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|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
third quarterly period ended September 30, 2006.

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
September 30, 2006, there were 18,933,932 shares of Common Stock outstanding.

---

# SPAR Group, Inc.

Index

|           |                                                                                       |   
|---------- | ------------------------------------------------------------------------------------- | --
|PART I:    | FINANCIAL INFORMATION                                                                 |   
|           |                                                                                      
|Item 1:    | Financial Statements                                                                 
|           |                                                                                      
|           | Consolidated Balance Sheets                                                          
|           | as of September 30, 2006 and December 31, 2005                                        | 3 
|           |                                                                                      
|           | Consolidated Statements of Operations for the three                                  
|           | months and nine months ended September 30, 2006 and 2005                              | 4 
|           |                                                                                      
|           | Consolidated Statements of Cash Flows for the                                        
|           | nine months ended September 30, 2006 and 2005                                         | 5 
|           |                                                                                      
|           | Notes to Consolidated Financial Statements                                            | 6 
|Item 2:    | Management's Discussion and Analysis of Financial Condition 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                                                                     | 27
|           |                                                                                      
|Item 1A:   | Risk Factors                                                                          | 27
|           |                                                                                      
|Item 2:    | Unregistered Sales of Equity Securities and Use of Proceeds                           | 27
|           |                                                                                      
|Item 3:    | Defaults upon Senior Securities                                                       | 28
|           |                                                                                      
|Item 4:    | Submission of Matters to a Vote of Security Holders                                   | 28
|           |                                                                                      
|Item 5:    | Other Information                                                                     | 28
|           |                                                                                      
|Item 6:    | Exhibits                                                                              | 28
|           |                                                                                      
|SIGNATURES |                                                                                       | 29

2

---

# PART I:   FINANCIAL
INFORMATION

# Item 1:   Financial Statements

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

|                                                  | September 30,
2006 |  | December 31,
2005 |       
|------------------------------------------------- | ------------------ |  | ----------------- | ------
|                                                  | (Unaudited)        |  | (Note)           
|Assets                                            |                    |  |                   |       
|Current assets:                                   |                    | 
|Cash and cash equivalents                         |                    |  | $                 | 1,892 
|Accounts receivable, net                          |                    |  |                   | 11,258
|Prepaid expenses and other current assets         |                    |  |                   | 732   
|                                                  |                    |  |                   |       
|Total current assets                              |                    |  |                   | 13,882
|                                                  |                    | 
|Property and equipment, net                       |                    |  |                   | 929   
|Goodwill                                          |                    |  |                   | 798   
|Other assets                                      |                    |  |                   | 206   
|                                                  |                    |  |                   |       
|Total assets                                      |                    |  | $                 | 15,815
|                                                  |                    |  |                   |       
|                                                  |                    | 
|Liabilities and stockholders' equity              |                    | 
|Current liabilities:                              |                    | 
|Accounts payable                                  |                    |  | $                 | 2,726 
|Accrued expenses and other current liabilities    |                    |  |                   | 2,207 
|Accrued expenses due to affiliates                |                    |  |                   | 1,887 
|Restructuring charges                             |                    |  |                   | -     
|Customer deposits                                 |                    |  |                   | 655   
|Lines of credit                                   |                    |  |                   | 3,249 
|                                                  |                    |  |                   |       
|Total current liabilities                         |                    |  |                   | 10,724
|                                                  |                    | 
|Minority interest and other long-term liabilities |                    |  |                   | 502   
|                                                  |                    |  |                   |       
|Total liabilities                                 |                    |  |                   | 11,226
|                                                  |                    | 
|Commitments and contingencies (Note - 8)          |                    | 
|                                                  |                    | 
|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 -                   |                    | 
|18,933,932 - September 30, 2006                   |                    | 
|18,916,847 - December 31, 2005                    |                    |  |                   | 189   
|Treasury stock                                    |                    |  |                   | (1    
|Accumulated other comprehensive (loss) gain       |                    |  |                   | (36   
|Additional paid-in capital                        |                    |  |                   | 11,367
|Accumulated deficit                               |                    |  |                   | (6,930
|                                                  |                    |  |                   |       
|Total stockholders' equity                        |                    |  |                   | 4,589 
|                                                  |                    |  |                   |       
|Total liabilities and stockholders' equity        |                    |  | $                 | 15,815
|                                                  |                    |  |                   |       

|Note: |  | The Balance Sheet at December 31, 2005, 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 September 30, |  | Nine Months Ended September 30, |       
|-------------------------------------------- | -------------------------------- |  | ------------------------------- | ------
|
|Net revenues                                 |                                  |  | $                               | 12,709
|Cost of revenues                             |                                  |  |                                 | 8,856 
|                                             |                                  |  |                                 |       
|Gross profit                                 |                                  |  |                                 | 3,853 
|                                             |                                  |  |                                 |       
|Selling, general and administrative expenses |                                  |  |                                 | 4,855 
|Depreciation and amortization                |                                  |  |                                 | 170   
|                                             |                                  |  |                                 |       
|Operating (loss) income                      |                                  |  |                                 | (1,172
|                                             |                                  |  |                                 |       
|Interest expense                             |                                  |  |                                 | 65    
|Other expense (income)                       |                                  |  |                                 | 48    
|                                             |                                  |  |                                 |       
|(Loss) income before provision for income    |                                  | 
|taxes and minority interest                  |                                  |  |                                 | (1,285
|                                             |                                  |  |                                 |       
|Provision for income taxes                   |                                  |  |                                 | 73    
|                                             |                                  |  |                                 |       
|(Loss) income before minority interest       |                                  |  |                                 | (1,358
|                                             |                                  |  |                                 |       
|Minority interest                            |                                  |  |                                 | 34    
|                                             |                                  |  |                                 |       
|Net (loss) income                            |                                  |  | $                               | (1,392
|                                             |                                  |  |                                 |       
|                                             |                                  |  |                                 |       
|Basic/diluted net (loss) income per common   |                                  | 
|share:                                       |                                  | 
|                                             |                                  |  |                                 |       
|Net (loss) income - basic/diluted            |                                  |  | $                               | (0.07 
|                                             |                                  |  |                                 |       
|                                             |                                  |  |                                 |       
|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)

