|                                                                               
|-------------------------------------------------------------------------------
|UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549Form 10-Q

(Mark One)  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the
second quarterly period ended June 30, 2007.

OR

TRANSITION  REPORT  PURSUANT  TO
SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE  ACT OF 1934 for the  transition  period
from_________ to __________

Commission file number:
0-27824

SPAR Group, Inc.(Exact name of registrant as specified in its charter)

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

555 White Plains Road,
Suite 250, 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:     Yes      No

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
(See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act).

|                        |                   |                      
|----------------------- | ----------------- | ---------------------
|Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes       No

|                                                                           
|---------------------------------------------------------------------------
|On June 30, 2007, there were 18,934,182 shares of Common Stock outstanding.

---

---

# SPAR Group, Inc.

Index

|           |                                                                                                |   
|---------- | ---------------------------------------------------------------------------------------------- | --
|PART I:    | FINANCIAL INFORMATION                                                                          |   
|          
|Item 1:    | Financial Statements                                                                          
|          
|           | Consolidated Balance Sheetsas of June 30, 2007 and December 31, 2006                           | 3 
|          
|           | Consolidated Statements of Operations for the three andsix months ended June 30, 2007 and 2006 | 4 
|          
|           | Consolidated Statements of Cash Flows for thesix months ended June 30, 2007 and 2006           | 5 
|          
|           | Notes to Consolidated Financial Statements                                                     | 6 
|          
|           | Management's Discussion and Analysis of FinancialCondition and Results of Operations           | 16
|          
|Item 3:    | Quantitative and Qualitative Disclosures about Market Risk                                     | 26
|          
|Item 4:    | Controls and Procedures                                                                        | 26
|          
|PART II:   | OTHER INFORMATION                                                                             
|          
|Item 1:    | Legal Proceedings                                                                              | 28
|          
|Item 1A:   | Risk Factors                                                                                   | 28
|          
|Item 2:    | Unregistered Sales of Equity Securities and Use of Proceeds                                    | 28
|          
|Item 3:    | Defaults upon Senior Securities                                                                | 29
|          
|Item 4:    | Submission of Matters to a Vote of Security Holders                                            | 29
|          
|Item 5:    | Other Information                                                                              | 29
|          
|Item 6:    | Exhibits                                                                                       | 29
|          
|SIGNATURES |                                                                                                | 30

2

---

|PART I: |  | FINANCIAL INFORMATION
|------- |  | ---------------------

|Item 1: |  | Financial Statements
|------- |  | --------------------

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

|                                               | June 30,
2007 |  | December 31,
2006 |       
|---------------------------------------------- | ------------- |  | ----------------- | ------
|
|Assets                                         |               |  |                   |       
|Current assets:                                |               | 
|Cash and cash equivalents                      |               |  | $                 | 1,601 
|Accounts receivable, net                       |               |  |                   | 8,507 
|Prepaid expenses and other current assets      |               |  |                   | 638   
|                                               |               |  |                   |       
|Total current assets                           |               |  |                   | 10,746
|                                               |               | 
|Property and equipment, net                    |               |  |                   | 1,297 
|Goodwill                                       |               |  |                   | 798   
|Other assets                                   |               |  |                   | 1,557 
|                                               |               |  |                   |       
|Total assets                                   |               |  | $                 | 14,398
|                                               |               |  |                   |       
|                                               |               | 
|Liabilities and stockholders' equity           |               | 
|Current liabilities:                           |               | 
|Accounts payable                               |               |  | $                 | 2,558 
|Accrued expenses and other current liabilities |               |  |                   | 3,201 
|Accrued expenses due to affiliates             |               |  |                   | 2,299 
|Customer deposits                              |               |  |                   | 677   
|Lines of credit                                |               |  |                   | 2,426 
|                                               |               |  |                   |       
|Total current liabilities                      |               |  |                   | 11,161
|                                               |               | 
|Other long-term liabilities                    |               |  |                   | 215   
|Minority interest                              |               |  |                   | 514   
|                                               |               |  |                   |       
|Total liabilities                              |               |  |                   | 11,890
|                                               |               | 
|Commitments and contingencies (Note - 9)       |               | 
|                                               |               | 
|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 -                |               |  |                   |       
|18,934,182 - June 30, 2007                     |               | 
|18,934,182 - December 31, 2006                 |               |  |                   | 189   
|Treasury stock                                 |               |  |                   | (1    
|Accumulated other comprehensive loss           |               |  |                   | (47   
|Additional paid-in capital                     |               |  |                   | 11,649
|Accumulated deficit                            |               |  |                   | (9,282
|                                               |               |  |                   |       
|Total stockholders' equity                     |               |  |                   | 2,508 
|                                               |               |  |                   |       
|Total liabilities and stockholders' equity     |               |  | $                 | 14,398
|                                               |               |  |                   |       

|Note: |  | The Balance Sheet at December 31, 2006, 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

---

SPAR Group, Inc. Consolidated Statements of Operations
(unaudited) 
(In thousands, except per share data)

|                                                    | Three Months Ended June 30, |  | Six Months Ended June 30, |       
|--------------------------------------------------- | --------------------------- |  | ------------------------- | ------
|                                                    |                             |  |                           |       
|
|                                                    |                             |  |                           |       
|Net revenues                                        |                             |  | $                         | 12,506
|Cost of revenues                                    |                             |  |                           | 8,757 
|                                                    |                             |  |                           |       
|Gross profit                                        |                             |  |                           | 3,749 
|                                                    |                             | 
|Selling, general and administrative expenses        |                             |  |                           | 5,226 
|Depreciation and amortization                       |                             |  |                           | 194   
|                                                    |                             |  |                           |       
|Operating (loss) income                             |                             |  |                           | (1,671
|                                                    |                             | 
|Interest expense                                    |                             |  |                           | 93    
|Other income                                        |                             |  |                           | (71   
|                                                    |                             |  |                           |       
|(Loss) income before provision for income taxes and |                             |  |                           |       
|minority interest                                   |                             |  |                           | (1,693
|                                                    |                             | 
|Provision for income taxes                          |                             |  |                           | 74    
|                                                    |                             |  |                           |       
|(Loss) income before minority interest              |                             |  |                           | (1,767
|                                                    |                             | 
|Minority interest                                   |                             |  |                           | (28   
|                                                    |                             |  |                           |       
|Net (loss) income                                   |                             |  | $                         | (1,739
|                                                    |                             |  |                           |       
|                                                    |                             | 
|Basic/diluted net (loss) income per common share:   |                             | 
|                                                    |                             | 
|Net (loss) income - basic/diluted                   |                             |  | $                         | (0.09 
|                                                    |                             |  |                           |       
|Weighted average common shares - basic              |                             |  |                           | 18,934
|                                                    |                             |  |                           |       
|Weighted average common shares - diluted            |                             |  |                           | 18,934
|                                                    |                             |  |                           |       

See accompanying notes.

4

---

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

|                                                                 | Six Months Ended June 30,
|---------------------------------------------------------------- | -------------------------
|
|Operating activities                                             |                          
|Net cash provided by (used in) operating activities              |                          
|                                                                 |                          
|Investing activities                                             |                          
|Purchases of property and equipment                              |                          
|                                                                 |                          
|Financing activities                                             |                          
|Net payments on lines of credit                                  |                          
|Other long-term liabilities                                      |                          
|Proceeds from employee stock purchase plan and options exercised |                          
|                                                                 |                          
|Net cash used in financing activities                            |                          
|                                                                 |                          
|                                                                 |                          
|Translation gain (loss)                                          |                          
|                                                                 |                          
|Net change in cash and cash equivalents                          |                          
|Cash and cash equivalents at beginning of period                 |                          
|                                                                 |                          
|Cash and cash equivalents at end of period                       |                          
|                                                                 |                          
|                                                                 |                          
|Supplemental disclosure of cash flow information                 |                          
|Interest paid                                                    |                          
|Taxes paid                                                       |                          

The Company acquired equipment in the
amount of $358,000 by entering into a capital lease in January 2007.

See accompanying notes.

5

---

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 2006 on Form 10-K for the year ended December 31, 2006, as filed with
the Securities and Exchange Commission (the SEC) on April 2, 2007, and amended
on Form 10-K/A by Amendment No. 1 filed with the SEC on April 13, 2007 (the
Companys Annual Report for 2006 on Form 10-K As Amended). The
Companys results of operations for the interim periods are not necessarily
indicative of its operating results for the entire year.

|2. |  | Business and Organization
|-- |  | -------------------------

The
Company is a supplier of merchandising and other marketing services throughout the United
States and internationally. The Company also provides in-store event staffing, product
sampling, radio frequency identification (RFID) services, technology services
and marketing research.

