revised  December 2003,  Consolidation  of
        Variable  Interest  Entities ("FIN  46(R)"),  the Company is the primary
        beneficiary  of its 51% owned  joint  venture  subsidiaries  and its 50%
        owned joint venture,  and accordingly  consolidates  these entities into
        the Company's financial  statements.  In addition,  the Company believes
        this  presentation  is  fairer  and  more  meaningful.   Rule  3A-02  of
        Regulation S-X, Consolidated  Financial Statements of the Registrant and
        its Subsidiaries, states that consolidated statements are presumed to be
        more  meaningful,  that  majority  owned  subsidiaries  (more  than 50%)
        generally should be  consolidated,  and that  circumstances  may require
        consolidation of other subsidiaries to achieve a fairer  presentation of
        its financial condition and results.

        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  products  to
        consumers.  The  Company  recognizes  per unit fees in the  period  such
        amounts become determinable and are reported to the Company.

        Allowance for Doubtful Accounts and Sales Allowances

        The Company continually monitors the validity of its accounts receivable
        based upon current customer credit information and financial  condition.
        Balances  that are  deemed to be  uncollectible  after the  Company  has
        attempted reasonable collection efforts are written off through a charge
        to the bad debt allowance and a credit to accounts receivable.  Accounts
        receivable  balances are



                                       19
<PAGE>

        stated  at the  amount  that  management  expects  to  collect  from the
        outstanding  balances.  The Company provides for probable  uncollectible
        amounts  through a charge to earnings and a credit to bad debt allowance
        based on  management's  assessment  of the current  status of individual
        accounts. Based on management's  assessment,  the Company established an
        allowance  for  doubtful  accounts of $731,000 and $761,000 at September
        30, 2005, and December 31, 2004, respectively.

        Internal Use Software Development Costs

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

        The  Company  capitalized  $276,000  and  $298,000  of costs  related to
        software  developed for internal use in the nine months ended  September
        30, 2005, and 2004,  respectively and amortized  capitalized software of
        approximately  $416,000 and $221,000 in the nine months ended  September
        30, 2005, and 2004, respectively.







                                       20
<PAGE>

                                SPAR Group, Inc.

Results of Operations

Three months ended September 30, 2005,  compared to three months ended September
30, 2004
--------------------------------------------------------------------------------

        The following  table sets forth  selected  financial  data and data as a
percentage  of net  revenues for the periods  indicated  (in  thousands,  except
percent data).

<TABLE>
<CAPTION>

                                                                                   Three Months Ended
                                                     -------------------------------------------------------------------------------
                                                      September 30, 2005                September 30, 2004
                                                      ------------------                ------------------
                                                                                                                        Increase
                                                   Dollars              %             Dollars               %          (decrease) %
                                                   -------              -             -------               -          ------------
<S>                                              <C>                  <C>            <C>                  <C>                <C>
  Net revenues                                   $ 11,060             100.0%         $ 10,683             100.0%             3.5%

  Cost of revenues                                  7,595              68.7             6,963              65.2              9.1

  Selling, general and administrative
  expense                                           4,214              38.1             4,028              37.7              4.6

  Depreciation and amortization                       261               2.4               275               2.6             (4.8)

  Interest expense                                     29               0.3                29               0.2             (2.1)

  Other income                                          -               -                 773               7.2           (100.0)
                                                 --------             -----          --------             -----

  (Loss) income before provision for

     income taxes and minority interest            (1,039)             (9.5)              161               1.5              -

  Provision for income taxes                           15               0.1                15               0.1              -
                                                 --------             -----          --------             -----

  Net (loss) income before minority
     interest                                      (1,054)             (9.6)              146               1.4              -

  Minority interest                                    88               0.8               (64)             (0.6)             -
                                                 --------             -----          --------             -----

  Net (loss) income                              $ (1,142)            (10.4)%        $    210               2.0%             -
                                                 ========             =====          ========             =====
</TABLE>