|                                                         | Nine Months Ended September 30, | 
|-------------------------------------------------------- | ------------------------------- | 
|
|Operating activities                                     |                                 | 
|Net cash provided by operating activities                |                                 | 
|                                                         |                                 | 
|Investing activities                                     |                                 | 
|Purchases of property and equipment                      |                                 | 
|                                                         |                                 | 
|Financing activities                                     |                                 | 
|Net borrowings (payments) on lines of credit             |                                 | 
|Other long-term liabilities                              |                                 | 
|Proceeds from employee stock purchase plan and exercised |                                 | 
|options                                                  |                                 | 
|                                                         |                                 | 
|                                                         |                                 | 
|Net cash provided by (used in) financing activities      |                                 | 
|                                                         |                                 | 
|Translation 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                                            |                                 | 

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 2005 on Form 10-K for the year ended December 31, 2005, as filed with
the Securities and Exchange Commission (the SEC) on April 3, 2006, as amended
on Form 10-K/A by Amendment No. 1 filed with the SEC on April 26, 2006, and Amendment No.
2 filed with the SEC on June 21, 2006 (the Companys Annual Report for 2005 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.

The
Companys operations are divided into two divisions: the Domestic Merchandising
Services Division and the International Merchandising Services Division. The Domestic
Merchandising Services Division provides merchandising 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,
established in July 2000, currently provides similar merchandising and marketing services
through a wholly owned subsidiary in Canada, through 51% owned joint venture subsidiaries
in Turkey, South Africa, India, Romania, Lithuania and Australia and through 50% owned
joint ventures in Japan and China. 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 September 30, |  | Nine Months Ended September 30, |       
|--------------------------------- | -------------------------------- |  | ------------------------------- | ------
|
|                                  |                                  |  |                                 |       
|Numerator:                        |                                  |  |                                 |       
|                                  |                                  | 
|Net (loss) income                 |                                  |  | $                               | (1,392
|                                  |                                  | 
|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           |                                  |  | $                               | (0.07 
|                                  |                                  |  |                                 |       

|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).

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

The
basic interest rate under the Credit Facility is Websters Alternative Base
Rate plus 0.75% per annum (a total of 9.0% per annum at September 30, 2006), 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 3.25% per annum
based on fixed periods of one, two, three or nine months. The actual average interest
rate under the Credit Facility was 8.6% per annum for the nine months ended September 30,
2006. The Credit Facility is secured by substantially all of the assets of the Company
(other than SGRPs foreign subsidiaries and their assets).

The
Company was not in violation of any covenants at September 30, 2006 and does not expect to
be in violation at future measurement dates. However, there can be no assurances that the
Company will not be in violation of certain covenants in the future. Should the Company be
in violation, there are no assurances that Webster will issue waivers of such covenant violations in the future.

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 September 30, 2006 and December 31, 2005, in
accordance with EITF 95-22, Balance Sheet Classification of Borrowings Outstanding
Under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a
Lock-Box Agreement.

The
revolving loan balances outstanding under the Credit Facility were $2.1 million and $2.4
million at September 30, 2006 and December 31, 2005, respectively. There were letters of
credit outstanding under the Credit Facility of approximately $453,000 and $552,000 at
September 30, 2006, and December 31, 2005, respectively. As of September 30, 2006, the
SPAR Group had unused availability under the Credit Facility of $1.0 million out of the
remaining maximum $4.4 million unused revolving line of credit after reducing the
borrowing base by outstanding loans and letters of credit.

The
Japanese joint venture SPAR FM Japan, Inc. has line of credit agreements totaling
100 million Yen or approximately $850,000 (based upon the exchange rate at
September 30, 2006). The outstanding balances under the line of credit agreements were 70
million Yen or approximately $600,000 at September 30, 2006 and December 31, 2005,
respectively (based upon the exchange rate at those dates). The average interest rate was
1.4% per annum for the nine months ended September 30, 2006.

In
2006, the Australian joint venture SPARFACTS Australia Pty. Ltd. entered into a revolving
line of credit arrangement with Oxford Funding Pty. Ltd. for $1.1 million (Australian) or
approximately $820,000 (based upon the exchange rate at September 30, 2006). At September
30, 2006, SPARFACTS Australia Pty. Ltd. had $798,000 (Australian) or approximately
$596,000 outstanding under the line of credit (based upon the exchange rate at that date).
The average interest rate was 10.9% per annum for the five months ended September 30,
2006.

On
        October 20, 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  $880,000 (based upon the exchange rate at November 10, 2006).  The Demand Operating Loan provides for
borrowing  based upon a borrowing  base formula as defined in the agreement  (principally  75% of eligible  accounts
receivable  less certain  deductions).  In November,  2006,  SPAR Canada  Company  borrowed  approximately  $100,000
(Canadian) or approximately $88,000 (based upon the exchange rate at November 10, 2006).

|5. |  | Related-Party
Transactions
|-- |  | --------------------------

Mr.
          Robert G. Brown, a Director, the Chairman, President and Chief Executive
Officer           and a major stockholder of SGRP, and Mr. William H. Bartels, a
Director, 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 nine months ended
September 30, 2006 and 2005, and approximately 76% and 77% of the Companys domestic
field management at a total cost to the Company of approximately $14.7 million and $15.5
million for the nine months ended September 30, 2006 and 2005, 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 3,300 independent contractors to the Company. Pursuant to the terms of the
Amended and Restated Field Management Agreement dated as of January 1, 2004, SMSI
provides approximately 49 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 $567,000 and $596,000 for the nine
months ended September 30, 2006, and 2005, respectively. The Company has been advised
that Messrs. Brown and

8

---

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

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 $541,000 and $610,000 for the nine months ended
September 30, 2006 and 2005, respectively. SIT provided approximately 19,000 and 20,000
hours of Internet computer programming services to the Company for the nine months ended
September 30, 2006 and 2005, 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 $28.39 and $30.53 for the nine months ended September 30, 2006 and 2005, 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 nine months ended September 30,
2006 and 2005, 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.