Today
the Company operates in 12 countries whose population represents approximately 48% of the
total world population. The Companys operations are currently divided into two
divisions: the Domestic Merchandising  Services Division and the
International Merchandising Services Division. The Domestic Merchandising Services
Division provides merchandising and marketing services, in-store event staffing, product
sampling, RFID services, technology services and marketing research to manufacturers and
retailers in the United States. The various services are primarily performed in mass
merchandisers, electronics store chains, drug store chains and convenience and grocery
stores. The International Merchandising Services Division was established in July 2000
and through its subsidiaries, the Company currently provides similar merchandising and
marketing services in Japan, Canada, Turkey, South Africa, India, Romania, China,
Lithuania, Latvia, Australia and New Zealand. The Company continues to focus on expanding
its merchandising and marketing services business throughout the world.

6

---

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

|3. |  | Earnings Per Share
|-- |  | ------------------

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

|                                                     | Three Months Ended June 30, |  | Six Months Ended June 30, |       
|---------------------------------------------------- | --------------------------- |  | ------------------------- | ------
|                                                     |                             |  |                           |       
|
|                                                     |                             |  |                           |       
|Numerator:                                           |                             |  |                           |       
|                                                     |                             | 
|Net (loss) income                                    |                             |  | $                         | (1,739
|                                                     |                             | 
|Denominator:                                         |                             | 
|Shares used in basic net (loss) income per           |                             |  |                           |       
|share calculation                                    |                             |  |                           | 18,934
|                                                     |                             | 
|Effect of diluted securities:                        |                             | 
|Employee stock options                               |                             |  |                           | -     
|                                                     |                             |  |                           |       
|                                                     |                             | 
|Shares used in diluted net (loss) income per         |                             | 
|share calculation                                    |                             |  |                           | 18,934
|                                                     |                             |  |                           |       
|                                                     |                             | 
|Basic and diluted net (loss) income per common share |                             |  | $                         | (0.09 
|                                                     |                             |  |                           |       

|4. |  | Lines of Credit
|-- |  | ---------------

In
January 2003, the Company (other than SGRPs foreign subsidiaries) and Webster
Business Credit Corporation, then known as Whitehall Business Credit Corporation
(Webster), entered into the Third Amended and Restated Revolving Credit and
Security Agreement (as amended, collectively, the Credit Facility). The Credit
Facility provides for a $7.0 million revolving line of credit maturing on January 23,
2009. In March 2007 the credit facility was further amended to among other things, delay
the Minimum Fixed Coverage ratio until the fourth quarter 2007, establish an EBITDA
covenant and increase the interest rate by .25% beginning March 28, 2007. Borrowings are
based upon a borrowing base formula as defined in the agreement (principally 85% of
eligible domestic accounts receivable less certain reserves). The Credit
Facility is secured by all of the assets of the Company and its domestic subsidiaries. The
Credit Facility also limits certain expenditures, including, but not limited to, capital
expenditures and other investments.

The
basic interest rate under the Credit Facility is Websters Alternative Base
Rate plus 1.0% per annum (a total of 9.25% per annum at June 30, 2007), which
automatically changes with each change made by Webster in such Alternative Base Rate. The
Company at its option, subject to certain conditions, may elect to have portions of its
loans under the Credit Facility bear interest at various LIBOR rates plus 3.50% per annum
based on fixed periods of one, two, three or six months. The actual average interest rate
under the Credit Facility was 9.13% per annum for the six months ended June 30, 2007.

The
domestic revolving loan balances outstanding under the Credit Facility were $1.6 million
and $4.2 million at June 30, 2007 and December 31, 2006, respectively. There were letters
of credit outstanding under the Credit Facility of approximately $453,000 at both June 30,
2007, and December 31, 2006. As of June 30, 2007, the SPAR Group had unused availability
under the Credit Facility of $386,000 out of the remaining maximum $4.9 million unused
revolving line of credit after reducing the borrowing base by outstanding loans and
letters of credit.

7

---

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

Because
of the requirement to maintain a lock box arrangement with Webster and Websters
ability to invoke a subjective acceleration clause at its discretion, borrowings under the
Credit Facility are classified as current at June 30, 2007 and December 31, 2006, in
accordance with EITF 95-22, Balance Sheet Classification of Borrowings Outstanding
Under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a
Lock-Box Agreement.

The
Company was in violation of its Minimum EBITDA covenant at June 30, 2007, and in August
2007 Webster amended the Credit Facility to among other things, waive the violation and
reduce the previously established availability reserve. The Company does not expect to
comply with its covenants in future periods and there can be no assurances that if the Company violates such
covenants, Webster will continue to issue waivers. In addition, Mr. Robert
G. Brown, a Director, the Chairman (former President and Chief Executive Officer) and a
major stockholder of SGRP, and Mr. William H. Bartels, a Director, the Vice Chairman and a
major stockholder of SGRP, have provided personal guarantees of the Credit Facility
totaling $1.0 million.

The
Japanese subsidiary SPAR FM Japan, Inc. has line of credit agreements totaling 100 million
Yen or approximately $811,000 (based upon the exchange rate at June 30, 2007). The
outstanding balances under the line of credit agreements were 70 million Yen or
approximately $568,000 at June 30, 2007 and $588,000 at December 31, 2006 (based upon the
exchange rate at those dates). The average interest rate was 1.63% per annum for the six
months ended June 30, 2007. In addition, the Japan subsidiary had cash balances totaling
133 million Yen or approximately $1.1 million and 97 million Yen or approximately $800,000
at June 30, 2007 and December 31, 2006 respectively (based upon the exchange rates at that
date).

In
2006, the Australian subsidiary SPARFACTS Australia Pty. Ltd. entered into a revolving
line of credit arrangement with Oxford Funding Pty. Ltd. for $1.1 million (Australian) or
approximately $934,000 (based upon the exchange rate at June 30, 2007). There were no
outstanding balances under the line of credit agreement at June 30, 2007 and $429,000
(Australian) or approximately $339,000 at December 31, 2006 (based upon the exchange rate
at that date). The average interest rate was 10.6% per annum for the six months ended June
30, 2007.

In
2006, SPAR Canada Company, a wholly owned subsidiary, entered into a credit agreement with
Royal Bank of Canada providing for a Demand Operating Loan for a maximum borrowing of $1.0
million (Canadian) or approximately $944,000 (based upon the exchange rate at June 30,
2007). The Demand Operating Loan provides for borrowings based upon a borrowing base
formula as defined in the agreement (principally 75% of eligible accounts receivable less
certain deductions). The outstanding balances under the line of credit agreement were
$270,000 (Canadian) or approximately $255,000 and $238,000 (Canadian) or approximately
$204,000 at June 30, 2007 and December 31, 2006, respectively (based upon the exchange
rate at that date). The average interest rate was 7.0% per annum for the six months ended
June 30, 2007.

|5. |  | Capital Lease Obligations
|-- |  | -------------------------

The
Company leases certain equipment under capital leases. The economic substance of the
leases is such that the Company is financing the acquisition of the assets through the
leases. The equipment has cost of $358,000, accumulated depreciation of $60,000 and a net
book value of $298,000 at June 30, 2007.

8

---

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

Annual
future minimum lease payments required under the leases together with their present value
as of June 30, 2007 are as follows:

|                                                             | 
|------------------------------------------------------------ | 
|2007                                                         | 
|2008                                                         | 
|2009                                                         | 
|2010                                                         | 
|                                                             | 
|                                                             | 
|Less amount representing interest @ 7.6%                     | 
|                                                             | 
|Present value of net minimum lease payments                  | 
|Less current portion included with other current liabilities | 
|                                                             | 
|Long-term portion included with other long-term liabilities  | 
|                                                             | 

|6. |  | Related-Party Transactions
|-- |  | --------------------------

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

SMS
and SMSI provided approximately 99% of the Companys domestic merchandising
specialists field force (through independent contractors) for both the six months ended
June 30, 2007 and 2006, and approximately 83% and 86% of the Companys domestic field
management at a total cost to the Company of approximately $8.5 million and $10.7 million
for the six months ended June 30, 2007 and 2006, respectively. Pursuant to the terms of
the Amended and Restated Field Service Agreement dated as of January 1, 2004, SMS provides
the services of SMSs merchandising specialist field force of approximately 2,900
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 48 full-time
national, regional and district managers to the Company. For those services, the Company
has agreed to reimburse SMS and SMSI for all of their costs of providing those services
and to pay SMS and SMSI each a premium equal to 4% of their respective costs. Total net
premiums (4% of SMS and SMSI costs) paid to SMS and SMSI for services rendered were
approximately $348,000 and $412,000 for the six months ended June 30, 2007, and 2006,
respectively. The Company has been advised that Messrs. Brown and Bartels are not paid any
salaries as officers of SMS or SMSI so there were no salary reimbursements for them
included in such costs or premium. However, since SMS and SMSI are Subchapter
S corporations and are owned by Messrs. Brown and Bartels, they benefit from any
income of such companies allocated to them.

