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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            _________________________

                                    FORM 10-K

                       FOR ANNUAL AND TRANSITIONAL REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)
X       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 for the fiscal year ended December 31, 2004
                                                               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 or other jurisdiction of                              (I.R.S. Employer 
 incorporation or organization)                             Identification No.)

 580 White Plains Road, Tarrytown, New York                        10591
  (Address of principal executive offices)                       (Zip Code)

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

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to section 12(g) of the Act:
                     Common Stock, par value $.01 per share

     Indicate  by check mark  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  twelve  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  [X]      NO     [_]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K .  [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Exchange Rule 12b-2 of the Act.)   YES  [ ]      NO     [X]

     The aggregate  market value of the Common Stock of the  Registrant  held by
non-affiliates of the Registrant on June 30, 2004, based on the closing price of
the Common  Stock as reported by the Nasdaq  Small Cap Market on such date,  was
approximately $4,799,006.

     The number of shares of the  Registrant's  Common Stock  outstanding  as of
December 31, 2004, was 18,858,972 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.



<PAGE>



                                SPAR GROUP, INC.


                           ANNUAL REPORT ON FORM 10-K


                                      INDEX


                                     PART I
                                                                            Page

 Item 1.   Business                                                            2

 Item 2.   Properties                                                         14

 Item 3.   Legal Proceedings                                                  15

 Item 4.   Submission of Matters to a Vote of Security Holders                15


                                        PART II


 Item 5.   Market for Registrant's Common Equity and Related 
           Shareholder Matters                                                16

 Item 6.   Selected Financial Data                                            16

 Item 7.   Management's  Discussion and Analysis of Financial Condition
           and Results of Operations                                          19

 Item 7A.  Quantitative and Qualitative Disclosures about Market Risk         26

 Item 8.   Financial Statements and Supplementary Data                        26

 Item 9.   Changes  in  and  Disagreements   with  Accountants  on  
           Accounting  and Financial Disclosure                               26

 Item 9A.  Controls and Procedures                                            26

 Item 9B.  Other Information                                                  27

                                       PART III


 Item 10.  Directors and Executive Officers of the Registrant                 28

 Item 11.  Executive Compensation and Other Information of SPAR Group, Inc.   31

 Item 12.  Security Ownership of Certain Beneficial Owners and Management     35

 Item 13.  Certain Relationships and Related Transactions                     36

 Item 14.  Principal Accountant Fees and Services                             37


                                        Part IV


 Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K    38
           Signatures                                                         43







<PAGE>


                                     PART I

        Statements  contained in this Annual  Report on Form 10-K of SPAR Group,
Inc.  ("SGRP",  and  together  with its  subsidiaries,  the "SPAR  Group" or the
"Company"),  include "forward-looking  statements" within the meaning of Section
27A of the  Securities  Act and Section 21E of the Exchange Act,  including,  in
particular and without limitation,  the statements  contained in the discussions
under the  headings  "Business"  and  "Management's  Discussion  and Analysis of
Financial  Condition  and  Results of  Operations".  Forward-looking  statements
involve  known and unknown  risks,  uncertainties  and other  factors that could
cause the  Company's  actual  results,  performance  and  achievements,  whether
expressed  or implied  by such  forward-looking  statements,  to not occur or be
realized or to be less than expected. Such forward-looking  statements generally
are based upon the Company's  best estimates of future  results,  performance or
achievement,  current  conditions  and the most  recent  results of  operations.
Forward-looking  statements  may be  identified  by the  use of  forward-looking
terminology such as "may", "will", "expect",  "intend",  "believe",  "estimate",
"anticipate",  "continue"  or similar  terms,  variations  of those terms or the
negative of those terms. You should carefully consider such risks, uncertainties
and other  information,  disclosures  and discussions  which contain  cautionary
statements  identifying  important  factors that could cause  actual  results to
differ materially from those provided in the forward-looking statements.

        Although  the  Company   believes   that  its  plans,   intentions   and
expectations  reflected in or suggested by such  forward-looking  statements are
reasonable, it cannot assure that such plans, intentions or expectations will be
achieved  in whole or in part.  You should  carefully  review  the risk  factors
described  herein and any other cautionary  statements  contained in this Annual
Report on Form 10-K. All forward-looking  statements attributable to the Company
or persons acting on its behalf are expressly qualified by the risk factors (see

Item 1 - Certain Risk  Factors) and other  cautionary  statements in this Annual
Report on Form 10-K. The Company  undertakes no obligation to publicly update or
revise any forward-looking  statements,  whether as a result of new information,
future events or otherwise.



Item 1.  Business.

GENERAL

        The  SPAR  Group,  Inc.,  a  Delaware  corporation  ("SGRP"),   and  its
subsidiaries  (together  with SGRP,  the "SPAR  Group" or the  "Company"),  is a
supplier of  merchandising  and other marketing  services  throughout the United
States and  internationally.  In 2002, the Company sold its Incentive  Marketing
Division,  SPAR Performance Group, Inc. ("SPGI").  The Company's  operations are
divided into two divisions: the Domestic Merchandising Services Division and the
International   Merchandising  Services  Division.  The  Domestic  Merchandising
Services  Division  provides  merchandising  services,  in-store event staffing,
product sampling,  database  marketing,  technology  services,  teleservices and
marketing  research to  manufacturers  and retailers in the United  States.  The
various  services  are  primarily  performed in mass  merchandisers,  drug store
chains, convenience and grocery stores. The International Merchandising Services
Division  established in July 2000,  currently  provides  similar merchandising
services  through a wholly owned  subsidiary in Canada,  through 51% owned joint
venture  subsidiaries in India, South Africa and Turkey, and through a 50% owned
joint  venture in Japan.  The  Company  recently  established  a 50% owned joint
venture in China and a 51% owned joint venture subsidiary in Romania and expects
to offer merchandising services in these countries in 2005.

Continuing Operations

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 customers  are home  entertainment,
general  merchandise,  health and beauty care,  consumer goods and food products
companies in the United States.

        Merchandising   services   primarily  consist  of  regularly   scheduled
dedicated routed services and special projects provided at the store level for a
specific retailer or single or multiple manufacturers  primarily under single or
multi-year   contracts  or   agreements.   Services  also  include   stand-alone
large-scale   implementations.   These  services  may  include  sales  enhancing
activities such as ensuring that client products authorized for distribution are
in  stock  


                                      -2-

<PAGE>

and on the shelf, adding new products that are approved for distribution but not
presently on the shelf,  setting  category  shelves in accordance  with approved
store  schematics,  ensuring  that  shelf  tags are in place,  checking  for the
overall  salability of client products and setting new and promotional items and
placing and/or  removing point of purchase and other related media  advertising.
Specific in-store  services can be initiated by retailers or manufacturers,  and
include  new  store  openings,   new  product  launches,   special  seasonal  or
promotional  merchandising,  focused  product support and product  recalls.  The
Company also provides  in-store event  staffing  services,  database  marketing,
technology services, teleservices and marketing research services.

International Merchandising Services Division

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

May  2001,  the  Company  entered  Japan  through  a  50%  owned  joint  venture
headquartered in Osaka.

June 2003, the Company entered Canada by acquiring an existing  business through
its wholly-owned Canadian subsidiary, headquartered in Toronto.

July  2003,  the  Company  entered  Turkey  through  a 51% owned  joint  venture
subsidiary headquartered in Istanbul.

April 2004,  the Company  entered South Africa through a 51% owned joint venture
subsidiary headquartered in Durban.

April  2004,  the  Company  entered  India  through  a 51% owned  joint  venture
subsidiary headquartered in New Delhi.

December  2004,  the Company  established a 51% owned joint  venture  subsidiary
headquartered in Bucharest, Romania.

In February 2005, the Company  announced the  establishment of a 50% owned joint
venture headquartered in Hong Kong, China.

Discontinued Operations

Incentive Marketing Division

        As part of a strategic  realignment  in the fourth  quarter of 2001, the
Company made the decision to divest its Incentive Marketing Division,  operating
through its subsidiary,  SPAR  Performance  Group,  Inc.  ("SPGI").  The Company
explored various  alternatives  for the sale of SPGI and  subsequently  sold the
business to SPGI's  employees  through the  establishment  of an employee  stock
ownership  plan on June 30, 2002. In December of 2003,  SPGI changed its name to
STIMULYS, Inc.

Technology Division

        In  October  2002,  the  Company   dissolved  its  Technology   Division
established  in  March  2000  for  the  purpose  of  marketing  its  proprietary
Internet-based computer software.


INDUSTRY OVERVIEW

Domestic Merchandising Services Division

        According  to  industry  estimates  over two  billion  dollars are spent
annually on domestic retail merchandising  services.  The merchandising services
industry  includes  manufacturers,  retailers,  food brokers,  and  professional
service  merchandising  companies.  The Company  believes  there is a continuing
trend for major  manufacturers  to move  increasingly  toward  third  parties to
handle in-store merchandising.  The Company also believes that its merchandising
services  bring added value to retailers,  manufacturers  and other  businesses.
Retail merchandising services enhance sales by making a product more visible and
available to consumers.  These services primarily include placing orders,  shelf
maintenance,  display  placement,   reconfiguring  products  on  store  shelves,
replenishing  



                                      -3-

<PAGE>

products and providing  in-store event staffing  services.  The Company provides
other  marketing  services  such  as test  market  research,  mystery  shopping,
teleservices, database marketing and promotion planning and analysis.

        The Company believes  merchandising  services  previously  undertaken by
retailers and manufacturers have been increasingly  outsourced to third parties.
Historically,  retailers  staffed  their  stores as  needed to ensure  inventory
levels, the advantageous display of new items on shelves, and the maintenance of
shelf  schematics.  In an effort to improve their margins,  retailers  decreased
their own store  personnel  and increased  their  reliance on  manufacturers  to
perform such services.  Initially,  manufacturers  attempted to satisfy the need
for  merchandising  services  in  retail  stores  by  utilizing  their own sales
representatives.  However,  manufacturers  discovered that using their own sales
representatives  for this  purpose was  expensive  and  inefficient.  Therefore,
manufacturers have increasingly  outsourced the merchandising  services to third
parties  capable of operating at a lower cost by (among  other  things)  serving
multiple manufacturers simultaneously.

        Another  significant  trend impacting the  merchandising  segment is the
tendency of consumers to make product purchase  decisions once inside the store.
Accordingly,   merchandising  services  and  in-store  product  promotions  have
proliferated  and  diversified.  Retailers are continually  remerchandising  and
remodeling  entire stores to respond to new product  developments and changes in
consumer preferences. The Company estimates that these activities have increased
in frequency over the last five years, such that most stores are re-merchandised
or  remodeled   approximately  every  twenty-four  months.  Both  retailers  and
manufacturers  are seeking third parties to help them meet the increased  demand
for these labor-intensive services.

International Merchandising Services Division

        The Company believes another current trend in business is globalization.
As companies  expand into foreign markets they will need assistance in marketing
their  products.  As evidenced in the United States,  retailer and  manufacturer
sponsored merchandising programs are both expensive and inefficient. The Company
also  believes  that the  difficulties  encountered  by these  programs are only
exacerbated by the logistics of operating in foreign  markets.  This environment
has  created  an  opportunity  for the  Company to  exploit  its  Internet-based
technology and business model that are successful in the United States.  In July
2000, the Company established its International  Merchandising Services Division
to cultivate  foreign  markets,  modify the necessary  systems and implement the
Company's  business  model  worldwide by expanding  its  merchandising  services
business off shore. The Company formed an International  Merchandising  Services
Division  task  force  consisting  of  members  of  the  Company's   information
technology,  operations  and  finance  groups to evaluate  and  develop  foreign
markets.  In  2001,  the  Company  and  a  leading  Japanese  based  distributor
established  a joint  venture  to  provide  the  latest  in-store  merchandising
services to the Japanese market. In 2003, the Company expanded its international
presence  to  Canada  and  Turkey  by  acquiring  the  business  of  a  Canadian
merchandising  company and entering into a start-up joint venture  subsidiary in
Turkey. In 2004, the Company established 51% owned joint venture subsidiaries in
South  Africa,  India and Romania and in early 2005 a 50% owned joint venture in
China. Key to the Company's international strategy is the translation of several
of its  proprietary  Internet-based  logistical,  communications  and  reporting
software applications into the native language of any market the Company enters.
As a  result  of this  requirement  for  market  penetration,  the  Company  has
developed translation software that can quickly convert its proprietary software
into  various  languages.  Through  its  computer  facilities  in Auburn  Hills,
Michigan,  the Company provides worldwide access to its proprietary  logistical,
communications  and  reporting  software.  In  addition,  the Company  maintains
personnel in Greece and Australia to assist in its  international  efforts.  The
Company is actively pursuing expansion into various other markets.


PIA ACQUISITION

        SPAR Acquisition,  Inc., and its subsidiaries (the "SPAR Companies") are
the original  predecessor  of the current  Company and were founded in 1967.  On
July 8, 1999,  the Company  completed a reverse  merger with the SPAR  Companies
(the "PIA Acquisition"), and then changed its name to SPAR Group, Inc., from PIA
Merchandising  Services, Inc. (prior to such merger, "PIA"). Pursuant to the PIA
Acquisition,  the SPAR  Companies  were  deemed to have  "acquired"  PIA and its
subsidiaries  prior to the PIA  Acquisition  (the  "PIA  Companies")  which  was
treated as a purchase of the PIA Companies  for  accounting  purposes,  with the
books and  records of the  Company  being  adjusted  to reflect  the  historical
operating results of the SPAR Companies.




                                      -4-

<PAGE>



BUSINESS STRATEGY

        As the marketing  services industry  continues to grow,  consolidate and
expand  both in the  United  States and  internationally,  large  retailers  and
manufacturers are increasingly  outsourcing their marketing needs to third-party
providers.  The Company believes that offering  marketing services on a national
and global basis will provide it with a  competitive  advantage.  Moreover,  the
Company  believes  that  successful  use of  and  continuous  improvements  to a
sophisticated    technology    infrastructure,    including   its    proprietary
Internet-based  software,  is key to  providing  clients  with a high  level  of
customer service while maintaining efficient, low cost operations. The Company's
objective  is to become an  international  retail  merchandising  and  marketing
service  provider by pursuing its  operating and growth  strategy,  as described
below.

        Increased Sales Efforts:

        The Company is seeking to increase  revenues by increasing  sales to its
current customers,  as well as,  establishing  long-term  relationships with new
customers, many of which currently use other merchandising companies for various
reasons.  The Company believes its technology,  field  implementation  and other
competitive  advantages  will allow it to capture a larger  share of this market
over time.  However,  there can be no assurance that any increased sales will be
achieved.

        New Products:

        The  Company  is seeking  to  increase  revenues  through  the  internal
development  and  implementation  of new products and services that add value to
its customers' retail merchandising related activities,  some of which have been
identified and are currently being tested for feasibility and market acceptance.
However,  there  can be no  assurance  that any new  products  of value  will be
developed or that any such new product can be successfully marketed.

        Acquisitions:

        The  Company  is  seeking  to  acquire  businesses  or enter  into joint
ventures or other  arrangements with companies that offer similar  merchandising
services  both in the United  States and  worldwide.  The Company  believes that
increasing its industry expertise,  adding product segments,  and increasing its
geographic  breadth  will allow it to service its clients more  efficiently  and
cost effectively.  As part of its acquisition strategy,  the Company is actively
exploring  a  number  of  potential  acquisitions,  predominately  in  its  core
merchandising   service  businesses  (which  includes  in-store  event  staffing
services).  Through  such  acquisitions,  the  Company  may  realize  additional
operating and revenue  synergies and may leverage  existing  relationships  with
manufacturers,   retailers  and  other   businesses   to  create   cross-selling
opportunities.  However,  there can be no assurance that any of the acquisitions
will occur or whether, if completed,  the integration of the acquired businesses
will  be  successful  or  the   anticipated   efficiencies   and   cross-selling
opportunities will occur.

        In December of 2003,  the Company  entered into an agreement to purchase
the business and certain  assets of Bert Fife &  Associates,  Inc.,  and related
Companies   ("Fife"),   which   specialized   in  providing   in-store   product
demonstrations.  As part of the  agreement  the Company  entered into a one year
consulting  agreement  with the President of Fife. The purchase was completed in
January 2004. In April 2004, the Company  established a joint venture subsidiary
in South Africa.  The joint venture subsidiary is headquartered in Durban and is
owned  51% by the  Company.  Also in  April  2004,  the  Company  announced  the
establishment  of a joint  venture  subsidiary  in India and started  operations
during the third quarter.  The joint venture  subsidiary is headquartered in New
Delhi and is 51% owned by the Company.  In January 2005,  the Company  announced
the  establishment of a joint venture  subsidiary in Romania and is owned 51% by
the Company.  In February 2005,  the Company  announced the  establishment  of a
joint venture in China which is 50% owned by the Company.

        Improve Operating Efficiencies:

        The Company will continue to seek greater  operating  efficiencies.  The
Company believes that its existing field force and technology infrastructure can
support additional customers and revenue in the Domestic  Merchandising Services
Division.  At the  corporate  level,  the Company  will  continue to  streamline
certain  administrative  functions,  such as accounting and finance,  insurance,
strategic marketing and legal support.



                                      -5-

<PAGE>

        Leverage and Improve Technology:

        The Company intends to continue to utilize computer (including hand-held
computers), Internet, and other technology to enhance its efficiency and ability
to provide  real-time data to its customers,  as well as,  maximize the speed of
communication,  and  logistical  deployment  of its  merchandising  specialists.
Industry sources  indicate that customers are increasingly  relying on marketing
service providers to supply rapid, value-added information regarding the results
of marketing  expenditures  on sales and  profits.  The Company  (together  with
certain of its  affiliates)  has developed and owns  proprietary  Internet-based
software  technology that allows it to utilize the Internet to communicate  with
its  field  management,   schedule  its  store-specific  field  operations  more
efficiently, receive information and incorporate the data immediately,  quantify
the benefits of its services to customers  faster,  respond to customers'  needs
quickly and implement  programs rapidly.  The Company has successfully  modified
and is currently  utilizing  certain of its software  applications in connection
with its  international  ventures.  The Company believes that it can continue to
improve,  modify and adapt its  technology  to support  merchandising  and other
marketing  services for  additional  customers and projects in the United States
and in other foreign  markets.  The Company also  believes that its  proprietary
Internet-based  software  technology  gives it a  competitive  advantage  in the
marketplace.


DESCRIPTION OF SERVICES

        The Company currently  provides a broad array of merchandising and other
marketing  services on a  national,  regional  and local  basis to leading  home
entertainment,  general merchandise, consumer goods, food, and health and beauty
care  manufacturers  and retail  companies  through its  Domestic  Merchandising
Services Division.

        The  Company  currently  operates  internationally  serving  some of the
world's  leading  companies.  The Company  believes its  full-line  capabilities
provide  fully  integrated  solutions  that  distinguish  the  Company  from its
competitors.  These  capabilities  include the  ability to develop  plans at one
centralized  division  headquarter   location,   effect  chain  wide  execution,
implement  rapid,  coordinated  responses to its clients'  needs and report on a
real time Internet  enhanced basis. The Company also believes its  international
presence,  industry-leading  technology,  centralized  decision-making  ability,
local  follow-through,  ability to recruit,  train and supervise  merchandisers,
ability to perform large-scale  initiatives on short notice, and strong retailer
relationships  provide  the Company  with a  significant  advantage  over local,
regional or other competitors.

Domestic Merchandising Services Division

        The  Company  provides  a broad  array of  merchandising  services  on a
national, regional, and local basis to manufacturers and retailers in the United
States.  The Company  provides its  merchandising  and other marketing  services
primarily on behalf of consumer product manufacturers at mass merchandiser, drug
and retail grocery chains.  The Company currently provides three principal types
of merchandising and marketing services: syndicated services, dedicated services
and project services.

        Syndicated Services

        Syndicated services consist of regularly scheduled, routed merchandising
services  provided at the retail  store level for various  manufacturers.  These
services are performed  for multiple  manufacturers,  including,  in some cases,
manufacturers  whose  products  are in the  same  product  category.  Syndicated
services may include activities such as:

          o    Reordering and replenishment of products
          o    Ensuring that the clients'  products  authorized for distribution
               are in stock and on the shelf
          o    Adding new products  that are approved for  distribution  but not
               yet  present  on the shelf 
          o    Designing and implementing store planogram schematics
          o    Setting  product  category  shelves in  accordance  with approved
               store schematics
          o    Ensuring that product shelf tags are in place
          o    Checking for overall salability of the clients' products
          o    Placing new product and promotional items in prominent positions

        Dedicated Services

        Dedicated  services  consist of  merchandising  services,  generally  as
described above,  which are performed for a specific retailer or manufacturer by
a dedicated  organization,  including a management team working  exclusively 



                                      -6-

<PAGE>

for that  retailer or  manufacturer.  These  services  include many of the above
activities detailed in syndicated services, as well as, new store set-ups, store
remodels  and fixture  installations.  These  services  are  primarily  based on
agreed-upon rates and fixed management fees.

        Project Services

        Project  services  consist   primarily  of  specific  in-store  services
initiated  by  retailers  and  manufacturers,  such as new store  openings,  new
product launches, special seasonal or promotional merchandising, focused product
support,  product recalls,  in-store product demonstrations and in-store product
sampling.  The Company also performs other project  services,  such as new store
sets  and  existing  store  resets,  re-merchandising,   remodels  and  category
implementations, under annual or stand-alone project contracts or agreements.

        Other Marketing Services

        Other marketing services performed by the Company include:

         Event Staffing Services - Performing in-store product demonstrations or
         product sampling.

         Test Market Research - Testing promotion alternatives, new products and
         advertising  campaigns,  as well as  packaging,  pricing,  and location
         changes, at the store level.

         Mystery Shopping - Calling  anonymously on retail outlets (e.g. stores,
         restaurants,  banks) to check on distribution or display of a brand and
         to evaluate products, service of personnel, conditions of store, etc.

         Database  Marketing - Managing  proprietary  information to permit easy
         access,   analysis  and   manipulation  for  use  in  direct  marketing
         campaigns.

         Data Collection - Gathering sales and other information  systematically
         for analysis and interpretation.

         Teleservices - Maintaining a  teleservices  center in its Auburn Hills,
         Michigan,  facility  that performs  inbound and outbound  telemarketing
         services,  including  those  on  behalf  of  certain  of the  Company's
         manufacturing clients.

        The Company  believes that providing  merchandising  and other marketing
services timely,  accurately and efficiently,  as well as, delivering timely and
accurate reports to its clients, are two key components that will be critical to
its  success.  The Company has  developed  Internet-based  logistic  deployment,
communications,  and  reporting  systems  that improve the  productivity  of its
merchandising  specialists and provide timely data and reports to its customers.
The  Company's  merchandising  specialists  use  hand-held  computers,  personal
computers  and laptop  computers to report the status of each store they service
upon completion  either through the Internet or using Interactive Voice Response
("IVR")  through  its  Auburn  Hills  telecommunication  center.   Merchandising
specialists  report on a variety of issues such as store conditions (e.g. out of
stocks,  inventory,  display  placement) or they may scan and process new orders
for products. This information is reported,  analyzed and displayed in a variety
of reports  that can be accessed by both the Company and its  customers  via the
Internet.  These reports can depict the status of every merchandising project in
real time.

        Through the Company's automated labor tracking system, its merchandising
specialists  communicate work assignment completion information via the Internet
or  telephone,  enabling  the  Company  to  report  hours,  mileage,  and  other
completion  information  for each work assignment on a daily basis and providing
the Company with daily,  detailed  tracking of work completion.  This technology
allows the Company to schedule its  merchandising  specialists more efficiently,
quickly  quantify the benefits of its services to customers,  rapidly respond to
customers' needs and rapidly implement  programs.  The Company believes that its
technological  capabilities  provide  it  with a  competitive  advantage  in the
marketplace.




                                      -7-

<PAGE>


International Merchandising Services Division

        The Company believes another current trend in business is globalization.
As companies  expand into foreign markets they will need assistance in marketing
their  products.  As evidenced in the United States,  retailer and  manufacturer
sponsored merchandising programs are both expensive and inefficient. The Company
also  believes  that the  difficulties  encountered  by these  programs are only
exacerbated by the logistics of operating in foreign  markets.  This environment
has  created  an  opportunity  for the  Company to  exploit  its  Internet-based
technology and business model that are successful in the United States.

        In July 2000, the Company  established its  International  Merchandising
Services Division to cultivate foreign markets, modify the necessary systems and
implement the Company's  business model worldwide by expanding its merchandising
services  business off shore. The Company formed an International  Merchandising
Services Division task force consisting of members of the Company's  information
technology,  operations  and  finance  groups to evaluate  and  develop  foreign
markets.  In  2001,  the  Company  and  a  leading  Japanese  based  distributor
established  a joint  venture  to  provide  the  latest  in-store  merchandising
services to the Japanese market. In 2003, the Company expanded its international
presence to Canada by acquiring a Canadian  merchandising  company and Turkey by
entering into a start-up joint venture.  In 2004,  the Company  established  51%
owned joint venture subsidiaries in South Africa, India and Romania and in early
2005, a 50% owned joint venture in China.

        Key to the  Company's  international  strategy  is  the  translation  of
several  of  its  proprietary  Internet-based  logistical,   communications  and
reporting  software  applications  into the  native  language  of any market the
Company  enters.  As a result of this  requirement for market  penetration,  the
Company  has  developed  translation  software  that  can  quickly  convert  its
proprietary software into various languages.  Through its computer facilities in
Auburn Hills, Michigan, the Company provides worldwide access to its proprietary
logistical,  communications  and reporting  software.  In addition,  the Company
maintains  personnel  in Greece  and  Australia  to assist in its  international
efforts. The Company is actively pursuing expansion into various other markets.


SALES AND MARKETING

Domestic Merchandising Services Division

        The Company's sales efforts within its Domestic  Merchandising  Services
Division are structured to develop new business in national,  regional and local
markets.  The Company's corporate business  development team directs its efforts
toward the senior management of prospective clients.  Sales strategies developed
at the Company's  headquarters are communicated to the Company's sales force for
execution. The sales force, located nationwide,  work from both Company and home
offices.  In  addition,  the  Company's  corporate  account  executives  play an
important  role in the Company's  new business  development  efforts  within its
existing manufacturer and retailer client base.

        As part of the retailer  consolidation,  retailers are centralizing most
administrative  functions,   including  operations,   procurement  and  category
management.  In response to this  centralization  and the growing  importance of
large retailers, many manufacturers have reorganized their selling organizations
around a retailer  team  concept  that  focuses on a  particular  retailer.  The
Company has responded to this emerging trend and currently has retailer teams in
place at select retailers.

        The  Company's  business  development  process  includes a due diligence
period to determine the objectives of the prospective  client, the work required
to satisfy those  objectives  and the market value of such work to be performed.
The  Company  employs  a formal  cost  development  and  proposal  process  that
determines the cost of each element of work required to achieve the  prospective
client's objectives. These costs, together with an analysis of market rates, are
used in the  development of a formal  quotation that is then reviewed at various
levels within the organization.  The pricing of this internal proposal must meet
the Company's objectives for profitability, which are established as part of the
business planning process. After approval of this quotation, a detailed proposal
is presented to and approved by the prospective client.



                                      -8-

<PAGE>



International Merchandising Services Division

        The Company's  marketing efforts within its International  Merchandising
Services  Division are three fold.  First, the Company  endeavors to develop new
markets through  acquisitions.  The Company's  international  acquisition  team,
whose  primary  focus is to seek out and  develop  acquisitions  throughout  the
world, consists of personnel located in the United States, Greece and Australia.
Personnel from information  technology,  field  operations,  client services and
finance support the international  acquisition team.  Second, the Company offers
global  merchandising  solutions to customers that have worldwide  distribution.
This  effort is  spearheaded  out of the  Company's  headquarters  in the United
States.  Third the Company develops local markets through various joint ventures
or subsidiaries throughout the world.


CUSTOMERS

Domestic Merchandising Services Division

        In its Domestic  Merchandising  Services Division, the Company currently
represents  numerous  manufacturers  and /or  retail  clients in a wide range of
retail outlets in the United States including:

           o    Mass Merchandisers
           o    Drug
           o    Grocery
           o    Other retail trade groups (e.g. Discount, Home Centers)
       
        The  Company  also  provides  database,  research  and  other  marketing
services to the consumer packaged goods industry.

        One customer accounted for 14%, 8%, and 6% of the Company's net revenues
for the years ended  December  31,  2004,  2003,  and 2002,  respectively.  This
customer  also  accounted  for  approximately  29%,  13%,  and  4%  of  accounts
receivable at December 31, 2004, 2003, and 2002, respectively.

        In  addition,  approximately  16%,  17%, and 24% of net revenues for the
years ended  December 31, 2004,  2003,  and 2002,  respectively,  resulted  from
merchandising services performed for manufacturers and others in stores operated
by Kmart.  These  customers  also  accounted for  approximately  22% of accounts
receivable at December 31, 2004. While the Company's customers and the resultant
contractual  relationships  are with  various  manufacturers  and not  Kmart,  a
significant  reduction of this retailer's stores or cessation of this retailer's
business would negatively impact the Company.

        Another  customer,  a division of a major  retailer,  accounted for 26%,
30%, and 26% of the  Company's  net  revenues  for the years ended  December 31,
2004,   2003,  and  2002,   respectively.   This  customer  also  accounted  for
approximately  4%, 30%,  and 43% of accounts  receivable  at December  31, 2004,
2003, and 2002,  respectively.  On August 2, 2004, this customer was sold by its
parent.

International Merchandising Services Division

        The Company believes that the potential international customers for this
division have similar profiles to its Domestic  Merchandising  Services Division
customers.  The Company is currently operating in Japan,  Canada,  Turkey, South
Africa and India. The Company  announced the  establishment of a 51% owned joint
venture  subsidiary  in  Romania in late 2004 and a 50% owned  joint  venture in
China in early 2005. The Company is actively pursuing  expansion into Europe and
other markets.




                                      -9-

<PAGE>


COMPETITION

        The marketing  services  industry is highly  competitive.  The Company's
competition in the Domestic and International  Merchandising  Services Divisions
arises  from a  number  of large  enterprises,  many of which  are  national  or
international  in  scope.  The  Company  also  competes  with a large  number of
relatively  small  enterprises  with  specific  client,  channel  or  geographic
coverage, as well as with the internal marketing and merchandising operations of
its clients and  prospective  clients.  The Company  believes that the principal
competitive  factors within its industry  include  development and deployment of
technology,  breadth and quality of client  services,  cost,  and the ability to
execute  specific  client  priorities  rapidly  and  consistently  over  a  wide
geographic  area.  The Company  believes  that its current  structure  favorably
addresses these factors and establishes it as a leader in the mass  merchandiser
and chain drug store  channels of trade.  The Company  also  believes it has the
ability to execute major national and  international  in-store  initiatives  and
develop and administer  national and international  retailer programs.  Finally,
the Company  believes that,  through the use and  continuing  improvement of its
proprietary Internet software, other technological efficiencies and various cost
controls, the Company will remain competitive in its pricing and services.


TRADEMARKS

        The Company has  numerous  registered  trademarks.  Although the Company
believes its  trademarks may have value,  the Company  believes its services are
sold primarily based on breadth and quality of service, cost, and the ability to
execute  specific  client  priorities  rapidly  and  consistently  over  a  wide
geographic area. See "Industry Overview" and "Competition".


EMPLOYEES

        Worldwide  the  Company  utilizes a labor force of  approximately  7,700
people.

        As of December 31, 2004, the Company's Domestic  Merchandising  Services
Division's  labor force consisted of approximately  6,500 people.  Approximately
150 were full-time  employees and 15 were part-time employees of the Company. Of
the 150 full-time Company  employees,  143 were engaged in operations and 7 were
engaged  in  sales.  The  Company's  Domestic  Merchandising  Services  Division
utilizes the services of its affiliate, SPAR Management Services, Inc. ("SMSI"),
to schedule and supervise  its field force,  which  consists of the  independent
contractors furnished by another affiliate SPAR Marketing Services, Inc. ("SMS")
(see Item 13 - Certain Relationships and Related Transactions, below) as well as
the Company's field employees.  Approximately 6,300 independent  contractors and
approximately 50 full-time field managers are furnished  principally through SMS
and SMSI, respectively.

        As of December  31,  2004,  the  Company's  International  Merchandising
Services  Division's  labor  force  consisted  of  approximately  1,200  people.
Approximately  50  full-time  employees  were engaged in  operations  and 3 were
engaged  in  sales.  The  International  Division's  field  force  consisted  of
approximately 700 full time employees,  70 part time employees and approximately
380 independent contractors.

        The Company  currently  utilizes  certain of its Domestic  Merchandising
Services Division's employees,  as well as, the services of certain employees of
its  affiliates,   SMSI  and  SPAR  Infotech,   Inc.  ("SIT"),  to  support  the
International Merchandising Services Division. However, dedicated employees will
be added to that division as the need arises. The Company's affiliate, SIT, also
provides  programming and other  assistance to the Company's  various  divisions
(see Item 13 - Certain Relationships and Related Transactions, below).

        The Company,  SMS,  SMSI and SIT  consider  their  relations  with their
respective employees and independent contractors to be good.

CERTAIN RISK FACTORS

        There  are  various  risks  associated  with the  Company's  growth  and
operating strategy. Certain (but not all) of these risks are discussed below.



                                      -10-

<PAGE>

Dependency on Largest Customers

        As discussed above in Customers,  the Company does a significant  amount
of business with one customer and performs a  significant  amount of services in
Kmart.  The loss of this customer or the loss of Kmart related  business and the
failure  to  attract  new large  customers,  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.

Dependence on Trend Toward Outsourcing

        The  business  and  growth of the  Company  depends in large part on the
continued  trend toward  outsourcing  of marketing  services,  which the Company
believes has resulted from the consolidation of retailers and manufacturers,  as
well as, the desire to seek  outsourcing  specialists and reduce fixed operation
expenses.  There  can be no  assurance  that  this  trend  in  outsourcing  will
continue,  as  companies  may  elect to  perform  such  services  internally.  A
significant  change in the direction of this trend generally,  or a trend in the
retail, manufacturing or business services industry not to use, or to reduce the
use of,  outsourced  marketing  services such as those  provided by the Company,
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 or the desired  increases in the Company's
business, revenues and profits.

Failure to Successfully Compete

        The marketing  services  industry is highly  competitive and the Company
has competitors that are larger (or part of larger holding companies) and may be
better financed.  In addition,  the Company competes with: (i) a large number of
relatively  small  enterprises  with  specific  customer,  channel or geographic
coverage;  (ii) the  internal  marketing  and  merchandising  operations  of its
customers and prospective customers; (iii) independent brokers; and (iv) smaller
regional providers.  Remaining  competitive in the highly competitive  marketing
services industry requires that the Company monitor and respond to trends in all
industry  sectors.  There can be no  assurance  that the Company will be able to
anticipate and respond  successfully  to such trends in a timely manner.  If the
Company is unable to  successfully  compete,  it could  have a material  adverse
effect on the Company's business,  results of operations and financial condition
or the desired increases in the Company's business, revenues and profits.

        If  certain  competitors  were  to  combine  into  integrated  marketing
services companies, or additional marketing service companies were to enter into
this  market,  or existing  participants  in this  industry  were to become more
competitive,  it could have a material adverse effect on the Company's business,
results of operations  and financial  condition or the desired  increases in the
Company's business, revenues and profits.

Variability of Operating Results and Uncertainty in Customer Revenue

        The  Company  has  experienced  and,  in  the  future,   may  experience
fluctuations  in  quarterly  operating  results.  Factors  that  may  cause  the
Company's  quarterly  operating  results  to vary and from  time to time and may
result in reduced revenue include:  (i) the number of active customer  projects;
(ii)  seasonality  of customer  products;  (iii)  customer  delays,  changes and
cancellations in projects;  (iv) the timing  requirements of customer  projects;
(v)  the  completion  of  major  customer  projects;  (vi)  the  timing  of  new
engagements;  (vii) the timing of personnel cost increases;  and (viii) the loss
of major  customers.  In  particular,  the timing of  revenues is  difficult  to
forecast for the home entertainment  industry because timing is dependent on the
commercial  success  of  particular  product  releases.  In  the  event  that  a
particular  release is not widely accepted by the public,  the Company's revenue
could be significantly  reduced. In addition,  the Company is subject to revenue
uncertainties  resulting from factors such as unprofitable customer work and the
failure of  customers to pay.  The Company  attempts to mitigate  these risks by
dealing primarily with large credit-worthy  customers,  by entering into written
or oral  agreements with its customers and by using project  budgeting  systems.
These revenue  fluctuations  could materially and adversely affect the Company's
business, results of operations and financial condition or the desired increases
in the Company's business, revenues and profits.

Failure to Develop New Products

        A key element of the Company's  growth  strategy is the  development and
sale of new products.  While several new products are under current development,
there can be no assurance that the Company will be able to successfully  develop
and market new  products.  The  Company's  inability or failure to devise useful
merchandising   or  marketing   

                                      -11-

<PAGE>

products  or to complete  the  development  or  implementation  of a  particular
product for use on a large  scale,  or the  failure of such  products to achieve
market  acceptance,  could adversely  affect the Company's  ability to achieve a
significant  part of its growth  strategy  and the absence of such growth  could
have a material adverse effect on the Company's business,  results of operations
and  financial  condition or the desired  increases in the  Company's  business,
revenues and profits.

Inability to Identify, Acquire and Successfully Integrate Acquisitions

        Another  key  component  of  the  Company's   growth   strategy  is  the
acquisition  of businesses  across the United  States and  worldwide  that offer
similar  merchandising or marketing services.  The successful  implementation of
this  strategy  depends  upon  the  Company's   ability  to  identify   suitable
acquisition candidates, acquire such businesses on acceptable terms, finance the
acquisition  and  integrate  their  operations  successfully  with  those of the
Company. There can be no assurance that such candidates will be available or, if
such  candidates  are  available,  that the price will be attractive or that the
Company will be able to identify,  acquire, finance or integrate such businesses
successfully.  In addition,  in pursuing  such  acquisition  opportunities,  the
Company may compete with other  entities with similar growth  strategies,  these
competitors  may be larger and have greater  financial and other  resources than
the Company.  Competition  for these  acquisition  targets  could also result in
increased  prices of acquisition  targets and/or a diminished  pool of companies
available for acquisition.

        The  successful  integration  of these  acquisitions  also may involve a
number of additional risks, including: (i) the inability to retain the customers
of the acquired business;  (ii) the lingering effects of poor customer relations
or  service  performance  by the  acquired  business,  which  also may taint the
Company's  existing  businesses;  (iii) the  inability  to retain the  desirable
management, key personnel and other employees of the acquired business; (iv) the
inability to fully realize the desired  efficiencies and economies of scale: (v)
the  inability  to  establish,   implement  or  police  the  Company's  existing
standards,  controls,  procedures  and policies on the acquired  business;  (vi)
diversion of management attention; and (vii) exposure to customer,  employee and
other legal claims for activities of the acquired business prior to acquisition.
In addition,  any  acquired  business  could  perform  significantly  worse than
expected.

        The inability to identify,  acquire,  finance and successfully integrate
such  merchandising or marketing services business could have a material adverse
effect on the Company's growth strategy and could limit the Company's ability to
significantly increase its revenues and profits.

Uncertainty of Financing for, and Dilution Resulting from, Future Acquisitions

        The timing,  size and success of acquisition  efforts and any associated
capital  commitments  cannot be readily  predicted.  Future  acquisitions may be
financed by issuing shares of the Company's Common Stock, cash, or a combination
of Common  Stock and cash.  If the  Company's  Common  Stock does not maintain a
sufficient  market value, or if potential  acquisition  candidates are otherwise
unwilling to accept the Company's Common Stock as part of the  consideration for
the sale of their  businesses,  the Company may be required to obtain additional
capital through debt or equity  financings.  To the extent the Company's  Common
Stock is used for all or a portion  of the  consideration  to be paid for future
acquisitions, dilution may be experienced by existing stockholders. There can be
no assurance that the Company will be able to obtain the additional financing it
may need for its  acquisitions  on terms  that  the  Company  deems  acceptable.
Failure to obtain such capital would  materially  adversely affect the Company's
ability to execute its growth strategy.

Reliance on the Internet

        The Company relies on the Internet for the scheduling,  coordination and
reporting  of  its  merchandising  and  marketing  services.  The  Internet  has
experienced,  and is expected to continue to experience,  significant  growth in
the  numbers  of users and amount of  traffic  as well as  increased  attacks by
hackers  and other  saboteurs.  To the extent  that the  Internet  continues  to
experience  increased numbers of users,  frequency of use or increased bandwidth
requirements   of  users,   there  can  be  no   assurance   that  the  Internet
infrastructure  will  continue to be able to support  the demands  placed on the
Internet by this continued  growth or that the performance or reliability of the
Internet  will  not  be  adversely  affected.   Furthermore,  the  Internet  has
experienced a variety of outages and other delays as a result of accidental  and
intentional  damage to  portions  of its  infrastructure,  and  could  face such
outages and delays in the future of similar or greater  effect.  Any  protracted
disruption in Internet  service would increase the Company's  costs of operation
and reduce  efficiency  and  performance,  which  could have a material  adverse
effect on the Company's business,  results of operations and financial condition
or the desired increases in the Company's business, revenues and profits.




                                      -12-

<PAGE>


Economic and Retail Uncertainty

        The markets in which the Company  operates  are  cyclical and subject to
the effects of economic  downturns.  The current political,  social and economic
conditions, including the impact of terrorism on consumer and business behavior,
make it difficult  for the Company,  its vendors and its customers to accurately
forecast and plan future business activities. Substantially all of the Company's
key customers are either retailers or those seeking to do product  merchandising
at  retailers.  If  the  retail  industry  experiences  a  significant  economic
downturn,  a  reduction  in  product  sales  could  significantly  decrease  the
Company's  revenues.  The Company also has risks  associated  with its customers
changing  their  business  plans  and/or  reducing  their  marketing  budgets in
response to economic  conditions,  which could also  significantly  decrease the
Company's revenues.  Such revenue decreases could have a material adverse effect
on the Company's business,  results of operations and financial condition or the
desired increases in the Company's business, revenues and profits.

Significant Stockholders: Voting Control and Market Illiquidity

        Mr. Robert G. Brown, founder,  director,  Chairman,  President and Chief
Executive Officer of the Company,  beneficially owns approximately  45.5% of the
Company's  outstanding  Common  Stock,  and Mr.  William  H.  Bartels,  founder,
director, and Vice Chairman of the Company beneficially owns approximately 29.4%
of the Company's  outstanding Common Stock. These stockholders have, should they
choose to act together,  and under certain  circumstances Mr. Brown acting alone
has,  the  ability  to  control  all  matters  requiring  stockholder  approval,
including  the  election  of  directors  and the  approval  of mergers and other
business combination transactions.

        In addition,  although the Company  Common Stock is quoted on the Nasdaq
Small Cap  Market,  the  trading  volume in such  stock  may be  limited  and an
investment in the Company's  securities may be illiquid because the founders own
a significant amount of the Company's stock.

Dependence Upon and Potential Conflicts in Services Provided by Affiliates

        The success of the  Company's  domestic  business is dependent  upon the
successful  execution of its field  services by SPAR  Marketing  Services,  Inc.
("SMS"), and SPAR Management Services, Inc. ("SMSI"), as well as the programming
services provided by SPAR Infotech, Inc. ("SIT"), each of which is an affiliate,
but not a subsidiary,  of the Company,  and none of which is consolidated in the
Company's  financial  statements.  SMS provides  substantially  all of the field
representatives  used by the Company in conducting its domestic business (87% of
field  expense  in  2004),  and SMSI  provides  substantially  all of the  field
management  services  used by the  Company in  conducting  its  business.  These
services  provided  to the  Company  by SMS and  SMSI are on a  cost-plus  basis
pursuant to contracts that are cancelable on 60 days notice prior to December 31
of each year, commencing in 1997, or with 180 days notice at any other time. SIT
provides  substantially  all of the  Internet  programming  services  and  other
computer  programming  needs used by the Company in conducting its business (see

I
tem 13 - Certain  Relationships  and Related  Transactions,  below),  which are
provided to the Company by SIT on an hourly charge basis  pursuant to a contract
that is  cancelable  on 30 days  notice.  The  Company has  determined  that the
services provided by SMS, SMSI and SIT are at rates favorable to the Company.

        SMS, SMSI and SIT (collectively, the "SPAR Affiliates") are owned solely
by Mr.  Robert  G.  Brown,  founder,  director,  Chairman,  President  and Chief
Executive Officer of the Company, and Mr. William H. Bartels, founder, director,
and Vice Chairman of the Company,  each of whom are also directors and executive
officers of each of the SPAR Affiliates (see Item 13 - Certain Relationships and
Related  Transactions,  below).  In the  event of any  dispute  in the  business
relationships between the Company and one or more of the SPAR Affiliates,  it is
possible  that  Messrs.  Brown and  Bartels  may have one or more  conflicts  of
interest with respect to those  relationships and could cause one or more of the
SPAR  Affiliates to  renegotiate  or cancel their  contracts with the Company or
otherwise act in a way that is not in the Company's best interests.

        While the Company's  relationships with SMS, SMSI and SIT are excellent,
there  can be no  assurance  that the  Company  could  (if  necessary  under the
circumstances)  replace  the  field  representatives  and  management  currently
provided  by SMS and SMSI,  respectively,  or  replace  the  Internet  and other
computer programming services provided by SIT, in sufficient time to perform its
customer obligations or at such favorable rates in the event the SPAR Affiliates
no longer performed those services.  Any cancellation,  other  nonperformance or
material pricing increase under those affiliate  contracts could have a material
adverse  effect on the Company's  business,  results of operations and financial
condition  or the desired  increases  in the  Company's  business,  revenues and
profits.


                                      -13-

<PAGE>

The Company has not paid and does not intend to pay cash Dividends

        The Company has not paid  dividends  in the past,  intends to retain any
earnings or other cash  resources  to finance the  expansion of its business and
for general  corporate  purposes,  and does not intend to pay  dividends  in the
future. In addition,  the Company's Credit Facility with Webster Business Credit
Corporation  ("Webster")  (see  Note 5 to the  Financial  Statements  - Lines of
Credit) restricts the payment of dividends without Webster's prior consent.

Risks Associated with International Joint Ventures

        While the Company  endeavors to limit its exposure for claims and losses
in any international  joint ventures through contractual  provisions,  insurance
and use of single purpose entities for such ventures,  there can be no assurance
that the Company will not be held liable for the claims  against and losses of a
particular  international  joint  venture  under  applicable  local law or local
interpretation of any joint venture or insurance provisions.  If any such claims
and losses  should  occur,  be material in amount and be  successfully  asserted
against the Company, such claims and losses could have a material adverse effect
on the Company's business,  results of operations and financial condition or the
desired increases in the Company's business, revenues and profits.

Risks Associated with Foreign Currency

        The  Company  also has foreign  currency  exposure  associated  with its
international  joint venture  subsidiaries  and joint ventures.  In 2004,  these
exposures are primarily  concentrated in the Canadian  dollar,  Japanese yen and
South African rand.

Risks Associated with International Business

        The  Company's   expansion  strategy  includes  expansion  into  various
countries around the world. While the Company endeavors to limit its exposure by
entering only countries  where the political,  social and economic  environments
are conducive to doing business in that country there can be no assurances  that
the respective business environments will remain favorable.


Item 2.  Properties.

        The Company maintains its corporate  headquarters in approximately 6,000
square feet of leased office space located in Tarrytown, New York, under a lease
with a term expiring in May 2006.

        The  Company  leases  certain  office  and  storage  facilities  for its
corporate headquarters, divisions and subsidiaries under operating leases, which
expire at various dates during the next five years. Most of these leases require
the Company to pay minimum rents,  subject to periodic  adjustments,  plus other
charges, including utilities, real estate taxes and common area maintenance.



                                      -14-

<PAGE>

        The  following is a list of the  locations  where the Company  maintains
leased facilities for its division offices and subsidiaries:


<TABLE>
<CAPTION>
        Location                   Office Use                             Approximate Square Footage
        -------------------------- -------------------------------------- ---------------------------------
        Domestic:
<S>                                <C>                                               <C>  
        Tarrytown, NY              Corporate Headquarters                             6,000
        Auburn Hills, MI           Regional Office and Warehouse                     27,000
        Cincinnati, OH             Regional Office                                    5,300

        International:
        Canada
        Toronto, Ontario           Headquarters                                       4,000
        Japan
        Osaka                      Headquarters                                       1,200
        Tokyo                      Regional Office                                    1,000
        Nagoya                     Regional Office                                      600
        Hukuoka                    Regional Office                                      400
        Turkey
        Istanbul                   Headquarters                                       4,600
        South Africa
        Durban                     Headquarters                                       3,100
        Port Elizabeth             Regional Office                                      900
        Western Cape               Regional Office                                    2,900
        Johannesburg               Regional Office                                    2,000
        India
        New Delhi                  Headquarters                                       4,300
</TABLE>


        Although the Company believes that its existing  facilities are adequate
for its current  business,  new facilities may be added should the need arise in
the future.


Item 3.  Legal Proceedings.

        Safeway   Inc.   ("Safeway"),   filed  a   Complaint   against  the  PIA
Merchandising  Co., Inc. ("PIA Co."), a wholly owned  subsidiary of the Company,
and Pivotal Sales Company ("Pivotal"), a wholly owned subsidiary of PIA Co., and
SGRP in Alameda Superior Court, case no. 2001028498 on October 24, 2001, and has
subsequently  amended  it.  Safeway  alleges  causes  of  action  for  breach of
contract,  breach of implied  contract,  breach of fiduciary  duty,  conversion,
constructive fraud,  breach of trust,  unjust enrichment,  and accounting fraud.
Safeway has most  recently  alleged  monetary  damages in the  principal  sum of
$3,000,000 and probable interest of $1,000,000 and has also demanded unspecified
costs. PIA Co., Pivotal and SGRP filed cross-claims  against Safeway on or about
March 11, 2002, and amended them on or about October 15, 2002,  alleging  causes
of action by them  against  Safeway for breach of  contract,  interference  with
economic relationship,  unfair trade practices and unjust enrichment and seeking
damages and injunctive  relief.  Mediation between the parties occurred in 2004,
but did not result in a  settlement.  PIA Co.,  Pivotal and SGRP are  vigorously
defending  Safeway's  allegations.  It is not possible at this time to determine
the  likelihood of the outcome of this  lawsuit.  However,  if Safeway  prevails
respecting  its  allegations,  and PIA  Co.,  Pivotal  and  SGRP  lose on  their
cross-claims and counterclaims, that result could have a material adverse effect
on the  Company.  The Company  anticipates  that this matter will be resolved in
2005.

        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.


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

        None.



                                      -15-

<PAGE>




                                     PART II


Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters.

Price Range of Common Stock

        The following table sets forth the reported high and low sales prices of
the Common Stock for the quarters  indicated as reported on the Nasdaq Small Cap
Market.

                                      2004                        2003
                            ------------------------   -------------------------
                                  High       Low             High         Low
        First Quarter        $  3.44       $  2.30      $  3.60       $  2.42
        Second Quarter          2.33          0.85         5.55          3.05
        Third Quarter           1.50          0.75         5.32          3.17
        Fourth Quarter          1.80          0.36         4.57          3.00

        As of  December  31,  2004,  there  were  approximately  700  beneficial
shareholders of the Company's Common Stock.

Dividends

        The Company has never declared or paid any cash dividends on its capital
stock and does not  anticipate  paying cash dividends on its Common Stock in the
foreseeable  future.  The Company currently intends to retain future earnings to
finance  its  operations  and fund the growth of the  business.  Any  payment of
future  dividends  will be at the  discretion  of the Board of  Directors of the
Company and will  depend  upon,  among other  things,  the  Company's  earnings,
financial condition,  capital requirements,  level of indebtedness,  contractual
restrictions  in respect to the payment of dividends  and other factors that the
Company's Board of Directors deems relevant.

        The Company's Credit Facility with Webster  Business Credit  Corporation
(see Note 5 to the Financial Statements - Lines of Credit) restricts the payment
of dividends without Webster's prior consent.


Item 6.  Selected Financial Data.

        The following selected condensed consolidated financial data sets forth,
for the periods and the dates indicated,  summary  financial data of the Company
and its  subsidiaries.  The selected  financial  data have been derived from the
Company's financial statements.




                                      -16-

<PAGE>


                                SPAR Group, Inc.
                 Condensed Consolidated Statements of Operations
                 -----------------------------------------------

                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                      ---------------------------------------------------------------------
                                                          2004          2003          2002         2001          2000
                                                      ---------------------------------------------------------------------

STATEMENT OF OPERATIONS DATA:
<S>                                                    <C>          <C>             <C>         <C>          <C>      
Net revenues                                           $   51,370   $     64,859    $   69,612  $   70,891    $  81,459
Cost of revenues                                           33,644         42,338        40,331      40,883       50,278
                                                      ---------------------------------------------------------------------
Gross profit                                               17,726         22,521        29,281      30,008       31,181
Selling, general and administrative expenses               20,222         20,967        18,804      19,380       24,761
Impairment charges                                          8,141              -             -           -            -
Depreciation and amortization                               1,399          1,529         1,844       2,682        2,383
                                                      ---------------------------------------------------------------------
Operating (loss) income                                   (12,036)            25         8,633       7,946        4,037
Other (income) expense                                       (754)           237           (26)        107         (790)
Interest expense                                              220            269           363         561        1,326
                                                      ---------------------------------------------------------------------
(Loss) income from continuing operations before    
   provision for income taxes and minority interest       (11,502)          (481)        8,296       7,278        3,501
Income tax provision                                          853             58         2,998       3,123          780
                                                      ---------------------------------------------------------------------
(Loss) income from continuing operations before
minority interest                                         (12,355)          (539)        5,298       4,155        2,721
                                                      ---------------------------------------------------------------------
Minority interest                                              87              -             -           -            -

Discontinued operations:
Loss from discontinued operations net of tax
   benefits of $935 and $858, respectively                      -              -             -      (1,597)      (1,399)
Estimated loss on disposal of discontinued
   operations, including provision of $1,000 for
   losses during phase-out period and disposal
   costs net of tax benefit of $2,618                           -              -             -      (4,272)           -
                                                      ---------------------------------------------------------------------
Net (loss) income                                     $   (12,268)  $       (539)   $    5,298  $   (1,714)   $    1,322
                                                      =====================================================================

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

Net (loss) income from continuing operations          $     (0.65)  $      (0.03)   $     0.28  $     0.23    $    0.15
                                                      ---------------------------------------------------------------------
Discontinued operations:
Loss from discontinued operations                             -                -             -       (0.09)       (0.08)
Estimated loss on disposal of discontinued 
   operations                                                 -                -             -       (0.23)           -
                                                      ---------------------------------------------------------------------
Net loss from discontinued operations                         -                -             -       (0.32)       (0.08)
                                                      ---------------------------------------------------------------------
Basic/diluted net (loss) income                       $     (0.65)  $      (0.03)    $    0.28  $    (0.09)   $    0.07
                                                      =====================================================================

Weighted average shares outstanding
     - basic                                              18,859          18,855        18,761      18,389       18,185
     - diluted                                            18,859          18,855        19,148      18,467       18,303
</TABLE>




                                      -17-

<PAGE>


<TABLE>
<CAPTION>

                                                                       December 31,
                                               -------------------------------------------------------------
                                                   2004       2003        2002         2001         2000
                                               -----------  ---------  -----------  -----------  -----------
BALANCE SHEET DATA:

<S>                                             <C>         <C>         <C>          <C>         <C>        
Working capital (deficiency)                    $      962  $   4,085   $    6,319   $    8,476  $   (2,273)
Total assets                                    $   15,821  $  28,137   $   28,800   $   41,155  $   48,004
Lines of credit, current                        $    4,956  $   4,084   $        -   $       57  $    1,143
Lines of credit and other long-term debt(1)     $      218  $     270   $      383   $   13,287  $   10,093
Total stockholders' equity                      $    3,714  $  16,023   $   16,592   $   10,934  $   12,240

</TABLE>



(1)  Prior to 2003,  the  Company's  lines of credit were  charged to  long-term
     liabilities (net of current portion).




                                      -18-

<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

Overview
--------

        In the United States,  the Company  provides  merchandising  services to
manufacturers  and  retailers  principally  in mass  merchandiser,  drug  store,
grocery,  and other retail  trade  classes  through its  Domestic  Merchandising
Services Division. Internationally,  the Company provides in-store merchandising
services  through a wholly owned  subsidiary in Canada,  51% owned joint venture
subsidiaries in Turkey,  South Africa and India and a 50% owned joint venture in
Japan.  In December  2004,  the Company  established  a 51% owned joint  venture
subsidiary in Romania.  In February  2005,  the Company  established a 50% owned
joint venture in China. In 2004, the Company consolidated Canada,  Turkey, South
Africa, India and Japan into the Company's financial statements. Romania did not
have operations in 2004.

        In December 2001, the Company decided to divest its Incentive  Marketing
Division and recorded an estimated loss on disposal of SPAR  Performance  Group,
Inc., now called STIMULYS,  Inc. ("SPGI"), of approximately $4.3 million, net of
taxes,  including a $1.0 million reserve  recorded for the  anticipated  cost to
divest SPGI and any anticipated losses through the divestiture date.

        On June 30, 2002, SPAR Incentive Marketing, Inc. ("SIM"), a wholly owned
subsidiary of the Company, entered into a Stock Purchase and Sale Agreement with
Performance  Holdings,  Inc. ("PHI"),  a Delaware  corporation  headquartered in
Carrollton,  Texas.  Pursuant  to that  agreement,  SIM sold all of the stock of
SPGI, its subsidiary,  to PHI for $6.0 million.  As a condition of the sale, PHI
issued  and  contributed  1,000,000  shares of its common  stock to  Performance
Holdings,  Inc. Employee Stock Ownership Plan, which became the only shareholder
of PHI.

        SIM's  results   (including   those  of  SPGI)  were   reclassified   as
discontinued operations for all periods presented.  The results of operations of
the  discontinued  business  segment are shown  separately below net income from
continuing  operations.   Accordingly,   the  2002  consolidated  statements  of
operations of the Company have been prepared, and its 2001 and 2000 consolidated
statement  of  operations   have  been  restated,   to  report  the  results  of
discontinued  operations of SIM (including  those of SPGI)  separately  from the
continuing  operations  of the Company  (see Item 6 - Selected  Financial  Data,
above).

Critical Accounting Policies & Estimates
----------------------------------------

        The Company's critical  accounting  policies,  including the assumptions
and  judgments  underlying  them,  are  disclosed in the Note 2 to the Financial
Statements.  These  policies  have been  consistently  applied  in all  material
respects and address such matters as revenue recognition,  depreciation methods,
asset impairment recognition,  business combination accounting, and discontinued
business  accounting.  While the  estimates and  judgments  associated  with the
application  of these  policies  may be affected  by  different  assumptions  or
conditions, the Company believes the estimates and judgments associated with the
reported amounts are appropriate in the circumstances.  Four critical accounting
policies are consolidation of subsidiaries,  revenue recognition,  allowance for
doubtful  accounts and sales allowances,  and internal use software  development
costs:

        Consolidation of subsidiaries

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

        Revenue Recognition

        The Company's  services are provided under  contracts or agreements that
        consist  primarily  of  service  fees  and per  unit  fee  arrangements.
        Revenues under service fee  arrangements are recognized when the service
        is performed. 


                                      -19-

<PAGE>

        The  Company's per unit  contracts or agreements  provide for fees to be
        earned based on the retail sales of client's products to consumers.  The
        Company  recognizes  per unit fees in the  period  such  amounts  become
        determinable and are reported to the Company.

        Allowance for Doubtful Accounts and Sales Allowances

        The Company continually monitors the validity of its accounts receivable
        based upon current customer credit information and financial  condition.
        Balances  that are  deemed to be  uncollectible  after the  Company  has
        attempted reasonable collection efforts are written off through a charge
        to the bad debt allowance and a credit to accounts receivable.  Accounts
        receivable  balances are stated at the amount that management expects to
        collect from the outstanding balances. The Company provides for probable
        uncollectible  amounts  through a charge to earnings and a credit to bad
        debt allowance based on management's assessment of the current status of
        individual  accounts.  Based on  management's  assessment,  the  Company
        established an allowance for doubtful  accounts of $761,000 and $515,000
        at December 31, 2004 and 2003, respectively. The Company also recorded a
        reserve for sales allowances for potential  customer credits of $448,000
        at  December  31,  2003.  Bad debt and  sales  allowance  expenses  were
        $366,000, $825,000, and $262,000 in 2004, 2003, and 2002, respectively.

        Internal Use Software Development Costs

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

        The Company  capitalized  $559,000,  $1,004,000,  and  $772,000 of costs
        related to software  developed for internal use in 2004, 2003, and 2002,
        respectively.

        The  Company  also  recorded  a net  impairment  charge  of  capitalized
        software  related to lost  clients  totaling  approximately  $442,000 in
        2004.

Results of operations

        The following table sets forth selected  financial data and such data as
a percentage of net revenues for the periods indicated.



<TABLE>
<CAPTION>
                                                          Year Ended                 Year Ended                Year Ended
                                                      December 31, 2004          December 31, 2003          December 31, 2002
                                                  --------------------------------------------------------------------------------
                                                                               (dollars in millions)
                                                     Dollars          %         Dollars          %         Dollars          %
                                                  --------------  -----------  -----------   -----------  -----------  -----------
<S>                                                <C>              <C>         <C>            <C>         <C>           <C>   
Net revenues                                       $   51.4         100.0%      $   64.9       100.0%      $   69.6      100.0%
Cost of revenues                                       33.6          65.5           42.3        65.3           40.3       57.9
Selling, general & administrative expenses             20.2          39.4           21.0        32.3           18.8       27.0
Impairment charges                                      8.1          15.8              -           -              -          -
Depreciation & amortization                             1.4           2.7            1.5         2.3            1.8        2.6
Other (income) expenses, net                           (0.4)         (1.0)           0.5         0.8            0.4        0.6
                                                  --------------  -----------  -----------   -----------  -----------  -----------
(Loss) income before income tax provision             (11.5)        (22.4)          (0.4)       (0.7)           8.3       11.9
Provision for income taxes                              0.9           1.7            0.1         0.1            3.0        4.3
                                                  --------------  -----------  -----------   -----------  -----------  -----------
(Loss) income before minority interest                (12.4)        (24.1)%         (0.5)       (0.8)%          5.3        7.6%
Minority interest                                       0.1           0.2              -           -              -          -
                                                  --------------               -----------                -----------
Net (loss) income                                  $  (12.3)        (23.9)%     $   (0.5)       (0.8)%      $   5.3        7.6%
                                                  ==============               ===========                ===========
</TABLE>




                                      -20-

<PAGE>


Results from  continuing  operations  for the twelve  months ended  December 31,
--------------------------------------------------------------------------------
2004, compared to twelve months ended December 31, 2003
-------------------------------------------------------

Net Revenues

        Net revenues from  operations  for the twelve months ended  December 31,
2004, were $51.4 million,  compared to $64.9 million for the twelve months ended
December 31, 2003, a decrease of $13.5  million or 20.8%.  The decrease of $13.5
million in net  revenues  consists of a decrease  in  domestic  revenue of $21.1
million or 32.9% partially offset by increases in international  revenue of $7.7
million.  The  decrease in  domestic  revenue is a result of the loss of several
significant  customers  partially  offset by revenue from new customers in 2004.
The international revenue increase of $7.7 million was primarily a result of the
South African  acquisition,  the Japan consolidation and a full year of Canadian
operations.

Cost of Revenues

        Cost of revenues from  operations  consists of in-store  labor and field
management  wages,  related  benefits,  travel  and other  direct  labor-related
expenses. Cost of revenues decreased by $8.7 million in 2004 and as a percentage
of net revenues was 65.5% for the twelve months ended  December 31, 2004,  which
was  consistent  with 65.3% for the  twelve  months  ended  December  31,  2003.
Approximately  87%  and  85% of the  field  services  were  purchased  from  the
Company's affiliate,  SMS, in 2004 and 2003, respectively (see Item 13 - Certain
Relationships and Related  Transactions,  below). SMS's increased share of field
services resulted from its more favorable cost structure

Operating Expenses

        Operating expenses include selling, general and administrative expenses,
impairment  charges,   depreciation  and  amortization.   Selling,  general  and
administrative   expenses  include  corporate   overhead,   project  management,
information  technology,  executive  compensation,  human  resource,  legal  and
accounting expenses.  The following table sets forth the operating expenses as a
percentage of net revenues for the time periods indicated:



<TABLE>
<CAPTION>
                                                 Year Ended                      Year Ended               Increase
                                              December 31, 2004               December 31, 2003          (decrease)
                                         ----------------------------   ------------------------------  -------------
                                                            (dollars in millions)
                                            Dollars           %            Dollars            %              %
                                         --------------  ------------   ---------------  -------------  -------------

<S>                                        <C>               <C>           <C>               <C>           <C>   
Selling, general & administrative          $  20.2           39.4%         $ 21.0            32.3%         (3.6)%
Impairment charges                             8.1           15.8               -               -             -
Depreciation and amortization                  1.4            2.8             1.5             2.3          (8.5)%
                                         --------------  ------------   ---------------  -------------

Total operating expenses                   $  29.7           58.0%         $ 22.5            34.6%         32.3%
                                         ==============  ============   ===============  =============
</TABLE>


        Selling,  general and administrative expenses decreased by $0.8 million,
or 3.6%,  for the twelve  months  ended  December  31,  2004,  to $20.2  million
compared  to $21.0  million  for the twelve  months  ended  December  31,  2003.
Domestic selling,  general and administrative expenses totaled $16.7 million for
2004 and were reduced $3.3 million from $19.9 million in 2003.  The reduction of
16.1% was a result of cost reduction  programs  initiated in 2004 as a result of
the loss of certain large  customers  partially  offset by restructure  costs of
$480,000  expensed  in 2004  compared to no expense in 2003.  Restructure  costs
included office lease and employee severance costs. The domestic cost reductions
were  partially  offset by increases of $2.5 million in  international  selling,
general and  administrative  expenses resulting from the consolidation of Japan,
the acquisition of South Africa, and a full year of Canadian operations, as well
as, the Turkey and India joint venture startups.

        Impairment  charges  were  $8.1  million  for  2004  (see  Note 3 to the
Financial Statements -Impairment Charges). Impairment charges resulting from the
loss  of  certain  large  customers   consisted  of  $7.6  million  of  goodwill
impairment,  $1.2 million for the impairment of other assets partially offset by
the reduction of $1.4 million (net of taxes) of other liabilities related to the
PIA  Acquisition.  In  addition  there was  approximately  $700,000  of goodwill
impairment associated with the Canadian subsidiary.

        Depreciation  and  amortization  charges  of $1.4  million  in 2004  was
consistent with $1.5 million in 2003.



                                      -21-

<PAGE>

Other Income/Other Expense

        Other income was approximately $754,000 for 2004 versus other expense of
$237,000 for 2003. In 2004,  other income  consisted of  approximately  $640,000
resulting from the release of specific  reserves  related to the  refinancing of
the SPGI notes and approximately $114,000 of foreign currency translation gains.
In 2003,  other expense  consisted  primarily of the Company's  share of its 50%
owned Japan joint venture losses  accounted for on the equity  method.  In 2004,
the  Japan  joint  venture  was  consolidated   into  the  Company's   financial
statements.

Interest Expense

        Interest  expense  totaled  $220,000  for 2004 and was  consistent  with
interest expense of $269,000 for 2003.

Income Taxes

        The  provision  for income  taxes was  $853,000 and $58,000 for 2004 and
2003, respectively.  During 2004, as a result of the loss of several significant
clients,  current  year  losses  and  the  lack  of  certainty  of a  return  to
profitability  in the next twelve months,  the Company recorded a full valuation
allowance  against its net  deferred tax assets  resulting in a charge  totaling
approximately  $750,000.  The 2004 tax  provision  of  $853,000  consists of the
valuation allowance and minimum state taxes of approximately  $103,000.  The tax
provision for 2003 reflects minimum tax requirements for state filings.

Net (Loss) Income

        The SPAR Group had a net loss of  approximately  $12.3  million or $0.65
per basic and diluted  share for 2004,  compared to a net loss of  approximately
$539,000 or $0.03 per basic and diluted shares for 2003.

Off Balance Sheet Arrangements

None.



                                      -22-

<PAGE>



Results from  continuing  operations  for the twelve  months ended  December 31,
--------------------------------------------------------------------------------
2003, compared to twelve months ended December 31, 2002
-------------------------------------------------------


Net Revenues

        Net revenues from  operations  for the twelve months ended  December 31,
2003, were $64.9 million,  compared to $69.6 million for the twelve months ended
December  31,  2002,  a 6.8%  decrease.  The decrease of 6.8% in net revenues is
primarily  attributed to decreased  business in mass  merchandiser  chains.  The
decrease in net revenues was caused by decreased per unit fee revenue  resulting
from  lower  retail  sales of  customer  products  and the loss of a  particular
client, partially offset by increases in service fee revenue.

Cost of Revenues

        Cost of revenues from  operations  consists of in-store  labor and field
management  wages,  related  benefits,  travel  and other  direct  labor-related
expenses. Cost of revenues increased by $2.0 million in 2003 and as a percentage
of net  revenues  was 65.3% for the  twelve  months  ended  December  31,  2003,
compared  to 57.9%  for the  twelve  months  ended  December  31,  2002,  a 5.0%
increase.  Approximately  85% and 76% of the field  services were purchased from
the  Company's  affiliate,  SMS, in 2003 and 2002,  respectively  (see Item 13 -
Certain Relationships and Related Transactions, below). SMS's increased share of
field services resulted from its more favorable cost structure.  The increase in
cost as a percentage  of net revenues is primarily a result of a decrease in per
unit  fee  revenues  that do not  have a  proportionate  decrease  in  cost.  As
discussed  above under Critical  Accounting  Policies/Revenue  Recognition,  the
Company's revenue consists of: (1) service fee revenue, which is earned when the
merchandising services are performed and, therefore,  has proportionate costs in
the period the services are  performed;  and (2) per unit fee revenue,  which is
earned when the client's product is sold to the consumer at retail, not when the
services are performed and, therefore,  does not have proportionate costs in the
period the revenue is earned.  Since the  merchandising  service and the related
costs  associated with per unit fee revenue are normally  performed prior to the
retail sale, and the retail sales of client  products are influenced by numerous
factors  including  consumer  tastes  and  preferences,  and not  solely  by the
merchandising  service performed,  in any given period, the cost of per unit fee
revenues may not be directly proportionate to the per unit fee revenue.