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.

9

---

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

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

|                                      | Three Months Ended September 30, |  | Nine Months Ended September 30, |      
|------------------------------------- | -------------------------------- |  | ------------------------------- | -----
|
|                                      |                                  |  |                                 |      
|Services provided by affiliates:      |                                  |  |                                 |      
|Independent contractor services (SMS) |                                  |  | $                               | 3,098
|                                      |                                  |  |                                 |      
|                                      |                                  | 
|Field management services (SMSI)      |                                  |  | $                               | 937  
|                                      |                                  |  |                                 |      
|                                      |                                  | 
|Handheld computer leases (SMS)        |                                  |  | $                               | 70   
|                                      |                                  |  |                                 |      
|                                      |                                  | 
|Internet and software program         |                                  | 
|consulting services (SIT)             |                                  |  | $                               | 178  
|                                      |                                  |  |                                 |      

|September 30,
2006                    |  | December 31,
2005 |  
|------------------------------------- |  | ----------------- | -
|SPAR Marketing Services, Inc. (SMS)   |  |                   | $
|                                      |  |                   |  
|SPAR Management Services, Inc. (SMSI) |  |                   | $
|                                      |  |                   |  
|SPAR Infotech, Inc. (SIT)             |  |                   | $
|                                      |  |                   |  

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/CEO and Vice Chairman own, through
SMSI, a minority (less than 5%) equity interest in Affinity.

|6. |  | Stock-Based
Compensation
|-- |  | ------------------------

As
of January 1, 2006, SFAS No. 123(R) became effective and applicable to the Companys
accounting for its employee options. The Company had previously followed APB No. 25 and
related interpretations when accounting for such options. Under APB No. 25 no
compensation expense was recognized by the Company when employee stock options were
granted, as the exercise price of the Companys employee stock options equaled the
market price of the underlying stock on the date of grant. Under SFAS No. 123(R),
compensation expense is now recognized 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. The Black-Scholes calculation was performed for the nine months ended
September 30, 2006, utilizing the methodology and assumptions consistent with those used
in prior periods, which were disclosed in the Companys previously filed Annual
Report on Form 10-K, As Amended.

Share-based
compensation expense related to employee stock option grants totaled approximately
$74,000 and $233,000 for the three months and nine months ended September 30, 2006. Basic
and diluted earnings per share were impacted by approximately $0.01 for the nine month
period ended September 30, 2006. In 2005, under the disclosure-only provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, as amended by SFAS 148, no compensation
cost was recognized for the stock option grants to Company employees for the three months
and

10

---

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

nine months ended September 30,
2005. If compensation cost for the three months and nine months ended September 30, 2005,
had been recognized by the Company under the fair value method, the Companys net
(loss) income and pro forma net (loss) per share would have been reduced to the adjusted
amounts indicated below (in thousands, except per share data):

|                                                           | Three Months Ended
September 30, 2005 | Nine Months Ended
September 30, 2005
|---------------------------------------------------------- | ------------------------------------- | ------------------------------------
|Net (loss) income, as reported                             |                                       |                                     
|Stock based employee compensation expense                  |                                       |                                     
|per the fair market value method                           |                                       |                                     
|                                                           |                                       |                                     
|Pro forma net loss                                         |                                       |                                     
|                                                           |                                       |                                     
|                                                           |                                       |                                     
|Basic and diluted net (loss) income per share, as reported |                                       |                                     
|Basic and diluted net loss per share, pro forma            |                                       |                                     

Under
the provision of SFAS No. 123 dealing with non-employee stock option grants awarded to
the employees of the Companys affiliates, the Company recorded an expense for the
three months ended September 30, 2006 and 2005, of approximately $24,000 and $18,000
respectively and for the nine months ended September 30, 2006 and 2005, the Company
recorded an expense of approximately $74,000 and $90,000 respectively.

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

|7. |  | Customer
Deposits
|-- |  | -----------------

Customer
deposits at September 30, 2006, were approximately $655,000 (approximately $195,000 from
domestic operations and approximately $460,000 from international operations) compared to
approximately $1,658,000 at December 31, 2005 (approximately $1,246,000 from domestic
operations and approximately $412,000 from international operations). In March 2006, the
company recorded revenue totaling $770,000 resulting from the termination of a customer
service agreement.

|8. |  | 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 first joint venture in Japan and has
continued this strategy. As of this filing, the Company is currently operating in Japan,
Canada, Turkey, South Africa, India, Romania, China, Lithuania and Australia.

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

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 have filed post trial motions and a Notice of Appeal is expected
to follow. Pivotal/SGRP is seeking to have Safeways judgment overturned. Safeway has
asked for a new trial on the judgment found against them. The appellate process is
expected to take fourteen to twenty four months to complete.

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.

|9. |  | Geographic
Data
|-- |  | ---------------

A
summary of the Companys net revenues, operating (loss) income and long lived assets
by geographic area for the three months and nine months ended September 30, 2006 and 2005, respectively,
and at September 30, 2006 and December 31, 2005, are as follows (in thousands):

|                              | Three Months Ended September 30, |  | Nine Months Ended September 30, |       
|----------------------------- | -------------------------------- |  | ------------------------------- | ------
|
|                              |                                  |  |                                 |       
|Net revenues:                 |                                  |  |                                 |       
|United States                 |                                  |  | $                               | 6,689 
|International                 |                                  |  |                                 | 6,020 
|                              |                                  |  |                                 |       
|Total net revenues            |                                  |  | $                               | 12,709
|                              |                                  |  |                                 |       
|                             
|
|
|                              |                                  |  |                                 |       
|Operating (loss) income:      |                                  | 
|United States                 |                                  |  | $                               | (1,165
|International                 |                                  |  |                                 | (7    
|                              |                                  |  |                                 |       
|Total operating (loss) income |                                  |  | $                               | (1,172
|                              |                                  |  |                                 |       