Net Revenues

        Net revenues for the three months ended  September 30, 2005,  were $11.1
million,  compared to $10.7  million for the three  months ended  September  30,
2004, an increase of 3.5%. For the third quarter domestic revenue decreased $1.7
million  or 19.2% to $7.5  million,  compared  to $9.2  million a year ago.  The
decrease  in  domestic  revenue is a result of the loss of  several  significant
customers  partially  offset


                                       21
<PAGE>


                                SPAR Group, Inc.


by revenue from new  customers.  Internationally,  revenue for the third quarter
increased to $3.6  million from $1.4 million last year.  The increase in revenue
reflects $1.4 million of revenues  resulting from the consolidation of the joint
venture in Japan that was accounted for on the equity method in 2004, as well as
continued revenue increases in Canada of $0.8 million and India of $0.4 million,
slightly offset by a revenue decrease of $0.6 million in South Africa.

        One customer  accounted for 13% and 14% of the Company's net revenue for
the three months ended September 30, 2005, and 2004, respectively. This customer
also accounted for approximately 19% and 29% of accounts receivable at September
30, 2005, and December 31, 2004, respectively.

        Approximately  9% and 17% of the  Company's  net  revenues for the three
months  ended  September  30,  2005,  and  2004,  respectively,   resulted  from
merchandising  services  performed for customers at Kmart.  These customers also
accounted for  approximately 9% and 22% of accounts  receivable at September 30,
2005, and December 31, 2004, respectively.  While the contractual  relationships
or agreements are with various customers and not Kmart, a significant  reduction
of this  retailer's  stores  or  cessation  of this  retailer's  business  would
negatively impact the Company.

        In  addition,  approximately  10% of the  Company's  net revenue for the
three months ended  September  30, 2005,  resulted from  merchandising  services
performed for  customers at Circuit City.  These  customers  also  accounted for
approximately  4% and 16% of accounts  receivable  at September  30,  2005,  and
December  31,  2004,  respectively.   While  the  contractual  relationships  or
agreements  are with  various  customers  and not Circuit  City,  a  significant
reduction of this  retailer's  stores or cessation of this  retailer's  business
would negatively impact the Company.

        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.

Cost of Revenues

        Cost of revenues  consists of in-store labor and field management wages,
related  benefits,  travel  and other  direct  labor-related  expenses.  Cost of
revenues as a  percentage  of net  revenues was 68.7% for the three months ended
September 30, 2005,  compared to 65.2% for the three months ended  September 30,
2004.  For the third  quarter  domestic  cost of revenues as a percentage of net
revenues was 71.7% and 63.3% for the three months ended  September 30, 2005, and
2004, respectively.  The increase is primarily attributed to the mix of business
with higher cost project revenue  accounting for a greater portion of revenue in
the current  period.  Internationally,  cost of revenues as a percentage  of net
revenues was 62.4% and 77.1% for the three months ended  September 30, 2005, and
2004,  respectively.  The international cost of revenue percentage was favorably
impacted by the increase in international  revenue, which enabled the Company to
leverage its infrastructure.

        Approximately  83.5% and 87.7% of the Company's domestic cost of revenue
in the three months ended September 30, 2005, and 2004,  respectively,  resulted
from in-store  independent  contractor and field management  services  purchased
from the Company's affiliates,  SPAR Marketing Services,  Inc.


                                       22
<PAGE>


                                SPAR Group, Inc.


("SMS"), and SPAR Management Services, Inc. ("SMSI"), respectively (see Note 7 -
Related-Party Transactions).

Selling, General and Administrative Expenses

        Selling, general and administrative expenses include corporate overhead,
project  management,   information  technology,  executive  compensation,  human
resource, legal and accounting expenses.

