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

580 White Plains Road, Suite 600, Tarrytown, New York 10591
(Address of principal executive offices, including zip code)

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

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   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   

SPAR Group, Inc.

Index

2

PART I:     FINANCIAL INFORMATION

Item 1:  Financial Statements

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

See accompanying notes.

3

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

See accompanying notes.

4

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

See accompanying notes.

5

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

6

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

7

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

8

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

9

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

10

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

11

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

12

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

13

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

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SPAR Group, Inc.

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

Forward-Looking Statements

        Statements contained in this Quarterly Report on Form 10-Q for the six months ended June 30, 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 and Romania, as well as Lithuania and Australia (which began operations in April and May 2006, respectively) and 50% owned joint ventures in Japan and China. For the six months ended June 30, 2006, the Company consolidated Canada, Turkey, South Africa, India, Romania, Lithuania, Australia, China and Japan into the Company’s financial statements.

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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:

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.

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SPAR Group, Inc.

Results of Operations

Three months ended June 30, 2006, compared to three months ended June 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).

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 June 30, 2006, were $12.9 million, compared to $12.8 million for the three months ended June 30, 2005, an increase of 0.9%. Domestic net revenues for the three months ended June 30, 2006, were $7.9 million compared to $9.2 million for the prior year period. The decrease of $1.3 million was primarily due to a reduction in project revenues in 2006 versus 2005. International net revenues for the three months ended June 30, 2006 were $5.1 million compared to $3.6 million for the prior year period. The increase of $1.5 million was primarily due to increases in Japan of approximately $387,000 and India of approximately $301,000, as well as additional revenues from the new joint ventures which began operations in 2006, Australia $691,000, Lithuania $104,000 and China $17,000, offset by a decrease in South Africa net revenues of approximately $104,000 resulting from the loss of a large customer.

        One domestic client accounted for 15% and 21% of the Company’s net revenues for the three months ended June 30, 2006 and 2005, respectively. This client also accounted for approximately 13% and 10% of accounts receivable at June 30, 2006 and December 31, 2005, respectively.

        A second domestic client accounted for 10% and 4% of the Company’s net revenues for the three months ended June 30, 2006 and 2005, respectively. This client also accounted for approximately 15% and 1% of the Company’s accounts receivable at June 30, 2006 and December 31, 2005, respectively.

        Approximately 9% of the Company’s net revenues for both the three months ended June 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 2% and 8% of the Company’s accounts receivable at June 30, 2006 and December 31, 2005, respectively. The Company’s contractual relationships or agreements are with various clients and not that retail electronics chain.

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SPAR Group, Inc.

        Approximately 7% and 8% of the Company’s net revenues for the three months ended June 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 June 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 70.8% for the three months ended June 30, 2006, compared to 63.8% for the three months ended June 30, 2005. Domestic cost of revenues as a percentage of net revenues was 73.5% and 65.3% for the three months ended June 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 June 30, 2006 compared to prior year. Cost of revenues from international operations as a percentage of net revenues was 66.5% and 60.2% for the three months ended June 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 June 30, 2006 compared to prior year.

        Approximately 85% and 88% of the Company’s domestic cost of revenues in the three months ended June 30, 2006 and 2005, respectively, resulted from in-store independent contractor and field management services purchased from the Company’s affiliates, SPAR Marketing Services, Inc. (“SMS”), and SPAR Management Services, Inc. (“SMSI”), respectively (see Note 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 June 30, 2006 totaling approximately $3.9 million were consistent with 2005. Domestic selling, general and administrative expenses for the three months ended June 30, 2006 were $1.9 million compared to approximately $2.6 million for the three months ended June 30, 2005. The decrease of approximately $683,000 or 26.3% was primarily due to the reversal of unpaid prior year incentive accruals totaling approximately $300,000 as well as the reclassification of first quarter 2006 litigation expenses of approximately $400,000 to other expense. International selling, general and administrative expenses for the three months ended June 30, 2006 were approximately $1.9 million compared to approximately $1.3 million for the three months ended June 30, 2005. The increase of approximately $667,000 or 51.8% was primarily due to an increase in Japan costs of approximately $217,000, international corporate business development costs of approximately $119,000 and selling, general and administrative expenses of new joint ventures which began operations in 2006 totaling approximately $393,000.