12

---

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

|September 30,
2006      |  | December 31,
2005 |  
|----------------------- |  | ----------------- | -
|                        |  |                   |  
|United States           |  |                   | $
|International           |  |                   |  
|                        |  |                   |  
|Total long lived assets |  |                   | $
|                        |  |                   |  

International
revenues disclosed above were based upon revenues reported by the Companys 100%
owned foreign subsidiary, its 51% owned foreign joint venture subsidiaries and its 50%
owned foreign joint ventures. During 2005, the Japan joint venture changed from a fiscal
year ending September 30 to a calendar year ending December 31. Due to the change of their
fiscal year, the operating results reported by the Japan joint venture for the nine months
ending September 30, 2006, included not only the operating results for the period, but
also the operating results for the calendar fourth quarter of 2005. The inclusion of the
fourth quarter operating results increased net revenues and operating income by $1.3
million and $13,000, respectively.

Japan
accounted for 19% and 13% of the Companys net revenues for the three months ended
September 30, 2006 and 2005, respectively, and 17% and 11% of the Companys net
revenues for the nine months ended September 30, 2006 and 2005, respectively.

Australia
accounted for 10% of the Companys net revenues for the three months ended September
30, 2006, and 5% of the Companys net revenues for the nine months ended September
30, 2006.

Canada
accounted for 7% and 9% of the Companys net revenues for the three months ended
September 30, 2006 and 2005, respectively, and 7% and 8% of the Companys net
revenues for the nine months ended September 30, 2006 and 2005, respectively.

All
other international operations accounted for 11% and 10% of the Companys net
revenues for the three months ended September 30, 2006 and 2005, respectively, and 10% and
9% of the Companys net revenues for the nine months ended September 30, 2006 and
2005, respectively.

|10. |  | Supplemental
Balance Sheet Information
|--- |  | --------------------------------------

|September 30,
2006                   |  | December 31,
2005 |  
|------------------------------------ |  | ----------------- | -
|Trade                                |  |                   | $
|Unbilled                             |  |                   |  
|Non-trade                            |  |                   |  
|                                     |  |                   |  
|                                     |  |                   |  
|Less allowance for doubtful accounts |  |                   |  
|                                     |  |                   |  
|Accounts receivable, net             |  |                   | $
|                                     |  |                   |  

13

---

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

|September 30,
2006                                                                      |  | December 31,
2005 |  
|--------------------------------------------------------------------------------------- |  | ----------------- | -
|                                                                                       
|Equipment                                                                               |  |                   | $
|Furniture and fixtures                                                                  |  |                   |  
|Leasehold improvements                                                                  |  |                   |  
|Capitalized software development costs                                                  |  |                   |  
|                                                                                        |  |                   |  
|                                                                                        |  |                   |  
|Less accumulated depreciation and amortization                                          |  |                   |  
|                                                                                        |  |                   |  
|Property and equipment, net                                                             |  |                   | $
|                                                                                        |  |                   |  
|                                                                                       
|Accrued expenses and other current liabilities consist of the
following (in thousands):
|                                                                                        |  |                  
|Accrued medical and worker compensation expenses                                        |  |                   | $
|Taxes payable                                                                           |  |                   |  
|Accrued accounting and legal expense                                                    |  |                   |  
|Accrued salaries payable                                                                |  |                   |  
|Other                                                                                   |  |                   |  
|                                                                                        |  |                   |  
|Accrued expenses and other current liabilities                                          |  |                   | $
|                                                                                        |  |                   |  

|11. |  | Foreign
Currency Rate Fluctuations
|--- |  | ----------------------------------

The
Company has foreign currency exposure associated with its international 100% owned
subsidiary, its 51% owned joint venture subsidiaries and its 50% owned joint ventures. In
the nine months ended September 30, 2006, these exposures were primarily concentrated in
the Canadian Dollar, South African Rand, Australian Dollar and Japanese Yen. At September
30, 2006, international assets totaled approximately $5.8 million and
international liabilities totaled approximately $5.3 million. For the nine months ended
September 30, 2006, international revenues totaled $16.1 million and there was
an international net income of $523,000.

|12. |  | Interest
Rate Fluctuations
|--- |  | --------------------------

The
Company is exposed to market risk related to the variable interest rates on its lines of
credit. At September 30, 2006, the Companys outstanding debt totaled approximately
$3.2 million, which consisted of domestic variable-rate (9% per annum at that date) debt
of approximately $2.1 million, Japanese joint venture variable rate (1.4% per annum at
that date) debt of approximately $600,000 and Australian joint venture subsidiary variable
rate (10.9% per annum at that date) debt of approximately $596,000. Based on the nine
months ending September 30, 2006, average outstanding borrowings under variable-rate debt,
a one-percentage point per annum increase in interest rates would have negatively impacted
pre-tax earnings and cash flows for the nine months ended September 30, 2006, by
approximately $22,000.

|13. |  | Recently
Issued Accounting Standards
|--- |  | ------------------------------------

On
September 15, 2006, the FSAB issued SFAS No. 157, Fair Value Measurements,
which provides for enhanced guidance for using the fair value to measure assets and
liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and

14

---

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

expands disclosures about fair value
measurements. SFAS No. 157 is applicable under other accounting pronouncements that either
require or permit fair value measurements and does not require any new fair value
measurements. SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. SPAR is
in the process of analyzing the implications of SFAS No. 157.

On
September 13, 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 on quantifying
financial statement misstatements. In summary, SAB No. 108 states that registrants should use
both a balance sheet (iron curtain) approach and an income statement (rollover) approach
when quantifying and evaluating the materiality of a misstatement, and contains guidance
on correcting errors under the dual approach.