        Selling,  general and administrative expenses increased by $0.2 million,
or 4.6%, for the three months ended September 30, 2005, to $4.2 million compared
to $4.0 million for the three months ended September 30, 2004. Domestic selling,
general and  administrative  expenses  decreased by $0.4 million to $3.0 million
for 2005 from $3.4 million in 2004.  The  reduction of 11% was  primarily due to
cost  reduction  programs  initiated  in 2004 as a result of the loss of certain
large customers.  Internationally,  selling, general and administrative expenses
increased  by  approximately   $0.6  million  to  $1.2  million  for  2005  from
approximately  $0.6 million in 2004.  The increase of 89.2% was primarily due to
the consolidation of the Japan joint venture.

Depreciation and Amortization

        Depreciation  and  amortization  charges of $0.3  million  for the three
months ended  September 30, 2005, was  consistent  with $0.3 million in the same
period for 2004.

Income Taxes

        The Company  recorded an income tax  provision  of $15,000 for the three
months ended  September 30, 2005.  The provision was primarily for minimum state
taxes.  There  was no  provision  for  federal  tax for the three  months  ended
September  30, 2005,  since the Company  expects to utilize net  operating  loss
carryforwards which are available to offset any federal taxes due.

        The Company  recorded an income tax  provision  of $15,000 for the three
months ended September 30, 2004.

Minority Interest

        Minority interest of approximately  $88,000 and approximately  ($64,000)
resulted  from the  operating  profits and losses of the 51% owned joint venture
subsidiaries and the 50% owned Japanese joint venture for the three months ended
September 30, 2005, and 2004, respectively.

Net (Loss) Income

        The Company had a net loss of $1.1  million for the three  months  ended
September 30, 2005, or $0.06 per diluted share, compared to a net income of $0.2
million, or $0.01 per diluted share, for the corresponding period last year.



                                       23
<PAGE>

Results of Operations

Nine months ended  September 30, 2005,  compared to nine months ended  September
30, 2004
--------------------------------------------------------------------------------

        The following  table sets forth  selected  financial  data and data as a
percentage  of net  revenues for the periods  indicated  (in  thousands,  except
percent data).

<TABLE>
<CAPTION>

                                                                                  Nine Months Ended
                                                     -------------------------------------------------------------------------------
                                                      September 30, 2005               September 30, 2004
                                                      ------------------               ------------------
                                                                                                                        Increase
                                                  Dollars              %           Dollars                %            (decrease) %
                                                  -------              -           -------                -            ------------
<S>                                              <C>                 <C>           <C>                  <C>                <C>
  Net revenues                                   $ 38,381            100.0%        $ 35,418             100.0%             8.4%

  Cost of revenues                                 24,414             63.6           24,474              69.1             (0.2)

  Selling, general and administrative
  expense                                          12,712             33.1           14,471              40.9            (12.2)

  Impairment charges                                    -              -              8,141              23.0           (100.0)

  Depreciation and amortization                       812              2.1            1,005               2.8            (19.2)

  Interest expense                                    102              0.3              127               0.4            (20.0)

  Other income                                         14              -                764               2.2            (98.2)
                                                 --------            -----         --------             -----

  Income (loss) before provision for
     income taxes and minority interest               355              0.9          (12,036)            (34.0)             -

  Provision for income taxes                           45              0.1              783               2.2              -
                                                 --------            -----         --------             -----

  Net income (loss) before minority
     interest                                         310              0.8          (12,819)            (36.2)             -

  Minority interest                                   166              0.3              (64)             (0.2)             -
                                                 --------            -----         --------             -----

  Net income (loss)                              $    144              0.5%        $(12,755)            (36.0)%            -
                                                 ========            =====         ========             =====
</TABLE>


Net Revenues

        Net revenues for the nine months ended  September  30, 2005,  were $38.4
million, compared to $35.4 million for the nine months ended September 30, 2004,
an increase of $3.0 million or 8.4%. For


                                       24
<PAGE>


                                SPAR Group, Inc.