Operating Expenses

        Operating expenses include selling,  general and administrative expenses
as well as depreciation and amortization.  Selling,  general and  administrative
expenses include corporate overhead,  project management,  information  systems,
executive  compensation,  human  resource,  legal and accounting  expenses.  The
following  table  sets  forth the  operating  expenses  as a  percentage  of net
revenues for the time periods indicated:



<TABLE>
<CAPTION>
                                                 Year Ended                      Year Ended               Increase
                                              December 31, 2003               December 31, 2002          (decrease)
                                         ----------------------------   ------------------------------  -------------
                                                            (dollars in millions)
                                            Dollars           %            Dollars            %              %
                                         --------------  ------------   ---------------  -------------  -------------

<S>                                        <C>               <C>           <C>               <C>           <C>  
Selling, general & administrative          $  21.0           32.3%         $ 18.8            27.0%         12.0%
Depreciation and amortization                  1.5            2.3             1.8             2.6         (17.1)%
                                         --------------  ------------   ---------------  -------------

Total operating expenses                   $  22.5           34.6%         $ 20.6            29.6%          9.4%
                                         ==============  ============   ===============  =============
</TABLE>


        Selling,  general and administrative expenses increased by $2.2 million,
or 12.0%,  for the twelve  months  ended  December 31,  2003,  to $21.0  million
compared to $18.8  million for the twelve months ended  December 31, 2002.  This
increase  was due  primarily  to  increases  in travel  related  expense of $0.4
million,  postage and material expense of $0.6 million, stock option expense for
non-employees of $0.4 million and increase in bad debt expense of $0.6 million.

        Depreciation  and  amortization  decreased  by  $315,000  for the twelve
months ended  December 31, 2003,  primarily  due to older,  higher priced assets
becoming fully depreciated.


                                      -23-

<PAGE>


Interest Expense

        Interest  expense  decreased  $94,000 to $269,000 for the twelve  months
ended December 31, 2003,  from $363,000 for the twelve months ended December 31,
2002, due to decreased  average debt levels as well as decreased  interest rates
in 2003.

Income Taxes

        The  provision  for income  taxes was $58,000  and $3.0  million for the
twelve months ended December 31, 2003 and December 31, 2002,  respectively.  The
tax provision for 2003 reflects minimum tax requirements for state filings.  The
effective tax rate was 36.1% for 2002.

Net (Loss) Income

        The SPAR  Group had a net loss of  approximately  $539,000  or $0.03 per
basic and diluted share for the twelve months ended December 31, 2003,  compared
to a net income of  approximately  $5.3  million or $0.28 per basic and  diluted
shares for the twelve  months  ended  December  31, 2002  because of the factors
described above.

Off Balance Sheet Arrangements

None.

Liquidity and Capital Resources

        In 2004,  the Company had a net loss of $12.3  million.  Included in the
net loss were non-cash charges of $8.1 million for impairment,  $0.7 million for
deferred tax asset valuation adjustments, $1.4 million for depreciation and $0.1
million for minority interests in losses of subsidiaries.

        Net cash provided by operating  activities  for 2004,  was $1.4 million,
compared  with net cash  provided by  operations  of $3.4 million for 2003.  The
decrease of $2.0 million in cash  provided by operating  activities is primarily
due  to  net  operating  losses  offset  by  decreases  in  deferred  taxes  and
restructuring charges.

        Net cash  used in  investing  activities  for  2004,  was $1.3  million,
compared  with net cash used of $2.9 million for 2003.  The decrease in net cash
used in investing  activities resulted was a result of fewer acquisitions of new
businesses and lower purchases of property and equipment in 2004.

        Net cash provided by financing  activities  for 2004,  was $0.9 million,
compared  with net cash used in financing  activities  of $0.5 million for 2003.
The increase in net cash provided by financing  activities in 2004 was primarily
a result of the  consolidation  of our Japan joint  venture  into the  Company's
financial statements in 2004.

        The above activity resulted in a change in cash and cash equivalents for
2004 of $0.9 million.

        At December 31, 2004, the Company had positive  working  capital of $1.0
million as  compared to $4.1  million at  December  31,  2003.  The  decrease in
working  capital is due to decreases in accounts  receivable and deferred taxes,
increases in accounts payable,  customer deposits and lines of credit, partially
offset by increases in cash and decreases in accrued  expenses and other current
liabilities,  accrued expenses due to affiliates and restructuring  charges. The
Company's  current  ratio  was 1.08  and 1.34 at  December  31,  2004 and  2003,
respectively.

        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").  The Credit Facility provided a
$15.0 million  revolving  credit  facility that matures on January 23, 2006. The
Credit  Facility  allowed the Company to borrow up to $15.0 million based upon a
borrowing  base  formula  as  defined  in  the  agreement  (principally  85%  of
"eligible"  accounts  receivable).  On May 17,  2004,  the Credit  Facility  was
amended to among other things,  reduce the revolving  credit facility from $15.0
million to $10.0 million, change the interest rate and increase reserves against
collateral. The amendment provides for interest to be charged at a rate based in
part upon the earnings before interest,  taxes,  depreciation and  amortization.
The average  interest rate for 2004 was 5.1%.  At December 31, 2004,  the Credit
Facility bears interest at Webster's "Alternative Base Rate" plus 0.75% (a total
of 6.0% per annum),  or LIBOR plus 3.25%.  The Credit Facility is secured by all
of the assets of the Company and its domestic  subsidiaries.  In connection with
the May 17,  2004,  amendment,  Mr.  Robert  Brown,  a 



                                      -24-

<PAGE>

Director,  the  Chairman,  President  and Chief  Executive  Officer  and a major
stockholder of theCompany and Mr. William Bartels, a Director, the Vice Chairman
and a major stockholder of the Company,  provided personal  guarantees  totaling
$1.0  million to Webster.  On August 20, 2004,  the Credit  Facility was further
amended  in  connection  with the  waiver of certain  covenant  violations  (see
below). The amendment, among other things, reduced the revolving credit facility
from $10.0 million to $7.0 million,  changed the covenant compliance testing for
certain  covenants from quarterly to monthly and reduced  certain advance rates.
On November 15,  2004,  the Credit  Facility  was further  amended to delete any
required  minimum Net Worth and minimum  Fixed Charge  Coverage  Ratio  covenant
levels for the period ending  December 31, 2004.  The  amendments did not change
the future covenant levels. The Credit Facility also limits certain expenditures
including, but not limited to, capital expenditures and other investments.

        The Company was in  violation of certain  monthly  covenants at December
31, 2004, and expects to be in violation at future  measurement  dates.  Webster
issued a waiver for the December 31, 2004 covenant  violations.  However,  there
can be no assurances that Webster will issue such waivers in the future.

        Because  of the  requirement  to  maintain a lock box  arrangement  with
Webster,  Webster's  ability to invoke a subjective  acceleration  clause at its
discretion and the expected future  covenant  violations,  borrowings  under the
Credit Facility are classified as current at December 31, 2004, and December 31,
2003, 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
$4.1 million at December 31, 2004, and December 31, 2003.  There were letters of
credit  outstanding  under the Credit  Facility of $0.7  million at December 31,
2004,  and December 31,  2003.  As of December 31, 2004,  the Company had unused
availability  under the Credit  Facility of $1.4  million  out of the  remaining
maximum  $2.2  million  unused  revolving  line of  credit  after  reducing  the
borrowing base by outstanding loans and letters of credit.

        In 2001, the Japanese joint venture SPAR FM Japan,  Inc.  entered into a
revolving line of credit  arrangement with Japanese banks for 300 million yen or
$2.7 million (based upon the exchange rate at September 30, 2004).  At September
30, 2004, SPAR FM Japan, Inc. had 100 million yen or approximately $900,000 loan
balance  outstanding under the line of credit. The line of credit is effectively
guarantied by the Company and the joint venture partner, Paltac Corporation. The
average  interest rates on the borrowings  under the Japanese line of credit for
its short-term  bank loans at September 30, 2004 and 2003 were 1.375% and 1.375%
per annum, respectively.

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

        Certain of these  joint  ventures  and joint  venture  subsidiaries  are
marginally  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 cost saving
initiatives and the existing  credit  facilities,  sources of cash  availability
will be sufficient to support  ongoing  operations  over the next twelve months.
However, delays in collection of receivables due from any of the Company's major
clients,  or a significant  further reduction in business from such clients,  or
the  inability  to acquire new  clients,  or the  Company's  inability to remain
profitable,  or the  inability  to  obtain  bank  waivers  for  future  covenant
violations  could have a material adverse effect on the Company's cash resources
and its ongoing ability to fund operations.




                                      -25-

<PAGE>


Certain Contractual Obligations

        The  following  table  contains a summary  of  certain of the  Company's
contractual obligations by category as of December 31, 2004 (in thousands).


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
              Contractual Obligations                                   Payments due by Period
--------------------------------------------------------------------------------------------------------------------
                                               Total       Less than 1    1-3 years      3-5 years    More than 5
                                                              year                                       years
--------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>           <C>           <C>         <C>       
        Credit Facilities                      $ 4,956       $ 4,956       $     -       $     -     $        -
--------------------------------------------------------------------------------------------------------------------
        Operating Lease Obligations              1,468           776           651            41              -
--------------------------------------------------------------------------------------------------------------------
        Total                                  $ 6,424       $ 5,732         $ 651       $    41     $        -
--------------------------------------------------------------------------------------------------------------------
</TABLE>


        In addition to the above table,  at December  31, 2004,  the Company had
$737,337 in outstanding Letters of Credit.


I
tem 7A.  Quantitative and Qualitative Disclosures about Market Risk.

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

        The Company is exposed to market risk related to the  variable  interest
rate on its lines of credit. As of December 31, 2004, the variable interest rate
on the  Company's  lines of credit were 6.0% on its domestic  line of credit and
1.4% on its Japanese line of credit.

        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 2004,  these  exposures  are  primarily
concentrated  in the Canadian  dollar,  Japanese yen and South  African rand. At
December 31, 2004,  international  assets totaled $2.8 million and international
liabilities totaled $3.8 million. For 2004,  international revenues totaled $8.2
million and the Company's share of the net losses was approximately $500,000.

        Investment Portfolio

        The  Company  has no  derivative  financial  instruments  or  derivative
commodity  instruments  in  its  cash  and  cash  equivalents  and  investments.
Domestically,  excess cash is normally  used to pay down its  revolving  line of
credit. Internationally, excess cash is used to fund operations.


Item 8.  Financial Statements and Supplementary Data.

        See Item 15 of this Annual Report on Form 10-K.


Item 9.  Changes in and Disagreements with Accountants on Accounting and 
         Financial Disclosure.

        None.


Item 9A.  Controls and Procedures.

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



                                      -26-

<PAGE>

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

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


Item 9B.  Other Information.

        In November  2004 and January  2005,  the Company  entered into separate
operating  lease   agreements   between  SMS  and  the  Company's  wholly  owned
subsidiaries,  SPAR Marketing Force, Inc. ("SMF") and SPAR Canada Company ("SPAR
Canada"). Each lease has a 36 month term and has representations,  covenants and
defaults  customary  for the  leasing  industry.  The  leases  are for  handheld
computers  to be used by  field  merchandisers  in the  performance  of  various
merchandising  services  in the United  States and Canada (see Item 13 - Certain
Relationships and Related Transactions).




                                      -27-

<PAGE>



                                    PART III


Item 10.   Directors and Executive Officers of the Registrant.


Directors and Executive Officers
--------------------------------

        The following  table sets forth certain  information in connection  with
each person who is or was at December 31,  2004,  an  executive  officer  and/or
director for the Company.

Name                                 Age     Position with SPAR Group, Inc.
----                                 ---     ------------------------------

Robert G.  Brown.  . . . . . . .     62      Chairman, Chief Executive Officer, 
                                             President and Director


William  H.  Bartels . . . . . .     61      Vice Chairman and Director
. .

Robert O.  Aders  (1). . . . . .     77      Director, Chairman Governance 
                                             Committee


Jack W.  Partridge (1) . . . . .     59      Director, Chairman Compensation 
                                             Committee


Jerry B.  Gilbert  (1) . . . . .     70      Director


Lorrence  T.  Kellar (1) . . . .     67      Director, Chairman Audit Committee


Charles Cimitile.  . . . . . . .     50      Chief Financial Officer, Treasurer 
                                             and Secretary

Kori G. Belzer . . . . . . . . .     39      Chief Operating Officer

Patricia Franco. . . . . . . . .     44      Chief Information Officer

James R. Segreto . . . . . . . .     56      Vice President, Controller
__________________________
(1) Member of the Board's Governance, Compensation and Audit Committees


        Robert  G.  Brown  serves  as the  Chairman,  Chief  Executive  Officer,
President and a Director of SGRP and has held such positions since July 8, 1999,
the  effective  date of the  merger  of the SPAR  Marketing  Companies  with PIA
Merchandising Services,  Inc. (the "Merger").  Mr. Brown served as the Chairman,
President  and  Chief  Executive   Officer  of  the  SPAR  Marketing   Companies
(SPAR/Burgoyne  Retail Services,  Inc.  ("SBRS") since 1994, SPAR, Inc. ("SINC")
since 1979,  SPAR  Marketing,  Inc.  ("SMNEV")  since  November  1993,  and SPAR
Marketing Force, Inc. ("SMF") since 1996).

        William H.  Bartels  serves as the Vice  Chairman and a Director of SGRP
and has held  such  positions  since  July 8, 1999  (the  effective  date of the
Merger).  Mr.  Bartels  served as the Vice  Chairman,  Secretary,  Treasurer and
Senior Vice President of the SPAR  Marketing  Companies  (SBRS since 1994,  SINC
since 1979, SMNEV since November 1993 and SMF since 1996).

        Robert O. Aders  serves as a Director of SGRP and has done so since July
8, 1999. He has served as the Chairman of the Governance  Committee since May 9,
2003.  Mr.  Aders  has  served as  Chairman  of The  Advisory  Board,  Inc.,  an
international consulting organization since 1993, and also as President Emeritus
of the Food Marketing  Institute  ("FMI") since 1993.  Immediately  prior to his
election to the  Presidency  of FMI in 1976,  Mr. Aders was Acting  Secretary of
Labor in the Ford  Administration.  Mr. Aders was the Chief Executive Officer of
FMI from 1976 to 1993.  He also served in The Kroger  Co., in various  executive
positions from 1957 to 1974 and was Chairman of the Board from 1970 to 1974. Mr.
Aders  also  serves  as a  Director  of  Checkpoint  Systems,  Inc.,  Sure  Beam
Corporation and Telepanel Systems, Inc.




                                      -28-

<PAGE>

        Jack W.  Partridge  serves as a  Director  of SGRP and has done so since
January 29, 2001. He has served as the Chairman of the Compensation Committee of
SGRP since May 9, 2003.  Mr.  Partridge  is  President  of Jack W.  Partridge  &
Associates.  He  previously  served as Vice  Chairman  of the Board of The Grand
Union  Company  from 1998 to 2000.  Mr.  Partridge's  service  with Grand  Union
followed a distinguished 23-year career with The Kroger Company, where he served
as Group  Vice  President,  Corporate  Affairs,  and as a member  of the  Senior
Executive Committee, as well as various other executive positions. Mr. Partridge
has been a leader in industry and community affairs for over two decades. He has
served  as  Chairman  of the Food  Marketing  Institute's  Government  Relations
Committee,  the Food and Agriculture  Policy Task Force,  and as Chairman of the
Board of The Ohio Retail Association. He has also served as Vice Chairman of the
Cincinnati  Museum  Center  and a member  of the  boards  of the  United  Way of
Cincinnati, the Childhood Trust, Second Harvest and the Urban League.

        Jerry B. Gilbert serves as a Director of SGRP and has done so since June
4, 2001. Mr. Gilbert served as Vice President of Customer  Relations for Johnson
& Johnson's Consumer and Personal Care Group of Companies from 1989 to 1997. Mr.
Gilbert  joined  Johnson  & Johnson  in 1958 and from 1958 to 1989 held  various
executive positions.  Mr. Gilbert also served on the Advisory Boards of the Food
Marketing  Institute,  the  National  Association  of Chain Drug  Stores and the
General Merchandise  Distributors  Council (GMDC) where he was elected the first
President  of the GMDC  Educational  Foundation.  He was honored  with  lifetime
achievement  awards from GMDC,  Chain Drug Review,  Drug Store News and the Food
Marketing Institute. He is the recipient of the prestigious National Association
of Chain Drug Stores  (NACDS)  Begley Award,  as well as the National  Wholesale
Druggists Association (NWDA) Tim Barry Award. In June 1997, Mr. Gilbert received
an Honorary Doctor of Letters Degree from Long Island University.

        Lorrence T. Kellar  serves as a Director  and the  Chairman of the Audit
Committee of SGRP and has done so since April 2, 2003.  Mr. Kellar had a 31-year
career with The Kroger  Co.,  where he served in various  financial  capacities,
including  Group Vice  President  for real estate and finance,  and earlier,  as
Corporate  Treasurer.  He was  responsible  for  all  of  Kroger's  real  estate
activities,  as  well as  facility  engineering,  which  coordinated  all  store
openings and remodels.  Mr. Kellar subsequently  served as Vice President,  real
estate,  for Kmart.  He currently is Vice  President of  Continental  Properties
Company,  Inc. Mr. Kellar also serves on the boards of Frisch's  Restaurants and
Multi-Color  Corporation and is a trustee of the Acadia Realty Trust. He also is
a major  patron  of the arts and has  served  as  Chairman  of the  Board of the
Cincinnati Ballet.

         Charles Cimitile serves as the Chief Financial  Officer,  Secretary and
Treasurer of SGRP and has done so since November 24, 1999. Mr.  Cimitile  served
as Chief  Financial  Officer for GT Bicycles from 1996 to 1999 and Cruise Phone,
Inc.  from 1995 through  1996.  Prior to 1995,  he served as the Vice  President
Finance,  Secretary and Treasurer of American Recreation Company Holdings,  Inc.
and its predecessor company.

         Kori G. Belzer  serves as the Chief  Operating  Officer of SGRP and has
done so since January 1, 2004. Ms. Belzer also serves as Chief Operating Officer
of SPAR Management Services,  Inc. ("SMSI"),  and SPAR Marketing Services,  Inc.
("SMS"),  each an  affiliate  of SGRP (see Item 13 - Certain  Relationships  and
Related  Transactions,  below),  and has done so since 2000. The Audit Committee
determined  that Ms.  Belzer  also  served  during  2003 as the de  facto  chief
operating  officer of SGRP  through her position as Chief  Operating  Officer of
SMSI and SMS. Prior to 2000,  Ms. Belzer served as Vice President  Operations of
SMS from 1997 to 2000, and as Regional  Director of SMS from 1995 to 1997. Prior
to 1995, she served as Client Services Manager for SPAR/Servco, Inc.




                                      -29-

<PAGE>

        Patricia  Franco  serves as the Chief  Information  Officer  of SGRP and
President of the SPAR International Merchandising Services Division and has done
so since  January 1, 2004.  Ms.  Franco also serves as Senior Vice  President of
SPAR  Infotech,  Inc.  ("SIT"),  an  affiliate  of SGRP  (see  Item 13 - Certain
Relationships and Related Transactions, below), and has done so since January 1,
2003. The Audit Committee  determined that Ms. Franco also served during 2003 as
the de  facto  chief  information  officer  of  SGRP as well  as,  the de  facto
President of the SPAR International Merchandising Services Division, through her
position as Senior Vice  President of SIT.  Prior to 2003,  Ms. Franco served in
various management capacities with SIT, SMS and their affiliates.

        James R. Segreto  serves as Vice  President,  Controller of SGRP and has
done so since July 8, 1999, the effective date of the Merger.  From 1997 through
the Merger,  he served in the same capacity for SMS. Mr. Segreto served as Chief
Financial Officer for Supermarket Communications Systems, Inc. from 1992 to 1997
and LM Capital, LLP from 1990 to 1992. Prior to 1992, he served as Controller of
Dorman Roth Foods, Inc.

Audit Committee Composition and Financial Expert

        The Audit Committee currently consists of Messrs. Kellar (its Chairman),
Aders, Gilbert and Partridge, each of whom has been determined by the Governance
Committee  and the  Board  to  meet  the  independence  requirements  for  audit
committee  members  under  Nasdaq  Rule  4200(a)(14).  In  connection  with  his
re-nomination   as  a  Director,   the   Governance   Committee  and  the  Board
re-determined that Mr. Kellar was qualified to be the "audit committee financial
expert" as required by applicable law and the SEC Rules.

Section 16(a) Beneficial Ownership Reporting Compliance.

        Section  16(a)  of the  Exchange  Act  ("Section  16(a)")  requires  the
Company's  directors  and certain of its  officers and persons who own more than
10% of the Company's Common Stock (collectively, "Insiders"), to file reports of
ownership and changes in their ownership of the Company's  Common Stock with the
Commission.  Insiders  are  required by  Commission  regulations  to furnish the
Company with copies of all Section 16(a) forms they file.

        Based  solely on its review of the copies of such forms  received  by it
for the year ended  December 31, 2004, or written  representations  from certain
reporting persons for such year, the Company believes that its Insiders complied
with all applicable  Section 16(a) filing  requirements  for such year, with the
exception that Robert G. Brown, William H. Bartels, Jack W. Partridge and Robert
O. Aders untimely filed certain Statements of Changes in Beneficial Ownership on
Form 4. Kori Belzer and Patricia Franco became filers in March of 2004. All such
Section  16(a)  filing  requirements  have since been  completed  by each of the
aforementioned individuals.

Ethics Codes

        The Company has adopted  codes of ethical  conduct  applicable to all of
its directors,  officers and employees, as approved and recommended by the Audit
Committee and  Governance  Committee and adopted by the Board on May 3, 2004, in
accordance  with Nasdaq Rules.  These codes of conduct  consist of: (1) the SPAR
Group Code of Ethical Conduct for its Directors, Senior Executives and Employees
Dated (as of) May 1, 2004; and (2) the SPAR Group Statement of Policy  Regarding
Personal Securities  Transaction in SGRP Stock and Non-Public Information Dated,
Amended and Restated as of May 1, 2004,  which amends,  restates and  completely
replaces its existing similar statement of policy. Both Committees were involved
because  authority  over ethics codes  shifted  from the Audit  Committee to the
Governance  Committee  with the  adoption of the  committee  charters on May 18,
2004.   Copies  of  these  codes  and  policies  are  posted  and  available  to
stockholders and the public on the Company's web site (www.SPARinc.com).




                                      -30-

<PAGE>


Item 11.   Executive Compensation and Other Information of SPAR Group, Inc.


Executive Compensation
----------------------

        The following  table sets forth all  compensation  received for services
rendered to the Company in all capacities for the years ended December 31, 2004,
2003,  and 2002  (except for amounts  paid to SMS,  SMSI and SIT,  see Item 13 -
Certain  Relationships  and Related  Transactions,  below) (i) by the  Company's
Chief Executive Officer, and (ii) each of the other four most highly compensated
executive  officers  of the  Company  and its  affiliates  who were  serving  as
executive  officers of the Company or  performing  equivalent  functions for the
Company  through an affiliate,  at December 31, 2004  (collectively,  the "Named
Executive Officers").

Summary Compensation Table


<TABLE>
<CAPTION>
                                                                                                             Long Term
                                                                         Annual Compensation            Compensation Awards
                                                                         -------------------            -------------------
                                                                                                     Securities    
                                                                                                     Underlying      All Other  
                                                                                                      Options      Compensation 
Name and Principal Positions                               Year           Salary ($)    Bonus ($)      (#)(1)         ($)(2)
----------------------------                               ----           ----------    ---------      ------         ------

<S>                                                        <C>            <C>            <C>           <C>              <C>
Robert G. Brown                                            2004           114,000 (3)         --             --          1,800
     Chief  Executive  Officer,  Chairman  of the          2003           180,000 (3)         --             --          2,200
     Board, President, and Director                        2002           164,340 (3)         --             --          2,040

William H. Bartels                                         2004           114,000 (3)         --             --          1,620
     Vice Chairman and Director                            2003           180,000 (3)         --             --          2,007
                                                           2002           164,340 (3)         --             --          2,040

Charles Cimitile                                           2004           220,000             --         25,000          1,800
     Chief Financial Officer,  Treasurer and               2003           221,700         20,000         20,000          2,200
     Secretary                                             2002           215,564         15,000         20,000          2,040
                                                                                                        
Kori G. Belzer                                             2004           147,990             --         25,000          1,495
     Chief Operating Officer                               2003           147,067         19,000         26,750          1,843
                                                                                                        
                                                                                                        
Patricia Franco                                            2004           147,900         10,000         25,000          1,493
     Chief Information Officer                             2003           145,875         20,000         37,500          1,718
</TABLE>

________________________

(1)  In June  2004,  Mr.  Brown  and Mr.  Bartels  voluntarily  surrendered  for
     cancellation  their  options for the  purchase of the  following  shares of
     common stock under the 2000 Plan: 382,986 and 235,996, respectively.

     In September  2004,  Mr.  Cimitile,  Ms. Belzer and Ms. Franco  voluntarily
     surrendered  for  cancellation  their  options  for  the  purchase  of  the
     following  shares of common stock under the 2000 Plan:  55,000,  76,140 and
     87,500  respectively.  Also  in  September  2004,  Ms.  Franco  voluntarily
     surrendered for  cancellation her options for the purchase 10,000 shares of
     common stock under the 1995 Plan.
(2)  Other compensation represents the Company's 401k contribution.
(3)  Does not include amounts paid to SMS, SMSI, SIT and Affinity Insurance Ltd.
     (see Item 13 - Certain Relationships and Related Transactions, below)





                                      -31-

<PAGE>


Stock Option Grants in Last Fiscal Year

        The following table sets forth information regarding each grant of stock
options  made  during the year ended  December  31,  2004,  to each of the Named
Executive  Officers.  No stock appreciation rights ("SAR's") were granted during
such period to such person.


<TABLE>
<CAPTION>
                                         Individual Grants
                     ----------------------------------------------------------
                        Number of      Percent of    
                       Securities     Total Options                                                               
                       Underlying      Granted to                                Potential Realizable Value at    
                         Options      Employees in    Exercise     Expiration    Assumed Annual Rates of Stock    
Name                  Granted(2)(#)    Period (%)    Price ($/Sh)    Date        Price Appreciation for Option(1)
----                 ------------------------------------------------------------------------------------------
                                                                                   5% ($)          10% ($)
                     ------------------------------------------------------------------------------------------

<S>                      <C>               <C>          <C>         <C>            <C>            <C>   
Charles Cimitile         25,000            16.1         2.39        3/31/14        37,596         95,226

Kori G. Belzer           25,000            16.1         2.39        3/31/14        37,596         95,226

Patricia Franco          25,000            16.1         2.39        3/31/14        37,596         95,226
</TABLE>

____________

(1)      The potential realizable value is calculated based upon the term of the
         option at its time of grant.  It is  calculated  by  assuming  that the
         stock price on the date of grant  appreciates  at the indicated  annual
         rate, compounded annually for the entire term of the option.
(2)      These  options vest over  four-year  periods at a rate of 25% per year,
         beginning on the first anniversary of the date of grant.


Aggregated Stock Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

        The  following  table sets forth the number of shares of Common Stock of
the Company purchased by each of the Named Executive Officers in the exercise of
stock options during the year ended December 31, 2004, the value realized in the
purchase  of such shares  (the  market  value at the time of  exercise  less the
exercise  price to purchase such  shares),  and the number of shares that may be
purchased and value of the exercisable and unexercisable options held by each of
the Named Executive Officers at December 31, 2004.


<TABLE>
<CAPTION>
                                                                Number of Securities Underlying        Value of Unexercised
                                                                 Unexercised Options at Fiscal    In-the-Money Options at Fiscal
                                                                         Year-End (#)                       Year-End ($)
                                                               ---------------------------------- --------------------------------
                           Shares Acquired        Value
Name                       on Exercise (#)     Realized ($)      Exercisable      Unexercisable    Exercisable     Unexercisable
----                       -----------------  ---------------  ----------------  ---------------- --------------  ----------------

<S>                                 <C>                 <C>             <C>                 <C>            <C>            <C>
Robert G. Brown                      --                 --               --              95,746             --              --
William H. Bartels                   --                 --               --              58,999             --              --
Charles Cimitile                     --                 --           25,000              85,000         10,625              --
Kori G. Belzer                       --                 --           11,500              94,500          4,513              88
Patricia Franco                      --                 --           11,500              79,500          4,513              88
</TABLE>



Stock Option and Purchase Plans

        The Company has four stock option  plans:  the Amended and Restated 1995
Stock Option Plan ("1995 Plan"),  the 1995 Director's Plan ("Director's  Plan"),
the Special Purpose Stock Option Plan (the "Special Purpose Plan"), and the 2000
Stock Option Plan ("2000 Plan").

        The  1995  Plan  provided  for  the  granting  of  either  incentive  or
nonqualified stock options to specific employees,  consultants, and directors of
the Company for the purchase of up to 3,500,000  shares of the Company's  common
stock. The options had a term of ten years from the date of issuance,  except in
the case of incentive stock options granted to greater than 10% stockholders for
which the term was five years. The exercise price of nonqualified  stock options
must have been equal to at least 85% of the fair market  value of the  Company's
common stock at the date of grant.  Since 2000,  the Company has not granted any
new options under this plan.  During 2004,  1,500 options to purchase  shares of
the Company's  common stock were exercised and options to purchase 26,625 shares
of the  Company's  stock were  cancelled  




                                      -32-

<PAGE>

under this plan. At December 31, 2004,  options to purchase 15,125 shares of the
Company's  common stock remain  outstanding  under this plan.  The 1995 Plan was
superseded by the 2000 Plan with respect to all new options issued.

        The Director's Plan was a stock option plan for  non-employee  directors
and provided for the purchase of up to 120,000  shares of the  Company's  common
stock.  Since 2000, the Company has not granted any new options under this plan.
During 2004, no options to purchase  shares of the  Company's  common stock were
exercised  under this plan.  At December  31, 2004,  20,000  options to purchase
shares of the Company's common stock remained  outstanding  under this plan. The
Director's  Plan has been  replaced  by the 2000  Plan with  respect  to all new
options issued.

        On July 8, 1999, in connection with the merger, the Company  established
the Special Purpose Plan of PIA Merchandising  Services, Inc. to provide for the
issuance of substitute options to the holders of outstanding  options granted by
SPAR  Acquisition,  Inc. There were 134,114  options granted at $0.01 per share.
Since July 8, 1999, the Company has not granted any new options under this plan.
During 2004,  21,000  options to purchase  shares of the Company's  common stock
were exercised under this plan. At December 31, 2004,  options to purchase 4,750
shares of the Company's common stock remain outstanding under this plan.

        On December 4, 2000, the Company adopted the 2000 Plan, as the successor
to the 1995 Plan and the Director's Plan with respect to all new options issued.
The 2000 Plan  provides  for the granting of either  incentive  or  nonqualified
stock options to specified employees,  consultants, and directors of the Company
for the purchase of up to 3,600,000 (less those options still  outstanding under
the 1995 Plan or  exercised  after  December 4, 2000 under the 1995  Plan).  The
options have a term of ten years,  except in the case of incentive stock options
granted to greater than 10%  stockholders  for whom the term is five years.  The
exercise  price of  nonqualified  stock options must be equal to at least 85% of
the  fair  market  value  of the  Company's  common  stock  at the date of grant
(although  typically  the options are issued at 100% of the fair market  value),
and the exercise price of incentive  stock options must be equal to at least the
fair market value of the  Company's  common  stock at the date of grant.  During
2004,  options to purchase  476,417  shares of the  Company's  common stock were
granted,  options to purchase  53,302 shares of the Company's  common stock were
exercised and options to purchase  1,345,542  shares of the Company's stock were
voluntarily  surrendered  and  cancelled  under this plan. At December 31, 2004,
options to  purchase  1,251,383  shares of the  Company's  common  stock  remain
outstanding  under this plan and  options to  purchase  1,618,719  shares of the
Company's common stock were available for grant under this plan.

        In 2001,  SGRP adopted its 2001 Employee  Stock  Purchase Plan (the "ESP
Plan"),  which replaced its earlier existing plan, and its 2001 Consultant Stock
Purchase  Plan (the "CSP Plan").  These plans were each  effective as of June 1,
2001.  The ESP Plan allows  employees  of the  Company,  and the CSP Plan allows
employees of the affiliates of the Company (see Item 13 - Certain  Relationships
and Related  Transactions,  below),  to purchase  SGRP's  Common Stock from SGRP
without having to pay any brokerage commissions. On August 8, 2002, SGRP's Board
approved a 15%  discount  for  employee  purchases of Common Stock under the ESP
Plan and  recommended  that its  affiliates  pay a 15% cash bonus for  affiliate
consultant purchases of Common Stock under the CSP Plan.

Compensation of Directors

        The Company's  Compensation  Committee administers the compensation plan
for its outside  Directors as well as the compensation for its executives.  Each
member of the Company's Board who is not otherwise an employee or officer of the
Company or any  subsidiary  or  affiliate  of the Company  (each,  an  "Eligible
Director") is eligible to receive the compensation contemplated under such plan.

        In January  2001,  SGRP adopted the Director  Compensation  Plan for its
outside  Directors,  as  approved  by the  Board,  as  amended  (the  "Directors
Compensation  Plan").  SGRP's Compensation  Committee  administers the Directors
Compensation Plan as well as the compensation for SGRP's executives.

        Under the Directors  Compensation  Plan, each member of SGRP's Board who
is not  otherwise an employee or officer of SGRP or any  subsidiary or affiliate
of SGRP (each, a "Non-Employee Director") is eligible to receive director's fees
of  $30,000  per  annum  (plus an  additional  $5,000  per  annum  for the Audit
Committee  Chairman),  payable  quarterly.  Each  quarterly  installment of such
director's  fees  ($7,500  plus an  additional  $1,250  for the Audit  Committee
Chairman) is paid half in cash and half in stock  options to purchase  shares of
SGRP's common stock.  Prior to May 2004,  SGRP issued such stock options with an
exercise  price of $0.01 per  share.  The  number of option  shares  issued  was
calculated by dividing the amount of compensation to be paid in stock options by
the  closing  stock  price  at the  end  of  each  quarter.  In  May  2004,  the
Compensation  Committee  approved and recommended and the Board adopted a change
in this policy to instead  issue such stock  options for the  purchase of common
stock with an exercise  price  equal to 100% of the fair 


                                      -33-

<PAGE>

market value of SGRP's  common stock at the end of each  quarter.  The number of
option  shares to be issued  will be equal to three  times the  quotient  of the
amount of  compensation to be paid in stock options divided by the closing stock
price at the end of each  quarter.  The  Compensation  Committee  and the  Board
determined  that this revised policy more fairly  compensated  the  Non-Employee
Directors.

        In addition  upon  acceptance  of the  directorship,  each  Non-Employee
Director  receives options to purchase 10,000 shares of SGRP's common stock with
an exercise  price equal to 100% of the fair market value of SGRP's common stock
at the date of grant,  options to purchase  10,000  additional  shares of SGRP's
common  stock with an exercise  price equal to 100% of the fair market  value of
SGRP's  common  stock at the date of grant after one year of service and options
to purchase  10,000  additional  shares of SGRP's  common stock with an exercise
price equal to 100% of the fair market value of SGRP's  common stock at the date
of grant for each additional year of service thereafter.

        All of those  options to  Non-Employee  Directors  have been and will be
granted  under the 2000 Plan  described  above,  under  which each member of the
Board is eligible to participate.  Non-Employee Directors will be reimbursed for
all reasonable expenses incurred during the course of their duties.  There is no
additional  compensation for committee  participation,  phone meetings, or other
Board activities.

Severance Agreements

        The  Company has entered  into a Change of Control  Severance  Agreement
with each of Patricia Franco, the Company's Chief Information  Officer, and Kori
G. Belzer, the Company's Chief Operating Officer,  each providing for a lump sum
severance  payment and other  accommodations  from the  Company to the  employee
under certain  circumstances  if, pending or following a change in control,  the
employee leaves for good reason or is terminated other than in a termination for
cause. The payment is equal to the sum of the employee's  monthly salary times a
multiple  equal to 24 months less the number of months by which the  termination
of  employment  followed the change in control plus the maximum bonus that would
have  been paid to the  employee  (not to exceed  25% of the  employee's  annual
salary).

Compensation Committee Interlocks and Insider Participation

        No member of the Board's  Compensation  Committee was at any time during
the year ended December 31, 2004, or at any other time an officer or employee of
the  Company.  No executive  officer or board member of the Company  serves as a
member of the board of directors or compensation  committee of any other entity,
that has one or more  executive  officers  serving as a member of the  Company's
Board or Compensation  Committee,  except for the positions of Messrs. Brown and
Bartels  as  directors  and  officers  of the  Company  (including  each  of its
subsidiaries) and each of its affiliates,  including SMS, SMSI and SIT (see Item
13 - Certain Relationships and Related Transactions, below).




                                      -34-

<PAGE>



Item 12.   Security Ownership of Certain Beneficial Owners and Management.

Security Ownership of Certain Beneficial Owners of the Company

        The following table sets forth certain information  regarding beneficial
ownership of the Company's common stock as of March 15, 2005 by: (i) each person
(or group of affiliated persons) who is known by the Company to own beneficially
more  than  5% of the  Company's  common  stock;  (ii)  each  of  the  Company's
directors;   (iii)  each  of  the  Named  Executive   Officers  in  the  Summary
Compensation  Table;  and (iv) the Company's  directors and such Named Executive
Officers as a group.  Except as  indicated in the  footnotes to this table,  the
persons named in the table, based on information provided by such persons,  have
sole voting and sole investment power with respect to all shares of common stock
shown as beneficially  owned by them,  subject to community  property laws where
applicable.


<TABLE>
<CAPTION>
                                                                                    Number of Shares
               Title of Class            Name and Address of Beneficial Owner      Beneficially Owned   Percentage

<S>                                  <C>                                              <C>                 <C>  
        Common Shares                Robert G. Brown (1)                               8,622,407 (2)       45.5%
        Common Shares                William H. Bartels (1)                            5,549,842 (3)       29.4%
        Common Shares                Robert O. Aders (1)                                 134,543 (4)         *
        Common Shares                Jack W. Partridge (1)                                78,633 (5)         *
        Common Shares                Jerry B. Gilbert (1)                                 71,974 (6)         *
        Common Shares                Lorrence T. Kellar (1)                               68,602 (7)         *
        Common Shares                Charles Cimitile (1)                                107,500 (8)         *
        Common Shares                Kori G. Belzer (1)                                   97,951 (9)         *
        Common Shares                Patricia Franco (1)                                 141,998 (10)        *
        Common Shares                Richard J. Riordan (11)
                                     300 South Grand Avenue, Suite 2900
                                     Los Angeles, California 90071                     1,209,922            6.4%
        Common Shares                Heartland Advisors, Inc. (12)
                                     790 North Milwaukee Street
                                     Milwaukee, Wisconsin 53202                        1,300,000            6.9%
        Common Shares                Executive Officers and Directors                 14,873,450           79.0%
</TABLE>


* Less than 1%

(1)      The  address of such owners is c/o SPAR Group,  Inc.  580 White  Plains
         Road, Tarrytown, New York 10591.
(2)      Includes  1,800,000  shares held by a grantor  trust for the benefit of
         certain  family  members of Robert G. Brown over which Robert G. Brown,
         James R. Brown,  Sr. and  William H.  Bartels  are  trustees.  Includes
         95,747 shares issuable upon exercise of options.
(3)      Excludes  1,800,000  shares held by a grantor  trust for the benefit of
         certain  family  members of Robert G. Brown over which Robert G. Brown,
         James R. Brown,  Sr. and William H.  Bartels are  trustees,  beneficial
         ownership  of which are  disclaimed  by Mr.  Bartels.  Includes  58,999
         shares issuable upon exercise of options.
(4)      Includes 62,889 shares issuable upon exercise of options.
(5)      Includes 67,665 shares issuable upon exercise of options.
(6)      Includes 71,974 shares issuable upon exercise of options.
(7)      Includes 62,454 shares issuable upon exercise of options.
(8)      Includes 107,500 shares issuable upon exercise of options.
(9)      Includes 96,000 shares issuable upon exercise of options.
(10)     Includes 88,500 shares issuable upon exercise of options.
(11)     Share  ownership was confirmed with the Company's  stock transfer agent
         and the principal.
(12)     All  information  regarding share ownership is taken from and furnished
         in reliance upon the Schedule 13G (Amendment No. 9), filed by Heartland
         Advisors,  Inc. with the Securities and Exchange Commission on December
         31, 2004.



                                      -35-

<PAGE>


Equity Compensation Plans

        The following table contains a summary of the number of shares of Common
Stock of the Company to be issued upon the  exercise  of options,  warrants  and
rights outstanding at December 31, 2004, the weighted-average  exercise price of
those  outstanding  options,  warrants and rights,  and the number of additional
shares of Common Stock  remaining  available for future issuance under the plans
as at December 31, 2004.

<TABLE>
<CAPTION>
                                                      Equity Compensation Plan Information
    ----------------------------- -------------------------- ------------------------- -------------------------
                                   Number of securities to       Weighted average        Number of securities
                                   be issued upon exercise      exercise price of      remaining available for
                                   of outstanding options,     outstanding options,       future issuance of
                                   warrants and rights (#)   warrants and rights ($)    options, warrants and
           Plan category                                                                      rights (#)
    ----------------------------- -------------------------- ------------------------- -------------------------

<S>                                       <C>                           <C>                   <C>      
    Equity compensation plans             1,291,258                     $1.66                 1,618,719
    approved by security
    holders
    ----------------------------- -------------------------- ------------------------- -------------------------
    Equity compensation plans
    not approved by security
    holders                                      --                        --                        --
    ----------------------------- -------------------------- ------------------------- -------------------------
    Total                                 1,291,258                     $1.66                 1,618,719
    ----------------------------- -------------------------- ------------------------- -------------------------
</TABLE>



Item 13.   Certain Relationships and Related Transactions.

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

        SMS  and  SMSI  provided   approximately  99%  of  the  Company's  field
representatives   (through   its   independent   contractor   field  force)  and
approximately  92%  of  the  Company's  field  management  at a  total  cost  of
approximately  $24.0 million,  $36.0 million,  and $30.5 million for 2004, 2003,
and 2002, respectively.  Pursuant to the terms of the Amended and Restated Field
Service  Agreement  dated as of January 1, 2004,  SMS  provides  the services of
SMS's field force of approximately 6,300 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 50 full-time national,
regional and district managers to the Company.  For those services,  the Company
has agreed to reimburse  SMS and SMSI for all of their costs of providing  those
services and to pay SMS and SMSI each a premium equal to 4% of their  respective
costs,  except that for 2004 SMSI agreed to concessions that reduced the premium
paid by approximately  $640,000 for 2004. Total net premiums (4% of SMS and SMSI
costs less 2004  concessions)  paid to SMS and SMSI for services  rendered  were
approximately  $320,000,  $1,350,000,  and $1,100,000 for 2004,  2003, and 2002,
respectively.  The Company has been advised  that Messrs.  Brown and Bartels are
not  paid any  salaries  as  officers  of SMS or SMSI so  there  were no  salary
reimbursements  for them included in such costs or premium.  However,  since SMS
and SMSI are "Subchapter S" corporations, Messrs. Brown and Bartels benefit from
any income of such companies allocated to them.

        SIT  provided  substantially  all of the Internet  computer  programming
services to the Company at a total cost of approximately $1,170,000, $1,610,000,
and  $1,630,000  for  2004,   2003,   and  2002,   respectively.   SIT  provided
approximately 34,000,  47,000, and 46,000 hours of Internet computer programming
services to the Company for 2004, 2003, and 2002, 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 $34.71,  $34.24,  and $35.10
for 2004,  2003,  and 2002,  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  2004.  However,  since  SIT  is a  "Subchapter  S"
corporation,  Messrs.  Brown and Bartels benefit from any income of such company
allocated to them.

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



                                      -36-

<PAGE>

computers  to be used by  field  merchandisers  in the  performance  of  various
merchandising  services  in Canada.  These  handheld  computers  had an original
purchase price of $105,000.

        The  Company's  agreements  with  SMS,  SMSI  and SIT  are  periodically
reviewed by the Company's Audit Committee,  which includes an examination of the
overall  fairness of the  arrangements.  In February 2004,  the Audit  Committee
approved  separate  amended and restated  agreements  with each of SMS, SMSI and
SIT,  effective  as of January  1,  2004.  The  restated  agreements  extend the
contract maturities for four years,  strengthened various contractual provisions
in each  agreement  and  continued  the  basic  economic  terms of the  existing
agreements,  except that the restated agreement with SMSI provides for temporary
concessions to the Company by SMSI totalling approximately $640,000 for 2004.

        In July  1999,  SMF,  SMS  and SIT  entered  into a  Software  Ownership
Agreement with respect to Internet job scheduling  software jointly developed by
such parties. In addition,  SPAR Trademarks,  Inc. ("STM"),  SMS and SIT entered
into  trademark  licensing  agreements  whereby  STM has  granted  non-exclusive
royalty-free  licenses to SIT, SMS and SMSI for their  continued use of the name
"SPAR" and certain other  trademarks  and related  rights  transferred to STM, a
wholly owned subsidiary of the Company.

        Messrs.  Brown and  Bartels  also  collectively  own,  through  SMSI,  a
minority  (less than 5%) equity  interest  in  Affinity  Insurance  Ltd.,  which
provides certain insurance to the Company.

        In  April  2003,   all  previously   outstanding   amounts  due  certain
stockholders under certain notes were paid in full.

        In the  event of any  material  dispute  in the  business  relationships
between the Company and SMS, SMSI, or SIT, it is possible that Messrs.  Brown or
Bartels  may  have one or more  conflicts  of  interest  with  respect  to these
relationships  and such  dispute  could  have a material  adverse  effect on the
Company.


Item 14. Principal Accountant Fees and Services.

        On  October  4,  2004,  Ernst  &  Young  LLP  ("E&Y")  resigned  as  the
independent   registered   public  accounting  firm  for  the  Company  and  its
subsidiaries.  The  resignation was effective upon completion of E&Y's review of
the interim  financial  information for the Company's third fiscal quarter ended
September  30, 2004,  and the filing of the Company's  quarterly  report on Form
10-Q for such period.

        In January 2005, the Company,  with the approval of the Company's  Audit
Committee,  appointed Rehmann Robson  ("Rehmann") as its independent  registered
public accounting firm to audit the financial  statements of the Company for its
year ending December 31, 2004.

        The  Company  and its  subsidiaries  did not  engage  Rehmann  or E&Y to
provide advice regarding financial information systems design or implementation,
but did engage E&Y for tax consulting  services  related to the PHI/SPGI ESOP in
2003  (for  which  E&Y was paid  $3,778),  due  diligence  services  for the IMS
acquisition during 2003 (for which E&Y was paid $14,334) and for tax services in
2003 (for which E&Y was paid $2,295). No other non-audit services were performed
by  Rehmann  or E&Y in 2004 or  2003.  Since  2003,  as  required  by law,  each
non-audit  service performed by the Company's auditor either (i) was approved in
advance on a case-by-case  basis by the Company's Audit  Committee,  or (ii) fit
within a pre-approved  "basket" of non-audit  services of limited amount,  scope
and  duration  established  in  advance by the  Company's  Audit  Committee.  In
connection  with the standards  for  independence  of the Company's  independent
public accountants  promulgated by the Securities and Exchange  Commission,  the
Audit  Committee  considers  (among other things)  whether the provision of such
non-audit  services would be compatible  with  maintaining  the  independence of
Rehmann or E&Y.

Audit Fees

        During the  Company's  fiscal  year ended  December  31,  2004 and 2003,
respectively,  fees billed by E&Y for all audit services rendered to the Company
and its subsidiaries  were $100,203 and $179,362,  respectively.  Audit services
principally include fees for the Company's audits and 10-Q filing reviews. Since
2003,  as required  by law,  the choice of the  Company's  auditor and the audit
services to be  performed by it have been  approved in advance by the  Company's
Audit Committee.



                                      -37-

<PAGE>



                                     PART IV


Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) 1. Index to Financial Statements filed as part of this report:


       Reports of Independent Registered Public Accounting Firms 
                                                  - Rehmann Robson.         F-1

                                                  - Ernst & Young LLP.      F-2

       Consolidated Balance Sheets as of December 31, 2004, and 
        December 31, 2003.                                                  F-3

       Consolidated Statements of Operations for the years ended
       December 31, 2004, December 31, 2003, and December 31, 2002.         F-4

       Consolidated Statements of Stockholders' Equity for the years
       ended December 31, 2004, December 31, 2003, and December 31, 2002.   F-5

       Consolidated Statements of Cash Flows for the years ended
       December 31, 2004, December 31, 2003, and December 31, 2002.         F-6

       Notes to Financial Statements.                                       F-7

2.     Financial Statement Schedules.

       Schedule II - Valuation and Qualifying Accounts for the three 
        years ended December 31, 2004.                                      F-30

3.     Exhibits.

        Exhibit
        Number            Description
        ------            -----------

         3.1      Certificate of Incorporation of SPAR Group, Inc.  (referred to
                  therein under its former name PIA),  as amended  (incorporated
                  by reference to the Company's  Registration  Statement on Form
                  S-1 (Registration No. 33-80429),  as filed with the Securities
                  and  Exchange  Commission  ("SEC") on  December  14, 1995 (the
                  "Form S-1")),  and the Certificate of Amendment filed with the
                  Secretary  of State of the State of  Delaware  on July 8, 1999
                  (which, among other things, changes the Company's name to SPAR
                  Group, Inc.)  (incorporated by reference to Exhibit 3.1 to the
                  Company's  Form 10-Q for the 3rd Quarter  ended  September 30,
                  1999).

         3.2      Amended and Restated  By-Laws of SPAR Group,  Inc.  adopted on
                  May 18,  2004  (incorporated  by  reference  to the  Company's
                  report on Form 8-K, as filed on May 27, 2004).

         3.3      Amended and  Restated  Charter of the Audit  Committee  of the
                  Board of Directors of SPAR Group,  Inc.,  adopted May 18, 2004
                  (incorporated  by  reference to the  Company's  report on Form
                  8-K, as filed on May 27, 2004).

         3.4      Charter  of  the  Compensation   Committee  of  the  Board  of
                  Directors  of  SPAR  Group,  Inc.  adopted  on  May  18,  2004
                  (incorporated  by  reference to the  Company's  report on Form
                  8-K, as filed on May 27, 2004).

         3.5      Charter of the Governance  Committee of the Board of Directors
                  of SPAR Group,  Inc. adopted on May 18, 2004  (incorporated by
                  reference to the Company's report on Form 8-K, as filed on May
                  27, 2004).

         3.6      SPAR Group, Inc.  Statement of Policy  Respecting  Stockholder
                  Communications  with  Directors,   adopted  on  May  18,  2004
                  (incorporated  by  reference to the  Company's  report on Form
                  8-K, as filed on May 27, 2004).



                                      -38-

<PAGE>

         3.7      SPAR  Group,  Inc.  Statement  of  Policy  Regarding  Director
                  Qualifications  and  Nominations,  adopted  on  May  18,  2004
                  (incorporated  by  reference to the  Company's  report on Form
                  8-K, as filed on May 27, 2004).

         4.1      Registration  Rights Agreement  entered into as of January 21,
                  1992,  by and  between  RVM Holding  Corporation,  RVM/PIA,  a
                  California  Limited  Partnership,  The Riordan  Foundation and
                  Creditanstalt-Bankverine  (incorporated  by  reference  to the
                  Form S-1).

         10.1     2000 Stock Option Plan, as amended, (incorporated by reference
                  to the Company's  Proxy  Statement  for the  Company's  Annual
                  meeting held on August 2, 2001,  as filed with the SEC on July
                  12, 2001).

         10.2     2001 Employee Stock Purchase Plan  (incorporated  by reference
                  to the Company's  Proxy  Statement  for the  Company's  Annual
                  meeting held on August 2, 2001,  as filed with the SEC on July
                  12, 2001).

         10.3     2001 Consultant Stock Purchase Plan (incorporated by reference
                  to the Company's  Proxy  Statement  for the  Company's  Annual
                  meeting held on August 2, 2001,  as filed with the SEC on July
                  12, 2001).

         10.4     Amended  and  Restated  Field  Service   Agreement  dated  and
                  effective as of January 1, 2004, by and between SPAR Marketing
                  Services,  Inc., and SPAR Marketing Force, Inc.  (incorporated
                  by reference to the  Company's  quarterly  report on Form 10-Q
                  for the  quarter  ended  March 31,  2004,  as filed on May 21,
                  2004).

         10.5     Amended and  Restated  Field  Management  Agreement  dated and
                  effective  as  of  January  1,  2004,   by  and  between  SPAR
                  Management  Services,  Inc.,  and SPAR Marketing  Force,  Inc.
                  (incorporated  by reference to the Company's  quarterly report
                  on Form 10-Q for the quarter ended March 31, 2004, as filed on
                  May 21, 2004).


         10.6     Amended and Restated  Programming and Support  Agreement dated
                  and  effective  as of  January 1, 2004,  by and  between  SPAR
                  InfoTech,  Inc., and SPAR Marketing Force, Inc.  (incorporated
                  by reference to the  Company's  quarterly  report on Form 10-Q
                  for the  quarter  ended  March 31,  2004,  as filed on May 21,
                  2004).

         10.7     Trademark  License  Agreement dated as of July 8, 1999, by and
                  between SPAR Marketing  Services,  Inc., and SPAR  Trademarks,
                  Inc. (incorporated by reference to the Company's Form 10-K for
                  the fiscal year ended December 31, 2002).

         10.8     Trademark  License  Agreement dated as of July 8, 1999, by and
                  between  SPAR  Infotech,  Inc.,  and  SPAR  Trademarks,   Inc.
                  (incorporated  by reference to the Company's Form 10-K for the
                  fiscal year ended December 31, 2002).

         10.9     Stock  Purchase and Sale  Agreement  by and among  Performance
                  Holdings,  Inc. and SPAR Incentive Marketing,  Inc., effective
                  as  of  June  30,  2002  (incorporated  by  reference  to  the
                  Company's Form 10-Q for the quarter ended June 30, 2002).

         10.10    Revolving Credit, Guaranty and Security Agreement by and among
                  Performance Holdings, Inc. and SPAR Incentive Marketing, Inc.,
                  effective  as of June 30, 2002  (incorporated  by reference to
                  the Company's Form 10-Q for the quarter ended June 30, 2002).

         10.11    Term  Loan,  Guaranty  and  Security  Agreement  by and  among
                  Performance Holdings, Inc. and SPAR Incentive Marketing, Inc.,
                  effective  as of June 30, 2002  (incorporated  by reference to
                  the Company's Form 10-Q for the quarter ended June 30, 2002).

         10.12    Promissory  Note in the  principal  amount of  $764,271.00  by
                  STIMULYS,  Inc., in favor of SPAR Incentive  Marketing,  Inc.,
                  dated as of September 10, 2004, as filed herewith.



                                      -39-

<PAGE>

         10.13    Payoff and Release Letter by and between  STIMULYS,  Inc., and
                  SPAR  Incentive  Marketing,  Inc.,  dated as of September  10,
                  2004, as filed herewith.

         10.14    Sales  Proceeds  Agreement by and between  STIMULYS,  Inc. and
                  SPAR  Incentive  Marketing,  Inc.,  dated as of September  10,
                  2004, as filed herewith.

         10.15    Third  Amended  and  Restated  Revolving  Credit and  Security
                  Agreement by and among Whitehall  Business Credit  Corporation
                  (the "Lender") with SPAR Marketing  Force,  Inc.,  SPAR Group,
                  Inc., SPAR, Inc.,  SPAR/Burgoyne  Retail Services,  Inc., SPAR
                  Incentive  Marketing,   Inc.,  SPAR  Trademarks,   Inc.,  SPAR
                  Marketing,   Inc.  (DE),  SPAR  Marketing,   Inc.  (NV),  SPAR
                  Acquisition,  Inc.,  SPAR  Group  International,   Inc.,  SPAR
                  Technology Group, Inc., SPAR/PIA Retail Services, Inc., Retail
                  Resources,    Inc.,   Pivotal   Field   Services   Inc.,   PIA
                  Merchandising  Co.,  Inc.,  Pacific  Indoor  Display  Co.  and
                  Pivotal   Sales   Company    (collectively,    the   "Existing
                  Borrowers"),  dated as of January  24, 2003  (incorporated  by
                  reference to the Company's Form 10-K for the fiscal year ended
                  December 31, 2002).

         10.16    Waiver  And  Amendment  No. 3 To Third  Amended  And  Restated
                  Revolving  Credit And  Security  Agreement  entered into as of
                  March 26, 2004  (incorporated  by reference  to the  Company's
                  report on Form 8-K, as filed on May 26, 2004).

         10.17    Joinder,  Waiver  And  Amendment  No. 4 To Third  Amended  And
                  Restated  Revolving Credit And Security Agreement entered into
                  as of May 17, 2004 (incorporated by reference to the Company's
                  report on Form 8-K, as filed on May 26, 2004).

         10.18    Waiver and Amendment to Third  Amended and Restated  Revolving
                  Credit and Security  Agreement by and among the Lender and the
                  Borrowers dated as of January 2004  (incorporated by reference
                  to the  Company's  report on Form  10-K/A  for the year  ended
                  December 31, 2003, as filed on June 28, 2004).

         10.19    Waiver  and  Amendment  No. 5 to Third  Amended  and  Restated
                  Revolving Credit and Security Agreement among Webster Business
                  Credit  Corporation,  SPAR  Group,  Inc.,  and  certain of its
                  subsidiaries  dated as of August  20,  2004  (incorporated  by
                  reference  to the  Company's  quarterly  report of the quarter
                  ended June 30, 2004, as filed on August 23, 2004).

         10.20    Waiver  and  Amendment  No. 6 to Third  Amended  and  Restated
                  Revolving Credit and Security Agreement among Webster Business
                  Credit  Corporation,  SPAR  Group,  Inc.,  and  certain of its
                  subsidiaries  dated as of November 12, 2004  (incorporated  by
                  reference to the  Company's  quarterly  report for the quarter
                  ended September 30, 2004, filed November 17, 2004).

         10.21    Waiver to the Third Amended and Restated  Revolving Credit and
                  Security Agreement among Webster Business Credit  Corporation,
                  SPAR Group,  Inc., and certain of its subsidiaries dated as of
                  March 31, 2004, as filed herewith.

         10.22    Consent,  Joinder, Release and Amendment Agreement dated as of
                  October  31,  2003,  by and among  the  Lender,  the  Existing
                  Borrowers  and SPAR All Store  Marketing,  Inc., as a Borrower
                  (incorporated  by reference to the Company's Form 10-K for the
                  fiscal year ended December 31, 2003).

         10.23    Change in Control Severance  Agreement between Kori Belzer and
                  SPAR Group, Inc., dated as of August 12, 2004 (incorporated by
                  reference  to the  Company's  quarterly  report of the quarter
                  ended June 30, 2004, as filed on August 23, 2004).

         10.24    Change in Control Severance  Agreement between Patricia Franco
                  and  SPAR   Group,   Inc.,   dated  as  of  August  12,   2004
                  (incorporated  by reference to the Company's  quarterly report
                  of the  quarter  ended June 30,  2004,  as filed on August 23,
                  2004).



                                      -40-

<PAGE>

         10.25    Master Lease Agreement by and between SPAR Marketing Services,
                  Inc. and SPAR Marketing Force,  Inc. dated as of November 2004
                  relating to lease of  handheld  computer  equipment,  as filed
                  herewith.

         10.26    Master Lease Agreement by and between SPAR Marketing Services,
                  Inc. and SPAR Canada Company dated as of January 2005 relating
                  to lease of handheld computer equipment, as filed herewith.

         10.27    Joint  Venture  Agreement  dated as of March 26, 2004,  by and
                  between Solutions  Integrated Marketing Services Ltd. and SPAR
                  Group International, Inc. as filed herewith.

         10.28    Joint Venture  Shareholders  Agreement between  Friedshelf 401
                  (Proprietary)  Limited, SPAR Group International,  Inc., Derek
                  O'Brien,  Brian  Mason,  SMD  Meridian  CC,  Meridian  Sales &
                  Mnrechandisign  (Western Cape) CC, Retail  Consumer  Marketing
                  CC,  Merhold   Holding  Trust  in  respect  of  SGRP  Meridian
                  (Proprietary)  Limited,  dated as of June 25,  2004,  as filed
                  herewith.

         10.29    Joint  Venture  Agreement  dated as of July 21,  2003,  by and
                  between CEO  Produksiyon  Tanitim ve Arastirma  Hizmetleri Ltd
                  Sti and SPAR Group International, Inc., as filed herewith.

         10.30    Joint  Venture  Agreement  dated  as of  May 1,  2001,  by and
                  between  Paltac  Corporation  and SPAR Group,  Inc.,  as filed
                  herewith.

         10.31    Agreement  on  Amendment  dated as of August 1,  2004,  by and
                  between  SPAR Group,  Inc. and SPAR FM Japan,  Inc.,  as filed
                  herewith.

         10.32    Joint Venture  Agreement  dated as of January 26, 2005, by and
                  between   Best  Mark   Investments   Holdings   Ltd  and  SPAR
                  International Ltd. as filed herewith.

         10.33    Joint Venture  Agreement dated as of December 14, 2004, by and
                  between Field Insights  S.R.L.  and SPAR Group  International,
                  Inc., as filed herewith.

         14.1     Code of Ethical Conduct for the Directors,  Senior  Executives
                  and  Employees,  of  SPAR  Group,  Inc.,  dated  May  1,  2004
                  (incorporated  by reference to the Company's Form 8-K filed on
                  May 5, 2004).

         14.2     Statement of Policy Regarding Personal Securities  Transaction
                  in Company Stock and  Non-Public  Information,  as amended and
                  restated  on May 1, 2004  (incorporated  by  reference  to the
                  Company's Form 8-K filed on May 5, 2004).

         21.1     List of Subsidiaries.

         23.1     Consent of Rehmann Robson.

         23.2     Consent of Ernst & Young LLP.

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

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

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



                                      -41-

<PAGE>

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

(b)     Reports on Form 8-K.

        Form  8-K -  Changes  in  Registrant's  Certifying  Accountant  filed on
        October 8, 2004,  respecting the resignation of Ernst & Young LLP as the
        Company's Independent Auditors.

        Form 8-K -  Results  of  Operations  and  Financial  Condition  filed on
        November 12, 2004,  attaching press release respecting financial results
        for the third quarter ended September 30, 2004.

        Form 8-K -  Unscheduled  Material  Events  filed  on  February  4,  2005
        respecting,  appointment of Rehmann Robson as the Company's  Independent
        Auditors.





                                      -42-

<PAGE>


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant has duly caused this amendment to the report to be
signed on its behalf by the undersigned, thereunto duly authorized.


                                    SPAR Group, Inc.

                                    By:   /s/ Robert G. Brown
                                          --------------------------------------
                                          Robert G. Brown
                                          President, Chief Executive Officer and
                                          Chairman of the Board
                                       
                                    Date: April 12, 2005

Pursuant  to the  requirements  of the  Securities  Exchange  Act of 1934,  this
amendment to the report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated.

SIGNATURE                           TITLE

/s/ Robert G. Brown          President, Chief Executive Officer, Director,
-----------------------      and Chairman of the Board
    Robert G. Brown   
Date: April 12, 2005


/s/ William H. Bartels       Vice Chairman and Director
-----------------------      
    William H. Bartels
Date: April 12, 2005

/s/ Robert O. Aders          Director
-----------------------      
    Robert O. Aders
Date: April 12, 2005


/s/ Jack W. Partridge        Director
-----------------------      
    Jack W. Partridge
Date: April 12, 2005


/s/ Jerry B. Gilbert         Director
-----------------------      
    Jerry B. Gilbert
Date: April 12, 2005


/s/ Lorrence T. Kellar       Director
-----------------------      
    Lorrence T. Kellar
Date: April 12, 2005

/s/ Charles Cimitile         Chief Financial Officer, Treasurer and 
-----------------------      Secretary (Principal Financial and 
    Charles Cimitile         Accounting Officer)
Date: April 12, 2005





                                      -43-

<PAGE>


                   Report of Registered Public Accounting Firm



The Board of Directors and Stockholders
SPAR Group, Inc. and Subsidiaries
Tarrytown, New York

We have  audited  the  consolidated  balance  sheet  of  SPAR  Group,  Inc.  and
Subsidiaries as of December 31, 2004, and the related consolidated statements of
operations,  stockholders'  equity,  and cash flows for the year then ended. Our
audit also included the financial  statement  schedule (2004  information  only)
listed in the Index at Item 15(a). These consolidated  financial  statements and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these consolidated financial statements and schedule
(2004 information only) based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our  opinion,  based on our  audit,  the  consolidated  financial  statements
referred to above present fairly,  in all material  respects,  the  consolidated
financial position of SPAR Group, Inc. and Subsidiaries as of December 31, 2004,
and the  consolidated  results of their  operations and their cash flows for the
year  then  ended,  in  conformity  with  U.S.  generally  accepted   accounting
principles.   Also,  in  our  opinion,  the  related  financial  schedule  (2004
information  only),  when considered in relation to the  consolidated  financial
statements  taken as a whole,  presents  fairly in all  material  respects,  the
information set forth therein.


                               /s/ Rehmann Robson

Troy, Michigan
February 28, 2005




                                      F-1

<PAGE>


                   Report of Registered Public Accounting Firm



The Board of Directors and Stockholders
SPAR Group, Inc. and Subsidiaries
Tarrytown, New York

We have  audited  the  consolidated  balance  sheet  of  SPAR  Group,  Inc.  and
Subsidiaries, as of December 31, 2003 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 2003. Our audits also included the financial statement
schedule  listed  in the  Index  at Item  15(a).  These  consolidated  financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and schedule based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial position of SPAR
Group, Inc. and Subsidiaries at December 31, 2003, and the consolidated  results
of their operations and their cash flows for each of the two years in the period
ended December 31, 2003, in conformity with U.S. generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered  in  relation to the  consolidated  financial  statements  taken as a
whole,  present  fairly  in all  material  respects  the  information  set forth
therein.

As discussed in Note 2, the Company  adopted  Statement of Accounting  Standards
No. 142 effective January 1, 2002.





                                              /s/ Ernst & Young LLP


Minneapolis, Minnesota
February 13, 2004







                                      F-2

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

                           Consolidated Balance Sheets
                 (In thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                              December 31,
                                                               --------------------------------------------
                                                                       2004                   2003
                                                               ----------------------  --------------------

<S>                                                            <C>                     <C>         
 Assets
 Current assets:
    Cash and cash equivalents                                  $        887            $         24
    Accounts receivable, net                                         11,307                  13,942
    Prepaid expenses and other current assets                           657                     658
    Deferred income taxes                                                 -                   1,305
                                                               ----------------------  --------------------
 Total current assets                                                12,851                  15,929

 Property and equipment, net                                          1,536                   2,099
 Goodwill                                                               798                   8,749
 Deferred income taxes                                                    -                     434
 Other assets                                                           636                     926
                                                               ----------------------  --------------------
 Total assets                                                  $     15,821            $     28,137
                                                               ======================  ====================

 Liabilities and stockholders' equity
 Current liabilities:
    Accounts payable                                           $      2,158            $      1,373
    Accrued expenses and other current liabilities                    2,391                   4,081
    Accrued expenses due to affiliates                                  987                   1,091
    Restructuring charges                                               250                     685
    Customer deposits                                                 1,147                     530
    Lines of credit                                                   4,956                   4,084
                                                               ----------------------  --------------------
 Total current liabilities                                           11,889                  11,844

 Other long-term liabilities                                             12                     270
 Minority interest                                                      206                       -

                                                               ----------------------  --------------------
 Total liabilities                                                   12,107                  12,114

 Commitments and contingencies (Note - 7)

 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 -
        18,858,972 - 2004 and 2003                                      189                     189
    Treasury stock                                                     (108)                   (384)
    Accumulated other comprehensive loss                                (86)                     (7)
    Additional paid-in capital                                       11,011                  11,249
    Accumulated (deficit) retained earnings                          (7,292)                  4,976
                                                               ----------------------  --------------------
 Total stockholders' equity                                           3,714                  16,023
                                                               ----------------------  --------------------
 Total liabilities and stockholders' equity                    $     15,821            $     28,137
                                                               ======================  ====================
</TABLE>


See accompanying notes.