In
addition, SAB No. 108 provides transition guidance for correcting errors existing in prior
years. If prior-year errors that had been previously considered immaterial (based on the
appropriate use of the Companys prior approach) now are considered material based on
the approach in this SAB, the Company does not need to restate prior period financial
statements. SAB No. 108 is effective for the Companys annual financial statements
beginning with the fiscal year ending December 31, 2007, although earlier application is
encouraged for any interim period of the Companys 2006 fiscal year filed after
September 13, 2006.

While
the Company is considering the effects of implementing its provisions, the Companys
management does not presently believe that the application of SAB No. 108 will have a material
impact on the Companys consolidated financial position or results of operations.

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 will be 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 cumulative effect of applying
the provisions of this Interpretation will be reported as an adjustment to the opening
balance of retained earnings for that fiscal year. The Company is currently evaluating the
impact of FIN 48 on its financial statements.

|14. |  | Reclassifications
|--- |  | -----------------

Certain
reclassifications have been made to the prior year financial statements to conform to the
2006 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 nine months ended September 30,
2006 (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, 2005, as filed with the Securities and
Exchange Commission (the SEC) on April 3, 2006, as amended on Form 10-K/A by
Amendment No. 1 filed with the SEC on April 26, 2006, and Amendment No. 2 filed with the
SEC on June 21, 2006 (the Companys Annual Report for 2005 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 2005 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

In
the United States, the Company provides merchandising and marketing services to
manufacturers and retailers principally in mass merchandiser, electronics, drug store,
grocery, and other retail trade classes through its Domestic Merchandising Services
Division. Internationally, the Company provides similar in-store merchandising and
marketing services through a wholly owned subsidiary in Canada, 51% owned joint venture
subsidiaries in Turkey, South Africa, India, Romania, Lithuania and Australia and 50%
owned joint ventures in Japan and China. For the nine months ended September 30, 2006, the
Company consolidated Canada, Turkey, South Africa, India, Romania, Lithuania, Australia,
China and Japan into the Companys financial statements.

16

---

# SPAR Group, Inc.

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, electronic 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. The Company has expanded its international business as follows:

|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 2005 on Form 10-K As Amended other than SFAS No.
123(R) as adopted as of January 1, 2006 (see Note 6  Stock-Based Compensation).

17

---

# SPAR Group, Inc.

# Results of Operations

# Three months ended
September 30, 2006, compared to three months ended September 30, 2005

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).

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

Certain prior year SG&A legal expenses
were reclassified to Other expense to conform to the 2006 presentation.

# Net Revenues

Net
revenues for the three months ended September 30, 2006, were $12.7 million, compared to
$11.1 million for the three months ended September 30, 2005, an increase of 14.9%.
Domestic net revenues for the three months ended September 30, 2006, were $6.7 million
compared to $7.5 million for the prior year period. The decrease of approximately $800,000
was primarily due to a reduction in project revenues in 2006 versus 2005.International net revenues for the three months ended September 30, 2006 were $6.0
million compared to $3.6 million for the prior year period. The increase of $2.4 million
was primarily due to increases in Japan of approximately $1.0 million, as well as
additional revenues from the new joint ventures which began operations in 2006, Australia
$1.2 million and Lithuania $155,000.

One
domestic client accounted for 12% and 13% of the Companys net revenues for the three
months ended September 30, 2006 and 2005, respectively. This client also accounted for
approximately 8% and 10% of accounts receivable at September 30, 2006 and December 31,
2005, respectively.

A
second domestic client accounted for 8% and 5% of the Companys net revenues for the
three months ended September 30, 2006 and 2005, respectively. This client also accounted
for approximately 5% and 1% of the Companys accounts receivable at September 30,
2006 and December 31, 2005, respectively.

Approximately
10% of the Companys net revenues for both the three months ended September 30, 2006
and 2005, 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 4% and 8% of the Companys accounts receivable at
September 30, 2006 and December 31, 2005, respectively. The Companys contractual
relationships or agreements are with various clients and not that retail electronics
chain.

18

---

# SPAR Group, Inc.

Approximately
6% and 8% of the Companys net revenues for the three months ended September 30, 2006
and 2005, respectively, resulted from merchandising services performed for domestic
clients at a leading mass merchandising chain. Services performed for these clients in
that chain also accounted for approximately 2% and 8% of the Companys accounts
receivable at September 30, 2006 and December 31, 2005, respectively. The Companys
contractual relationships or agreements are with various clients and not that retail mass
merchandising chain.

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

# Cost of Revenues

Cost
of revenues consists of in-store labor and field management wages, related benefits,
travel and other direct labor-related expenses. Cost of revenues as a percentage of net
revenues was 69.7% for the three months ended September 30, 2006, compared to 68.7% for
the three months ended September 30, 2005. Domestic cost of revenues as a percentage of
net revenues was 73.6% and 71.7% for the three months ended September 30, 2006 and 2005,
respectively. The increase is primarily attributable to the mix of business with higher
cost project revenues accounting for a greater portion of net revenues in the three months
ended September 30, 2006 compared to the prior year. Cost of revenues from international
operations as a percentage of net revenues was 65.3% and 62.4% for the three months ended
September 30, 2006 and 2005, respectively. The international cost of revenues percentage
increase was primarily attributable to an increase in competitive pricing pressures in
Canada and higher cost project revenues in Japan accounting for a greater portion of net
revenues in the three months ended September 30, 2006 compared to the prior year.

Approximately
82% and 84% of the Companys domestic cost of revenues in the three months ended
September 30, 2006 and 2005, 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 5 - 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 for the three months ended September 30, 2006 totaled
approximately $4.9 million compared to $4.0 million for the three months ended September
30, 2005. Domestic selling, general and administrative expenses were $2.8 million for both
the three months ended September 30, 2006 and September 30, 2005. International selling,
general and administrative expenses for the three months ended September 30, 2006 were
approximately $2.1 million compared to approximately $1.2 million for the three months
ended September 30, 2005. The increase of approximately $900,000 or 74.8% was primarily
due to selling, general and administrative expenses of new joint ventures that began
operations in 2006 totaling approximately $520,000, an increase in Japan costs of
approximately $300,000 and corporate international business development costs of
approximately $100,000.