the nine month period, domestic revenue decreased $5.0 million or 15.5% to $27.4
million,  compared to $32.4 million in the prior year.  The decrease in domestic
revenue  is a result  of the loss of  several  significant  customers  partially
offset by revenue  from new  customers.  Internationally,  revenue  for the nine
months  increased to $11.0 million from $3.0 million last year.  The increase in
revenue for the nine months ended  September  30, 2005  reflects $4.3 million of
revenue  resulting from the consolidation of the joint venture in Japan that was
accounted  for on the  equity  method  in  2004,  as well as  continued  revenue
increases in Canada of $2.5  million,  India of $0.7 million and South Africa of
$0.3 million.

        One customer  accounted for 17% and 12% of the Company's net revenue for
the nine months ended September 30, 2005, and 2004, respectively.  This customer
also accounted for approximately 19% and 29% of accounts receivable at September
30, 2005, and December 31, 2004, respectively.

        A second customer accounted for 9% and 30% of the Company's net revenues
for the nine months ended  September  30,  2005,  and 2004,  respectively.  This
customer also accounted for  approximately  2% and 4% of accounts  receivable at
September 30, 2005, and December 31, 2004, respectively.  In 2004, this customer
was a division of a major retailer and was sold by its parent on August 2, 2004.
In 2005, the Company performed various projects that resulted in $3.4 million of
revenue for this customer.

        In addition, approximately 10% of the Company's net revenue for the nine
months ended September 30, 2005, resulted from merchandising  services performed
for customers at Circuit City. These customers also accounted for  approximately
4% and 16% of accounts  receivable at September 30, 2005, and December 31, 2004,
respectively. While the contractual relationships or agreements are with various
customers  and not Circuit  City, a  significant  reduction  of this  retailer's
stores or cessation of this  retailer's  business  would  negatively  impact the
Company.

        Approximately  9% and 15% of the  Company's  net  revenues  for the nine
months  ended  September  30,  2005,  and  2004,  respectively,   resulted  from
merchandising  services  performed for customers at Kmart.  These customers also
accounted for  approximately 9% and 22% of accounts  receivable at September 30,
2005, and December 31, 2004, respectively.  While the contractual  relationships
or agreements are with various customers and not Kmart, a significant  reduction
of this  retailer's  stores  or  cessation  of this  retailer's  business  would
negatively impact the Company.

        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.

Cost of Revenues

        Cost of revenues  consists of in-store labor and field management wages,
related  benefits,  travel  and other  direct  labor-related  expenses.  Cost of
revenues as a  percentage  of net  revenues  was 63.6% for the nine months ended
September  30, 2005,  compared to 69.1% for the nine months ended  September 30,
2004.  For the nine months ended  September 30, 2005 and 2004,  domestic cost of
revenues as a percentage of net revenues was 64.8% and 68.3%  respectively.  The
decrease is primarily a result of the Company  restructuring  its domestic field
force to reflect its reduction of business. Internationally, cost of revenues as
a  percentage  of net  revenues  was 60.5% and 78.2% for the nine  months  ended
September

                                       25
<PAGE>


                                SPAR Group, Inc.


30, 2005 and 2004 respectively. The international cost of revenue percentage was
favorably impacted by the increase in international  revenue,  which enabled the
Company to leverage its infrastructure.

        Approximately  87.1% and 87.9% of the Company's domestic cost of revenue
in the nine months ended  September 30, 2005, and 2004,  respectively,  resulted
from in-store  independent  contractor and field management  services  purchased
from the Company's affiliates,  SPAR Marketing Services,  Inc. ("SMS"), and SPAR
Management  Services,  Inc.  ("SMSI"),  respectively (see Note 7 - Related-Party
Transactions).

Selling, General and Administrative Expenses

        Selling, general and administrative expenses include corporate overhead,
project  management,   information  technology,  executive  compensation,  human
resource, legal and accounting expenses.