                                      F-3

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

                      Consolidated Statements of Operations
                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                      ------------------------------------------------------
                                                             2004             2003              2002
                                                      ------------------------------------------------------

<S>                                                   <C>               <C>              <C>          
Net revenues                                          $      51,370     $      64,859    $      69,612
Cost of revenues                                             33,644            42,338           40,331
                                                      ------------------------------------------------------
Gross profit                                                 17,726            22,521           29,281

Selling, general and administrative expenses                 20,222            20,967           18,804
Impairment charges                                            8,141                 -                -
Depreciation and amortization                                 1,399             1,529            1,844
                                                      ------------------------------------------------------
Operating (loss) income                                     (12,036)               25            8,633

Interest expense                                                220               269              363
Other (income) expense                                         (754)              237              (26)
                                                      ------------------------------------------------------
(Loss) income before provision for income taxes and         (11,502)             (481)           8,296
minority interest
Provision for income taxes                                      853                58            2,998
                                                      ------------------------------------------------------
Net (loss) income before minority interest                  (12,355)             (539)           5,298
Minority interest                                                87                 -                -
                                                      ------------------------------------------------------
Net (loss) income                                     $     (12,268)    $        (539)   $       5,298
                                                      ======================================================

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

  Net (loss) income - basic/diluted                   $       (0.65)    $       (0.03)   $        0.28
                                                      ======================================================

Weighted average common shares - basic                       18,859            18,855           18,761
                                                      ======================================================

Weighted average common shares - diluted                     18,859            18,855           19,148
                                                      ======================================================
</TABLE>


See accompanying notes.



                                      F-4

<PAGE>


                        SPAR Group, Inc. and Subsidiaries

                 Consolidated Statement of Stockholders' Equity
                                 (In thousands)


<TABLE>
<CAPTION>
                                                      Common Stock           
                                          -----------------------------------                           Accumulated 
                                                                                Additional                 Other           Total  
                                                                    Treasury     Paid-In     Earnings  Comprehensive   Stockholders'
                                             Shares      Amount      Stock       Capital     Retained      (Loss)         Equity
                                          ------------------------------------------------------------------------------------------

<S>                                          <C>      <C>          <C>          <C>          <C>          <C>         <C>        
Balance at January 31, 2002                  18,583   $      186   $       -    $  10,531    $       -    $     -     $    10,934
                                                                           -                       217
   Stock options exercised and employee
     stock purchase plan purchases              242            2           -          388            -                        390
   Purchase of treasury stock                     -            -         (30)           -            -                        (30)
   Net income                                     -            -           -            -        5,298                      5,298
                                          ------------------------------------------------------------------------------------------
Balance at December 31, 2002                 18,825          188         (30)      10,919        5,515          -          16,592

   Stock options exercised and employee
     stock purchase plan purchases               34            1         570          (86)           -          -             485
   Issuance of stock options to non-
     employees for services                       -            -           -          416            -          -             416
   Purchase of treasury stock                     -            -        (924)           -            -          -            (924)
   Comprehensive loss:
   Foreign currency translation loss                                                                           (7)             (7)
   Net loss                                                                                       (539)                      (539)
                                                                                                                      --------------
Comprehensive loss                                                                                                           (546)
                                          ------------------------------------------------------------------------------------------
Balance at December 31, 2003                 18,859          189        (384)      11,249        4,976         (7)         16,023

   Stock options exercised and employee
     stock purchase plan purchases                -            -         276         (316)           -          -             (40)
   Issuance of stock options to non-
     employees for services                       -            -           -           78            -          -              78
   Comprehensive loss:
   Foreign currency translation loss                                                                          (79)            (79)
   Net loss                                                                                    (12,268)                   (12,268)
                                                                                                                      --------------
Comprehensive loss                                                                                                        (12,347)
                                          ------------------------------------------------------------------------------------------
Balance at December 31, 2004                 18,859   $      189   $    (108)   $  11,011     $ (7,292)   $   (86)    $     3,714
                                          ==========================================================================================
</TABLE>



See accompanying notes.



                                      F-5

<PAGE>


                        SPAR Group, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                              ------------------------------------------------------
                                                                     2004             2003              2002
                                                              ------------------------------------------------------
<S>                                                             <C>                <C>              <C>      
 Operating activities
 Net (loss) income                                              $  (12,268)        $    (539)       $   5,298
 Adjustments to reconcile net (loss) income to net cash
    provided by operating activities:
      Impairment charges                                             8,141                 -                -
      Minority interest earnings in subsidiaries                       (87)                -                -
      Share of loss in joint venture                                     -               270                -
      Deferred tax asset adjustments                                   710              (131)           2,022
      Depreciation                                                   1,399             1,529            1,844
      Issuance of stock options for service                             78               416                -

      Changes in operating assets and liabilities:
        Accounts receivable                                          2,635             2,516            4,686
        Prepaid expenses and other assets                             (126)             (330)            (354)
        Accounts payable, accrued expenses, other current
          liabilities and customer deposits                            756               422             (538)
        Accrued expenses due to affiliates                            (104)              133              347
        Restructuring charges                                          250              (904)            (593)
                                                              ------------------------------------------------------
 Net cash provided by operating activities                           1,384             3,382           12,712

 Investing activities
 Purchases of property and equipment                                (1,260)           (1,456)          (1,172)
 Deposit related to acquisition                                        350              (350)               -
 Acquisition of businesses                                            (399)           (1,091)               -
                                                              ------------------------------------------------------
 Net cash used in investing activities                              (1,309)           (2,897)          (1,172)

 Financing activities
 Net borrowings (payments) on lines of credit                          872             3,936          (11,139)
 Other long-term liabilities                                            35                 -              (57)
 Proceeds from employee stock purchase plan and exercised
    options                                                            (40)              485              390
 Payments to certain stockholders                                        -            (3,951)            (704)
 Purchase of treasury stock                                              -              (924)             (30)
                                                              ------------------------------------------------------
 Net cash provided by (used in) financing activities                   867              (454)         (11,540)

 Translation loss                                                      (79)               (7)               -

 Net change in cash                                                    863                24                -
 Cash at beginning of period                                            24                 -                -
                                                              ------------------------------------------------------
 Cash at end of period                                        $        887         $      24       $        -
                                                              ======================================================

 Supplemental disclosure of cash flows information
 Interest paid                                                $        180         $     241       $      686
                                                              ======================================================

 Income taxes paid                                            $          86        $     578       $      200
                                                              ======================================================
</TABLE>

See accompanying notes.



                                      F-6

<PAGE>


                        SPAR Group, Inc. and Subsidiaries


                   Notes to Consolidated Financial Statements
                                December 31, 2004


1. Business and Organization

The SPAR Group,  Inc., a Delaware  corporation  ("SGRP"),  and its  subsidiaries
(together  with SGRP,  the "SPAR  Group" or the  "Company"),  is a  supplier  of
merchandising  and other  marketing  services  throughout  the United States and
internationally.  The  Company  also  provides  database  marketing,  technology
services, teleservices and marketing research.

SPAR  Acquisition,  Inc., and its  subsidiaries  (the "SPAR  Companies") are the
original  predecessor  of the Company and were founded in 1967. On July 8, 1999,
SGRP completed a reverse merger with the SPAR Companies (the "PIA Acquisition"),
and then changed its name to SPAR Group, Inc., from PIA Merchandising  Services,
Inc. (prior to such merger,  "PIA").  Pursuant to the PIA Acquisition,  the SPAR
Companies were deemed to have "acquired" PIA and its  subsidiaries  prior to the
PIA Acquisition  (the "PIA  Companies"),  which was treated as a purchase of the
PIA Companies for accounting purposes, with the books and records of the Company
being  adjusted  to  reflect  the  historical  operating  results  of  the  SPAR
Companies.  In 2002,  the Company sold its Incentive  Marketing  Division,  SPAR
Performance Group, Inc. ("SPGI").

The Company's  continuing  operations  are now divided into two  divisions:  the
Domestic  Merchandising  Services Division and the  International  Merchandising
Services  Division.   The  Domestic  Merchandising  Services  Division  provides
merchandising  services,  in-store  product  demonstrations,  product  sampling,
database marketing,  technology services, teleservices and marketing research to
manufacturers  and  retailers  in the United  States.  The various  services are
primarily  performed in mass merchandisers,  drug store chains,  convenience and
grocery stores. The International  Merchandising Services Division,  established
in July 2000, currently provides  merchandising  services through a wholly owned
subsidiary in Canada,  through 51% owned joint venture  subsidiaries  in Turkey,
South  Africa,  India and Romania and through 50% owned joint  ventures in Japan
and  China.  The  Company  continues  to focus on  expanding  its  merchandising
services business throughout the world. 

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
retail grocery stores. Included in its customers are home entertainment, general
merchandise,  health and beauty care, consumer goods and food products companies
in the United States.

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


                                      F-7

<PAGE>


                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


1. Business and Organization (continued)

International Merchandising Services Division

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

May  2001,  the  Company  entered  Japan  through  a  50%  owned  joint  venture
headquartered in Osaka.

June 2003, the Company entered Canada by acquiring an existing  business through
its wholly owned Canadian subsidiary, headquartered in Toronto.

July  2003,  the  Company  entered  Turkey  through  a 51% owned  joint  venture
subsidiary headquartered in Istanbul.

April 2004,  the Company  entered South Africa through a 51% owned joint venture
subsidiary headquartered in Durban.

April  2004,  the  Company  entered  India  through  a 51% owned  joint  venture
subsidiary headquartered in New Delhi.

December  2004,  the Company  established a 51% owned joint  venture  subsidiary
headquartered in Bucharest, Romania.

In February 2005, the Company  announced the  establishment of a 50% owned joint
venture headquartered in Hong Kong, China.

Discontinued Operations - Incentive Marketing Division

In the fourth  quarter of 2001,  the  Company  made the  decision  to divest its
interest in SPGI.

On June 30,  2002,  SPAR  Incentive  Marketing,  Inc.  ("SIM"),  a  wholly-owned
subsidiary  of  the  Company,  entered  into a  Stock  Purchase  Agreement  with
Performance  Holdings,  Inc. ("PHI"),  a Delaware  corporation  headquartered in
Carrollton, Texas. SIM sold all of the stock of its subsidiary, SPGI, to PHI for
$6.0 million.  As a condition of the sale, PHI issued and contributed  1,000,000
shares  of its  common  stock  to  Performance  Holdings,  Inc.  Employee  Stock
Ownership Plan, which became the only shareholder of PHI.

The $6.0 million  sales price was  evidenced by two Term Loans,  an Initial Term
Loan  totaling  $2.5 million and an  Additional  Term Loan totaling $3.5 million
(collectively  the "Term  Loans").  The Term Loans were  guarantied  by SPGI and
secured by pledges  of all assets of PHI and SPGI.  The Term Loans had  interest
rates of 12% per  annum  through  December  31,  2003.  On  January  1, 2004 the
interest  rate changed to 8.9% per annum.  Because the  collection  of the notes
depended on the future  operations  of PHI,  the $6.0  million  notes were fully
reserved.

Also in connection  with the sale, the Company agreed to provide a discretionary
revolving  line  of  credit  to SPGI  not to  exceed  $2.0  million  (the  "SPGI
Revolver") through September 30, 2005. The SPGI Revolver was secured by a pledge
of all the  assets  of SPGI and was  guarantied  by SPGI's  parent,  Performance
Holdings,  Inc.  The SPGI  Revolver  provided  for  advances  in  excess  of the
borrowing  base  through  September  30, 2003.  As of October 1, 2003,  the SPGI
Revolver  was  adjusted,  as per the  agreement,  to  include a  borrowing  base
calculation  (principally 85% of "eligible" accounts  receivable).  In September



                                      F-8

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


1. Business and Organization (continued)

2003,  SPGI requested and the Company  agreed to provide  advances of up to $1.0
million in excess of the borrowing base through  September 30, 2004. In December
of 2003, SPGI changed its name to STIMULYS, Inc ("STIMULYS"). On April 30, 2004,
as  a  result  of  various  defaults  by  STIMULYS,   the  Company  amended  the
discretionary  line of credit by  eliminating  advances  in excess of  STIMULYS'
borrowing  base and reducing  the maximum  amount of the  revolving  line to the
greater of $1.0 million or the borrowing  base.  Under the SPGI Revolver  terms,
STIMULYS was required to deposit all of its cash receipts to the Company's  lock
box.

On September  10, 2004,  in  consideration  for a new  Promissory  Note totaling
$764,271 (which  represented the amount  outstanding  under the SPGI Revolver at
that time) and in the event of a change in control of  STIMULYS,  a share in the
net proceeds  resulting from such change in control,  the Company terminated the
SPGI Revolver and the Term Loans.  SPAR also  released its security  interest in
any collateral  previously pledged by STIMULYS.  The first payment due under the
Promissory  Note was received on October 29, 2004.  Due to the  collection  risk
associated  with the Promissory  Note, the Company has established a reserve for
the  remaining  amount  due,  including  interest of  approximately  $355,000 at
December 31, 2004.

As a result of the termination of the SPGI Revolver,  the reserve for collection
of advances and accrued interest under the SPGI Revolver previously  established
by the Company  totaling  approximately  $984,000  was no longer  required.  The
release of this  reserve,  net of the new reserve  required  for the  Promissory
Note, resulted in Other Income totaling approximately $640,000 for 2004.

2. Summary of Significant Accounting Policies

Principles of Consolidation

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

In 2004, due to the amendment of a royalty agreement between the Company and its
50% owned Japanese joint venture,  the Company has determined that in accordance
with FIN 46(R) it is the primary beneficiary of the Japanese joint venture,  and
has consolidated the Japanese  financial results for 2004 in accordance with the
provisions  of FIN 46(R).  The  Japanese  joint  venture's  fiscal year ended on
September 30, 2004 and accordingly  its financial  statements were audited as of
that date. In connection with the  consolidation the Company began reporting the
Japanese  joint  venture's  financial  results as of and for the  period  ending
September 30, 2004. Therefore,  for 2004, the Company's  consolidated  financial
statements  only include the Japanese joint venture  financial  results for nine
months ended  September 30, 2004. In 2004, the Japanese  joint venture  recorded
revenue of approximately $2.6 million,  total assets of approximately  $822,000,
total  liabilities of approximately  $1.2 million and a deficit of approximately
$445,000. In 2003 and 2002, prior 



                                      F-9

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

2. Summary of Significant Accounting Policies (continued)

to the amendment of the royalty agreement,  the investment in the Japanese joint
venture was  accounted  for using the equity method based upon the Company's 50%
ownership.

At  December  31,   2004,   international   assets   totaled  $2.8  million  and
international liabilities totaled $3.8 million. For 2004, international revenues
totaled $8.2 million and the Company's share of the net losses was approximately
$500,000.

Cash Equivalents

The Company considers all highly liquid  short-term  investments with maturities
of three months or less at the time of acquisition to be cash equivalents.  Cash
equivalents are stated at a cost, which approximates fair value.

Revenue Recognition

The Company's  services are provided under contracts or agreements.  The Company
bills its  clients  based upon  service fee or unit fee  arrangements.  Revenues
under service fee arrangements are recognized when the service is performed. The
Company's per unit fee  arrangements  provide for fees to be earned based on the
retail sales of a client's  products to consumers.  The Company  recognizes  per
unit fees in the period such amounts become determinable and are reported to the
Company.

Unbilled Accounts Receivable

Unbilled accounts receivable represent services performed but not billed.

Doubtful Accounts, Sales Allowances and Credit Risks

The Company  continually  monitors the validity of its accounts receivable based
upon current customer credit information and financial condition.  Balances that
are  deemed to be  uncollectible  after the  Company  has  attempted  reasonable
collection  efforts are  written off through a charge to the bad debt  allowance
and a credit to accounts receivable.  Accounts receivable balances are stated at
the amount that management expects to collect from the outstanding balances. The
Company provides for probable uncollectible amounts through a charge to earnings
and a credit  to bad debt  allowance  based on  management's  assessment  of the
current status of individual  accounts.  Based on management's  assessment,  the
Company  established an allowance for doubtful accounts of $761,000 and $515,000
at December 31, 2004 and 2003, respectively. The Company also recorded a reserve
for sales allowances for potential  customer credits of $448,000 at December 31,
2003.  Bad debt and  sales  allowance  expenses  were  $366,000,  $825,000,  and
$262,000 in 2004, 2003, and 2002, respectively.

Property and Equipment

Property and equipment,  including leasehold  improvements,  are stated at cost.
Depreciation is calculated on a straight-line  basis over estimated useful lives
of the  related  assets,  which  range  from  three  to seven  years.  Leasehold
improvements are depreciated over the shorter of their estimated useful lives or
lease term, using the straight-line method.



                                      F-10

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


2. Summary of Significant Accounting Policies (continued)

Internal Use Software Development Costs

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

The Company capitalized $559,000,  $1,004,000,  and $772,000 of costs related to
software developed for internal use in 2004, 2003, and 2002, respectively.

In 2004, the Company recorded an impairment charge against capitalized  software
costs  due to the  loss  of  certain  clients  during  the  year  (see  Note 3 -
Impairment Charges).

Impairment of Long-Lived Assets

The Company  reviews its  long-lived  assets for impairment  whenever  events or
changes in circumstances indicate that an assets's carrying amount may be higher
than its fair value.  If an asset is considered to be impaired,  the  impairment
charge  recognized is the excess of the asset's  carrying value over the asset's
fair value (see Note 3 - Impairment Charges).

Fair Value of Financial Instruments

The  Company's  balance  sheets  include the  following  financial  instruments:
accounts  receivable,  accounts  payable  and a lines  of  credit.  The  Company
considers  the  carrying  amounts  of  current  assets  and  liabilities  in the
financial   statements  to  approximate  the  fair  value  for  these  financial
instruments,  because of the relatively short period of time between origination
of the  instruments  and their  expected  realization  or payment.  The carrying
amount of the lines of credit  approximates  fair value because the  obligations
bear  interest at a floating  rate.  The carrying  amount of  long-term  debt to
certain stockholders  approximated fair value because the then current effective
interest  rates  reflected the market rate for unsecured debt with similar terms
and remaining maturities.

Excess Cash

The Company's domestic cash balances are generally utilized to pay its bank line
of credit.  International  cash balances are  maintained in liquid cash accounts
and are utilized to fund daily operations.

Major Customers

        One customer accounted for 14%, 8%, and 6% of the Company's net revenues
for the years ended  December  31,  2004,  2003,  and 2002,  respectively.  This
customer  also  accounted  for  approximately  29%,  13%,  and  4%  of  accounts
receivable at December 31, 2004, 2003, and 2002, respectively.

In addition, approximately 16%, 17%, and 24% of net revenues for the years ended
December 31, 2004,  2003, and 2002,  respectively,  resulted from  merchandising
services  performed for  manufacturers  and others in stores  operated by Kmart.
These customers also accounted for approximately  22% of accounts  receivable at
December 31, 2004. While the Company's  customers and the resultant  contractual



                                      F-11

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


2. Summary of Significant Accounting Policies (continued)

relationships  are with  various  manufacturers  and not  Kmart,  a  significant
reduction of this  retailer's  stores or cessation of this  retailer's  business
would negatively impact the Company.

Another  customer,  a division of a major retailer,  accounted for 26%, 30%, and
26% of the Company's net revenues for the years ended  December 31, 2004,  2003,
and 2002, respectively.  This customer also accounted for approximately 4%, 30%,
and  43%  of  accounts   receivable  at  December  31,  2004,  2003,  and  2002,
respectively. On August 2, 2004, this customer was sold by its parent.

As discussed above,  the Company does a significant  amount of business with one
customer and  performs a  significant  amount of services in Kmart.  The loss of
this customer or the loss of Kmart  related  business and the failure to attract
new large customers,  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.

Foreign Currency Rate Fluctuations

The Company has foreign  currency  exposure  associated  with its  international
wholly owned  subsidiaries,  51% owned joint venture  subsidiaries and 50% owned
joint  ventures.  In 2004,  these  exposures are primarily  concentrated  in the
Canadian  dollar,  South  African rand and  Japanese  yen. At December 31, 2004,
international assets totaled $2.8 million and international  liabilities totaled
$3.8  million.  For 2004,  international  revenues  totaled $8.2 million and the
Company's share of the net losses was approximately $500,000.

Interest Rate Fluctuations

At December 31, 2004 the Company's outstanding debt totaled $5.0 million,  which
consisted   of  domestic   variable-rate   (6.0%)  debt  of  $4.1   million  and
international  variable rate (1.4%) debt of $0.9 million.  Based on 2004 average
outstanding borrowings under variable-rate debt, a one-percentage point increase
in interest rates would negatively impact annual pre-tax earnings and cash flows
by approximately $50,000.

Income Taxes

Deferred tax assets and liabilities represent the future tax return consequences
of certain timing differences that will either be taxable or deductible when the
assets  and  liabilities  are  recovered  or  settled.  Deferred  taxes are also
recognized  for operating  losses that are  available to offset  future  taxable
income and tax credits that are available to offset future income taxes.  In the
event the future  consequences  of differences  between the financial  reporting
basis and the tax basis of the Company's assets and liabilities  result in a net
deferred tax asset,  an evaluation is required of the  probability of being able
to realize the future benefits indicated by such asset. A valuation allowance is
provided  when it is more  likely  than  not that  some  portion  or the  entire
deferred tax asset will not be realized.

Stock-Based Compensation

Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock
Based  Compensation,  requires disclosure of the fair value method of accounting
for stock  options and other equity  instruments.  Under the fair value  method,
compensation  cost is  measured at the grant date based on the fair value of the
award and is recognized  over the service  period,  which is usually the vesting
period.  The  Company  has  chosen,  under the  provisions  of SFAS No.  123, to
continue to account  for  employee  stock-based  



                                      F-12

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


2. Summary of Significant Accounting Policies (continued)

transactions under Accounting  Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees.

Under the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation,  as amended by SFAS 148, no compensation  cost has been recognized
for the stock  option  grants to Company  employees.  Compensation  cost for the
Company's  option grants to Company  employees has been determined  based on the
fair value at the grant date consistent with the provisions of SFAS No. 123, the
Company's  net  (loss)  income  and pro forma net  (loss)  income per share from
continuing  operations would have been reduced to the adjusted amounts indicated
below (in thousands, except per share data):


<TABLE>
<CAPTION>
                                                                     Twelve Months Ended December 31,
                                                               ----------------------------------------------
                                                                    2004           2003           2002
                                                               ----------------------------------------------
                                                               
<S>                                                            <C>               <C>            <C>     
    Net (loss) income, as reported                             $    (12,268)     $    (539)     $  5,298
    Stock based employee compensation expense                  
      under the fair market value method                                454          1,005          1,844
                                                               ----------------------------------------------
    Pro forma net (loss) income                                $    (12,722)     $  (1,544)     $  3,454
                                                               
    Basic and diluted net (loss) income per share, as          
      reported                                                 $      (0.65)     $   (0.03)     $    0.28
    Basic and diluted net (loss) income per share, pro forma   $      (0.67)     $   (0.08)     $    0.18
</TABLE>



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

The fair  value of each  option  grant is  estimated  based on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:  dividend yield of 0% for all years;  volatility factor of expected
market price of common stock of 150%,  154%, and 172% for 2004,  2003, and 2002,
respectively;  risk-free interest rate of 4.23%,  4.27%, and 4.03%; and expected
lives of six years.

Net (Loss) Income Per Share

Basic net (loss)  income per share  amounts are based upon the weighted  average
number of common shares outstanding. Diluted net (loss) income per share amounts
are based upon the weighted average number of common and potential common shares
outstanding  except  for  periods  in which  such  potential  common  shares are
anti-dilutive. Potential common shares outstanding include stock options and are
calculated using the treasury stock method.

Use of Estimates

The  preparation of the  consolidated  financial  statements in conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.



                                      F-13

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


2. Summary of Significant Accounting Policies (continued)

Goodwill

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 142,
Goodwill and Other Intangible  Assets, in the first quarter of 2002.  Therefore,
goodwill is no longer  amortized  but is subject to annual  impairment  tests in
accordance  with that  Statement.  At June 30, 2004,  the Company  performed the
required  impairment test discussed in FAS 142. The Company  calculated the fair
value of each  business  unit for which  goodwill  was  recorded to determine if
there was an impairment. The fair value of each unit was based upon the estimate
of the  discounted  cash flow  generated by the  respective  business unit. As a
result of these  calculations,  it was determined that there were impairments to
the goodwill associated with the PIA Acquisition on July 8, 1999 and acquisition
of the  Company's  Canadian  subsidiary  in June 2003.  Therefore,  the  Company
recorded  an  impairment  charge of  approximately  $8.4  million  (see Note 3 -
Impairment Charges).

Changes to goodwill for the years ended  December 31, 2004,  2003, and 2002 were
as follows:


<TABLE>
<CAPTION>
                                                        2004               2003                2002
                                                   ---------------    ----------------    ----------------

<S>                                                <C>                <C>                 <C>          
Beginning of the year                              $      8,749       $       7,858       $       8,357
Impairment charges                                       (8,350)                  -                   -
Changes in deferred tax assets  related to use
   of PIA net operating losses acquired                       -                   -                (499)
Adjustment to merger  related and  restructure
   liabilities                                                -                 (89)                  -
Acquisitions                                                399                 980                   -
                                                   ---------------    ----------------    ----------------
End of the year                                    $        798       $       8,749       $       7,858
                                                   ===============    ================    ================
</TABLE>


Translation of Foreign Currencies

The financial  statements of the foreign entities  consolidated into SPAR Group,
Inc. consolidated financial statements were translated into United States dollar
equivalents at exchange rates as follows:  balance sheet accounts for assets and
liabilities  at year-end rates and equity and the income  statement  accounts at
average exchange rates for the year. The resulting  translation gains and losses
are reflected in accumulated other comprehensive gain or losses in the statement
of  stockholders'  equity.  Foreign  currency  transaction  gains and losses are
reflected in net earnings.

Recently Issued Accounting Standards

In December 2004, the FASB issued SFAS 123 (revised 2004),  Share-Based Payment,
(SFAS 123R).  SFAS 123R  addresses the accounting  for  share-based  payments to
employees,  including grants of employee stock options.  Under the new standard,
companies  will no  longer  be  able to  account  for  share-based  compensation
transactions  using the intrinsic  method in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees.  Instead, the Company will be required
to account for such  transactions  using a fair-value  method and  recognize the
expense in the consolidated statement of income. SFAS 123R will be effective for
periods  beginning  after June 15, 2005 and allows,  but does not  require,  the
Company  to  restate  the full  fiscal  year of 2005 to  reflect  the  impact of
expensing  share-based  payments  under  SFAS  123R.  The  Company  has  not yet
determined  which fair-value  method and transitional  provision it will follow.
See Note 2 - Stock-Based Compensation for the pro forma impact on net income and
net income per share from calculating  stock-based  compensation costs under the
fair value alternative of SFAS


                                      F-14

<PAGE>


                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


2. Summary of Significant Accounting Policies (continued)

123.  However,  the  calculation of compensation  cost for  share-based  payment
transactions  after the  effective  date of SFAS 123R may be different  from the
calculation of compensation  cost under SFAS 123, but such  differences have not
yet been quantified.

Reclassifications

Certain   reclassifications  have  been  made  to  the  prior  years'  financial
statements to conform to the 2004 presentation.

3. Impairment Charges

Goodwill

During  2004,  in  accordance  with the  requirements  of SFAS 142,  the Company
determined that there were impairments of the goodwill  amounts  associated with
certain of its reporting entities.

In April  2004,  the  Company's  largest  customer  announced  that they  signed
definitive  agreements for the sale of its business to two purchasers.  The sale
was completed on August 2, 2004.  This customer  accounted for 26%, 30%, and 26%
of the  Company's  net revenues for the twelve  months ended  December 31, 2004,
2003,  and 2002,  respectively  and was the last remaining  profitable  business
related to the PIA  Acquisition  on July 8, 1999. At June 30, 2004,  the Company
had $7.6 million of goodwill  remaining that was related to the PIA Acquisition.
As a result of the loss of this  major  client,  the  Company  does not expect a
positive cash flow from this business unit. Therefore,  the Company has recorded
an impairment of the PIA related goodwill resulting in a non-cash charge of $7.6
million to the results of the operations for 2004.

In June 2003, the Company began its Canadian  operations through the acquisition
of substantially all of the business and assets of Impulse  Marketing  Services,
Inc. In  connection  with this  acquisition,  the Company  recorded  goodwill of
$712,000.  At the time of the  acquisition,  it was  expected  that the Canadian
subsidiary would be profitable. However, the Canadian subsidiary has operated at
a loss  since its  acquisition.  As a result  of the  continued  losses  and the
failure to attract new customers the Company does not expect to receive positive
cash flow from this unit.  Therefore,  the Company has recorded an impairment of
the related goodwill resulting in a non-cash charge of $712,000 for 2004.

Capitalized Internal Use Software Development Costs

Historically,  the Company has capitalized costs of computer software  developed
for internal use. Some of the costs  capitalized  were  associated  with certain
clients to whom the  Company no longer  provides  merchandising  services.  As a
result of the loss of these clients,  the Company recorded an impairment  charge
for the net book value of internally  developed  software costs of approximately
$442,000 for 2004.

Other Assets and Liabilities

Also,  in  connection  with the PIA  Acquisition,  certain tax  deferred  assets
related to the PIA net operating  loss carry forward  benefits were  recognized.
The  Company  also  recorded  as an  impairment  charge,  a  $750,000  valuation
allowance on these deferred tax assets.


                                      F-15

<PAGE>


                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

3. Impairment Charges (continued)

The Company had approximately $2.1 million accrued for restructure costs and PIA
Acquisition  related  costs.  As a result of the PIA  business  impairment,  the
Company  evaluated  these  accruals  and  determined  that only $0.4  million is
required.  The Company applied the $1.7 million ($1.4 million net of tax effect)
reduction in PIA related  acquisition  liabilities  against the related goodwill
thereby reducing the impairment charges recognized for 2004.

In addition to the above, the Company has recorded an impairment of other assets
totaling $68,000 for 2004.

The  above  net  impairment  of  $8.1  million  is  shown  in  the  accompanying
consolidated statement of operations in 2004 as "Impairment charges".

4. Supplemental Balance Sheet Information

Accounts receivable, net, consists of the following (in thousands):


<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                       ------------------------------------
                                                                             2004              2003
                                                                       ------------------------------------

<S>                                                                         <C>             <C>       
 Trade                                                                      $   8,178       $   10,333
 Unbilled                                                                       3,600            4,551
 Non-trade                                                                        290               21
                                                                       ------------------------------------
                                                                               12,068           14,905
 Less:
 Allowance for doubtful accounts                                                 (761)            (515)
 Sales allowances                                                                   -             (448)
                                                                       ------------------------------------
                                                                           $   11,307       $   13,942
                                                                       ====================================


Property and equipment consists of the following (in thousands):

<CAPTION>
                                                                                  December 31,
                                                                       ------------------------------------
                                                                             2004              2003
                                                                       ------------------------------------

<S>                                                                        <C>              <C>      
  Equipment                                                                $   5,397        $   4,784
  Furniture and fixtures                                                         547              550
  Leasehold improvements                                                         138              141
  Capitalized software development costs                                       1,629            2,128
                                                                       ------------------------------------
                                                                               7,711            7,603
  Less accumulated depreciation and amortization                               6,175            5,504
                                                                       ------------------------------------
                                                                           $   1,536        $   2,099
                                                                       ====================================

<CAPTION>
                                                                                    December 31,
                                                                        -------------------------------------
  Prepaid expenses and other current assets (in thousands):                    2004              2003
                                                                        -------------------------------------

<S>                                                                        <C>               <C>      
  Prepaid insurance                                                        $     214        $     245
  Tax refund due                                                                  62              244
  Prepaid rents                                                                   49               70
  Other                                                                          332               99
                                                                        -----------------------------------
                                                                           $     657        $     658
                                                                        =====================================
</TABLE>




                                      F-16

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

4. Supplemental Balance Sheet Information (continued)


<TABLE>
                                                                                    December 31,
                                                                        -------------------------------------
  Accrued expenses and other current liabilities (in thousands):              2004              2003
                                                                        -------------------------------------

<S>                                                                          <C>              <C>      
  Merger related payables                                                    $    450         $   1,495
  STIMULYS cash deposits                                                            -               794
  SPGI Revolver                                                                     -               740
  Accrued medical expenses                                                        225               100
  Taxes payable                                                                   345               139
  Accrued accounting and legal expenses                                           192               219
  Accrued salaries payable                                                        328               241
  Other                                                                           851               353
                                                                        -------------------------------------
                                                                             $  2,391         $   4,081
                                                                        =====================================
</TABLE>


5. Lines of Credit

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").  The Credit  Facility  provided a $15.0
million  revolving  credit facility that matures on January 23, 2006. The Credit
Facility  allowed  the  Company  to  borrow  up to $15.0  million  based  upon a
borrowing  base  formula  as  defined  in  the  agreement  (principally  85%  of
"eligible"  accounts  receivable).  On May 17,  2004,  the Credit  Facility  was
amended to among other things,  reduce the revolving  credit facility from $15.0
million to $10.0 million, change the interest rate and increase reserves against
collateral. The amendment provides for interest to be charged at a rate based in
part upon the earnings before interest,  taxes,  depreciation and  amortization.
The average  interest rate for 2004 was 5.1%.  At December 31, 2004,  the Credit
Facility bears interest at Webster's "Alternative Base Rate" plus 0.75% (a total
of 6.0% per annum),  or LIBOR plus 3.25%.  The Credit Facility is secured by all
of the assets of the Company and its domestic  subsidiaries.  In connection with
the May 17,  2004,  amendment,  Mr.  Robert  Brown,  a Director,  the  Chairman,
President and Chief Executive Officer and a major stockholder of the Company and
Mr. William Bartels,  a Director,  the Vice Chairman and a major  stockholder of
the Company,  provided personal  guarantees totaling $1.0 million to Webster. On
August 20, 2004, the Credit  Facility was further amended in connection with the
waiver of certain covenant  violations (see below).  The amendment,  among other
things,  reduced  the  revolving  credit  facility  from  $10.0  million to $7.0
million,  changed the covenant  compliance  testing for certain  covenants  from
quarterly to monthly and reduced  certain  advance rates.  On November 15, 2004,
the Credit Facility was further amended to delete any required minimum Net Worth
and minimum Fixed Charge  Coverage Ratio  covenant  levels for the period ending
December 31, 2004. The amendments did not change the future covenant levels. The
Credit Facility also limits certain expenditures including,  but not limited to,
capital expenditures and other investments.

The Company was in violation of certain monthly  covenants at December 31, 2004,
and expects to be in violation at future  measurement  dates.  Webster  issued a
waiver for the December 31, 2004 covenant violations.  However,  there can be no
assurances that Webster will issue such waivers in the future.

Because of the  requirement  to maintain a lock box  arrangement  with  Webster,
Webster's ability to invoke a subjective  acceleration clause at its discretion,
and the  expected  future  covenant  violations,  borrowings  under  the  Credit
Facility are  classified as current at December 31, 2004 and 2003, 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.


                                      F-17

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

5.  Lines of Credit (continued)

The revolving  loan  balances  outstanding  under the Credit  Facility were $4.1
million at December  31, 2004,  and  December  31,  2003.  There were letters of
credit  outstanding  under the Credit  Facility of $0.7  million at December 31,
2004,  and December 31, 2003. As of December 31, 2004, the SPAR Group had unused
availability  under the Credit  Facility of $1.4  million  out of the  remaining
maximum  $2.2  million  unused  revolving  line of  credit  after  reducing  the
borrowing base by outstanding loans and letters of credit.

In 2001, the Japanese joint venture SPAR FM Japan, Inc. entered into a revolving
line of credit  arrangement  with  Japanese  banks for 300  million  yen or $2.7
million  (based upon the exchange rate at September 30, 2004).  At September 30.
2004,  SPAR FM Japan,  Inc. had 100 million yen or  approximately  $900,000 loan
balance  outstanding under the line of credit. The line of credit is effectively
guarantied by the Company and the joint venture partner, Paltac Corporation. The
average  interest rates on the borrowings  under the Japanese line of credit for
its short-term  bank loans at September 30, 2004 and 2003 were 1.375% and 1.375%
per annum, respectively.

6. Income Taxes

The provision for income tax expense from continuing operations is summarized as
follows (in thousands):


<TABLE>
<CAPTION>
                                                        December 31,
                                  ----------------------------------------------------------
                                        2004               2003                 2002
                                  -----------------  ------------------  -------------------

<S>                                 <C>                 <C>                  <C>       
    Current                         $        103        $       189          $      476
    Deferred                                 750               (131)              2,522
                                  -----------------  ------------------  -------------------
                                    $        853        $        58          $    2,998
                                  =================  ==================  ===================
</TABLE>


The provision for income taxes from continuing operations is different from that
which would be obtained by applying  the  statutory  federal  income tax rate to
income before income taxes. The items causing this difference are as follows (in
thousands):


<TABLE>
<CAPTION>
                                                                        December 31,
                                                   --------------------------------------------------------
                                                        2004                2003                2002
                                                   ---------------     ----------------    ----------------

<S>                                                        <C>                  <C>                <C>
   (Benefit) provision for income taxes at
     federal statutory rate                        $    (3,911)         $      (77)        $     2,821
   State income taxes, net of federal benefit              117                  95                 175
   Permanent differences                                 1,613                  41                 (48)
   Change in valuation allowance                         3,013                   -                   -
   Other                                                    21                  (1)                 50
                                                   ---------------     ----------------    ----------------
   Provision for income taxes                      $       853          $       58         $     2,998
                                                   ===============     ================    ================
</TABLE>




                                      F-18

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

6. Income Taxes (continue)

Deferred taxes consist of the following (in thousands):


<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                       ------------------------------------
                                                                             2004              2003
                                                                       ------------------------------------
    Deferred tax assets:
<S>                                                                      <C>                 <C>      
      Net operating loss carryforwards                                   $      5,230        $   3,876
      Restructuring                                                               266              309
      Deferred revenue                                                            384                -
      SIM reserve against loan commitment                                         135              304
      Allowance for doubtful accounts and other receivable                        288              323
      Other                                                                       455              559
      Valuation allowance                                                      (6,139)          (3,126)
                                                                       ------------------------------------
    Total deferred tax assets                                                     619            2,245

    Deferred tax liabilities:
      Capitalized software development costs                                      619              506
                                                                       ------------------------------------
    Total deferred tax liabilities                                                619              506
                                                                       ------------------------------------
    Net deferred tax assets                                              $          -        $   1,739
                                                                       ====================================
</TABLE>


At December 31, 2004, the Company has net operating loss carryforwards (NOLs) of
$10.2 million, related to the PIA Acquisition available to reduce future federal
taxable income.  The $10.2 million PIA related net operating loss  carryforwards
begin to expire in the year  2012.  Section  382 of the  Internal  Revenue  Code
restricts  the  annual  utilization  of the NOLs  incurred  prior to a change in
ownership.  Such a change in ownership had occurred in 1999, thereby restricting
the NOL's prior to such date available to the Company to approximately  $657,500
per year.  In  addition,  the  Company has NOLs  related to its  current  losses
totaling $4.1 million. The $4.1 million net operating loss carryfowards begin to
expire in the year 2023.

As a result of the loss of several significant clients,  current year losses and
the lack of certainty of a return to profitably in the next twelve  months,  the
Company  has  established  a valuation  allowance  equal to the total of its net
deferred tax assets of $6.1 million.

The Company does not provide for U.S. income taxes on the undistributed earnings
of its foreign  subsidiaries  since, at the present time,  management  considers
them to be permanently invested in the subsidiary.





                                      F-19

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

7. Commitments and Contingencies

Lease Commitments

The Company leases  equipment and certain office space in several cities,  under
non-cancelable operating lease agreements. Certain leases require the Company to
pay its share of any increases in operating expenses and real estate taxes. Rent
expense was approximately $1.0 million, $0.9 million, and $1.0 million for 2004,
2003, and 2002,  respectively.  At December 31, 2004, future minimum commitments
under  all  non-cancelable  operating  lease  arrangements  are as  follows  (in
thousands):

                          2005          $      776
                          2006                 569
                          2007                  82
                          2008                  40
                          2009                   1
                                    ------------------
                         Total          $    1,468
                                    ===================
                       
International Commitments

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

Certain of these joint  ventures and joint venture  subsidiaries  are marginally
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.

Legal Matters

        Safeway   Inc.   ("Safeway"),   filed  a   Complaint   against  the  PIA
Merchandising  Co., Inc. ("PIA Co."), a wholly owned  subsidiary of the Company,
and Pivotal Sales Company ("Pivotal"), a wholly owned subsidiary of PIA Co., and
SGRP in Alameda Superior Court, case no. 2001028498 on October 24, 2001, and has
subsequently  amended  it.  Safeway  alleges  causes  of  action  for  breach of
contract,  breach of implied  contract,  breach of fiduciary  duty,  conversion,
constructive fraud,  breach of trust,  unjust enrichment,  and accounting fraud.
Safeway has most  recently  alleged  monetary  damages in the  principal  sum of
$3,000,000 and probable interest of $1,000,000 and has also demanded unspecified
costs. PIA Co., Pivotal and SGRP filed cross-claims  against Safeway on or about
March 11, 2002, and amended them on or about October 15, 2002,  alleging  causes
of action by them  against  Safeway for breach of  contract,  interference  with
economic relationship,  unfair trade practices and unjust enrichment and seeking
damages and injunctive  relief.  Mediation between the parties occurred in 2004,
but did not result in a  settlement.  PIA Co., Pivotal  and SGRP are  vigorously
defending  Safeway's  allegations.  It is not possible at this time to determine
the  likelihood of the outcome of this  lawsuit.  However,  if Safeway  prevails
respecting  its  allegations,  and PIA  Co.,  Pivotal  and  SGRP  lose on  their
cross-claims and counterclaims, that result could have a material adverse effect
on the  Company.  The Company  anticipates  that this matter will be resolved in
2005.

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  



                                      F-20

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

7. Commitments and Contingencies (continued)

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.

8. Treasury Stock

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

The following  table  summarizes  the Company's  treasury stock activity for the
years 2004 and 2003.

                                               Quantity           Amount
                                           ------------------------------------
    Treasury Stock, January 1, 2003                 9,783       $   30,073
      Purchases                                   211,315          923,714
      Used to fulfill:
          Employee Stock Purchases                 (9,848)         (30,297)
          Options Exercised                      (135,194)        (539,383)
                                           ------------------------------------

    Treasury Stock, December 31, 2003              76,056          384,107
      Used to fulfill:
          Options Exercised                       (54,148)        (276,007)
                                           ------------------------------------

    Treasury Stock, December 31, 2004              21,908       $  108,100
                                           ====================================

9. Employee Benefits

Stock Purchase Plans

The Company has Employee and  Consultant  Stock Purchase Plans (the "SP Plans").
The SP Plans allow  employees and  consultants of the Company to purchase common
stock without having to pay any commissions on the purchases. On August 8, 2002,
the Company's Board of Directors  approved a 15% discount for employee purchases
and recommended  that its affiliates (see Note 10 - Related-Party  Transactions)
approve a 15% cash bonus for affiliate consultant purchases.  The maximum amount
that any employee or  consultant  can  contribute to the SP Plans per quarter is
$6,250,  and the total  number of shares  reserved by the  Company for  purchase
under the SP Plans is 500,000.

Shares  purchased by employees and  consultants  under the SP Plans were 43,023,
22,561, and 10,104 for 2004, 2003, and 2002, respectively.

The Company's expense as a result of the 15% discount  offered to employees  and
consultants were approximately $10,000,  $11,000, and $4,000 for 2004, 2003, and
2002, respectively.

Retirement/Pension Plans

The Company has a 401(k) Profit Sharing Plan covering substantially all eligible
employees.  Employer  contributions were  approximately  $97,000,  $87,000,  and
$117,000 for 2004, 2003, and 2002, respectively.


                                      F-21

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

9. Employee Benefits (continued)

In  2003  and  2002,  certain  of  the  Company's   employees  were  covered  by
union-sponsored,  collectively bargained,  multi-employer pension plans. Pension
expense  related to these  plans was  approximately  $32,000 and $60,000 for the
years ended  December 31, 2003 and 2002,  respectively.  There were no employees
under union contract in 2004.

10. Related-Party Transactions

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

SMS and SMSI provided  approximately 99% of the Company's field  representatives
(through its independent  contractor field force) and  approximately  92% of the
Company's field management at a total cost of approximately $24.0 million, $36.0
million, and $30.5 million for 2004, 2003, and 2002,  respectively.  Pursuant to
the terms of the  Amended  and  Restated  Field  Service  Agreement  dated as of
January 1, 2004, SMS provides the services of SMS's field force of approximately
6,300  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  50  full-time  national,  regional  and  district
managers to the Company. For those services, the Company has agreed to reimburse
SMS and SMSI for all of their costs of providing  those  services and to pay SMS
and SMSI each a premium equal to 4% of their respective  costs,  except that for
2004 SMSI agreed to concessions  that reduced the premium paid by  approximately
$640,000  for  2004.  Total net  premiums  (4% of SMS and SMSI  costs  less 2004
concessions)  paid to SMS and  SMSI for  services  rendered  were  approximately
$320,000, $1,350,000, and $1,100,000 for 2004, 2003, and 2002, respectively. The
Company  has been  advised  that  Messrs.  Brown  and  Bartels  are not paid any
salaries as officers of SMS or SMSI so there were no salary  reimbursements  for
them  included  in such  costs  or  premium.  However,  since  SMS and  SMSI are
"Subchapter S" corporations,  Messrs.  Brown and Bartels benefit from any income
of such companies allocated to them.

SIT provided  substantially all of the Internet computer programming services to
the  Company  at a  total  cost of  approximately  $1,170,000,  $1,610,000,  and
$1,630,000 for 2004, 2003, and 2002,  respectively.  SIT provided  approximately
34,000,  47,000, and 46,000 hours of Internet computer  programming  services to
the Company for 2004, 2003, and 2002, 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 $34.71,  $34.24,  and $35.10 for
2004, 2003, and 2002, 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 2004.  However,  since SIT is a "Subchapter  S"  corporation,
Messrs.  Brown and Bartels benefit from any income of such company  allocated to
them.


                                      F-22

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


10. Related-Party Transactions (continued)

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

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


<TABLE>
<CAPTION>
                                                                  Twelve Months Ended December 31,
                                                          -------------------------------------------------
                                                               2004           2003             2002
                                                          -------------------------------------------------
<S>                                                          <C>               <C>             <C>    
    Services provided by affiliates:
      Independent contractor services (SMS)                  $ 19,944         $ 28,411        $ 23,262
                                                          =================================================

      Field management services (SMSI)                      $   4,502         $  7,600        $  7,280
                                                          =================================================

      Internet and software program
      consulting services (SIT)                             $   1,172         $  1,607        $  1,626
                                                          =================================================


    Accrued expenses due to affiliates (in
      thousands):                                                   December 31,
                                                               2004            2003
                                                          ---------------------------------

    SPAR Marketing Services, Inc.                           $     987         $  1,091
                                                          =================================
</TABLE>


In addition to the above, through the services of Affinity Insurance,  Ltd., the
Company  purchased  insurance  coverage for its casualty and property  insurance
risk for  approximately  $1.1 million for each of the three years ended December
31, 2004, 2003, and 2002. The Company's CEO and Vice Chairman own, through SMSI,
a minority (less than 5%) equity interest in Affinity.

11. Stock Options

The Company has four stock option  plans:  the Amended and  Restated  1995 Stock
Option Plan ("1995 Plan"),  the 1995 Director's Plan  ("Director's  Plan"),  the
Special Purpose Stock Option Plan ("Special  Purpose Plan"),  and the 2000 Stock
Option Plan ("2000 Plan").

The 1995 Plan  provided  for the granting of either  incentive  or  nonqualified
stock options to specific employees,  consultants,  and directors of the Company
for the purchase of up to 3,500,000  shares of the Company's  common stock.  The
options had a term of ten years from the date of issuance, except in the case of
incentive stock options granted to greater than 10%  stockholders  for which the
term was five years. The exercise price of nonqualified  stock options must have
been  equal to at least 85% of the fair  market  value of the  Company's  common
stock at the date of grant.  Since  2000,  the  Company  has not granted any new
options under this plan.  During 2004,  1,500 options to purchase  shares of the
Company's  common stock were exercised and options to purchase  26,625 shares of
the  Company's  stock were  cancelled  under this plan.  At December  31,  2004,
options  to  purchase  15,125  shares  of  the  Company's  common  stock  remain
outstanding  under this plan. The 1995 Plan was superseded by the 2000 Plan with
respect to all new options issued.



                                      F-23

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


11. Stock Options (continued)

The  Director's  Plan was a stock  option plan for  non-employee  directors  and
provided for the purchase of up to 120,000 shares of the Company's common stock.
Since 2000, the Company has not granted any new options under this plan.  During
2004, no options to purchase shares of the Company's common stock were exercised
under this plan. At December 31, 2004,  20,000 options to purchase shares of the
Company's common stock remained outstanding under this plan. The Director's Plan
has been replaced by the 2000 Plan with respect to all new options issued.

On July 8, 1999,  in connection  with the merger,  the Company  established  the
Special  Purpose  Plan of PIA  Merchandising  Services,  Inc. to provide for the
issuance of substitute options to the holders of outstanding  options granted by
SPAR  Acquisition,  Inc. There were 134,114  options granted at $0.01 per share.
Since July 8, 1999, the Company has not granted any new options under this plan.
During 2004,  21,000  options to purchase  shares of the Company's  common stock
were exercised under this plan. At December 31, 2004,  options to purchase 4,750
shares of the Company's common stock remain outstanding under this plan.

On December 4, 2000, the Company  adopted the 2000 Plan, as the successor to the
1995 Plan and the Director's  Plan with respect to all new options  issued.  The
2000 Plan provides for the granting of either  incentive or  nonqualified  stock
options to specified  employees,  consultants,  and directors of the Company for
the purchase of up to 3,600,000 (less those options still  outstanding under the
1995 Plan or exercised after December 4, 2000 under the 1995 Plan).  The options
have a term of ten years,  except in the case of incentive stock options granted
to greater than 10%  stockholders  for whom the term is five years. The exercise
price of  nonqualified  stock  options must be equal to at least 85% of the fair
market  value of the  Company's  common  stock  at the  date of grant  (although
typically  the  options are issued at 100% of the fair  market  value),  and the
exercise  price of  incentive  stock  options must be equal to at least the fair
market value of the  Company's  common stock at the date of grant.  During 2004,
options to purchase  476,417 shares of the Company's  common stock were granted,
options to purchase  53,302 shares of the Company's  common stock were exercised
and options to purchase 1,345,542 shares of the Company's stock were voluntarily
surrendered  and  cancelled  under this plan.  At December 31, 2004,  options to
purchase 1,251,383 shares of the Company's common stock remain outstanding under
this plan and options to purchase 1,618,719 shares of the Company's common stock
were available for grant under this plan.




                                      F-24

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


11. Stock Options (continued)

The following table summarizes stock option activity under the Company's plans:


<TABLE>
<CAPTION>
                                                                                        Weighted Average   
                                                                          Shares         Exercise Price    
                                                                   ----------------------------------------

<S>                                                                      <C>                  <C>    
    Options outstanding, December 31, 2001                               2,483,727            $  1.42

    Granted                                                                332,792            $  2.01
    Exercised                                                             (230,463)              1.23
    Canceled or expired                                                   (487,875)              5.05
                                                                   ---------------------
    Options outstanding, December 31, 2002                               2,098,181            $  1.52


    Granted                                                                401,020            $  3.51
    Exercised                                                             (143,641)              1.17
    Canceled or expired                                                    (92,750)              2.38
                                                                   ---------------------
    Options outstanding, December 31, 2003                               2,262,810            $  1.85

    Granted                                                                476,417            $  1.47
    Exercised                                                              (75,802)              0.49
    Canceled or expired                                                 (1,372,167)              6.18
                                                                   ---------------------
    Options outstanding, December 31, 2004                               1,291,258            $  1.66

    Option price range at end of year                                          $0.01 to $14.00


                                                               2004            2003             2002
                                                         --------------------------------------------------
    Grant Date weighted average fair value of
      options granted during the year                       $   1.43        $   2.33         $   1.60
</TABLE>






                                      F-25

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

11.  Stock Options (continued)

The following table summarizes  information  about stock options  outstanding at
December 31, 2004:


<TABLE>
<CAPTION>
                                         Options Outstanding                        Options Exercisable
                        ---------------------------------------------------- --------------------------------
                                                Weighted
                             Number             Average         Weighted           Number
                         Outstanding at        Remaining        Average        Exercisable at    Weighted
        Range of        December 31, 2004   Contractual Life    Exercise        December 31,      Average
     Exercise Prices                                            Price              2004      Exercise Price
   -------------------- ---------------------------------------------------- --------------------------------

<S>                            <C>          <C>              <C>                  <C>           <C>    
     Less than $1.00           273,536      8.1 years        $  0.71              230,336       $  0.70
      $1.01 - $2.00            783,347      7.0 years           1.31              697,972          1.30
      $2.01 - $4.00            192,875      8.4 years           2.75               61,196          2.88
   Greater than $4.00           41,500      5.1 years           9.37               41,126          9.42
                        ------------------                                 -----------------
   Total                     1,291,258                                          1,030,630
                        ==================                                 =================
</TABLE>


In 2004,  the Company  recorded an expense of  approximately  $103,000 under the
provision of SFAS No. 123 dealing with stock option grants to non-employees  for
stock  option  grants  that  were  awarded  to the  employees  of the  Company's
affiliates.  The Company  determines  the fair value of the  options  granted to
non-employees  using the  Black-Scholes  valuation model and expenses that value
over the service period. Until an option is vested, the fair value of the option
continues to be updated through the vesting date. The options granted have a ten
(10)  year  life and vest  over  four-year  periods  at a rate of 25% per  year,
beginning on the first anniversary of the date of grant.

12. Notes Payable to Certain Stockholders

In April 2003, all previously outstanding amounts due certain stockholders under
certain notes bearing interest at 8.0% were paid in full.

13. Geographic Data

A summary of the Company's net revenue,  operating  (loss) income and long lived
assets  by  geographic  area as of and for the year  ended  December  31,  is as
follows (in thousands):

                                       Twelve Months Ended December 31,
                                 ----------------------------------------------
                                      2004           2003           2002
                                 ----------------------------------------------
    Net revenue:
    United States                $     43,163    $    64,305      $  69,612
    International                       8,207            554              -
                                 ----------------------------------------------
    Total net revenue            $     51,370       $ 64,859      $  69,612
                                 ==============================================












                                      F-26

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004


13. Geographic Data (continued)



<TABLE>
<CAPTION>
                                                Twelve Months Ended December 31,
                                         ----------------------------------------------
                                              2004           2003           2002
                                         ----------------------------------------------
    Operating (loss) income:
<S>                                      <C>                <C>            <C>     
    United States                        $     (10,559)     $    893       $  9,100
    International                               (1,477)         (868)          (467)
                                         ----------------------------------------------
    Total operating (loss) income        $     (12,036)     $     25       $  8,633
                                         ==============================================


<CAPTION>


                                                                December 31,
                                                    -------------------------------------
     Long lived assets:                                    2004              2003
                                                    -------------------------------------

<S>                                                      <C>               <C>      
     United States                                       $   2,484         $  11,632
     International                                             486               576
                                                    -------------------------------------
     Total long lived assets                             $   2,970         $  12,208
                                                    =====================================
</TABLE>




International  revenues disclosed above were based upon revenues reported by the
Company's  foreign  subsidiaries  and  joint  ventures.   No  one  international
geographic market is greater than 10% of consolidated net revenue for the twelve
months ended December 31, 2004.

14. Restructuring Charges

In  1999,  in  connection  with  the PIA  Acquisition,  the  Company's  Board of
Directors  approved a plan to  restructure  the operations of the PIA Companies.
Restructuring  costs were composed of committed  costs required to integrate the
SPAR Companies' and the PIA Companies' field organizations and the consolidation
of administrative  functions to achieve beneficial  synergies and costs savings.
At  June  30,  2004,  the  Company  evaluated  its  restructuring  reserves  and
determined  that certain  restructuring  reserves were no longer  necessary (see
Note 3 - Impairment Charges).

In July 2004, as a result of the loss of several  significant  customers and the
pending sale of the Company's largest customer,  the Company entered into a plan
to restructure and reduce its field force, as well as, its selling,  general and
administrative   cost  structure  to  reflect  its  lower  revenue  base.  These
reductions  consist of  personnel  reductions,  personnel  related  expenses and
office  closings.  As a result of the July  restructuring,  the Company expensed
approximately  $480,000 in the quarter ending September 30, 2004,  approximately
$230,000 for  severance  benefits and  approximately  $250,000 for office leases
that  the  Company  ceased  using.   At  December  31,  2004,  the  Company  had
approximately  $250,000  reserved  for  future  restructure  payments  that  are
expected to be paid in 2005.  The Company  records  restructure  expenses in the
selling,  general  and  administrative  section  of its  consolidated  operating
statements.







                                      F-27

<PAGE>

                        SPAR Group, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)
                                December 31, 2004

14. Restructuring Charges (continued)

The following table displays a roll forward of the liabilities for restructuring
charges from January 1, 2001 to December 31, 2004 (in thousands):


<TABLE>
<CAPTION>
                                                                 Equipment         Office
                                                 Employee         Lease            Lease
                                                Separation      Settlements      Settlements        Total
                                              --------------- ---------------- ---------------- --------------

<S>                                           <C>             <C>              <C>               <C>     
January 1, 2001 balance                       $       487     $      2,770     $        544     $   3,801

Adjustments in restructuring charges                 (132)               -                -          (132)
2001 payments                                        (355)          (1,008)            (124)       (1,487)
                                              --------------- ---------------- ---------------- --------------
December 31, 2001 balance                     $         -     $      1,762     $        420     $   2,182

2002 payments                                           -             (593)               -          (593)
                                              --------------- ---------------- ---------------- --------------
December 31, 2002 balance                     $         -     $      1,169     $        420     $   1,589

Adjustments in restructuring charges                    -               98             (185)          (87)
2003 payments                                                         (817)                          (817)
                                              --------------- ---------------- ---------------- --------------
December 31, 2003, balance                    $         -     $        450     $        235     $     685

Impairment charge (see Note 3 - Impairment
Charges)                                                -             (450)            (235)         (685)
2004 restructure plan                                 230                -              250           480
2004 payments                                        (230)               -                -          (230)
                                              --------------- ---------------- ---------------- --------------
December 31, 2004, balance                    $         -     $          -     $        250     $     250
                                              =============== ================ ================ ==============
</TABLE>


15. Net (Loss) Income Per Share

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


<TABLE>
<CAPTION>
                                                                 Twelve Months Ended December 31,
                                                         --------------------------------------------------
                                                               2004            2003             2002
                                                         --------------------------------------------------

<S>                                                      <C>                <C>              <C>      
    Numerator:
      Net (loss) income                                  $    (12,268)      $    (539)       $   5,298

    Denominator:
      Shares used in basic net (loss) income per share
        calculation                                            18,859          18,855           18,761
      Effect of diluted securities:
        Employee stock options                                      -               -              387
                                                         --------------------------------------------------
      Shares used in diluted net (loss) income per
         share calculations                                    18,859          18,855           19,148
                                                         ==================================================

    Basic and diluted net (loss) income per common
      share:                                                $   (0.65)      $   (0.03)      $     0.28
</TABLE>


The computation of dilutive loss per share excluded  anti-dilutive stock options
to purchase approximately 430,000 and 657,000 shares as of December 31, 2004 and
2003, respectively.


                                      F-28

<PAGE>


16. Quarterly Financial Data (Unaudited)

Quarterly data for 2004 and 2003 was as follows (in thousands,  except  earnings
per share data):


<TABLE>
<CAPTION>
                                                                        Quarter
                                              -------------------------------------------------------------
                                                   First         Second          Third         Fourth
                                              -------------------------------------------------------------

<S>                                               <C>          <C>              <C>            <C>     
    Year Ended December 31, 2004:
    Net revenues                                 $  12,803      $  11,932      $  10,683      $  15,952
    Gross profit                                     4,109          3,115          3,720          6,782
                                              -------------------------------------------------------------
    Net (loss) income                            $    (790)     $ (12,177)     $     210      $     489
                                              =============================================================

    Basic/diluted net (loss) income per
      common share                               $   (0.04)     $   (0.65)     $    0.01      $    0.03
                                              =============================================================

    Year Ended December 31, 2003:
    Net revenues                                 $  18,738        $17,351      $  16,615      $  12,155
    Gross profit                                     7,487          6,205          5,235          3,594
                                              -------------------------------------------------------------
    Net income (loss)                            $   1,278      $     608      $    (345)     $  (2,080)
                                              =============================================================

    Basic/diluted net income (loss) per
      common share                               $    0.07      $    0.03      $   (0.02)     $   (0.11)
                                              =============================================================
</TABLE>



2004

The lost business and subsequent impairment charges were the primary factors for
the losses incurred in the first two quarters of 2004.  However,  primarily as a
result of the restructure  plan initiated in the third quarter,  the Company was
profitable in the second half of 2004.

2003

In the fourth quarter 2003, the Company  experienced  certain charges to revenue
and cost of sales  that did not  occur in  2004.  These  charges  accounted  for
approximately  50%  of the  loss  in  2003  fourth  quarter.  The  Company  also
experienced  lower  revenues from per unit fee  contracts in the fourth  quarter
resulting from decreased  retail sales of some of the Company's  larger clients'
products, as well as the loss of a particular client earlier in the year.








                                      F-29

<PAGE>



                        SPAR Group, Inc. and Subsidiaries

 
                Schedule II - Valuation and Qualifying Accounts

                                 (In thousands)


<TABLE>
<CAPTION>
                                              Balance at       Charged to 
                                             Beginning of       Costs and                   Balance at End
                                                Period           Expenses       Deductions      of Period
                                           -----------------------------------------------------------------
        Year ended December 31, 2004: 
          Deducted from asset accounts:
<S>                                              <C>            <C>              <C>     <C>    <C>    
             Allowance for doubtful
               accounts                          $   515        $     366        $   120 (1)    $   761
             Sales allowances                    $   448        $       -        $   448        $     -

        Year ended December 31, 2003: 
          Deducted from asset accounts:
             Allowance for doubtful
               accounts                          $   301        $     377        $   163 (1)    $   515
             Sales allowances                    $     -        $     448        $       -      $   448

        Year ended December 31, 2002: 
          Deducted from asset accounts:
             Allowance for doubtful
               accounts                          $   325        $     262        $   286 (1)    $   301
</TABLE>



(1) Uncollectible accounts written off, net of recoveries







                                      F-30




                                 PROMISSORY NOTE

                                                              New York, New York
U.S.$764,271.00                                       (as of) September 10, 2004

         FOR  VALUE  RECEIVED,  the  undersigned,  STIMULYS,  INC.  (f/k/a  SPAR
Performance Group, Inc.), a corporation organized under the laws of the State of
Delaware and currently having an address at 2245 Keller Way,  Carrollton,  Texas
75006 (the  "Borrower"),  hereby  promises to pay to the order of SPAR INCENTIVE
MARKETING,  INC. (or the then current  endorsee and holder(s) of this promissory
note,  as  applicable,  the  "Lender"),  at its office at 580 White Plains Road,
Tarrytown, New York 10591, or at such other place as may be designated from time
to time in writing by the Lender,  the principal sum of SEVEN HUNDRED SIXTY FOUR
THOUSAND TWO HUNDRED SEVENTY ONE U.S. DOLLARS  (U.S.$764,271.00),  or such other
amount as may be advanced and outstanding hereunder, together with interest, all
as provided in this promissory note (as the same may be  supplemented,  renewed,
extended,  modified,  amended,  restated  or  replaced  from time to time in the
manner provided herein, this "Note").

         Section  1.  Certain  Defined  Terms.  Capitalized  terms  used and not
otherwise defined in this Note shall have the meanings  respectively assigned to
them in the relevant Loan Instrument (as hereinafter defined). Definitions shall

be  applicable  equally to the singular  and plural forms of the terms  defined,
each use of a neuter,  masculine,  feminine or plural pronoun shall be deemed to
refer to the form of pronoun  appropriate  to the  circumstance,  and each other
reference to or by gender shall include reference to each other or neuter gender
appropriate  to the  circumstance,  in each case as the  context  may  permit or
require. The following  capitalized terms and non-capitalized  words and phrases
shall have the meanings respectively assigned to them:  "Bankruptcy  Proceeding"
shall  mean the filing or  submission  of any  petition  or other  document  for
relief, bankruptcy,  insolvency,  receivership or other remedy, or the existence
of any case,  action,  suit, or proceeding,  whether  voluntary or  involuntary,
under  the  United  States  Bankruptcy  Code,  or any  other  present  or future
applicable law respecting bankruptcy,  reorganization,  insolvency, readjustment
of debts,  relief of debtors,  dissolution  or  liquidation,  any  corresponding
applicable law of any state, province or foreign jurisdiction, or any succeeding
applicable law, and any rules and regulations  promulgated  thereunder,  in each
case as the same  may have  been and  hereafter  may be  adopted,  supplemented,
modified,  amended, restated or replaced from time to time. "Business Day" shall
mean any day during which the Lender is open for business in New York, New York,
other than any Saturday, Sunday or other applicable legal holiday.  "Collateral"
shall  mean  any  asset or  property  of any  kind  securing  all or any part of
Obligations or any Surety's Obligations, whether directly or indirectly, whether
now existing or hereafter acquired or created,  whether granted by the Borrower,
any Surety or any other person (individually,  jointly, severally or otherwise),
and whether or not  disclosed to the Borrower or any Surety,  if any.  "Default"
shall mean any event that, with the giving or receipt of notice, the acquisition
of  knowledge  or the  passage  of time  (or  any  combination  thereof),  would
constitute  an Event of  Default.  "Event of  Default"  shall  have the  meaning
assigned  to it  in  Section  12  hereof.  "Guarantor"  and  "Guarantors"  shall
respectively mean any one or more of THOMAS F. HUNTER,  an individual  currently
residing in the State of Texas,  and JOHN  HARPER  HAWKINS  III,  an  individual
currently  residing in the State of Texas.  "Guaranty"  shall mean the  Guaranty
Agreement  among the  Guarantors  and the Lender dated as of August 30, 2004, as
the same may be supplemented,  renewed, extended, modified, amended, restated or
replaced from time to time in the manner  provided  therein.  "Loan" and "Loans"
shall  respectively mean any or more of the principal  amounts  outstanding from
time to time (including future advances) respecting any and all of the loans and
other  advances  made and amounts  paid by the Lender from time to time to or on
behalf or for the benefit of the Borrower,  or otherwise  owed from time to time
to the Lender by the Borrower,  under or pursuant to this Note or any other Loan
Instrument, in each case (i) including,  without limitation, those so made, paid
or  outstanding  during the  pendency  of any  Bankruptcy  Proceeding,  and (ii)
whether  requested,  received,  used or repayable by the Borrower  individually,
jointly,  severally or otherwise. "Loan Instrument" and "Loan Instruments" shall
respectively  mean  any  one  or  more  of  this  Note,  any  letter  of  credit
application, guaranty, security agreement,  hypothecation,  assignment, mortgage
or other  instrument,  agreement  or  document  with or  issued  or given by the
Borrower or any Surety creating, evidencing,  governing,  supporting,  securing,
perfecting,  recognizing,  subordinating or respecting (in whole or in part) any
of  the  Obligations  or  Surety's  Obligations,   and  all  waivers,  consents,
agreements,  reports,  statements,  certificates,  schedules and other documents
executed by the requisite person(s) pursuant to or in connection with any of the
foregoing and accepted or delivered by the Lender, in each case as each may have
been and hereafter may be executed,  supplemented,  renewed, extended, modified,
amended,  restated or replaced from time to time in the manner provided therein,
whether before, as of or after the date hereof.  "Material Adverse Effect" shall
mean any material and adverse effect,  whether individually or in the aggregate,
upon (a) the assets,  business,  cash flow, expenses,  liabilities,  operations,
properties,   prospects,   reputation,   taxation  or  condition  (financial  or
otherwise) of the Borrower,  (b) the ability of the Borrower to pay or otherwise
satisfy  (as and  when  due)  any of the  Obligations,  or (c)  any  part of the
Collateral or its value or the validity, enforceability,  perfection or priority
of any security  interest of the Lender in any Collateral.  



<PAGE>

"Obligations" shall mean any and all (i) Loans (including future advances),  and
(ii)  other  amounts to be paid and all other  obligations  to be  performed  or
otherwise satisfied by the Borrower under this Note or any other Loan Instrument
(whether individually, jointly, severally or otherwise); in each case including,
without limitation, (A) those so made, paid or outstanding, accrued, accruing or
otherwise arising or applicable under any Loan Instrument during the pendency of
any  Bankruptcy  Proceeding,  irrespective  of  whether or to what  extent  such
amounts accrue or are allowed or allowable as claims in any such proceeding, (B)
whether   requested,   received,   used,  owed  or  repayable  by  the  Borrower
individually,  jointly,  severally or otherwise,  and (C) all accrued and unpaid
interest thereon (including,  without limitation, any and all interest and other
amounts  accrued,  accruing or otherwise  arising or  applicable  under any Loan
Instrument  during the pendency of any Bankruptcy  Proceeding,  irrespective  of
whether or to what extent such  interest,  fees and other amounts  accrue or are
allowed or allowable as claims in any such proceeding).  "Surety" and "Sureties"
shall  respectively  mean  any one or more of:  the  Guarantors;  and any  other
co-obligor,  indemnitor,  guarantor,  pledgor or surety of, or any other  person
providing  any  Credit  Support  for,  any of the  Obligations  or any  Surety's
Obligations;  in each case whether or not disclosed to the Borrower or any other
Surety.  "Surety's  Adverse  Effect" shall mean any material and adverse effect,
whether individually or in the aggregate,  upon (a) the assets,  business,  cash
flow,  expenses,  income,  liabilities,   operations,   properties,   prospects,
reputation or condition,  financial or otherwise, of any Surety, (b) the ability
of any  Surety  to  pay or  otherwise  satisfy  (as  and  when  due)  any of its
obligations under any of the Loan Instruments, or (c) any collateral provided by
any Surety or its value or the validity, enforceability,  perfection or priority
of any security  interest of the Lender therein.  "Surety's  Obligations"  shall
mean any and all of: the "Guarantors' Obligations" under (and as defined in) the
Guaranty;  and the other Credit Support from, and any and all other  obligations
of, any Surety under any Loan Instrument;  in each case whether or not disclosed
to the Borrower or any other Surety.