19

---

# SPAR Group, Inc.

# Depreciation and
Amortization

Depreciation
and amortization charges were approximately $170,000 and $261,000 for the three months
ended September 30, 2006 and 2005, respectively. The decrease of approximately $100,000 or
35% was due to lower purchases of property and equipment in recent years.

# Other Expense

Other
expense was approximately $48,000 for the three months ended September 30, 2006 compared
to approximately $199,000 for the three months ended September 30, 2005. Other expense in
2005 was primarily a result of the reclassification of certain legal expenses to other expense from
selling, general and administrative expenses to conform to the 2006
presentation.

# Income Taxes

Income
taxes were approximately $73,000 and $15,000 for the three months ended September 30, 2006
and 2005, respectively. The tax provisions were primarily for minimum state taxes due. There
were no tax provisions for federal tax as the Company reported losses for both the three
months ended September 30, 2006 and 2005.

# Minority Interest

The
combined operating results of the 51% owned joint venture subsidiaries and the 50% owned
joint ventures generated a net loss for both the three months ended September 30, 2006 and
2005. This loss resulted in a charge to minority interest of approximately $34,000 and
$88,000, respectively.

# Net Loss

The
Company had net loss of approximately $1.4 million for the three months ended September
30, 2006, or $0.07 per diluted share, compared to a net loss of approximately $1.1
million, or $0.06 per diluted share, for the corresponding period last year.

20

---

# SPAR Group, Inc.

# Results of Operations

# Nine months ended
September 30, 2006, compared to nine months ended September 30, 2005

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).

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

Certain prior year SG&A legal expenses
were reclassified to Other expense to conform to the 2006 presentation.

# Net Revenues

Net
revenues for the nine months ended September 30, 2006, were $41.5 million, compared to
$38.4 million for the nine months ended September 30, 2005, an increase of 8.1%. Domestic
net revenues for the nine months ended September 30, 2006, was $25.4 million (including
$770,000 in non-recurring revenues from the termination of a service agreement) compared
to $27.4 million for the nine months ended September 30, 2005. The decrease of $2.0
million or 7.5% was primarily due to a reduction in project revenues in 2006 versus
2005.International net revenues for the nine months ended September 30, 2006 were
$16.1 million compared to $11.0 million for the prior year period. The increase in
International net revenues of $5.1 million or 47.2% was primarily due to the inclusion of
the Japan calendar year fourth quarter 2005 net revenues totaling $1.3 million as a result
of the change in the year end reporting for the Japan joint venture, increased net
revenues from Japan and India of $1.4 million and $735,000 respectively, as well as
additional revenues from new joint ventures that began operations in 2006,
Australia with $1.9 million, Lithuania with $259,000 and China with $53,000,
offset by a decrease in South Africa net revenues totaling $696,000, due to the loss of a
major client in 2005.

One
domestic client accounted for 13% and 17% of the Companys net revenues for the nine
months ended September 30, 2006 and 2005, respectively. This client also accounted for
approximately 8% and 10% of the Companys accounts receivable at September 30, 2006
and December 31, 2005, respectively.

A
second domestic client accounted for 10% and 9% of the Companys net revenues for the
nine months ended September 30, 2006 and 2005, respectively. This client also accounted
for approximately 5% and 1% of the Companys accounts receivable at September 30,
2006 and December 31, 2005, respectively.

21

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# SPAR Group, Inc.

Approximately
10% of the Companys net revenues for both the nine months ended September 30, 2006
and 2005 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 4% and 8% of the Companys accounts receivable at
September 30, 2006 and December 31, 2005, respectively. The Companys contractual
relationships or agreements are with various clients and not that retail electronics
chain.

Approximately
7% and 9% of the Companys net revenues for the nine months ended September 30, 2006
and 2005, respectively, resulted from merchandising services performed for domestic
clients at a leading mass merchandising chain. Services performed for these clients in
that chain also accounted for approximately 2% and 8% of the Companys accounts
receivable at September 30, 2006 and December 31, 2005, respectively. The Companys
contractual relationships or agreements are with various clients and not that retail mass
merchandising chain.

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

# Cost of Revenues

Cost
of revenues consists of in-store labor and field management wages, related benefits,
travel and other direct labor-related expenses. Cost of revenues as a percentage of net
revenues was 67.2% for the nine months ended September 30, 2006, compared to 63.6% for the
nine months ended September 30, 2005. Domestic cost of revenues as a percentage of net
revenues was 68.6% and 64.8% for the nine months ended September 30, 2006 and 2005,
respectively. The increase is primarily attributable to the mix of business, with higher
cost project revenues accounting for a greater portion of revenues in the nine months
ended September 30, 2006 compared to the prior year. Cost of revenues from international
operations as a percentage of net revenues was 64.9% and 60.5% for the nine months ended
September 30, 2006 and 2005, respectively. The international cost of revenues percentage
increase was primarily attributable to an increase in competitive pricing pressures in
Canada and higher cost revenues in Japan accounting for a greater portion of
revenue in the nine months ended September 30, 2006 compared to the prior year.