        Selling,  general and administrative expenses decreased by $1.8 million,
or 12.2%,  for the nine  months  ended  September  30,  2005,  to $12.7  million
compared to $14.5 million for the nine months ended September 30, 2004. Domestic
selling,  general and administrative  expenses decreased by $3.5 million to $9.2
million  for 2005  from  $12.7  million  in 2004.  The  reduction  of 27.9%  was
primarily due to cost  reduction  programs  initiated in 2004 as a result of the
loss  of  certain  large  customers.   Internationally,   selling,  general  and
administrative  expenses increased by approximately $1.7 million to $3.5 million
for 2005 from $1.8 million in 2004.  The increase of 103.9% was primarily due to
$1.3 million of expenses resulting from the consolidation of Japan and increases
of $0.3  million  in Canada  and $0.1  million in South  Africa  resulting  from
increased operations.

Impairment Charges

        The Company had no impairment charge for the nine months ended September
30, 2005,  as compared to  impairment  of $8.1 million for the nine months ended
September  30, 2004.  Impairment  charges for the 2004 period  consisted of $9.0
million of goodwill  impairment,  offset by reductions to the other  liabilities
for PIA merger  related costs of $1.0 million and PIA  restructuring  charges of
$0.7 million,  net of a $0.3 million tax effect,  $0.4 million of net impairment
of  software  development  costs  previously  capitalized  and $0.1  million for
impairment of other assets.

Depreciation and Amortization

        Depreciation  and  amortization  charges  were $0.8 million for the nine
months ended September 30, 2005, a decrease of $0.2 million from $1.0 million in
the same period for 2004.

Income Taxes

        The  Company  recorded an income tax  provision  of $45,000 for the nine
months ended  September 30, 2005.  The provision was primarily for minimum state
taxes.  There  was no  provision  for  federal  tax for the  nine  months  ended
September  30, 2005,  since the Company  expects to utilize net  operating  loss
carryforwards which are available to offset any federal taxes due.



                                       26
<PAGE>


                                SPAR Group, Inc.


        The Company  recorded an income tax  provision  of $0.8  million for the
nine months ended  September  30, 2004.  The provision was primarily a result of
the  establishment of a valuation reserve for net deferred tax assets previously
recorded by the Company and estimated minimum state taxes due.

Minority Interest

        Minority interest of approximately $166,000 and approximately  ($64,000)
resulted  from the  operating  profits and losses of the 51% owned joint venture
subsidiaries and the 50% owned joint venture for the nine months ended September
30, 2005, and 2004, respectively.

Net Income (Loss)

        The Company had a net income of $0.1  million for the nine months  ended
September 30, 2005, or $0.01 per diluted share,  compared to a net loss of $12.8
million, or $0.68 per diluted share, for the corresponding period last year.

Liquidity and Capital Resources

        In the nine  months  ended  September  30,  2005,  the Company had a net
income of $144,000.

        Net cash  provided by  operating  activities  for the nine months  ended
September 30, 2005, and 2004, was $3.7 million and $2.7 million, respectively.

        Net  cash  used in  investing  activities  for  the  nine  months  ended
September  30, 2005,  was  approximately  $388,000  compared to net cash used in
investing  activities  of $1.4 million for the nine months ended  September  30,
2004.  The decrease in net cash used in investing  activities was a result of no
business acquisitions and lower purchases of property and equipment in 2005.

        Net  cash  used in  financing  activities  for  the  nine  months  ended
September  30, 2005,  was $2.4  million,  compared to net cash used in financing
activities  of $1.1 million for the nine months ended  September  30, 2004.  The
increase  of net cash used in  financing  activities  was  primarily a result of
higher net payments on the lines of credit.

        The above activity  resulted in an increase in cash and cash equivalents
for the nine months ended September 30, 2005, of approximately $926,000.