         Section 2. Loans and Obligations. (a) The Borrower represents, warrants
and  acknowledges to and covenants and agrees with the Lender that: (i) pursuant
to its Revolving Credit,  Guaranty and Security  Agreement with the Lender dated
as of June 30, 2002, and the Revolving  Promissory Note issued pursuant  thereto
(as the same may have been and hereafter may be supplemented, modified, amended,
restated  or  replaced  from time to time in the manner  provided  therein,  the
"Revolving  Documents"),  the Lender has made loans on a revolving  basis to the
Borrowers that were outstanding as of the date hereof in the aggregate principal
amount of  $694,271.00  (the  "Existing  Revolving  Loans"),  and the Lender has
caused to be issued a Letter of Credit in the face amount of $70,000.00  for the
benefit of the Borrower (the  "Existing  Letter of Credit");  (ii) the Revolving
Documents and the Existing Revolving Loans, as well as the Borrower's obligation
to immediately and fully reimburse the Lender for any drawing under the Existing
Letter of Credit (the "Existing Reimbursement Obligations"), were not subject as
of the  date of  this  Note  to any  defense,  counterclaim,  setoff,  right  of
recoupment,  abatement,  reduction  or  other  claim  or  determination  of  the
Borrower;  (iii) the  Borrower  has  issued  this Note in order to fully pay and
satisfy  the  Existing  Revolving  Loans and to amend,  restate  and replace the
Existing  Reimbursement  Obligations  as  provided  in  subsection  (b) of  this
Section;  (iv) the  Lender  shall be deemed to have  advanced  to itself (at the
request and for the benefit of the  Borrower) on the date hereof the full amount
of the  Existing  Revolving  Loans  in  order  to  fully  pay  and  satisfy  the
outstanding principal balance thereof; (v) as a result, the principal balance of
the Loans and the  Letter of Credit  outstanding  on the date  hereof  under and
evidenced by this Note is and shall be equal to  $764,271.00  (and is subject to
increase  as  provided  in  subsection  (b),  below);  (v) the  Loans  and other
Obligations  of the  Borrower are not subject as of the date of this Note to any
defense,  counterclaim,  setoff,  right of recoupment,  abatement,  reduction or
other claim or determination,  (vi) the Note and Guaranty shall continue in full
force and effect after the date hereof;  (vii) all remaining  availability under
the Revolving  Documents has been  terminated;  and (viii) except for the deemed
advance  described  above and in  subsection  (b),  below,  no Loan advances are
available to the Borrower under this Note.

         (b) The Borrower  shall  reimburse the Lender on demand for any and all
advances made by the issuer  thereof under the Existing  Letter of Credit,  each
such advance  shall be deemed to be an advance of Loan  principal  hereunder and
part of the "Loans"  and  "Obligations"  evidenced  hereby.  Such  reimbursement
obligations shall be deemed to have continued,  amended, restated and completely
replaced the Existing Reimbursement Obligations, but shall not be deemed to have
been a payment or satisfaction thereof.

         (c) This Note  evidences any and all amounts  outstanding  from time to
time  (including  future  advances)  in  respect  of any and all loans and other
advances made and amounts paid by the Lender in its discretion from time to time
to or on behalf or for the benefit of the  Borrower,  or  otherwise  now or from
time to time hereafter owed to the Lender by the Borrower,  under or pursuant to
this  Note  (each of which is a Loan  hereunder),  in each  case (i)  including,
without  limitation,  those so made, paid or outstanding  during the pendency of
any Bankruptcy Proceeding,  (ii) whether requested,  received, used or repayable
by the  Borrower  individually,  jointly,  severally  or  otherwise,  and  (iii)
together  with all  accrued  and unpaid  interest  thereon  (including,  without
limitation,  any and  all  interest  and  other  amounts  accrued,  accruing  or
otherwise arising or applicable under any Loan Instrument during the pendency of
any  Bankruptcy  Proceeding,  irrespective  of  




<PAGE>

whether or to what extent such  interest,  fees and other amounts  accrue or are
allowed or allowable as claims in any such proceeding).

         Section 3.  Voluntary and Mandatory  Payments.  (a) The Borrower  shall
repay the entire principal  balance then outstanding  under the Loans and all of
the other monetary  Obligations  then  outstanding in full on the first to occur
(the "Maturity  Date") of: (a) twenty  Business Days from the date of this Note;
or (b) the  acceleration  of the  Obligations as  contemplated by this Note, any
other Loan Instrument or applicable  law. The Borrower may voluntarily  elect to
prepay the Loans in full at any time, or in part from time to time, in each case
without any premium or penalty. Nothing contained in this Note or any other Loan
Instrument  shall  be  construed  as a  waiver  or  modification  of any term or
provision of this Note or any other Loan  Instrument  respecting  the payment of
any expense, indemnity or reimbursement on demand.

         (b) Notwithstanding  anything in this Note to the contrary, the parties
agree:  (i) $70,000 of the amount of this Note  represents the $70,000 letter of
credit  (the  "LOC")  issued by Webster  Bank to Airline  Reporting  Corporation
(ARC),  (ii) unless it has been drawn  upon,  this amount is not due and payable
prior to or on the  Maturity  Date of this Note,  (iii) the LOC will be returned
(undrawn upon) to the Lender and Webster Bank for  cancellation by no later than
nineteen  business days from the date of this Note (the "LOC  Surrender  Date"),
(iv) if the LOC is so returned by the LOC Surrender  Date,  this $70,000  amount
will be considered  paid in full, (v) no interest or fee will will accrue and be
payable  for this LOC at any time prior to the first to occur of any  drawing on
the LOC and the LOC  Surrender  Date,  (vi) if any drawing  shall be made on the
LOC,  the amount of such  drawing  shall be deemed a funded Loan under this Note
and shall be due and payable on the Maturity Date, (vii) if the LOC has not been
returned  to the Lender and Webster  Bank by the LOC  Surrender  Date,  the full
undrawn  LOC amount  shall be deemed a funded  Loan under this Note and shall be
due and payable on the Maturity Date, and (viii) any such funded Loan shall bear
interest as provided herein from and after the date deemed funded.

         Section 4. Interest; Default Interest. (a) Except as otherwise provided
in this Section,  the Loans shall bear interest on the unpaid principal  balance
of those Loans outstanding from time to time, from and including the date hereof
through and including the date such principal balance of such Loans is repaid in
full  (including,  without  limitation,  any and all  interest,  fees and  other
amounts accrued, accruing or otherwise arising or applicable during the pendency
of any Bankruptcy  Proceeding,  irrespective of whether such interest,  fees and
other amounts are allowed or allowable as claims in any such proceeding), at the
rate of 8.935% per annum.  Interest  on the Loans shall be computed on the basis
of the actual number of days elapsed and a year of 360 days and shall be payable
by the Borrower in arrears: (i) in full on the Maturity Date; and (ii) on demand
after the Maturity Date.

         (b) Any payment of principal, interest or other amount that is not paid
when due  under  this Note or any other  Loan  Instrument,  and all of the Loans
after notice from the Lender during the  continuance  of any Default or Event of
Default  under  this Note or any other  Loan  Instrument,  shall,  to the extent
permitted by applicable law, bear interest  (computed on the basis of the actual
number of days elapsed and a year of 360 days) until repaid in full at an annual
rate  equal to 18% per  annum,  which  interest  rate  shall be  payable  by the
Borrower with respect to such amount(s) instead of the rate (if any) established
by this Section with respect  thereto,  and which  interest  amount(s)  shall be
payable upon  demand;  in each case (1)  subject,  however,  to the maximum rate
permitted by Applicable Law as provided in Section 6 hereof,  and (2) including,
without  limitation,  any and all  interest,  fees and  other  amounts  accrued,
accruing  or  otherwise  arising  or  applicable  during  the  pendency  of  any
Bankruptcy  Proceeding,  irrespective  of whether such interest,  fees and other
amounts are allowed or allowable as claims in any such proceeding.

         Section 5. Maximum  Interest  Rate. It is the intention of the Borrower
and the Lender that the interest (as defined under  applicable  law) that may be
charged to,  collected  from or received from the Borrower under this Note shall
not exceed the maximum  rate  permissible  under  applicable  law.  Accordingly,
anything in this Note to the contrary notwithstanding, in the event any interest
(as so defined)  is charged to,  collected  from or received  from the  Borrower
under this Note in excess of such maximum  lawful rate,  then the excess of such
payment  over  that  maximum  rate  shall be  applied  to the  reduction  of the
outstanding  principal  balance  of the  Loans  under  this  Note and the  other
outstanding  Obligations  (without any prepayment  premium or penalty),  and any
portion of such excess payment  remaining after payment and  satisfaction of the
Obligations in full shall be returned by the Lender to the Borrower.

         Section 6. Waiver of Presentment,  Etc. Presentment for payment, notice
of  dishonor,  protest  and  notice  of  protest  are  hereby  each  absolutely,
unconditionally, irrevocably and expressly waived forever by the Borrower.



<PAGE>

         Section 7.  Payments  and  Applications.  All  payments  of  principal,
interest,  fees and other  amounts  due the Lender  pursuant to this Note or any
other Loan  Instrument  shall be made in U.S.  Dollars in immediately  available
funds by 2:00 P.M. (New York City time) on the date payment is due to the Lender
at its  offices  at SPAR  Incentive  Marketing,  Inc.,  580 White  Plains  Road,
Tarrytown,  New York 10591, or as otherwise instructed by the Lender. Should any
payment  become  due and  payable on other than a  Business  Day,  the  maturity
thereof shall be extended to the next succeeding  Business Day, and, in the case
of any payment of principal,  interest shall be payable  thereon at the rate per
annum  specified  in this  Note  during  such  extension.  The  Borrower  hereby
authorizes  the Lender at any time and from time to time (in the  discretion  of
the Lender) to deduct from any account of the  Borrower  with the Lender,  or to
direct any affiliate, custodian or designee of the Lender holding any account of
the  Borrower at the  direction  or for the benefit of the Lender to deduct from
such  account,  all or any part of any amount  (whether  principal,  interest or
otherwise)  that has  become due and  payable  under this Note or any other Loan
Instrument,  all without any notice to or further consent from the Borrower.  In
debiting any such account,  the Obligations shall be deemed to have been paid or
repaid only to the extent of the funds  actually  available  in and debited from
such account  notwithstanding  any internal  procedure of the debiting person to
the  contrary.  Except as  otherwise  provided  in this  Note or any other  Loan
Instrument,  any funds  received by the Lender from or on behalf of the Borrower
(including the net proceeds from any collateral) may be applied by the Lender to
the following  items in such order and manner as may be determined by the Lender
in its sole and absolute  discretion to the extent  permitted by applicable law:
(i) the payment of accrued and unpaid  interest on the Loans and any breakage or
other amounts (if any) required by this Note; (ii) the payment of due and unpaid
principal on the Loans;  (iii) the payment to or reimbursement of the Lender for
any fees and expenses for which it is entitled to be paid or reimbursed pursuant
to any of the  provisions  of this Note or any other Loan  Instrument;  (iv) the
establishment or maintenance of any cash collateral  required or permitted under
this Note or any other Loan Instrument; and (v) the payment in full of all other
Obligations.

         Section  8.  Certain  Representations   Respecting  the  Borrower.  The
Borrower  represents and warrants to the Lender as follows in each subsection of
this  Section,  as of the date  hereof  and as of the date of each Loan or other
advance or any readvance,  renewal or extension thereof:  (a) the full, complete
and correct  legal name of the  Borrower is set forth in the first  paragraph of
this Note and on the signature page hereto, and except as otherwise disclosed to
the Lender in writing,  has never been changed and is and has been the only name
ever used by the Borrower;  (b) the Borrower is a corporation duly incorporated,
validly  existing and in good standing  under the laws of the State of Delaware,
maintains  its chief  executive  office at the  address  set forth for it on the
signature page,  below, is duly qualified and in good standing to do business in
each such location,  and except as otherwise  disclosed to the Lender in writing
has not had its organizational state or chief executive office location anywhere
else within the past six years; (c) the Organizational Documents of the Borrower
have all been  duly  adopted,  executed  and  filed to the  extent  required  by
applicable  law, and the Borrower has the legal capacity,  power,  authority and
unrestricted  right to execute and deliver  this Note and each of the other Loan
Instruments  to which the  Borrower  is or will be a party and to perform all of
the  Borrower's  obligations  hereunder  and  thereunder;  (d) the execution and
delivery by the Borrower of this Note and each of the other Loan  Instruments to
which the Borrower is or will be a party and the  performance by the Borrower of
all of the  obligations  of the Borrower  hereunder and thereunder (i) have been
duly  authorized  by all  requisite  action on the part of the  Borrower and all
requisite  action  on the  part of each  direct  or  indirect  general  partner,
manager,  trustee or similar  principal of such  Borrower  that is not a natural
person, as applicable,  (ii) will not violate or be in conflict with any term or
provision  of  (A)  any  applicable  law  (including,  without  limitation,  any
applicable  usury or similar law), (B) any judgment,  order,  writ,  injunction,
decree or consent of any court or other  judicial  authority  applicable  to the
Borrower or any material part of the Borrower's  assets and  properties,  or (C)
any Organizational Document of the Borrower or of any direct or indirect general
partner,  manager,  trustee or similar  principal of such Borrower that is not a
natural person,  as applicable,  (iii) will not violate,  be in conflict with or
constitute  a default  (with or without  the  giving or  receipt of notice,  the
acquisition  of  knowledge  or the passage of time or any  combination  thereof)
under any term or provision of any of the Material Documents, and (iv) except as
specifically  contemplated  by any  Loan  Instrument,  will  not  result  in the
creation or  imposition of any security  interest,  lien,  encumbrance  or other
adverse  claim of any  nature  upon any of its  assets  and  properties;  (e) no
consent,  approval or authorization  of, or registration,  declaration or filing
with,  any  governmental  authority or other person  (whether under any Material
Document or  otherwise)  is required as a  condition  precedent,  concurrent  or
subsequent to or in connection  with the due and valid  execution,  delivery and
performance  by the Borrower of this Note or any other Loan  Instrument to which
the Borrower is or will be a party or the legality,  validity, binding effect or
enforceability  of any of the  terms and  provisions  of this Note and the other
Loan  Instruments;  (f) the Borrower is not regulated by or otherwise subject to
any applicable law that directly or indirectly limits or otherwise  restricts or
governs its  ability to incur,  continue  or repay  indebtedness  or provide any
Credit  Support or to encumber any of its assets and  properties as security for
the  indebtedness  of itself or any other person;  (g) this Note is, and each of
the other  Loan  Instruments  to which the  Borrower  is or will be a party when
executed and  delivered  will be, a legal,  valid and binding  obligation of the
Borrower,  enforceable  against the Borrower in accordance with their respective
terms and provisions;  (h) there is no action, suit, investigation or proceeding
(whether or not purportedly on behalf of the Borrower,  any Surety, any of their
respective  



<PAGE>

principals,  executives or affiliates or any issuer or holder of any Collateral)
pending or (to the best knowledge of the Borrower) threatened or contemplated at
law, in equity, in arbitration or by or before any other governmental  authority
involving  or  affecting  (A) the  Borrower  or,  to the best  knowledge  of the
Borrower,  any  Surety,  any  of  their  respective  principals,  executives  or
affiliates  or any  issuer  or  holder  of any  Collateral  that,  if  adversely
determined,  would be  reasonably  likely to have a Material  Adverse  Effect or
Surety's Adverse Effect, individually or in the aggregate with other events, (B)
any alleged criminal act or activity (other than a traffic misdemeanor or lesser
traffic  violation) on the part of the Borrower or, to the best knowledge of the
Borrower,  any  Surety  or any of their  respective  principals,  executives  or
affiliates,  (C) any part of the Obligations,  (D) any Collateral granted by the
Borrower or (to the  knowledge of the  Borrower)  any Surety,  or (E) any of the
transactions  contemplated  in this Note or any other Loan  Instrument;  (i) the
financial  statements and reports and any related notes and schedules respecting
the Borrower  delivered to the Lender prior to the date hereof, as well as those
delivered after the date hereof (whenever delivered),  if any, (i) were prepared
in accordance with generally accepted accounting principles consistently applied
throughout the period  covered  thereby,  and (ii) are complete,  accurate and a
fair presentation of the Borrower's  financial  condition as of the date thereof
and the  Borrower's  results from  operations  and income for the period covered
thereby  (subject in the case of interim  statements  to normal  year-end  audit
adjustments), and since date of the latest financials preceding the date hereof,
no event or events have occurred that  individually or in the aggregate has had,
will have or could have a Material  Adverse Effect or Surety's  Adverse  Effect;
(j)  after  giving  effect  to the  Loans  and the  other  direct  and  indirect
liabilities  of the  Borrower  arising  under  this  Note  and  the  other  Loan
Instruments, whether absolute or contingent (treating all Credit Support and all
unused availability under lines of credit, commitments and other indebtedness as
fully funded  indebtedness in the maximum amount  thereof),  the Borrower (A) is
solvent  (i.e.,  the aggregate  fair value of its assets  exceeds the sum of its
liabilities), (B) has adequate working capital, and (C) is able to pay its debts
as they mature;  (k) the  Borrower has never been the subject of any  Bankruptcy
Proceeding,  and the Borrower is not currently taking or considering or planning
to take,  and the Borrower has never taken or considered or planned to take, any
action to initiate or  participate  in any  Bankruptcy  Proceeding or any of the
other  actions  specified  in  subsection  (e) or (f) of the "Events of Default"
Section of any  non-demand  Note,  and to the knowledge of the Borrower no other
person is currently  considering or planning, or has ever considered or planned,
to take any of those  actions;  (l) the Loans have been requested and will be or
have been used by the Borrower or any Surety for  business  purposes and not for
consumer purposes, and no part of the proceeds of the Loans or other credit from
the  Lender  has been or will be used at any time in any way or for any  purpose
that violates or is inconsistent with any applicable  Margin Stock  Regulations;
(m) the Borrower and the Sureties (i) are engaged as an integrated  group in the
business of incentive  promotions and travel services,  selling or leasing goods
and providing services in connection therewith,  and providing to each other the
required  services and  facilities  for those  integrated  operations,  (ii) are
seeking the Loans and other credit for the purpose of funding  those  integrated
operations  and certain  other  approved  working  capital  requirements  of the
Borrower and the Sureties,  and (iii) each expect to derive  financial and other
benefit,  directly or indirectly,  in return for  undertaking  their  respective
obligations  under this Note and the other Loan  Instruments,  both individually
and as a member of the integrated  group; and (n) no  representation or warranty
of the  Borrower  made or  contained  in this Note or any other Loan  Instrument
(whether with respect to the Borrower,  any Surety or otherwise)  and no report,
statement,  certificate,  schedule or other document or information furnished or
to be furnished by or on behalf of the Borrower or any Surety in connection with
the  transactions  contemplated  by this  Note and the  other  Loan  Instruments
(whether with respect to the Borrower, any Surety or otherwise) contains or will
contain  a  misstatement  of a  material  fact or omits or will  omit to state a
material fact required to be stated therein in order to make it, in the light of
the circumstances under which made, not misleading.

         Section 9. Certain  Covenants of the Borrower.  The Borrower  covenants
and agrees with the Lender that it will comply in all respects on a timely basis
(except as otherwise  expressly  provided) and at its own expense with each, and
will not  cause,  suffer  or  permit  any  violation  of any,  of the  terms and
provisions of this Section,  from the date hereof and until the Obligations have
been fully  paid and  satisfied  and this Note  shall  have no further  force or
effect,  unless the Lender (in its sole and absolute  discretion)  shall consent
otherwise in writing:

         (a) The Borrower  shall give, or cause to be given,  immediate  written
notice to the Lender of:  (i) any  change in the name  (whether  change in legal
name, use of other name or otherwise),  name(s) of controlling  equity owner(s),
the state or other  jurisdiction of incorporation  or other  organization or the
location of the chief executive office, of the Borrower,  as applicable , or, to
the best knowledge of the Borrower,  the name (whether change in legal name, use
of other name or otherwise) name(s) of controlling equity owner(s), the state or
other jurisdiction of incorporation or other organization or the location of the
chief executive  office of any Surety or any issuer or holder of any Collateral;
(ii) the  institution or threat of, or any adverse  determination  or change in,
any action,  suit,  investigation  or proceeding  (whether or not purportedly on
behalf  of the  Borrower,  any  Surety,  any  of  their  respective  principals,
executives or 



<PAGE>

affiliates  or any issuer or holder of any  Collateral)  at law,  in equity,  in
arbitration  or by or  before  any other  governmental  authority  involving  or
affecting  (A) the  Borrower  or, to the best  knowledge  of the  Borrower,  any
Surety,  any of their  respective  principals,  executives  or affiliates or any
issuer or holder of any  Collateral  that,  if  adversely  determined,  would be
reasonably  likely to have a Material Adverse Effect or Surety's Adverse Effect,
individually or in the aggregate with other events, (B) any alleged criminal act
or activity  (other than a traffic  misdemeanor or lesser traffic  violation) on
the part of the Borrower or, to the best  knowledge of the Borrower,  any Surety
or any of their respective principals, executives or affiliates, (C) any part of
the Obligations, (D) any Collateral granted by the Borrower or (to the knowledge
of the Borrower) any Surety, or (E) any of the transactions contemplated in this
Note or any other Loan  Instrument;  (iii) any change in location or any loss of
or other  material and adverse change in any Collateral (to the knowledge of the
Borrower)  granted by any Surety;  (iv) any act or event  known to the  Borrower
that in any material respect violates,  is in conflict with, results in a breach
of or  constitutes  a default  (with or without the giving or receipt of notice,
the acquisition of knowledge or the passage of time or any combination  thereof)
under any term or  provision  of any of the  Organizational  Documents  or other
Material  Documents;  (v) any  nonpayment  or other  Default or Event of Default
under  this  Note  or  any  other  Loan  Instrument,  or any  other  nonpayment,
misrepresentation,  nonperformance or other breach or default in or with respect
to any of the  Borrower's  Obligations;  or (vi) any other  event if such event,
individually or in the aggregate with other events,  has had, will have or could
have any Material Adverse Effect or Surety's Adverse Effect.

         (b) The Borrower shall provide to the Lender such financial statements,
accounts, reports,  certificates,  tax returns, statements,  documents and other
information  as the Lender from time to time may request,  each in such form and
substance as may be acceptable to the Lender. From time to time upon the request
of the Lender,  the Borrower  (upon  receipt) will furnish copies to the Lender,
and will direct such other persons  (including the issuers and preparers) as the
Lender may request to furnish  copies  directly  to the  Lender,  of any and all
financial  statements,   account  statements,  notices  and  other  reports  and
information  pertaining  to the  Collateral  as the Lender may  request.  At all
reasonable times and as often as the Lender reasonably may request, the Borrower
shall permit  representatives  designated by the Lender to (A) have complete and
unrestricted access to the premises of the Borrower and the books and records of
the Borrower, and make copies of, or excerpts from, those books and records, and
(B)  discuss  the  accounts,  assets,  business,  cash flow,  expenses,  income,
liabilities,   operations,   properties,  prospects,  reputation  or  condition,
financial or otherwise,  of the Borrower or any  Collateral  with the Borrower's
accountants and other representatives.

         (c) The  Borrower  at all  times  shall  do,  or cause to be done,  all
things,  or proceed  with due  diligence  with any actions or courses of action,
that may be necessary: (i) to maintain its due organization, valid existence and
good standing under the laws of its state of organization;  and (ii) to preserve
and keep in full force and effect all foreign and other qualifications, licenses
and registrations in those  jurisdictions in which the failure to do so would be
reasonably likely to have a Material Adverse Effect. The Borrower:  (A) shall at
all times maintain its full and  unrestricted  right,  power and authority,  and
shall not, and shall not cause, suffer or permit anyone else to, take or fail to
take any action (with respect to itself or otherwise), or offer, commit or enter
into to any agreement or arrangement, that would, or could, in any way restrict,
limit, make subject to third-party approval or otherwise impair its right, power
or  authority,  (x) to carry on its business as now  conducted,  (y) to execute,
deliver or be a party under this Note or any other Loan  Instrument  to which it
is or becomes a party or any supplement,  modification  or amendment  thereto or
restatement  or  replacement  thereof  from time to time in the manner  provided
therein,  or (z) to perform any of its obligations  under this Note or any other
Loan Instrument;  and (B) shall not, and shall not cause,  suffer or permit, any
supplement,  modification or amendment to any of Organizational Documents of the
Borrower,  or of any direct or indirect  general  partner,  manager,  trustee or
similar  principal  of the Borrower  that is a  corporation,  limited  liability
company or similar entity,  as applicable,  that would further limit,  restrict,
impair  or make  subject  to  approval  any  such  power or  authority  or would
otherwise  be  adverse  to  any  such  execution,  delivery,   participation  or
performance.  The Borrower shall at all times: (1) do business exclusively under
its own name(s) and employer and taxpayer  identification  numbers,  hold itself
out to the public as a legal entity  separate and distinct from any other person
(and  not as a  department  or  division  of  someone  else),  and  correct  any
misunderstandings  known to it regarding the separate  identity of the Borrower;
(2) use its own separate stationery,  invoices and checks; (3) use its own logos
and trademarks and not share any common logo or trademark with any other person;
(4) observe all corporate or equivalent  formalities  for maintaining its status
as a valid separate entity; and (5) maintain its records, books of account, bank
accounts  and other assets and  properties  separate and apart from those of any
other person and not commingle any of them with those of any other person.

         Section  10.  Events of Default.  Each of the  following  events  shall
constitute  a default  under  this Note  (each an "Event of  Default"):  (a) any
representation  or  warranty  made in, or any  report,  statement,  certificate,
schedule or other document or  information  furnished in connection  with,  this
Note or any of the other  Loan  Instruments  shall  prove to have been  false or
misleading  in any  material  respect  when made or  furnished or deemed made or
furnished  (whether  prior  to, on or after the date  hereof);  (b) any  default
(whether in whole or in part) shall  occur and be  continuing  in the payment of
any  principal,  interest or other  amount (i) under this Note or any other Loan
Instrument, or (ii) under any other indebtedness, obligation or liability of the
Borrower,  any Surety or any of their respective  principals or other affiliates
owed to the Lender or any of its  affiliates;  (c) any 



<PAGE>

other default in the due  observance or  performance of any term or provision of
this Note and the other Loan  Instruments  shall  occur  (whether in whole or in
part),  which default is not described in any other  subsection of this Section;
(d) any default  (whether in whole or in part) shall occur and be continuing (i)
in the payment of any  principal,  interest or other amount owed under any other
indebtedness,  obligation  or  liability  (other  than the  Obligations)  now or
hereafter  owed (whether  individually,  jointly,  severally or  otherwise,  and
whether on or after the date hereof) by the Borrower, any Surety or any of their
respective  principals  or other  affiliates,  or (ii) in the due  observance or
performance  of any term or provision of any  instrument,  agreement or document
(other  than  a  Loan  Instrument)  evidencing  or  respecting  any  such  other
indebtedness,  liability or obligation,  including (without  limitation) any and
all any  indebtedness or other  obligation  (other than the Obligations) for any
(A) money  borrowed,  debt issue,  deferred  purchase  price,  letter of credit,
acceptance,  or commitment or line of credit, (B) cap, swap,  exchange,  forward
contract  or other  option  or  hedge,  whether  interest,  currency,  equity or
otherwise,  (C) capital lease, (D) affiliate  advance,  (E) preferred stock with
mandatory  payments or redemptions,  (F) unfunded  pension  obligations,  or (G)
other credit,  or under any Credit Support from the referenced person respecting
any such  indebtedness or any other obligation of any other person, in each case
however  evidenced and whether owed to the Lender,  any of its affiliates or any
other  person,  and in each case  which  default is not  described  in any other
subsection  of  this  Section,  and  such  default  shall  continue  beyond  any
applicable grace and cure periods  thereunder;  (e) the Borrower,  any Surety or
any of their  respective  principals or other  affiliates shall (i) fails to, be
unable to or otherwise does not generally pay its debts as they become due, (ii)
conceal,  remove or transfer  any of its assets and  properties  in violation or
evasion of any  bankruptcy,  fraudulent  conveyance or similar  applicable  law,
(iii) make an  assignment  for the benefit of its  creditors,  (iv)  petition or
apply for or  consent  to the  appointment  of a  receiver,  trustee,  assignee,
custodian, sequestrator, liquidator or similar official for itself or any of its
assets and  properties,  (v)  commence a  voluntary  case for relief as a debtor
under the United States  Bankruptcy  Code, (vi) file with or otherwise submit to
any  governmental  authority any petition,  answer or other document seeking (A)
reorganization,  (B) an  arrangement  with creditors or (C) to take advantage of
any   other   present   or  future   applicable   law   respecting   bankruptcy,
reorganization,   insolvency,   readjustment   of  debts,   relief  of  debtors,
dissolution or liquidation,  (vii) file or otherwise  submit any answer or other
document admitting or failing to contest the material  allegations of a petition
or other  document  filed or otherwise  submitted  against it in any  proceeding
under any such applicable law, (viii) be adjudicated a bankrupt or insolvent, or
(ix) take any action for the purpose of effectuating, approving or consenting to
any of the other actions or events described in this  subsection;  (f) any case,
proceeding or other action shall be commenced  against the Borrower,  any Surety
or any of their  respective  principals or other  affiliates  for the purpose of
effecting,  or an order,  judgment  or decree  shall be  entered by any court of
competent  jurisdiction  approving  (whether  in  whole  or in  part),  anything
specified in subsection (e) of this Section, or any receiver, trustee, assignee,
custodian,  sequestrator,  liquidator or other  official shall be appointed with
respect to the  Borrower,  any Surety or any of their  respective  principals or
other  affiliates or all or a substantial  part of the assets and  properties of
the  Borrower,  any  Surety  or any of  their  respective  principals  or  other
affiliates ; (g) one or more final  judgments  for the payment of money shall be
rendered against the Borrower,  any Surety or any of their respective principals
or other  affiliates and the same shall remain  undischarged  for a period of 30
days  during  which  levy and  execution  shall  not be  effectively  stayed  or
contested in good faith; (h) any seizure,  levy,  attachment,  distraint,  loss,
destruction,    termination,   foreclosure   or   other   material   impairment,
deterioration  or  diminution  (whether  in whole or in part)  shall  occur with
respect  to all or any part of any  Collateral  or  other  material  assets  and
properties of the Borrower,  any Surety or any of their respective principals or
other  affiliates  (other  than fully  insured  casualty  losses);  (i) any Loan
Instrument  or  any  security  interest  granted  thereunder  (or  the  intended
perfection or priority thereof) for any reason shall (in whole or in part) cease
to be in full force or effect or shall be contested, challenged or repudiated by
or on behalf of the Borrower or any Surety; (j) the Borrower,  any Surety or any
of their  respective  principals  or other  affiliates  shall be or  become  the
subject of or a party to any criminal  indictment  or  conviction  (other than a
misdemeanor);  (k) the failure in business or termination of current  employment
of the  Borrower,  any  Surety or any of their  respective  principals  or other
affiliates,  any merger,  consolidation,  reorganization,  liquidation,  sale of
substantially  all of its  assets,  or change in  ownership  or  control  of the
Borrower or any Surety, or the death or permanent  disability of the Borrower or
any  Surety or any of their  respective  principals;  or (l) any event or events
shall occur that (individually or in the aggregate with any other event(s)) have
had or could have a Material  Adverse  Effect or  Surety's  Adverse  Effect,  as
determined  by the Lender in the exercise of its  reasonable  judgment,  and the
Lender shall have given the Borrower notice of such determination.

         Section 11. Enforcement. During the continuance of any Default or Event
of Default  under this Note or any other Loan  Instrument,  the Lender  shall be
entitled in its sole and absolute  discretion  at any time:  (i) to declare this
Note, and any and all principal,  interest and other amounts due under this Note
and/or any other Loan Instrument, to be immediately due and payable upon written
notice to the Borrower,  all without presentment,  protest,  demand or notice of
any kind, all of which are hereby absolutely,  unconditionally,  irrevocably and
expressly  waived  forever by the  Borrower;  and (ii) to exercise or  otherwise
enforce (from time to time) any one or more of the rights,  powers,  privileges,
remedies and interests of the Lender under this Note, any other Loan  Instrument
or applicable law; provided, however, that in the event of the occurrence of any
of the 



<PAGE>

events  respecting  the  Borrower  set  forth  in  subsection  (e) or (f) of the
definition  of  Event  of  Default,  the  Loans  and all of the  other  monetary
Obligations  shall be  accelerated  and  immediately  due and  payable as stated
above.  The Lender may (without  limitation),  at any time and from time (in the
Lender's sole and absolute discretion), exercise or otherwise enforce any right,
power,  privilege,  remedy or interest of the Lender under this Note,  any other
Loan Instrument or applicable law: (a) at law, in equity, in rem or in any other
forum  available  under  applicable  law; (b) without notice except as otherwise
expressly  provided in this Note;  (c) without any demand for payment  except as
otherwise  expressly provided in this Note; (d) without pursuing,  exhausting or
otherwise exercising or enforcing any other right, power,  privilege,  remedy or
interest  that the Lender may have  against or in respect of the  Borrower,  any
Surety  or any  other  person or  thing;  and (e)  without  regard to any act or
omission of the Lender or any other person. The Lender may institute one or more
proceedings  (which may be separate  proceedings)  with respect to this Note and
each of the other Loan Instruments in such order and at such times as the Lender
may elect in its sole and  absolute  discretion.  This  Note or any  other  Loan
Instrument  may  be  enforced  without  the  presence  or  participation  of any
co-obligor  (joint or several) or Surety,  whether through lack of jurisdiction,
venue or  service  or  otherwise;  and the  Borrower  shall not  raise,  and the
Borrower hereby  absolutely,  unconditionally,  irrevocably and expressly waives
forever,  any objection or defense  respecting the need for any such presence or
participation.

         Section  12.  Reinstatement.  In  the  event  any  payment  of  or  any
application of any amount,  asset or property to any of the Obligations,  or any
part thereof, at any time is rescinded or must otherwise be restored or returned
by the Lender upon the insolvency, bankruptcy or reorganization of the Borrower,
any Surety or any other person, whether by order of any court, by any settlement
approved by any court, or otherwise,  then the terms and provisions of this Note
shall  continue to apply,  or shall be reinstated if not then in effect,  as the
case may be, with respect to the Obligations so rescinded, restored or returned,
all as though such payment or application had never been made.

         Section 13.  Waivers of Notice,  Etc. The Borrower  hereby  absolutely,
unconditionally,  irrevocably  and expressly  waives forever each and all of the
following: (a) acceptance and notice of any acceptance of this Note or any other
Loan  Instrument;  (b) notice of any action taken or omitted in reliance hereon;
(c) presentment and notice of any presentment; (d) demand for payment and notice
of any such demand;  (e) dishonor  and notice of any  dishonor;  (f) protest and
notice  of any  protest;  (g)  notice  of any  nonpayment  or other  event  that
constitutes, or with the giving of notice or the passage of time (or both) would
constitute, any nonpayment, nonperformance, misrepresentation or other breach or
default under this Note or any other Loan Instrument; (h) notice of any material
and adverse  effect,  whether  individually  or in the  aggregate,  upon (i) the
assets,  business,  cash  flow,  expenses,  income,   liabilities,   operations,
properties,  prospects,  reputation or condition (financial or otherwise) of the
Borrower, any Surety or any other person, (ii) the ability of any of them to pay
or otherwise satisfy (as and when due) any of their respective obligations under
any of the Loan Instruments, or (iii) any collateral securing the obligations of
any  of  them  under  the  Loan  Instruments  or  its  value  or  the  validity,
enforceability,  perfection  or priority of any security  interest of the Lender
therein;  and (i) any other proof,  notice or demand of any kind whatsoever with
respect to any or all of the  Obligations or Surety's  Obligations or promptness
in making any claim or demand under this Note or any other Loan  Instrument.  No
act or omission of any kind in connection with any of the foregoing shall in any
way  impair or  otherwise  affect  the  legality,  validity,  binding  effect or
enforceability  of any  term  or  provision  of  this  Note  or any  other  Loan
Instrument or any of the Obligations or Surety's Obligations.

         Section 14. Consent to Jurisdiction,  Etc. The Borrower hereby consents
and agrees that the Supreme Court of the State of New York for the County of New
York and the United States District Court for the Southern  District of New York
each shall have  personal  jurisdiction  and  proper  venue with  respect to any
dispute between the Lender and the Borrower under or related to this Note or any
other Loan Instrument; provided that the foregoing consent shall not deprive the
Lender of the right in its sole and absolute discretion to voluntarily  commence
or  participate  in any action,  suit or  proceeding  in any other court  having
jurisdiction and venue over the Borrower. The preceding consents to jurisdiction
and venue have been made by the  Borrower and accepted by the Lender in reliance
(at least in part) on Section 5-1402 of the General Obligations Law of the State
of New York, as amended (as and to the extent applicable),  and other applicable
law.  The  Borrower  will not  raise,  and hereby  absolutely,  unconditionally,
irrevocably and expressly  waives forever,  any objection or defense in any such
dispute to any such  jurisdiction as an inconvenient  forum. The Borrower hereby
absolutely,  unconditionally,  irrevocably and expressly waives forever personal
service  of any  summons,  complaint  or other  notice  or  process  in any such
dispute,  which  each may be sent by mail,  courier  or any of the  other  means
permitted  for  notices  under  this Note or any other  Loan  Instrument  to the
Borrower at the address specified herein.  The Borrower  acknowledges and agrees
that a final judgment in any such action, suit or proceeding shall be conclusive
and binding upon the Borrower and may be enforced against the Borrower or any of
its assets or properties in any other appropriate  jurisdiction  selected by the
Lender (in its sole and absolute discretion) by an action, suit or proceeding in
such other  jurisdiction.  To the extent  that the  Borrower  may be entitled to
immunity  (whether  by  reason of  sovereignty  or  otherwise)  from suit in any
jurisdiction,  from  the  jurisdiction  of any  court or 



<PAGE>

from any other legal process,  the Borrower hereby absolutely,  unconditionally,
irrevocably and expressly waives forever such immunity.

         Section 15.  Waiver of Set Off,  Etc. The Borrower  hereby  absolutely,
unconditionally,  irrevocably and expressly waives forever,  and agrees that the
Borrower  will  not  exercise  or  otherwise  enforce,  any  and all  rights  of
extension,  stay, moratorium,  setoff,  counterclaim,  recoupment,  abatement or
reduction or other claim or determination  respecting any payment due under this
Note or any other Loan  Instrument  that may now or hereafter be accorded to the
Borrower  under  applicable  law or  otherwise.  To the extent not required as a
compulsory  counterclaim,  the Borrower (a) shall pursue  separate  exercise and
enforcement of any right, power, privilege, remedy or interest retained (and not
waived)  by the  Borrower  under  this  Note,  the  other  Loan  Instruments  or
applicable law, and (b) shall not seek to exercise or otherwise enforce any such
right, power, privilege,  remedy or interest in any proceeding instituted by the
Lender  under or in respect of this Note or any other Loan  Instrument,  whether
through  joinder,  consolidation,   setoff,  recoupment,  abatement,  reduction,
counterclaim, defense or otherwise. In any dispute with the Lender, the Borrower
covenants and agrees that the Borrower will not seek, recover or retain any, and
the Borrower  hereby  absolutely,  unconditionally,  irrevocably  and  expressly
waives forever any and all, special,  exemplary,  punitive and/or  consequential
damages (whether through action, suit,  counterclaim or otherwise) to the extent
waiver is not limited under applicable law.

         Section 16.  Relationship  of the  Borrower  and the Lender,  Etc.  The
Borrower represents,  warrants and acknowledges to and covenants and agrees with
the Lender  that:  (a) the  Lender is acting  solely in the  capacity  of lender
respecting this Note, the other Loan  Instruments  and the  Collateral;  (b) the
sole  relationship  of the  Borrower  with  the  Lender  is that of  debtor  and
creditor, respectively , and no term or provision of this Note or any other Loan
Instrument is intended to create, nor shall any such term or provision be deemed
or construed to have created, any joint venture,  partnership,  trust, agency or
other fiduciary or advisory relationship with the Borrower, any Surety or any of
their respective affiliates; (c) the Borrower has received and independently and
fully  reviewed  and  evaluated  the Note and the other  Loan  Instruments,  the
obligations  and  transactions  contemplated  hereunder and  thereunder  and the
potential effects of such obligations and transactions on the assets,  business,
cash flow, expenses, income,  liabilities,  operations,  properties,  prospects,
reputation,  taxation and  condition  (financial  or  otherwise)  of each of the
Borrower, the Sureties and their respective affiliates, if any (each a "Business
Attribute"),  which  review  and  evaluation  was made (i)  together  with legal
counsel and (to the extent deemed  prudent by the Borrower)  financial and other
advisors to the Borrower, (d) the Borrower has not received, the Borrower is not
relying upon, and none of the Sureties has received or is relying upon, any oral
or written advice,  analysis,  representation or warranty,  counsel,  promise or
assurance of any kind whatsoever  from the Lender,  any of its affiliates or any
of their respective officers,  attorneys or other representatives  (whether with
respect to any Business Attribute or otherwise), including (without limitation),
any tax, accounting or legal advice or counsel;  (e) the Borrower is not relying
upon, and none of the Sureties is relying upon, any expertise,  business acumen,
industry  knowledge or other guidance of any kind whatsoever of the Lender,  any
of its  affiliates  or any of  their  respective  officers,  attorneys  or other
representatives  (whether with respect to any Business  Attribute or otherwise),
including  (without   limitation)  any  aspect  of  the  ownership,   operation,
development,  financing or taxation of any thereof; (f) no counsel to the Lender
has in any way  provided  any tax or other legal  counsel,  analysis,  advice or
assurance to, or has in any way otherwise represented,  the Borrower, any Surety
or any of their  respective  affiliates  or other  representatives,  whether  in
connection with any Loan Instrument or otherwise (and each such counsel may rely
on this clause (f) as if  directly  addressed  to them and is an intended  third
party  beneficiary  hereof);  (g) the  Lender,  its  affiliates  and  its  other
representatives  may be  providing  debt  financing,  equity  capital  or  other
services  (including  financial advisory services) to other companies or persons
in  respect  of which  the  Borrower,  any  Surety  or any of  their  respective
affiliates may have conflicting  interests regarding the transactions  described
herein and  otherwise,  and that neither the Lender nor any of its affiliates or
representatives  has any obligation to use in connection  with the  transactions
contemplated by any Loan  Instrument,  or to advise the Borrower,  any Surety or
any  of  their  respective  affiliates  of,  or  furnish  to any  of  them,  any
confidential  or  other  information  obtained  by the  Lender  or any of  their
affiliates  or  representatives  from or with  respect  to  other  transactions,
companies  or  persons;  and (h) by  accepting  or  approving  any  certificate,
statement,  report or other document or information  required to be given to the
Lender (whether as a required notice or report,  for approval or otherwise),  or
any alleged  performance  of  anything  required to be  observed,  performed  or
fulfilled  by the  Borrower,  or any Surety,  pursuant to this Note or any other
Loan Instrument,  neither the Lender nor any of its representatives  shall have,
or shall be deemed or construed to have, made any  representation or warranty to
or agreement with the Borrower,  or any Surety with respect  thereto or affirmed
the sufficiency, the legality, enforceability, effectiveness or financial impact
or other effect thereof.

         Section  17.  Reliance on  Representations,  Etc.  The Lender  shall be
entitled to rely, and in entering into this Note and the other Loan  Instruments
and  making  any  Advances  or  other  Loans  in  fact  has  relied,   upon  the
representations,  warranties and other information respecting the Borrower, each
Surety  and  each  other  persons  contained  in this  Note and the  other  Loan
Instruments notwithstanding (A) any credit information that at any time may have
been or from time to time  hereafter may be sought,  obtained or reviewed by the
Lender 



<PAGE>

or (B) any other investigation, analysis or evaluation that at any time may have
been  made or  from  time to time  hereafter  may be made by the  Lender  or its
designees  of all or any part of the  assets,  business,  cash  flow,  expenses,
income, liabilities,  operations, properties, prospects, reputation or condition
(financial or otherwise) of the Borrower,  any Surety,  any of their  respective
principals or other affiliates (if any), or any other person.

         Section 18.  Lender's Right of Setoff,  Etc. The Lender in its sole and
absolute  discretion  is  hereby  authorized  at any time and from  time to time
during the  continuance  of any  nonpayment or other Default or Event of Default
under  this  Note  or  any  other  Loan  Instrument,  or any  other  nonpayment,
misrepresentation,  nonperformance or other breach or default in or with respect
to any of the Obligations, in each case without notice to the Borrower (any such
notice being  hereby  absolutely,  unconditionally,  irrevocably  and  expressly
waived  forever by the  Borrower),  to set off  (directly  or through any of the
affiliates,  custodians,  participants and designees of the Lender) and apply to
or against any and all of the  Obligations  (whether now or  hereafter  created,
acquired or existing) any and all (a) deposits (whether general or special, time
or demand,  provisional  or final,  or individual or joint) and other assets and
properties at any time held in the possession,  custody or control of the Lender
and any of its affiliates,  custodians,  participants and designees  (including,
without  limitation,  any items  held in any  investment  management  or custody
account),  and (b)  indebtedness or other amount or obligation at any time owing
by the Lender or any of its  affiliates or  participants,  to or for the credit,
account or benefit of the Borrower, in each case whether or not the Lender shall
have made any demand for the payment and/or  performance of any such obligations
(in  whole or in part)  from the  Borrower,  any  Surety  or any  other  person,
declared any default under this Note or any other Loan  Instrument,  accelerated
any  of  the  Obligations  or  other  non-demand   obligations  under  any  Loan
Instrument,  or made any other demand or taken any other  action,  whether under
this  Note,  any other Loan  Instrument  or  otherwise,  and  although  any such
obligations  may be  contingent  or  unmatured  (in whole or in  part).  Without
limiting the  foregoing,  the Borrower  hereby grants to the Lender a continuing
security interest in and to all such possessory deposits,  assets and properties
of and all such indebtedness and other obligations owed to the Borrower; and the
Borrower hereby authorizes each such holder to so set off and apply such amounts
at such  times and in such  manner as the Lender  may  direct  pursuant  to this
Section, in each case to the fullest extent possible as if the person making the
setoff  were a  direct  creditor  of the  Borrower  in the  full  amount  of the
Obligations.  The Lender shall  endeavor to notify the  Borrower  after any such
setoff and application;  provided, however, that the failure to give such notice
shall not affect the  validity of such setoff and  application.  In debiting any
such account,  the Obligations  shall be deemed to have been paid or repaid only
to the extent of the funds  actually  available in that account  notwithstanding
any  internal  procedure  of the  Lender or any of its  affiliates,  custodians,
participants and designees to the contrary.  The rights of the Lender under this
Section are in addition to and without  limitation of any other rights,  powers,
privileges,  remedies and other interests (including,  without limitation, other
rights of set off and  security  interests)  that the Lender may have under this
Note, any other Loan  Instrument,  any other  document or  transaction  with the
Borrower, or applicable law.

         Section  19.  Exculpation  and  Indemnification.  The  Lender  and  its
participants,   affiliates,  custodians  and  designees,  and  their  respective
shareholders,  partners,  members,  directors,  officers,  managers,  employees,
attorneys and agents (together with the Lender, each an "Indemnitee"), shall not
incur  any  liability  for any  acts  or  omissions  (and  the  Borrower  hereby
absolutely,  unconditionally,  irrevocably  and  expressly  waives and  releases
forever any and all related  claims and actions  against each  Indemnitee),  and
each  Indemnitee  shall be  indemnified,  reimbursed  and held  harmless  by the
Borrower on demand by the Lender),  and (at the request of the Lender)  defended
at the expense of the  Borrower  with counsel  selected by the Lender,  from and
against any and all claims, liabilities, losses and expenses (including, without
limitation, the disbursements,  expenses and fees of their respective attorneys)
that may be imposed upon,  incurred by, or asserted  against any Indemnitee,  in
each case arising out of or related  directly or  indirectly  to this Note,  any
other  Loan  Instrument,  any  of  the  Collateral,  any  of  the  Loans  or the
application of any proceeds thereof,  or any environmental  claim, except to the
extent  occasioned by the  Indemnitee's  own acts or omissions  breaching a duty
owed to the Borrower and amounting to gross negligence or willful  misconduct as
finally determined pursuant to applicable law by a governmental authority having
jurisdiction. The preceding exception for gross negligence or willful misconduct
is not intended  (and shall not be deemed or  construed)  to in any way qualify,
condition,  diminish, restrict, limit or otherwise affect any other exculpation,
indemnification,  release,  waiver,  consent,  acknowledgment,  authorization or
other term or provision of this Note or any other Loan Instrument.

         Section  20.  Notices.  Except as  otherwise  expressly  provided,  any
notice, request, demand or other communication permitted or required to be given
under this Note or any other Loan Instrument shall be in writing,  shall be sent
by one of the following means to the addressee at the address set forth above or
below (or at such other  address as shall be  designated  hereunder by notice to
the other parties and persons receiving  copies,  effective upon actual receipt)
and shall be deemed  conclusively to have been given:  (a) on the first Business
Day following the day timely deposited with Federal Express (or other equivalent
national or international overnight courier) or United States Express Mail, with
the cost of delivery prepaid or for the account of the sender;  (b) on the fifth
Business  Day  following  the day duly sent by certified  or  registered  United
States mail, postage prepaid 



<PAGE>

and return receipt  requested;  or (c) when otherwise  actually  received by the
addressee on a Business Day (or on the next  Business Day if received  after the
close of normal business hours or on any non-Business  Day),  including (without
limitation) any telecopy. Refusal to accept delivery of any item shall be deemed
to be receipt of such item by the refusing  party.  Notices also may be given by
telephone to the extent and for the purposes  provided in this Note or any other
Loan Instrument. The Borrower acknowledges and agrees that the Lender may record
any and all telephone  calls with the Borrower and its  representatives  without
any further or specific notice of any such recording.

         Section 21.  Expenses,  Etc.  The  Borrower  shall pay or  reimburse on
demand any and all costs and expenses  incurred by the Lender,  whether directly
or indirectly, in connection with (a) the preparation, execution and delivery of
the  Lender's  term sheet or  commitment  letter,  (b) any  syndication  of this
facility, (c) the preparation,  execution and closing of this Note and the other
Loan  Instruments,  and  all  waivers,  releases,   discharges,   satisfactions,
modifications  and  amendments  thereof and  approvals and consents with respect
thereto,  (d) all payments made and actions  taken  thereunder in the name or on
behalf of the  Borrower  under this Note or any other Loan  Instrument,  (e) all
periodic  audits  and  other  evaluations  and  the  ongoing  monitoring  of the
Collateral (including, without limitation, the per diem fees and expenses of the
Lender and its designees in performing such audits and other  evaluations),  (f)
all searches (whether respecting  financing  statements,  unpaid taxes and other
security   interests,   liens  and   encumbrances   or  otherwise)   and  credit
verifications, (g) all surveys and appraisals, title examinations and insurance,
and surety bond premiums,  (h) all mortgage  recording,  documentary,  transfer,
intangible,  note or other similar taxes and revenue stamps, and all filings and
recordings,   and  (i)  the   administration,   maintenance,   enforcement   and
adjudication  of this Note, any other Loan  Instrument  and the rights,  powers,
privileges,  remedies  and other  interests of the Lender  thereunder  and under
applicable law, in each case including  (without  limitation) the disbursements,
expenses and fees of counsel to the Lender (including,  without limitation,  the
allocated  costs of in-house  counsel),  currently  Jenkens &  Gilchrist  Parker
Chapin LLP,  and the  disbursements,  expenses  and fees of any local or special
counsel retained by the Lender or its counsel.

         Section 22. Agreement Absolute, Survival of Representations,  Etc. Each
of the payment  obligations,  representations  and warranties (as of the date(s)
made or deemed made), covenants, waivers and other agreements and obligations of
the Borrower contained in this Note and the other Loan Instruments:  (a) are and
shall be absolute,  irrevocable and unconditional,  irrespective of (among other
things) the validity,  legality,  binding effect or enforceability of any of the
other  terms and  provisions  of this Note or any other Loan  Instrument  or any
other act,  circumstance  or other event  described in this  Section;  (b) shall
survive  and remain and  continue  in full force and effect in  accordance  with
their  respective  terms and provisions  following and without regard to (i) the
execution  and  delivery  of this  Note or any  other  Loan  Instrument  and the
performance or non-performance of any Obligations or Surety's  Obligations under
any Loan Instrument,  (ii) any advance, accrual, payment, repayment or readvance
of  any  amount  under  any  Loan  Instrument,   or  the  inception,   creation,
acquisition,  increase, decrease, satisfaction or existence from time to time of
any Obligations or Surety's Obligations under any Loan Instrument,  in each case
irrespective of the fact that from time to time the  outstanding  balance of the
Loans  and  other  monetary   Obligations   may  be  zero,   (iii)  any  waiver,
modification,   extension,  renewal,  consolidation,   spreading,  amendment  or
restatement  of or other change in any term or provision of (A) this Note or any
other Loan  Instrument or (B) any one or more of the Loans or other  Obligations
or any Surety's  Obligations,  including  (without  limitation) any extension or
other change in the time, manner,  place or other term of payment or performance
of any of the  foregoing,  in each case  except as and to the  extent  expressly
modified by the terms and  provisions  of any such  extension,  change,  waiver,
modification, renewal, consolidation,  spreading, amendment or restatement, (iv)
any full,  partial or  non-exercise  of any of the rights,  powers,  privileges,
remedies and  interests of the Lender under any Loan  Instrument  or  applicable
law, against the Borrower, any Surety or any other person or with respect to any
of the  Obligations,  any Surety's  Obligations,  any other  obligations  or any
collateral or security  interest  therein,  which exercise or enforcement may be
delayed, discontinued or otherwise not pursued or exhausted for any or no reason
whatsoever,  or which may be  waived,  omitted or  otherwise  not  exercised  or
enforced (whether intentionally or otherwise), (v) any surrender,  repossession,
sequestration,  foreclosure,  conveyance  or  assignment  (by  deed  in  lieu or
otherwise),   sale,  lease  or  other  realization,   dealing,   liquidation  or
disposition  respecting any collateral or setoff respecting any account or other
asset in accordance with any Loan Instrument or applicable law (except as and to
the extent the Obligations have been  permanently  reduced by the application of
the net  proceeds  thereof),  (vi) the  perfected  or  non-perfected  status  or
priority of any  mortgage  or other  security  interest in any such  collateral,
which  may be held  without  recordation,  filing or other  perfection  (whether
intentionally  or  otherwise),  (vii)  any  release,   settlement,   adjustment,
subordination or impairment of all or any part of the Obligations,  any Surety's
Obligations,  any other  obligations or any collateral or any security  interest
therein under or with respect to any Loan Instrument or applicable law,  whether
intentionally or otherwise  (except as and to the extent  expressly  modified by
the terms and provisions of any such release, settlement or adjustment),  (viii)
any  extension,  stay,  moratorium  or statute of  limitations  or similar  time
constraint  under  any  applicable  law,  (ix) any  investigation,  analysis  or
evaluation  by the Lender or its designees of the assets,  business,  cash flow,
expenses, income, liabilities,  operations, properties, 



<PAGE>

prospects, reputation or condition (financial or otherwise) of the Borrower, any
Surety,  or any other person,  (x) any  application  to any  obligations  of the
Borrower or any Surety other than any Obligations or Surety's Obligations of (A)
any payments from such person not specifically designated for application to the
Obligations or Surety's  Obligations or (B) any proceeds of collateral from such
person other than from the Collateral,  (xi) any sale,  conveyance,  assignment,
participation or other transfer by the Lender (in whole or in part) to any other
person of any one or more of this Note or any of the Loan Instruments or any one
or more of the rights, powers,  privileges,  remedies or interests of the Lender
herein or therein, or (xii) any act or omission on the part of the Lender or any
other  person or any other  act,  event or  circumstance  that  otherwise  might
constitute  a  legal  or  equitable  defense,  counterclaim  or  discharge  of a
borrower, co-obligor,  indemnitor, guarantor, pledgor or surety; in each case in
such  manner  and  order,  upon such terms and  provisions  and  subject to such
conditions  as the  Lender  may  deem  necessary  or  desirable  in its sole and
absolute discretion,  without notice to or further assent from the Borrower, any
Surety,  or any  other  person  (except  for such  notices  as may be  expressly
required to be given to such party under the applicable  Loan  Instrument),  and
without  affecting  any of the rights,  powers,  privileges,  remedies and other
interests  of the  Lender  under  this  Note,  the other  Loan  Instruments  and
applicable law; (c) shall not be subject to any defense,  counterclaim,  setoff,
right of recoupment,  abatement,  reduction or other claim or determination that
the Borrower,  any Surety, or any other person may have against the Lender,  any
Surety or any other  person;  (d) shall not be  diminished  or  qualified by the
death,  disability,   dissolution,   reorganization,   insolvency,   bankruptcy,
custodianship or receivership of the Borrower,  any Surety, or any other person,
or the  inability  of any of them to pay their  respective  debts or  perform or
otherwise satisfy their respective obligations as they become due for any reason
whatsoever;  and (e) shall remain and continue in full force and effect  without
regard to any of the foregoing acts,  events or  circumstances  (i) until all of
the  Obligations  have been fully paid and  satisfied and (ii)  thereafter  with
respect to any and all acts,  events or  circumstances  occurring  prior to such
payment and satisfaction and any and all resulting claims,  liabilities,  losses
and expenses  (including,  without  limitation,  the  attorneys'  disbursements,
expenses and fees), whenever incurred or asserted.

         Section 23.  Severability.  In the event that any term or  provision of
this  Note or any  other  Loan  Instrument  shall be  finally  determined  to be
superseded,  invalid,  illegal or otherwise unenforceable pursuant to applicable
law  by  a  governmental   authority  having   jurisdiction   and  venue,   that
determination  shall not impair or otherwise  affect the  validity,  legality or
enforceability  (a) by or before that  governmental  authority of the  remaining
terms and provisions of this Note or any other Loan  Instrument,  which shall be
enforced as if the  unenforceable  term or provision were deleted,  or (b) by or
before any other  governmental  authority of any of the terms and  provisions of
this Note or any other Loan Instrument.

         Section 24. No Waiver by Action,  Cumulative Rights, Etc. Any waiver or
consent  respecting  this Note or any other Loan  Instrument  shall be effective
only if in  writing  and  signed by the  Lender  and then  only in the  specific
instance  and for the  specific  purpose for which  given.  No waiver or consent
shall be deemed  (regardless  of frequency  given) to be a further or continuing
waiver or  consent.  The failure or delay (in whole or in part) of the Lender to
require performance of, or to exercise or otherwise enforce any of the rights or
remedies of the Lender with  respect to, any term or  provision  of this Note or
any other  Loan  Instrument  shall in no way affect the right of the Lender at a
later time to  exercise or  otherwise  enforce  any such term or  provision.  No
notice to or demand on the Borrower or any Surety in any case shall entitle such
party to any other or further  notice or demand.  No acceptance by the Lender of
(A) any partial or late payment shall  constitute  (or be deemed or construed to
be) a  satisfaction  or  waiver  of the full  amount  then due or the  resulting
Default or Event of Default,  or (B) any payment  during the  continuance of any
Default or Event of Default shall constitute (or be deemed or construed to be) a
waiver or cure  thereof;  and in each case the  Lender  may accept or reject any
such payment without  affecting any  Obligations or any Surety's  Obligations or
any of the rights,  powers,  privileges,  remedies  and other  interests  of the
Lender  under this Note,  the other Loan  Instruments  and  applicable  law. All
representations,  warranties,  covenants,  agreements  and  obligaitons  of  the
Borrower in this Note and all rights,  powers,  privileges,  remedies  and other
interests  of the  Lender  under  this  Note,  the  other  Loan  Instruments  or
applicable law are cumulative and not alternatives.

         Section  25.   Successors   and   Assigns,   Assignment   and  Intended
Beneficiaries.  Whenever in this Note or any other Loan Instrument  reference is
made to any party,  such  reference  shall be deemed to include the  successors,
assigns,  heirs and legal  representatives  of such party, and, without limiting
the generality of the foregoing, all representations,  warranties, covenants and
other  agreements made by or on behalf of the Borrower in this Note or any other
Loan  Instrument  shall  inure to the  benefit  of the  participants  and  other
successors  and assigns of the Lender;  provided,  however,  that nothing herein
shall be deemed  to  authorize  or  permit  the  Borrower  to assign  any of the
Borrower's rights or obligations under this Note or any other Loan Instrument to
any other person (whether or not an affiliate of the Borrower), and the Borrower
covenants and agrees that the Borrower shall not make any such  assignment.  The
Lender  from  time to time may  assign  to one or more  financial  institutions,
institutional investors or other persons all or any portion(s) of the rights and
interests  and/or  obligations  of the Lender  under this Note or any other Loan
Instrument, including (without limitation) the 



<PAGE>

assignment to any Federal  Reserve Lender (as collateral or otherwise) of all or
any  portion(s)  of the rights of the Lender to  payments  of  principal  and/or
interest under this Note or any other Loan Instrument,  and may take any and all
reasonable  actions  necessary  or  appropriate  in  connection  with  any  such
assignment,  all  without  notice to or  consent  of the  Borrower  or any other
person.  The  Lender  from time to time  also may sell to one or more  financial
institutions,  institutional investors or other persons a participation interest
in all or any undivided portion of the rights, powers, privileges,  remedies and
interests of the Lender under this Note or any other Loan Instrument. The Lender
from time to time may furnish and disclose financial  statements,  documents and
other  information  pertaining  to the  Borrower  to any  potential  assignee or
participant.  The representations,  warranties and other terms and provisions of
this Note and the other Loan  Instruments  are for the exclusive  benefit of the
parties hereto,  and, except as otherwise  expressly  provided herein,  no other
person,  including creditors of any party hereto,  shall have any right or claim
against any party by reason of any of those terms and  provisions or be entitled
to enforce any of those terms and provisions against any party.

         Section 26. Governing Law, Amendments, Etc. This Note has been made (or
shall be deemed to have been made) and has been  delivered  and  accepted by the
Lender in the City,  County and State of New York.  This Note and the other Loan
Instruments shall be governed by and construed in accordance with the applicable
laws pertaining in the State of New York (other than those conflict of law rules
that  would  defer  to the  substantive  laws  of  another  jurisdiction).  This
governing  law election has been made by the Borrower and accepted by the Lender
in reliance (at least in part) on Section 5-1401 of the General  Obligations Law
of the State of New York,  as  amended  (as and to the extent  applicable),  and
other  applicable  law.  This Note or any other  Loan  Instrument  may have been
executed  in  two or  more  counterpart  copies  of the  entire  document  or of
signature pages to the document,  each of which may have been executed by one or
more of the  parties  thereto,  but all of which,  when  taken  together,  shall
constitute a single agreement binding upon all of the parties hereto or thereto,
as the case may be. The section and other  headings  contained  in this Note and
the other Loan Instruments are for reference  purposes only and shall not affect
the meaning or  interpretation  of this Note or any other Loan  Instrument.  The
Borrower  hereby  authorizes  the  Lender to fill in any and all  blanks  and to
correct any and all  typographical  or clerical errors in this Note or any other
Loan Instrument at any time as determined by the Lender,  all without any notice
to or any further consent from the Borrower. Except as otherwise provided in the
preceding  sentence,  except as otherwise  expressly  provided in this Note with
respect hereto or any other Loan  Instrument  with respect thereto and except as
otherwise provided or permitted under applicable law with respect to any Uniform
Commercial  Code financing  statement,  modification,  continuation or the like,
each and  every  modification  and  amendment  of this  Note or any  other  Loan
Instrument  shall be in  writing  and  signed  by all of the  parties  hereto or
thereto,  as  applicable,  and each and  every  waiver  of,  or  consent  to any
departure  from,  any  representation,  warranty,  covenant  or  other  term  or
provision  of this Note or any other Loan  Instrument  shall be in  writing  and
signed by each affected party hereto or thereto, as applicable.

         Section 27. Waiver of Jury Trial; All Waivers Intentional, Etc.. In any
action, suit or proceeding in any jurisdiction brought by the Lender against the
Borrower,  or vice versa,  the Borrower  and the Lender each hereby  absolutely,
unconditionally,  irrevocably  and expressly  waives forever trial by jury. This
waiver  of  jury  trial  by  the  Borrower,  and  each  other  waiver,  release,
relinquishment  or similar  surrender of rights (however  expressed) made by the
Borrower in this Agreement or any other Loan Instrument to which the Borrower is
a party,  has  been  absolutely,  unconditionally,  irrevocably,  knowingly  and
intentionally made by the Borrower.

         Section  28.  Entire  Agreement.   The  Lender  has  not  (directly  or
indirectly)   offered,   made,  accepted  or  acknowledged  any  representation,
warranty,  promise,  assurance  or other  agreement  or  understanding  (whether
written, oral, express, implied or otherwise) to, with or for the benefit of the
Borrower,  any Surety or any of their  respective  affiliate or  representatives
respecting  any of the  matters  contained  in  this  Note  and the  other  Loan
Instruments except for those expressly set forth in this Note and the other Loan
Instruments.  This  Note and the  other  Loan  Instruments  contain  the  entire
agreement and understanding of the parties and supersede and completely  replace
all prior and other representations,  warranties, promises, assurances and other
agreements  and  understandings  (whether  written,  oral,  express,  implied or
otherwise) among the parties with respect to the matters  contained in this Note
and the other Loan Instruments.


<PAGE>

         IN WITNESS  WHEREOF,  the Borrower has executed and delivered this Note
as of the date first written above.


                               STIMULYS, INC.
                               (f/k/a SPAR Performance Group, Inc.)


                               By: /s/ Thomas F. Hunter 
                                  ------------------------------------------
                                  Thomas F. Hunter , President
                                  The Borrower's Address For Notice And Service:
                                  2245 Keller Way, Carrollton, Texas 75006





<PAGE>




STATE OF
                                    :  SS.:
COUNTY OF

         On this _____ day of September,  2004, before me personally came THOMAS
HUNTER,  to me known,  who, being by me duly sworn,  did depose and say: that he
resides at 2601 Wake Forest Drive,  Plano, TX 75093; that he is the PRESIDENT of
STIMULYS,  INC.,  the  corporation  described  in and which  executed  the above
instrument;  and that he (or she)  signed his (or her) name  thereto by order of
the board of directors of said corporation.


                                                /s/ Thomas F. Hunter 
                                        ----------------------------------------
                                                (Signature and office of
                                           individual taking acknowledgment.)







                         SPAR INCENTIVE MARKETING, INC.



STIMULYS, Inc.                                                September 10, 2004
Performance Holdings, Inc.
2245 Keller Way
Carrollton, Texas 75006

Attention:  Mr. Thomas Hunter, President

  RE:   PAYOFF AND RELEASE UNDER REVOLVING LOAN, GUARANTY AND SECURITY AGREEMENT
        ------------------------------------------------------------------------

Gentlemen:

     You,  STIMULYS,  INC.,  a  Delaware  corporation  formerly  known  as  SPAR
Performance  Group,  Inc.  ("SI"),  and PERFORMANCE  HOLDINGS,  INC., a Delaware
corporation ("Holdings",  and together with SI, each a "you" or "Loan Party" and
collectively  "you" or the "Loan  Parties"),  and we, SPAR INCENTIVE  MARKETING,
INC. ("we" or the  "Lender"),  are parties to a Revolving  Credit,  Guaranty and
Security  Agreement  dated  as of June 30,  2002  (as the  same  may  have  been
supplemented,  modified,  amended, restated or replaced from time to time in the
manner provided therein, the "Revolving Loan Agreement"),  under which SI is the
"Borrower" and Holdings is the "Guarantor",  and pursuant to which SI issued its
$2,000,000.00 Revolving Promissory Note (as the same may have been supplemented,
modified, amended, restated or replaced from time to time in the manner provided
therein, the "Revolving Note").  Capitalized terms and non-capitalized words and
phrases  used  and  not  otherwise   defined  herein  shall  have  the  meanings
respectively
 assigned to them in the Revolving Loan Agreement.

     The Loan Parties and the Lender have agreed to terminate their relationship
under the  Revolving  Loan  Agreement,  all upon the terms  and  provisions  and
subject to the conditions hereinafter set forth.

     1. Payoff and Payoff  Date.  The Loan  Parties  have  proposed to repay the
Loans  outstanding  and restate the letter of credit  reimbursement  obligations
under the Revolving Loan  Agreement on September 10, 2004 (the "Proposed  Payoff
Date"), by the issuance of the Lender's  Promissory Note in the principal amount
of  U.S..$764,271.00  (the "New  Note"),  supported  by the Guaranty (as defined
therein) (the "New Guaranty").

     2.  Termination  of Credit  Availability  and  Release  of Liens:  Upon our
receipt of your fully executed original copies of the New Note, the New Guaranty
and this letter agreement:  (a) your credit availability shall be deemed to have
been forever  extinguished  under the Revolving  Loan  Agreement and you have no
remaining   rights  under  the  Revolving  Loan  Agreement  or  any  other  Loan
Instrument;  (b) except as otherwise  provided in sections 3(b),  3(c), 4 and 8,
below,  the Revolving  Loan Agreement and Revolving Note are hereby deemed fully
paid and  satisfied  (or  restated  and  continued  in the case of the letter of
credit  reimbursement  obligations),  extinguished  and of no  further  force or
effect;  and (c) subject to section 4, below, any and all security interests and
liens that you have heretofore  granted to us under the Revolving Loan Agreement
("Collateral")  are  hereby  released  and  terminated.  If and  to  the  extent
requested  by you, we will  execute and deliver to you a  termination  statement
under  the  Uniform  Commercial  Code for  filing  in each  office  in which any
financing statement  respecting the Collateral has been filed, each in such form
and  substance as may be  acceptable  to us. Any and all such  actions  shall be
without any recourse to or representation or warranty by us whatsoever and shall
be at your sole cost and expense.