Approximately
85% and 87% of the Companys domestic cost of revenues in the nine months ended
September 30, 2006 and 2005, 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 5 - 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 for the nine months ended September 30, 2006, were
approximately $13.8 million compared to approximately $12.1 million for the nine months
ended September 30, 2005 an increase of approximately $1.7 million, or 14.1%. Domestic
selling, general and administrative expenses for the nine months ended September 30, 2006
were approximately $7.9 million compared to approximately $8.6 million for the nine months
ended September 30, 2005. The decrease of approximately $641,000 or 7.5% was primarily due
to the reversal of unpaid prior year incentive accruals totaling approximately $307,000
that increased current year earnings and lower incentive accruals recorded in 2006
compared to 2005 of approximately $286,000. International selling, general and
administrative expenses for the nine months ended September 30, 2006 were approximately
$5.9 million compared to approximately $3.5 million for the nine months ended September
30, 2005. The increase of approximately $2.4 million, or 66.5% was primarily due to
additional Japan costs of approximately $544,000 resulting from the additional quarter of
expense due to the change in year-end reporting, approximately

22

---

# SPAR Group, Inc.

$784,000 from increased spending in
Japan, approximately $233,000 from increased spending in corporate international business
development partially offset by reduced spending in South Africa of approximately $143,000
and a decrease of approximately $33,000 for all other existing joint ventures.
Approximately $960,000 of additional selling, general and administrative expenses related
to the new joint venture subsidiaries, Australia $700,000, China $176,000 and Lithuania
$83,000 which began operations in 2006.

# Depreciation and
Amortization

Depreciation
and amortization charges were approximately $565,000 and $812,000 for the nine months
ended September 30, 2006 and 2005, respectively. The decrease of approximately $247,000 or
30% was due to lower purchases of property and equipment in recent years.

# Other (Income) Expense

Other
income was approximately $542,000 for the nine months ended September 30, 2006 compared to
other expense of approximately $608,000 for the nine months ended September 30, 2005.
Other income in 2006 was primarily due to 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 $1.1 million and the favorable settlement of another lawsuit with a vendor.
Other expense in 2005 resulted from the reclassification of certain legal expenses to other expense fom selling, general and
administrative expenses to conform to the 2006 presentation.

# Income Taxes

Income
taxes were approximately $172,000 and $45,000 for the nine months ended September 30, 2006
and 2005, respectively. The tax provisions were primarily for minimum state taxes due. There
were no tax provisions for federal tax for the nine months ended September 30, 2006 and
2005, since the Company expects to utilize net operating loss carry forwards which are
available to offset any federal taxes due.

# Minority Interest

Minority
interest of approximately $(11,000) and $166,000 resulted from the net operating losses
and profits of the 51% owned joint venture subsidiaries and the 50% owned joint ventures
for the nine months ended September 30, 2006 and 2005, respectively.

# Net (Loss) Income

The
Company had net loss of approximately $516,000 for the nine months ended September 30,
2006, or $0.03 per diluted share, compared to a net income of approximately $144,000, or
$0.01 per diluted share, for the corresponding period last year.

# Liquidity and Capital
Resources

In
the nine months ended September 30, 2006, the Company had a net loss of $516,000.

Net
cash provided by operating activities for the nine months ended September 30, 2006 and
September 30, 2005, was approximately $117,000 and $3.9 million, respectively. The
decrease in net cash provided by operating activities was primarily due to decreases in
net income, increases in accounts receivable, other assets and decreases in customer
deposits, partially offset by increases in accrued expenses and other current liabilities
and accrued expenses due to affiliates.

23

---

# SPAR Group, Inc.

Net
cash used in investing activities for the nine months ended September 30, 2006 and
September 30, 2005, was approximately $363,000 and $388,000, respectively. The decrease in
net cash used in investing activities was a result of continued decreases in purchases of
property and equipment in 2006.

Net
cash provided by financing activities for the nine months ended September 30, 2006, was
approximately $277,000, compared to net cash used in financing activities of approximately
$2.5 million for the nine months ended September 30, 2005. The increase of net cash
provided by financing activities was primarily a result of increased net borrowings on
lines of credit.

The
above activity resulted in a decrease in cash and cash equivalents for the nine months
ended September 30, 2006, of approximately $22,000.

At
September 30, 2006, the Company had positive working capital of $3.2 million, as compared
to a positive working capital of $3.1 million at December 31, 2005. The Companys
current ratio was 1.29 at September 30, 2006, and 1.31 at December 31, 2005.

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).

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

The
basic interest rate under the Credit Facility is Websters Alternative Base
Rate plus 0.75% per annum (a total of 9.0% per annum at September 30, 2006), 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 3.25% per annum
based on fixed periods of one, two, three or nine months. The actual average interest rate
under the Credit Facility was 8.6% per annum for the nine months ended September 30, 2006.
The Credit Facility is secured by substantially all of the assets of the Company (other
than SGRPs foreign subsidiaries and their assets).

The
Company was not in violation of any covenants at September 30, 2006 and does not expect to
be in violation at future measurement dates. However, there can be no assurances that the
Company will not be in violation of certain covenants in the future. Should the Company be
in violation, there are no assurances that Webster will issue waivers of such covenant violations in the future.

Because
of the requirement to maintain a lock box arrangement with Webster and Websters
ability to invoke a subjective acceleration clause at its discretion, borrowings under the
Credit Facility are classified as current at September 30, 2006 and December 31, 2005, in
accordance with EITF 95-22, Balance Sheet Classification of Borrowings Outstanding
Under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a
Lock-Box Agreement.

The
revolving loan balances outstanding under the Credit Facility were $2.1 million and $2.4
million at September 30, 2006 and December 31, 2005, respectively. There were letters of
credit outstanding under the Credit Facility of approximately $453,000 and $552,000 at
September 30, 2006, and December 31, 2005, respectively. As of September 30, 2006, the
SPAR Group had unused availability under the Credit Facility of $1.0 million out of the

24

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# SPAR Group, Inc.

remaining maximum $4.4 million unused
revolving line of credit after reducing the borrowing base by outstanding loans and
letters of credit.

The
Japanese joint venture SPAR FM Japan, Inc. has line of credit agreements totaling
100 million Yen or approximately $850,000 (based upon the exchange rate at
September 30, 2006). The outstanding balances under the line of credit agreements were 70
million Yen or approximately $600,000 at September 30, 2006 and December 31, 2005,
respectively (based upon the exchange rate at those dates). The average interest rate was
1.4% per annum for the nine months ended September 30, 2006.