        At September 30, 2005, the Company had positive  working capital of $2.2
million,  as compared to a positive  working capital of $1.0 million at December
31, 2004.  The increase in working  capital is due  primarily to  reductions  in
lines of credit, and accounts payable, as well as an increase in cash, partially
offset by reduced  accounts  receivable  and  increases in accrued  expenses and
other current liabilities. The Company's current ratio was 1.24 at September 30,
2005, and 1.08 at December 31, 2004.

        In January 2003,  the Company and Webster  Business  Credit  Corporation
("Webster"),  then known as Whitehall Business Credit Corporation,  entered into
the Third Amended and Restated Revolving

                                       27
<PAGE>


                                SPAR Group, Inc.


Credit and Security Agreement (as amended, collectively, the "Credit Facility").
The Credit  Facility  provides a $7.0 million  revolving  credit  facility  that
matures on January 23,  2006.  The Company may borrow up to $7.0  million  based
upon a borrowing  base formula as defined in the agreement  (principally  85% of
"eligible"  accounts  receivable  of  its  domestic  subsidiaries).  The  Credit
Facility  bears  interest  at a rate  based  in part  upon the  earnings  before
interest,  taxes,  depreciation  and amortization and depending upon the type of
borrowing,  is calculated  based upon Webster's  "Alternative  Base Rate" or the
London Inter Bank Offering Rate ("LIBOR").  At September 30, 2005, there were no
LIBOR based loans and the interest rate calculated at Webster's Alternative Base
Rate plus 0.75% which totaled 7.5% per annum.  The average interest rate for the
nine months ended  September 30, 2005, was 6.65% per annum.  The Credit Facility
is secured by all of the assets of the Company and its domestic subsidiaries. In
addition,  Mr.  Robert  Brown,  a Director,  the  Chairman,  President and Chief
Executive  Officer  and a major  stockholder  of the  Company  and  Mr.  William
Bartels,  a Director,  the Vice Chairman and a major stockholder of the Company,
provide  personal  guarantees  totaling  $1.0  million  to  Webster.  The Credit
Facility requires the Company satisfy certain financial  covenants,  including a
minimum "Net Worth",  a minimum  "Fixed Charge  Coverage  Ratio",  and a minimum
"EBITDA", as such terms are defined in the Credit Facility.  The Credit Facility
also limits certain expenditures by the Company,  including capital expenditures
and other investments.

        The Company was in violation of certain covenants at September 30, 2005,
and Webster has issued a waiver for the September 30, 2005, covenant violations.
The  Company  is  currently  negotiating  with  Webster  to amend  the  existing
covenants and extend the Credit Facility.  If amended,  the Company expects that
it will be able to comply with the amended covenants in future periods. However,
there  can be no  assurances  that the  Company  will  comply  with the  amended
covenants and that if the Company violates the amended  covenants,  Webster will
continue to issue such waivers in the future.

        The revolving loan balances  outstanding  under the Credit Facility were
$1.7  million and $4.1 million at  September  30,  2005,  and December 31, 2004,
respectively. There were letters of credit outstanding under the Credit Facility
of  approximately  $700,000 at September 30, 2005,  and December 31, 2004. As of
September  30,  2005,  the SPAR Group had unused  availability  under the Credit
Facility of $1.6  million  out of the  remaining  maximum  $4.6  million  unused
revolving line of credit after reducing the borrowing base by outstanding  loans
and letters of credit.

        In 2001, the Japanese joint venture SPAR FM Japan,  Inc.  entered into a
revolving line of credit  arrangement with Japanese banks for 300 million Yen or
$2.7 million (based upon the exchange rate at September 30, 2005).  At September
30, 2005, SPAR FM Japan, Inc. had 80 million Yen or approximately  $724,000 loan
balance  outstanding  under the line of credit  (based upon the exchange rate at
that  date).  The line of credit is  guarantied  by the joint  venture  partner,
Paltac  Corporation  ("Paltac").  The Company has agreed to reimburse Paltac for
50% of any  payment  made by Paltac as a result of this  Guaranty.  The  average
interest  rate on the  borrowings  under the  Japanese  line of  credit  for its
short-term bank loans at September 30, 2005, was 1.375% per annum.