     3. Release and Discharge.  You  acknowledge  and agree that (a) you have no
claim,  counterclaim,  injury or other cause of action or determination  arising
out of, or directly or indirectly related to, the Revolving Loan Agreement,  any
other Loan  Instrument,  the Collateral,  the Purchase  Agreement,  any Purchase
Document,  or  the  maintenance,  administration,  enforcement  or  adjudication
thereof, against us, any of our affiliates, successors, assigns, participants or
designees,  or any of our or their respective  directors,  officers,  employees,
attorneys,   agents   or   other   representatives,    (b)   your   exculpation,
indemnification  and similar  agreements  under the  Revolving  Loan  Agreement,
together with the applicable provisions of Articles VIII and IX of the Revolving
Loan Agreement, shall continue in full force and effect after the Repayment Date
as and to the  extent  contemplated  herein,  and (c)  this  acknowledgment  and
release is not  intended  (and shall not be deemed or  construed)  to in any way
qualify, condition, diminish, restrict, limit or otherwise affect any (and is in
addition to each) other release, waiver, consent,  acknowledgment,  exculpation,




<PAGE>

indemnification  or  other  similar  term or  provision  of the  Revolving  Loan
Agreement or any other Loan Instrument.

     4. Release of Claims Against Lender. Each Loan Party hereby  intentionally,
knowingly,   expressly,   unconditionally   and  irrevocably  forever  releases,
discharges and acquits the Lender, each of the Lender's affiliates,  successors,
assigns,  participants  or designees,  and each of their  respective  directors,
officers,  employees,  attorneys,  agents  or  other  representatives,  from and
respecting each and every Claim or Loss (as such terms are hereinafter  defined)
respecting,  arising under or out of, or directly or indirectly  related to, any
event or circumstance  occurring or otherwise existing prior to the date hereof,
including  (without  limitation) any such event or  circumstance  pertaining to,
arising  under or out of, or directly or  indirectly  related to, the  Revolving
Loan Agreement,  any other Loan Instrument,  the Collateral,  the Stock Purchase
Agreement or any other Stock Purchase  Document,  or the creation,  maintenance,
administration,  enforcement  or  adjudication  thereof.  "Claim" shall mean any
claim, counterclaim,  right of recoupment or abatement,  injury, harm, exposure,
action,  suit,  investigation,  proceeding,  demand or other  cause of action or
determination,  in each  case  whether  known  or  unknown  and  whether  now or
hereafter existing,  arising or determined.  "Loss" shall mean any loss, damage,
injury, harm, detriment,  decline in value, lost opportunity,  liability, Claim,
settlement,  judgment,  award, fine, penalty, Tax (as hereinafter defined), fee,
charge,  cost or expense (including any disbursement,  expense or reasonable fee
or other reasonable  amount paid to any attorney or other  professional  advisor
and any costs of  investigation),  in each case  whether  known or  unknown  and
whether  now or  hereafter  existing.  "Tax"  shall  mean  (i) any tax or  other
governmental  assessment,  levy or imposition  of any kind or nature,  including
(without limitation) (A) any income tax, franchise tax, capital gains tax, gross
receipts  tax,  capital tax,  goods and services tax,  value added tax,  surtax,
excise tax, ad valorem tax, land or other  transfer tax,  stamp tax,  sales tax,
use or consumption tax, property tax, inventory tax,  occupancy tax,  employment
tax, labor tax, Social Security,  Medicare,  Medicaid,  withholding tax, payroll
tax, gift tax, estate tax,  inheritance  tax, health or drug tax or premium,  or
poll tax, or (B) any Social  Security,  Medicare,  Medicaid,  insurance or other
retirement,  health or drug tax, assessment, levy, imposition,  premium or other
payment mandated by Applicable Law, or (ii) any interest,  fine, penalty, fee or
expense on or related to any of the foregoing;  in each case whether domestic to
the United States of America or foreign,  whether  federal,  provincial,  state,
county or local,  whenever  arising or  asserted,  and  whether or not  accrued,
acknowledged  or  contested.  Each Loan Party  hereby  acknowledges,  certifies,
represents and warrants to and covenants and agrees with the Lender that: (a) as
of the  date  hereof,  none of the  Loan  Parties  nor any of  their  respective
directors, officers, employees, attorneys, agents or other representatives knows
or has reason to know of any such Claim or Loss or any such underlying  event or
circumstance;  (b) this  release,  discharge and acquittal has been given by the
Loan Parties to induce the Lender to enter into this letter agreement and accept
the New Note and New  Guaranty and is not intended by the parties (and shall not
be deemed or construed) to be any admission or evidence of any Claim against the
Lender or liability on the part of the Lender or any of its  representatives for
any Claim or Loss; and (c) this release, discharge and acquittal is not intended
(and  shall  not be  deemed  or  construed)  to in any way  qualify,  condition,
diminish,  restrict,  limit or otherwise affect any (and is in addition to each)
other release, waiver, consent, acknowledgment,  exculpation, indemnification or
other  similar  term or  provision of the New Note and New Guaranty and of those
continuing  under the Revolving  Loan Agreement as provided in sections 3(b) and
3(c), above.

     5.  Reinstatement.  In  the  event  any  payment  of  the  Loans  or  other
Obligations,  or any part thereof, at any time is rescinded or must otherwise be
restored or returned by us upon the insolvency,  bankruptcy or reorganization of
you or any co-obligor,  guarantor,  surety or pledgor under the Loan Instruments
(whether  by  order  of  any  court  or  other  governmental  authority,  by any
settlement or  otherwise),  then the terms and  provisions of the Revolving Loan
Agreement  and  other  Loan  Instruments  to  which  you  are a party  shall  be
reinstated to the extent of the  payment(s) so rescinded,  restored or returned,
all as though such payment had never been made.

     6.  Relationship  of the Loan Parties and the Lender,  Etc. Each Loan Party
acknowledges,  certifies,  represents  and warrants to and  covenants and agrees
with the Lender that:  (a) the Lender is acting solely in the capacity of lender
respecting this letter;  (b) the sole  relationship of the Loan Parties with the
Lender is that of debtor and creditor, respectively, and no term or provision of
this letter agreement or any other  transaction  document is intended to create,
nor shall any such term or provision be deemed or construed to have created, any
joint  venture,  partnership,  trust,  agency  or other  fiduciary  or  advisory
relationship  with  any  Loan  Party,  any  Surety  or any of  their  respective
affiliates  or  representatives;  (c)  each  Loan  Party is  experienced  in the
ownership,  operation  and financing of its current and  contemplated  business,
assets and properties;  (d) each Loan Party has received and  independently  and
fully  reviewed and evaluated  this letter  agreement and the other  transaction
documents,   the  obligations  and  transactions   contemplated   hereunder  and
thereunder and the potential effects of such obligations and transactions on the
assets,  business,  cash  flow,  expenses,  income,   liabilities,   operations,
properties,   prospects,   reputation,  



                                       -2-

<PAGE>

taxation and condition (financial or otherwise) of each of the Loan Parties, the
Sureties and their respective affiliates,  if any (each a "Business Attribute"),
which review and  evaluation  was made  together  with legal counsel and (to the
extent deemed  prudent by such Loan Party)  financial and other advisors to such
Loan Party, (e) no Loan Party or Surety has received or is relying upon any oral
or written advice,  analysis,  representation or warranty,  counsel,  promise or
assurance of any kind whatsoever  from the Lender,  any of its affiliates or any
of their respective officers,  attorneys or other representatives  (whether with
respect to any Business Attribute or otherwise), including (without limitation),
any tax,  accounting or legal advice or counsel;  (f) no Loan Party or Surety is
relying  upon  any  expertise,  business  acumen,  industry  knowledge  or other
guidance of any kind whatsoever of or from the Lender,  any of its affiliates or
any of their respective officers,  attorneys or other  representatives  (whether
with  respect  to any  Business  Attribute  or  otherwise),  including  (without
limitation) any aspect of the ownership,  operation,  development,  financing or
taxation  of any  thereof;  and  (g) no  counsel  to the  Lender  has in any way
provided any tax or other legal  counsel,  analysis,  advice or assurance to, or
has in any way otherwise represented, any Loan Party, any Surety or any of their
respective affiliates or other  representatives,  whether in connection with any
transaction document or otherwise, and each such counsel may rely on this clause
(g) as if directly  addressed  to such  counsel  and is an intended  third party
beneficiary hereof.

     7. Pay-Off Letter  Terminates.  If we have not received your fully executed
original  copies of the New Note, the New Guaranty and this letter  agreement by
September 13, 2004, this pay-off letter  agreement shall be null and void and of
no further force or effect.

     8. Miscellaneous.  This letter agreement (a) may be executed in two or more
counterpart copies of the entire document or of signature pages to the document,
(b) shall take effect upon execution by you and us, which  execution  copies may
be delivered by telecopy or other electronic  transmission  (with hard copies to
follow), (c) is a "Loan Instrument" under (and as defined in) the Revolving Loan
Agreement,  and (d) shall be governed by and  construed in  accordance  with the
applicable  terms and  provisions  of the  Revolving  Loan  Agreement as if this
letter  agreement  were the  "Agreement"  referred to  therein,  which terms and
provisions  are  incorporated  herein by  reference as if fully set forth herein
(and which  shall not be  affected  by the  termination  of the  Revolving  Loan
Agreement provided above).

     If the foregoing  correctly sets forth our agreement with you,  please sign
and return the enclosed copy of this letter to acknowledge your agreement.

                                Very truly yours,

                                SPAR INCENTIVE MARKETING, INC.


                                By: /s/ James R. Segreto
                                    --------------------------------------------
                                    James R. Segreto, Vice President, Controller

STIMULYS, INC.
     (f/k/a known as SPAR Performance Group, Inc.)

By: /s/ Thomas Hunter
    -------------------------------------
    Thomas Hunter, President


PERFORMANCE HOLDINGS, INC.


By: /s/ Thomas Hunter
    ---------------------------------------
    Thomas Hunter, President


                                      -3-

<PAGE>


STATE OF TEXAS     )
                   :  SS.:
COUNTY OF DALLAS   )


     On this 13th day of  September,  2004,  before me  personally  came  THOMAS
HUNTER,  to me known,  who, being by me duly sworn,  did depose and say: that he
resides at 2601 Wake Forest Drive,  Plano, TX 75093; that he is the PRESIDENT of
STIMULYS,  INC.,  the  corporation  described  in and which  executed  the above
instrument;  and that he (or she)  signed his (or her) name  thereto by order of
the board of directors of said corporation.

                                     /s/ Staci B. Harper
                                     -------------------------------------------
                                        (Signature and office of individual 
                                            taking acknowledgment.)




STATE OF TEXAS     )
                   :  SS.:
COUNTY OF DALLAS   )


     On this 13th day of  September,  2004,  before me  personally  came  THOMAS
HUNTER,  to me known,  who, being by me duly sworn,  did depose and say: that he
resides at 2601 Wake Forest Drive,  Plano, TX 75093; that he is the PRESIDENT of
PERFORMANCE HOLDINGS,  INC., the corporation described in and which executed the
above  instrument;  and that he signed his name thereto by order of the board of
directors of said corporation.


                                     /s/ Staci B. Harper
                                     -------------------------------------------
                                        (Signature and office of individual 
                                            taking acknowledgment.)




STATE OF NEW YORK          )
                           :  SS.:
COUNTY OF WESTCHESTER      )


     On this 13th day of September,  2004,  before me  personally  came JAMES R.
SEGRETO,  to me known,  who, being by me duly sworn, did depose and say: that he
resides at 126 Middleton Place, Bronxville,  New York 10708; that he is the VICE
PRESIDENT,  CONTROLLER  of  SPAR  INCENTIVE  MARKETING,  INC.,  the  corporation
described  in and which  executed the above  instrument;  and that he signed his
name thereto by order of the board of directors of said corporation.

                                     /s/ Mindy Asiedu
                                     -------------------------------------------
                                        (Signature and office of individual 
                                            taking acknowledgment.)


<PAGE>
                                  ATTACHMENT A

    PAYOFF AND RELEASE UNDER REVOLVING LOAN, GUARANTY AND SECURITY AGREEMENT
                                       AND
                                 PROMISSORY NOTE

     Notwithstanding anything to the contrary in this Promissory Note or Payoff
     and Release Under Revolving Loan, Guaranty and Security Agreement, the
     parties agree that the amount of the Promissory Note will be reduced by
     mutual agreement of the parties after examination of certain amounts.

The Promissory Note will be reduced by:

A.       Any amount by which the General Ledger of SPAR is less than $1,301,332
         on June 30, 2002 or less than $791,303 on July 31, 2004. STIMULYS will
         be allowed to send in auditors to verify this number and all expenses
         will be borne by STIMULYS. The maximum reduction for A will be
         $90,000.

B.       Any charges for any unused line fees and Letter of Credit fees included
         in the Promissory Note that are not valid under the Revolving Credit,
         Guaranty and Security Agreement among SPAR Performance Group, Inc.,
         Performance Holdings, Inc. and SPAR Incentive Marketing, Inc. dated as
         of June 30, 2002 ("the Revolving Credit Agreement"). Notwithstanding 
         the Revolving Credit Agreement, if SPAR did not incur unused line fees
         and/or Letter of Credit fees with Webster bank during the same time
         period the Promissory Note will be reduced by any amount included for
         unused line fees and Letter of Credit fees. The maximum adjustment for
         B will be $60,000.

C.       Any amount included in the Promissory Note for medical expenses paid by
         SPAR after July 31, 2002 for medical claims submitted prior to July 31,
         2002 or for medical claims submitted by persons who elected COBRA prior
         to July 31, 2002 and paid monthly COBRA insurance to SPAR to the extent
         such amounts were included in the promissory note and to the extend
         that payments on behalf of people on COBRA exceeded the amounts paid to
         SPAR for the COBRA. The maximum adjustment for C will be $63,000.

The parties further agree that the amount to be paid in twenty days following
the execution of the promissory note is $422,000. Any remaining balance in
excess of (i) amount in the Promissory Note for J&G legal bills for the Texas
litigation (approximately $31,000) and (ii) for the ARC Letter of Credit
($70,000) (both (i) and (ii) will be paid within 90 days of this signing of the
promissory note) will be paid on the following timetable with interest at 6% per
annum with interest not paid on (i) and (ii):

     a.   Any  amount  up to  $50,000  will be paid six  calendar  months  after
          signing the Promissory Note;


<PAGE>

     b.   Any amount  greater than $50,000 but less than  $100,000  will be paid
          twelve months after signing the Promissory Note;
     c.   Any amount over $100,000 will be paid twenty-four months after signing
          the Promissory Note;
     d.   Any outstanding balance may be pre-paid without penalty.


Any amounts not paid as scheduled will be charged an interest of 18% per year.

                             SALE PROCEEDS AGREEMENT

This Sale proceeds  Agreement (the "Agreement") is entered into this 10th day of
September  2004  (the  "Effective  Date"),  among  Stimulys,  Inc.,  a  Delaware
corporation and any successors (collectively "Stimulys"),  whose address is 2245
Keller Way,  Carrollton,  Texas 75006,  and Spar  Incentive  Marketing,  Inc., a
Delaware  corporation  ("Spar"),  whose  address is 580 White Plains  Road,  6th
Floor, Tarrytown, New York 10591.

                                    RECITALS

     A. Stimulys is a wholly-owned  subsidiary of Performance Holdings,  Inc., a
Delaware  corporation  ("PHI").  PHI  is  indebted  to  Spar  in the  amount  of
approximately  $7,664,019  as of the  Effective  Date,  pursuant to (i) two Term
Promissory  Notes dated as of June 30, 2002 (the "Term  Notes") in the  original
principal amounts of $2,500,000 and $3,500,000,  respectively, issued by PHI, as
borrower,  to Spar,  as lender,  and (ii) that certain  Term Loan,  Guaranty and
Security  Agreement dated as of June 30, 2002 (the "Term Loan Agreement")  among
PHI, as borrower,  Stimulys,  as guarantor,  and Spar, as lender.  The loan made
pursuant  to the Term Notes and the Term Loan  Agreement  is  referred to as the
"Term Loan."

     B. All  assets of PHI and  Stimulys  are  pledged as  collateral  to secure
repayment of the Term Loan.

     C. The parties wish to restructure  the  obligations
 of Stimulys and PHI to
Spar pursuant to the Term Loan. The parties wish to enter into this Agreement to
memorialize the terms of such restructuring.

                              TERMS AND PROVISIONS

     In  consideration  of the mutual  promises made in this Agreement and other
good and  valuable  consideration,  the  receipt  and  sufficiency  of which are
acknowledged, the parties agree as follows:

     1. Definitions.  As used in this Agreement,  the following terms shall have
the meanings indicated:

     -    "Change  of  Control"  means  either  (i) a sale,  transfer  or  other
          disposition of over 50% of the assets of Stimulys outside the ordinary
          course of Stimulys'  business,  to a Non-Affiliate that is not related
          to any of the stockholders in the broadcast definition, (ii) a merger,
          consolidation  or similar  transaction the result of which is that the
          owner of over 50% of Stimulys' assets is a  Non-Affiliate,  or (iii) a
          sale of over 50% of the common  stock or other  voting  securities  of
          Stimulys,  the  result  of which is that  more  than 50% of  Stimulys'
          voting  securities are Controlled by one or more  Non-Affiliates.  Any
          transaction  in which an Initial Owner and/or its affiliate  increases
          its  ownership  percentage  in  Stimulys  to over  50%  shall  also be
          considered a change in control.  The change in control covers either a
          single  transfer  or a change in control by a series of  transfers  or
          sale that cumulatively exceeds 50%.



<PAGE>

     -    "Control" "Controlled by" and "Controlling" means, with respect to the
          voting securities of a given entity, the right to direct the voting or
          disposition of such voting  securities,  where due to ownership of the
          voting securities, contractual right, or otherwise.

     -    "Hunter  Securities"  means all equity or other type of  securities in
          Stimulys or any related  companies or affiliates fully or partly owned
          or  Controlled  directly or  indirectly  in whole or in part by Thomas
          Hunter or by any member of his immediate family.

     -    "Initial  Owner" or "Initial  Owners" means  shareholders  included on
          Exhibit ___ in their  respective  percentages  and their  wholly owned
          subsidiaries.

     -    "Net Proceeds" means (i) in the case of an asset sale that constitutes
          a  Change  of  Control  transaction,   the  aggregate  cash  or  other
          consideration received by Stimulys in respect of such transaction,  or
          (ii) in the case of a Change of Control  transaction other than a sale
          of assets, the aggregate cash or other  consideration  received by the
          selling parties in respect of such  transaction  (provided that if the
          transaction  involved less than 100% ownership of Stimulys,  such cash
          proceeds shall be deemed  increased for purposes of this definition to
          the amount that would have been received if the  transaction  involved
          100% ownership of Stimulys); in each case net of direct costs relating
          to such transaction (including without limitation,  legal,  accounting
          and  investment  banking fees, and sales  commissions)  and net of the
          amount  of  Stimulys'  outstanding  indebtedness  (provided  that such
          indebtedness  shall  be  excluded  only  if  and to  the  extent  such
          indebtedness  did not reduce the  appraised  value of  Stimulys by the
          amount of such indebtedness,  and is assumed directly or indirectly by
          the purchaser).

     -    "Non-Affiliate" means (i) one or more persons, entity or entities that
          are not Initial Owners.

     -    Non-Tax  Distribution"  means any  dividend or other  distribution  to
          Stimulys'  equity owners in excess of the amount  necessary to satisfy
          the  obligations  of such  equity  owners to pay all local,  state and
          federal income taxes due or to become due before or during the year in
          which the distribution is made as a result of their ownership interest
          in Stimulys  (assuming  a tax rate  applicable  to such  distributions
          equal to the sum of the highest  incremental  local, state and federal
          income tax rates applicable at the time to individuals) if and only if
          Stimulys is a non-taxable entity.

2.   Commitment Regarding Sale Proceeds.

          A.  Base  Commitment.  Upon  the  occurrence  of a Change  of  Control
     transaction,  Stimulys or the selling  parties,  as the case may be,  shall
     distribute or cause to be distributed to Spar a portion of the Net Proceeds
     from such Change of Control  transaction,  within 30 days of receipt of the
     Net Proceeds, equal to the sum of:


                                       -2-

<PAGE>

          (i)   Twenty-Three  and  One-Half  percent  (23  1/2%)  of  the  first
     $10,000,000 of Net Proceeds; and

          (ii)  Fifteen   percent  (15%)  of  any  Net  Proceeds  in  excess  of
     $10,000,000.

The proceeds to which Spar is entitled  pursuant to this Section 2.A shall be in
the same form (i.e., cash, securities,  other consideration,  or any combination
of the foregoing) and proportions as the consideration received by the seller(s)
in the applicable  Change of Control  transaction,  unless the parties  affected
thereby otherwise agree.

          B. Right of First  Refusal  to Spar.  As a  condition  to the entry by
     Stimulys  into a Change of Control  transaction,  Stimulys  shall  first be
     required to: (i) secure an appraisal of Stimulys by a nationally recognized
     business  appraisal  company with  expertise in valuing  companies  such as
     Stimulys, (ii) provide Spar a copy of the appraisal report, together with a
     written offer, which shall remain in effect for a period of thirty days and
     shall be  legally  binding on  Stimulys,  to sell all of  Stimulys'  assets
     (unless  the parties  shall  agree to a stock sale or another  form of sale
     transaction)  to Spar for cash equal to 90% of the sum of (x) the appraisal
     value of  Stimulys  shown in the  appraisal  report  plus (y) the amount of
     Stimulys' outstanding  indebtedness  (provided that such indebtedness shall
     be added to the appraised value only if and to the extent such indebtedness
     did not reduce the appraised value of Stimulys, and is not assumed directly
     or indirectly by SPAR).

          If Spar elects to exercise such right to purchase Stimulys' assets for
     90% of the  appraised  value of  Stimulys  plus  the  amount  of  Stimulys'
     indebtedness  (if  applicable),  the parties  shall  proceed  forthwith  to
     preparation  of asset  purchase and sale  documents in form  customary  and
     reasonable  for a transaction  of that type and size,  and shall close such
     purchase and sale as soon as is reasonably practicable.

          Because the sale to Spar in that instance shall constitute a Change of
     Control transaction, Spar shall be entitled to receive a portion of the Net
     Proceeds from the transaction, which may be deducted from the sale price if
     requested by Spar.

          If Spar does not elect to  exercise  its right to  purchase  Stimulys'
     assets,  Stimulys and its owners shall be free to pursue a sale transaction
     within six months  thereafter for a price no less than 90% of the appraised
     value  shown in the  appraisal  and  under the same  terms  and  conditions
     offered to SPAR.

          C. Distributions  Prior to Change of Control. If approved by Stimulys'
     Board of Directors and subject to the availability of  distributable  funds
     thereof,  Stimulys may make distributions to its equity owners from time to
     time.   To  the  extent  any  such   distribution   constitutes  a  Non-Tax
     Distribution,  Spar shall be entitled to a payment  equal to 30.72% of such
     Non-Tax  Distribution  until total  distributions  to Spar pursuant to this
     Section 2.C equal $2,350,000, after which Spar shall be entitled to further
     distributions  equal to 17.65%  of any  subsequent  Non-Tax  Distributions.
     Notwithstanding the preceding,  there will be no Non-Tax Distributions made
     unless (A) Stimulys' cumulative

                                       -3-

<PAGE>

     net income  after taxes from the  effective  date of this  agreement to the
     date   of  the   Non-Tax   Distribution   exceeds   two   million   dollars
     ($2,000,000.00)  and Stimulys'  Tangible Net deficit (negative tangible net
     worth) is no less than minus four million  seven hundred  thousand  dollars
     ($4,700,000.00)   after  any  non-tax   distribution).   For   purposes  of
     clarification,  if the Tangible Net Deficit is  $(4,700,001.00),  a Non-Tax
     Distribution   cannot   be  made,   if  the   Tangible   Net   Deficit   is
     $(4,699,999.00),  a Non-Tax  Distribution  can be made.  In any given year,
     total Non-Tax  Distributions  will be limited to 30% of the prior years net
     income  after  taxes as reported in  Stimulys'  year and audited  financial
     statements. Prior to issuance, any Non-Tax Distribution must be approved by
     the Stimulys  Lender/Lenders  in effect at that time.  Spar's approval will
     not be required.  No distributions will be made in the two years prior to a
     sale.

          D. Escrow of Shares. In order to ensure that Spar received the portion
     of the  proceeds of a Change of Control  transaction  as set out in Section
     2.A above,  as a condition to the  effectiveness  of this Agreement  Thomas
     Hunter shall tender the certificate(s)  evidencing the Hunter Securities to
     a mutually acceptable neutral party serving as Escrow Agent under an Escrow
     Agreement to be executed contemporaneously  herewith, which shall be in the
     form  attached  hereto as Exhibit A (the  "Escrow  Agreement").  The escrow
     arrangement  shall not  affect  Mr.  Hunter's  ability  to vote the  Hunter
     Securities or to receive distributions in respect of such securities.

          E. Restriction on Non-Change of Control Transactions. Neither Stimulys
     nor its owners shall be entitled to conduct any sale of Stimulys' assets or
     stock to a third party  entity that does not result in a Change of Control,
     unless  (i)  the  acquirer  shall  have  assumed  in  writing  all  of  the
     obligations of Stimulys  under this  Agreement,  (ii) the Escrow  Agreement
     shall  have  been  modified  to apply  to the  acquirer  entity  in lieu of
     Stimulys, and (iii) Thomas Hunter shall have tendered all equity securities
     he Controls or will Control in the acquiring  entity to the Escrow Agent as
     contemplated in Section 2.D above.

     3. Release of Term Loan. Spar acknowledges that the commitments of Stimulys
made in Section 2 above fully and finally  satisfy all  indebtedness of any part
in respect of the Term Loan. Accordingly,  Spar hereby releases PHI and Stimulys
from any and all claims,  demands,  liability  or causes of action in respect of
the Term Loan,  including without limitation all obligations of PHI and Stimulys
under  the Term  Notes,  the  Term  Loan  Agreement,  and all  other  documents,
instruments,  agreements and other writing entered into by PHI, Stimulys or Spar
in order to give effect to the Term Loan.

     4. Release of  Collateral.  Without  limiting the  generality  of Section 3
above,  Spar  acknowledges  that any security  interest it has in any collateral
pledged  pursuant to the Term Loan  Agreement is hereby forever  released.  Spar
agrees to assist Stimulys with and to cooperate  (including  without  limitation
execution  and  filing  (at  Stimulys'  expense)  of UCC-3  Partial  Termination
Statements)  in the  termination  of Spar's  security  interest in collateral of
either  Stimulys or PHI,  other than Spar's  security  interest in the  accounts
receivable of Stimulys, all as reasonably requested by Stimulys or PHI from time
to time.

                                       -4-

<PAGE>

     5.   Mutual Release.

     A.  Release  by  Spar.  Spar,  on  behalf  of  itself  and its  affiliates,
successors,  assigns,  divisions,  parents,  subsidiaries,   employees,  agents,
directors,   officers,   shareholders,   attorneys,   successors   and   assigns
(collectively referred to as the "Spar Parties"),  hereby releases,  acquits and
forever discharges Stimulys,  its affiliates (including without limitation PHI),
successors,  assigns,  divisions,  parents,  subsidiaries,   employees,  agents,
directors,   officers,   shareholders,   attorneys,   successors   and   assigns
(collectively  referred to as the  "Stimulys  Parties")  of and from any and all
liabilities,  claims, remedies, demands, suits or causes of action of whatsoever
kind or  character,  in whole or in part whether  choate or inchoate,  which the
Spar Parties now have or ever have had against the Stimulys Parties arising from
any occurrence or transaction  between the Spar Parties and the Stimulys Parties
from the beginning of time to the date hereof; provided,  -------- however, that
notwithstanding the foregoing, nothing in this Section 5.A shall be construed as
or shall have the  effect of  -------  releasing  any  obligation  of any of the
Stimulys Parties under this Agreement or any other document or agreement entered
into simultaneously herewith.

     B.  Release  by  Stimulys.  Stimulys,  on behalf  of  itself  and the other
Stimulys  Parties,  hereby  releases,  acquits and forever  discharges  the Spar
Parties and from any and all liabilities,  claims,  remedies,  demands, suits or
causes of action of whatsoever kind or character,  in whole or in part,  whether
choate or inchoate, which the Stimulys Parties now have or ever have had against
the Spar Parties  arising from any  occurrence or  transaction  between the Spar
Parties and the Stimulys  Parties from the beginning of time to the date hereof;
provided,  however, that notwithstanding the foregoing,  nothing in this Section
6.A shall be construed as or shall have the effect of releasing  any  obligation
of any of the Spar  Parties  under  this  Agreement  or any  other  document  or
agreement entered into simultaneously herewith.

     6.  Management of Company.  At all times while this Agreement is in effect,
Stimulys shall be managed in a normal and customary manner, consistent with past
practices.

     7.  Provision of Financial  Information.  No later than 120th day after the
end of each fiscal year of Stimulys,  Stimulys  shall provide Spar its financial
statements  for the prior fiscal year,  prepared in  accordance  with  Generally
Accepted Accounting Principles consistently applied,  including all accompanying
footnotes  audited by a non-related  accounting  firm acceptable and approved by
the Stimulys  Lender/Lenders in effect at that time. Stimulys shall also provide
quarterly  unaudited  statements  or such other  statements as would be normally
maintained and usual.

     8. Expenses. The parties agree each will be responsible for and bear all of
its own costs and expenses in connection with the  transactions  contemplated by
this  Agreement,  including,  but not  limited to, all  attorneys,  accountants,
investment  advisors or other  professional  fees  incurred by the parties.  The
parties  agree  that no  broker  or  finder  is or will be due any fee or  other
compensation in connection with the transactions contemplated by this Agreement.
No expenses incurred by any party shall be assumed to be paid by any other party
without the written permission of the responsible party.

                                       -5-

<PAGE>

     9.  Disclosure.  Except as and to the extent  required by law,  without the
prior written  consent of the other party  neither  Stimulys nor Spar will make,
and each will direct its  representatives  not to make,  directly or indirectly,
any public comment,  statement or communication with respect to, or otherwise to
disclose or to permit the disclosure of the existence of  discussions  regarding
this  transaction  or any of the  terms,  conditions,  or other  aspects  of the
transaction  described in this  Agreement,  except to their banks,  auditors and
legal or  financial  advisors.  If a Party is  required  by law to make any such
disclosure,  such Party shall first notify the other party of the content of the
proposed  disclosure,  the reasons such  disclosure  is required by law, and the
time and place that the disclosure will be made. SPAR will be allowed to provide
that  information  which in its sole judgment is required to be filed as part of
any official  documents  filed with the SEC or other  governmental or regulatory
agencies. Such information shall include any required press release.

     10.  Entire  Agreement;   Amendments.  The  provisions  of  this  Agreement
constitute the entire and only agreement between the parties with respect to the
subject  matter  hereof  and  supersede  all  prior   agreements,   commitments,
representations, understandings, or negotiations, oral or written, and all other
communications   relating  to  the  subject  matter  hereof.   No  amendment  or
modification of any of the provisions of this Agreement will be effective unless
set forth in a document that purports to amend this Agreement and is executed by
all parties hereto.

     11.   Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts,  each of  which  shall  be  deemed  an  original  and all of which
counterparts  collectively  shall  constitute  one instrument  representing  the
agreement  between the parties  hereto.  It shall not be necessary  that any one
counterpart  be  signed  by all of the  parties  hereto  as  long as each of the
parties has signed at least one counterpart.

     12. Governing Law and Venue. The validity, construction, and performance of
this Agreement shall be governed by and in accordance with the laws of the State
of New York  (other  than  those  choice of law rules  that  would  defer to the
substantive laws of another jurisdiction).  This governing law election has been
made by the  parties in  reliance  (at least in part) on  Section  5-1401 of the
General  Obligations  Law of the State of New York,  as  amended  (as and to the
extent  applicable),  and other  applicable  law. Each party hereby consents and
agrees  that the  Supreme  Court of the  State  of New  York for the  County  of
Westchester  and the United States  District Court for the Southern  District of
New York,  County of  Westchester,  each shall have  personal  jurisdiction  and
proper venue with respect to any dispute between the parties under or related to
this  Agreement;  provided that the foregoing  consent shall not deprive  either
party of the right in its sole and absolute  discretion to voluntarily  commence
or  participate  in any action,  suit or  proceeding  in any other court  having
jurisdiction  and  venue  over  the  other  party.  The  preceding  consents  to
jurisdiction  and venue have been made by the parties in  reliance  (at least in
part) on Section 5-1402 of the General Obligations Law of the State of New York,
as amended (as and to the extent  applicable),  and other  applicable  law. Each
party will not raise, and hereby  absolutely,  unconditionally,  irrevocably and
expressly  waives  forever,  any objection or defense in any such dispute to any
such New York jurisdiction as an inconvenient forum.

     13. Interpretation. The parties acknowledge that each party and its counsel
have reviewed and negotiated the terms and provisions of this Agreement and have
contributed to its

                                       -6-

<PAGE>

revision.  Accordingly,  the normal  rule of  construction,  to the effect  that
ambiguities are resolved  against the drafting  party,  shall not be employed in
the  interpretation  of this  Agreement;  and its terms and provisions  shall be
construed  fairly as to all  parties  hereto and not in favor of or against  any
party, regardless of which party is generally responsible for the preparation of
this Agreement.




                                       -7-

<PAGE>


                                    Exhibit A
                                       To
                             Sale Proceds Agreement


                                Escrow Agreement
                                [See attachment]




<PAGE>


                                    EXECUTION


The parties have executed this Sale Proceeds Agreement as of the Effective Date.


                           STIMULYS:


                           By:    /s/ Thomas Hunter
                                  ----------------------------------------------
                                  Thomas Hunter, President

                           SPAR:

                           SPAR INCENTIVE MARKETING, INC.

                           By:    /s/ Robert Brown
                                  ----------------------------------------------
                                  Robert Brown, Chairman & CEO


Performance  Holdings and other current stockholders need to sign as a party and
be bound by the change in control and payment  provisions  in case they sell the
stock of Stimulys.  This is  contemplated as a business matter by Section 2A but
is  not  enforceable  against  PHI  and  the  other  stockholders   without  its
participation in the agreement.


                      WAIVER TO THIRD AMENDED AND RESTATED
                     REVOLVING CREDIT AND SECURITY AGREEMENT


         THIS WAIVER (this "Waiver") is entered into as of March 31, 2005, by
and among SPAR MARKETING FORCE, INC. ("SMF"), SPAR, INC. ("SPAR"), SPAR/BURGOYNE
RETAIL SERVICES, INC ("SBRS"), SPAR GROUP, INC. ("SGI"), SPAR INCENTIVE
MARKETING, INC. ("SIM"), SPAR TRADEMARKS, INC. ("STM"), SPAR MARKETING, INC.
(DE) ("SMIDE"), SPAR MARKETING, INC. (NV) ("SMINV"), SPAR ACQUISITION, INC.
("SAI"), SPAR TECHNOLOGY GROUP, INC. ("STG"), SPAR/PIA RETAIL SERVICES, INC.
("Pia Retail"), RETAIL RESOURCES, INC. ("Retail"), PIVOTAL FIELD SERVICES, INC.
("Pivotal Field"), PIA MERCHANDISING CO., INC. ("PIA"), PACIFIC INDOOR DISPLAY
CO. ("Pacific"), PIVOTAL SALES COMPANY ("Pivotal"), SPAR ALL STORE MARKETING
SERVICES, INC., ("SAS") and SPAR BERT FIFE, INC. ("SBFI") (each a "Borrower" and
collectively "Borrowers") and WEBSTER BUSINESS CREDIT CORPORATION (formerly
known as Whitehall Business Credit Corporation) ("Lender").

                                   BACKGROUND

         The Borrowers and Lender are parties to that certain Third Amended and
Restated Revolving Credit and Security Agreement dated January 24, 2003 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Loan Agreement") pursuant to which Lender provides the Borrowers with certain
financial accommodations.

         The Borrowers have
 violated certain covenants and have requested Lender
waive the resulting Events of Default and Lender is willing to do so.

         NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrowers by
Lender, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

1. Definitions. All capitalized terms not otherwise defined or amended herein
shall have the meanings given to them in the Loan Agreement.

2. Waiver. Subject to the satisfaction of Section 3 below, Lender hereby waives
the Event of Default which has occurred as a result Borrowers' non-compliance
with Section 12(r) due to Borrowers' failure to achieve EBITDA for October, 2004
and December, 2004 at the requisite level for each such month. Notwithstanding
the foregoing, the waiver of the Events of Default set forth above does not
establish a course of conduct between Borrowers and Lender and Borrowers hereby
agree that Lender is not obligated to waive any future Events of Default under
the Loan Agreement.

3. Conditions of Effectiveness. This Waiver shall become effective as of the
date hereof, provided that Lender shall have received four (4) copies of this
Waiver executed by the Borrowers and the limited guarantors (each a "Limited
Guarantor") and the guarantor ("Guarantor") listed on the signature page hereto.



<PAGE>

4. Representations, Warranties and Covenants. Each of the Borrowers hereby
represents, warrants and covenants as follows:

         (a) This Waiver and the Loan Agreement constitute legal, valid and
binding obligations of each of the Borrowers and are enforceable against each of
the Borrowers in accordance with their respective terms.

         (b) Upon the effectiveness of this Waiver, each of the Borrowers hereby
reaffirms all covenants, representations and warranties made in the Loan
Agreement to the extent the same are not amended hereby and agrees that all such
covenants, representations and warranties shall be deemed to have been remade as
of the effective date of this Waiver.

         (c) No Borrower has any defense, counterclaim or offset with respect to
the Loan Agreement or the Obligations.

5. Effect on the Loan Agreement.

         (a) Except as specifically amended herein, the Loan Agreement, and all
other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.

         (b) Except as set forth in Section 2 hereof, the execution, delivery
and effectiveness of this Waiver shall not operate as a waiver of any right,
power or remedy of Lender, nor constitute a waiver of any provision of the Loan
Agreement, or any other documents, instruments or agreements executed and/or
delivered under or in connection therewith.

6. Governing Law. This Waiver shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns and shall be
governed by and construed in accordance with the laws of the State of New York
(other than those conflict of law rules that would defer to the substantive law
of another jurisdiction).

7. Release. Borrowers and Guarantors hereby release, remise, acquit and forever
discharge Lender, Lender's employees, agents, representatives, consultants,
attorneys, fiduciaries, officers, directors, partners, predecessors, successors
and assigns, subsidiary corporations, parent corporations, and related corporate
divisions (all of the foregoing hereinafter called the "Released Parties"), from
any and all actions and causes of action, judgments, executions, suits, debts,
claims, demands, liabilities, obligations, damages and expenses of any and every
character, known or unknown, direct and/or indirect, at law or in equity, of
whatsoever kind or nature, for or because of any matter or things done, omitted
or suffered to be done by any of the Released Parties prior to and including the
date of execution hereof, and in any way directly or indirectly arising out of
or in any way connected to this Waiver or the Ancillary Agreements (all of the
foregoing hereinafter called the "Released Matters"). Borrowers acknowledge that
the agreements 



                                       2

<PAGE>

in this Section are intended to be in full satisfaction of all or
any alleged injuries or damages arising in connection with the Released Matters.

8. Headings. Section headings in this Waiver are included herein for convenience
of reference only and shall not constitute a part of this Waiver for any other
purpose.

9. Counterparts; Facsimile Signatures. This Waiver may be executed by the
parties hereto in one or more counterparts of the entire document or of the
signature pages hereto, each of which shall be deemed an original and all of
which taken together shall constitute one and the same agreement. Any signature
received by facsimile transmission shall be deemed an original signature hereto.



                  [Remainder of page intentionally left blank]




<PAGE>


IN WITNESS WHEREOF, this Waiver has been duly executed as of the day and year
first written above.

                                      WEBSTER BUSINESS CREDIT CORPORATION


                                      By:   /s/ Joseph Zautra
                                            ------------------------------------
                                      Name: Joseph Zautra
                                      Its:  Vice President

         AGREED TO:
         ----------

SPAR MARKETING FORCE, INC.
SPAR, INC.
SPAR/BURGOYNE RETAIL SERVICES, INC.
SPAR GROUP, INC.
SPAR INCENTIVE MARKETING, INC.
SPAR TRADEMARKS, INC.
SPAR MARKETING, INC. (DE)
SPAR MARKETING, INC. (NV)
SPAR ACQUISITION, INC.
SPAR TECHNOLOGY GROUP, INC.
SPAR/PIA RETAIL SERVICES, INC.
RETAIL RESOURCES, INC.
PIVOTAL FIELD SERVICES, INC.
PIA MERCHANDISING CO., INC.
PACIFIC INDOOR DISPLAY CO.
PIVOTAL SALES COMPANY
SPAR GROUP, INC.
SPAR ALL STORE MARKETING SERVICES, INC.
SPAR BERT FIFE, INC.

By: /s/ Charles Cimitile
    ------------------------------------------
    Name:  Charles Cimitile
    Title: Chief Financial Officer of each of
           the foregoing entities



                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]



<PAGE>




CONSENTED AND AGREED TO BY:
---------------------------


/s/ William H. Bartels
------------------------------
WILLIAM H. BARTELS, Limited Guarantor


/s/ Robert G. Brown
------------------------------
ROBERT G. BROWN, Limited Guarantor


PIA MERCHANDISING LIMITED, Guarantor

By: /s/ Charles Cimitile
    -------------------------------
Name: Charles Cimitile
Its:  Chief Financial Officer


                             Master Lease Agreement

Lessor:   SPAR Marketing Services, Inc.    Lessee:  SPAR Marketing Force, Inc.

Address:  580 White Plains Road            Address: 1791 Harmon Road
          Tarrytown, NY 10591                       Auburn Hills, MI 48326


                          TERMS AND CONDITIONS OF LEASE

The undersigned  Lessee hereby requests Lessor to purchase the personal property
described in any Equipment Schedule  hereunder (herein called  "Equipment") from
the  supplier(s)  listed in any  Equipment  Schedule  hereunder  (herein  called
"Vendor"  and/or  "Manufacturer",  as applicable)  and to lease the Equipment to
Lessee on the terms and conditions of the lease set forth below.

Lessor  hereby  leases to Lessee,  and Lessee  hereby  leases from  Lessor,  the
Equipment,  all upon the terms and  provisions and subject to the conditions set
forth in this Master Lease Agreement (as the same may be supplemented, modified,
amended,  restated or replaced from time to time in the manner provided  herein,
this "Lease").

In  consideration  of  the  foregoing,   the  mutual  covenants  and  agreements
hereinafter set forth,  and other good and valuable  consideration  (the receipt
and adequacy of which is hereby acknowledged by the parties), the parties hereto
hereby agree as follows:

1.       NO WARRANTIES BY LESSOR. Lessee has selected
 the Equipment and may have
         entered into certain  purchase,  licensing,  or maintenance  agreements
         with  the  Vendor  and/or  Manufacturer   (herein  referred  to  as  an
         "Acquisition Agreement") covering the Equipment as further described in
         Paragraph  25  hereof.  If  Lessee  has  entered  into any  Acquisition
         Agreement,   each  agreement  shall  provide  for  certain  rights  and
         obligations  of the party  thereto with respect to the  Equipment,  and
         Lessee  shall  perform  all  of  the  obligations  set  forth  in  each
         Acquisition  Agreement as if this Lease did not exist.  LESSOR MAKES NO
         WARRANTY,  EXPRESS OR IMPLIED,  AS TO ANY MATTER WHATSOEVER,  INCLUDING
         THE CONDITION OF THE EQUIPMENT,  ITS  MERCHANTABILITY  OR ITS FITNESSES
         FOR ANY  PARTICULAR  PURPOSE,  AND,  AS TO  LESSOR,  LESSEE  LEASES THE
         EQUIPMENT  "AS IS" AND "WHERE IS".  LESSOR SHALL HAVE NO LIABILITY  FOR
         ANY LOSS,  DAMAGE OR EXPENSE OF ANY KIND WHATSOEVER  RELATING  THERETO,
         INCLUDING  (WITHOUT  LIMITATION) ANY SPECIAL,  INDIRECT,  INCIDENTAL OR
         CONSQUENTIAL DAMAGES OF ANY CHARACTER.

2.       CLAIMS  AGAINST  VENDOR  AND/OR  MANUFACTURER.  If the Equipment is not
         properly  installed,  does not operate as  represented  or warranted by
         Vendor and/or Manufacturer, or is unsatisfactory for any reason, Lessee
         shall make any claim on account  thereof  solely  against Vendor and/or
         Manufacturer pursuant to the Acquisition Agreement,  if any, and shall,
         nevertheless,  pay  Lessor  all rent  payable  under  this  Lease.  All
         warranties from Vendor and/or  Manufacturer are, to the extent they are
         assignable,  hereby  assigned  to Lessee  for the term of this Lease or
         until an Event of Default occurs  hereunder,  for Lessee's  exercise at
         Lessee's  expense.  Lessee may  directly  inquire  with  Vendor  and/or
         Manufacturer  to receive an accurate  and  complete  statement  of such
         warranties, including any disclaimers or limitations of such warranties
         or of any remedies with respect thereto.

3.       VENDOR NOT AN AGENT. Lessee understands and agrees that neither Vendor,
         nor any sales  representative  or other agent of Vendor, is an agent of
         Lessor. Sales representatives or agents of Vendor, and persons that are
         not  employed  by  Lessor  (including   brokers  and  agents)  are  not
         authorized  to waive or alter any term or condition of this Lease,  and
         no  representation as to the Equipment or any other matter by Vendor or
         any other person that is not employed by Lessor  (including  brokers or
         agents)  shall  in any way  affect  Lessee's  duty to pay the  rent and
         perform its other obligations as set forth in this Lease.

4.       NON-CANCELLABLE  LEASE.  This Lease and any Equipment  Schedule  hereto
         cannot be cancelled or terminated except as expressly  provided herein.
         Lessee  agrees  that its  obligation  to pay all rent  and  other  sums
         payable  hereunder  and the  rights  of  Lessor in and to such rent are
         absolute  and  unconditional  and are  not  subject  to any  abatement,
         reduction,  setoff, defense,  counterclaim or recoupment due or alleged
         to be due to, or by reason of, any past, present or future claims which
         Lessee may have against  Lessor,  any  assignee,  any  Manufacturer  or
         Vendor, or against any person for any reason whatsoever.

5.       ORDERING EQUIPMENT.  Lessee shall arrange for delivery of the Equipment
         so that it can be accepted in accordance with Paragraph 6 hereof within
         90 days after the date on which Lessor accepts  Lessee's offer to enter
         into this Lease with respect to any Equipment Schedule or by such other
         date as may be set forth in 



<PAGE>

         an  Equipment  Schedule  or  Approval  Letter  issued  by Lessor as the
         Approval  Expiration Date. Unless otherwise  specified on the Equipment
         Schedule, Lessee shall be responsible for all transportation,  packing,
         installation,   testing  and  other  charges  in  connection  with  the
         delivery,   installation  and  use  of  the  Equipment.  Lessee  hereby
         authorizes  Lessor to insert in any  Equipment  Schedule  hereunder the
         serial  numbers  and  other   identification  data  of  Equipment  when
         determined by Lessor.

6.       ACCEPTANCE.  Lessee  acknowledges  that for  purposes of  receiving  or
         accepting  the  Equipment  from  Vendor,  Lessee is acting on  Lessor's
         behalf.   Upon  delivery  of  the  Equipment  to  Lessee  and  Lessee's
         inspection thereof, Lessee shall furnish Lessor a written statement (a)
         acknowledging receipt of the Equipment in good condition and repair and
         (b)  accepting it as  satisfactory  in all respects for the purposes of
         this Lease (the  "Certificate  of  Acceptance").  Unless  otherwise set
         forth in the applicable Equipment Schedule,  the first day of the month
         following  receipt  and  acceptance  of  the  Equipment  covered  by an
         Equipment  Schedule  shall  be the  Rent  Commencement  Date  therefor.
         However,  should  Lessee  have a previous  lease with  Lessor  which is
         active at the time of acceptance  of the Equipment  under the Equipment
         Schedule and said lease and the current  Equipment  Schedule  hereunder
         shall have the same  invoice  address then the Rent  Commencement  Date
         shall  occur  in the  month  immediately  following  acceptance  of the
         Equipment on the rent payment due date established with Lessee for said
         previous active lease. Lessor is authorized to fill in on any Equipment
         Schedule  hereunder the Rent  Commencement  Date in accordance with the
         foregoing.

7.       TERMINATION  BY  LESSOR.  If,  by the  Approval  Expiration  Date,  the
         Equipment described in any Equipment Schedule has not been delivered to
         Lessee and accepted by Lessee as provided in Paragraph 6 hereof,  or if
         other  conditions of Lessor's  Approval  Letter,  if any, have not been
         met,  then  Lessor may,  at its  option,  terminate  this Lease and its
         obligations  hereunder with respect to such  Equipment  Schedule at any
         time  after  the  expiration  of such 90 days  or any  date  after  the
         Approval  Expiration  Date,  as  applicable.  Lessor  shall give Lessee
         written  notice whether or not it elects to exercise such option within
         10 days after  Lessor's  receipt of Lessee's  written  request for such
         notice.

8.       TERM.  The term of this Lease shall be comprised of an Interim Term and
         an  Initial  Term.  The  Interim  Term shall  commence  on the date the
         Certificate of Acceptance is executed by Lessee (the "Acceptance Date")
         and terminate on the Rent  Commencement  Date. The Initial Term of this
         Lease shall begin on the Rent Commencement Date, and shall terminate on
         the later of (i) the last day of the last month of the Initial Term (as
         that Term is set forth in the applicable  Equipment Schedule hereto) or
         (ii) the date Lessee fulfills all Lessee's obligations hereunder.

9.       RENTAL. The rental amount payable to Lessor by Lessee for the Equipment
         will be set forth in the Equipment Schedule(s) ("Rental Amount). As the
         first  rent  payment  for the  Equipment,  Lessee  shall pay  Lessor in
         immediately  available funds on the Rent  Commencement Date the sum of,
         (i) the Rental  Amount,  and (ii)  Interim  Rent in an amount  equal to
         1/3Oth of the Rental Amount times the number of days from and including
         the Acceptance Date through but excluding the Rent  Commencement  Date,
         and  subsequent  rent  payments  shall  be due on the  same day of each
         calendar period as indicated on the Equipment  Schedule for the balance
         of the Initial Term.  Rent payments  shall be due whether or not Lessee
         has received any notice that such  payments are due. All rent  payments
         shall be paid to Lessor at its address set forth above or as  otherwise
         directed by Lessor in writing.

10.      RENEWAL If no default  shall have  occurred and be  continuing,  Lessee
         shall be entitled to renew this Lease with respect to all, but not less
         than all,  of the  Equipment  covered by an  Equipment  Schedule  for a
         minimum 12 month  period at an amount  equal to the fair market  rental
         value thereof,  in use and  operational,  in the condition  required by
         this Lease,  payable on a periodic  basis, as mutually agreed by Lessor
         and Lessee ("Renewal  Rent).  Lessee must give Lessor written notice of
         its intention to exercise said option, which notice must be received by
         Lessor at least 90 days  before  expiration  of the Initial  Term.  The
         first installment of the Renewal Rent shall be due at expiration of the
         Initial  Term of this  Lease.  Should  Lessee  fail to comply  with the
         provisions  described  above covering  renewal,  upon expiration of the
         Initial Term,  the term of this Lease shall be  automatically  extended
         for a term of 3  months.  Thereafter,  the term of this  Lease  will be
         extended for subsequent full month periods,  on a month to month basis,
         until Lessee has given at least 90 days written notice terminating this
         Lease.  Such  termination  will  take  effect  upon  completion  of all
         Lessee's  obligations  under  this  Lease  (including  payment  of  all
         periodic rental payments due during such 90 day period,  as provided in
         Paragraph 9 of this  Lease).  At any time after the  expiration  of the
         Initial  Term,  if this Lease has been  automatically  extended  as set
         forth herein,  Lessor  reserves the right to terminate this Lease by 30
         days written notice to Lessee.

11.      LOCATION;  INSPECTION;  LABELS. The Equipment shall be delivered to and
         shall not be removed  without  Lessor's prior written  consent from the
         "Equipment  Location" shown on the related  Equipment  Schedule,  or if
         none is specified,  Lessee's billing address shown above.  Lessor shall
         have the right to inspect the  Equipment  at any  reasonable  time.  If
         Lessor  supplies Lessee with labels stating that the Equipment is owned
         by  Lessor,  Lessee  shall  affix  such  labels  to and keep  them in a
         prominent place on the Equipment.



<PAGE>

12.      REPAIRS; USE; ALTERATIONS.  Lessee, at its own cost and expense,  shall
         keep the  Equipment  in good  repair  and  working  order,  in the same
         condition  as when  delivered  to  Lessee,  reasonable  wear  and  tear
         excepted,  and  in  accordance  with  the  manufacturer's   recommended
         specifications;  shall use the Equipment lawfully;  shall not alter the
         Equipment  without  Lessor's  prior  written  consent,  shall  use  the
         Equipment in compliance  with any existing  Manufacturer's  service and
         warranty  requirements  and any  insurance  policies  applicable to the
         Equipment and shall furnish all parts and servicing  required therefor.
         All parts, repairs, additions, alterations and attachments placed on or
         incorporated  into the Equipment which cannot be removed without damage
         to the  Equipment  shall  immediately  become part of the Equipment and
         shall be the  property of the Lessor.  Lessee will obtain and  maintain
         all permits,  licenses and registrations  necessary to lawfully operate
         the facility  where the Equipment is located.  Lessee shall comply with
         all applicable  environ- mental and industrial  hygiene laws, rules and
         regulations  (including  but not limited to federal,  state,  and local
         environmental  protection,  occupational,  health and safety or similar
         laws, ordinances and restrictions). Lessee shall, not later than 5 days
         after the occurrence, provide Lessor with copies of any report required
         to be filed with governmental agencies regulating environmental claims.
         Lessee  shall  immediately  notify  Lessor in writing of any  existing,
         pending or threatened  investigation,  inquiry,  claim or action by any
         governmental  authority in connection  with any law, rule or regulation
         relating to industrial  hygiene or environmental  conditions that could
         affect the Equipment.

13.      MAINTENANCE.  If the  Equipment  is such that  Lessee  is not  normally
         capable of maintaining it, Lessee, at its expense, shall enter into and
         maintain in full force and effect  throughout  the Initial Term and any
         renewal  term,  Vendor  and/or   Manufacturer's   standard  maintenance
         contract,  and shall  comply with all its  obligations  thereunder.  An
         alternate source of maintenance may be used with Lessor's prior written
         consent.  Such  consent  shall be granted  if, in  Lessor's  reasonable
         opinion,  the Equipment  will be  maintained in an equivalent  state of
         good repair, condition and working order.

14.      SURRENDER.  Provided that Lessee does not exercise the purchase  option
         as set forth in Paragraph 27 hereof, upon the expiration of the Initial
         Term,  or any renewal  term,  or upon demand by Lessor made pursuant to
         Paragraph 21 of this Lease,  Lessee, at its expense,  shall return all,
         but not less than all, of the  Equipment by delivering it to such place
         or on board such carrier,  packed for shipping,  as Lessor may specify.
         Lessee agrees that the Equipment,  when returned,  shall be in the same
         condition  as when  delivered  to  Lessee,  reasonable  wear  and  tear
         excepted,  and in a condition  which will permit  Lessor to be eligible
         for Manufacturer's  standard maintenance contract without incurring any
         expense  to repair or  rehabilitate  such  Equipment.  Lessee  shall be
         liable for reasonable and necessary  expenses to place the Equipment in
         such  condition.  Lessee shall remain  liable for the  condition of the
         Equipment  until  it  is  received  and  accepted  at  the  destination
         designated by Lessor as set forth above.  If any items of Equipment are
         missing or damaged when returned,  such occurrence  shall be treated as
         an event of Loss or Damage  with  respect  to such  missing  or damaged
         items and shall be  subject  to the terms  specified  in  Paragraph  15
         below.  Lessee shall  provide  Lessor with a Letter of  Maintainability
         from the  Manufacturer of the Equipment,  which letter shall state that
         the  Equipment  will  be  eligible  for  the  Manufacturer's   standard
         maintenance contract when sold or leased to a third party. Lessee shall
         give Lessor prior written  notice that it is returning the Equipment as
         provided above,  and such notice must be received by Lessor at least 90
         days  prior to such  return.  Should  Lessee  fail to  comply  with the
         provisions  described above covering surrender,  upon expiration of the
         Initial Term,  the term of this Lease shall be  automatically  extended
         for a term of 3  months.  Thereafter,  the term of this  Lease  will be
         extended for subsequent full month periods,  on a month to month basis,
         until Lessee has given at least 90 days written notice terminating this
         Lease.  Such  termination  will  take  effect  upon  completion  of all
         Lessee's  obligations  under  this  Lease  (including  payment  of  all
         periodic rental payments due during such 90 day period,  as provided in
         Paragraph 9 of this  Lease).  At any time after the  expiration  of the
         Initial  Term,  if this Lease has been  automatically  extended  as set
         forth herein.  Lessor  reserves the right to terminate this Lease by 30
         days written notice to Lessee.

15.      LOSS OR  DAMAGE.  Lessee  shall bear the  entire  risk of loss,  theft,
         destruction  of or damage to the Equipment or any item thereof  (herein
         "Loss or Damage")  from any cause  whatsoever.  No Loss or Damage shall
         relieve Lessee of the obligation to pay rent or of any other obligation
         under this Lease. In the event of Loss or Damage, Lessee, at the option
         of Lessor;  shall: (a) place the same in good condition and repair; (b)
         replace  the same  with  like  equipment  acceptable  to Lessor in good
         condition and repair with clear title thereto in Lessor;  or (c) pay to
         Lessor the total of the following amounts: (i) the total rent and other
         amounts due and owing at the time of such payment,  plus (ii) an amount
         calculated  by Lessor which is the present value at 5% per annum simple
         interest  discount of all rent and other amounts payable by Lessee with
         respect to said item from date of such payment to date of expiration of
         its Initial Term, plus (iii) the "reversionary value" of the Equipment,
         which shall be  determined by Lessor as the total cost of the Equipment
         less 60% of the total rent (net of sales/use taxes, if any) required to
         be paid pursuant to Paragraph 9. Upon Lessor's receipt of such payment,
         Lessee and/or Lessee's  insurer shall be entitled to Lessor's  interest
         in said item, for salvage purposes, in its then condition and location,
         "as-is ", without any warranty, express or implied.



<PAGE>

16.      INSURANCE.  Lessee  shall  provide,  maintain  and pay for (a) all risk
         property  insurance  against  the  loss or theft  of or  damage  to the
         Equipment,  for the full replacement value thereof,  naming Lessor as a
         loss payee,  and (b)  commercial  general  liability  insurance (and if
         Lessee is a doctor;  hospital or other  health care  provider,  medical
         malpractice  insurance).  All such  policies  shall  name  Lessor as an
         additional  insured and shall have  combined  single  limits in amounts
         acceptable to Lessor.  All such insurance policies shall be endorsed to
         be primary and  non-contributory  to any policies maintained by Lessor.
         In  addition  Lessee  shall cause  Lessor to be named as an  additional
         insured on any excess or umbrella policies  purchased by Lessee. A copy
         of  each  paid-up  policy  evidencing  such  insurance   (appropriately
         authenticated by the insurer) or a certificate of the insurer providing
         such coverage  proving that such  policies have been issued,  providing
         the coverage  required  hereunder shall be delivered to Lessor prior to
         the  Rent  Commencement  Date.  All  insurance  shall  be  placed  with
         companies  satisfactory  to Lessor  and  shall  contain  the  insurer's
         agreement to give 30 days written notice to Lessor before  cancellation
         or any material change of any policy of insurance.

17.      TAXES.  Lessee shall  reimburse to Lessor (or pay directly if, but only
         if,  instructed  by Lessor)  all charges  and taxes  (local,  State and
         federal) which may now or hereafter be imposed or levied upon the sale,
         purchase,  ownership,  leasing,  possession  or use  of the  Equipment;
         excluding,  however; all income taxes levied on (a) any rental payments
         made to Lessor hereunder;  (b) any payment made to Lessor in connection
         with Loss or Damage to the Equipment under Paragraph 15 hereof,  or (c)
         any payment made to Lessor in connection with Lessee's  exercise of its
         purchase option under Paragraph 27 hereof.

18.      LESSOR'S  PAYMENT.   If  Lessee  fails  to  provide  or  maintain  said
         insurance,  to pay said taxes,  charges and fees,  or to discharge  any
         levies, liens and encumbrances created by Lessee, Lessor shall have the
         right, but shall not be obligated,  to obtain such insurance,  pay such
         taxes,  charges  and fees,  or effect  such  discharge.  In that event,
         Lessee  shall  remit to  Lessor  the cost  thereof  with the next  rent
         payment.

19.      INDEMNITY. (a) General Indemnity. Lessee shall indemnify Lessor against
         and hold Lessor  harmless  from any and all claims,  actions,  damages,
         costs,  expenses  including  reasonable  attorneys' fees,  obligations,
         liabilities  and  liens  (including  any of the  foregoing  arising  or
         imposed  under  the   doctrines  of  "strict   liability"  or  "product
         liability"  and  including  without  limitation  the cost of any fines,
         remedial action, damage to the environment and cleanup and the fees and
         costs of  consultants  and  experts),  arising out of the  manufacture,
         purchase, lease, ownership, possession, operation, condition, return or
         use of the Equipment, or by operation of law, excluding however, any of
         the foregoing resulting from the gross negligence or willful misconduct
         of Lessor.  Lessee  agrees  that upon  written  notice by Lessor of the
         assertion of such a claim,  action,  damage,  obligation,  liability or
         lien, Lessee shall assume full  responsibility for the defense thereof.
         Lessee's choice of counsel shall be mutually  acceptable to both Lessee
         and Lessor.  This  indemnity also extends to any  environmental  claims
         arising  out of or  relating  to prior acts or  omissions  of any party
         whatsoever.  The provisions of this paragraph shall survive termination
         of  this  Lease  with  respect  to  events   occurring  prior  to  such
         termination.

         (b)      Tax  Indemnity.  Lessee  acknowledges  that  Lessor  shall  be
                  entitled to all tax benefits of ownership  with respect to the
                  Equipment (the "Tax Benefits"),  including but not limited to,
                  (i) the  accelerated  cost recovery  deductions  determined in
                  accordance with Section 168(b)(1) of the Internal Revenue Code
                  of 1986 for the  Equipment  based on the original  cost of the
                  Equipment  to  Lessor  (ii)  deductions  for  interest  on any
                  indebtedness  incurred by Lessor to finance the  Equipment and
                  (iii)  sourcing  of income  and  losses  attributable  to this
                  Lease,  to the  United  States.  Lessee  represents  that  the
                  Equipment  shall  be  depreciable  for  Federal  tax  purposes
                  utilizing  the  MACRS  Recovery  Period  as set  forth  in the
                  Equipment  Schedule,  with such depreciation  commencing as of
                  the date of Equipment acceptance by Lessee as set forth on the
                  Certificate  of  Acceptance.  Lessee  agrees to take no action
                  inconsistent  with the  foregoing  or any action  which  would
                  result in the loss,  disallowance or  unavailability to Lessor
                  of  all  or  any  part  of the  Tax  Benefits.  Lessee  hereby
                  indemnifies and holds harmless Lessor and its assigns from and
                  against  (i)  the  loss,   disallowance,   unavailability   or
                  recapture  of all or any  part of the Tax  Benefits  resulting
                  from any  action,  statement,  misrepresentation  or breach of
                  warranty  or  covenant  by  Lessee  of any  nature  whatsoever
                  including   but   not   limited   to   the   breach   of   any
                  representations,  warranties  or  covenants  contained in this
                  paragraph,  plus  (ii)  all  interest,   penalties,  fines  or
                  additions  to tax  resulting  from  such  loss,  disallowance,
                  unavailability or recapture,  plus (iii) all taxes required to
                  be paid by Lessor upon receipt of the  indemnity  set forth in
                  this  paragraph.  Any  payments  made by Lessee  to  reimburse
                  Lessor for lost Tax Benefits  shall be  calculated  (i) on the
                  assumption  that  Lessor is  subject  to the  maximum  Federal
                  Corporate  Income  Tax with  respect to each year and that all
                  Tax Benefits are currently  utilized,  and (ii) without regard
                  to whether  Lessor or any members of a  consolidated  group of
                  which  Lessor is also a member is then subject to any increase
                  in tax as a  result  of the  loss  of Tax  Benefits.  For  the
                  purposes  of this  paragraph,  "Lessor"  includes  for all tax
                  purposes the consolidated  taxpayer group of which Lessor is a
                  part.



<PAGE>

         (c)      Payment.  The amounts  payable  pursuant to this  Paragraph 19
                  shall be  payable  upon  demand of  Lessor,  accompanied  by a
                  statement  describing in reasonable detail such claim, action,
                  damage, cost, expense, fee, obligation, liability, lien or tax
                  and setting  forth the  computation  of the amount so payable,
                  which computation shall be binding and conclusive upon Lessee,
                  absent  manifest  error.  The  indemnities  and assumptions of
                  liabilities  and  obligations  contained in this  Paragraph 19
                  shall  continue in full force and effect  notwithstanding  the
                  expiration or other termination of this Lease.

20.      DELINQUENT PAYMENTS.  (a) Service Charge. Since it would be impractical
         or extremely  difficult to fix Lessor's  actual  damages for collecting
         and  accounting for a late payment,  if any payment to Lessor  required
         herein (including,  but not limited to, rental,  renewal, tax, purchase
         and other amounts) is not paid on or before its due date,  Lessee shall
         pay to  Lessor  an amount  equal to 5% of any such  late  payment.  (b)
         Interest.  Lessee shall also pay interest on any such late payment from
         the due date  thereof  until the date paid at the  littlest  of 18% per
         annum or the maximum rate allowed by law.

21.      DEFAULT;  REMEDIES.  Any of the following shall constitute an "Event of
         Default" under this Lease: If (a) Lessee fails to pay when due any rent
         or  other  amount  required  herein  to be  paid  by  Lessee  and  such
         non-payment  continues  for more than seven days after  notice  thereof
         from  Lessor,  or (b) Lessee  makes an  assignment  for the  benefit of
         creditors, whether voluntary or involuntary, or (c) a petition is filed
         by or  against  Lessee  under any  bankruptcy,  insolvency  or  similar
         legislation,  or (d) Lessee  violates or fails to perform any provision
         of either this Lease or any Acquisition Agreement, or violates or fails
         to perform any covenant or  representation  made by Lessee herein,  and
         fails to correct the same within seven days after  notice  thereof from
         Lessor, or (e) Lessee makes a bulk transfer of furniture,  furnishings,
         fixtures or other  equipment or  inventory,  or (f) Lessee ceases doing
         business as a going concern or terminates its existence,  or (g) Lessee
         consolidates  with,  merges  with or into,  or conveys or leases all or
         substantially all of its assets as an entirety to any person or engages
         in any other form of reorganization,  or there is a change in the legal
         structure  of Lessee,  in each case it  results,  in the opinion of the
         Lessor, in a material adverse change in Lessee's ability to perform its
         obligations  under this Lease,  or (h) any  representation  or warranty
         made by Lessee  in this  Lease or in any other  document  or  agreement
         furnished  by  Lessee  to  Lessor  shall  prove to have  been  false or
         misleading  in any  material  respect  when made or when deemed to have
         been  made,  or (i)  Lessee  shall be in  default  under  any  material
         obligation for the payment of borrowed  money or the deferred  purchase
         price of, or for the payment of any rent due with  respect to, any real
         or personal  property  and such default  continues  for more than seven
         days after  notice  thereof  from  Lessor,  or (j)  Lessee  shall be in
         default under any other  agreement now existing or hereafter  made with
         Lessor or any of Lessor's  affiliates  and such default  continues  for
         more than seven days after notice thereof from Lessor, or (k) any event
         or condition  described in the  foregoing  clauses (b),  (c), (e), (f),
         (g), (h) (in clauses (g) and (h)  substituting  the phrase "guaranty or
         other credit support document" for the word "Lease"),  (i) or (j) shall
         have  occurred  with respect to any guarantor of, or other party liable
         in  whole  or in part  for,  Lessee's  obligations  hereunder,  or such
         guarantor  or other party shall have  defaulted  in the  observance  or
         performance  of any covenant,  condition or agreement to be observed or
         performed  by it under the guaranty or other  credit  support  document
         pursuant to which it is liable for Lessee's obligations  hereunder,  or
         such guaranty or other credit support  document shall have been revoked
         or terminated or shall have otherwise ceased,  for any reason, to be in
         full  force  and  effect.  An  Event of  Default  with  respect  to any
         Equipment  Schedule  shall  constitute  an  Event  of  Default  for all
         Equipment  Schedules.  Lessee  shall  promptly  notify  Lessor  of  the
         occurrence of any Event of Default upon  Lessee's  receipt of notice or
         knowledge thereof (other than pursuant to Lessor's notice).