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SPAR Group, Inc.

Depreciation and Amortization

        Depreciation and amortization charges were approximately $183,000 and $272,000 for the three months ended June 30, 2006 and 2005, respectively. The decrease of approximately $89,000 or 33% was due to lower purchases of property and equipment in recent years.

Other (Income) Expense

        Other income was approximately $411,000 for the three months ended June 30, 2006 compared to other expense of approximately $346,000 for the three months ended June 30, 2005. Other income in 2006 is primarily a result of the favorable jury award in a lawsuit in the net amount of approximately $1.3 million, partially offset by related legal expenses for the period of approximately $1.0 million. Other expense in 2005 resulted from the reclassification of legal expenses related to the litigation that were reclassified to other expense to conform to the 2006 presentation.

Income Taxes

        Income taxes were approximately $54,000 and $15,000 for the three months ended June 30, 2006 and 2005, respectively. The tax provisions were primarily for minimum state taxes. There were no tax provisions for federal tax for the three months ended June 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 $61,000 and $34,000 resulted from the net operating losses of the 51% owned joint venture subsidiaries and the 50% owned joint ventures for the three months ended June 30, 2006 and 2005, respectively.

Net Income

        The Company had net income of approximately $100,000 for the three months ended June 30, 2006, or $0.01 per diluted share, compared to a net income of approximately $116,000, or $0.01 per diluted share, for the corresponding period last year.

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SPAR Group, Inc.

Results of Operations

Six months ended June 30, 2006, compared to six months ended June 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).

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

Net Revenues

        Net revenues for the six months ended June 30, 2006, were $28.8 million, compared to $27.3 million for the six months ended June 30, 2005, an increase of 5.3%. Domestic net revenues for the six months ended June 30, 2006, was $18.7 million (including $770,000 in non-recurring revenues from the termination of a service agreement) compared to $20.0 million for the six months ended June 30, 2005. The decrease of $1.3 million or 6.5% was primarily due to a reduction in project revenues in 2006 versus 2005. International net revenues for the six months ended June 30, 2006 were $10.1 million compared to $7.3 million for the prior year period. The increase in International net revenues of $2.8 million or 37.3% 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 India $692,000 and Japan $354,000, as well as additional revenues from the new joint ventures which began operations in 2006, Australia $691,000, Lithuania $104,000 and China $32,000, offset by a decrease in South Africa net revenues totaling $667,000, due to the loss of a major client in 2005.

        One domestic client accounted for 13% and 19% of the Company’s net revenues for the six months ended June 30, 2006 and 2005, respectively. This client also accounted for approximately 13% and 10% of the Company’s accounts receivable at June 30, 2006 and December 31, 2005, respectively.

        A second domestic client accounted for 12% and 10% of the Company’s net revenues for the six months ended June 30, 2006 and 2005, respectively. This client also accounted for approximately 15% and 1% of the Company’s accounts receivable at June 30, 2006 and December 31, 2005, respectively.

20

SPAR Group, Inc.

        Approximately 10% of the Company’s net revenues for both the six months ended June 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 2% and 8% of the Company’s accounts receivable at June 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 8% and 9% of the Company’s net revenues for the six months ended June 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 June 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 66.0% for the six months ended June 30, 2006, compared to 61.6% for the six months ended June 30, 2005. Domestic cost of revenues as a percentage of net revenues was 66.8% and 62.3% for the six months ended June 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 six months ended June 30, 2006. Cost of revenues from international operations as a percentage of net revenues was 64.6% and 59.6% for the six months ended June 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 revenue in the six months ended June 30, 2006 compared to prior year.