SIT
provided substantially all of the Internet computer programming services purchased by the
Company at a total cost of approximately $337,000 and $363,000 for the six months ended
June 30, 2007 and 2006, respectively. SIT provided approximately 10,500 and 12,600 hours
of Internet computer programming services to the Company for the six months ended June 30,
2007 and 2006, 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 $31.92 and $28.90 for the six
months ended June 30, 2007 and 2006, respectively. The Company has been advised that no
hourly charges or business expenses for Messrs. Brown and Bartels were charged to the
Company by SIT for the six months ended June 30, 2007 and 2006, respectively. However,
since SIT is a Subchapter S corporation and is owned by Messrs. Brown and
Bartels, they benefit from any income of such company allocated to them.

9

---

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

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

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

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

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

|                                      | Three Months Ended June 30, |  | Six Months Ended June 30, |      
|------------------------------------- | --------------------------- |  | ------------------------- | -----
|                                      |                             |  |                           |      
|
|                                      |                             |  |                           |      
|Services provided by affiliates:      |                             |  |                           |      
|Independent contractor services (SMS) |                             |  | $                         | 3,046
|                                      |                             |  |                           |      
|Field management services (SMSI)      |                             |  | $                         | 776  
|                                      |                             |  |                           |      
|Handheld computer leases (SMS)        |                             |  | $                         | 69   
|                                      |                             |  |                           |      
|Internet and software program         |                             | 
|Consulting services (SIT)             |                             |  | $                         | 171  
|                                      |                             |  |                           |      

|                                         | 
|---------------------------------------- | 
|                                         | 
|SPAR Marketing Services, Inc. (SMS)      | 
|                                         | 
|SPAR Management Services, Inc. (SMSI)    | 
|                                         | 
|SPAR Infotech, Inc. (SIT)                | 
|                                         | 
|                                         | 
|Total accrued expenses due to affiliates | 
|                                         | 

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

10

---

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

|7. |  | Stock-Based Compensation
|-- |  | ------------------------

Under
SFAS No. 123(R), the Company accounts for its employee stock option expense as
compensation expense in the Companys financial statements when employee stock
options are granted. Share-based compensation cost is measured on the grant date, based on
the fair value of the award calculated at that date, and is recognized over the
employees requisite service period, which generally is the options vesting
period. Fair value is calculated using the Black-Scholes option pricing model.

Based upon the Black-Scholes calculation, share-based
compensation expense related to employee stock option grants totaled approximately
$129,000 and $159,000 for the six months ended June 30, 2007 and 2006 respectively. Basic
and diluted earnings per share were impacted by approximately $0.01 for both the six month
periods ended June 30, 2007 and 2006.

In
addition, the Company awards stock options to the employees of the Companys
affiliates. Under the provision of SFAS No. 123 dealing with non-employee stock options
awarded to the employees of the Companys affiliates, the Company recorded an expense
for the six months ended June 30, 2007 and 2006, of approximately $35,000 and $50,000
respectively.

The
Company determines the fair value of the options granted to employees and non-employees
using the Black-Scholes valuation model and expenses amounts or recovers amounts
previously expensed over the employees requisite service period, which generally is
the options vesting 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.

|8. |  | Customer Deposits
|-- |  | -----------------

Customer
deposits at June 30, 2007, were approximately $677,000 ($194,000 from
domestic operations and $483,000 from international operations) compared to
approximately $560,000 at December 31, 2006 ($214,000 from domestic
operations and $346,000 from international operations).

|9. |  | Commitments and Contingencies
|-- |  | -----------------------------

# International
Commitments

The
Companys international business model is to partner with local merchandising
companies and combine the Companys proprietary software and expertise in the
merchandising and marketing services business with their partners knowledge of the
local market. In 2001, the Company established its Japanese subsidiary to provide the
latest in-store merchandising and marketing services to the Japanese market. Since 2003,
the Company has expanded its international presence to Canada, Turkey, South Africa,
India, Romania, China, Lithuania, Latvia, Australia, and New Zealand. Today the Company
has nine subsidiaries operating in 12 countries whose population represents approximately
48% of the total world population.

Certain
of these subsidiaries are profitable, while others are operating at a loss. In the event
certain subsidiaries have continued losses, the Company may be required to make additional
cash infusions into those subsidiaries.

11

---

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

# Legal
Matters

Safeway
Inc. (Safeway) filed a Complaint against PIA Merchandising Co., Inc.
(PIA Co.), a wholly owned subsidiary of SPAR Group, Inc. (SGRP),
Pivotal Sales Company (Pivotal), a wholly owned subsidiary of PIA Co., and
SGRP in Alameda Superior Court, case no. 2001028498 on October 24, 2001. Safeway claims,
as subsequently amended, alleged causes of action for breach of contract and breach of
implied contract. PIA Co. and Pivotal filed cross-claims against Safeway on or about March
11, 2002, and amended them on or about October 15, 2002, alleging causes of action by PIA
Co. and Pivotal against Safeway for breach of contract, interference with economic
relationship, unfair trade practices and unjust enrichment. Trial commenced in March 2006.

On
May 26, 2006, the jury in this case returned a verdict resulting in a net award of
$1,307,700 to Pivotal, a SGRP subsidiary. This net award is to be paid by Safeway and
resulted from separate jury findings that awarded damages to those SGRP subsidiaries on
certain claims and damages to Safeway on other claims. In particular, the jury awarded
damages to Pivotal of $5,760,879 for Safeways interference with Pivotals
contractual relationships with third party manufacturers and also awarded $782,400 to
Pivotal and PIA for Safeways breach of contract with those SGRP subsidiaries. The
jury awarded damages to Safeway of $5,235,579 for breach of contract by SGRP and those
SGRP subsidiaries. Judgment was entered in favor of Pivotal in September 2006 for
$1,307,700. Both parties filed post trial motions but all post trial motions were denied.
Notices of Appeal were thereafter filed by both Safeway and Pivotal. Pivotal/SGRP is
seeking to have Safeways judgment overturned, thereby increasing the award to
Pivotal by over $5 million. Safeway has asked for a new trial on the judgment found
against it. The appellate process is expected to take fourteen to twenty four months to
complete. In the interim, the court ordered a mediation of the dispute, which took place
but was not successful in resolving the matter. Accordingly, the appeals will proceed. The
Company has recorded the net $1.3 million settlement award in other assets.

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

|10. |  | Geographic Data
|--- |  | ---------------

A
summary of the Companys net revenues, operating (loss) income and long lived assets
by geographic area for the three and six months ended June 30, 2007 and 2006,
respectively, and at June 30, 2007 and December 31, 2006, are as follows (in thousands):

|                              | Three Months Ended June 30, |  | Six Months Ended June 30, |       
|----------------------------- | --------------------------- |  | ------------------------- | ------
|                              |                             |  |                           |       
|
|                              |                             |  |                           |       
|Net revenues:                 |                             |  |                           |       
|United States                 |                             |  | $                         | 5,912 
|International                 |                             |  |                           | 6,594 
|                              |                             |  |                           |       
|Total net revenues            |                             |  | $                         | 12,506
|                              |                             |  |                           |       
|                              |                             | 
|
|                              |                             |  |                           |       
|
|                              |                             |  |                           |       
|Operating (loss) income:      |                             | 
|United States                 |                             |  | $                         | (1,325
|International                 |                             |  |                           | (346  
|                              |                             |  |                           |       
|Total operating (loss) income |                             |  | $                         | (1,671
|                              |                             |  |                           |       

12

---

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

|                        | 
|----------------------- | 
|United States           | 
|International           | 
|                        | 
|Total long lived assets | 
|                        | 