                  If an Event of Default occurs,  Lessor shall have the right to
         exercise any one or more of the following  remedies in order to protect
         the interests and reasonably  expected  profits and bargains of Lessor:
         (a) Lessor may terminate  this Lease with respect to all or any part of
         the  Equipment,  (b) Lessor may recover  from Lessee all rent and other
         amounts then due and as they shall thereafter become due hereunder, (c)
         Lessor may take  possession of any or all items of Equipment,  wherever
         the same may be located,  without  demand or notice,  without any court
         order or other  process of law and without  liability to Lessee for any
         damages occasioned by such taking of possession, and any such taking of
         possession shall not constitute a termination of this Lease, (d) Lessor
         may  recover  from  Lessee,  with  respect  to any  and  all  items  of
         Equipment,  and with or without  repossessing  the Equipment the sum of
         (1) the  total  amount  due and  owing  to  Lessor  at the item of such
         default,  plus (2) an amount  calculated by Lessor which is the present
         value at 5% per annum  simple  interest  discount of all rent and other
         amounts  payable by Lessee with  respect to said  item(s)  form date of
         such payment to date of expiration  of its Initial  Term,  plus (3) the
         "reversionary  value" of the  Equipment,  which shall be  determined by
         Lessor as the total  cost of the  Equipment  less 60% of the total rent
         (net of  sales/use  taxes,  if any)  required  to be paid  pursuant  to
         Paragraph 9, and which the parties  agree is a  reasonable  estimate of
         such value;  and upon the payment of all amounts  described  in clauses
         (1), (2) and (3) above, Lessee will become entitled to the Equipment AS
         IS, WHERE IS, without warranty whatsoever;  provided,  however, that if
         the Lessor shall sell, lease or otherwise dispose of the Equipment in a
         commercially reasonable manner, with or without notice and on public or
         private bid, and apply the net proceeds  thereof  (after  deducting all
         expenses,  including attorneys' fees incurred in connection therewith),
         to the sum of (1),  (2) and (3)  above,  and e) Lessor  may  pursue any
         other remedy  available at law or in equity,  including but not limited
         to  seeking  damages  or  specific   performance  and/or  obtaining  an
         injunction.



<PAGE>

                  No right or remedy herein conferred upon or reserved to Lessor
         is exclusive of any right or remedy herein or by law or equity provided
         or  permitted;  but each shall be  cumulative  of every  other right or
         remedy given hereunder or now or hereafter existing at law or in equity
         or by statue or otherwise,  and may be enforced concurrently  therewith
         or from time to time,  but Lessor  shall not be  entitled  to recover a
         greater  amount in damages  than Lessor could have gained by receipt of
         the  of  Lessee's  full,   timely  and  complete   performance  of  its
         obligations pursuant to the terms of this Lease plus accrued delinquent
         payments under Paragraph 21.

22.      LESSOR'S  EXPENSE.  Lessee  shall pay  Lessor  all costs and  expenses,
         including attorney's fees and the fees of collection agencies, incurred
         by Lessor in  enforcing  any of the terms,  conditions,  or  provisions
         hereof or in protecting  Lessor's  rights herein.  Lessee's  obligation
         hereunder  includes all such costs and expenses  experienced  by Lessor
         (a) prior to  filing of an  action,  (b) in  connection  with an action
         which  is  dismissed,  and  (c) in  the  enforcement  of any  judgment.
         Lessee's  obligation  to  pay  Lessor's  attorney's  fees  incurred  in
         enforcing any judgment is a separate  obligation  of Lessee,  severable
         from  Lessee's  other  obligations  hereunder,  which  obligation  will
         survive  such  judgment and will not be deemed to have been merged into
         such judgment.

23.      OWNERSHIP;  PERSONAL PROPERTY.  The Equipment shall at all times remain
         the  property  of Lessor  and  Lessee  shall  have no  right,  title or
         interest therein or thereto except as expressly set forth in this Lease
         and the Equipment  shall at all times be and remain  personal  property
         notwithstanding  that the  Equipment or any part thereof may now be, or
         hereafter become,  in any manner,  affixed or attached to real property
         or any improvements thereon.

24.      NOTICES. Any notice,  request,  demand or other communication permitted
         or required to be given to a party under this Lease shall be in writing
         and shall be sent to the addressee at the address set forth above or on
         the Equipment Schedule (or at such other address as shall be designated
         by notice to the other party and persons receiving  copies),  effective
         upon actual receipt (or refusal to accept delivery) by the addressee on
         any business day or the first business day following  receipt after the
         close of normal business hours or on any non-business day, by (a) FedEx
         (or other equivalent  national or international  overnight  courier) or
         United States  Express Mail,  (b)  certified,  registered,  priority or
         express United States mail, return receipt  requested,  (c) telecopy or
         (d) messenger, by hand or any other means of actual delivery

25.      ACQUISITION AGREEMENTS.  If the Equipment is subject to any Acquisition
         Agreement,  Lessee as part of this  Lease,  transfers  and  assigns  to
         Lessor  all of its  rights,  but none of its  obligations  (except  for
         Lessee's obligation to pay for the Equipment  conditioned upon Lessee's
         acceptance in accordance  with Paragraph 6), in and to the  Acquisition
         Agreement,  including but not limited to the right to take title to the
         Equipment.   Lessee  shall   indemnify  and  hold  Lessor  harmless  in
         accordance  with  Paragraph 19 from any  liability  resulting  from any
         Acquisition  Agreement  as  well  as  liabilities  resulting  from  any
         Acquisition  Agreement  Lessor is  required  to enter into on behalf of
         Lessee or with Lessee for purposes of this Lease.

26.      UPGRADES.  Any existing  lease between  Lessor and Lessee subject to an
         "upgrade"  program shall continue in full force and effect and shall be
         kept free of default by Lessee  (even if the  Equipment  covered by the
         existing lease is sold. traded-in,  etc.) until any such existing lease
         is  cancelled  by Lessor  when,  if  applicable,  the new  Equipment is
         accepted by Lessee for all purposes of this Lease.

27.      PURCHASE  OPTION.  If no default shall have occurred and be continuing,
         Lessee shall be entitled,  at its option upon written notice to Lessor,
         which  notice  must be received by Lessor at least 90 days prior to the
         end of either the  Initial  Term or any renewal  term of any  Equipment
         Schedule,  to purchase  all,  but not less than all,  of the  Equipment
         covered  by  such  Equipment  Schedule  from  Lessor  at the end of the
         Initial  Term or any  renewal  term for such  Equipment  Schedule  at a
         purchase  price equal to the then fair market value of the Equipment in
         use and  operational,  in the  condition  required  by this  Lease,  as
         mutually agreed by Lessor and Lessee.  On a date which is no later than
         the  expiration  date of the  Initial  Term  or any  renewal  term,  as
         applicable,  Lessee  shall pay to  Lessor  the  purchase  price for the
         Equipment  covered by such  Equipment  Schedule  (plus any taxes levied
         thereon) and Lessor shall sell the Equipment "as-is  where-is"  without
         any warranties express or implied.

28.      RELATED EQUIPMENT  SCHEDULES.  In the event that any Equipment Schedule
         hereunder shall include  Equipment that may become attached to, affixed
         to,  or  used  in  connection  with  Equipment  covered  under  another
         Equipment Schedule hereunder  ("Related  Equipment  Schedule"),  Lessee
         acknowledges the following: (a) if Lessee elects to exercise a purchase
         option or renewal option under any Equipment Schedule,  if provided; or
         (b) if Lessee  elects  to  return  the  Equipment  under any  Equipment
         Schedule as described in Paragraph 14, then Lessor,  at its discretion,
         may require the similar  disposition of all Related Equipment Schedules
         as provided for by this Lease.



<PAGE>

29.      EQUIPMENT  SCHEDULES.  An executed Equipment Schedule that incorporates
         by  reference  the  terms  of  this  Master  Lease  Agreement,   marked
         "Original,"  shall be the  original  of this  Lease  for the  Equipment
         described therein for all purposes.  All other executed counterparts of
         this Lease  shall be marked  "Duplicate."  Unless  specified  otherwise
         therein,  in the event any written rider or other agreement is attached
         to and made a part of an Equipment  Schedule,  the terms and conditions
         of said written  agreement shall apply only to said Equipment  Schedule
         and shall not apply to any other Equipment Schedule made a part of this
         Lease.  In the event Lessee issues a purchase order to Lessor  covering
         Equipment to be leased hereunder, it is agreed that such purchase order
         is issued for purposes of authorization and Lessee's internal use only,
         and.  none of its  terms  and  conditions  shall  modify  the terms and
         conditions  of this  Lease  and/or  related  documentation,  or  affect
         Lessor's  responsibility  to Lessee as  defined in this  Lease.  To the
         extent this Lease constitutes chattel paper, as such term is defined in
         the Uniform Commercial Code of the applicable jurisdiction, no security
         interest  in  this  Lease  may  be  created  through  the  transfer  of
         possession of any counterpart other than the Original of this Lease.

30.      GENERAL  REPRESENTATIONS  OF THE  PARTIES.  Each party  represents  and
         warrants to the other party that, as of the date hereof, as of the date
         of the execution of each Equipment  Schedule and as of the date of each
         extension,  modification  or amendment of this Lease and each Equipment
         Schedule,  and  covenants  and agrees  with the other party that for so
         long as any Equipment is leased pursuant hereto:  (a) such party is and
         will  continue to be a  corporation  or other  entity  duly  organized,
         validly  existing and in good  standing  under the laws of its state of
         organization   and  maintains  its  chief   executive   office  at  the
         address(es) set forth for it either on the signature page to this Lease
         (and any Equipment  Schedule  entered into  pursuant  hereto) or in the
         introduction  thereto, or as otherwise set forth in a written notice to
         the  other  party;  (b) such  party  has and will  maintain  the  legal
         capacity,  power,  authority  and  unrestricted  right to  execute  and
         deliver this Lease (and any  Equipment  Schedule  entered into pursuant
         hereto)  and to  perform  all of its  obligations  hereunder;  (c)  the
         execution  and delivery by such party of this Lease (and any  Equipment
         Schedule  entered into  pursuant  hereto) and the  performance  by such
         party of all of its  obligations  hereunder  will not  violate or be in
         conflict with any term or provision of (i) any applicable law, (ii) any
         judgment,  order, writ,  injunction,  decree or consent of any court or
         other judicial authority  applicable to such party or any material part
         of such party's assets and properties,  (iii) any of the organizational
         or governing  documents of such party, or (iv) any material  agreement,
         document or obligation to which it is a party,  and such party will not
         adopt any such  conflicting  organizational  or  governing  document or
         enter into any such conflicting agreement,  document or obligation; (d)
         no consent, approval or authorization of, or registration,  declaration
         or filing with, any governmental  authority or other person  (including
         any equity  holder of any party) is required as a condition  precedent,
         concurrent or  subsequent  to or in  connection  with the due and valid
         execution,  delivery and  performance  by such party of this Lease (and
         any Equipment  Schedule  entered into pursuant hereto) or the legality,
         validity,  binding  effect  or  enforceability  of any of the terms and
         provisions  of this  Lease (and any  Equipment  Schedule  entered  into
         pursuant  hereto);  (d) this Lease (and any Equipment  Schedule entered
         into pursuant hereto) is a legal,  valid and binding obligation of such
         party,   enforceable  against  such  party  in  accordance  with  their
         respective terms and provisions;  and (e) each party has  independently
         and fully reviewed and evaluated this Lease (and any Equipment Schedule
         entered  into  pursuant   hereto)  and  all  related   documents,   the
         contemplated  obligations and transactions and the potential effects of
         such obligations and transactions on the assets,  business,  cash flow,
         expenses,  income,  liabilities,   operations,  properties,  prospects,
         reputation,  taxation or condition  (financial  or  otherwise)  of such
         party and its affiliates, which review and evaluation was made together
         with the officers,  directors and other  representatives of such party,
         its legal  counsel  and (to the extent  deemed  prudent by such  party)
         other legal counsel and financial and other advisors to such party, and
         such party hereby absolutely,  unconditionally,  irrevocably, expressly
         and forever  assumes any and all attendant risks and waives any and all
         rights, claims, defenses or objections with respect thereto

31.      LESSEE'S  REPRESENTATIONS.  Lessee  represents  and  warrants to Lessor
         that,  as of the date hereof,  as of the date of the  execution of each
         Equipment  Schedule and as of the date of each extension,  modification
         or amendment of this Lease and each Equipment  Schedule,  and covenants
         and agrees with the Lessor that for so long as any  Equipment is leased
         pursuant  hereto:  (a) the  Equipment  is being  leased  hereunder  for
         business purposes and is not being and will not be used for any illicit
         or illegal business or scheme;  (b) the financial  information (if any)
         respecting Lessee furnished to Lessor is complete,  accurate and fairly
         presents  the  financial  condition  of the  Customer;  (d) the credit,
         financial and other  information  furnished or to be furnished by or on
         behalf of Lessee  to Lessor is true and  correct  and does not and will
         not  contain  a  misstatement  of a  material  fact or omit to  state a
         material fact required to be stated therein in order to make it, in the
         light of the  circumstances  under which made, not misleading;  and (f)
         there does not exist any  pending or  threatened  action or  proceeding
         before  any  court or  administrative  agency  which  might  materially
         adversely affect Lessee's financial condition or operations

32.      FINANCIAL STATEMENTS. Lessee agrees to furnish to Lessor (i) as soon as
         available,  and in any event within 120 days after the last day of each
         fiscal year of Lessee, a copy of the financial  statements of Lessee as
         of the end of such fiscal year,  certified by an independent  certified
         public  accounting  firm:  (ii) as soon as available,  and in any event
         within 60 days after the last day of each  quarter of  Lessee's  fiscal
         year,  a  copy  of  quarterly  financial  statements  certified  by the
         principal  financial  officer  of  Lessee;  and (iii)  such  additional
         information concerning Lessee as Lessor may reasonably request.



<PAGE>

33.      GOOD FAITH DEPOSIT  REQUIREMENT.  Lessee  agrees,  with respect to each
         transaction,  to pay the  Good  Faith  Deposit  specified  in  Lessor's
         proposal for such  transaction  or in the  Equipment  Schedule  related
         thereto. This Good Faith Deposit is given in consideration for Lessor's
         costs and expenses in investigating and appraising and/or  establishing
         credit for Lessee. This Good Faith Deposit shall not be refunded unless
         Lessor declines to accept Lessee's offer to enter into this Lease. Upon
         Lessor's  acceptance of Lessee's offer to enter into this Lease, unless
         otherwise specified in the proposal or Equipment  Schedule,  the amount
         shall  be  applied  to  the  first   period's  rent   payment.   Lessee
         acknowledges  that  Lessor's act of  depositing  any Good Faith Deposit
         into  Lessor's  bank account  shall not in itself  constitute  Lessor's
         acceptance of Lessee's offer to enter into this Lease.

34.      INTERPRETATION,  SEVERABILITY,  ETC. The parties  acknowledge and agree
         that the terms and provisions of this Lease and the Equipment Schedules
         have been  negotiated,  shall be  construed  fairly  as to all  parties
         hereto,  and shall not be  construed  in favor of or against any party.
         The term  "including"  shall  mean  "including  (without  limitation)",
         whether or not so stated.  The terms "including",  "including,  but not
         limited to", "including  (without  limitation)" and similar phrases (i)
         mean that the items specifically listed after such term are examples of
         the  provision  preceding  such  term  and are not  intended  to be all
         inclusive,  (ii) shall not in any way limit (or be deemed or  construed
         to limit) the  generality of the  provision  preceding  such term,  and
         (iii)  shall not in any way  preclude  (or be deemed  or  construed  to
         preclude)  any  other   applicable  item  encompassed  by  the  general
         provision  preceding such term. In the event that any term or provision
         of this Lease or any Equipment  Schedule shall be finally determined to
         be superseded,  invalid, illegal or otherwise unenforceable pursuant to
         applicable  law by an authority  having  jurisdiction  and venue,  that
         determination  shall  not  impair or  otherwise  affect  the  validity,
         legality  or  enforceability  (a) by or before  that  authority  of the
         remaining  terms  and  provisions  of  this  Lease  and  the  Equipment
         Schedules,  which  shall be enforced  as if the  unenforceable  term or
         provision  were deleted or reduced  pursuant to the next  sentence,  as
         applicable, or (b) by or before any other authority of any of the terms
         and provisions of this Lease and the Equipment  Schedules.  If any term
         or  provision  of this Lease or any  Equipment  Schedule  is held to be
         unenforceable  because of the scope or duration of any such  provision,
         the parties agree that any court making such  determination  shall have
         the power, and is hereby requested,  to reduce the scope or duration of
         such term or provision to the maximum  permissible under applicable law
         so that said term or  provision  shall be  enforceable  in such reduced
         form.

35.      MISCELLANEOUS.  Lessor reserves the right to charge Lessee fees for its
         provision of additional  administrative  services related to this Lease
         requested by Lessee.  Lessee shall provide  Lessor with such  corporate
         resolutions,  opinions  of  counsel,  financial  statements,  and other
         documents  (including  documents for filing or recording) as Lessor may
         request  from  time to  time.  LESSEE  HEREBY  APPOINTS  LESSOR  OR ITS
         ASSIGNEE  ITS TRUE AND LAWFUL  ATTORNEY IN FACT TO EXECUTE ON BEHALF OF
         LESSEE  ALL  UNIFORM  COMMERCIAL  CODE  FINANCING  STATEMENTS  OR OTHER
         DOCUMENTS  WHICH,  IN LESSOR'S  DETERMINATION,  ARE NECESSARY TO SECURE
         LESSOR'S  INTEREST  IN SAID  EQUIPMENT.  The  filing  of UCC  Financing
         Statements is  precautionary  and shall not be evidence that this Lease
         is intended as security. If for any reason this agreement is determined
         not to be a lease,  Lessee hereby grants Lessor a security  interest in
         this Lease,  the  Equipment or  collateral  pertaining  thereto and the
         proceeds  thereof,  including  release,  sale  or  disposition  of  the
         Equipment or other collateral. If more than one Lessee is named in this
         Lease, the liability of each shall be joint and several. Time is of the
         essence with respect to this Lease.

36.      FORCE  MAJEURE.  Notwithstanding  any other term or  provision  of this
         Lease (and any Equipment  Schedule  entered into pursuant  hereto),  no
         party shall be responsible for or be in breach of or default under this
         Lease (and any Equipment Schedule entered into pursuant hereto) for any
         performance  delay or failure that is the result of any and all acts of
         God and other acts, events,  circumstances,  impediments or occurrences
         beyond the  control of the  delayed  person  (each a "Force  Majeure"),
         including (without limitation) any (i) accident or mishap not caused by
         the delayed person, (ii) assault,  attack, battle,  blockade,  bombing,
         embargo,  police  action,  siege  or  other  act of  defense,  offense,
         terrorism  or war  (whether  or not  declared),  in each  case  whether
         civilian,  militia,  military  or  otherwise  and  whether  domestic or
         foreign,  (iii)  governmental  regulation  or  decree  or other  act or
         failure to act of any governmental  authority or other regulatory body,
         in each case whether civil,  military or otherwise and whether domestic
         or foreign, (iv) earthquake, explosion, fire, flood, hurricane or other
         natural or man-made calamity or disaster,  (v) epidemic,  environmental
         contamination or other natural or man-made pestilence or toxic exposure
         (whether  biological,  chemical,  radiological  or  otherwise),  or any
         quarantine or other  restriction  arising  therefrom,  (vi) failure of,
         interruption  in  or  impairment  of  any  delivery,   internet,  mail,
         monetary,  power,  



<PAGE>

         telecommunication,  transmission,  transportation  or utility system or
         any other  service,  product or equipment  provided or  maintained by a
         third party,  (vii)  lockout,  strike or similar  labor  interruptions,
         (viii) insurrection,  riot or other civil disturbance,  (ix) hacking or
         other   unauthorized   access,   spamming,   virus,   trojan  or  other
         unauthorized  program, or other computer or technological  tampering or
         attack,  or (x) sabotage or other criminal or intentionally  disruptive
         third party act, in each case together  with any and all  consequential
         disruptions,  delays,  effects or other  acts,  events,  circumstances,
         impediments  or  occurrences  and  irrespective  of  how  localized  or
         widespread.  Upon prompt notice to the other party,  the party affected
         by any Force Majeure shall be excused from performance hereunder to the
         extent and for so long as its  performance  hereunder  is  prevented or
         restricted  by a Force  Majeure (and the other party shall  likewise be
         excused from performance of its obligations  hereunder relating to such
         delayed  or  failed  performance  to the same  extent  and for the same
         duration);  provided  that the party so affected  shall use  reasonable
         efforts  (without  increased  cost) to avoid,  mitigate  or remove such
         Force  Majeure  and to  minimize  the  consequences  thereof,  and both
         parties shall resume  performance  hereunder  with the utmost  dispatch
         whenever such non-performance causes are removed.

37.      NO WAIVER BY ACTION,  ETC. Any failure of the Lessor to require  strict
         performance  by the  Lessee or any  waiver  by Lessor of any  provision
         herein  shall  not be  construed  as a  consent  or waiver of any other
         breach of the same or of any other  provision.  Any  waiver or  consent
         from either party respecting any provision of this Lease or any related
         document  shall be effective  only in the  specific  instance for which
         given and shall not be deemed,  regardless of frequency  given, to be a
         further or  continuing  waiver or consent.  The failure or delay of any
         party at any time to require  performance of, or to exercise or enforce
         its rights or remedies  with  respect to, any  provision  of this Lease
         shall not affect  such  party's  right at a later time to  exercise  or
         enforce any such  provision.  No notice to or demand on any party shall
         entitle  such  party to any other  notice or demand in similar or other
         circumstances.  Any  acceptance  by or on  behalf of a party of (A) any
         partial  or  late  payment,  reimbursement  or  performance  shall  not
         constitute a satisfaction  or waiver of the obligation  then due or the
         resulting default, or (B) any payment,  reimbursement or performance of
         any  obligation  during  the  continuance  of  any  default  shall  not
         constitute a waiver or cure thereof,  and the party or its designee may
         accept or reject any such payment, reimbursement or performance without
         affecting  any  obligation  or  any  of  the  party's  rights,  powers,
         privileges,  remedies and other interests under this Lease, any related
         document or applicable law. All rights,  powers,  privileges,  remedies
         and other  interests of each party  hereunder  are  cumulative  and not
         alternatives,  and they are in  addition  to (and  shall not limit) any
         other right, power,  privilege,  remedy or other interest of such party
         under this Lease, any related document or applicable law.

38.      SUCCESSORS AND ASSIGNS; ASSIGNMENT; INTENDED BENEFICIARIES.  This Lease
         and each  related  document  shall  be  binding  upon and  inure to the
         benefit of the successors,  permitted assigns and legal representatives
         of  each  party  (including,   without  limitation,   any  assignee  of
         substantially  all of the  business  or  assets  of  any  party  or any
         successor  by  merger).  Neither  party may assign any of its rights or
         obligations  under  this  Lease or any  related  document  to any other
         person without the consent of the other party; provided,  however, that
         either party may assign its rights and  obligations  hereunder in whole
         or in part to any of its affiliates  (without,  however,  relieving the
         assignor of any of its obligations hereunder) by giving the other party
         a copy of such  assignment.  Without  limiting  the  generality  of the
         foregoing,  Lessee  acknowledges and agrees that Lessor may pledge this
         Lease and all accounts,  payment  intangibles,  general intangibles and
         other rights and interest  arising  hereunder to one or more lender(s),
         such lender(s) shall be entitled upon default to enforce any and all of
         the rights, powers, privileges,  remedies and interests of Lessor as so
         assigned in accordance  with this Lease,  the applicable loan documents
         and  applicable  law, and such  lender(s)  shall not be  responsible or
         liable  for  any  of  the  acts,  omissions,   duties,  liabilities  or
         obligations  of Lessor or any of its  affiliates  under  this  Lease or
         otherwise.   Except  as   otherwise   provided  in  this   Lease,   the
         representations,  agreements and other provisions of this Lease are for
         the  exclusive  benefit  of the  parties  hereto,  and no other  person
         (including, without limitation, any creditor of a party) shall have any
         right or claim  against any party by reason of any of those  provisions
         or be entitled to enforce any of those provisions against any party.

39.      COUNTERPARTS,  GOVERNING  LAW,  AMENDMENTS,  ETC.  This Lease  shall be
         effective  on the date as of which this  Lease  shall be  executed  and
         delivered by the parties hereto. This Lease or any related document may
         be executed in two or more counterpart copies of the entire document or
         of signature  pages to the  document,  each of which may be executed by
         one or  more of the  parties  hereto  and  may be sent by fax or  other
         electronic  means,,  but  all of  which,  when  taken  together,  shall
         constitute a single  agreement  binding upon all of the parties hereto.
         This Lease and all related documents shall be governed by and construed
         in accordance with the applicable laws pertaining,  in the State of New
         York  (other  than those  conflict of law rules that would defer to the
         substantive laws of another  jurisdiction).  The headings  contained in
         this Lease or any related document are for reference  purposes only and
         shall not affect the  meaning  or  interpretation  of this Lease or any
         related  document.  Each and every  supplement  or  modification  to or
         amendment or restatement of this Lease or any related document shall be
         in writing and signed by all of the parties hereto,  and each and every
         waiver of, or consent to any departure  from,  any term or provision of
         this Lease or any  related  document  shall be in writing and signed by
         each affected party hereto.



<PAGE>

40.      WAIVER OF JURY TRIAL; ALL WAIVERS INTENTIONAL, ETC. In any action, suit
         or proceeding in any jurisdiction  brought against Lessor by Lessee, or
         vice versa, each party hereby absolutely, unconditionally,  irrevocably
         and expressly  waives forever trial by jury.  This waiver of jury trial
         by each  party,  and each  other  waiver,  release,  relinquishment  or
         similar surrender of rights (however expressed) made by a party in this
         Lease, has been absolutely, unconditionally, irrevocably, knowingly and
         intentionally made by such party.

41.      ENTIRE  AGREEMENT.  No party or any of its  representatives  has  made,
         accepted  or  acknowledged  any  representation,   warranty,   promise,
         assurance,  agreement,  obligation or understanding (oral or otherwise)
         to,  with  or  for  the  benefit  of  the  other  party  or  any of its
         representatives  other than as expressly set forth in this Lease.  This
         Lease  and any  Approval  Letter  issued by  Lessor  and any  Equipment
         Schedule  hereunder  contains the entire agreement of the parties,  and
         supersedes and completely replaces all prior and other  communications,
         discussions   and   other   representations,    warranties,   promises,
         assurances,  agreements and understandings (oral, implied or otherwise)
         between the  parties,  with  respect to the matters  contained  in this
         Lease.

IN WITNESS  WHEREOF,  the parties  have  executed  this Master  Lease  Agreement
effective as of the first date it is executed by Lessee below.



<TABLE>
<CAPTION>
<S>                                          <C>
SPAR Marketing Services, Inc. (Lessor)       SPAR Marketing Force, Inc. (Lessee)           Date
                                                                                           As of
                                                                                          11/1/04
/s/ Robert G. Brown                          /s/ Charles Cimitile
--------------------------------------       --------------------------------------------------
Name:    Robert G. Brown                     Name:    Charles Cimitile                       
Title:   Chairman & Chief Executive          Title:   Chief Financial Officer
         Officer
</TABLE>



Home Office:  580 White Plains Road
              Tarrytown, NY 10591












<PAGE>
                 [Letterhead of SPAR MARKETING SERVICES, INC.]

  MERCHANDISING * MARKETING INTELLIGENCE * DATABASE MARKETING * TELESERVICES *
                                   E-COMMERCE

                  SERVICES DEFINED BY THE RETURN THEY GENERATE

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

THIS IS COUNTERPART NO. OF 3 SERIALLY NUMBERED COUNTERPARTS.  TO THE EXTENT THAT
THIS DOCUMENT  CONSTITUTES  CHATTEL PAPER UNDER THE UNIFORM  COMMERCIAL CODE, NO
SECURITY  INTEREST IN THIS  DOCUMENT  MAY BE CREATED  THROUGH THE  TRANSFER  AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.

                       EQUIPMENT LEASING SCHEDULE NO. 001
                          Dated: as of November 1, 2004
                                (this "Schedule")
                           Incorporating by Reference
             Master Lease Agreement dated as of November 1, 2004
                                     between
                   SPAR Marketing Services, Inc., as "Lessor",
                                       and
                     SPAR Marketing Force, Inc., as "Lessee"
          (as the same may be supplemented or amended from time to time
             in the manner provided therein the "Master Agreement")

LESSEE AGREES TO LEASE THE HEREIN DESCRIBED EQUIPMENT FROM LESSOR, AND LESSOR BY
ACCEPTANCE  OF THIS  SCHEDULE,  AGREES TO LEASE THE  EQUIPMENT  TO LESSEE ON THE
TERMS AND  CONDITIONS  SET FORTH IN THIS  SCHEDULE,  WHICH  HEREBY  INCORPORATES
HEREIN BY REFERENCE ALL OF THE TERMS AND PROVISIONS OF THE MASTER AGREEMENT WITH
THE SAME FORCE AND EFFECT AS THOUGH FULLY SET FORTH HEREIN.

.

Rental Commencement  Date:  11/1/04
-----------------------------------


        Purchased From:                                        Cost
        ---------------                                        ----
        SSE Products, Inc.
        d/b/a SSE Technologies

        Handheld Computer Series
        
        9500 with supporting modems and cables 
        previously purchased                                 $400,000.00


Term:                               36 Months
Lease Rate Factor:                  3.168%
Monthly Rental Payment:             $12,672.00
Good Faith Deposit Amount:


               USING TOMORROW'S TOOLS TO SOLVE TODAY'S CHALLENGES
--------------------------------------------------------------------------------
                 SPAR MARKETING SERVICES, INC. CORPORATE OFFICE
                  * 580 WHITE PLAINS ROAD *TARRYTOWN, NY 10591
                    Phone 914-332-4100 * Fax 914-332-0741 *
            Email: servingyou@sparinc.com * Website: www.sparinc.com


<PAGE>
                 [Letterhead of SPAR MARKETING SERVICES, INC.]

  MERCHANDISING * MARKETING INTELLIGENCE * DATABASE MARKETING * TELESERVICES *
                                   E-COMMERCE

                  SERVICES DEFINED BY THE RETURN THEY GENERATE



THIS  SCHEDULE,  TOGETHER  WITH THE  MASTER  AGREEMENT  AND THE OTHER  DOCUMENTS
REFERRED  TO HEREIN AND  THEREIN  AND/OR  EXECUTED  IN  CONNECTION  HEREWITH  OR
THEREWITH,  CONSTITUTE THE ENTIRE AGREEMENT  BETWEEN LESSOR AND LESSEE AS TO THE
LEASING  OF THE  EQUIPMENT.  LESSEE  ACKNOWLEDGES  THAT  ON OR  BEFORE  LESSEE'S
EXECUTION AND DELIVERY OF THIS SCHEDULE IT RECEIVED A COPY OF THE PURCHASE ORDER
AND OTHER  PURCHASE  CONTRACTS  EVIDENCING  THE  ACQUISITION OF THE EQUIPMENT BY
LESSOR .

                                    BY   EXECUTION   OF   THIS   SCHEDULE,   THE
                                    UNDERSIGNED  CERTIFIES  THAT HE/SHE HAS READ
                                    THIS SCHEDULE, HAS EXECUTED AND ENTERED INTO
                                    THIS  SCHEDULE  ON BEHALF  OF LESSEE  AND IS
                                    DULY AUTHORIZED TO DO SO

LESSOR                                            LESSEE


/s/ Robert G. Brown                               /s/ Charles Cimitile
------------------------------                    ------------------------------
Robert G. Brown                                   Charles Cimitile
Chairman and Chief Executive Officer              Chief Financial Officer
SPAR Marketing Services, Inc.                     SPAR Marketing Force, Inc.



               USING TOMORROW'S TOOLS TO SOLVE TODAY'S CHALLENGES
--------------------------------------------------------------------------------
                 SPAR MARKETING SERVICES, INC. CORPORATE OFFICE
                  * 580 WHITE PLAINS ROAD *TARRYTOWN, NY 10591
                    Phone 914-332-4100 * Fax 914-332-0741 *
            Email: servingyou@sparinc.com * Website: www.sparinc.com


<PAGE>

                 [Letterhead of SPAR MARKETING SERVICES, INC.]

  MERCHANDISING * MARKETING INTELLIGENCE * DATABASE MARKETING * TELESERVICES *
                                   E-COMMERCE

                  SERVICES DEFINED BY THE RETURN THEY GENERATE


THIS IS COUNTERPART NO. OF 3 SERIALLY NUMBERED COUNTERPARTS.  TO THE EXTENT THAT
THIS DOCUMENT  CONSTITUTES  CHATTEL PAPER UNDER THE UNIFORM  COMMERCIAL CODE, NO
SECURITY  INTEREST IN THIS  DOCUMENT  MAY BE CREATED  THROUGH THE  TRANSFER  AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.

                       EQUIPMENT LEASING SCHEDULE NO. 002
                          Dated: as of January 4, 2005
                                (this "Schedule")
                           Incorporating by Reference
             Master Lease Agreement dated as of November 1, 2004
                                     between
                   SPAR Marketing Services, Inc., as "Lessor",

                                       and
                     SPAR Marketing Force, Inc., as "Lessee"
          (as the same may be supplemented or amended from time to time
             in the manner provided therein the "Master Agreement")

LESSEE AGREES TO LEASE THE HEREIN DESCRIBED EQUIPMENT FROM LESSOR, AND LESSOR BY
ACCEPTANCE  OF THIS  SCHEDULE,  AGREES TO LEASE THE  EQUIPMENT  TO LESSEE ON THE
TERMS AND  CONDITIONS  SET FORTH IN THIS  SCHEDULE,  WHICH  HEREBY  INCORPORATES
HEREIN BY REFERENCE ALL OF THE TERMS AND PROVISIONS OF THE MASTER AGREEMENT WITH
THE SAME FORCE AND EFFECT AS THOUGH FULLY SET FORTH HEREIN.

.

Rental Commencement Date:  1/4/05
---------------------------------

        Purchased From:                                                 Cost
        ---------------                                                 ----
        SSE Products, Inc.
        d/b/a SSE Technologies/Insight

        Handheld Computer Series
        9500 with supporting modems and cables previously
        purchased                                                   $135,509.18


Term:                               36 Months
Lease Rate Factor:                  3.168%
Monthly Rental Payment:             $4,293.00



               USING TOMORROW'S TOOLS TO SOLVE TODAY'S CHALLENGES
--------------------------------------------------------------------------------
                 SPAR MARKETING SERVICES, INC. CORPORATE OFFICE
                  * 580 WHITE PLAINS ROAD *TARRYTOWN, NY 10591
                    Phone 914-332-4100 * Fax 914-332-0741 *
            Email: servingyou@sparinc.com * Website: www.sparinc.com


<PAGE>

                 [Letterhead of SPAR MARKETING SERVICES, INC.]

  MERCHANDISING * MARKETING INTELLIGENCE * DATABASE MARKETING * TELESERVICES *
                                   E-COMMERCE

                  SERVICES DEFINED BY THE RETURN THEY GENERATE


THIS  SCHEDULE,  TOGETHER  WITH THE  MASTER  AGREEMENT  AND THE OTHER  DOCUMENTS
REFERRED  TO HEREIN AND  THEREIN  AND/OR  EXECUTED  IN  CONNECTION  HEREWITH  OR
THEREWITH,  CONSTITUTE THE ENTIRE AGREEMENT  BETWEEN LESSOR AND LESSEE AS TO THE
LEASING  OF THE  EQUIPMENT.  LESSEE  ACKNOWLEDGES  THAT  ON OR  BEFORE  LESSEE'S
EXECUTION AND DELIVERY OF THIS SCHEDULE IT RECEIVED A COPY OF THE PURCHASE ORDER
AND OTHER  PURCHASE  CONTRACTS  EVIDENCING  THE  ACQUISITION OF THE EQUIPMENT BY
LESSOR .

                                    BY   EXECUTION   OF   THIS   SCHEDULE,   THE
                                    UNDERSIGNED  CERTIFIES  THAT HE/SHE HAS READ
                                    THIS SCHEDULE, HAS EXECUTED AND ENTERED INTO
                                    THIS  SCHEDULE  ON BEHALF  OF LESSEE  AND IS
                                    DULY AUTHORIZED TO DO SO

LESSOR                                            LESSEE


/s/ Robert G. Brown                               /s/ Charles Cimitile
------------------------------                    ------------------------------
Robert G. Brown                                   Charles Cimitile
Chairman and Chief Executive Officer              Chief Financial Officer
SPAR Marketing Services, Inc.                     SPAR Marketing Force, Inc.





<PAGE>

                 [Letterhead of SPAR MARKETING SERVICES, INC.]

  MERCHANDISING * MARKETING INTELLIGENCE * DATABASE MARKETING * TELESERVICES *
                                   E-COMMERCE

                  SERVICES DEFINED BY THE RETURN THEY GENERATE


THIS IS COUNTERPART NO. OF 3 SERIALLY NUMBERED COUNTERPARTS.  TO THE EXTENT THAT
THIS DOCUMENT  CONSTITUTES  CHATTEL PAPER UNDER THE UNIFORM  COMMERCIAL CODE, NO
SECURITY  INTEREST IN THIS  DOCUMENT  MAY BE CREATED  THROUGH THE  TRANSFER  AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.

                       EQUIPMENT LEASING SCHEDULE NO. 003
                          Dated: as of January 31, 2005
                                (this "Schedule")
                           Incorporating by Reference
             Master Lease Agreement dated as of November 1, 2004
                                     between
                   SPAR Marketing Services, Inc., as "Lessor",
                                       and
                     SPAR Marketing Force, Inc., as "Lessee"
          (as the same may be supplemented or amended from time to time
             in the manner provided therein the "Master Agreement")

LESSEE AGREES TO LEASE THE HEREIN DESCRIBED EQUIPMENT FROM LESSOR, AND LESSOR BY
ACCEPTANCE  OF THIS  SCHEDULE,  AGREES TO LEASE THE  EQUIPMENT  TO LESSEE ON THE
TERMS AND  CONDITIONS  SET FORTH IN THIS  SCHEDULE,  WHICH  HEREBY  INCORPORATES
HEREIN BY REFERENCE ALL OF THE TERMS AND PROVISIONS OF THE MASTER AGREEMENT WITH
THE SAME FORCE AND EFFECT AS THOUGH FULLY SET FORTH HEREIN.

.

Rental Commencement  Date:  1/31/05

        Purchased From:                                                Cost
        ---------------                                                ----
        SSE Products, Inc.
        d/b/a SSE Technologies/Insight

        105 Handheld Computers Series
        9550 50% payment, invoice                                   $83,813.63
        #63718 Modems and cords                                       11957.83
        Cables                                                          918.44
                                                                    ----------
                                                                    $96,689.90

Term:                               36 Months
Lease Rate Factor:                  3.168%
Monthly Rental Payment:             $3,353.00
Good Faith Deposit Amount:


<PAGE>

THIS  SCHEDULE,  TOGETHER  WITH THE  MASTER  AGREEMENT  AND THE OTHER  DOCUMENTS
REFERRED  TO HEREIN AND  THEREIN  AND/OR  EXECUTED  IN  CONNECTION  HEREWITH  OR
THEREWITH,  CONSTITUTE THE ENTIRE AGREEMENT  BETWEEN LESSOR AND LESSEE AS TO THE
LEASING  OF THE  EQUIPMENT.  LESSEE  ACKNOWLEDGES  THAT  ON OR  BEFORE  LESSEE'S
EXECUTION AND DELIVERY OF THIS SCHEDULE IT RECEIVED A COPY OF THE PURCHASE ORDER
AND OTHER  PURCHASE  CONTRACTS  EVIDENCING  THE  ACQUISITION OF THE EQUIPMENT BY
LESSOR .

                                    BY   EXECUTION   OF   THIS   SCHEDULE,   THE
                                    UNDERSIGNED  CERTIFIES  THAT HE/SHE HAS READ
                                    THIS SCHEDULE, HAS EXECUTED AND ENTERED INTO
                                    THIS  SCHEDULE  ON BEHALF  OF LESSEE  AND IS
                                    DULY AUTHORIZED TO DO SO

LESSOR                                            LESSEE


/s/ Robert G. Brown                               /s/ Charles Cimitile
------------------------------                    ------------------------------
Robert G. Brown                                   Charles Cimitile
Chairman and Chief Executive Officer              Chief Financial Officer
SPAR Marketing Services, Inc.                     SPAR Marketing Force, Inc.


               USING TOMORROW'S TOOLS TO SOLVE TODAY'S CHALLENGES
--------------------------------------------------------------------------------
                 SPAR MARKETING SERVICES, INC. CORPORATE OFFICE
                  * 580 WHITE PLAINS ROAD *TARRYTOWN, NY 10591
                    Phone 914-332-4100 * Fax 914-332-0741 *
            Email: servingyou@sparinc.com * Website: www.sparinc.com


                             Master Lease Agreement

Lessor:   SPAR Marketing Services, Inc.    Lessee:  SPAR Canada Company

Address:  580 White Plains Road            Address: 1100 Shephard Avenue West,
          Tarrytown, NY 10591                       Suite 360
                                                    Toronto, ON  M3K2B3


                          TERMS AND CONDITIONS OF LEASE

The undersigned  Lessee hereby requests Lessor to purchase the personal property
described in any Equipment Schedule  hereunder (herein called  "Equipment") from
the  supplier(s)  listed in any  Equipment  Schedule  hereunder  (herein  called
"Vendor"  and/or  "Manufacturer",  as applicable)  and to lease the Equipment to
Lessee on the terms and conditions of the lease set forth below.

Lessor  hereby  leases to Lessee,  and Lessee  hereby  leases from  Lessor,  the
Equipment,  all upon the terms and  provisions and subject to the conditions set
forth in this Master Lease Agreement (as the same may be supplemented, modified,
amended,  restated or replaced from time to time in the manner provided  herein,
this "Lease").

In  consideration  of  the  foregoing,   the  mutual  covenants  and  agreements
hereinafter set forth,  and other good and valuable  consideration  (the receipt
and adequacy of which is hereby acknowledged by the parties), the parties hereto
hereby agree as follows:

1.       NO WARRANTIES BY LESSOR. Lessee has
 selected the Equipment and may have
         entered into certain  purchase,  licensing,  or maintenance  agreements
         with  the  Vendor  and/or  Manufacturer   (herein  referred  to  as  an
         "Acquisition Agreement") covering the Equipment as further described in
         Paragraph  25  hereof.  If  Lessee  has  entered  into any  Acquisition
         Agreement,   each  agreement  shall  provide  for  certain  rights  and
         obligations  of the party  thereto with respect to the  Equipment,  and
         Lessee  shall  perform  all  of  the  obligations  set  forth  in  each
         Acquisition  Agreement as if this Lease did not exist.  LESSOR MAKES NO
         WARRANTY,  EXPRESS OR IMPLIED,  AS TO ANY MATTER WHATSOEVER,  INCLUDING
         THE CONDITION OF THE EQUIPMENT,  ITS  MERCHANTABILITY  OR ITS FITNESSES
         FOR ANY  PARTICULAR  PURPOSE,  AND,  AS TO  LESSOR,  LESSEE  LEASES THE
         EQUIPMENT  "AS IS" AND "WHERE IS".  LESSOR SHALL HAVE NO LIABILITY  FOR
         ANY LOSS,  DAMAGE OR EXPENSE OF ANY KIND WHATSOEVER  RELATING  THERETO,
         INCLUDING  (WITHOUT  LIMITATION) ANY SPECIAL,  INDIRECT,  INCIDENTAL OR
         CONSQUENTIAL DAMAGES OF ANY CHARACTER.

2.       CLAIMS  AGAINST  VENDOR  AND/OR  MANUFACTURER.  If the Equipment is not
         properly  installed,  does not operate as  represented  or warranted by
         Vendor and/or Manufacturer, or is unsatisfactory for any reason, Lessee
         shall make any claim on account  thereof  solely  against Vendor and/or
         Manufacturer pursuant to the Acquisition Agreement,  if any, and shall,
         nevertheless,  pay  Lessor  all rent  payable  under  this  Lease.  All
         warranties from Vendor and/or  Manufacturer are, to the extent they are
         assignable,  hereby  assigned  to Lessee  for the term of this Lease or
         until an Event of Default occurs  hereunder,  for Lessee's  exercise at
         Lessee's  expense.  Lessee may  directly  inquire  with  Vendor  and/or
         Manufacturer  to receive an accurate  and  complete  statement  of such
         warranties, including any disclaimers or limitations of such warranties
         or of any remedies with respect thereto.

3.       VENDOR NOT AN AGENT. Lessee understands and agrees that neither Vendor,
         nor any sales  representative  or other agent of Vendor, is an agent of
         Lessor. Sales representatives or agents of Vendor, and persons that are
         not  employed  by  Lessor  (including   brokers  and  agents)  are  not
         authorized  to waive or alter any term or condition of this Lease,  and
         no  representation as to the Equipment or any other matter by Vendor or
         any other person that is not employed by Lessor  (including  brokers or
         agents)  shall  in any way  affect  Lessee's  duty to pay the  rent and
         perform its other obligations as set forth in this Lease.

4.       NON-CANCELLABLE  LEASE.  This Lease and any Equipment  Schedule  hereto
         cannot be cancelled or terminated except as expressly  provided herein.
         Lessee  agrees  that its  obligation  to pay all rent  and  other  sums
         payable  hereunder  and the  rights  of  Lessor in and to such rent are
         absolute  and  unconditional  and are  not  subject  to any  abatement,
         reduction,  setoff, defense,  counterclaim or recoupment due or alleged
         to be due to, or by reason of, any past, present or future claims which
         Lessee may have against  Lessor,  any  assignee,  any  Manufacturer  or
         Vendor, or against any person for any reason whatsoever.

5.       ORDERING EQUIPMENT.  Lessee shall arrange for delivery of the Equipment
         so that it can be accepted in accordance with Paragraph 6 hereof within
         90 days after the date on which Lessor accepts  Lessee's offer to enter
         into this Lease with respect to any Equipment Schedule or by such other
         date as may be set forth in 



<PAGE>

         an  Equipment  Schedule  or  Approval  Letter  issued  by Lessor as the
         Approval  Expiration Date. Unless otherwise  specified on the Equipment
         Schedule, Lessee shall be responsible for all transportation,  packing,
         installation,   testing  and  other  charges  in  connection  with  the
         delivery,   installation  and  use  of  the  Equipment.  Lessee  hereby
         authorizes  Lessor to insert in any  Equipment  Schedule  hereunder the
         serial  numbers  and  other   identification  data  of  Equipment  when
         determined by Lessor.

6.       ACCEPTANCE.  Lessee  acknowledges  that for  purposes of  receiving  or
         accepting  the  Equipment  from  Vendor,  Lessee is acting on  Lessor's
         behalf.   Upon  delivery  of  the  Equipment  to  Lessee  and  Lessee's
         inspection thereof, Lessee shall furnish Lessor a written statement (a)
         acknowledging receipt of the Equipment in good condition and repair and
         (b)  accepting it as  satisfactory  in all respects for the purposes of
         this Lease (the  "Certificate  of  Acceptance").  Unless  otherwise set
         forth in the applicable Equipment Schedule,  the first day of the month
         following  receipt  and  acceptance  of  the  Equipment  covered  by an
         Equipment  Schedule  shall  be the  Rent  Commencement  Date  therefor.
         However,  should  Lessee  have a previous  lease with  Lessor  which is
         active at the time of acceptance  of the Equipment  under the Equipment
         Schedule and said lease and the current  Equipment  Schedule  hereunder
         shall have the same  invoice  address then the Rent  Commencement  Date
         shall  occur  in the  month  immediately  following  acceptance  of the
         Equipment on the rent payment due date established with Lessee for said
         previous active lease. Lessor is authorized to fill in on any Equipment
         Schedule  hereunder the Rent  Commencement  Date in accordance with the
         foregoing.

7.       TERMINATION  BY  LESSOR.  If,  by the  Approval  Expiration  Date,  the
         Equipment described in any Equipment Schedule has not been delivered to
         Lessee and accepted by Lessee as provided in Paragraph 6 hereof,  or if
         other  conditions of Lessor's  Approval  Letter,  if any, have not been
         met,  then  Lessor may,  at its  option,  terminate  this Lease and its
         obligations  hereunder with respect to such  Equipment  Schedule at any
         time  after  the  expiration  of such 90 days  or any  date  after  the
         Approval  Expiration  Date,  as  applicable.  Lessor  shall give Lessee
         written  notice whether or not it elects to exercise such option within
         10 days after  Lessor's  receipt of Lessee's  written  request for such
         notice.

8.       TERM.  The term of this Lease shall be comprised of an Interim Term and
         an  Initial  Term.  The  Interim  Term shall  commence  on the date the
         Certificate of Acceptance is executed by Lessee (the "Acceptance Date")
         and terminate on the Rent  Commencement  Date. The Initial Term of this
         Lease shall begin on the Rent Commencement Date, and shall terminate on
         the later of (i) the last day of the last month of the Initial Term (as
         that Term is set forth in the applicable  Equipment Schedule hereto) or
         (ii) the date Lessee fulfills all Lessee's obligations hereunder.

9.       RENTAL. The rental amount payable to Lessor by Lessee for the Equipment
         will be set forth in the Equipment Schedule(s) ("Rental Amount). As the
         first  rent  payment  for the  Equipment,  Lessee  shall pay  Lessor in
         immediately  available funds on the Rent  Commencement Date the sum of,
         (i) the Rental  Amount,  and (ii)  Interim  Rent in an amount  equal to
         1/3Oth of the Rental Amount times the number of days from and including
         the Acceptance Date through but excluding the Rent  Commencement  Date,
         and  subsequent  rent  payments  shall  be due on the  same day of each
         calendar period as indicated on the Equipment  Schedule for the balance
         of the Initial Term.  Rent payments  shall be due whether or not Lessee
         has received any notice that such  payments are due. All rent  payments
         shall be paid to Lessor at its address set forth above or as  otherwise
         directed by Lessor in writing.

10.      RENEWAL If no default  shall have  occurred and be  continuing,  Lessee
         shall be entitled to renew this Lease with respect to all, but not less
         than all,  of the  Equipment  covered by an  Equipment  Schedule  for a
         minimum 12 month  period at an amount  equal to the fair market  rental
         value thereof,  in use and  operational,  in the condition  required by
         this Lease,  payable on a periodic  basis, as mutually agreed by Lessor
         and Lessee ("Renewal  Rent).  Lessee must give Lessor written notice of
         its intention to exercise said option, which notice must be received by
         Lessor at least 90 days  before  expiration  of the Initial  Term.  The
         first installment of the Renewal Rent shall be due at expiration of the
         Initial  Term of this  Lease.  Should  Lessee  fail to comply  with the
         provisions  described  above covering  renewal,  upon expiration of the
         Initial Term,  the term of this Lease shall be  automatically  extended
         for a term of 3  months.  Thereafter,  the term of this  Lease  will be
         extended for subsequent full month periods,  on a month to month basis,
         until Lessee has given at least 90 days written notice terminating this
         Lease.  Such  termination  will  take  effect  upon  completion  of all
         Lessee's  obligations  under  this  Lease  (including  payment  of  all
         periodic rental payments due during such 90 day period,  as provided in
         Paragraph 9 of this  Lease).  At any time after the  expiration  of the
         Initial  Term,  if this Lease has been  automatically  extended  as set
         forth herein,  Lessor  reserves the right to terminate this Lease by 30
         days written notice to Lessee.

11.      LOCATION;  INSPECTION;  LABELS. The Equipment shall be delivered to and
         shall not be removed  without  Lessor's prior written  consent from the
         "Equipment  Location" shown on the related  Equipment  Schedule,  or if
         none is specified,  Lessee's billing address shown above.  Lessor shall
         have the right to inspect the  Equipment  at any  reasonable  time.  If
         Lessor  supplies Lessee with labels stating that the Equipment is owned
         by  Lessor,  Lessee  shall  affix  such  labels  to and keep  them in a
         prominent place on the Equipment.



<PAGE>

12.      REPAIRS; USE; ALTERATIONS.  Lessee, at its own cost and expense,  shall
         keep the  Equipment  in good  repair  and  working  order,  in the same
         condition  as when  delivered  to  Lessee,  reasonable  wear  and  tear
         excepted,  and  in  accordance  with  the  manufacturer's   recommended
         specifications;  shall use the Equipment lawfully;  shall not alter the
         Equipment  without  Lessor's  prior  written  consent,  shall  use  the
         Equipment in compliance  with any existing  Manufacturer's  service and
         warranty  requirements  and any  insurance  policies  applicable to the
         Equipment and shall furnish all parts and servicing  required therefor.
         All parts, repairs, additions, alterations and attachments placed on or
         incorporated  into the Equipment which cannot be removed without damage
         to the  Equipment  shall  immediately  become part of the Equipment and
         shall be the  property of the Lessor.  Lessee will obtain and  maintain
         all permits,  licenses and registrations  necessary to lawfully operate
         the facility  where the Equipment is located.  Lessee shall comply with
         all applicable  environ- mental and industrial  hygiene laws, rules and
         regulations  (including  but not limited to federal,  state,  and local
         environmental  protection,  occupational,  health and safety or similar
         laws, ordinances and restrictions). Lessee shall, not later than 5 days
         after the occurrence, provide Lessor with copies of any report required
         to be filed with governmental agencies regulating environmental claims.
         Lessee  shall  immediately  notify  Lessor in writing of any  existing,
         pending or threatened  investigation,  inquiry,  claim or action by any
         governmental  authority in connection  with any law, rule or regulation
         relating to industrial  hygiene or environmental  conditions that could
         affect the Equipment.

13.      MAINTENANCE.  If the  Equipment  is such that  Lessee  is not  normally
         capable of maintaining it, Lessee, at its expense, shall enter into and
         maintain in full force and effect  throughout  the Initial Term and any
         renewal  term,  Vendor  and/or   Manufacturer's   standard  maintenance
         contract,  and shall  comply with all its  obligations  thereunder.  An
         alternate source of maintenance may be used with Lessor's prior written
         consent.  Such  consent  shall be granted  if, in  Lessor's  reasonable
         opinion,  the Equipment  will be  maintained in an equivalent  state of
         good repair, condition and working order.

14.      SURRENDER.  Provided that Lessee does not exercise the purchase  option
         as set forth in Paragraph 27 hereof, upon the expiration of the Initial
         Term,  or any renewal  term,  or upon demand by Lessor made pursuant to
         Paragraph 21 of this Lease,  Lessee, at its expense,  shall return all,
         but not less than all, of the  Equipment by delivering it to such place
         or on board such carrier,  packed for shipping,  as Lessor may specify.
         Lessee agrees that the Equipment,  when returned,  shall be in the same
         condition  as when  delivered  to  Lessee,  reasonable  wear  and  tear
         excepted,  and in a condition  which will permit  Lessor to be eligible
         for Manufacturer's  standard maintenance contract without incurring any
         expense  to repair or  rehabilitate  such  Equipment.  Lessee  shall be
         liable for reasonable and necessary  expenses to place the Equipment in
         such  condition.  Lessee shall remain  liable for the  condition of the
         Equipment  until  it  is  received  and  accepted  at  the  destination
         designated by Lessor as set forth above.  If any items of Equipment are
         missing or damaged when returned,  such occurrence  shall be treated as
         an event of Loss or Damage  with  respect  to such  missing  or damaged
         items and shall be  subject  to the terms  specified  in  Paragraph  15
         below.  Lessee shall  provide  Lessor with a Letter of  Maintainability
         from the  Manufacturer of the Equipment,  which letter shall state that
         the  Equipment  will  be  eligible  for  the  Manufacturer's   standard
         maintenance contract when sold or leased to a third party. Lessee shall
         give Lessor prior written  notice that it is returning the Equipment as
         provided above,  and such notice must be received by Lessor at least 90
         days  prior to such  return.  Should  Lessee  fail to  comply  with the
         provisions  described above covering surrender,  upon expiration of the
         Initial Term,  the term of this Lease shall be  automatically  extended
         for a term of 3  months.  Thereafter,  the term of this  Lease  will be
         extended for subsequent full month periods,  on a month to month basis,
         until Lessee has given at least 90 days written notice terminating this
         Lease.  Such  termination  will  take  effect  upon  completion  of all
         Lessee's  obligations  under  this  Lease  (including  payment  of  all
         periodic rental payments due during such 90 day period,  as provided in
         Paragraph 9 of this  Lease).  At any time after the  expiration  of the
         Initial  Term,  if this Lease has been  automatically  extended  as set
         forth herein.  Lessor  reserves the right to terminate this Lease by 30
         days written notice to Lessee.

15.      LOSS OR  DAMAGE.  Lessee  shall bear the  entire  risk of loss,  theft,
         destruction  of or damage to the Equipment or any item thereof  (herein
         "Loss or Damage")  from any cause  whatsoever.  No Loss or Damage shall
         relieve Lessee of the obligation to pay rent or of any other obligation
         under this Lease. In the event of Loss or Damage, Lessee, at the option
         of Lessor;  shall: (a) place the same in good condition and repair; (b)
         replace  the same  with  like  equipment  acceptable  to Lessor in good
         condition and repair with clear title thereto in Lessor;  or (c) pay to
         Lessor the total of the following amounts: (i) the total rent and other
         amounts due and owing at the time of such payment,  plus (ii) an amount
         calculated  by Lessor which is the present value at 5% per annum simple
         interest  discount of all rent and other amounts payable by Lessee with
         respect to said item from date of such payment to date of expiration of
         its Initial Term, plus (iii) the "reversionary value" of the Equipment,
         which shall be  determined by Lessor as the total cost of the Equipment
         less 60% of the total rent (net of sales/use taxes, if any) required to
         be paid pursuant to Paragraph 9. Upon Lessor's receipt of such payment,
         Lessee and/or Lessee's  insurer shall be entitled to Lessor's  interest
         in said item, for salvage purposes, in its then condition and location,
         "as-is ", without any warranty, express or implied.



<PAGE>

16.      INSURANCE.  Lessee  shall  provide,  maintain  and pay for (a) all risk
         property  insurance  against  the  loss or theft  of or  damage  to the
         Equipment,  for the full replacement value thereof,  naming Lessor as a
         loss payee,  and (b)  commercial  general  liability  insurance (and if
         Lessee is a doctor;  hospital or other  health care  provider,  medical
         malpractice  insurance).  All such  policies  shall  name  Lessor as an
         additional  insured and shall have  combined  single  limits in amounts
         acceptable to Lessor.  All such insurance policies shall be endorsed to
         be primary and  non-contributory  to any policies maintained by Lessor.
         In  addition  Lessee  shall cause  Lessor to be named as an  additional
         insured on any excess or umbrella policies  purchased by Lessee. A copy
         of  each  paid-up  policy  evidencing  such  insurance   (appropriately
         authenticated by the insurer) or a certificate of the insurer providing
         such coverage  proving that such  policies have been issued,  providing
         the coverage  required  hereunder shall be delivered to Lessor prior to
         the  Rent  Commencement  Date.  All  insurance  shall  be  placed  with
         companies  satisfactory  to Lessor  and  shall  contain  the  insurer's
         agreement to give 30 days written notice to Lessor before  cancellation
         or any material change of any policy of insurance.

17.      TAXES.  Lessee shall  reimburse to Lessor (or pay directly if, but only
         if,  instructed  by Lessor)  all charges  and taxes  (local,  State and
         federal) which may now or hereafter be imposed or levied upon the sale,
         purchase,  ownership,  leasing,  possession  or use  of the  Equipment;
         excluding,  however; all income taxes levied on (a) any rental payments
         made to Lessor hereunder;  (b) any payment made to Lessor in connection
         with Loss or Damage to the Equipment under Paragraph 15 hereof,  or (c)
         any payment made to Lessor in connection with Lessee's  exercise of its
         purchase option under Paragraph 27 hereof.

18.      LESSOR'S  PAYMENT.   If  Lessee  fails  to  provide  or  maintain  said
         insurance,  to pay said taxes,  charges and fees,  or to discharge  any
         levies, liens and encumbrances created by Lessee, Lessor shall have the
         right, but shall not be obligated,  to obtain such insurance,  pay such
         taxes,  charges  and fees,  or effect  such  discharge.  In that event,
         Lessee  shall  remit to  Lessor  the cost  thereof  with the next  rent
         payment.

19.      INDEMNITY. (a) General Indemnity. Lessee shall indemnify Lessor against
         and hold Lessor  harmless  from any and all claims,  actions,  damages,
         costs,  expenses  including  reasonable  attorneys' fees,  obligations,
         liabilities  and  liens  (including  any of the  foregoing  arising  or
         imposed  under  the   doctrines  of  "strict   liability"  or  "product
         liability"  and  including  without  limitation  the cost of any fines,
         remedial action, damage to the environment and cleanup and the fees and
         costs of  consultants  and  experts),  arising out of the  manufacture,
         purchase, lease, ownership, possession, operation, condition, return or
         use of the Equipment, or by operation of law, excluding however, any of
         the foregoing resulting from the gross negligence or willful misconduct
         of Lessor.  Lessee  agrees  that upon  written  notice by Lessor of the
         assertion of such a claim,  action,  damage,  obligation,  liability or
         lien, Lessee shall assume full  responsibility for the defense thereof.
         Lessee's choice of counsel shall be mutually  acceptable to both Lessee
         and Lessor.  This  indemnity also extends to any  environmental  claims
         arising  out of or  relating  to prior acts or  omissions  of any party
         whatsoever.  The provisions of this paragraph shall survive termination
         of  this  Lease  with  respect  to  events   occurring  prior  to  such
         termination.

         (b)      Tax  Indemnity.  Lessee  acknowledges  that  Lessor  shall  be
                  entitled to all tax benefits of ownership  with respect to the
                  Equipment (the "Tax Benefits"),  including but not limited to,
                  (i) the  accelerated  cost recovery  deductions  determined in
                  accordance with Section 168(b)(1) of the Internal Revenue Code
                  of 1986 for the  Equipment  based on the original  cost of the
                  Equipment  to  Lessor  (ii)  deductions  for  interest  on any
                  indebtedness  incurred by Lessor to finance the  Equipment and
                  (iii)  sourcing  of income  and  losses  attributable  to this
                  Lease,  to the  United  States.  Lessee  represents  that  the
                  Equipment  shall  be  depreciable  for  Federal  tax  purposes
                  utilizing  the  MACRS  Recovery  Period  as set  forth  in the
                  Equipment  Schedule,  with such depreciation  commencing as of
                  the date of Equipment acceptance by Lessee as set forth on the
                  Certificate  of  Acceptance.  Lessee  agrees to take no action
                  inconsistent  with the  foregoing  or any action  which  would
                  result in the loss,  disallowance or  unavailability to Lessor
                  of  all  or  any  part  of the  Tax  Benefits.  Lessee  hereby
                  indemnifies and holds harmless Lessor and its assigns from and
                  against  (i)  the  loss,   disallowance,   unavailability   or
                  recapture  of all or any  part of the Tax  Benefits  resulting
                  from any  action,  statement,  misrepresentation  or breach of
                  warranty  or  covenant  by  Lessee  of any  nature  whatsoever
                  including   but   not   limited   to   the   breach   of   any
                  representations,  warranties  or  covenants  contained in this
                  paragraph,  plus  (ii)  all  interest,   penalties,  fines  or
                  additions  to tax  resulting  from  such  loss,  disallowance,
                  unavailability or recapture,  plus (iii) all taxes required to
                  be paid by Lessor upon receipt of the  indemnity  set forth in
                  this  paragraph.  Any  payments  made by Lessee  to  reimburse
                  Lessor for lost Tax Benefits  shall be  calculated  (i) on the
                  assumption  that  Lessor is  subject  to the  maximum  Federal
                  Corporate  Income  Tax with  respect to each year and that all
                  Tax Benefits are currently  utilized,  and (ii) without regard
                  to whether  Lessor or any members of a  consolidated  group of
                  which  Lessor is also a member is then subject to any increase
                  in tax as a  result  of the  loss  of Tax  Benefits.  For  the
                  purposes  of this  paragraph,  "Lessor"  includes  for all tax
                  purposes the consolidated  taxpayer group of which Lessor is a
                  part.



<PAGE>

         (c)      Payment.  The amounts  payable  pursuant to this  Paragraph 19
                  shall be  payable  upon  demand of  Lessor,  accompanied  by a
                  statement  describing in reasonable detail such claim, action,
                  damage, cost, expense, fee, obligation, liability, lien or tax
                  and setting  forth the  computation  of the amount so payable,
                  which computation shall be binding and conclusive upon Lessee,
                  absent  manifest  error.  The  indemnities  and assumptions of
                  liabilities  and  obligations  contained in this  Paragraph 19
                  shall  continue in full force and effect  notwithstanding  the
                  expiration or other termination of this Lease.

20.      DELINQUENT PAYMENTS.  (a) Service Charge. Since it would be impractical
         or extremely  difficult to fix Lessor's  actual  damages for collecting
         and  accounting for a late payment,  if any payment to Lessor  required
         herein (including,  but not limited to, rental,  renewal, tax, purchase
         and other amounts) is not paid on or before its due date,  Lessee shall
         pay to  Lessor  an amount  equal to 5% of any such  late  payment.  (b)
         Interest.  Lessee shall also pay interest on any such late payment from
         the due date  thereof  until the date paid at the  littlest  of 18% per
         annum or the maximum rate allowed by law.

21.      DEFAULT;  REMEDIES.  Any of the following shall constitute an "Event of
         Default" under this Lease: If (a) Lessee fails to pay when due any rent
         or  other  amount  required  herein  to be  paid  by  Lessee  and  such
         non-payment  continues  for more than seven days after  notice  thereof
         from  Lessor,  or (b) Lessee  makes an  assignment  for the  benefit of
         creditors, whether voluntary or involuntary, or (c) a petition is filed
         by or  against  Lessee  under any  bankruptcy,  insolvency  or  similar
         legislation,  or (d) Lessee  violates or fails to perform any provision
         of either this Lease or any Acquisition Agreement, or violates or fails
         to perform any covenant or  representation  made by Lessee herein,  and
         fails to correct the same within seven days after  notice  thereof from
         Lessor, or (e) Lessee makes a bulk transfer of furniture,  furnishings,
         fixtures or other  equipment or  inventory,  or (f) Lessee ceases doing
         business as a going concern or terminates its existence,  or (g) Lessee
         consolidates  with,  merges  with or into,  or conveys or leases all or
         substantially all of its assets as an entirety to any person or engages
         in any other form of reorganization,  or there is a change in the legal
         structure  of Lessee,  in each case it  results,  in the opinion of the
         Lessor, in a material adverse change in Lessee's ability to perform its
         obligations  under this Lease,  or (h) any  representation  or warranty
         made by Lessee  in this  Lease or in any other  document  or  agreement
         furnished  by  Lessee  to  Lessor  shall  prove to have  been  false or
         misleading  in any  material  respect  when made or when deemed to have
         been  made,  or (i)  Lessee  shall be in  default  under  any  material
         obligation for the payment of borrowed  money or the deferred  purchase
         price of, or for the payment of any rent due with  respect to, any real
         or personal  property  and such default  continues  for more than seven
         days after  notice  thereof  from  Lessor,  or (j)  Lessee  shall be in
         default under any other  agreement now existing or hereafter  made with
         Lessor or any of Lessor's  affiliates  and such default  continues  for
         more than seven days after notice thereof from Lessor, or (k) any event
         or condition  described in the  foregoing  clauses (b),  (c), (e), (f),
         (g), (h) (in clauses (g) and (h)  substituting  the phrase "guaranty or
         other credit support document" for the word "Lease"),  (i) or (j) shall
         have  occurred  with respect to any guarantor of, or other party liable
         in  whole  or in part  for,  Lessee's  obligations  hereunder,  or such
         guarantor  or other party shall have  defaulted  in the  observance  or
         performance  of any covenant,  condition or agreement to be observed or
         performed  by it under the guaranty or other  credit  support  document
         pursuant to which it is liable for Lessee's obligations  hereunder,  or
         such guaranty or other credit support  document shall have been revoked
         or terminated or shall have otherwise ceased,  for any reason, to be in
         full  force  and  effect.  An  Event of  Default  with  respect  to any
         Equipment  Schedule  shall  constitute  an  Event  of  Default  for all
         Equipment  Schedules.  Lessee  shall  promptly  notify  Lessor  of  the
         occurrence of any Event of Default upon  Lessee's  receipt of notice or
         knowledge thereof (other than pursuant to Lessor's notice).

                  If an Event of Default occurs,  Lessor shall have the right to
         exercise any one or more of the following  remedies in order to protect
         the interests and reasonably  expected  profits and bargains of Lessor:
         (a) Lessor may terminate  this Lease with respect to all or any part of
         the  Equipment,  (b) Lessor may recover  from Lessee all rent and other
         amounts then due and as they shall thereafter become due hereunder, (c)
         Lessor may take  possession of any or all items of Equipment,  wherever
         the same may be located,  without  demand or notice,  without any court
         order or other  process of law and without  liability to Lessee for any
         damages occasioned by such taking of possession, and any such taking of
         possession shall not constitute a termination of this Lease, (d) Lessor
         may  recover  from  Lessee,  with  respect  to any  and  all  items  of
         Equipment,  and with or without  repossessing  the Equipment the sum of
         (1) the  total  amount  due and  owing  to  Lessor  at the item of such
         default,  plus (2) an amount  calculated by Lessor which is the present
         value at 5% per annum  simple  interest  discount of all rent and other
         amounts  payable by Lessee with  respect to said  item(s)  form date of
         such payment to date of expiration  of its Initial  Term,  plus (3) the
         "reversionary  value" of the  Equipment,  which shall be  determined by
         Lessor as the total  cost of the  Equipment  less 60% of the total rent
         (net of  sales/use  taxes,  if any)  required  to be paid  pursuant  to
         Paragraph 9, and which the parties  agree is a  reasonable  estimate of
         such value;  and upon the payment of all amounts  described  in clauses
         (1), (2) and (3) above, Lessee will become entitled to the Equipment AS
         IS, WHERE IS, without warranty whatsoever;  provided,  however, that if
         the Lessor shall sell, lease or otherwise dispose of the Equipment in a
         commercially reasonable manner, with or without notice and on public or
         private bid, and apply the net proceeds  thereof  (after  deducting all
         expenses,  including attorneys' fees incurred in connection therewith),
         to the sum of (1),  (2) and (3)  above,  and e) Lessor  may  pursue any
         other remedy  available at law or in equity,  including but not limited
         to  seeking  damages  or  specific   performance  and/or  obtaining  an
         injunction.