        Approximately 86% and 89% of the Company’s domestic cost of revenues in the six months ended June 30, 2006 and 2005, respectively, resulted from in-store independent contractor and field management services purchased from the Company’s affiliates, SPAR Marketing Services, Inc. (“SMS”), and SPAR Management Services, Inc. (“SMSI”), respectively (see Note 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 six months ended June 30, 2006, were approximately $8.9 million compared to approximately $8.1 million for the six months ended June 30, 2005 an increase of approximately $860,000, or 10.6%. Domestic selling, general and administrative expenses for the six months ended June 30, 2006 were approximately $5.1 million compared to approximately $5.7 million for the six months ended June 30, 2005. The decrease of approximately $600,000 or 10.4% was primarily due to the reversal of unpaid prior year incentive accruals totaling approximately $300,000 and lower incentive accruals in 2006 compared to 2005 of approximately $300,000. International selling, general and administrative expenses for the six months ended June 30, 2006 were approximately $3.8 million compared to approximately $2.3 million for the six months ended June 30, 2005. The increase of approximately $1.5 million, or 62.3% was primarily due to additional Japan costs of approximately $554,000 resulting from the additional quarter of expense due to the change in year-end reporting, approximately $357,000 from increased spending in Japan and approximately $440,000 of additional selling, general and administrative expenses related to the new joint venture subsidiaries that began operations in 2006.

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SPAR Group, Inc.

Depreciation and Amortization

        Depreciation and amortization charges were approximately $396,000 and $551,000 for the six months ended June 30, 2006 and 2005, respectively. The decrease of approximately $155,000 or 28% was due to lower purchases of property and equipment in recent years.

Other (Income) Expense

        Other income was approximately $589,000 for the six months ended June 30, 2006 compared to other expense of approximately $408,000 for the six months ended June 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 $1.0 million and the favorable settlement of a vendor lawsuit. Other expense in 2005 resulted from the reclassification of legal expenses related to the litigation that were reclassified to other expense to conform to the 2006 presentation.

Income Taxes

        Income taxes were approximately $99,000 and $30,000 for the six months ended June 30, 2006 and 2005, respectively. The tax provisions were primarily for minimum state taxes. There were no tax provisions for federal tax for the six months ended June 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 ($44,000) and $77,000 resulted from the net operating losses and profits of the 51% owned joint venture subsidiaries and the 50% owned joint ventures for the six months ended June 30, 2006 and 2005, respectively.

Net Income

        The Company had net income of approximately $877,000 for the six months ended June 30, 2006, or $0.05 per diluted share, compared to a net income of approximately $1.3 million, or $0.07 per diluted share, for the corresponding period last year.

Liquidity and Capital Resources

        In the six months ended June 30, 2006, the Company had a net income of $877,000.

        Net cash used by operating activities for the six months ended June 30, 2006, was approximately $6,000 compared to net cash provided by operating activities for the six months ended June 30, 2005 of approximately $3.1 million. The decrease in net cash provided by operating activities was primarily due to decreases in net income, lower decreases in accounts receivable and other assets and decreases in accrued expenses.

        Net cash used in investing activities for the six months ended June 30, 2006, was approximately $205,000 compared to net cash used in investing activities of approximately $257,000 for the six months ended June 30, 2005. 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 used in financing activities for the six months ended June 30, 2006, was approximately $3,000, compared to net cash used in financing activities of approximately $2.5 million for the six months ended June 30, 2005. The decrease of net cash used in financing activities was primarily a result of increased net borrowings on lines of credit.

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SPAR Group, Inc.

        The above activity resulted in a decrease in cash and cash equivalents for the six months ended June 30, 2006, of approximately $259,000.

