Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q for the six months ended June 30, 2009 (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 of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act", and together with the Securities Act, the "Securities Laws") that are based on the Company's best estimates. In particular and without limitation, this "Management's Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources" 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 carry forwards, 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, to not 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, 2008, as filed with the Securities and Exchange Commission (the "SEC") on April 15, 2009 (the "Company's Annual Report for 2008 on Form 10-K"), including the risk factors described in Item 1A of that annual report under the caption "Certain Risk Factors" and the changes (if any) in such risk factors described in Item 1A 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 2008 on Form 10-K, 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, the Company cannot assure that such plans, intentions or expectations will be achieved in whole or in part, that it has identified all potential risks or that it can successfully avoid or mitigate such risks in whole or in part. The Company undertakes no obligation to publicly update or revise any forward-looking statements, or any Risk Factors or other cautionary statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

Today the Company operates in 13 countries whose population represents approximately 48% of the total world population. The Company's operations are currently divided into two divisions: the Domestic Merchandising Services Division and the International Merchandising Services Division. The Domestic Merchandising Services Division provides merchandising and marketing services, radio frequency identification services ("RFID"), technology services and marketing research to manufacturers and retailers in the United States. The various services are primarily performed in mass merchandisers, drug store chains and convenience and grocery stores. The International Merchandising Services Division was established in July 2000 and through its subsidiaries, the Company currently provides similar merchandising, marketing services and in-store event staffing in Japan, Canada, Turkey, South Africa, India, Romania, China, Lithuania, Latvia, Estonia, Australia and New Zealand.

Domestic Merchandising Services Division

The Company's Domestic Merchandising Services Division provides nationwide merchandising and other marketing services primarily on behalf of consumer product manufacturers and retailers at mass merchandisers, 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, marketing services and
in-store event staffing business worldwide. Currently, the Company's
international subsidiaries are as follows:

                 Headquarter                                Date
                   Location       Ownership Percentage  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

* The Company's Turkish subsidiary currently has minimal operations, and the Company is currently assessing ongoing business opportunities for this subsidiary.

** In July 2009, the Company acquired the remaining 49% ownership in its Romanian subsidiary at a cost of $1.00, and in August 2009 commenced the acquisition as of July 1, 2009, of a 51% interest in another Romanian merchandising services company. See Note 18 - Subsequent Events, above.

Critical Accounting Policies

There were no material changes during the six months ended June 30, 2009, to the Company's critical accounting policies as reported in the Company's Annual Report for 2008 on Form 10-K.

Results of Operations

Three months ended June 30, 2009, compared to three months ended June 30, 2008



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

                                               Three Months Ended June 30,
                                        2009                  2008            Increase/
                                    $          %          $          %       (decrease)
Net revenues                     $ 13,478      100.0 % $ 18,910      100.0 %       (28.7 )%
Cost of revenues                    9,310       69.1     13,719       72.5         (32.1 )
Selling, general &
administrative expense              3,888       28.8      4,510       23.8         (13.8 )
Depreciation and amortization         267        2.0        221        1.2          21.1
Interest expense                       45        0.3         81        0.4         (44.0 )
Other (income) expense               (255 )     (1.8 )      521        2.8             -
Income (loss) before income
taxes                                 223        1.6       (142 )     (0.8 )           -
Provision for income taxes
(benefit)                              73        1.0       (185 )     (1.0 )           -
Net income before
non-controlling interest              150        1.1         43        0.2             -
Net (income) loss attributable
to non-controlling interest           (86 )      0.6         40        0.2             -
Net income attributable to
Spar Group, Inc.                 $    236        1.7 % $      3        0.0 %           -

Net Revenues

Net revenues for the three months ended June 30, 2009, were $13.5 million, compared to $18.9 million for the three months ended June 30, 2008, a decrease of $5.4 million or 28.7%.

International net revenues totaled $6.7 million for the three months ended June 30, 2009, compared to $10.0 million for the same period in 2008, a decrease of $3.3 million or 32.7%. The decrease in 2009 international net revenues was primarily due to a reduction in non-recurring project revenue in both; Canada $1.3 million and Australia $1.0 million, as well as revenue decreases in Japan $572,000 and Turkey $433,000.