International
revenues disclosed above were based upon revenues reported by the Companys nine
international subsidiaries. The Japan subsidiary contributed 14.2% and 14.7% of the
consolidated net revenues of the Company for the three months ended June 30, 2007 and 2006,
respectively, and 16.5% and 15.9% of the Companys net revenues for the six months
ended June 30, 2007 and 2006, respectively. Included in the international revenues for the
six months ended June 30, 2006, was an additional quarter of revenues, totaling
approximately $1.3 million or 4.5% of the consolidated net revenues of the Company,
associated with the change in reporting year of the Companys subsidiary in Japan.
The Canadian subsidiary contributed 10.0% and 8.2% of the consolidated net revenues of the
Company for the three months ended June 30, 2007 and 2006, respectively, and 8.9% and 7.3%
of the Companys net revenues for the six months ended June 30, 2007 and 2006,
respectively. The Australian subsidiary that began operations in May 2006, contributed
13.1% and 5.4% of the consolidated net revenues of the Company for the three months ended
June 30, 2007 and 2006, respectively and 10.8% and 2.4% of the Companys net revenues
for the six months ended June 30, 2007 and 2006, respectively. Each of the remaining
foreign subsidiaries contributed less than 7% of the consolidated net revenues of the
Company for both the three and six months ended June 30, 2007 and 2006, respectively.

|11. |  | Supplemental Balance Sheet Information
|--- |  | --------------------------------------

|                                                                       |             
|---------------------------------------------------------------------- | ------------
|Trade                                                                  |             
|Unbilled                                                               |             
|Non-trade                                                              |             
|                                                                       |             
|                                                                       |             
|Less allowance for doubtful accounts                                   |             
|                                                                       |             
|Accounts receivable, net                                               |             
|                                                                       |             
|                                                                       |             
|                                                                       |             
|Property and equipment, net, consists of the following (in thousands): | June 30,2007
|                                                                       |             
|Equipment                                                              |             
|Furniture and fixtures                                                 |             
|Leasehold improvements                                                 |             
|Capitalized software development costs                                 |             
|                                                                       |             
|                                                                       |             
|Less accumulated depreciation and amortization                         |             
|                                                                       |             
|Property and equipment, net                                            |             
|                                                                       |             

13

---

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

|                                               | 
|---------------------------------------------- | 
|                                              
|Taxes payable                                  | 
|Accrued accounting and legal expense           | 
|Accrued salaries payable                       | 
|Other                                          | 
|                                               | 
|Accrued expenses and other current liabilities | 
|                                               | 

|12. |  | Foreign Currency Rate Fluctuations
|--- |  | ----------------------------------

The
Company has foreign currency exposure associated with its international subsidiaries. In
both 2007 and 2006, these exposures are primarily concentrated in the Canadian Dollar,
South African Rand, Australian Dollar and Japanese Yen. At June 30, 2007, international
assets totaled $6.9 million and international liabilities totaled $5.4 million.
International revenues for the six months ended June 30, 2007 and 2006 were $13.6 million
and 10.1 million, respectively. The international division reported net losses of
approximately $508,000 and $283,000 for the six months ended June 30, 2007 and 2006
respectively.

In
those countries where the Company had the greater risk for currency exposure, the total
assets and liabilities are as follows (in thousands):

|Country      | Total Assets | Total Liabilities
|------------ | ------------ | -----------------
|             |             
|Canada       |              |                  
|South Africa |              |                  
|Australia    |              |                  
|Japan        |              |                  

|13. |  | Interest Rate Fluctuations
|--- |  | --------------------------

The
Company is exposed to market risk related to the variable interest rate on its lines of
credit. At June 30, 2007, the Companys outstanding debt totaled approximately $2.4
million, as noted in the table below (in thousands):

|Location      |  | Variable Interest Rate (1) |  | Local Currency Amount |  | US Dollars Equivalent (2) | 
|------------- |  | -------------------------- |  | --------------------- |  | ------------------------- | 
|United States |  | 9.25%                      |  | USD                   |  | $1,603                    | 
|Japan         |  | 1.63%                      |  | YEN                   |  | 568                       | 
|Canada        |  | 7.0%                       |  | CND                   |  | 255                       | 
|              |  |                            |  |                      
|              |  |                            |  |                       |  | $2,426                    | 
|              |  |                            |  |                      

| | (1) |  | Interest rate at June 30, 2007.
| | --- |  | -------------------------------

| | (2) |  | Based
on exchange rate at June 30, 2007.
| | --- |  | ----------------------------------------

Based
on the average outstanding borrowings under variable-rate debt, a one-percentage point
increase in interest rates would negatively impact annual pre-tax earnings and cash flows
for the six months ended June 30, 2007 by approximately $18,000.

|14. |  | Recently Issued Accounting Standards
|--- |  | ------------------------------------

In
February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets
and Financial Liabilities  including an Amendment of SFAS No. 115 (SFAS No.
159), which permits an entity to

14

---

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

measure many financial assets and
financial liabilities at fair value that are not currently required to be measured at fair
value. Entities that elect the fair value option will report unrealized gains and losses
in earnings at each subsequent reporting date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions. SFAS No. 159 amends previous guidance
to extend the use of the fair value option to available-for-sale and held-to-maturity
securities. The Statement also establishes presentation and disclosure requirements to
help financial statement users understand the effect of the election. SFAS No. 159 is
effective as of the beginning of the first fiscal year beginning after November 15, 2007.
Management is currently assessing the potential impact of this standard on SPARs
financial condition and results of operations.

|15. |  | Taxes
|--- |  | -----

In
July 2006, the FASB issued FASB interpretation No. 48 (FIN 48), Accounting
for Uncertainty in Income Taxes. FIN 48 prescribes detailed guidance for the financial
statement recognition, measurement and disclosure of uncertain tax positions recognized in
an enterprises financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. Tax positions must meet a more-likely-than-not
recognition threshold at the effective date to be recognized upon the adoption of FIN 48
and in subsequent periods. FIN 48 is effective for fiscal years beginning after December
15, 2006 and the provisions of FIN 48 will be applied to all tax positions upon initial
adoption of the Interpretation. The Company has adopted FIN 48 as of January 1, 2007.

FIN
48 requires that interest and penalties that the tax law requires to be paid on the
underpayment of taxes should be accrued on the difference between the amount claimed or
expected to be claimed on the return and the tax benefit recognized in the financial
statements. The Companys policy is to record this interest and penalties as
additional tax expense.

SPAR
and its subsidiaries file numerous consolidated, combined and separate company income tax
returns in the U.S. Federal jurisdiction and in many U.S. state and foreign jurisdictions.
With few exceptions, SPAR is subject to U.S. Federal, state and local income tax
examinations for the years 2004 through the present. However, tax authorities have the
ability to review years prior to the position taken by the Company to the extent that SPAR
utilized tax attributes carried forward from those prior years.

In
managements view, the Companys tax reserves at December 31, 2006, totaling
$146,000 for potential domestic state tax liabilities were sufficient to meet the
requirements of FIN 48. However, the reserve for potential international tax liabilities
totaling $146,000 was deemed insufficient to satisfy FIN 48, and therefore, in March 2007,
the Company recorded an adjustment increasing the total FIN 48 international tax reserve
by $145,000 to $291,000.

Details
of the Company's FIN 48 reserves at June 30, 2007 are outlined in the table below (in
thousands):

|                     | Taxes |      | Interest |     | Penalty |     | Total Tax Liability |     
|-------------------- | ----- | ---- | -------- | --- | ------- | --- | ------------------- | ----
|Domestic             |       |      |          |     |         |     |                     |     
|State                |       | $105 |          | $19 |         | $20 |                     | $144
|Federal              |       | -    |          | -   |         | -   |                     | -   
|International        |       | 251  |          | 14  |         | 26  |                     | 291 
|                     |       |      |          |     |         |     |                     |     
|Total FIN 48 Reserve |       | $356 |          | $33 |         | $46 |                     | $435
|                     |       |      |          |     |         |     |                     |     

|16. |  | Reclassifications
|--- |  | -----------------

Certain
reclassifications have been made to the prior period financials to conform to the current
presentation.