        At June 30, 2006, the Company had positive working capital of $4.4 million, as compared to a positive working capital of $3.1 million at December 31, 2005. The increase in working capital is due primarily to reductions in accrued expenses and other current liabilities, accrued expenses due to affiliates and customer deposits, partially offset by increases in lines of credit. The Company’s current ratio was 1.53 at June 30, 2006, and 1.31 at December 31, 2005.

        In January 2003, the Company and Webster Business Credit Corporation, then known as Whitehall Business Credit Corporation (“Webster”), entered into the Third Amended and Restated Revolving Credit and Security Agreement (as amended, collectively, the “Credit Facility”).

        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% per annum at June 30, 2006), which automatically changes with each change made by Webster in such Alternate 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 six months. The actual average interest rate under the Credit Facility was 8.41% per annum for the six months ended June 30, 2006. The Credit Facility is secured by all of the assets of the Company and its domestic subsidiaries.

        The Company was not in violation of any covenants at June 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 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 June 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 $2.2 million and $2.4 million at June 30, 2006 and December 31, 2005, respectively. There were letters of credit outstanding under the Credit Facility of approximately $552,000 at June 30, 2006 and December 31, 2005. As of June 30, 2006, the SPAR Group had unused availability under the Credit Facility of $2.9 million out of the remaining maximum $4.2 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 a revolving line of credit arrangement with Japanese banks for 100 million Yen or approximately $850,000 (based upon the exchange rate at June 30, 2006). At June 30, 2006, SPAR FM Japan, Inc. had a 70 million Yen or approximately $600,000 loan balance outstanding under the line of credit (based upon the exchange rate at that date). The average interest rate was 1.4% per annum for the six months ended June 30, 2006.

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SPAR Group, Inc.

        In 2006, the Australia joint venture SPARFACTS Australia Pty. Ltd. entered into a revolving line of credit arrangement with Oxford Funding Pty. Ltd. (which began operations in May 2006) for $400,000 (Australian) or approximately $290,000 (based upon the exchange rate at June 30, 2006). At June 30, 2006, SPARFACTS Australia Pty. Ltd. had a $276,000 (Australian) or approximately $200,000 loan balance outstanding under the line of credit (based upon the exchange rate at that date). The average interest rate was 10.8% per annum for the two months ended June 30, 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 June 30, 2006 (in thousands).

        The Company also had approximately $552,000 in outstanding Letters of Credit at June 30, 2006.

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.

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SPAR Group, Inc.

        The Company is exposed to market risk related to the variable interest rates on its lines of credit. At June 30, 2006, the Company’s outstanding debt totaled approximately $3.0 million, which consisted of domestic variable-rate (9.0% per annum at that date) debt of approximately $2.2 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 (10.8% per annum at that date) debt of approximately $200,000. Based on the six months ending June 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 six months ended June 30, 2006, by approximately $15,000.

        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 six months ended June 30, 2006, these exposures were primarily concentrated in the Canadian dollar, South African Rand and Japanese Yen. At June 30, 2006, international assets totaled approximately $5.0 million and international liabilities totaled approximately $7.8 million. For the six months ended June 30, 2006, international revenues totaled $10.1 million and there was an international net loss of $283,000.

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 six months covered by this report or from the end of the reporting period to the date of this Form 10-Q.

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

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SPAR Group, Inc.

PART II: OTHER INFORMATION

        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 net award of $1,307,700.64 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 $5,760,879.70 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 $5,235,579.06 for breach of contract by SGRP and those SGRP subsidiaries.  Judgment will likely be entered in the near future, and the parties will have 60 days thereafter in which to file appeals.  It is not possible at this time to determine the likelihood of the filing or outcome of any such appeals.  However, if Safeway appeals the awards to SGRP’s subsidiaries and overturns them, and PIA Co. and Pivotal appeal the awards to Safeway and fail to overturn them, that result could have a material adverse effect on SGRP and its subsidiaries.

        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”).

        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.

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SPAR Group, Inc.

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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.

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