        The Company's international model is to partner with local merchandising
companies  and combine the Company's  proprietary  software and expertise in the
merchandising  business  with the partner's  knowledge of the local  market.  In
2001, the Company established its first joint venture in Japan and has continued
this strategy.  As of this filing, the Company is currently  operating in Japan,
Canada, Turkey,

                                       28
<PAGE>


                                SPAR Group, Inc.


South Africa,  India and Romania.  In February 2005,  the Company  announced the
establishment  of a joint  venture in China.  In  September  2005,  the  Company
announced  the  establishment  of a joint  venture in  Lithuania.  The Company's
Chinese and Lithuanian joint ventures are expected to be operational  before the
end of 2005.

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

        Management believes that based upon the results of Company's cost saving
initiatives and the existing  credit  facilities,  sources of cash  availability
will be sufficient to support  ongoing  operations  over the next twelve months.
However, delays in collection of receivables due from any of the Company's major
clients,  or a significant  further reduction in business from such clients,  or
the  inability  to acquire new  clients,  or the  Company's  inability to remain
profitable,  or the inability to obtain its lender's waivers for future covenant
violations,  each could have a material  adverse  effect on the  Company's  cash
resources and its ongoing ability to fund operations.

Certain Contractual Obligations

       The  following  table  contains a summary  of  certain  of the  Company's
contractual obligations by category as of September 30, 2005 (in thousands).

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
          Contractual Obligations                                   Payments due by Period
-------------------------------------------------------------------------------------------------------------------
                                                 Total       Less than 1    1-3 years     3-5 years     More than 5
                                                                year                                       years
-------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>             <C>            <C>           <C>
Credit Facility                                 $2,418        $2,418          $   -          $  -          $  -
-------------------------------------------------------------------------------------------------------------------
Operating Lease Obligations                      1,481           969            512             -             -
-------------------------------------------------------------------------------------------------------------------
Total                                           $3,899        $3,387          $ 512          $  -          $  -
-------------------------------------------------------------------------------------------------------------------
</TABLE>


        The Company also had  approximately  $700,000 in outstanding  Letters of
Credit at September 30, 2005.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

        The  Company's   accounting  policies  for  financial   instruments  and
disclosures  relating  to  financial  instruments  require  that  the  Company's
consolidated  balance sheets include the following financial  instruments:  cash
and cash equivalents, accounts receivable, accounts payable and lines of credit.
The Company considers  carrying amounts of current assets and liabilities in the
consolidated  financial  statements  to  approximate  the fair  value  for these
financial  instruments  because of the  relatively  short period of time between
origination  of the  instruments  and their  expected  realization.  The Company
monitors the risks  associated  with  interest  rates and  financial  instrument
positions.  The Company's  investment policy objectives require the preservation
and safety of the principal,  and the  maximization  of the return on investment
based upon the safety and liquidity objectives.

                                       29
<PAGE>


                                SPAR Group, Inc.



        The Company is exposed to market risk related to the  variable  interest
rates on its lines of credit.  At September 30, 2005, the Company's  outstanding
debt totaled  approximately  $2.4 million,  which consisted of domestic variable
rate (7.5%) debt of $1.7 million and international  variable rate (1.4%) debt of
$0.7  million.  Based on the nine months  ending  September  30,  2005,  average
outstanding  borrowings  of  approximately  $1.5  million and  approximately  93
million  Yen under  variable  rate debt,  a  one-percentage  point  increase  in
interest rates would  negatively  impact pre-tax earnings and cash flows for the
nine months ended September 30, 2005, by approximately $20,000.