15

---

# 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 six months ended June 30, 2007
(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) that are based on the Companys
best estimates. In particular and without limitation, this Managements
Discussion and Analysis of Financial Condition and Results of
Operations contains such forward-looking statements, which are
included in (among other places) the discussions respecting net revenues from significant
clients, significant chain work and international joint ventures, federal taxes and net
operating loss carryforwards, commencement of operations and future funding of
international joint ventures, credit facilities and covenant compliance, cost savings
initiatives, liquidity and sources of cash availability. Forward-looking statements
involve known and unknown risks, uncertainties and other factors that could cause the
Companys actual results, performance and achievements, whether expressed or implied
by such forward-looking statements, to not occur 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, likely,
expect, intend, believe, estimate,
anticipate, continue or similar terms, variations of those terms
or the negative of those terms. You should carefully consider such risks, uncertainties
and other information, disclosures and discussions containing cautionary statements or
identifying important factors that could cause actual results to differ materially from
those provided in the forward-looking statements.

You
should carefully review this management discussion and analysis together with the risk
factors and other cautionary statements contained in the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2006, as filed with the Securities and
Exchange Commission (the SEC) on April 2, 2007 and as amended on Form 10-K/A
filed with the SEC on April 13, 2007 (the Companys Annual Report for 2006 on
Form 10-K As Amended), including the risk factors described in Item 1 of that annual
report under the caption Certain Risk Factors and the changes (if any) in such
risk factors described in Item IA of Part II of this Quarterly Report (collectively,
Risk Factors), as well as the cautionary statements contained in this
Quarterly Report. All forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified by the Risk Factors and other cautionary
statements in this Quarterly Report and in the Companys Annual Report for 2006 on
Form 10-K As Amended, which are incorporated by reference into this Quarterly Report.
Although the Company believes that its plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, it cannot assure that such
plans, intentions or expectations will be achieved in whole or in part. The Company
undertakes no obligation to publicly update or revise any forward-looking statements, or
any Risk Factors or other cautionary statements, whether as a result of new information,
future events or otherwise, except as required by law.

# Overview

Today
the Company operates in 12 countries whose population represents approximately 48% of the
total world population. The Companys operations are currently divided into two
divisions: the Domestic Merchandising Services Division and the International
Merchandising Services Division. The Domestic Merchandising Services Division provides
merchandising and marketing services, in-store event staffing, product sampling, RFID
services, technology services and marketing research to manufacturers and retailers in the
United States. The various services are primarily performed in mass merchandisers,
electronics store chains, drug store chains and convenience and grocery stores. The
International Merchandising Services Division was established in July 2000 and through its

16

---

# SPAR Group, Inc.

subsidiaries, the Company currently
provides similar merchandising and marketing services in Japan, Canada, Turkey, South
Africa, India, Romania, China, Lithuania, Latvia, Australia and New Zealand.

# Domestic
Merchandising Services Division

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

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

# International
Merchandising Services Division

In
July 2000, the Company established its International Merchandising Services Division,
operating through a wholly owned subsidiary, SPAR Group International, Inc.
(SGI), to focus on expanding its merchandising and marketing services business
worldwide. Currently, the Companys international subsidiaries are as follows:

|Headquarter
Location | Ownership Percentage | Date
Established
|-------------------- | -------------------- | ----------------
|Osaka, Japan         | 50                   | May 2001        
|Toronto, Canada      | 100                  | June 2003       
|Istanbul, Turkey     | 51                   | July 2003       
|Durban, South Africa | 51                   | April 2004      
|New Delhi, India     | 51                   | April 2004      
|Bucharest, Romania   | 51                   | December 2004   
|Hong Kong, China     | 50                   | February 2005   
|Siauliai, Lithuania  | 51                   | September 2005  
|Melbourne, Australia | 51                   | April 2006      

# Critical Accounting
Policies

There
were no material changes to the Companys critical accounting policies as reported in
the Companys Annual Report for 2006 on Form 10-K As Amended.

17

---

# SPAR Group, Inc.

Results of Operations

# Three months ended
June 30, 2007, compared to three months ended June 30, 2006

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

|                                                       | Three Months Ended June 30, | 
|------------------------------------------------------ | --------------------------- | 
|
|
|Net revenues                                           |                             | 
|Cost of revenues                                       |                             | 
|Selling, general & administrative expense              |                             | 
|Depreciation and amortization                          |                             | 
|Interest expense                                       |                             | 
|Other income                                           |                             | 
|                                                       |                             | 
|(Loss) income before income tax provision and minority |                             | 
|interest                                               |                             | 
|Provision for income taxes                             |                             | 
|                                                       |                             | 
|(Loss) income before minority interest                 |                             | 
|Minority interest                                      |                             | 
|                                                       |                             | 
|Net (loss) income                                      |                             | 
|                                                       |                             | 

# Net Revenues

Net
revenues for the three months ended June 30, 2007, were $12.5 million, compared to $12.9
million for the three months ended June 30, 2006, a decrease of $413,000 or 3.2%.

International
net revenues totaled $6.6 million for the three months ending June 30, 2007, compared to
$5.0 million for the same period in 2006, an increase of $1.6 million or 30.6%. The
increase in 2007 international net revenues was due to a full quarter of net revenues in
2007 from Australia $942,000
and Lithuania $143,000 that began operations during the second quarter of 2006 as well as
increased net revenues from India $331,000, Canada $194,000 and Turkey $184,000, partially
offset by net revenue decreases in South Africa $166,000 and Japan $121,000.

Domestic
net revenues totaled $5.9 million in the three months ending June 30, 2007, compared to
$7.9 million for the same period in 2006. Domestic net revenues decreased $2.0 million
primarily as a result of the loss of a significant client and reduced business from a
client that was in the process of selling its US operation, partially offset by revenue
from new clients that started doing business with the Company in the fourth quarter of
2006.

Approximately
14% and 9% of the Companys net revenues for the three months ended June 30, 2007 and
2006, respectively, resulted from merchandising services performed for clients at a
leading domestic electronics chain. Services performed for these clients in that
electronics chain also accounted for approximately 3% and 7% of the Companys
accounts receivable at June 30, 2007 and December 31, 2006, respectively. The
Companys contractual relationships or agreements are with various clients and not
that retail electronics chain.

Approximately
8% and 7% of the Companys net revenues for the three months ended June 30, 2007 and
2006, respectively, resulted from merchandising services performed for domestic clients at
a leading mass merchandising chain. Services performed for clients in that chain also
accounted for approximately 1% and 4% of the Companys accounts receivable at June
30, 2007 and December 31, 2006, respectively. The Companys contractual relationships
or agreements are with various clients and not that retail merchandising chain.

18

---

# SPAR Group, Inc.

One
domestic client accounted for 3% and 10% of the Companys net revenue for the three
months ended June 30, 2007, and 2006, respectively. This client also accounted for
approximately 1% and 6% of accounts receivable at June 30, 2007, and December 31, 2006,
respectively.

The
loss of the ability to provide merchandising and marketing services in the above and/or
other chains or the loss of other clients could significantly decrease the Companys
revenues and could have a material adverse effect on the Companys business, results
of operations and financial condition.

# Cost of Revenues

Cost
of revenues consists of in-store labor and field management wages, related benefits,
travel and other direct labor-related expenses. Cost of revenues was 70.0% of net revenues
for the three months ended June 30, 2007 and 70.8% for the three
months ended June 30, 2006.

Domestic
cost of revenues was 74.5% of net revenues for the three months ended June 30, 2007 and
was consistent with 73.5% of net revenues for the three months ended June 30, 2006.

Internationally,
the cost of revenues was 66.0% of net revenues for the three months ended June 30, 2007
and was consistent with 66.5% of net revenues for the three months ended June 30, 2006.

Approximately
87% and 85% of the Companys domestic cost of revenues in the three months ended June
30, 2007 and 2006, respectively, resulted from in-store independent contractor and field
management services purchased from certain of the Companys affiliates, SPAR
Marketing Services, Inc. (SMS), and SPAR Management Services, Inc.
(SMSI), respectively (see Note 6 - Related-Party Transactions).

# Selling, General and
Administrative Expenses

Selling,
general and administrative expenses include corporate overhead, project management,
information technology, executive compensation, human resource, legal and accounting
expenses. Selling, general and administrative expenses increased by approximately $1.4
million, or 35.2%, for the three months ended June 30, 2007, to $5.3 million compared to
$3.9 million for the same period in 2006.

International
selling, general and administrative expenses totaled $2.6 million for the three months
ended June 30, 2007, compared to $2.0 million for the same period in 2006. The increase in
international selling, general and administrative expenses was primarily due to a full quarter
of expenses in 2007 from the Australian subsidiary, that began operations in May 2006, totaling $209,000 as well as
increased selling, general and administrative expenses from Canada of $135,000, increased
expenses from all other subsidiaries totaling $135,000 and $128,000 in corporate
international business development expenses.