Domestic net revenues totaled $6.8 million in the three months ended June 30, 2009, compared to $8.9 million for the same period in 2008. Domestic net revenues decreased $2.1 million due to the reported bankruptcy and eventual liquidations of a major electronics retailer and by a reduction of some non-recurring project work, partially offset by increased project revenue from new client business.

Approximately 8.3% of the Company's net revenues for the three months ended June 30, 2008, resulted from merchandising services performed for manufacturers and other clients at Circuit City Stores, Inc. ("Circuit City"). Circuit City filed for protection under the U.S. Bankruptcy Code in November 2008 and in early 2009, closed its stores and liquidated its assets. The receivables related to Circuit City have been appropriately reserved in the allowance for doubtful accounts.

Cost of Revenues

Cost of revenues consists of in-store labor and field management wages, related benefits, travel and other direct labor-related expenses. Cost of revenues was 69.1% of net revenues for the three months ended June 30, 2009 and 72.5% for the three months ended June 30, 2008.

Internationally, the cost of revenues increased to 75.1% of net revenues for the three months ended June 30, 2009 compared to 73.9% of net revenues for the three months ended June 30, 2008. The international cost of revenues percentage increase of 1.2% was primarily attributed to a higher mix of cost margin business in Canada.

Domestic cost of revenues was 63.1% of net revenues for the three months ended June 30, 2009 and 71.1% of net revenues for the three months ended June 30, 2008. The decrease in cost of revenues as a percentage of net revenues of 8.0% was due to a favorable mix of business and reductions in field costs.

Approximately 84.3% and 86.0% of the Company's domestic cost of revenues in the three months ended June 30, 2009 and 2008, respectively, resulted from in-store merchandiser specialist and field management services purchased from certain of the Company's affiliates, SPAR Marketing Services, Inc. ("SMS"), and SPAR Management Services, Inc. ("SMSI"), respectively (see Note 6 - Related-Party Transactions).

Selling, General and Administrative Expenses

Selling, general and administrative expenses include corporate overhead, project management, information technology, executive compensation, human resources, and legal and accounting expenses. As a result of continuing efforts to reduce such expenses, selling, general and administrative expenses decreased by $622,000, or 13.8%, for the three months ended June 30, 2009, to $3.9 million compared to $4.5 million for the same period in 2008.

International selling, general and administrative expenses totaled $2.0 million for the three months ended June 30, 2009, compared to $2.5 million for the same period in 2008. The $479,000 decrease in international selling, general and administrative expenses was primarily due to expense reductions in Canada of $237,000, Australia of $151,000 and corporate international development spending of $116,000.

Domestic selling, general and administrative expenses totaled $1.9 million for the three months ended June 30, 2009, compared to $2.0 million for the same period in 2008. The decrease in domestic selling, general and administrative expenses of $145,000 was primarily due to a reduction in salary related expenses.

Depreciation and Amortization

Depreciation and amortization charges for the three months ended June 30, 2009, totaled $267,000 and $221,000 for the same period in 2008. The increase was primarily driven by increased capitalization of internally developed software.

Interest Expense

Interest expense decreased 44.0% to $45,000 from $81,000 for the three months ended June 30, 2009 and 2008, respectively. The decrease was primarily due to decreases in borrowings in the domestic division as well as decreases in interest rates in both the domestic and international divisions.

Other (Income) Expense

Other income totaled $255,000 compared with other expense of $521,000 for the three months ended June 30, 2009 and 2008, respectively. Included in the 2009 second quarter results was $285,000 resulting from a credit for prior legal expenses. Included in other expense for the three months ended June 30, 2008, was approximately $458,000 for non-recurring legal cost.

Income Taxes

Income tax provision for the three months ended June 30, 2009 was $73,000 resulting primarily from tax provisions related to international profits. Domestic income taxes for the three months ended June 30, 2009, were approximately $15,000 for domestic state taxes. There were no tax provisions for federal tax as the Company provides a valuation allowance against any deferred benefits arising from operating loss carry forwards. Income tax benefit for the three months ended June 30, 2008, was $185,000 resulting primarily from a FIN 48 adjustment from international operations.

Non-controlling Interest

Non-controlling interest income of approximately $(86,000) and expense of approximately $40,000 resulted from the net operating profits and losses of the Company's 51% and 50% owned subsidiaries for the three months ended June 30, 2009 and 2008, respectively.