<PAGE>

                  No right or remedy herein conferred upon or reserved to Lessor
         is exclusive of any right or remedy herein or by law or equity provided
         or  permitted;  but each shall be  cumulative  of every  other right or
         remedy given hereunder or now or hereafter existing at law or in equity
         or by statue or otherwise,  and may be enforced concurrently  therewith
         or from time to time,  but Lessor  shall not be  entitled  to recover a
         greater  amount in damages  than Lessor could have gained by receipt of
         the  of  Lessee's  full,   timely  and  complete   performance  of  its
         obligations pursuant to the terms of this Lease plus accrued delinquent
         payments under Paragraph 21.

22.      LESSOR'S  EXPENSE.  Lessee  shall pay  Lessor  all costs and  expenses,
         including attorney's fees and the fees of collection agencies, incurred
         by Lessor in  enforcing  any of the terms,  conditions,  or  provisions
         hereof or in protecting  Lessor's  rights herein.  Lessee's  obligation
         hereunder  includes all such costs and expenses  experienced  by Lessor
         (a) prior to  filing of an  action,  (b) in  connection  with an action
         which  is  dismissed,  and  (c) in  the  enforcement  of any  judgment.
         Lessee's  obligation  to  pay  Lessor's  attorney's  fees  incurred  in
         enforcing any judgment is a separate  obligation  of Lessee,  severable
         from  Lessee's  other  obligations  hereunder,  which  obligation  will
         survive  such  judgment and will not be deemed to have been merged into
         such judgment.

23.      OWNERSHIP;  PERSONAL PROPERTY.  The Equipment shall at all times remain
         the  property  of Lessor  and  Lessee  shall  have no  right,  title or
         interest therein or thereto except as expressly set forth in this Lease
         and the Equipment  shall at all times be and remain  personal  property
         notwithstanding  that the  Equipment or any part thereof may now be, or
         hereafter become,  in any manner,  affixed or attached to real property
         or any improvements thereon.

24.      NOTICES. Any notice,  request,  demand or other communication permitted
         or required to be given to a party under this Lease shall be in writing
         and shall be sent to the addressee at the address set forth above or on
         the Equipment Schedule (or at such other address as shall be designated
         by notice to the other party and persons receiving  copies),  effective
         upon actual receipt (or refusal to accept delivery) by the addressee on
         any business day or the first business day following  receipt after the
         close of normal business hours or on any non-business day, by (a) FedEx
         (or other equivalent  national or international  overnight  courier) or
         United States  Express Mail,  (b)  certified,  registered,  priority or
         express United States mail, return receipt  requested,  (c) telecopy or
         (d) messenger, by hand or any other means of actual delivery

25.      ACQUISITION AGREEMENTS.  If the Equipment is subject to any Acquisition
         Agreement,  Lessee as part of this  Lease,  transfers  and  assigns  to
         Lessor  all of its  rights,  but none of its  obligations  (except  for
         Lessee's obligation to pay for the Equipment  conditioned upon Lessee's
         acceptance in accordance  with Paragraph 6), in and to the  Acquisition
         Agreement,  including but not limited to the right to take title to the
         Equipment.   Lessee  shall   indemnify  and  hold  Lessor  harmless  in
         accordance  with  Paragraph 19 from any  liability  resulting  from any
         Acquisition  Agreement  as  well  as  liabilities  resulting  from  any
         Acquisition  Agreement  Lessor is  required  to enter into on behalf of
         Lessee or with Lessee for purposes of this Lease.

26.      UPGRADES.  Any existing  lease between  Lessor and Lessee subject to an
         "upgrade"  program shall continue in full force and effect and shall be
         kept free of default by Lessee  (even if the  Equipment  covered by the
         existing lease is sold. traded-in,  etc.) until any such existing lease
         is  cancelled  by Lessor  when,  if  applicable,  the new  Equipment is
         accepted by Lessee for all purposes of this Lease.

27.      PURCHASE  OPTION.  If no default shall have occurred and be continuing,
         Lessee shall be entitled,  at its option upon written notice to Lessor,
         which  notice  must be received by Lessor at least 90 days prior to the
         end of either the  Initial  Term or any renewal  term of any  Equipment
         Schedule,  to purchase  all,  but not less than all,  of the  Equipment
         covered  by  such  Equipment  Schedule  from  Lessor  at the end of the
         Initial  Term or any  renewal  term for such  Equipment  Schedule  at a
         purchase  price equal to the then fair market value of the Equipment in
         use and  operational,  in the  condition  required  by this  Lease,  as
         mutually agreed by Lessor and Lessee.  On a date which is no later than
         the  expiration  date of the  Initial  Term  or any  renewal  term,  as
         applicable,  Lessee  shall pay to  Lessor  the  purchase  price for the
         Equipment  covered by such  Equipment  Schedule  (plus any taxes levied
         thereon) and Lessor shall sell the Equipment "as-is  where-is"  without
         any warranties express or implied.

28.      RELATED EQUIPMENT  SCHEDULES.  In the event that any Equipment Schedule
         hereunder shall include  Equipment that may become attached to, affixed
         to,  or  used  in  connection  with  Equipment  covered  under  another
         Equipment Schedule hereunder  ("Related  Equipment  Schedule"),  Lessee
         acknowledges the following: (a) if Lessee elects to exercise a purchase
         option or renewal option under any Equipment Schedule,  if provided; or
         (b) if Lessee  elects  to  return  the  Equipment  under any  Equipment
         Schedule as described in Paragraph 14, then Lessor,  at its discretion,
         may require the similar  disposition of all Related Equipment Schedules
         as provided for by this Lease.



<PAGE>

29.      EQUIPMENT  SCHEDULES.  An executed Equipment Schedule that incorporates
         by  reference  the  terms  of  this  Master  Lease  Agreement,   marked
         "Original,"  shall be the  original  of this  Lease  for the  Equipment
         described therein for all purposes.  All other executed counterparts of
         this Lease  shall be marked  "Duplicate."  Unless  specified  otherwise
         therein,  in the event any written rider or other agreement is attached
         to and made a part of an Equipment  Schedule,  the terms and conditions
         of said written  agreement shall apply only to said Equipment  Schedule
         and shall not apply to any other Equipment Schedule made a part of this
         Lease.  In the event Lessee issues a purchase order to Lessor  covering
         Equipment to be leased hereunder, it is agreed that such purchase order
         is issued for purposes of authorization and Lessee's internal use only,
         and.  none of its  terms  and  conditions  shall  modify  the terms and
         conditions  of this  Lease  and/or  related  documentation,  or  affect
         Lessor's  responsibility  to Lessee as  defined in this  Lease.  To the
         extent this Lease constitutes chattel paper, as such term is defined in
         the Uniform Commercial Code of the applicable jurisdiction, no security
         interest  in  this  Lease  may  be  created  through  the  transfer  of
         possession of any counterpart other than the Original of this Lease.

30.      GENERAL  REPRESENTATIONS  OF THE  PARTIES.  Each party  represents  and
         warrants to the other party that, as of the date hereof, as of the date
         of the execution of each Equipment  Schedule and as of the date of each
         extension,  modification  or amendment of this Lease and each Equipment
         Schedule,  and  covenants  and agrees  with the other party that for so
         long as any Equipment is leased pursuant hereto:  (a) such party is and
         will  continue to be a  corporation  or other  entity  duly  organized,
         validly  existing and in good  standing  under the laws of its state of
         organization   and  maintains  its  chief   executive   office  at  the
         address(es) set forth for it either on the signature page to this Lease
         (and any Equipment  Schedule  entered into  pursuant  hereto) or in the
         introduction  thereto, or as otherwise set forth in a written notice to
         the  other  party;  (b) such  party  has and will  maintain  the  legal
         capacity,  power,  authority  and  unrestricted  right to  execute  and
         deliver this Lease (and any  Equipment  Schedule  entered into pursuant
         hereto)  and to  perform  all of its  obligations  hereunder;  (c)  the
         execution  and delivery by such party of this Lease (and any  Equipment
         Schedule  entered into  pursuant  hereto) and the  performance  by such
         party of all of its  obligations  hereunder  will not  violate or be in
         conflict with any term or provision of (i) any applicable law, (ii) any
         judgment,  order, writ,  injunction,  decree or consent of any court or
         other judicial authority  applicable to such party or any material part
         of such party's assets and properties,  (iii) any of the organizational
         or governing  documents of such party, or (iv) any material  agreement,
         document or obligation to which it is a party,  and such party will not
         adopt any such  conflicting  organizational  or  governing  document or
         enter into any such conflicting agreement,  document or obligation; (d)
         no consent, approval or authorization of, or registration,  declaration
         or filing with, any governmental  authority or other person  (including
         any equity  holder of any party) is required as a condition  precedent,
         concurrent or  subsequent  to or in  connection  with the due and valid
         execution,  delivery and  performance  by such party of this Lease (and
         any Equipment  Schedule  entered into pursuant hereto) or the legality,
         validity,  binding  effect  or  enforceability  of any of the terms and
         provisions  of this  Lease (and any  Equipment  Schedule  entered  into
         pursuant  hereto);  (d) this Lease (and any Equipment  Schedule entered
         into pursuant hereto) is a legal,  valid and binding obligation of such
         party,   enforceable  against  such  party  in  accordance  with  their
         respective terms and provisions;  and (e) each party has  independently
         and fully reviewed and evaluated this Lease (and any Equipment Schedule
         entered  into  pursuant   hereto)  and  all  related   documents,   the
         contemplated  obligations and transactions and the potential effects of
         such obligations and transactions on the assets,  business,  cash flow,
         expenses,  income,  liabilities,   operations,  properties,  prospects,
         reputation,  taxation or condition  (financial  or  otherwise)  of such
         party and its affiliates, which review and evaluation was made together
         with the officers,  directors and other  representatives of such party,
         its legal  counsel  and (to the extent  deemed  prudent by such  party)
         other legal counsel and financial and other advisors to such party, and
         such party hereby absolutely,  unconditionally,  irrevocably, expressly
         and forever  assumes any and all attendant risks and waives any and all
         rights, claims, defenses or objections with respect thereto

31.      LESSEE'S  REPRESENTATIONS.  Lessee  represents  and  warrants to Lessor
         that,  as of the date hereof,  as of the date of the  execution of each
         Equipment  Schedule and as of the date of each extension,  modification
         or amendment of this Lease and each Equipment  Schedule,  and covenants
         and agrees with the Lessor that for so long as any  Equipment is leased
         pursuant  hereto:  (a) the  Equipment  is being  leased  hereunder  for
         business purposes and is not being and will not be used for any illicit
         or illegal business or scheme;  (b) the financial  information (if any)
         respecting Lessee furnished to Lessor is complete,  accurate and fairly
         presents  the  financial  condition  of the  Customer;  (d) the credit,
         financial and other  information  furnished or to be furnished by or on
         behalf of Lessee  to Lessor is true and  correct  and does not and will
         not  contain  a  misstatement  of a  material  fact or omit to  state a
         material fact required to be stated therein in order to make it, in the
         light of the  circumstances  under which made, not misleading;  and (f)
         there does not exist any  pending or  threatened  action or  proceeding
         before  any  court or  administrative  agency  which  might  materially
         adversely affect Lessee's financial condition or operations

32.      FINANCIAL STATEMENTS. Lessee agrees to furnish to Lessor (i) as soon as
         available,  and in any event within 120 days after the last day of each
         fiscal year of Lessee, a copy of the financial  statements of Lessee as
         of the end of such fiscal year,  certified by an independent  certified
         public  accounting  firm:  (ii) as soon as available,  and in any event
         within 60 days after the last day of each  quarter of  Lessee's  fiscal
         year,  a  copy  of  quarterly  financial  statements  certified  by the
         principal  financial  officer  of  Lessee;  and (iii)  such  additional
         information concerning Lessee as Lessor may reasonably request.



<PAGE>

33.      GOOD FAITH DEPOSIT  REQUIREMENT.  Lessee  agrees,  with respect to each
         transaction,  to pay the  Good  Faith  Deposit  specified  in  Lessor's
         proposal for such  transaction  or in the  Equipment  Schedule  related
         thereto. This Good Faith Deposit is given in consideration for Lessor's
         costs and expenses in investigating and appraising and/or  establishing
         credit for Lessee. This Good Faith Deposit shall not be refunded unless
         Lessor declines to accept Lessee's offer to enter into this Lease. Upon
         Lessor's  acceptance of Lessee's offer to enter into this Lease, unless
         otherwise specified in the proposal or Equipment  Schedule,  the amount
         shall  be  applied  to  the  first   period's  rent   payment.   Lessee
         acknowledges  that  Lessor's act of  depositing  any Good Faith Deposit
         into  Lessor's  bank account  shall not in itself  constitute  Lessor's
         acceptance of Lessee's offer to enter into this Lease.

34.      INTERPRETATION,  SEVERABILITY,  ETC. The parties  acknowledge and agree
         that the terms and provisions of this Lease and the Equipment Schedules
         have been  negotiated,  shall be  construed  fairly  as to all  parties
         hereto,  and shall not be  construed  in favor of or against any party.
         The term  "including"  shall  mean  "including  (without  limitation)",
         whether or not so stated.  The terms "including",  "including,  but not
         limited to", "including  (without  limitation)" and similar phrases (i)
         mean that the items specifically listed after such term are examples of
         the  provision  preceding  such  term  and are not  intended  to be all
         inclusive,  (ii) shall not in any way limit (or be deemed or  construed
         to limit) the  generality of the  provision  preceding  such term,  and
         (iii)  shall not in any way  preclude  (or be deemed  or  construed  to
         preclude)  any  other   applicable  item  encompassed  by  the  general
         provision  preceding such term. In the event that any term or provision
         of this Lease or any Equipment  Schedule shall be finally determined to
         be superseded,  invalid, illegal or otherwise unenforceable pursuant to
         applicable  law by an authority  having  jurisdiction  and venue,  that
         determination  shall  not  impair or  otherwise  affect  the  validity,
         legality  or  enforceability  (a) by or before  that  authority  of the
         remaining  terms  and  provisions  of  this  Lease  and  the  Equipment
         Schedules,  which  shall be enforced  as if the  unenforceable  term or
         provision  were deleted or reduced  pursuant to the next  sentence,  as
         applicable, or (b) by or before any other authority of any of the terms
         and provisions of this Lease and the Equipment  Schedules.  If any term
         or  provision  of this Lease or any  Equipment  Schedule  is held to be
         unenforceable  because of the scope or duration of any such  provision,
         the parties agree that any court making such  determination  shall have
         the power, and is hereby requested,  to reduce the scope or duration of
         such term or provision to the maximum  permissible under applicable law
         so that said term or  provision  shall be  enforceable  in such reduced
         form.

35.      MISCELLANEOUS.  Lessor reserves the right to charge Lessee fees for its
         provision of additional  administrative  services related to this Lease
         requested by Lessee.  Lessee shall provide  Lessor with such  corporate
         resolutions,  opinions  of  counsel,  financial  statements,  and other
         documents  (including  documents for filing or recording) as Lessor may
         request  from  time to  time.  LESSEE  HEREBY  APPOINTS  LESSOR  OR ITS
         ASSIGNEE  ITS TRUE AND LAWFUL  ATTORNEY IN FACT TO EXECUTE ON BEHALF OF
         LESSEE  ALL  UNIFORM  COMMERCIAL  CODE  FINANCING  STATEMENTS  OR OTHER
         DOCUMENTS  WHICH,  IN LESSOR'S  DETERMINATION,  ARE NECESSARY TO SECURE
         LESSOR'S  INTEREST  IN SAID  EQUIPMENT.  The  filing  of UCC  Financing
         Statements is  precautionary  and shall not be evidence that this Lease
         is intended as security. If for any reason this agreement is determined
         not to be a lease,  Lessee hereby grants Lessor a security  interest in
         this Lease,  the  Equipment or  collateral  pertaining  thereto and the
         proceeds  thereof,  including  release,  sale  or  disposition  of  the
         Equipment or other collateral. If more than one Lessee is named in this
         Lease, the liability of each shall be joint and several. Time is of the
         essence with respect to this Lease.

36.      FORCE  MAJEURE.  Notwithstanding  any other term or  provision  of this
         Lease (and any Equipment  Schedule  entered into pursuant  hereto),  no
         party shall be responsible for or be in breach of or default under this
         Lease (and any Equipment Schedule entered into pursuant hereto) for any
         performance  delay or failure that is the result of any and all acts of
         God and other acts, events,  circumstances,  impediments or occurrences
         beyond the  control of the  delayed  person  (each a "Force  Majeure"),
         including (without limitation) any (i) accident or mishap not caused by
         the delayed person, (ii) assault,  attack, battle,  blockade,  bombing,
         embargo,  police  action,  siege  or  other  act of  defense,  offense,
         terrorism  or war  (whether  or not  declared),  in each  case  whether
         civilian,  militia,  military  or  otherwise  and  whether  domestic or
         foreign,  (iii)  governmental  regulation  or  decree  or other  act or
         failure to act of any governmental  authority or other regulatory body,
         in each case whether civil,  military or otherwise and whether domestic
         or foreign, (iv) earthquake, explosion, fire, flood, hurricane or other
         natural or man-made calamity or disaster,  (v) epidemic,  environmental
         contamination or other natural or man-made pestilence or toxic exposure
         (whether  biological,  chemical,  radiological  or  otherwise),  or any
         quarantine or other  restriction  arising  therefrom,  (vi) failure of,
         interruption  in  or  impairment  of  any  delivery,   internet,  mail,
         monetary,  power,  



<PAGE>

         telecommunication,  transmission,  transportation  or utility system or
         any other  service,  product or equipment  provided or  maintained by a
         third party,  (vii)  lockout,  strike or similar  labor  interruptions,
         (viii) insurrection,  riot or other civil disturbance,  (ix) hacking or
         other   unauthorized   access,   spamming,   virus,   trojan  or  other
         unauthorized  program, or other computer or technological  tampering or
         attack,  or (x) sabotage or other criminal or intentionally  disruptive
         third party act, in each case together  with any and all  consequential
         disruptions,  delays,  effects or other  acts,  events,  circumstances,
         impediments  or  occurrences  and  irrespective  of  how  localized  or
         widespread.  Upon prompt notice to the other party,  the party affected
         by any Force Majeure shall be excused from performance hereunder to the
         extent and for so long as its  performance  hereunder  is  prevented or
         restricted  by a Force  Majeure (and the other party shall  likewise be
         excused from performance of its obligations  hereunder relating to such
         delayed  or  failed  performance  to the same  extent  and for the same
         duration);  provided  that the party so affected  shall use  reasonable
         efforts  (without  increased  cost) to avoid,  mitigate  or remove such
         Force  Majeure  and to  minimize  the  consequences  thereof,  and both
         parties shall resume  performance  hereunder  with the utmost  dispatch
         whenever such non-performance causes are removed.

37.      NO WAIVER BY ACTION,  ETC. Any failure of the Lessor to require  strict
         performance  by the  Lessee or any  waiver  by Lessor of any  provision
         herein  shall  not be  construed  as a  consent  or waiver of any other
         breach of the same or of any other  provision.  Any  waiver or  consent
         from either party respecting any provision of this Lease or any related
         document  shall be effective  only in the  specific  instance for which
         given and shall not be deemed,  regardless of frequency  given, to be a
         further or  continuing  waiver or consent.  The failure or delay of any
         party at any time to require  performance of, or to exercise or enforce
         its rights or remedies  with  respect to, any  provision  of this Lease
         shall not affect  such  party's  right at a later time to  exercise  or
         enforce any such  provision.  No notice to or demand on any party shall
         entitle  such  party to any other  notice or demand in similar or other
         circumstances.  Any  acceptance  by or on  behalf of a party of (A) any
         partial  or  late  payment,  reimbursement  or  performance  shall  not
         constitute a satisfaction  or waiver of the obligation  then due or the
         resulting default, or (B) any payment,  reimbursement or performance of
         any  obligation  during  the  continuance  of  any  default  shall  not
         constitute a waiver or cure thereof,  and the party or its designee may
         accept or reject any such payment, reimbursement or performance without
         affecting  any  obligation  or  any  of  the  party's  rights,  powers,
         privileges,  remedies and other interests under this Lease, any related
         document or applicable law. All rights,  powers,  privileges,  remedies
         and other  interests of each party  hereunder  are  cumulative  and not
         alternatives,  and they are in  addition  to (and  shall not limit) any
         other right, power,  privilege,  remedy or other interest of such party
         under this Lease, any related document or applicable law.

38.      SUCCESSORS AND ASSIGNS; ASSIGNMENT; INTENDED BENEFICIARIES.  This Lease
         and each  related  document  shall  be  binding  upon and  inure to the
         benefit of the successors,  permitted assigns and legal representatives
         of  each  party  (including,   without  limitation,   any  assignee  of
         substantially  all of the  business  or  assets  of  any  party  or any
         successor  by  merger).  Neither  party may assign any of its rights or
         obligations  under  this  Lease or any  related  document  to any other
         person without the consent of the other party; provided,  however, that
         either party may assign its rights and  obligations  hereunder in whole
         or in part to any of its affiliates  (without,  however,  relieving the
         assignor of any of its obligations hereunder) by giving the other party
         a copy of such  assignment.  Without  limiting  the  generality  of the
         foregoing,  Lessee  acknowledges and agrees that Lessor may pledge this
         Lease and all accounts,  payment  intangibles,  general intangibles and
         other rights and interest  arising  hereunder to one or more lender(s),
         such lender(s) shall be entitled upon default to enforce any and all of
         the rights, powers, privileges,  remedies and interests of Lessor as so
         assigned in accordance  with this Lease,  the applicable loan documents
         and  applicable  law, and such  lender(s)  shall not be  responsible or
         liable  for  any  of  the  acts,  omissions,   duties,  liabilities  or
         obligations  of Lessor or any of its  affiliates  under  this  Lease or
         otherwise.   Except  as   otherwise   provided  in  this   Lease,   the
         representations,  agreements and other provisions of this Lease are for
         the  exclusive  benefit  of the  parties  hereto,  and no other  person
         (including, without limitation, any creditor of a party) shall have any
         right or claim  against any party by reason of any of those  provisions
         or be entitled to enforce any of those provisions against any party.

39.      COUNTERPARTS,  GOVERNING  LAW,  AMENDMENTS,  ETC.  This Lease  shall be
         effective  on the date as of which this  Lease  shall be  executed  and
         delivered by the parties hereto. This Lease or any related document may
         be executed in two or more counterpart copies of the entire document or
         of signature  pages to the  document,  each of which may be executed by
         one or  more of the  parties  hereto  and  may be sent by fax or  other
         electronic  means,,  but  all of  which,  when  taken  together,  shall
         constitute a single  agreement  binding upon all of the parties hereto.
         This Lease and all related documents shall be governed by and construed
         in accordance with the applicable laws pertaining,  in the State of New
         York  (other  than those  conflict of law rules that would defer to the
         substantive laws of another  jurisdiction).  The headings  contained in
         this Lease or any related document are for reference  purposes only and
         shall not affect the  meaning  or  interpretation  of this Lease or any
         related  document.  Each and every  supplement  or  modification  to or
         amendment or restatement of this Lease or any related document shall be
         in writing and signed by all of the parties hereto,  and each and every
         waiver of, or consent to any departure  from,  any term or provision of
         this Lease or any  related  document  shall be in writing and signed by
         each affected party hereto.



<PAGE>

40.      WAIVER OF JURY TRIAL; ALL WAIVERS INTENTIONAL, ETC. In any action, suit
         or proceeding in any jurisdiction  brought against Lessor by Lessee, or
         vice versa, each party hereby absolutely, unconditionally,  irrevocably
         and expressly  waives forever trial by jury.  This waiver of jury trial
         by each  party,  and each  other  waiver,  release,  relinquishment  or
         similar surrender of rights (however expressed) made by a party in this
         Lease, has been absolutely, unconditionally, irrevocably, knowingly and
         intentionally made by such party.

41.      ENTIRE  AGREEMENT.  No party or any of its  representatives  has  made,
         accepted  or  acknowledged  any  representation,   warranty,   promise,
         assurance,  agreement,  obligation or understanding (oral or otherwise)
         to,  with  or  for  the  benefit  of  the  other  party  or  any of its
         representatives  other than as expressly set forth in this Lease.  This
         Lease  and any  Approval  Letter  issued by  Lessor  and any  Equipment
         Schedule  hereunder  contains the entire agreement of the parties,  and
         supersedes and completely replaces all prior and other  communications,
         discussions   and   other   representations,    warranties,   promises,
         assurances,  agreements and understandings (oral, implied or otherwise)
         between the  parties,  with  respect to the matters  contained  in this
         Lease.

IN WITNESS  WHEREOF,  the parties  have  executed  this Master  Lease  Agreement
effective as of the first date it is executed by Lessee below.



<TABLE>
<CAPTION>
<S>                                          <C>
SPAR Marketing Services, Inc. (Lessor)       SPAR Canada Company (Lessee)                  Date
                                                                                           As of
                                                                                          1/4/05
/s/ Robert G. Brown                          /s/ Charles Cimitile
--------------------------------------       --------------------------------------------------
Name:    Robert G. Brown                     Name:    Charles Cimitile                       
Title:   Chairman & Chief Executive          Title:   Chief Financial Officer
         Officer
</TABLE>



Home Office:  580 White Plains Road
              Tarrytown, NY 10591












<PAGE>
                 [Letterhead of SPAR MARKETING SERVICES, INC.]

  MERCHANDISING * MARKETING INTELLIGENCE * DATABASE MARKETING * TELESERVICES *
                                   E-COMMERCE

                  SERVICES DEFINED BY THE RETURN THEY GENERATE

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

THIS IS COUNTERPART NO. OF 3 SERIALLY NUMBERED COUNTERPARTS.  TO THE EXTENT THAT
THIS DOCUMENT  CONSTITUTES  CHATTEL PAPER UNDER THE UNIFORM  COMMERCIAL CODE, NO
SECURITY  INTEREST IN THIS  DOCUMENT  MAY BE CREATED  THROUGH THE  TRANSFER  AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.

                       EQUIPMENT LEASING SCHEDULE NO. 001
                          Dated: as of January 4, 2005
                                (this "Schedule")
                           Incorporating by Reference
             Master Lease Agreement dated as of January 4, 2005
                                     between
                   SPAR Marketing Services, Inc., as "Lessor",
                                       and
                        SPAR Canada Company, as "Lessee"
          (as the same may be supplemented or amended from time to time
             in the manner provided therein the "Master Agreement")

LESSEE AGREES TO LEASE THE HEREIN DESCRIBED EQUIPMENT FROM LESSOR, AND LESSOR BY
ACCEPTANCE  OF THIS  SCHEDULE,  AGREES TO LEASE THE  EQUIPMENT  TO LESSEE ON THE
TERMS AND  CONDITIONS  SET FORTH IN THIS  SCHEDULE,  WHICH  HEREBY  INCORPORATES
HEREIN BY REFERENCE ALL OF THE TERMS AND PROVISIONS OF THE MASTER AGREEMENT WITH
THE SAME FORCE AND EFFECT AS THOUGH FULLY SET FORTH HEREIN.

.

Rental Commencement  Date:  1/4/05
-----------------------------------


        Purchased From:                                        Cost
        ---------------                                        ----
        SSE Products, Inc.
        d/b/a SSE Technologies

        Handheld Computer Series
        
        9500 with supporting modems and cables 
        previously purchased                                $105,000.00
        

Term:                               36 Months
Lease Rate Factor:                  3.168%
Monthly Rental Payment:             $3,326.00


               USING TOMORROW'S TOOLS TO SOLVE TODAY'S CHALLENGES
--------------------------------------------------------------------------------
                 SPAR MARKETING SERVICES, INC. CORPORATE OFFICE
                  * 580 WHITE PLAINS ROAD *TARRYTOWN, NY 10591
                    Phone 914-332-4100 * Fax 914-332-0741 *
            Email: servingyou@sparinc.com * Website: www.sparinc.com


<PAGE>
                 [Letterhead of SPAR MARKETING SERVICES, INC.]

  MERCHANDISING * MARKETING INTELLIGENCE * DATABASE MARKETING * TELESERVICES *
                                   E-COMMERCE

                  SERVICES DEFINED BY THE RETURN THEY GENERATE



THIS  SCHEDULE,  TOGETHER  WITH THE  MASTER  AGREEMENT  AND THE OTHER  DOCUMENTS
REFERRED  TO HEREIN AND  THEREIN  AND/OR  EXECUTED  IN  CONNECTION  HEREWITH  OR
THEREWITH,  CONSTITUTE THE ENTIRE AGREEMENT  BETWEEN LESSOR AND LESSEE AS TO THE
LEASING  OF THE  EQUIPMENT.  LESSEE  ACKNOWLEDGES  THAT  ON OR  BEFORE  LESSEE'S
EXECUTION AND DELIVERY OF THIS SCHEDULE IT RECEIVED A COPY OF THE PURCHASE ORDER
AND OTHER  PURCHASE  CONTRACTS  EVIDENCING  THE  ACQUISITION OF THE EQUIPMENT BY
LESSOR .

                                    BY   EXECUTION   OF   THIS   SCHEDULE,   THE
                                    UNDERSIGNED  CERTIFIES  THAT HE/SHE HAS READ
                                    THIS SCHEDULE, HAS EXECUTED AND ENTERED INTO
                                    THIS  SCHEDULE  ON BEHALF  OF LESSEE  AND IS
                                    DULY AUTHORIZED TO DO SO

LESSOR                                            LESSEE


/s/ Robert G. Brown                               /s/ Charles Cimitile
------------------------------                    ------------------------------
Robert G. Brown                                   Charles Cimitile
Chairman and Chief Executive Officer              Chief Financial Officer
SPAR Marketing Services, Inc.                     SPAR Marketing Force, Inc.



               USING TOMORROW'S TOOLS TO SOLVE TODAY'S CHALLENGES
--------------------------------------------------------------------------------
                 SPAR MARKETING SERVICES, INC. CORPORATE OFFICE
                  * 580 WHITE PLAINS ROAD *TARRYTOWN, NY 10591
                    Phone 914-332-4100 * Fax 914-332-0741 *
            Email: servingyou@sparinc.com * Website: www.sparinc.com



                             JOINT VENTURE AGREEMENT

This Joint Venture Agreement is made as of this 26th day of March 2004

By and Between

Solutions Integrated Marketing Services Ltd, a company incorporated and existing
under the [Indian]  Companies Act, 1956, and having its registered office at 3rd
Floor,  Chandra Bhawan 67-68, Nehru Place, New Delhi, India, 110019 (hereinafter
called "SOLUTIONS"),

And

SPAR Group  International,  Inc. a company organized and existing under the laws
of the State of Nevada,  having its  principal  place of  business  at 580 White
Plains Road, Tarrytown, NY, USA (hereinafter called "SPAR"),

                                WITNESSETH THAT:

WHEREAS:

1.       SOLUTIONS is an integrated  marketing-services company offering a broad
         range of  marketing.  & sales  support  services  to a large  number of
         clients, in India, South Asia, ASEAN & other markets.  Retail solutions
         & merchandising  services are part of this broad portfolio of services,
         and SOLUTIONS  knowledge as well as human resources with respect to the
         retailing businesses in India;

2.       SPAR is engaged in the retail  solution  businesses in the USA,  having
         computer  software  useful  for  agency,  assistance,  instruction  and
         reporting of storefront activities and also having operational know-how
         with respect to such software;


3.       In pursuance of the Statement of Understanding recorded on December 22,
         2003,  the Parties now intend to establish  and develop a joint venture
         company  in  India to  undertake  the  business  of  conducting  retail
         solutions businesses in the Territory (hereinafter defined); and

4.       The Parties are desirous of recording  inter alia their  intention  and
         agreement as regards the  establishment  of the proposed  joint venture
         company under the name and style "SPAR Solutions India Private Limited"
         ("Company"),   it's   management   and  capital   structure,   and  the
         responsibilities  to be undertaken by each party in connection with the
         formation and operation of the said Company.

NOW,  THEREFORE,  in  consideration of the mutual covenants and agreement herein
contained, the parties hereto agree as follows:

I.       In this Agreement each of the following  expressions,  unless repugnant
         to the context, shall have the meaning hereinbelow assigned:

<PAGE>


         "Act" shall mean the  [Indian]  Companies  Act,  1956 and the rules and
         regulations  made  thereunder  and  shall  include  any  re-enactment's
         thereof,  amendments and or modifications thereto for the time being in
         force.

         "Affiliate"  means,  with respect to either Party or any third  Person,
         any other Person  which,  directly or  indirectly,  through one or more
         intermediaries,  controls, is controlled by, or is under common control
         with,  such  Party.  The term  "control"  means  the  power to vote ten
         percent (10%) or more of the securities or other equity  interests of a
         Person having ordinary  voting power,  or the  possession,  directly or
         indirectly,  of any other power to direct or cause the direction of the
         management  and  policies of a Person,  whether  through  ownership  of
         voting securities, by contract or otherwise.

         "Agreed  Form" shall mean in the  context of any  document a version of
         such document as mutually agreed to and initialed by both Parties.

         "Agreement" or "this Agreement" shall mean this Joint Venture Agreement
         as amended,  modified or  supplemented by the Parties hereto in writing
         from time to time.

         "Approval(s)"  shall mean all  authorisations,  approvals,  clearances,
         permissions,  consents,  validations,   confirmations,   licenses,  and
         exemptions  of,  registrations  and  filings  with and  reports  to any
         central,  state, municipal or local authority, or political subdivision
         thereof,  and  any  government  or  any  person  exercising  executive,
         legislative, regulatory or administrative functions of or pertaining to
         government,  and any  corporation  or other entity owned or controlled,
         through  stock  or  capital  ownership  or  otherwise,  by  any  of the
         foregoing ,required to be obtained in order to implement the provisions
         of this Agreement.

         "Board" or "Board of  Directors"  shall mean the board of  directors of
         the Company, as reconstituted from time to time.

         "Business" shall have the meaning assigned to it in Article 2 below.

         "Company"  means an Indian company to be  incorporated  by the Parties,
         for the purpose of  implementation of the joint venture project of SPAR
         and ,SOLUTIONS,  under the name and style "SPAR Solutions India Private
         Limited"  or such other name as may be  approved  by the  Registrar  of
         Companies, Delhi & Haryana.

         "Closing Date" shall have the meaning set forth in Article 5.3 below.

         "Deed of  Adherence"  means the deed or  instrument  to be entered into
         between a transferor Shareholder and a transferee of Shares whereby the
         transferee  agrees  to  adhere  to and be  bound  by the  terms of this
         Agreement.

         "Effective Date" shall have the meaning assigned to it in Article 31 of
         this Agreement.

         "Governmental   Body"   shall  mean  any  court  or   tribunal  in  any
         jurisdiction  or any public,  governmental,  legislative  or regulatory
         body, agency, department,  commission, board, bureau or other authority
         or instrumentality.

                                       2

<PAGE>

         "Party" and "Parties" shall mean SOLUTIONS and SPAR,  individually  and
         collectively as the context may require.

         "Person" means an individual,  corporation,  limited liability company,
         partnership,  association,  trust, business trust, joint venture, joint
         stock company,  pool,  syndicate,  sole proprietorship,  unincorporated
         organization,  Governmental  Body or  other  form of  entity  or  group
         thereof.

         "Security  Interests"  means and includes any interest or equity of any
         person,  authority  or  body  (including,   without  prejudice  to  the
         generality of the foregoing,  any right to acquire,  option or right of
         pre-emption,  or  requirement  for  consent) or any  mortgage,  charge,
         pledge,  lien,  or  assignment  or any other  encumbrance,  priority or
         security  interest over or in the relevant  property or  arrangement of
         whatsoever  nature which restrict or affect  negatively  the value,  or
         impedes or restricts the right to enjoy such property.

         "Share"  means an equity  share of the  Company of face value of Rupees
         10/- each issued by the Company from time to time.

         "Shareholder" means a holder of Shares of the Company and registered in
         the Register of Members of the Company.

         "Territory"  shall mean the  geographical  territory  and extent of the
         Republic of India.

         "Transfer"  means the disposal of any interest in the Shares  including
         by way of  sale or  assignment  or the  grant  or the  creation  of any
         Security  Interest  over,  including any option or right of pre-emption
         over the Shares or the  mortgage  of,  creation  of charge  over or the
         subjecting of the Shares to an encumbrance.

II.      Unless otherwise stated or unless the context  otherwise  requires,  in
         this Agreement:

         (a)      Headings  are for  convenience  only and shall not  affect its
                  interpretation.

         (b)      References  to  the  Agreement   shall  mean  and  include  an
                  appropriate  reference to the schedules,  exhibits and annexes
                  hereto.

         (c)      References  to statutes  shall be a reference to the statutory
                  enactment's,  rules and regulations  (as modified,  amended or
                  re-enacted as of the appropriate date) in force.

                       CHAPTER 1: FORMATION OF THE COMPANY

Article 1.        Establishment of the Company

(a)      Promptly after the Effective Date of this Agreement, SOLUTIONS shall be
         responsible  for  incorporation  of the  Company  as a private  limited
         company in the State of Delhi under the provisions of the Act.

                                       3

<PAGE>

         (i)      For  the  purposes  of  incorporation  of  the  said  Company,
                  SOLUTIONS   shall   nominate  two  resident   Indians  as  the
                  subscribers  to the  Memorandum and Articles of Association of
                  the Company and shall  subscribe to a minimum of 10,000 equity
                  Shares in order to comply with the minimum  paid up capital of
                  Rs. 1,00,000/(Rupees One Lakh Only) prescribed under the Act.

         (ii)     The nominees of SOLUTIONS  shall be the first Directors of the
                  Company.

         (iii)    The Company  will be  incorporated  with an  authorised  share
                  capital of Rs.  50,00,000/-  (Rupees Fifty Lakhs Only) divided
                  into  5,00,000  Shares  (Five  Lakhs Only) of par value of Rs.
                  10/-  (Rupees  Ten  Only)  each.  Upon  incorporation  of  the
                  Company,  the Parties  shall cause the Company to enter into a
                  deed or  instrument in the nature of a deed of adherence to be
                  executed  by the Company in Agreed  Form  (attached  hereto as
                  Exhibit A) to evidence its agreement to adhere to and be bound
                  by  the  terms  hereof.  It is  agreed  that  the  process  of
                  incorporation  of the Company shall be initiated no later than
                  15 days  from the  Effective  Date  and  SOLUTIONS  shall  use
                  reasonable  endeavours to complete the  incorporation  process
                  within 60 days of the  Effective  Date. It is agreed that SPAR
                  will provide and render all  assistance  as may be required by
                  SOLUTIONS  for  the  purposes  of  incorporation  of the  said
                  Company.

(b)      The  Company  shall be  incorporated  under  the name and  style  "SPAR
         Solutions India Private Limited" (or such other name as may be approved
         by the Registrar of  Companies,  Delhi & Haryana) and shall conduct its
         Business operations under such name. However, it is clarified that such
         name is  suggestive  and that in the event,  for any reason the Company
         cannot be  incorporated  with such a name,  this shall not  entitle any
         Party hereto to resile from its obligations under this Agreement and in
         such an event the Parties  shall  endeavour  to agree upon another name
         for the Company.

(c)      The main  objects  included in the  Memorandum  of  Association  of the
         Company will be such that the Company shall be entitled to carry on the
         Business.  The  Parties  shall at all  times  mutually  agree  upon any
         modifications or amendments to the Memorandum of Association and/or the
         Articles  of  Association  of the  Company  which are  contrary to or a
         change in the terms of this Agreement.  In case of any conflict between
         this  Agreement  and the  Memorandum  of  Association  and  Articles of
         Association  of the Company,  the  provisions of this  Agreement  shall
         prevail as between SOLUTIONS and SPAR.

         Upon incorporation of the Company, and upon fulfillment of the terms of
         Article  5.2  hereof,  a Board  Meeting  of the  Company  shall be held
         whereat in particular the Board of Directors shall:

         (i)      approve the  allotment  of Shares to SPAR such that SPAR holds
                  51% of the entire Share capital of the Company;

         (ii)     approve  the  transfer of Shares  held by the  subscribers  to
                  SOLUTIONS  and also  approve the  allotment  of such number of
                  Shares as would be  necessary to ensure that  SOLUTIONS  holds
                  49% of the entire Share capital of the Company;

                                       4

<PAGE>


         (iii)    appoint the  nominees of SPAR on the Board of Directors of the
                  Company;

         (iv)     take on  record  the terms of this  Agreement  and the deed of
                  adherence  to be  executed  by the  Company in the Agreed Form
                  attached to this Agreement to evidence the Company's agreement
                  to adhere to and be bound by the terms of this  Agreement  and
                  authorise a representative  of the Company to execute the said
                  deed of adherence; and

         (v)      shall  take  necessary  steps  to  call  for an  extraordinary
                  general meeting of the Shareholders to adopt the memorandum of
                  association and articles of association of the Company amended
                  to  reflect   the   provisions   of  this   Agreement   (being
                  substantially in the form attached hereto as Exhibit A).

All expenses for the setting up and incorporation of the Company will be paid by
the  Company.   Upon   incorporation   the  said  Company  shall  reimburse  all
incorporation  expenses to SOLUTIONS.  If this Agreement is not consummated each
Party shall pay its own costs.

Article 2.        Business Purpose

The Business of the Company shall consist of the following:

1.       Provide  retail  i.e.  instore  merchandising  services  in relation to
         setting up and merchandising of retail stores;

2.       Agency,  assistance,  instruction  and  report  of  instore  or  retail
         merchandising activities;

3.       Implementation  of market  research and  analysis (of results  thereof)
         pertaining  to retail  merchandising;  

4.       Assembly  of setups used for retail merchandising;

5.       Consulting regarding store management;

6.       Development   and   sale  of   management   system   regarding   retail
         merchandising;

7.       Designing and sale of database pertaining to retail merchandising; and

Article 3.        Memorandum of Association and Articles of Association

Upon  incorporation  of the Company and upon fulfillment of the terms of Article
5.2 hereof,  the Parties hereby undertake to take all necessary  actions to give
effect to the Agreed Form of the Memorandum of  Association  and the Articles of
Association  of the Company  amended to reflect the provisions of this Agreement
(attached hereto as Exhibit B).

Article 4.        Conditions to Subscription.

4.1.     Conditions Precedent: Each of the following is a condition precedent to
         the  obligation  of each of SPAR and  SOLUTIONS  to  subscribe  for the
         Shares of the Company as described in Article 5.1

                                       5

<PAGE>

         (a)      the  execution  of a License  Agreement  between  SPAR and the
                  Company in the  Agreed  Form  attached  hereto as Exhibit C in
                  terms  whereof  SPAR shall be obliged to  localize  and set up
                  software  provided  by SPAR to work in India,  consult  on the
                  organisation of  merchandising  services,  train the Company's
                  personnel  in how to operate the  merchandising  software  and
                  give advice on budgeting and development of each business plan
                  (the "License Agreement");

         (b)      the execution of a User  Agreement  between  SOLUTIONS and the
                  Company in the Agreed  Form  attached  hereto as Exhibit D for
                  the provision of office space,  facilities and services to the
                  Company ("User Agreement");

         (c)      to the extent  required,  receipt of all regulatory  Approvals
                  whether  from the  Government  of India  through  the  Foreign
                  Investment   Promotion   Board/   Secretariat  for  Industrial
                  Assistance   or  the  Reserve  Bank  of  India  or  any  other
                  Governmental  Body, as may be required for the consummation of
                  the transactions contemplated hereunder;

         (d)      Passing  of a  resolution  by the  Board of  Directors  of the
                  Company  for issue of the Shares in the manner as  detailed in
                  Article 5 hereunder.

         Each  Party  agrees  to  notify  the other  Party  that the  conditions
         precedent set forth in this  aforesaid  Article have been  satisfied or
         waived in accordance with the provisions of this Agreement.

4.2.     Failure to Satisfy Conditions.  In the event that all of the conditions
         precedent  set forth in Article 4.1 are not satisfied or waived (to the
         extent waivable) to the mutual satisfaction of SOLUTIONS and SPAR on or
         before May 30,  2004,  either  Party shall have the right to  terminate
         this Agreement by giving  written  notice to the other Party.  Upon any
         such  termination,  this  Agreement  shall  be of no  further  force or
         effect, and neither Party shall have any further obligations hereunder,
         except that Article 30 and 36 and the Parties'  respective  obligations
         thereunder, shall survive any such termination.

Article 5.        Subscription and Issuance

5.1.     The initial issued,  subscribed and paid up equity Share capital of the
         Company shall be Indian Rupees Rs 36,76,000,  which shall be subscribed
         to and held as follows:


<TABLE>
<CAPTION>
                   Party                 Percentage                  Number                Equity capital
                                          Ownership                of Shares                (in Rupees)
<S>                                        <C>                    <C>                      <C>      
           SPAR                                 51%                    187476                Rs 18,74,760
           SOLUTIONS                            49%                    180124                Rs 18,01,240
           TOTAL                               100%                    367600                     3676000
</TABLE>


5.2.     For the purposes. of this Agreement and in order to enable the issuance
         of the number of fully paid  Shares  referred  to in Article 5.1 by the
         Company to SPAR and  SOLUTIONS,  promptly  after all of the  conditions
         precedent  set forth in  Article  4.1 are  satisfied  or waived (to the
         extent waivable) to the mutual  satisfaction of SOLUTIONS and SPAR, and
         not more than thirty (30) days thereafter:

                                       6

<PAGE>

         (a)      SPAR shall be obliged to pay into the account of the  Company,
                  as payment  towards Share  subscription  a sum of Rs 18,74,760
                  (Indian  Rupees  Eighteen  Lakhs Seventy Four  Thousand  Seven
                  Hundred and Sixty Only) ("SPAR Subscription Amount"); and

         (b)      SOLUTIONS  shall be  obliged  to pay into the  account  of the
                  Company  as payment  towards  Share  subscription  a sum of Rs
                  18,01,240  (Indian  Rupees  Eighteen  Lakhs One  Thousand  Two
                  Hundred and Forty Only) ("Solutions Subscription Amount").

         In  the  event  one  of the  Parties  does  not  pay  their  respective
         subscription  amount,  within  twenty  four  hours of the expiry of the
         aforesaid  thirty (30) days and the other Party has paid its respective
         subscription  amount,  the Company shall within a reasonable  period of
         time and subject to receipt of requisite  Approvals if any,  return the
         respective  subscription  amount  received from such Party who has made
         the payment and this Agreement shall stand terminated.  In the event of
         such  termination of this Agreement,  SOLUTIONS  and/or SPAR shall take
         all such steps as may be necessary to wind up the Company in accordance
         with the  provisions of the Act or  alternately  take all such steps as
         may be necessary to change tl1e name of the Company in accordance  with
         the Act,  such that the name of the Company does not include  reference
         to SPAR or SOLUTIONS as the case may be.

5.3.     The  Parties  agree  that  within  twenty  four hours of receipt by the
         Company  of  both  the  SPAR  Subscription  Amount  and  the  Solutions
         Subscription  Amount, the Company shall  simultaneously issue and allot
         to SPAR and SOLUTIONS the number of Shares  referred to in Article 5.1.
         The date on which such  allotment  occurs shall be the "Closing  Date".
         Upon such issue and allotment of the Shares of the Company,  SPAR shall
         hold Shares representing 51% of the paid up equity Share capital of the
         Company  and  SOLUTIONS  shall  hold  49% of the paid up  equity  Share
         capital of the Company. In addition,  the Parties shall ensure that the
         Company  makes  all such  filings  and  satisfies  all  such  reporting
         requirements  as may be  necessary  in  terms of the  Foreign  Exchange
         Management Act, 1999 and the  Regulations  issued  thereunder,  and the
         Act, in a timely manner;

         On the  Closing  Date,  the issued  and  paid-up  Share  capital of the
         Company  shall  be Rs  36,76,000/-  (Indian  Rupee  equivalent  of  USD
         75,000)/- divided into 367600 Shares of face value of Rupees 10 each.

Article 6A        Representations and Warranties and Indemnification

1.       Representations  and  Warranties of SPAR:  SPAR hereby  represents  and
         warrants that:

         (a)      SPAR is a company duly  incorporated  and validly  existing in
                  good  standing  under laws of Nevada and it has the  corporate
                  power to own its  property and to carry on its business as now
                  being conducted.

         (b)      SPAR  has  full  power  and   authority  to  enter  into  this
                  Agreement,  to subscribe to, purchase and own the Shares so as
                  to have a 51% percentage  ownership of the

                                       7

<PAGE>

                  outstanding  equity  Shares of the  Company and to perform its
                  other obligations under this Agreement, all of which have been
                  duly authorized by all proper and necessary  corporate  action
                  by SPAR. No consent or approval of  stockholders or consent or
                  approval  of,  notice  to  or  filing  with  any  governmental
                  authority  is  required  as a  condition  to the  validity  or
                  enforceability of this Agreement as to SPAR.

         (c)      This  Agreement  constitutes  the  valid and  legally  binding
                  agreement of SPAR enforceable in accordance with its terms.

         (d)      There are no  provisions  of its  memorandum  of  association,
                  articles of association or other organizational documents, and
                  no  proceedings  pending  or  threatened  before  any court or
                  governmental or administrative  agency,  that would reasonably
                  be expected to affect the validity or  enforceability  of this
                  Agreement as to SPAR or that would  reasonably  be expected to
                  materially   adversely  affect  the  financial   condition  or
                  operations of SPAR.

         (e)      SPAR is not a party to or  otherwise  bound by any contract or
                  agreement  which  in  any  manner  would  prohibit  SPAR  from
                  subscribing to or owning its 51%  percentage  ownership in the
                  Company or performing any of its other  obligations under this
                  Agreement.

2.       Representations   and   Warranties  of  SOLUTIONS:   SOLUTIONS   hereby
         represents and warrants that:

         (a)      SOLUTIONS is a corporation duly organized and validly existing
                  in  good  standing  under  the  laws of  India  and it has the
                  corporate  power  to own  its  property  and to  carry  on its
                  business as now being conducted.

         (b)      SOLUTIONS  has full  power and  authority  to enter  into this
                  Agreement,  to subscribe to,  purchase and own Shares so as to
                  have a 49% percentage  ownership of the outstanding  Shares of
                  the Company and to perform  its other  obligations  under this
                  Agreement,  all of which  have  been  duly  authorized  by all
                  proper and necessary corporate action by SOLUTIONS. No consent
                  or approval of  stockholders or consent or approval of, notice
                  to or filing with any governmental  authority is required as a
                  condition to the validity or  enforceability of this Agreement
                  as to SOLUTIONS.

         (c)      This  Agreement  constitutes  the  valid and  legally  binding
                  agreement  of SOLUTIONS  enforceable  in  accordance  with its
                  terms.

         (d)      There are no provisions of its organizational  documents,  and
                  no  proceedings  pending  or  threatened  before  any court or
                  governmental or administrative  agency,  that would reasonably
                  be expected to affect the validity or  enforceability  of this
                  Agreement as to SOLUTIONS or that would reasonably be expected
                  to  materially  adversely  affect the  financial  condition or
                  operations of SOLUTIONS.

                                       8

<PAGE>

         (e)      SOLUTIONS is not a party to or otherwise bound by any contract
                  or  agreement  which in any manner would  prohibit  SOLUTIONS.
                  from subscribing to or owning its 49% percentage  ownership in
                  the Company or performing any of its other  obligations  under
                  this Agreement.

3.       Indemnification

         (a)      A Shareholder ("Indemnifying Shareholder") shall indemnify and
                  hold  harmless  the  other   Shareholder   (the   "Indemnified
                  Shareholder"),   their  nominee  Directors  on  the  Board  of
                  Directors  of the Company  from and against any and all costs,
                  losses, claims, damages and liabilities,  including reasonable
                  attorneys' fees,  incurred by the Indemnified  Shareholders or
                  such other Persons,  arising out of (i) any  representation or
                  warranty  of  the  Indemnifying  Shareholder  hereunder  being
                  untrue or incorrect and/or (ii) the Indemnifying Shareholder's
                  failure  to  comply  with any of its  obligations  under  this
                  Agreement including the other terms,  conditions or agreements
                  contained herein.

         (b)      The Company,  to the extent permitted by applicable law, shall
                  indemnify  and hold harmless  each  relevant  Shareholder  and
                  their  nominee  Directors  on the  Board of  Directors  of the
                  Company  (each an  "Indemnified  Person") from and against any
                  and  all  costs,  losses,  claims,  damages  and  liabilities,
                  including   reasonable   attorneys'  fees,  incurred  by  such
                  Indemnified  Person or to which such Indemnified Person may be
                  subject  arising out of or in connection with any legal action
                  (and the  defense  thereof)  commenced  as a result  of, or in
                  connection  with or arising  out of the  Indemnified  Person's
                  actions or position with respect to the Company, except to the
                  extent of the fraud, gross negligence or willful misconduct of
                  the Indemnified Person.

If an  Indemnified  Shareholder  makes a claim  under  this  Article  6A (3) for
payment or  reimbursement  of  expenses,  the same  shall be paid or  reimbursed
promptly upon receipt of appropriate documentation relating thereto and shall be
paid in full by the Party to whom the claim is made.

Article 6B        Additional Fund Requirements

Additional  fund  requirements of the Company in excess of the Share capital may
be met either through:

         (i)      the cash flow from time to time of the Company;

         (ii)     the  borrowings  facilities  which  the  Company  has from all
                  sources  including  from one or more  Shareholders  or through
                  borrowings from such reputable financial institutions or banks
                  as the Board of  Directors  may from  time to time  determine;
                  provided, however, the Company shall not raise funds through a
                  stock market  transaction  unless SPAR and SOLUTIONS  mutually
                  agree to do so.

         (iii)    the issue of such additional securities as are permitted under
                  the  Act  (including  additional  equity  Shares,  subject  to
                  Article 10.2 hereof).

                                       9

<PAGE>

         Notwithstanding  the foregoing the Parties as  Shareholders  may decide
         that any monies  referred to above may be made available to the Company
         in such other manner as may be agreed between them.

         It is  understood  that  and it is a term of this  Agreement  that  any
         borrowings  by the  Company  shall  always  be  consistent  with  sound
         financial policies.

                   CHAPTER II: GENERAL MEETING OF SHAREHOLDERS

Article 7.        Annual and Extraordinary General Meeting

Annual General Meeting: Subject to the provisions of the Act and the Articles of
Association of the Company,  the Annual General  Meeting of the  Shareholders of
the Company  shall be convened by a resolution  of the Board of Directors of the
Company and held at the registered office of the Company. The Company shall hold
in each  year in  addition  to any other  meetings  of the  Shareholders  of the
Company, a general meeting as its "Annual General Meeting" and shall specify the
meeting as such in the notice  calling it. The Parties agree and undertake  that
they shall exercise their voting rights at meetings of the  Shareholders in such
a manner so as to ensure that the provisions of this Agreement are upheld.

Extraordinary  General  Meeting:  Subject to the  provisions  of the Act and the
Articles of Association of the Company, an Extraordinary  General Meeting of the
Company  shall be  convened by a  resolution  of the Board of  Directors  of the
Company whenever deemed necessary. Such meetings shall be held upon the issuance
of a  notice  in  this  behalf,  which  written  notice  shall  be  as  per  the
requirements  under  the Act and  shall be held  with at  least 21 days  notice,
provided that shorter  notice may be given with the consent of the  Shareholders
of the Company.

Article 8.        Quorum

The quorum  for the  General  Meetings  of  Shareholders  of the  Company  shall
constitute  of at  least  one  duly  appointed  representative  each of SPAR and
SOLUTIONS.  No business  shall be transacted at any General  Meeting  unless the
requisite quorum is present.

Article 9.        Resolution

Except as expressly  otherwise  provided in the Act,  including  any  subsequent
legislation  substituting  the same,  this Agreement and all  resolutions of the
General  Meeting  of  Shareholders  of  the  Company  shall  be  adopted  by the
affirmative vote of the Shareholders holding a majority of the Shares present or
represented at meeting for which there is quorum.

Article 10.       Important Matters

Any  resolution  on  the  following  matters  by  the  General  Meeting  of  the
Shareholders  of the  Company  shall  require the  affirmative  vote of at least
three-fourths of the votes of the Shareholders present:

1.       Any  amendment  or  modification  of the  Memorandum  and  Articles  of
         Association of the Company;

                                       10

<PAGE>

2.       Increase or decrease in the authorized capital or paid-up Share capital
         of the Company beyond the limit specified in Article 5.1 hereinabove;

3.       Issuance  of new  Shares or any  other  kind of  equity  securities  or
         instruments  convertible  into  equity  securities  or the  decision to
         undertake a Public Offering (as defined on Article29);

4.       Issuance of debentures;

5.       Transfer  of any part or whole of Business of the Company or any change
         in the Business of the Company;

6.       Any and all matters relating to dividends of the Company;

7.       Dissolution, voluntary winding up or amalgamation of the Company;

8.       Change in number or length of tenure of  Directors  on the Board of the
         Company;

9.       Investment in other companies by the Company.

                   CHAPTER IV: BOARD OF DIRECTORS AND OFFICERS

Article 11.       Appointment of Board of Directors of the Company

The Board of Directors of the Company shall consist of four (4)  Directors;  two
(2) of whom shall be nominated by SPAR and two (2) of whom shall be nominated by
SOLUTIONS. In case of any increase or decrease in the total number of Directors,
the  representation  stipulated  above shall be  unchanged  and  pro-rata at all
times. The Directors shall not be entitled to receive any compensation.

The  Chairman of the Board of Directors of the Company for the first three years
from the Closing  Date shall be a nominee of  SOLUTIONS.  In case of equality of
votes, the Chairman shall not have a second/ casting vote.

The  management  of the Company  shall vest with the Board of Directors  and all
decisions at the Board shall be by way of majority vote.  The nominee  Directors
of either Party shall hold office at the pleasure of their respective nominators
and shall be subject to removal by their respective nominating Party. Each Party
agrees to vote for  appointment  or removal of a Director who has been nominated
by the other Party, upon request of the other Party.

In the event the  Company  appoints a  Managing  Director  or a Chief  Executive
Officer ("CEO") or a Chief Operating Officer ("COO"),  such Managing Director or
CEO or COO  shall  be a  nominee  of  SOLUTIONS  and  shall  be  subject  to the
superintendence  of the Board and shall have general  management  and control of
the affairs and business  (including  the Business) of the Company and shall see
that all orders and resolutions of the Board are carried into effect. The powers
of the Managing Director, CEO and COO shall be as set out in Exhibit E including
power to implement  or take any actions  pursuant to an approved  Business  plan
even where such actions are covered  under the  affirmative  vote matters  under
Article 16.

                                       11

<PAGE>

The Board shall appoint an Alternate Director to act for a Director (referred to
as the "Original  Director")  during his absence for a period of not less than 3
(three)  months from the state in which the meetings of the Board are ordinarily
held.  Either Party shall be entitled to nominate an  Alternate  Director to act
for its nominated  Original  Director.  The Parties hereto shall ensure that the
Board  appoints  only such persons to be the Alternate  Director,  who shall not
hold office for a period longer than that permitted to the Original Director.

All  nominations,   determinations   and  removals  of  Directors  and/or  their
alternates  shall  be by  notice  in  writing  signed  by  the  duly  authorized
officer/representative  of the Party  nominating,  determining  or removing such
Director and such notice shall be addressed to the Board,  and  delivered to the
Company at its registered office.

Any  casual  vacancy  in the  office  of a  Director  who is liable to retire by
rotation,  or for any other reason, may be filled by the Board provided however,
that if a  Director  whose  office  shall be so  vacated be a nominee of SPAR or
SOLUTIONS,  the  person to be  appointed  to fill such  vacancy  shall also be a
person  selected by SPAR or  SOLUTIONS as the case may be, and such person shall
hold office up to the date to which the  Director in whose place he is appointed
would have held office.

Article 12.       Appointment of Officers

Officers  of the  Company  in  terms  of the  provisions  of the  Act,  shall be
appointed by the Board of Directors and serve at their pleasure.

Article 13.       Office of Director

The term of  office of each  Director  shall  expire at the close of the  Annual
General Meeting.

Article 14.       Quorum

Each  Director  shall have one (1) voting right in the Board of  Directors.  The
quorum for a meeting of the Board shall be two  directors or 1/3rd  whichever is
greater  of the Board  for the time  being  and  there  shall be no such  quorum
present  unless  at  least  one  nominee  each of SPAR  and  SOLUTIONS  or their
Alternate Director(s), if any, are present. Provided that if within half an hour
from the time  appointed  for the meeting a quorum is not  present,  the meeting
shall  stand  adjourned  to the same day in the next  week at the same  time and
place and the Directors present at such meeting shall constitute the quorum. All
resolutions shall be adopted by majority of the votes of the Directors present.

Circular  resolutions  shall  be said to be  passed  only if,  of the  Directors
entitled to vote in respect of the said resolutions, a majority approve the said
resolution.

It is clarified  that the right to nominate the number of Directors  referred to
in this Article

(a)      shall  vest in SPAR so long as SPAR holds not less than 51% of the then
         existing equity share capital of the Company; and

                                       12

<PAGE>

(b)      shall vest in SOLUTIONS so long as SOLUTIONS holds not less than 49% of
         the then existing equity share capital of the Company.

         In the event either of SPAR or SOLUTIONS transfer the Shares registered
         in their  respective  names to a third party,  in accordance  with this
         Agreement,  then in such an event, the transferring Party shall procure
         that its nominees on the Board of Directors of the Company  resign from
         the Directorship of the Company.

         If on account of issue of additional  equity Shares as  contemplated in
         Article  6B  (iii)  and the  consequent  failure  of  either  Party  to
         subscribe and pay for such additional Shares, the relative shareholding
         of either Party is reduced then the following shall apply

         (i)      Where the  shareholding of a Party falls below 26% but is more
                  than 10% of the then  existing  equity  share  capital  of the
                  Company  then such Party shall be entitled to appoint only one
                  (1) Director to the Board and shall cause the. other Directors
                  nominated by it to resign.

         (ii)     Where the  shareholding  of either  Party falls below 10% such
                  Party shall not have the right to nominate a Director.

         Upon such resignation, the vacancy(ies) on the Board shall be filled in
         with a nominee(s) of the Party whose shareholding has not been diluted.

         It is clarified that in case of a Transfer of all its Shares by a Party
         to a third Person in accordance  with the provisions of this Agreement,
         contemporaneously  with such Transfer, the transferor Shareholder shall
         cause its  nominee  Directors  to resign  and upon  such  Transfer  the
         transferee  of the Shares  shall be entitled to appoint  such number of
         Directors  as  the  transferor  Shareholder  was  entitled  to  appoint
         immediately  prior to such  Transfer.  Thereafter  the  rights  of such
         transferee  shareholder shall be subject to the terms and conditions of
         this Agreement as applicable to the transferor Shareholder.

Article 15.       Meeting of the Board of Directors

The  meetings  of the Board of  Directors  shall be held  once in each  quarter.
Additional  meetings  of the Board shall be held when  necessary,  both of which
shall be convened in accordance  with the  provisions of the Act. At least seven
(7) days notice shall be given to each of the  directors  (and their  respective
alternates, if any) in respect of each meeting of the Board of Directors, at the
address  notified  from  time  to  time  by each  director  (and  alternate,  if
applicable)  to the Company.  Notice may be waived or a meeting may be called by
giving notice of less than seven (7) days with the consent of all the directors.
To the  extent  permitted  by  the  Act  and  the  Memorandum  and  Articles  of
Association   of  the   Company,   the  Board  may  meet  through  the  mode  of
teleconferences,   videoconference,   if  the  need  arises   provided  that  no
teleconference or videoconference shall be conducted unless written confirmation
for  participation by the requisite quorum of the Directors as required has been
received  prior to the  meetings  by such mode as  required  and such  Directors
record their  presence on the  commencement  of such  conference and also at the
termination  of it. The minutes of the meetings of the Board of  Directors  held
through  such  teleconferences,  videoconferences  shall  be  recorded  and  the
decisions  taken  during any such  meeting  shall be  recorded  in  writing  and
confirmed by all the  Directors  present for the said

                                       13

<PAGE>

meeting,  by circulation within the next three days of such meeting of the Board
of Directors and the foregoing shall constitute the Board's decision as if taken
by a resolution by circulation.

Article 16.       Important Matters

Any resolutions on the following matters by the Board of Directors  requires the
affirmative vote of one nominee each of SPAR and SOLUTIONS respectively:

1.       Any proposal to convene a General  Meeting of the  Shareholders  of the
         Company or action by the Board of Directors for the matters as provided
         in Article 10 hereof;

2.       Any investment or commitment of the Company in amounts  individually in
         excess of Indian Rupee  equivalent  of $100,000  (One hundred  thousand
         dollars)  or in the  aggregate  in  excess  of  $100,000  (One  hundred
         thousand dollars);

3.       Any loan or credit  taken by the  Company  in  excess  of Indian  Rupee
         equivalent of $100,000 (One hundred thousand dollars);

4.       Execution,  amendment or termination of agreements or commitments  with
         SPAR, SOLUTIONS or their subsidiaries or affiliates;

5.       Adoption or  amendment of the annual  budgets and Business  plan of the
         Company;

6.       Adoption  or  any  material   modification  of  major   regulations  or
         procedures, including any employee rules or handbook of the Company;

7.       Change of the statutory  auditors of the Company as provided in Article
         18(a);

8.       Initiating  or settling  any  litigation,  arbitration  or other formal
         dispute settlement  procedures or forgiveness of any obligation owed to
         the  Company  in excess  of  Indian  Rupee  equivalent  of one  hundred
         thousand dollars ($100,000);

9.       Approval  of  annual  closing  of the  books  of the  Company  and  the
         Company's  annual  financial  statements,  and  changing of  accounting
         policies and practices or the Company's accounting periods;

10.      Establishment or amendment to the conditions of employment of officers;

11.      No sale or  disposition  of or  granting a lien,  security  interest or
         similar  obligation  with  respect  to, in one or a series  of  related
         transactions  of the  Company or with  respect  to any major  strategic
         asset of the Company that is crucial to its business;

12.      Formation of any  subsidiary of the Company,  entry into (or subsequent
         termination of) any joint venture, partnership or similar agreements;

13.      Entering into,  amending or terminating any contract with/or commitment
         to any Director or shareholder; and

14.      Entering  into any agreement or commitment to provide goods or services
         outside India.

                                       14

<PAGE>

                                CHAPTER V: AUDIT

Article 17.       Accounting Period

The accounting periods of the Company shall be from 1st day of January and shall
end on the 31st day of December of each year.

Article 18.       Statutory Auditors

(a)      A Statutory  Auditor shall be appointed by the Board of the Company and
         the Delhi office of the Indian  affiliate of Ernst & Young shall be the
         first Statutory Auditors of the Company ("Auditors");

(b)      The Board of  Directors  of the  Company  shall  appoint  the  internal
         auditors of the Company.  Such internal auditor of the Company shall be
         a firm nominated by SOLUTIONS in consultation with SPAR.

The cost of the statutory audit and the cost of the internal audit and tax audit
shall be borne by the Company.

Article 19.       Inspection of Accounting Records and Books

The Company shall yearly arrange audit of the  accounting  records and books and
shall submit a report of such audit to each of the parties  hereto within thirty
(30) days from the completion of the audit.

The Auditors shall audit the accounting records and books of the Company and any
other matters relating,  directly or indirectly,  to the financial  condition of
the Company.  Any fee for the certified  public  accountant  for  inspection and
audit mentioned above shall be borne by the Company. The Company shall keep true
and correct accounting records and books with regard to all of its operations in
accordance with generally accepted accounting  principles  consistently  applied
("GAAP") in Territory.  All accounting records and books shall be kept ready for
inspection  by the  Parties  hereto or by their  authorized  representative.  If
requested by SPAR,  the Company shall  cooperate  with respect to each financial
period  to  provide  such  information  as  required  by SPAR to  reconcile  the
Company's  financial  statements with U.S. GAAP reporting  requirements of SPAR.
The costs associated with  preparation/reconciliation of accounts of the Company
as per U.S. GAAP shall be borne by the Company.

In addition, either Party may, at its discretion, and at its individual expense,
engage  accountants  (other than the  Auditors  referred to above) to conduct an
independent audit of the Company's books and records of account and its business
and  activities.  The  aforesaid  accountants  shall have the absolute  right on
behalf of such  Party to  examine,  inspect,  and copy the books and  records of
account of the Company during its normal business.

                                       15

<PAGE>

Article 20.       Increase of Capital

In case of capital  increase of the Company after its  incorporation,  SOLUTIONS
and SPAR shall have the preemptive right to the new Shares to be issued for such
capital increase in proportion to their respective shareholdings in the Company.

Article 21.       Dividend Payout

The  declaration  of  dividends  by the  Company in respect of its Shares  shall
always be consistent with sound financial  policy having regard to the financial
requirements  and cash  resources  of the  Company  and in  accordance  with the
provisions of the Act and other applicable statutory  provisions.  For the first
three years from the Closing Date and subject to the approval of the Board.

                         CHAPTER VI: TRANSFER OF SHARES

Article 22.       Restrictions on Transfer of Shares

(i)      Except as provided  in Article 23 hereof and subject to the  provisions
         of the Act  neither  Party  hereto  shall,  without  the prior  written
         consent of the other Party,  which  consent  shall not be  unreasonably
         withheld,  Transfer all or any part of its shares of the Company to any
         third Person.  In addition,  all Transfers shall be made subject to the
         requirement  that  the  transferee  enter  into  a  Deed  of  Adherence
         satisfactory to the non-transferring Shareholder(s).  Any Transfer made
         in  violation  of this  Article  22(i) shall be null and void,  and the
         Company shall not register such Transfer.

(ii)     Notwithstanding  the  restrictions  on  Transfer  contained  in Article
         22(i),  either Party may  transfer  the Shares to a majority  owned and
         controlled  Affiliate but subject to such Approvals as may be required,
         if any. In any such event,  it shall be a  condition  precedent  to the
         right of the transferring Party to transfer the Shares to its Affiliate
         that such Affiliate execute a Deed of Adherence which has been approved
         in writing  by each of the  nontransferring  Shareholders.  If any such
         transferee  Affiliate  ceases to be an  Affiliate  of the  transferring
         Party at any time  during the term of this  Agreement,  the  applicable
         Shares shall be transferred  back to the transferor Party or one of its
         Affiliates  on the same terms.  SOLUTIONS and SPAR agree to comply with
         all laws, rules and regulations, by-laws and requirements applicable to
         such  Transfer to a Party's  Affiliate  and to cause  their  respective
         representatives  on the Board of  Directors  of the  Company to vote in
         favor of such Transfer.