Domestic
selling, general and administrative expenses totaled $2.7 million the three months ended
June 30, 2007, compared to $1.9 million for the same period in 2006. Included in 2006 were adjustments totaling
$800,000 for the reversal of unpaid incentive accruals ($500,000) and the reclassification of first quarter
2006 litigation expenses to other expense ($300,000).  Excluding the adjustments, 2006 selling, general and
administrative expenses totalled $2.7 million and was consistent with 2007.

# Depreciation and
Amortization

Depreciation
and amortization charges for the three months ended June 30, 2007, totaled $194,000 and
were comparable to $183,000 for the same period in 2006.

19

---

# SPAR Group, Inc.

# Interest Expense

Interest
expense totaled $93,000 and $46,000 for the three months ended June 30, 2007 and 2006,
respectively. The increase in interest expense was a result of higher debt levels and
higher interest rates in the three months ended June 30, 2007.

# Other Income

Other
income totaling $71,000 for the three months ended June 30, 2007 represented interest
income on a favorable jury award compared to $411,000 for the three months ended June 30,
2006. Other income in 2006 is primarily a result of the favorable jury award in a lawsuit
in the net amount of approximately $1.3 million, partially offset by related legal
expenses for the period of approximately $1.0 million.

# Income Taxes

Income
taxes were approximately $74,000 and $54,000 for the three months ended June 30, 2007 and
2006, respectively. The tax provisions were primarily for minimum state taxes due. There
were no tax provisions for federal tax as the Company reported a loss for the three months
ended June 30, 2007, and in 2006 the Company was projecting to use net operating loss
carryforwards to offset projected federal income taxes.

# Minority Interest

The
combined operating results of the 51% and the 50% owned subsidiaries generated net losses
for both the three months ended June 30, 2007 and 2006. These losses resulted in a charge
to minority interest of approximately $28,000 and $61,000, respectively.

# Net Loss

The
Company had a net loss of $1.7 million for the three months ended June 30, 2007, or $0.09
per diluted share, compared to a net income of $100,000, or $0.01 per diluted share, for
the corresponding period last year.

20

---

# SPAR Group, Inc.

# Results of Operations

# Six months ended June
30, 2007, compared to six months ended June 30, 2006

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).

|                                                       | Six Months Ended June 30, | 
|------------------------------------------------------ | ------------------------- | 
|
|
|
|Net revenues                                           |                           | 
|Cost of revenues                                       |                           | 
|Selling, general & administrative expense              |                           | 
|Depreciation and amortization                          |                           | 
|Interest expense                                       |                           | 
|Other income                                           |                           | 
|                                                       |                           | 
|(Loss) income before income tax provision and minority |                           | 
|interest                                               |                           | 
|Provision for income taxes                             |                           | 
|                                                       |                           | 
|(Loss) income before minority interest                 |                           | 
|Minority interest                                      |                           | 
|                                                       |                           | 
|Net (loss) income                                      |                           | 
|                                                       |                           | 

# Net Revenues

Net
revenues for the six months ended June 30, 2007, was $27.9 million, compared to $28.8
million for the same period in 2006, a decrease of $850,000 or 3.0%.

International
net revenues totaled $13.6 million for the six months ended June 30, 2007, compared to
$10.1 million for the same period in 2006. Included in the 2006 international revenues was
an additional quarter of revenues totaling $1.3 million resulting from the change in the
reporting year for the net revenues from the Japanese subsidiary. Excluding the $1.3
million of additional revenues for 2006, 2007 international net revenues increased $4.8
million or 55% from 2006. The increase in international net revenues was due to the Australian
($2.3 million) and Lithuanian subsidiaries ($350,000), that began operations during the
second quarter of 2006 as well as increased revenue in Japan $1.4 million, India $503,000,
Turkey $284,000, Canada $367,000 and China $93,000, partially offset by net revenues
decrease in South Africa of $432,000.

Domestic
net revenues totaled $14.3 million for the six months ended June 30, 2007, compared to
$18.7 million for the same period in 2006. Included in 2006 domestic revenue was $770,000
from the termination of a customer service agreement. Excluding the $770,000, domestic net
revenues decreased $3.6 million, primarily as a result of the loss of a significant client
and reduced business from a client that was in the process of selling its US operation,
partially offset by revenue from new clients that started doing business with the Company
in the fourth quarter of 2006.

Approximately
13% and 10% of the Companys net revenues for the six months ended June 30, 2007 and
2006, respectively, resulted from merchandising services performed for clients at a
leading domestic electronics chain. Services performed for these clients in that
electronics chain also accounted for approximately 3% and 7% of the Companys
accounts receivable at June 30, 2007 and December 31, 2006, respectively. The
Companys contractual relationships or agreements are with various clients and not
that retail electronics chain.

21

---

# SPAR Group, Inc.

Approximately
7% of the Companys net revenues for both the six months ended June 30, 2007 and
2006, respectively, resulted from merchandising services performed for domestic clients at
a leading mass merchandising chain. Services performed for clients in that chain also
accounted for approximately 1% and 4% of the Companys accounts receivable at June
30, 2007 and December 31, 2006, respectively. The Companys contractual relationships
or agreements are with various clients and not that retail merchandising chain.

One
domestic client accounted for 5% and 12% of the Companys net revenue for the six
months ended June 30, 2007, and 2006, respectively. This client also accounted for
approximately 1% and 6% of accounts receivable at June 30, 2007, and December 31, 2006,
respectively.

The
loss of the ability to provide merchandising and marketing services in the above and/or
other chains or the loss of other clients could significantly decrease the Companys
revenues and could have a material adverse effect on the Companys business, results
of operations and financial condition.

# Cost of Revenues

Cost
of revenues consists of in-store labor and field management wages, related benefits,
travel and other direct labor-related expenses. Cost of revenues was 69.0% of net revenues
for the six months ended June 30, 2007, compared to 66.0% for the six months ended June
30, 2006.

Domestic
cost of revenues was 70.3% and 66.8% of net revenues for the six months ended June 30,
2007, and 2006, respectively. The $770,000 of 2006 revenue attributed to the termination
of a client service agreement favorably impacted 2006 cost of revenue percentage by 2.9%.

Internationally,
the cost of revenues as a percentage of net revenues was 67.6% and 64.6% for the six
months ended June 30, 2007 and 2006, respectively. The international cost of revenues
percentage increase was primarily attributed to higher cost revenues in Japan.

Approximately
84% and 86% of the Companys domestic cost of revenues in the six months ended June
30, 2007 and 2006, respectively, resulted from in-store independent contractor and field
management services purchased from certain of the Companys affiliates, SPAR
Marketing Services, Inc. (SMS), and SPAR Management Services, Inc.
(SMSI), respectively (see Note 6 - Related-Party Transactions).

# Selling, General and
Administrative Expenses

Selling,
general and administrative expenses include corporate overhead, project management,
information technology, executive compensation, human resource, legal and accounting
expenses. Selling, general and administrative expenses increased by approximately $1.3
million, or 14.4%, for the six months ended June 30, 2007 to $10.2 million compared to
$8.9 million for the six months ended June 30, 2006.

International
selling, general and administrative expenses totaled $4.7 million for the six months
period ended June 30, 2007, compared to $3.8 million for the same period in 2006. Included
in that 2006 period was an additional quarter of selling, general, and administrative
expenses totaling $544,000 resulting from the change in the reporting year for the
Japanese subsidiary. Excluding the $544,000, international 2007 selling, general, and
administrative expenses increased $1.5 million or 45% from 2006. The increase in
international selling, general and administrative expense was due to Australia $629,000
and Lithuania $83,000, that both began operations during the second quarter of 2006 as well
as from increases in Canada $299,000, Japan $162,000, India $69,000, China $66,000,
Turkey $22,000 and $180,000 in corporate international business development expenses,
partially offset by decreases in selling, general and administrative expenses in South
Africa $40,000 and Romania $18,000.

Domestic
selling, general and administrative expenses totaled $5.5 million in the six months ended
June 30, 2007, compared to $5.1 million in the same period in 2006. The increase in
domestic selling, general and

22

---

# SPAR Group, Inc.

administrative expenses of $388,000
is primarily due to a reversal of unpaid bonus accrual in 2006 totaling $300,000.

# Depreciation and
Amortization

Depreciation
and amortization charges for the six months ended June 30, 2007 totaling $391,000 were
comparable with $396,000 for the six months ended June 30, 2006.