Net Income (Loss)

The Company reported a net income of $236,000 for the three months ended June 30, 2009, or $0.01 per share, compared to a net income of $3,000, or $0.00 per share, for the corresponding period last year.

Results of Operations


Six months ended June 30, 2009, compared to six months ended June 30, 2008


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

                                                 Six Months Ended June 30,
                                        2009                  2008             Increase/
                                    $          %          $          %         (decrease)
Net revenues                     $ 28,649      100.0 % $ 36,364      100.0 %         (21.2 )%
Cost of revenues                   20,383       71.2     26,203       72.1           (22.2 )
Selling, general &
administrative expense              7,856       27.4      9,168       25.2           (14.3 )
Depreciation and amortization         529        1.8        429        1.2            23.5
Interest expense                      106        0.4        162        0.4           (34.7 )
Other (income) expense               (442 )     (1.5 )      564        1.6               -
Income (loss) before income
taxes                                 217        0.7       (162 )     (0.5 )             -
Provision for income taxes
(benefit)                             222        0.8        (21 )     (0.1 )             -
Net loss before
non-controlling interest               (5 )     (0.1 )     (141 )     (0.4 )             -
Net (income) loss attributable
to non-controlling interest           (46 )     (0.2 )      106        0.3               -
Net income (loss) attributable
to Spar Group, Inc.              $     41        0.1 % $  (247)       (0.7 )%            -

Net Revenues

Net revenues for the six months ended June 30, 2009, were $28.6 million, compared to $36.4 million for the six months ended June 30, 2008, a decrease of $7.7 million or 21.2%.

International net revenues totaled $16.2 million for the six months ended June 30, 2009, compared to $20.0 million for the same period in 2008, a decrease of $3.8 million or 18.9%. The decrease in 2009 international net revenues was primarily due to net revenue decreases in the following countries; Australia $1.7 million, Canada $1.1 million, Turkey $746,000, Japan $361,000, South Africa $292,000; and was partially offset by a net revenue increase in India of $553,000.

Domestic net revenues totaled $12.4 million in the six months ended June 30, 2009, compared to $16.4 million for the same period in 2008. Domestic net revenues decreased $4.0 million due to the reported bankruptcy and eventual liquidations of a major electronics retailer and by a reduction of some non-recurring project work, partially offset by increased project revenue from new client business.

Approximately 8.8% of the Company's net revenues for the six months ended June 30, 2008, resulted from merchandising services performed for manufacturers and other clients at Circuit City Stores, Inc. ("Circuit City"). Circuit City filed for protection under the U.S. Bankruptcy Code in November 2008 and in early 2009, closed its stores and liquidated its assets. The receivables related to Circuit City have been appropriately reserved in the allowance for doubtful accounts.

Cost of Revenues

Cost of revenues consists of in-store labor and field management wages, related benefits, travel and other direct labor-related expenses. Cost of revenues was 71.1% of net revenues for the six months ended June 30, 2009 and 72.1% for the six months ended June 30, 2008.

Internationally, the cost of revenues increased to 76.7% of net revenues for the six months ended June 30, 2009, compared to 74.2% of net revenues for the six months ended June 30, 2008. The international cost of revenues

percentage increase of 2.5% was primarily attributed to a mix of higher cost margin business in Canada and South Africa.

Domestic cost of revenues was 63.9% of net revenues for the six months ended June 30, 2009, and 69.4% of net revenues for the six months ended June 30, 2008. The decrease in cost of revenues as a percentage of net revenues of 5.5% was due to a favorable mix of business.

Approximately 86.5% and 87.0% of the Company's domestic cost of revenues in the six months ended June 30, 2009 and 2008, resulted from in-store merchandiser specialist and field management services purchased from certain of the Company's affiliates, SPAR Marketing Services, Inc. ("SMS"), and SPAR Management Services, Inc. ("SMSI"), respectively (see Note 6 - Related-Party Transactions).

Selling, General and Administrative Expenses

Selling, general and administrative expenses include corporate overhead, project management, information technology, executive compensation, human resources, and legal and accounting expenses. As a result of continuing efforts to reduce such expenses, selling, general and administrative expenses decreased by $1.3 million, or 14.3%, for the six months ended June 30, 2009, to $7.9 million compared to $9.2 million for the same period in 2008.