In
2006, the Australian joint venture SPARFACTS Australia Pty. Ltd. entered into a revolving
line of credit arrangement with Oxford Funding Pty. Ltd. for $1.1 million (Australian) or
approximately $820,000 (based upon the exchange rate at September 30, 2006). At September
30, 2006, SPARFACTS Australia Pty. Ltd. had $798,000 (Australian) or approximately
$596,000 outstanding under the line of credit (based upon the exchange rate at that date).
The average interest rate was 10.9% per annum for the five months ended September 30,
2006.

On
October 20, 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 $880,000 (based upon the exchange
rate at November 10, 2006). The Demand Operating Loan provides for borrowing based upon a
borrowing base formula as defined in the agreement (principally 75% of eligible accounts
receivable less certain deductions). In November, 2006, SPAR Canada Company borrowed
approximately $100,000 (Canadian) or approximately $88,000 (based upon the exchange rate
at November 10, 2006).

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 joint venture in Japan and has
continued this strategy. As of this filing, the Company is currently operating in Japan,
Canada, Turkey, South Africa, India, Romania, China, Lithuania and Australia.

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

Management
believes that based upon the results of Companys operations and the existing credit
facilities, sources of cash availability will be sufficient to support ongoing operations
over the next twelve months. However, delays in collection of receivables due from any of
the Companys major clients, or a significant reduction in business from such
clients, or the Companys inability to remain profitable, could have a material
adverse effect on the Companys cash resources and its ongoing ability to fund
operations.

# Certain Contractual
Obligations

The
following table contains a summary of certain of the Companys contractual
obligations by category as of September 30, 2006 (in thousands).

|                            | Payments due by Period | 
|--------------------------- | ---------------------- | 
|
|Credit Facility             |                        | 
|Operating Lease Obligations |                        | 
|                            |                        | 
|Total                       |                        | 
|                            |                        | 

The
Company also had approximately $453,000 in outstanding Letters of Credit at September 30,
2006.

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 those 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 instrument, asset or
liability and their expected realization or payment. The Company monitors the risks
associated with interest rates and financial instrument, asset and liability positions.
The Companys investment policy objectives require the preservation and safety of the
principal, and the maximization of the return on investment based upon the safety and
liquidity objectives.

The
Company is exposed to market risk related to the variable interest rates on its lines of
credit. At September 30, 2006, the Companys outstanding debt totaled approximately
$3.2 million, which consisted of domestic variable-rate (9% per annum at that date) debt
of approximately $2.1 million, Japanese joint venture variable rate (1.4% per annum at
that date) debt of approximately $600,000 and Australian joint venture subsidiary variable
rate (10.9% per annum at that date) debt of approximately $596,000. Based on the nine
months ending September 30, 2006, average outstanding borrowings under variable-rate debt,
a one-percentage point per annum increase in interest rates would have negatively impacted
pre-tax earnings and cash flows for the nine months ended September 30, 2006, by
approximately $22,000.

The
Company has foreign currency exposure associated with its international 100% owned
subsidiary, its 51% owned joint venture subsidiaries and its 50% owned joint ventures. In
the nine months ended September 30, 2006, these exposures were primarily concentrated in
the Canadian Dollar, South African Rand, Australian Dollar and Japanese Yen. At September
30, 2006, international assets totaled approximately $5.8 million and international
liabilities totaled approximately $5.3 million. For the nine months ended September 30,
2006, international revenues totaled $16.1 million and there was an international net income of $523,000.

# Item 4.   Controls and
Procedures

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

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

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

26

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# 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 have filed post trial motions and a Notice of Appeal is expected
to follow. Pivotal/SGRP is seeking to have Safeways judgment overturned. Safeway has
asked for a new trial on the judgment found against them. The appellate process is
expected to take fourteen to twenty four months to complete.

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, 2005, as filed with the Securities and Exchange Commission (the
SEC) on April 3, 2006, as amended on Form 10-K/A by Amendment No. 1 filed with
the SEC on April 26, 2006, and Amendment No. 2 filed with the SEC on June 21, 2006 (the
Companys Annual Report for 2005 on Form 10-K As Amended).

# Item 1A.   Risk Factors

The
Companys Annual Report for 2005 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 2005 on Form 10-K As Amended.

# Item 2:   Unregistered
Sales of Equity Securities and Use of Proceeds

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

27

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# 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 August 9, 2006. 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, 2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Name:              | For:       | Abstention:
|------------------ | ---------- | -----------
|Robert G. Brown    | 15,474,831 | 70,964     
|William H. Bartels | 14,475,131 | 1,070,664  
|Robert O. Aders    | 15,451,107 | 94,688     
|Jack W. Partridge  | 15,451,107 | 94,688     
|Jerry B. Gilbert   | 15,451,427 | 94,368     
|Lorrence T. Kellar | 15,451,427 | 94,368     

| | 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:
|---------- | -------- | -----------
|15,482,141 | 26,300   | 37,354     

# Item 5:   Other Information

Certain
immaterial changes to the Corporations 2000 Stock Option Plan were recently adopted
by the Corporations Compensation Committee and Board of Directors. These changes
included elimination of potential early termination of options on the retirement, death
or disability of an optionee (previously subject to discretionary, but likely, waiver or
extension), addition of express references to the Compensation Committee (formed after
the plan was adopted) and certain technical revisions addressing changes in applicable
tax law since the plan was adopted. The Corporations 2000 Stock Option Plan as
amended is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1.

# Item 6:   Exhibits

| | 10.1 |  | 2000
Stock Option Plan, as amended through May 16, 2006.
| | ---- |  | --------------------------------------------------------

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

28

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# SPAR Group, Inc.

# SIGNATURES

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

|                          |                                              
|------------------------- | ---------------------------------------------
|Date:   November 14, 2006 | SPAR Group, Inc., Registrant                 
|                          | By: /s/ Charles Cimitile                     
|                          |                                              
|                          | Charles Cimitile                             
|                          | Chief Financial Officer, Treasurer, Secretary
|                          | and duly authorized signatory                

29