# Interest Expense

Interest
expense totaled $181,000 and $97,000 for the six months ended June 30, 2007 and 2006,
respectively. The increase in interest expense was a result of higher debt levels and
higher interest rates in the first six months ended June 30, 2007 compared to the same
period in 2006.

# Other Income

Other
income totaled $50,000 for the six months ended June 30, 2007 and is primarily due to interest
income on a favorable jury award compared to $589,000 for the six months ended June 30,
2006. Other income in 2006 was primarily a result of the favorable jury award in a lawsuit
in the net amount of approximately $1.3 million, partially offset by related legal
expenses for the period of approximately $1.0 million, and a favorable settlement of a
vendor lawsuit of approximately $175,000.

# Income Taxes

Income
taxes were approximately $141,000 and $99,000 for the six months ended June 30, 2007 and
2006, respectively. The tax provisions were primarily for minimum state taxes due. There
were no tax provisions for federal tax as the Company reported a loss for the six months
ended June 30, 2007.  In 2006 the Company expected to use net operating loss
carryforwards to offset any projected federal income taxes.

# Minority Interest

The
combined operating results of the 51% and the 50% owned subsidiaries generated net profit
for the six months ended June 30, 2007 compared to net losses for both the six months
ended June 30, 2006 resulting in charges to minority interest of approximately $16,000 and
($44,000), respectively.

# Net Loss

The
Company had a net loss of $2.2 million for the six months ended June 30, 2007, or $0.12
per diluted share, compared to a net income of $877,000, or $0.05 per diluted share, for
the corresponding period last year.

# Liquidity and Capital
Resources

In
the six months ended June 30, 2007 the Company had a net loss of $2.2 million.

Net
cash provided by operating activities for the six months ended June 30, 2007 was $3.8
million compared to net cash used in operating activities of $6,000 for the prior year.
The increase in net cash provided by operating activities was primarily due to decreases
in accounts receivable and increases in accounts payable and accrued expenses due to
affiliates.

Net
cash used in investing activities for the six months ended June 30, 2007 and June 30,
2006, was approximately $429,000 and $205,000, respectively. The increase in net cash used
in investing activities was a result of increased purchases of property and equipment in
2007.

23

---

# SPAR Group, Inc.

Net
cash used in financing activities for the six months ended June 30, 2007 and 2006, was
approximately $2.9 million and $3,000, respectively. The increase of net cash used in
financing activities was primarily a result of increased payments on lines of credit.

The
above activity resulted in an increase in cash and cash equivalents for the six months
ended June 30, 2007, of approximately $453,000.

At
June 30, 2007, the Company had negative working capital of $450,000, as compared to a
positive working capital of $1.6 million at December 31, 2006. The Companys current
ratio was 0.96 at June 30, 2007, and 1.13 at December 31, 2006.

In
January 2003, the Company (other than SGRPs foreign subsidiaries) and Webster
Business Credit Corporation, then known as Whitehall Business Credit Corporation
(Webster), entered into the Third Amended and Restated Revolving Credit and
Security Agreement (as amended, collectively, the Credit Facility). The Credit
Facility provides for a $7.0 million revolving line of credit maturing on January 23,
2009. In March 2007 the credit facility was further amended to among other things, delay
the Minimum Fixed Coverage ratio until the fourth quarter 2007, establish an EBITDA
covenant and increase the interest rate by .25% beginning March 28, 2007. Borrowings are
based upon a borrowing base formula as defined in the agreement (principally 85% of
eligible domestic accounts receivable less certain reserves). The Credit
Facility is secured by all of the assets of the Company and its domestic subsidiaries. The
Credit Facility also limits certain expenditures, including, but not limited to, capital
expenditures and other investments.

The
basic interest rate under the Credit Facility is Websters Alternative Base
Rate plus 1.0% per annum (a total of 9.25% per annum at June 30, 2007), which
automatically changes with each change made by Webster in such Alternative Base Rate. The
Company at its option, subject to certain conditions, may elect to have portions of its
loans under the Credit Facility bear interest at various LIBOR rates plus 3.50% per annum
based on fixed periods of one, two, three or nine months. The actual average interest rate
under the Credit Facility was 9.13% per annum for the six months ended June 30, 2007.

The
domestic revolving loan balances outstanding under the Credit Facility were $1.6 million
and $4.2 million at June 30, 2007 and December 31, 2006, respectively. There were letters
of credit outstanding under the Credit Facility of approximately $453,000 at both June 30,
2007, and December 31, 2006. As of June 30, 2007, the SPAR Group had unused availability
under the Credit Facility of $386,000 out of the remaining maximum $4.9 million unused
revolving line of credit after reducing the borrowing base by outstanding loans and
letters of credit.

Because
of the requirement to maintain a lock box arrangement with Webster and Websters
ability to invoke a subjective acceleration clause at its discretion, borrowings under the
Credit Facility are classified as current at June 30, 2007 and December 31, 2006, in
accordance with EITF 95-22, Balance Sheet Classification of Borrowings Outstanding
Under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a
Lock-Box Agreement.

The
Company was in violation of its Minimum EBITDA covenant at June 30, 2007, and in August
2007 Webster amended the Credit Facility to, among other things, waive the violation and
reduce the previously established availability reserve. The Company does not expect to
comply with its covenants in future periods, and there can be no assurances that if the Company violates such
covenants, Webster will continue to issue waivers. In addition, Mr. Robert
G. Brown, a Director, the Chairman (former President and Chief Executive Officer) and a
major stockholder of SGRP, and Mr. William H. Bartels, a Director, the Vice Chairman and a
major stockholder of SGRP, have provided personal
guarantees of the Credit Facility totaling $1.0 million.

The
Japanese subsidiary SPAR FM Japan, Inc. has line of credit agreements totaling 100 million
Yen or approximately $811,000 (based upon the exchange rate at June 30, 2007). The
outstanding balances under the line

24

---

# SPAR Group, Inc.

of credit agreements were 70 million
Yen or approximately $568,000 at June 30, 2007 and $588,000 at December 31, 2006 (based
upon the exchange rate at those dates). The average interest rate was 1.63% per annum for
the six months ended June 30, 2007. In addition, the Japan subsidiary had cash balances
totaling 133 million Yen or approximately $1.1 million and 97 million Yen or approximately
$800,000 at June 30, 2007 and December 31, 2006 respectively (based upon the exchange rate
at that date).

In
2006, the Australian subsidiary SPARFACTS Australia Pty. Ltd. entered into a revolving
line of credit arrangement with Oxford Funding Pty. Ltd. for $1.1 million (Australian) or
approximately $934,000 (based upon the exchange rate at June 30, 2007). There were no
outstanding balances under the line of credit agreement at June 30, 2007 and $429,000
(Australian) or approximately $339,000 at December 31, 2006 (based upon the exchange rate
at that date). The average interest rate was 10.6% per annum for the six months ended June
30, 2007.

In
2006, SPAR Canada Company, a wholly owned subsidiary, entered into a credit agreement with
Royal Bank of Canada providing for a Demand Operating Loan for a maximum borrowing of $1.0
million (Canadian) or approximately $944,000 (based upon the exchange rate at June 30,
2007). The Demand Operating Loan provides for borrowings based upon a borrowing base
formula as defined in the agreement (principally 75% of eligible accounts receivable less
certain deductions). The outstanding balances under the line of credit agreement were
$270,000 (Canadian) or approximately $255,000 and $238,000 (Canadian) or approximately
$204,000 at June 30, 2007, and December 31, 2006, respectively (based upon the exchange
rate at that date). The average interest rate was 7.0% per annum for the six months ended
June 30, 2007.

The
Companys international business model is to partner with local merchandising
companies and combine the Companys proprietary software and expertise in the
merchandising and marketing services business with their partners knowledge of the
local market. In 2001, the Company established its first subsidiary in Japan and has
continued this strategy. As of this filing, the Company is currently operating in 12
countries and has 9 international subsidiaries. Certain of these subsidiaries are
profitable, while others are operating at a loss. In the event of continued losses, the
Company may be required to provide additional cash infusions into those subsidiaries with
losses.

Management
believes that based upon the Companys existing credit facilities, projected results
of operations and other financing available to the Company (including amounts due to
affiliates), sources of cash availability should be sufficient to support ongoing
operations over the next twelve months. However, continued losses, delays in collection of
receivables due from any of the Companys major clients, or a significant reduction
in business from such clients could have a material adverse effect on the Companys
cash resources and its ongoing ability to fund operations.