International selling, general and administrative expenses totaled $4.0 million for the six months ended June 30, 2009, compared to $4.7 million for the same period in 2008. The $700,000 decrease in international selling, general and administrative expenses was primarily due to expense reductions to offset lost project revenue in Australia of $334,000, Canada $272,000 and corporate international development spending of $123,000.

Domestic selling, general and administrative expenses totaled $3.9 million for the six months ended June 30, 2009, compared to $4.5 million for the same period in 2008. The decrease in domestic selling, general and administrative expenses of $608,000 was primarily due to a reduction in salary related expenses $417,000 and reduced legal expenses $191,000.

Depreciation and Amortization

Depreciation and amortization charges for the six months ended June 30, 2009, totaled $529,000 and were comparable to $429,000 for the same period in 2008. The increase was primarily driven by increased capitalization of internally developed software.

Interest Expense

Interest expense decreased 34.7% to $106,000 from $162,000 for the six months ended June 30, 2009 and 2008, respectively. The decrease was primarily due to decreases in borrowings in the domestic division as well as decreases in interest rates in both the domestic and international divisions.

Other (Income) Expense

Other income totaled $442,000 compared with other expense of $564,000 for the six months ended June 30, 2009 and 2008, respectively. Included in other income for the six months ended June 30, 2009, was approximately $265,000 resulting from a favorable judgment in a legal action and $285,000 for a credit from prior legal expenses. Included in other expense for the six months ended June 30, 2009, was approximately $458,000 for non-recurring legal cost.

Income Taxes

Income tax provision for the six months ended June 30, 2009, was $222,000 resulting primarily from tax provisions related to international profits. Domestic income taxes for the six months ended June 30, 2009, were approximately $30,000 for domestic state taxes. There were no tax provisions for federal tax as the Company provides a valuation allowance against any deferred benefits arising from operating loss carry forwards. Income tax

benefit for the six months ended June 30, 2008 was approximately $21,000 resulting from a FIN 48 adjustment from international operations.

Non-controlling Interest

Non-controlling interest income of approximately $(46,000) and expense of approximately $106,000 resulted from the net operating losses and profits of the Company's 51% and 50% owned subsidiaries for the six months ended June 30, 2009 and 2008, respectively.

Net Income (Loss)

The Company reported a net income of $41,000 for the six months ended June 30, 2009, or $0.00 per share, compared to a net loss of $247,000, or ($0.01) per share, for the corresponding period last year.

Liquidity and Capital Resources

In the six months ended June 30, 2009, the Company had net income of $41,000.

Net cash provided by operating activities was $1.8 million and $2.3 million for the six months ended June 30, 2009 and 2008, respectively.

Net cash used in investing activities for the six months ended June 30, 2009, and June 30, 2008, was approximately $367,000 and $225,000, respectively. The increase in net cash used in investing activities was a result of increased investment in software development costs.

Net cash used in financing activities for the six months ended June 30, 2009 and 2008, was approximately $1.8 million and $1.0 million, respectively. The increase in net cash used in financing activities was primarily a result of additional payments on lines of credit.

The above activity resulted in a decrease in cash and cash equivalents for the six months ended June 30, 2009, of $219,000.

At June 30, 2009, the Company had negative working capital of $435,000, as compared to a negative $635,000 at December 31, 2008. The Company's current ratio was 0.97 at June 30, 2009, and 0.96 at December 31, 2008.

In January 2003, the Company (other than SGRP's foreign subsidiaries) and Webster Business Credit Corporation, then known as Whitehall Business Credit Corporation ("Webster"), entered into the Third Amended and Restated Revolving Credit and Security Agreement (as amended, collectively, the "Credit Facility"). The Credit Facility provides for a $7.0 million revolving line of credit. In March 2007, the credit facility was amended to, among other things, delay the Minimum Fixed Coverage ratio until the fourth quarter 2007, establish an EBITDA covenant and increase the interest rate by 0.25% beginning March 28, 2007. In May 2007, the credit facility was amended to provide for an availability reserve of $500,000. In August 2007, the credit facility was further amended to reduce the availability reserve to $250,000 until November 30, 2007. On November 16, 2007, Webster amended the credit facility to extend the availability reserve of $250,000 indefinitely and to reduce the revolving line of credit from $7.0 to $5.0 million. In February 2008, the Credit Facility was amended to establish monthly EBITDA covenants until September 30, 2008, and to set a Fixed Charge . . .