        The  Company  has  foreign   currency   exposure   associated  with  its
international  100% owned subsidiary,  its 51% owned joint venture  subsidiaries
and its 50% owned Japanese joint venture. In the nine months ended September 30,
2005, these exposures were primarily  concentrated in the Canadian dollar, South
African Rand and  Japanese  Yen. At September  30,  2005,  international  assets
totaled  approximately  $4.5  million  and  international   liabilities  totaled
approximately  $6.8  million.  For the nine months  ended  September  30,  2005,
international  revenues totaled $10.9 million and the Company's share of the net
income was approximately $489,000.

Item 4. Controls and Procedures

        The  Company's  Chief  Executive  Officer  and Chief  Financial  Officer
evaluated the effectiveness of the Company's  disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) as of the end of the period
covering this report. Based on this evaluation,  the Chief Executive Officer and
Chief Financial  Officer  concluded that the Company's  disclosure  controls and
procedures  are  effective  to provide  reasonable  assurance  that  information
required to be  disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded,  processed,  summarized and reported  within
the time periods specified by the Securities and Exchange Commission's rules and
forms.

        There were no significant  changes in the Company's internal controls or
in other factors that could significantly  affect these controls during the nine
months  covered by this  report or from the end of the  reporting  period to the
date of this Form 10-Q.

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

Item 5. Other Information.

        None



                                       30
<PAGE>


                                SPAR Group, Inc.

PART II:   OTHER INFORMATION

Item 1.    Legal Proceedings

           No change.

Item 2:    Changes in Securities and Use of Proceeds

           Item 2(a): Not applicable
           -------------------------
           Item 2(b): Not applicable
           -------------------------
           Item 2(c): Not applicable
           -------------------------

Item 3:    Defaults upon Senior Securities

           Item 3(a):  Defaults under Indebtedness:  None.
           Item 3(b):  Defaults under Preferred Stock:  Not applicable.

Item 4:    Submission of Matters to a Vote of Security Holders

           SGRP held its Annual Meeting of  Stockholders on August 10, 2005. The
           meeting  was held  (1) to elect  the  Board of  Directors  and (2) to
           ratify the appointment of Rehmann Robson as the Company's independent
           auditors for the year ending December 31, 2005.

           Proposal 1 - Election of Directors:

           Name:                    For:             Abstention:
           -------------------------------------------------------------------
           Robert G. Brown          17,426,619               3,710
           -------------------------------------------------------------------
           William H. Bartels       17,361,449              68,880
           -------------------------------------------------------------------
           Robert O. Aders          17,420,778               9,551
           -------------------------------------------------------------------
           Jack W. Partridge        17,419,778              10,551
           -------------------------------------------------------------------
           Jerry B. Gilbert         17,424,098               6,231
           -------------------------------------------------------------------
           Lorrence T. Kellar       17,418,697              11,632
           -------------------------------------------------------------------

           Each of the nominees was elected to the Board of Directors of SGRP.

           Proposal Number 2 - Ratification of the appointment of Rehmann Robson
           as the Company's  independent  public  accountant for the fiscal year
           ending December 31, 2005:

           For:                     Against:         Abstention:
           -------------------------------------------------------------------
           17,415,996               1,870            12,463
           -------------------------------------------------------------------




                                       31
<PAGE>


                                SPAR Group, Inc.


Item 5:    Other Information

           Not applicable.

Item 6:    Exhibits

        Exhibits.

         10.1     Waiver to the Third Amended and Restated  Revolving Credit and
                  Security Agreement among Webster Business Credit  Corporation,
                  SPAR Group,  Inc., and certain of its subsidiaries dated as of
                  November 10, 2005,  with respect to the fiscal  quarter  ended
                  September 30, 2005, as filed herewith.

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

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

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

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






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<PAGE>


                                SPAR Group, Inc.


                                   SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date:  November 14, 2005             SPAR Group, Inc., Registrant


                                     By: /s/ Charles Cimitile
                                         ---------------------------------------
                                         Charles Cimitile
                                         Chief Financial Officer, Treasurer,
                                         Secretary and duly authorized signatory











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