# Certain Contractual
Obligations

The
following table contains a summary of certain of the Companys contractual
obligations by category as of June 30, 2007 (in thousands).

|                            | Period in which Payments are due
|--------------------------- | --------------------------------
|
|                           
|Credit Facility             | $2,426                          
|                           
|Capital Lease Obligations   | 368                             
|                           
|Operating Lease Obligations | 2,665                           
|                           
|Total                       | $5,459                          
|                           

The
Company also had approximately $453,000 in outstanding Letters of Credit at June 30, 2007.

25

---

# SPAR Group, Inc.

|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk
|------- |  | ----------------------------------------------------------

The Companys
accounting policies for financial instruments and disclosures relating to financial
instruments require that the Companys consolidated balance sheets include the
following financial instruments: cash and cash equivalents, accounts receivable, accounts
payable and lines of credit. The Company carries current assets and liabilities at their
stated or face amounts in its consolidated financial statements, as the Company believes
those amounts approximate the fair value for these items because of the relatively short
period of time between origination of the asset or liability and their expected
realization or payment. The Company monitors the risks associated with asset and liability
positions, as well as interest rates. The Companys investment policy objectives
require the preservation and safety of the principal, and the maximization of the return
on investment based upon its safety and liquidity objectives.

The
Company is exposed to market risk related to the variable interest rate on its lines of
credit. At June 30, 2007, the Companys outstanding debt totaled $2.4 million, as
noted in the table below (in thousands):

|Location      |  | Variable Interest Rate (1) |  | Local Currency Amount |  | US Dollars Equivalent (2) | 
|------------- |  | -------------------------- |  | --------------------- |  | ------------------------- | 
|United States |  | 9.25%                      |  | USD                   |  | $1,603                    | 
|Japan         |  | 1.63%                      |  | YEN                   |  | 568                       | 
|Canada        |  | 7.0%                       |  | CND                   |  | 255                       | 
|              |  |                            |  |                      
|              |  |                            |  |                       |  | $2,426                    | 
|              |  |                            |  |                      

| | (1) |  | Interest rate at June 30, 2007.
| | --- |  | -------------------------------

| | (2) |  | Based
on exchange rate at June 30, 2007.
| | --- |  | ----------------------------------------

Based
on the 2007 average outstanding borrowings under the Companys variable interest on
its lines of credit, a one-percentage point increase in interest rates would negatively
impact annual pre-tax earnings and cash flows for the six months ended June 30, 2007, by
approximately $18,000.

The
Company has foreign currency exposure associated with its international subsidiaries. In
both 2007 and 2006, these exposures are primarily concentrated in the Canadian Dollar,
South African Rand, Australian Dollar and Japanese Yen. At June 30, 2007, international
assets totaled $6.9 million and international liabilities totaled $5.4 million.
International revenues for the six months ended June 30, 2007 and 2006 were $13.6 million
and 10.1 million, respectively. The international division reported net losses of
approximately $508,000 and $283,000 for the six months ended June 30, 2007 and 2006
respectively.

In
those countries where the Company had the greater risk for currency exposure, the total
assets and liabilities are as follows (in thousands):

|Country      | Total Assets | Total Liabilities
|------------ | ------------ | -----------------
|             |             
|Canada       |              |                  
|South Africa |              |                  
|Australia    |              |                  
|Japan        |              |                  

|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.

26

---

# SPAR Group, Inc.

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

The
Company has established a plan and has begun to document and test its internal controls
over financial reporting for both its domestic and international operations as required
by Section 404 of the Sarbanes-Oxley Act of 2002 and it has developed a plan to document
and test its internal controls as they pertain to its material international
subsidiaries.

27

---

# SPAR Group, Inc.

|PART II: |  | OTHER INFORMATION
|-------- |  | -----------------

|Item 1. |  | Legal Proceedings
|------- |  | -----------------

Safeway
Inc. (Safeway) filed a Complaint against PIA Merchandising Co., Inc.
(PIA Co.), a wholly owned subsidiary of SPAR Group, Inc. (SGRP),
Pivotal Sales Company (Pivotal), a wholly owned subsidiary of PIA Co., and
SGRP in Alameda Superior Court, case no. 2001028498 on October 24, 2001. Safeway claims,
as subsequently amended, alleged causes of action for breach of contract and breach of
implied contract. PIA Co. and Pivotal filed cross-claims against Safeway on or about March
11, 2002, and amended them on or about October 15, 2002, alleging causes of action by PIA
Co. and Pivotal against Safeway for breach of contract, interference with economic
relationship, unfair trade practices and unjust enrichment. Trial commenced in March 2006.

On
May 26, 2006, the jury in this case returned a verdict resulting in a net award of
$1,307,700 to Pivotal, a SGRP subsidiary. This net award is to be paid by Safeway and
resulted from separate jury findings that awarded damages to those SGRP subsidiaries on
certain claims and damages to Safeway on other claims. In particular, the jury awarded
damages to Pivotal of $5,760,879 for Safeways interference with Pivotals
contractual relationships with third party manufacturers and also awarded $782,400 to
Pivotal and PIA for Safeways breach of contract with those SGRP subsidiaries. The
jury awarded damages to Safeway of $5,235,579 for breach of contract by SGRP and those
SGRP subsidiaries. Judgment was entered in favor of Pivotal in September 2006 for
$1,307,700. Both parties filed post trial motions but all post trial motions were denied.
Notices of Appeal were thereafter filed by both Safeway and Pivotal. Pivotal/SGRP is
seeking to have Safeways judgment overturned, thereby increasing the award to
Pivotal by over $5 million. Safeway has asked for a new trial on the judgment found
against it. The appellate process is expected to take fourteen to twenty four months to
complete. In the interim, the court ordered a mediation of the dispute, which took place
but was not successful in resolving the matter. Accordingly, the appeals will proceed. The
Company has recorded the net $1.3 million settlement award in other assets.

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.

There
have been no other new reportable proceedings or material developments in previously
reported proceedings since the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2006, as filed with the Securities and Exchange Commission (the
SEC) on April 2, 2007, and amended on Form 10-K/A by Amendment No. 1 filed with
the SEC on April 13, 2007, (the Companys Annual Report for 2006 on Form 10-K
As Amended).

|Item 1A. |  | Risk Factors
|-------- |  | ------------

The
Companys Annual Report for 2006 on Form 10-K As Amended describes various risk
factors applicable to the Company and its businesses in Item 1 under the caption Certain
Risk Factors, which risk factors are incorporated by reference into this Quarterly
Report. There have been no material changes in the Companys risk factors since the
Companys Annual Report for 2006 on Form 10-K As Amended.

|Item 2: |  | Unregistered Sales of Equity Securities and Use of Proceeds
|------- |  | -----------------------------------------------------------

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

28

---

# SPAR Group, Inc.

|Item 3: |  | Defaults upon Senior Securities
|------- |  | -------------------------------

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

| | 
| | 

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

| | SGRP
held its Annual Meeting of Stockholders on May 24, 2007. 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, 2007.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Proposal
Number 1  Election of Directors:
| | ------------------------------------------

|                   |            |           
|------------------ | ---------- | ----------
|Name:              | For:       | Abstention
|                  
|Robert G. Brown    | 15,466,127 | 60,376    
|                  
|William H. Bartels | 15,466,177 | 60,326    
|                  
|Robert O. Aders    | 15,466,177 | 60,326    
|                  
|Jack W. Partridge  | 15,466,177 | 60,326    
|                  
|Jerry B. Gilbert   | 15,466,177 | 60,326    
|                  
|Lorrence T. Kellar | 15,466,177 | 60,326    
|                  
|C. Manly Molpus    | 15,466,177 | 60,326    
|                  

| | 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, 2006:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |          |           
|---------- | -------- | ----------
|For:       | Against: | Abstention
|          
|15,482,897 | 37,366   | 6,240     
|          

|Item 5: |  | Other Information
|------- |  | -----------------

Not
applicable.

|Item 6: |  | Exhibits
|------- |  | --------

| | 10.1 |  | Waiver
 and  Amendment  No. 10 To Third  Amended  and  Restated  Revolving  Credit  and
 Security                   Agreement entered into as of August 1, 2007.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

29

---

# 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:  August 20, 2007 | SPAR Group, Inc., Registrant           
|                      
|                      
|                       | By:  /s/ Charles Cimitile              
|                       | Charles Cimitile                       
|                       | Chief Financial Officer, Treasurer,    
|                       | Secretary and duly authorized signatory

30