Article 23.       Right of First Refusal and Call Option

1.       Right of First Refusal:

(A)      After three (3) years from the Closing  Date,  if either  Party  hereto
         (hereinafter  called  "Selling  Party") wishes to transfer and sell all
         but not less than all of its Shares  ("Offered  Shares"),  the  Selling
         Party  shall  furnish to the other  Party  (hereinafter  called  "Other
         Party")  a written  notice of such  proposed  transfer  and sale  which
         notice will also  specify the offered  sale price and other major terms
         and conditions of such proposed sale;

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         The Other Party shall have a right to purchase  such Offered  Shares at
         the price and on the terms  mentioned in the offer notice by giving the
         Selling Party a written notice of its intention to purchase the Offered
         Shares which sale and purchase  shall be completed  within  ninety (90)
         days from the receipt of Selling Party's offer notice.

         The Other  Party may by notice in writing  within the said period of 90
         days require the fair value of the Offered  Shares to be  determined by
         the internationally recognized Indian firm of chartered accountants and
         such determination shall be made within 30 days of the said request for
         fair valuation  being made and the Parties agree to co-operate for such
         determination.  Upon  determination  of the fair  value of the  Offered
         Shares, the Other Party shall be entitled to issue an acceptance notice
         agreeing to purchase the Offered Shares at the fair value so determined
         within  15 days from the date of such  determination.  In such an event
         such sale and purchase shall take place within 60 days from the date of
         such  determination  and the Other Party shall pay to the Selling Party
         the purchase  price,  and the Selling  Party shall deliver to the Other
         Party, share  certificates in original  representing all of the Offered
         Shares,  free and clear of any liens and duly executed  share  transfer
         forms.

(B)      In case no  acceptance  notice is received  from the Other Party or the
         sale and purchase of Offered Shares is not completed  within 90 days of
         the  receipt  of the  Seller's  offer  notice  or  within  60  days  of
         determination  of the fair value,  the Selling  Party may offer to sell
         such Offered  Shares to a third party upon the terms and conditions not
         less favourable than those described in its offer notice. Such sale and
         purchase  of the Offered  Shares to the third party shall be  completed
         within 60 days after the  expiry of the said 90 days or 60 days  period
         as the case may be and the third party  shall pay to the Selling  Party
         the purchase  price,  and the Selling  Party shall deliver to the third
         party, share  certificates in original  representing all of the Offered
         Shares,  free and clear of any liens and duly executed  share  transfer
         forms.

         Unless otherwise agreed by the Other Party in writing, all Transfers to
         the proposed  transferee  shall be made subject to the requirement that
         the proposed transferee enter into a Deed of Adherence with the Selling
         Party,  satisfactory to the Other Party, and the Other Party shall be a
         confirming  party  to such  Deed of  Adherence.  Any  Transfer  made in
         violation of this Article 23(1) shall be null and void, and the Company
         shall not register such Transfer. The Parties shall cooperate to effect
         the closing of such  purchase  and sale of the Shares of the Company in
         the manner and within the time periods specified above.

2.       Call  Option:  Within 30 days of the third  anniversary  of the Closing
         Date and thereafter  within 30 days of every subsequent  anniversary of
         the Closing  Date,  either Party  ("Purchasing  Party") may at any time
         make a written  offer to buy all of the other  Party's  Shares  ("Other
         Party") in the Company. The Purchasing Party shall furnish to the Other
         Party a written notice of such proposed purchase,  the offered purchase
         price and other major terms and  conditions of such proposed  purchase.
         The Other Party shall then, either accept the offer and sell all of its
         Shares  under  the  terms  and  conditions  offered,  or  in  its  sole
         discretion  offer to purchase  the  Purchasing  Party's  Shares on same
         terms and conditions.  If the Other Party does not respond to the offer
         within one hundred and twenty  (120) days of receipt of the notice from
         the Purchasing  Party, the Other Party shall

                                       17

<PAGE>

         be  deemed  to have  accepted  the  offer  to sell  its  Shares  to the
         Purchasing  Party. The Parties shall cooperate to effect the closing of
         such  purchase and sale of all of the Shares of the Company held by the
         Other Party within 120 days of the  decision or deemed  decision of the
         Other Party.

         In case a notice to purchase the Purchasing Party's Shares is issued by
         the Other Party,  the Parties shall co-operate to effect the closing of
         such  purchase and sale of all of the Shares of the Company held by the
         Purchasing Party~

         At any such closing,  the Purchasing Party shall pay to the Other Party
         the purchase price, and the Purchasing Party shall deliver to the Other
         Party,  the  original  Share  certificates   representing  all  of  the
         Purchasing  Party's  Shares held in the Company,  free and clear of any
         liens and duly executed Share transfer  forms. In case both the Parties
         give notices,  the Party first receiving the notice shall be considered
         as the Other Party.

3.       Change of ownership

Upon a Change of Ownership Event, the Unaffected Party shall have the right, but
shall not be  obliged,  to purchase  all the Shares of the  Company  held by the
Affected Party. For this purpose the Parties agree as under:

(a)      within a period of 30 days after the Unaffected  Party receives  notice
         of the  Change  of  Ownership  Event,  the  Unaffected  Party  shall be
         entitled  to  serve  notice  upon the  Affected  Party  conveying  it's
         intention to purchase the Shares then owned by the Affected Party;

(b)      the  transfer  of the Shares  then owned by the  Affected  Party to the
         Unaffected  Party shall take place at a fair value to be  determined by
         an  internationally  recognised  Indian firm of  chartered  accountants
         which shall be identified by the Unaffected Party;

(c)      within 15 days from the date of  determination  of the fair value,  the
         Unaffected  Party shall be entitled to serve  notice upon the  Affected
         Party requiring the Affected Party to sell to the Unaffected  Party all
         the  Shares  then  held by the  Affected  Party  at the  fair  value so
         determined,  it is  understood  that upon  receipt of such a notice the
         Affected  Party shall be required to and shall sell all the Shares then
         held by it to the Unaffected Party at the fair value so determined; and

(d)      such sale and purchase  shall be  completed,  subject to receipt of the
         necessary  Approvals,  within  a  period  of 60 days  from  the date of
         determination  of the fair value of the shares.  At such closing  (when
         such sale and purchase is to be completed) the  Unaffected  Party shall
         pay to the Affected  Party the purchase  price,  and the Affected Party
         shall deliver to the Unaffected Party,  share  certificates in original
         representing  all of the Shares then held by the Affected  Party,  free
         and clear of any liens and duly executed share transfer forms.

For the purposes of this Article 23(3):

         "Affected Party" means a Shareholder,  in connection with whom a Change
         of Ownership Event takes place;

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<PAGE>

         "Change of Ownership Event" means,  with respect to a Shareholder,  the
         first to occur of any of the  following  events during the term of this
         Agreement:

         (a)      any Person or group of Persons acting in concert,  directly or
                  indirectly,  (i)  acquires  or obtains  the right  through the
                  exercise of any  warrant,  option,  or any other right held by
                  such Person or group of Persons to  acquire,  more than 50% of
                  the issued and paid up shares of a  Shareholder,  and/or  (ii)
                  acquires the right, whether through an agreement or otherwise,
                  to  direct  or  cause  the  direction  of,  or  control,   the
                  management of a Shareholder; or

         (b)      any   business    combination,    merger,    amalgamation   or
                  consolidation  by a  Shareholder  with any  Person or group of
                  Persons   whereby   such   Persons   possesses,   directly  or
                  indirectly,  the power to direct or cause the direction of, or
                  control, the management of such Shareholder.

         "Unaffected Party" means a Shareholder other than the Affected Party.

Article 24.       Cooperation in Financing

1.       During the first  twelve  (12)  months  from the  Effective  Date,  the
         Company  is  expected  to  require a total  working  capital  up to Rs.
         29,70,000/-  (amount  being  equivalent  to Indian Rupee  equivalent of
         $66,000).  The Parties  agree to arrange for the same in the  following
         manner:  SPAR  will  provide  up to Rs.  15,14,700/-  (being  an amount
         equivalent  to $33,660) as loan to the Company,  while  SOLUTIONS  will
         arrange for up to Rs.  14,55,300/-  (being an amount  equal to $32,340)
         through a local bank.

2.       The Company may borrow an  additional  amount when it needs  additional
         funds,  if such  borrowing  is  approved  in  advance  by the  Board of
         Directors as an important matter under Article 16 herein.

3.       If SOLUTIONS  pays any creditors of the Company due to a guarantee made
         by  SOLUTIONS to such  creditors  in favor of the  Company,  SPAR shall
         reimburse SOLUTIONS for half of the amount paid by SOLUTIONS,  but only
         if the Company's borrowing of such funds and' SOLUTIONS guaranty of the
         Company's  obligations have been expressly agreed to in advance by SPAR
         in writing  or in a Board  resolution,  for which  both  SPAR-nominated
         directors have voted affirmatively.

                    CHAPTER VII: ROLE OF CONTRACTING PARTIES

Article 25.       Provision of Office Space and Facility

1.       SOLUTIONS shall in terms of the User Agreement provide office space and
         facilities,  staff service for general affairs and finance,  and intra-
         company  network  services,  which are  determined,  at SOLUTION's sole
         discretion,   necessary   for  the   operation  of  Company  after  the
         consultation  between the both Parties, to the Company at no charge for
         a period of three (3) years from the  Closing  Date.  In the event that
         SOLUTIONS  cannot provide and apportion  such office space,  facilities
         and  services  within  its  existing  facilities  then  SOLUTIONS  will
         reimburse  to the Company the actual cost  apportioned  for such office

                                       19

<PAGE>

         space,  facilities  and services  procured by the Company such that the
         Company does not incur any cost for the office  space,  facilities  and
         services  for three (3) years  from the date of the  Company  obtaining
         such described space and services.  In years two (2) and three (3), the
         Company  will pay for staff  exceeding  eight  people if the Company is
         profitable in the immediately preceding year.

2.       SPAR for first three (3) years from the Closing Date will provide up to
         four thousand five hundred (4,500) hours of business support  annually.
         This support may be in the form of general  business,  consultation  or
         programming  support to modify or enhance the  merchandising  software.
         SPAR will maintain  ownership of all software.  If support  provided by
         SPAR exceeds four  thousand five hundred  (4,500) hours the  additional
         hours will be billed by SPAR to the Company at Indian Rupee  equivalent
         of  Fifty-five  dollars  ($55.00) per hour on the date of such payment.
         However a lower price will be charged for  programming  costs if a less
         expensive  way to hire IT  staff is found  mutually  acceptable  to the
         Parties  hereto.  The Company  will be able to hire its own IT staff as
         appropriate.

3.       If SPAR wishes to sell all its Shares in terms of Article 23 to a third
         party  then in that  case  notwithstanding  such  sale  SPAR  shall  be
         committed to lend its name to the Company for an additional  year at no
         extra  cost and  provide  software  to the  Company  under the  License
         Agreement  for an  additional  year  subject to  obtaining of necessary
         Approvals if any, at the following cost:

                  First 6 months:         out of pocket expenses,

                  Next 6 months:          Indian Rupee equivalent of 
                                          $ 3000/month + out of pocket expenses

4.       SOLUTIONS  agrees that its  operating  expenses may not be allocated to
         the Company.

Article 26.       Personnel

SOLUTIONS  and SPAR shall,  at their own  judgment,  second to the Company their
respective  personnel  who are  appropriate  for the start-up of business of the
Company  for a  period  of one (1) year  from the  Effective  Date  without  any
consideration.  In principle,  the Parties  seconding  such  personnel  shall be
responsible  for the  payment of salaries  and  benefits  and all other  matters
concerning  the  employment  of the  personnel so seconded by the Parties to the
Company.

SOLUTIONS  and SPAR will each set up project  teams and all salaries for current
employees  of either  SOLUTIONS or SPAR shall be borne by the company now paying
them.

Article 27.       Training

Each Party  hereto shall  provide  appropriate  training  for mutually  accepted
periods of time to the employees of the Company for the  Company's  operation at
its own site or any other  location.  The said  training  shall be made upon the
Company's request and any necessary  expenses  including travel for the training
shall be borne by the Company, except as otherwise provided in License Agreement
or the User Agreement.

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<PAGE>

Article 28.       Non-Competition

For three (3) years from the Closing  Date of this  Agreement,  neither SPAR nor
SOLUTIONS  shall  without  the prior  consent of the other,  engage in,  whether
directly  or  indirectly,  in the  provision  of services  being  similar to the
Business as described in Article 2 in this Agreement in the Territory.  However,
in the event that SPAR enters into a contract  with a customer  that covers more
than one country and the scope of such agreement includes services in Territory,
such services being similar to the Business as defined in this  Agreement,  SPAR
shall  not be  prohibited  from  entering  into or  performing  such  agreement,
provided  that SPAR shall  make  commercially  reasonable  efforts to enable the
Company to participate in and be fairly  compensated  for providing  services to
any such customer. Similarly, in the event that SOLUTIONS enters into a contract
with a customer for providing integrated marketing services in India or outside,
such services  being similar to the Business as defined in this  Agreement,  and
the scope of such agreement includes some retail merchandising,  SOLUTIONS shall
not be prohibited from entering into or performing such agreement, provided that
SOLUTIONS shall make  commercially  reasonable  efforts to enable the Company or
SPAR (in territories  outside India) to participate in and be fairly compensated
for  providing  services to any such  customer.  Provided  further that delay or
failure  to make  commercially  reasonable  efforts  as stated  above  shall not
restrict  SOLUTIONS or SPAR to undertake  activities or implement such agreement
as aforesaid.  It is clarified  that this Article shall also cease to apply upon
termination of this Agreement.

                   CHAPTER VIII: AMENDMENT FOR PUBLIC OFFERING

Article 29.       Public Offering

Both Parties acknowledge that the Company may attempt to become a listed company
or  over-the-counter  company on the Territory Stock Exchange or any other stock
exchange  or  public  market  in  Territory  (Public  Offering).   Both  Parties
acknowledge that the number of issued Shares,  the number of  Shareholders,  the
paid-up capital and profit  transaction with each Party, the seconded  employees
of the Company will be reviewed  and  instructed  for  amendment by the relevant
governmental or regulatory authorities in accordance with those bodies' rules or
guidelines  for Public  Offering.  If both  Parties  agree to undertake a Public
Offering subject to Article 10 above,  both Parties shall discuss and reasonably
cooperate  with each other to amend the Articles of  Association  of the Company
and/or the License  Agreement  in order to complete  the Public  Offering of the
Company.   Any  changes  to  the  License   Agreement  will  be  effective  upon
consummation  of the  Public  Offering  (but not  before),  and  subject  to the
approval of the Boards of  Directors  of the Company,  SOLUTIONS  and SPAR.  The
public  offering of Shares to the public by the Company  shall be  completed  in
accordance  with  the  applicable  provisions  of the  Act  and  the  rules  and
regulations  with respect  thereto  issued by the  Securities  Exchange Board of
India from time to time, and such other applicable provisions of Indian law.

                                       21

<PAGE>

                           CHAPTER IX: CONFIDENTIALITY

Article 30.       Confidential Information

SOLUTIONS and SPAR shall keep secret and retain in strict confidence any and all
confidential  information  that may be disclosed by one Party to the other or to
the  Company  or such  confidential  information  that may be  disclosed  by the
Company to either Party and use it only for the purpose of giving  effect to the
provisions of this  Agreement and shall not disclose it to a third party without
the prior  written  consent of the other Party  unless the  receiving  party can
demonstrate that such information:  (i) has become public other than as a result
of disclosure by the receiving party,  (ii) was available to the receiving party
prior to the disclosure by the disclosing  party with the right to disclose,  or
(iii) has been  independently  acquired or developed by the receiving party. The
Parties agree that (i) the use of any such confidential information by the other
Party for any purpose other than  managing  their  respective  investment in the
Company,  or  (ii)  the  disclosure  or  divulgence  of  any  such  confidential
information to third persons would result in damages to and otherwise  adversely
affect the business and affairs of the Company.  The Parties agree that the said
confidential  information  will be disclosed to the personnel of either  Parties
and/or the Company on a need to know basis.

                          CHAPTER X: GENERAL PROVISIONS

Article 31.       Effective Date

This Agreement  shall become  effective on the date the Agreement is executed by
the Parties hereto ("Effective Date").

Article 32.       Termination

1.       If either  Party  Transfers  all its Shares in the Company to the other
         Party hereto in accordance with Article 23 hereof, this Agreement shall
         terminate.  If either  Party  Transfers  its Shares in the Company to a
         third party, unless expressly agreed by the  non-transferring  Party in
         writing,  this  Agreement  shall be assigned  to and binding  upon such
         third party,  provided that the assigning party shall remain liable for
         all legal  acts with  respect to this  Agreement  or the  Company  that
         occurred before the Effective Date of such assignment.

2.       (a) Either  Party not in breach of this  Agreement,  save and except an
         event of breach by either Party of their respective  obligations  under
         Article 24 of this  Agreement,  may terminate this Agreement by written
         notice to the other Party if any breach  shall not have been  corrected
         by the other  Party in breach  within  ninety  (90) days after  written
         notice is given by such Party not in breach complaining of such breach.

         (b)      In the event of breach  by  either  Party of their  respective
                  obligations under Article 24 of this Agreement,  the Party not
                  in breach shall have a right to terminate this  Agreement,  by
                  written notice to the other Party, in the event such breach is
                  not  corrected  by the  Party in breach  within  ten (10) days
                  after the written  notice is given by such Party not in breach
                  complaining of such breach.

                                       22

<PAGE>

3.       Either Party may terminate this Agreement by giving notice in the event
         of one or more of the following:

         (a)      Appointment  of a trustee or  receiver  for all or any part of
                  the assets of the other Party;

         (b)      Insolvency or bankruptcy of the other Party;

         (c)      Assignment of the other Party for the benefit of creditor;

         (d)      Attachment of the assets of the other Party;

         (e)      Expropriation  of the  business or assets of the other  Party;
                  and

         (f)      Dissolution, liquidation or winding up of the other Party.

If either Party is involved in any of the events  enumerated  in (a) through (f)
above,  it shall  immediately  notify the other Party of the  occurrence of such
event.

4.       In case of the  termination of this Agreement  pursuant to Article 32.2
         or  Article  32.3,  the  Party  terminating  in  accordance  with  this
         Agreement  shall  have an option to  purchase  the  Shares of the other
         Party at the book value to be decided by an internationally  recognized
         accounting  firm that is not the  principal  accounting  firm of either
         Party, if either Party so requests,  or to have the Company  dissolved.
         Provided that any such purchase of the nature aforesaid will be subject
         to receipt of all regulatory Approvals,  as may be applicable.  In case
         the Party  terminating  this  Agreement  does not offer to purchase the
         Shares of the other Party  and/or any such  purchase  is not  completed
         within 120 days of such  termination  inclusive of the time required to
         obtain  regulatory  approvals,  the other Party shall have the right to
         sell the  Shares to any other  third  party or shall  have the right to
         require  dissolution  of the  Company.  Provided  that,  the  right  to
         dissolution shall be exercisable within 30 days after the expiry of the
         said 120 days period.

5.       Upon  termination  of this Agreement or SPAR's ceasing to hold at least
         51% of the Shares in the Company,  the License Agreement.  and the User
         Agreement  shall  terminate  immediately  if  still in  effect,  unless
         otherwise agreed to by the Parties hereto.

Article 33.       Force Majeure

Neither  Party  shall be liable to the other  Party for  failure or delay in the
performance of any of its  obligations  under this Agreement for the time and to
the extent such  failure or delay is caused by riots,  civil  commotions,  wars,
hostilities   between  nations,   governmental   laws,  orders  or  regulations,
embargoes, actions by the government or any agency thereof, acts of God, storms,
fires, accidents,  strikes,  sabotages,  explosions,  acts of terrorism or other
similar contingencies beyond the reasonable control of the respective Parties.

                                       23

<PAGE>

Article 34.       Notices

All notices,  reports and other  communications given or made in accordance with
or in connection  with this Agreement  shall be made in writing and may be given
either by (i) personal  delivery,  email or facsimile (ii) overnight delivery or
(iii) registered air mail, if properly posted, with postage fully prepaid, in an
envelope properly  addressed to the respective  Parties at the address set forth
below or to such changed address as may be given by either Party to the other by
such written notice.  Any notice, etc by personal delivery or overnight delivery
or facsimile  transmission shall be deemed to have been given (7) days after the
dispatch.  In any event, if any notice,  etc. is received other than the regular
business hours of the recipient, it shall be deemed to have been given as of the
following business day of the recipient.

To:      SOLUTIONS         Solutions Integrated Marketing Services Ltd.
                           ATT:  Srikant Sastri, Managing Director
                           3rd Floor, Chandra Bhaan 67-68, Nehru Place,
                           New Delhi, India, 11 00 19
                           E-mail id:  srikant@.solutions-intg.com
                           Facsimile Number: 91-11-26226592

         SPAR              SPAR Group, Inc.
                           ATT:  Robert G. Brown, Chairman and CEO
                           580 White Plains Road, Tarrytown, NY, USA, 10591

                           E-mail id:rbrown@sparinc.com
                           Facsimile Number: +19143320741

Article 35.       Assignment

This  Agreement  and the rights and  obligations  hereunder  are personal to the
Parties hereto,  and shall not be assigned by either of the Parties to any third
party without the prior written consent of the other Party.

Article 36.       Dispute Resolution/Arbitration

36.1.    General. SPAR and SOLUTIONS agree to use their commercially  reasonable
         efforts to  resolve  any  dispute,  deadlock,  conflict,  disagreement,
         controversy or claim between the Parties  arising out of or relating to
         this  Agreement  including any deadlock in respect of any matter at the
         Board of Director  level of the Company (a  "Dispute")  in a timely and
         diligent  manner in accordance with this Article 36. SPAR and SOLUTIONS
         intend that the arbitration  procedures  outlined in Article 36.3 is to
         be used only if the efforts by the Parties to resolve a Dispute,  which
         efforts   shall  be  made  in  good  faith,   under  Article  36.2  are
         unsuccessful.

36.2.    Senior  Management.  Any Dispute  shall be,  within 30 days of the same
         arising,  referred  to by  either  Party to the  Senior  Management  of
         SOLUTIONS and SPAR.  Such notice of reference shall include a statement
         of the referring Party's  position.  Within ten (10) days of receipt of
         such notice of reference of a Dispute,  the Senior  Management  of both
         Parties  shall  meet at a  mutually  acceptable  time  and  place,  and
         thereafter,  as often as they reasonably deem necessary,  to attempt to
         resolve the Dispute.  All reasonable  requests for

                                       24

<PAGE>

         information  made by one Party to the  other  Party  shall be  honored.
         Senior  Management  shall take such steps as are mutually  agreeable to
         attempt to resolve such Dispute.  If the Dispute is not resolved to the
         mutual  satisfaction  of the Parties  despite the good faith efforts of
         Senior Management within thirty (30) days after it has been referred to
         Senior  Management,  either  Party  may  require  that the  Dispute  be
         resolved by binding arbitration as provided in Article 36.3.

         "Senior Management" for the purposes hereof means, in case of SPAR, the
         representatives  of SPAR on the  Board  of the  Company  and in case of
         SOLUTIONS  means the  representatives  of SOLUTIONS on the Board of the
         Company.

36.3.    Any Dispute which is not resolved under the  procedures  established in
         Article  36.2 shall be  resolved  by binding  arbitration  in New Delhi
         pursuant  to  Arbitration  and  Conciliation  Act,  1996  of  India  if
         initiated  by  SOLUTIONS,  or in New York City in  accordance  with the
         International Arbitration Rules of the American Arbitration Association
         if the  arbitration  is invoked by SPAR.  It is  clarified  that if one
         Party initiates the arbitration  proceedings then the other Party shall
         raise all  counterclaims  in that  arbitration  proceedings  only.  The
         arbitration  shall  be  conducted  by  three  (3)  arbitrators  and the
         proceedings shall be in English.

Article 37.       Implementation

The Parties hereby agree,  for  themselves,  their  successors,  heirs and legal
representatives,  to vote at Shareholders'  meetings, and to cause the Directors
they  nominate  to vote at Board  meetings  and to carry  out their  duties,  to
prepare,  execute and deliver or cause to be prepared,  executed  and  delivered
such further instruments and documents,  to take such other actions and to cause
the Articles of Association  of the Company,  Company work rules and other rules
and  Commercial  registry and any other document to be amended or adopted as may
be reasonably required to effect the provisions and intent of this Agreement and
the transactions contemplated hereby.

Article 38.       Governing Law

This Agreement and all questions arising out of or under this Agreement shall be
governed by and interpreted in accordance with the laws of India.

Article 39.       Waiver

Any failure of either  Party to enforce,  at any time or for any period of time,
any of the  provisions of this  Agreement  shall not be construed as a waiver of
such  provisions  or of the right of such Party  thereafter  to enforce each and
every such provision.

Article 40.       Entire Agreement

This Agreement  constitutes  the entire and only  agreement  between the Parties
hereto with respect to the subject  matter of this  Agreement and supersedes any
other prior commitments,  agreements or understandings,  written or verbal, that
the Parties hereto may have had. No  modification,  change and amendment of this
Agreement  shall be binding  upon the Parties  hereto

                                       25

<PAGE>

except by mutual  express  consent  in  writing  of  subsequent  date  signed by
authorized officer or representative of each of the Parties hereto.

Article 41.       Headings

The headings of articles and paragraphs  used in this Agreement are inserted for
convenience  of reference  only and shall not affect the  interpretation  of the
respective articles and paragraphs of this Agreement.

Article 42.       Language

This Agreement has been executed in the English.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
in two (2) copies by their respective duly authorized  officer or representative
as of the day first above written.


Solutions Integrated Marketing Services Ltd.

Signature: /s/ Srikant Sastri
           -----------------------------
              Name:  Srikant Sastri
              Title: Managing Director


SPAR Group International, Inc.

Signature: /s/ Robert G Brown
           -----------------------------
              Name:   Robert G Brown
              Title:  Chairman and CEO



                      JOINT VENTURE SHAREHOLDERS AGREEMENT

                                     between

                      FRIEDSHELF 401 (PROPRIETARY) LIMITED

                                       and

                         SPAR GROUP INTERNATIONAL, INC.

                                       and

                                  DEREK O'BRIEN

                                       and

                                   BRIAN MASON

                                       and

                                 SMD MERIDIAN CC

                                       and

                MERIDIAN SALES & MERCHANDISING (WESTERN CAPE) CC

                                       and

                          RETAIL CONSUMER MARKETING CC

                                       and

                              MERHOLD HOLDING TRUST

                                  in respect of

               SGRP MERIDIAN (PROPRIETARY) LIMITED ("THE COMPANY")




                                                Mallinicks Attorneys

                                                     Telephone +27 21 410 2200
                                                     Fax +27 21 410 9000

                                                     3rd Floor Granger Bay Court
                                                     Beach Road, V&A Waterfront
                                                     Cape Town 8001
                                                     PO Box 3667 Cape Town 8000


<PAGE>



                                TABLE OF CONTENTS


1.    CONDITIONS PRECEDENT.....................................................3
2.    EFFECTIVE DATE...........................................................4
3.    ESTABLISHMENT............................................................5
4.    BUSINESS PURPOSES........................................................5
5.    LOCATION.................................................................5
6.    MEMORANDUM AND ARTICLES OF ASSOCIATION...................................5
7.    CAPITAL..................................................................6
8.    PREPARATION OF ESTABLISHMENT OF THE COMPANY..............................6
9.    SECTION 197 TRANSFER.....................................................8
10.   ORDINARY AND EXTRAORDINARY GENERAL MEETINGS..............................9
11.   QUORUM AND RESOLUTION....................................................9
12.   MINORITY PROTECTIONS....................................................10
13.   EARNINGS AND LOSSES.....................................................10
14.   CAPITAL CONTRIBUTIONS...................................................11
15.   DIRECTORS...............................................................11
16.   ACCOUNTING PERIOD.......................................................18
17.   AUDITORS................................................................18
18.   INSPECTION OF ACCOUNTING RECORDS AND BOOKS..............................18
19.   INCREASE OF CAPITAL.....................................................19
20.   DEADLOCK................................................................19
21.   RESTRICTIONS ON TRANSFER OF SHARES......................................20
22.   PRE-EMPTIVE RIGHT AND OPTION............................................20
23.   CO-OPERATION IN FINANCING...............................................22
24.   BUSINESS AND SOFTWARE SUPPORT...........................................22
25.   NON-COMPETITION.........................................................23
26.   PUBLIC OFFERING.........................................................25
27.   CONFIDENTIAL INFORMATION................................................25
28.   TERMINATION.............................................................26
29.   FORCE MAJEURE...........................................................27
30.   NOTICES.................................................................27
31.   ASSIGNMENT..............................................................28
32.   ARBITRATION.............................................................28
33.   IMPLEMENTATION..........................................................29
34.   GOVERNING LAW...........................................................29
35.   WAIVER..................................................................29
36.   JOINT AND SEVERAL.......................................................30
37.   CO-OPERATION AND GOOD FAITH.............................................30
38.   ENTIRE AGREEMENT........................................................30
39.   COSTS...................................................................31
40.   HEADINGS AND INTERPRETATION.............................................31






<PAGE>
                                                                          Page 2


This  agreement  is made as on this day of 2004 by and  between  Friedshelf  401
(Pty) Ltd (registration number 2004/000538/07), a company organised and existing
under  the  laws  of  the   Republic  of  South   Africa   (hereinafter   called
"Friedshelf"),  SPAR Group  International  Inc. a company organized and existing
under  the laws of the State of  Nevada,  USA,  having  its  principal  place of
business at 580 White Plains Road, Tarrytown, NY, USA, 10591 (hereinafter called
"SPAR"), SMD Meridian CC (CK No. 2001/062950/23), Meridian Sales & Merchandising
(Western Cape) CC (CK No.  1998/55070/23),  Retail Consumer Marketing CC (CK No.
1996/00917/23) and Friedshelf  Holding Trust  (registration no. IT 151/99) Derek
Michael  O'Brien  (identity  number 451011 5047 18 9 ("O'Brien") and Brian Peter
Mason, identity number 551201 5030 08 2 ("Mason").



RECORDAL

WHEREAS,  SMD Meridian CC,  Meridian  Sales &  Merchandising  (Western Cape) CC,
Retail Consumer  Marketing CC and Merhold Holding Trust (together referred to as
the  "Meridian  Entities")  are engaged in the  business of retail  solution and
merchandising  services in South Africa, having a wide range of clients and also
having  knowledge and human  resources  with respect to retailing  businesses in
South Africa;

WHEREAS,  SPAR is  engaged  in retail  solution  businesses  in the USA,  having
computer  software useful for agency,  assistance,  instruction and reporting of
storefront  activities and also having operational know-how with respect to such
software;

WHEREAS,  Friedshelf and SPAR have  incorporated a company,  SGRP Meridian (Pty)
Ltd (the "Company")  (registration  number  2003/012518/07),  the equity whereof
will be held as to 49% (forty nine percent) by  Friedshelf  and as to 51% (fifty
one  percent)  by SPAR to jointly  conduct a retail  solution  business in South
Africa (hereinafter called "territory"); and

WHEREAS,  SPAR  proposes to  contribute a software  licence  agreement,  annexed
hereto as annexure "A", software set-up,  software  training,  computer hardware
and business support to the Company;


WHEREAS,  the Meridian Entities and Friedshelf will procure that they contribute
the existing client base and certain office equipment and office supplies of the
Meridian  Entities to the Company and WHEREAS  such client base will require the
proper  rendering of services to ensure its optimal use, the Company  undertakes
to appoint  Friedshelf or such other company as agreed  between SPAR,  Mason and
O'Brien as a  consultant  to the  Company to oversee  and 



<PAGE>
                                                                          Page 3


manage the  day-to-day  operations  and management of the business in accordance
with the terms of the consultancy agreement annexed hereto as annexure "B".

NOW,  THEREFORE,  in  consideration of the mutual covenants and agreement herein
contained, the parties hereto agree as follows:


1.       CONDITIONS PRECEDENT

         1.1      This  agreement  is  conditional  on the  satisfaction  of the
                  following conditions precedent:

                  1.1.1    that the net  turnover of the  Meridian  Entities for
                           the financial year ending 30 September 2003, will not
                           be less than R38 000  000,00  (thirty  eight  million
                           Rand),  calculated  on the same  basis  and using the
                           same  accounting  policies and  principles as used in
                           the 30 September  2003 year-end  accounts  previously
                           disclosed  to  SPAR  which  are  attached  hereto  as
                           annexure "C" (the "Accounts");

                  1.1.2    that the net  turnover of the  Meridian  Entities for
                           the 6 (six) months ending 31 March 2004,  will not be
                           less  than R15 000  000,00  (fifteen  million  Rand),
                           calculated  on the  same  basis  and  using  the same
                           accounting  policies  and  principles  as used in the
                           Accounts;

                  1.1.3    that  the   Meridian   Entities   will  not  have  an
                           accumulated  loss in  excess  of R1 100  000,00  (one
                           million one hundred  thousand Rand) for the financial
                           year ending 30 September 2003, calculated on the same
                           basis and using the same accounting  policies as used
                           in the Accounts;

                  1.1.4    that  the   Meridian   Entities   will  not  have  an
                           accumulated  loss in  excess  of R1 350  000,00  (one
                           million  three hundred and fifty  thousand  Rand) for
                           the 6 (six) months  ending 31 March 2004,  calculated
                           on the same  basis  and  using  the  same  accounting
                           policies as used in the Accounts;

                  1.1.5    that  the  Meridian   Entities  and  Friedshelf  will
                           transfer  to the  Company  the legal  and  beneficial
                           ownership of the Meridian client 



<PAGE>
                                                                          Page 4


                           base and such office  equipment  and office  supplies
                           utilised  by  the  Meridian  Entities   necessary  to
                           properly conduct of their business;

                  1.1.6    the  completion,  to the  satisfaction  of SPAR, of a
                           financial  and legal due  diligence  on the  Meridian
                           Entities and Friedshelf; and

                  1.1.7    that  Friedshelf,  or such  other  company  as agreed
                           between  SPAR,  Mason and O'Brien,  will enter into a
                           consultancy  agreement  with the  Company in the form
                           annexed hereto as annexure "B";

         1.2      The  conditions  precedent are  stipulated  for the benefit of
                  SPAR who shall be entitled,  in its sole discretion,  to waive
                  them, either in whole or in part.

         1.3      Unless the  conditions  precedent  are fulfilled or waived (as
                  the case may be),  by 1 May 2004 (or such later date as may be
                  mutually  agreed between the parties) this agreement  shall be
                  of no force or effect.

         1.4      The parties shall use all reasonable endeavours to procure the
                  fulfillment of the conditions precedent.

         1.5      Should this  agreement  become of no force or effect by reason
                  of the  provisions  of clause 1.3,  then the parties  shall be
                  restored, as near as may be possible, to the position in which
                  they would have been had this  agreement not been entered into
                  and no shareholder  shall have any claims against the other as
                  a result of the failure of the  conditions  precedent,  except
                  for such  damages  (if any) as may  result  from a breach  the
                  provisions of clause 1.4.


2.       EFFECTIVE DATE

         This agreement  shall become  effective on 1 April 2004,  regardless of
         the date of execution hereof.






<PAGE>
                                                                          Page 5




ORGANIZATION OF THE COMPANY
---------------------------


3.       ESTABLISHMENT

         It is  recorded  that the  parties  have  caused  the  "Company"  to be
         incorporated under the laws of the Republic of South Africa.


4.       BUSINESS PURPOSES

         The business  purposes of the Company  shall include but not be limited
         to the following:

         4.1      providing  retail  merchandising  and  product   demonstration
                  services

         4.2      agency, assistance, instruction and report of storefront sales
                  activities;

         4.3      implementation  of market  research  and  analysis  of results
                  thereof;

         4.4      assembly of setups used for sales promotion;

         4.5      consulting regarding store management;

         4.6      development and sale of management system regarding retailing;

         4.7      designing and sale of database; and

         4.8      any and all  businesses  incidental  or relating to any of the
                  foregoing.


5.       LOCATION

         The  Company  shall  have its main  office at such  address as shall be
         mutually agreed between the shareholders.


6.       MEMORANDUM AND ARTICLES OF ASSOCIATION

         The  memorandum  and articles of association of the Company shall be in
         the form attached hereto as annexure "D".



<PAGE>
                                                                          Page 6



7.       CAPITAL

         7.1      The  Company  is  a  private  company  duly   incorporated  in
                  accordance  with the  company  laws of the  Republic  of South
                  Africa and shall,  at the effective  date,  have an authorised
                  share capital of R1 000.00 (one thousand  Rand) divided into 1
                  000 (one thousand) shares with a par value of R1.00 (one Rand)
                  each, ranking pari passu in all respects.

         7.2      On the  effective  date or so soon  thereafter  as  reasonably
                  possible:

                  7.2.1    SPAR shall  subscribe  in cash for 510 (five  hundred
                           and ten)  shares in the  Company  at their par value;
                           and

                  7.2.2    Friedshelf  shall  subscribe  in cash  for 490  (four
                           hundred  and  ninety)  shares in the Company at their
                           par value.

         7.3      The issued share  capital of the Company will  accordingly  be
                  held as follows:

                  7.3.1    Friedshelf:  490 (four  hundred  and  ninety)  shares
                           representing   49%  (forty   nine   percent)  of  the
                           Company's total issued share capital; and

                  7.3.2    SPAR: 510 (five hundred and ten) shares  representing
                           51% (fifty one percent) of the Company's total issued
                           share capital.


PREPARATION OF ESTABLISHMENT OF THE NEW COMPANY
-----------------------------------------------

8.       PREPARATION OF ESTABLISHMENT OF THE COMPANY

         8.1      Each  party  shall  take its role as  described  below for the
                  preparation of the commencement of the Company's business.

         8.2      SPAR shall, for no consideration:

                  8.2.1    make certain  proprietary  software  available to the
                           Company pursuant to a licence  agreement to the value
                           of US$540 000 (five  hundred  and forty  thousand  US
                           dollars),  such  licence  agreement to be in the form
                           attached   hereto  as  annexure  "C"  (the   "license
                           agreement").  For  reference,  the license  agreement
                           includes the obligations of SPAR to:


<PAGE>
                                                                          Page 7


                           8.2.1.1  localize  and set up  software  provided  by
                                    SPAR to work in South Africa;

                           8.2.1.2  consult on the organization of merchandising
                                    services: and;

                           8.2.1.3  give advice on budgeting and  development of
                                    each business plan.

                  8.2.2    provide  software  set up to the Company to the value
                           of US$40 000.00;

                  8.2.3    provide software training to the Company to the value
                           of US$25 000.00;

                  8.2.4    provide  computer  hardware  set up to the Company to
                           the value of US$20 000.00; and

                  8.2.5    provide  3 (three)  years'  business  support  to the
                           Company to the value of US$165 000.00.

         8.3      The  Meridian   Entities,   Mason  and  O'Brien  undertake  or
                  undertake   to  procure   that   Friedshelf   shall,   for  no
                  consideration:

                  8.3.1    contribute  the  existing  business  of the  Meridian
                           Entities to the Company which business shall comprise
                           at least the client base,  certain  office  equipment
                           and office supplies;

                  8.3.2    arrange  meetings  with  their  existing  clients  to
                           promote the Company's business; and

                  8.3.3    contribute  the  employees  employed by the  Meridian
                           Entities as at 1 April 2004 to the Company.

         8.4      For the avoidance of doubt, it is recorded that the Company is
                  not:

                  8.4.1    acquiring  any of the accounts  receivable,  accounts
                           payable,   fixed   assets   or   stock  in  trade  or
                           inventories of the Meridian Entities; and

                  8.4.2    acquiring any of the assets of the Meridian Entities,
                           other  than the  client  base,  office  supplies  and
                           office furniture; and


<PAGE>
                                                                          Page 8

                  8.4.3    assuming any liabilities of the Meridian Entities.


9.       SECTION 197 TRANSFER

         9.1      As a  consequence  of the  contributions  made by the Meridian
                  Entities to the Company in accordance with clause 8.3, part of
                  the business of the Meridian  Entities will be  transferred to
                  the  Company  on  1  April  2004  ("date  of  transfer")   and
                  accordingly,  the parties agree that Section 197 of the Labour
                  Relations  Act,  No. 66 of 1995 ("the  LRA"),  as amended,  is
                  applicable  to  the  transfer.   Accordingly,   the  following
                  provisions   will  apply  as  between   the  Company  and  the
                  employees:

                  9.1.1    the Company is automatically substituted in the place
                           of the Meridian  Entities in respect of all contracts
                           of   employment   of  the   employees   in  existence
                           immediately before the date of transfer;

                  9.1.2    all the rights and  obligations  between the Meridian
                           Entities  and an employee at the time of the transfer
                           continue  in force as if they  had  been  rights  and
                           obligations between the Company and the employee;

                  9.1.3    anything  done before the  transfer by or in relation
                           to the Meridian Entities,  including the dismissal of
                           an employee  or the  commission  of an unfair  labour
                           practice   or  act  of  unfair   discrimination,   is
                           considered to have been done by or in relation to the
                           Company; and

                  9.1.4    the  transfer   does  not   interrupt  an  employee's
                           continuity of employment  and an employee's  contract
                           of employment  continues  with the Company as if with
                           the Meridian Entities.

         9.2      The Company shall be bound by any arbitration  award (referred
                  to in 197(5)(b)(1)) and any collective agreements (referred to
                  in  197(5)(b)(ii)  and  (iii))  which were  applicable  to the
                  employees prior to the date of transfer.

         9.3      The  parties  acknowledge  that in terms of Section 197 of the
                  LRA,  the  parties  are  required  to  agree in  writing  to a
                  valuation (hereinafter referred to as the statutory valuation)
                  in respect of the items listed in Section  197(7)(a)(i)-(iii).
                  The  parties  have  agreed to the  statutory  valuation  which
                  written agreement is annexed hereto as Annexure "E".


<PAGE>
                                                                          Page 9


         9.4      The Meridian Entities, Mason and O'Brien warrant and represent
                  to the  Company  and to SPAR that there are no claims  whether
                  actual or  pending,  against any of the  Meridian  Entities in
                  respect  of any  of the  employees  to be  transferred  to the
                  Company pursuant to this clause 9.

         9.5      The  Meridian   Entities,   Mason  and  O'Brien  undertake  to
                  indemnify the Company  against any claim of whatsoever  nature
                  arising out of a breach of the warranty and representation set
                  out in 9.4 together with all costs associated therewith.


GENERAL MEETING OF SHAREHOLDERS


10.      ORDINARY AND EXTRAORDINARY GENERAL MEETINGS

         10.1     The annual general meeting of  shareholders  shall be convened
                  by  resolution  of the  board of  directors  and held in South
                  Africa or any other place  within 3 (three)  months  after the
                  expiration of each financial year end of the Company or at any
                  other  time  agreed  to  by  the   shareholders   (subject  to
                  compliance with the Companies Act 61 of 1973).

         10.2     An extraordinary  general meeting of the shareholders shall be
                  convened by a resolution  of the board of  directors  whenever
                  deemed necessary.


11.      QUORUM AND RESOLUTION

         11.1     A quorum  necessary  for a valid  meeting of the  shareholders
                  shall be at least so many shareholders representing 55% (fifty
                  five percent) of the Company's total issued share capital.

         11.2     All  resolutions  of  shareholders  shall  be  adopted  by the
                  affirmative  vote of  shareholders  holding  not less than 55%
                  (fifty  five  percent) of the  Company's  total  issued  share
                  capital  save for  those  resolutions  which,  in terms of the
                  Companies Act 61 of 1973, require a higher level of acceptance
                  to be effective.


<PAGE>
                                                                         Page 10


12.      MINORITY PROTECTIONS

         Notwithstanding anything to the contrary contained in this agreement or
         the memorandum  and articles of association of the Company,  a majority
         shareholder  vote shall consist of at least 55% (fifty five percent) of
         the  Company's  total  issued  share  capital to be  considered a valid
         majority.  Any shareholder vote consisting of less than 55% (fifty five
         percent)  of  the  Company's   total  issued  share  capital  shall  be
         considered a minority.


EARNINGS AND LOSSES
-------------------


13.      EARNINGS AND LOSSES

         13.1     SPAR and Friedshelf shall, subject to 13.2 below, share in the
                  net  earnings  or  losses  of the  Company  based  upon  their
                  respective ownership.

         13.2     Notwithstanding  13.1 above,  for the first three years of the
                  Company's  operation  after the  effective  date (the "Maximum
                  Loss  Period"),  if in any year during the Maximum Loss Period
                  the net loss of the Company exceeds R2 200 000,00 (two million
                  two  hundred   thousand  Rand)  (the  Annual  Maximum  Loss"),
                  Friedshelf,  O'Brien and Mason jointly and severally undertake
                  to make a cash  payment to the Company  equal to the amount of
                  the  Company's  net loss in excess of the Annual  Maximum Loss
                  (the  "Annual  Maximum  Loss  Payment"),   provided  that,  in
                  calculating  the Annual Maximum Loss for the first 12 (twelve)
                  month  period  during the  Maximum  Loss  Period,  the parties
                  shall, in calculating  whether the Company's loss is in excess
                  of the  Annual  Maximum  Loss,  allow up to the amount of R500
                  000,00 (five  hundred  thousand  Rand) to be excluded from the
                  calculation  of any Annual  Maximum Loss which the Company may
                  incur, provided that Friedshelf can reasonably  demonstrate to
                  SPAR  that  such  amount of up to R500  000,00  (five  hundred
                  thousand  Rand)  represents  start-up  costs  incurred  by the
                  Company in  establishing  and setting up the new joint venture
                  business.  For the  avoidance of doubt,  the allowance of R500
                  000,00 (five hundred thousand Rand) in respect of the start-up
                  costs of the Company  shall only apply in respect of the first
                  12  (twelve)  months  following  the  effective  date  and not
                  thereafter.


<PAGE>
                                                                         Page 11

         13.3     Any  payment  pursuant  to  clause  13.2  shall  increase  the
                  shareholders' equity in the Company.

         13.4     The Annual  Maximum Loss Payment  shall be paid by  Friedshelf
                  and/or   O'Brien   and/or  Mason  to  the  Company  within  45
                  (forty-five)  days after the issue of the annual  audit report
                  by the Company's auditors.

         13.5     Given that the  effective  date of this  agreement  is 1 April
                  2004,  the Annual  Maximum  Loss  Payment  calculated  for the
                  period  ending  December  31,  2004  will be  calculated  on a
                  nine-month  period,  being the 9 (nine)  month period from the
                  effective date to 31 December 2004.

         13.6     If any Annual  Maximum  Loss Payment  calculation  is for less
                  than a 12 month  period,  the  Annual  Maximum  Loss  shall be
                  reduced  by  an  amount  equal  to  the  Annual  Maximum  Loss
                  multiplied  by the  product of the  remainder  of 12 minus the
                  number  of  months  included  in the  calculation  divided  by
                  twelve.

         13.7     It is the  intention  of the  parties  that the  Maximum  Loss
                  Period  shall  continue for a period of 36 (thirty six) months
                  commencing on the effective  date.  Therefore,  a short-period
                  Annual  Maximum Loss Payment will be calculated for the period
                  of 1 January 2007 through 31 March 2007.

         13.8     If the effective  date of this agreement is later than 1 April
                  2004, the period on which the short-period Annual Maximum Loss
                  Payment is  calculated  shall be  adjusted so that the Maximum
                  Loss Period shall equal 36 (thirty six) months.


14.      CAPITAL CONTRIBUTIONS

         Capital contributions  necessary for the working capital of the Company
         will be made as to 51% (fifty one percent) by SPAR and as to 49% (forty
         nine percent) by Friedshelf.


BOARD OF DIRECTORS AND OFFICERS
-------------------------------


15.      DIRECTORS

         15.1     The overall supervision, control and management of the affairs
                  of the  Company  shall be  vested  in the  board  who shall be
                  entitled to delegate the 


<PAGE>
                                                                         Page 12


                  day-to-day  running  and  management  of the  business  of the
                  Company to officers nominated by the board.

         15.2     Friedshelf  and SPAR shall each be  entitled  but shall not be
                  obliged to appoint  two  directors  to the board and to remove
                  any such  director or to replace any such  director  who is so
                  removed or who ceases for any other reason to be a director of
                  the Company.

         15.3     Each  director  shall be appointed  for an initial term of one
                  year and shall on the expiry of the initial period be entitled
                  to stand for re-election.

         15.4     The   shareholders   may  appoint   additional   non-executive
                  directors  to the  board to add  value  and  expertise  to the
                  Company  at a fee to be  agreed  between  the  board  and such
                  non-executive directors.

         15.5     Each director  shall be entitled,  in writing,  to appoint any
                  other  director as his  alternate  at any meeting of directors
                  and such  alternate  shall be entitled to exercise the vote of
                  the  director  whom  he  represents  in  accordance  with  the
                  instructions  of such  director or in the  absence  thereof in
                  such manner that the  alternate  deems fit, in addition to the
                  vote which he may exercise in his capacity as director.

         15.6     Any appointment  and/or removal and/or replacement in terms of
                  this clause  shall be made by written  notice to the  Company,
                  signed by the  shareholder  exercising such right and shall be
                  operative  as soon as such  written  notice is received at the
                  registered offices of the Company.

         15.7     The quorum  necessary for the  transacting  of business of the
                  board shall be at least 3 (three) directors.

         15.8     If a  quorum  is not  present  at a  directors'  meeting,  the
                  chairman  of the meeting  shall  postpone  such  meeting for a
                  period of 7 (seven) days and notice of such postponed  meeting
                  including the date,  time and place of such postponed  meeting
                  shall be sent to the  directors in terms of the  provisions of
                  this agreement.

         15.9     If a quorum is not present at a postponed  meeting as referred
                  to in clause 15.8 and after proper notice has been given,  any
                  directors' resolution to be taken at such meeting shall:


<PAGE>
                                                                         Page 13


                  15.9.1   fall away and be of no effect; and

                  15.9.2   be referred to a shareholders' meeting to be convened
                           for that purpose  within 14  (fourteen)  days of such
                           postponed meeting.

         15.10    The Company undertakes to procure that:-

                  15.10.1  at least 7 (seven) days' prior  written  notice shall
                           be given to the directors of any directors'  meetings
                           provided that the directors may unanimously  agree to
                           reduce this period or waive the  requirement  for any
                           particular meeting;

                  15.10.2  at  least  7  (seven)  days  before  any   directors'
                           meeting, the agenda of the matters to be discussed at
                           such directors' meeting is given to the directors. If
                           the agenda for the meeting is not given  timeously to
                           the  directors,  no  meeting  shall be held until the
                           agenda is given  timeously to the  directors,  unless
                           the directors unanimously agree otherwise.

         15.11    The following provisions shall apply to voting by directors:

                  15.11.1  each director  shall have 1 (one) vote on all matters
                           submitted to the board;

                  15.11.2  the  affirmative  vote of the  majority of  directors
                           shall be required to approve any proposed  resolution
                           which   shall   include,   but  not  be  limited  to,
                           resolutions relating to the following matters;;

                           15.11.2.1    any  amendment  or  modification  to the
                                        articles of association;

                           15.11.2.2    any   increase   or   decrease   in  the
                                        authorised   share  capital  or  paid-in
                                        capital of the company;

                           15.11.2.3    any  issuance of new shares or any other
                                        kind of equity securities or instruments
                                        convertible  into equity  securities  or
                                        the   decision  to  undertake  a  public
                                        offering as contemplated in clause 26;

                           15.11.2.4    any issuance of debentures;


<PAGE>
                                                                         Page 14

                           15.11.2.5    any change in number or length of tenure
                                        of directors;

                           15.11.2.6    the establishment or the acquisition and
                                        purchase  of  other  businesses,  either
                                        directly  or   indirectly  by  means  of
                                        purchasing  shares  in or  assets of the
                                        company  to  which  such   business  may
                                        belong;

                           15.11.2.7    any change in the main  business  of the
                                        company;

                           15.11.2.8    any  disposal  of  the  business  or the
                                        assets  of the  Company  (in the case of
                                        assets, otherwise than for full value in
                                        the  normal  course of  business  of the
                                        Company);

                           15.11.2.9    the   appointment  of  or  dismissal  of
                                        senior executives of the Company;

                           15.11.2.10   any matter  relating to the financing or
                                        capital  of  borrowings  of the  Company
                                        which  would have the effect of directly
                                        or indirectly reducing the proportionate
                                        shareholding  of any  shareholder in the
                                        Company;

                           15.11.2.11   the  payment  of  any  dividend  by  the
                                        Company;

                           15.11.2.12   the issue or  giving of any  guarantees,
                                        suretyships, letters of comfort or other
                                        similar   undertakings   of  any  nature
                                        whatsoever;

                           15.11.2.13   the pledging, mortgaging,  hypothecating
                                        or  encumbering  of  any  assets  of the
                                        company in any manner whatsoever;

                           15.11.2.14   the   borrowing  of  any  money  or  the
                                        incurring of any debt  otherwise than in
                                        accordance with the annual budget;

                           15.11.2.15   any capital expenditure in excess of the
                                        annual budget from time to time;


<PAGE>
                                                                         Page 15

                           15.11.2.16   any change in the basis of accounting or
                                        accounting   policies  from  those  used
                                        during   the    immediately    preceding
                                        financial   year   otherwise   than   in
                                        accordance   with   Generally   Accepted
                                        Accounting Practice;

                           15.11.2.17   the purchase,  sale, hiring,  letting or
                                        sub-letting  of any  immovable  property
                                        otherwise  than in  accordance  with the
                                        Company's annual budget;

                           15.11.2.18   any  agreement  between  the company and
                                        any   shareholder   or  any   associated
                                        Company of any shareholder;

                           15.11.2.19   the  determination  of the  scope of any
                                        director's   or  group   of   directors'
                                        authority  and  the  delegation  of  any
                                        powers    including    the    power   to
                                        re-delegate;

                           15.11.2.20   any decision not to insure (or to insure
                                        for a lesser amount)  against such risks
                                        as may be  recommended  by the Company's
                                        insurance brokers;

                           15.11.2.21   any  termination  of or amendment to the
                                        Company's   retirement  or  medical  aid
                                        funding (if any);

                           15.11.2.22   the   delegation  of  the  functions  or
                                        actions referred to above in this clause
                                        15 to any one  director or  committee of
                                        directors   or  any   other   person  or
                                        persons;

                           15.11.2.23   any  proposal to the general  meeting of
                                        shareholders  or  action by the board of
                                        directors for the matters as provided in
                                        clause 15 hereof;

                           15.11.2.24   any  investment  or  commitment  of  the
                                        Company  in  amounts   individually   in
                                        excess of R150 000.00  (one  hundred and
                                        fifty thousand Rand) or in the aggregate
                                        in excess  of R250 000 .00 (two  hundred
                                        and fifty thousand Rand).


<PAGE>
                                                                         Page 16

                           15.11.2.25   any loan or credit  taken by the Company
                                        otherwise than in the ordinary course of
                                        business  or in  excess  of R150  000.00
                                        (one hundred and fifty thousand Rand);

                           15.11.2.26   execution,  amendment or  termination of
                                        agreements    or    commitments     with
                                        Friedshelf,  SPAR or their  subsidiaries
                                        or affiliates;

                           15.11.2.27   adoption  or  amendment  of  the  annual
                                        budgets  and  business  plan  subject to
                                        consequent approval by the shareholder's
                                        general meeting;

                           15.11.2.28   adoption or any material modification of
                                        major    regulations    or   procedures,
                                        including   any   employee    rules   or
                                        handbook;

                           15.11.2.29   initiating  or settling any  litigation,
                                        arbitration   or  other  formal  dispute
                                        settlement  procedures or forgiveness of
                                        any  obligation  owed to the  Company in
                                        excess of R150 000.00  (one  hundred and
                                        fifty thousand Rand);

                           15.11.2.30   approval   of   the   Company's   annual
                                        financial statements and changing of the
                                        Company's    accounting   policies   and
                                        practices;

                           15.11.2.31   establishment   or   amendment   to  the
                                        conditions    of   employment   of   the
                                        Company's officers;

                           15.11.2.32   the  formation of any  subsidiary of the
                                        Company,   entry  into  (or   subsequent
                                        termination   of)  any  joint   venture,
                                        partnership or similar agreements;

                           15.11.2.33   entering  into,  amending or terminating
                                        any contract  with/or  commitment to any
                                        director or shareholder; and

                           15.11.2.34   entering    into   any    agreement   or
                                        commitment  to provide goods or services
                                        outside the territory;


<PAGE>
                                                                         Page 17

                  15.11.3  should  the  board  be  unable  to  pass  or  reach a
                           decision on any resolution  then that resolution will
                           be deemed to  constitute  a deadlock.  Such  deadlock
                           between  the  directors  will not afford a ground for
                           the  winding-up  of  the  Company  but  will,  at the
                           request  of any  director,  then  be  dealt  with  in
                           accordance   with  the   provisions   of   clause  20
                           (Deadlock);

                  15.11.4  the   directors'   remuneration   and  fees  will  be
                           determined from time to time by the  shareholders and
                           shall constitute  market-related  packages taking all
                           relevant factors into consideration provided that any
                           director who is employed by the Company  shall not be
                           entitled  to  additional  remuneration  for holding a
                           board position.

         15.12    The  shareholders  may appoint the chairman of the board,  who
                  shall have  neither a second nor casting  vote at any board or
                  shareholders' meeting.

         15.13    The board hereby appoints Brian Mason as its managing director
                  to manage the day-to-day business of the Company.

         15.14    Meetings of the board will be held at least quarterly provided
                  that any director shall by written notice,  accompanied by the
                  full agenda for the meeting, to the Company (at its registered
                  office) and to all of the  directors,  have the right,  at any
                  time, to convene a meeting of the board.

         15.15    A resolution of the directors of the Company signed by all the
                  directors of the Company shall be valid and effective as if it
                  had been adopted at a duly convened meeting of directors.  Any
                  such resolution may consist of several documents in like form,
                  each signed by one or more of such directors.

         15.16    Directors  of the  Company may  participate  in and act at any
                  board  meeting  through the use of a  conference  telephone or
                  other  communication  equipment  by means of which all persons
                  participating  in  the  meeting  can  hear  each  other.  Such
                  participation  shall  constitute  attendance  and  presence in
                  person  at  the   meetings   by  the   person  or  persons  so
                  participating.

         15.17    The  directors  shall  be  entitled  to be  reimbursed  by the
                  Company  in  respect  of all  reasonable  costs  and  expenses
                  properly  incurred  by them in  respect  of the  exercise  and
                  performance  of their  duties  provided  that the  appropriate


<PAGE>
                                                                         Page 18

                  documentation in substantiation  thereof shall be submitted to
                  the Company upon request.

         15.18    A written record of all meetings of the board of directors and
                  all  decisions  made  by it  shall  be  made  as  promptly  as
                  practicable  after each  meeting of the board of  directors by
                  any  director  nominated  by the  board  or any  other  person
                  nominated  by the board and such  record  shall be kept by the
                  company and signed by each of the directors.


16.      ACCOUNTING PERIOD

         Each  accounting  period  of the  Company  shall end on the 31st day of
         December in each year.


17.      AUDITORS

         17.1     Notwithstanding  anything to the  contrary  contained  in this
                  agreement or in the Company's  articles of  association,  SPAR
                  shall  have the  sole and  absolute  discretion  and  right to
                  nominate  and vary the  auditors of the  Company.  The initial
                  appointee shall be Ernst & Young.

         17.2     Notwithstanding  clause 17.1 above, any shareholder shall have
                  the right,  at its own  expense,  to  appoint  an  independent
                  auditor  to  conduct  a  review  of  the  Company's  financial
                  position  for any purpose  contemplated  in this  agreement or
                  otherwise and the parties shall afford such auditor reasonable
                  access to the Company's accounting books and records.


18.      INSPECTION OF ACCOUNTING RECORDS AND BOOKS

         18.1     The Company  shall  arrange an annual audit on the  accounting
                  records  and books and shall  submit a report of such audit to
                  each  shareholder  within thirty (30) days from the completion
                  of the audit.

         18.2     The auditors of the Company shall be appointed  from a list of
                  the top five South African  accounting  firms. Such accounting
                  firm  shall  audit  the  accounting  records  and books of the
                  Company   and  any  other   matters   relating,   directly  or
                  indirectly,  to the  financial  condition of the Company.  The
                  auditors' 


<PAGE>
                                                                         Page 19

                  fee for the  inspection  and audit  mentioned  above  shall be
                  borne by the Company.


         18.3     The Company  shall keep true and accurate  accounting  records
                  and books with regard to all of its  operations  in accordance
                  with generally  accepted  accounting  principals  consistently
                  applied ("GAAP") in the territory.  All accounting records and
                  books shall be kept ready for  inspection by the  shareholders
                  or by their authorized  representative.  If requested by SPAR,
                  the Company shall  co-operate  with respect to each  financial
                  period to provide  such  information  as  required  by SPAR to
                  reconcile the Company's  financial  statements  with U.S. GAAP
                  reporting requirements of SPAR.


19.      INCREASE OF CAPITAL

         If at any time after its  formation,  the Company  increases  its share
         capital,  Friedshelf  and SPAR  shall have a  pre-emptive  right to new
         shares to be issued for such capital  increase in  proportion  to their
         respective shareholding in the Company.


20.      DEADLOCK

         20.1     Should:

                  20.1.1   there be any  deadlock  at any  meeting of  directors
                           and/or at any general meeting of the Company; or

                  20.1.2   a quorum at any  meeting of  directors  and/or at any
                           general meeting of the Company be broken;

                  then in such event the parties  shall attempt to resolve these
                  issues by  mediation  as soon as  possible  and  failing  such
                  resolution  within 21 (twenty one)  business days after having
                  been referred to mediation,  any director or  shareholder  (as
                  the case may be) shall be  entitled  by written  notice to the
                  Company  to claim  that all or any of the  matters  which were
                  under discussion  and/or were to be discussed at that meeting,
                  be submitted to and decided by  arbitration in terms of clause
                  32.

         20.2     Notwithstanding  that a deadlock  may have  arisen in terms of
                  clause 20.1, such deadlock shall not alone constitute a ground
                  for any  shareholder  to apply to court for the  winding up of
                  the Company.


<PAGE>
                                                                         Page 20


TRANSFER OF SHARES
------------------


21.      RESTRICTIONS ON TRANSFER OF SHARES

         Except as provided in clause 22 hereof, no shareholder  shall,  without
         the prior  written  consent  of the other  shareholder,  assign,  sell,
         transfer,  pledge, mortgage, or otherwise dispose of all or any part of
         its shares  (including  its right to  subscribe  to new  shares) in the
         Company to any third party.


22.      PRE-EMPTIVE RIGHT AND OPTION

         22.1     After  three  (3)  years  from  the  effective  date  of  this
                  agreement, if either party hereto (hereinafter called "selling
                  party")  wishes to  transfer  and sell all but not part of its
                  shares in the Company,  the selling party shall furnish to the
                  other party (hereinafter  called "recipient") a written notice
                  of the proposed  purchaser,  the offer  purchase price for the
                  shares  and any other  material  terms and  conditions  of the
                  proposed sale.

         22.2     The recipient  shall have the right to purchase such shares by
                  giving the selling  party  written  notice of its intention to
                  purchase  the same  within  ninety  (90) days from the date of
                  receipt by the recipient of the selling party's  notice,  upon
                  the same terms and  conditions  as  described  in the  selling
                  party's notice.

         22.3     In the event that the recipient elects to purchase the selling
                  party's  shares within the 90 (ninety) day period  referred to
                  in clause 22.2, the recipient shall be obliged to complete the
                  sale and purchase of the shares  within 14 (fourteen  days (or
                  such  further  period  of time as may be  agreed  between  the
                  selling  party and the  recipient)  of receipt by the  selling
                  party of the  recipient's  notice of its intention to purchase
                  the shares, failing which, the selling party shall be entitled
                  to sell the shares at the same price and on the same terms and
                  conditions as described in the selling party's notice given in
                  terms of clause 22.1.

         22.4     The  selling  party may sell such shares at the same price and
                  on the same terms and  conditions  as  described in its notice
                  after  ninety  (90)  days have  elapsed  after the date of the
                  recipient's  receipt of such notice unless the recipient gives
                  a notice to the selling  party of its intention to acquire the
                  selling party's shares.  


<PAGE>
                                                                         Page 21

         22.5     Any  person to whom  shares  in the  Company  are  transferred
                  pursuant to this clause 22 shall be bound by the terms of this
                  agreement.

         22.6     Three (3) years after the  effective  date of this  agreement,
                  either  party (the  "offeror")  may at any time make a written
                  offer (which shall specify the price offered per share) to buy
                  all of the  other  party's  (the  "recipient")  shares  in the
                  Company. The recipient shall then, either accept the offer and
                  sell all of its shares under the terms and  conditions  of the
                  offer, or purchase the offeror's  shares at the same price and
                  on the same terms and  conditions as stipulated in the written
                  offer.

         22.7     If the  recipient  does not  respond in writing to the initial
                  offer  within 120 (one  hundred and twenty) days of receipt of
                  the  written  offer,  the  recipient  shall be  deemed to have
                  accepted the offer to sell its shares to the offeror.

         22.8     The  parties  shall  co-operate  to effect the closing of such
                  purchase  and sale of the  shares  held by the  selling  party
                  within 14  (fourteen)  days of the elapse of the period of 120
                  (one  hundred  and  twenty)  days  referred  to above (or such
                  further period as may be agreed between the parties).

         22.9     At such closing, the purchasing party shall pay to the selling
                  party the purchase  price in cash, and the selling party shall
                  deliver   to   the   purchasing   party   share   certificates
                  representing  all of the  selling  party's  shares held in the
                  Company, free and clear of any liens and encumbrances.

         22.10    For the avoidance of doubt,  neither SPAR nor Friedshelf shall
                  have the right to sell, cede,  alienate or in any way transfer
                  any of its  shares  in the  Company  for a period of 3 (three)
                  years from the effective date.

         22.11    For the purposes of this  agreement,  an offer shall be deemed
                  to be received at the following times:

                  22.11.1  if delivered by hand during the normal business hours
                           of the addressee at the  addressee's  domicilium  for
                           the  time  being,  it shall be  presumed,  until  the
                           contrary  is  proved,  to have been  received  by the
                           addressee at the time of delivery; or

                  22.11.2  if given by telex or by facsimile, it shall be deemed
                           (in the  absence  of proof to the  contrary)  to have
                           been  received  within  24  (twenty  


<PAGE>
                                                                         Page 22

                           four) hours of  transmission  where it is transmitted
                           during  normal   business   hours  of  the  receiving
                           instrument  and  within  48  (forty  eight)  hours of
                           transmission  where it is  transmitted  outside those
                           business hours.


23.      CO-OPERATION IN FINANCING

         23.1     SPAR and  Friedshelf  shall  agree  on an  initial  amount  of
                  working  capital  for the  Company  and will  provide  working
                  capital loans to the Company on the same terms.

         23.2     SPAR will  provide a loan equal to 51% (fifty one  percent) of
                  the Company's  necessary  working  capital and Friedshelf will
                  provide  a loan  equal  to 49%  (forty  nine  percent)  of the
                  Company's necessary working capital.

         23.3     The  interest  rate of the  shareholder  loans shall equal the
                  "prime  rate".  For the purposes of clause 23.3,  "prime rate"
                  means  the  rate of  interest  per  annum  which  is  equal to
                  Standard  Bank  Limited's  published  minimum  lending rate of
                  interest per annum, compounded monthly in arrears,  charged by
                  such bank on the unsecured  overdrawn  current accounts of its
                  most  favoured  corporate  clients in the private  sector from
                  time to time.  (In the case of a  dispute  as to the  rates so
                  payable,  the  rate  shall  be  certified  by any  manager  or
                  assistant  manager  of any  branch  of the  said  bank,  whose
                  decision shall be final and binding on the parties).

         23.4     Any future working  capital loans will be provided on the same
                  basis.


ROLE OF CONTRACTING PARTIES
---------------------------


24.      BUSINESS AND SOFTWARE SUPPORT

         24.1     SPAR shall for the first  three (3) years  provide up to 3 000
                  (three thousand) hours of business support in aggregate.  This
                  support may be in the form of general  business,  consultation
                  or programming  support to modify or enhance the merchandising
                  software. SPAR will maintain ownership of all software.

         24.2     If support  provided  by SPAR  exceeds 3 000 (three  thousand)
                  hours the additional  hours will billed by SPAR to the Company
                  at fifty five USD  ($55.00)  


<PAGE>
                                                                         Page 23

                  per  hour.   However  a  lower   price  will  be  charged  for
                  programming  costs if a less expensive way to hire IT staff is
                  found.

         24.3     The  Company  will  be  able  to  hire  its  own IT  staff  as
                  appropriate.


25.      NON-COMPETITION

         25.1     For the  duration of this  agreement,  SPAR,  Friedshelf,  the
                  Meridian  Entities,  Mason and  O'Brien  and their  affiliates
                  undertake  to each other that they will not  without the prior
                  consent of the others of them,  engage in, whether directly or
                  indirectly,  merchandising services (as defined in the license
                  agreement) in Southern  Equatorial  Africa,  including but not
                  limited  to  Angola,  Zambia,  Zimbabwe,  Malawi,  Mozambique,
                  Namibia,   Botswana,   Lesotho,   Swaziland,   South   Africa,
                  Madagascar,  Mauritius and the Seychelles (the "territory" for
                  the  purposes  of this clause 25) or any other  business  then
                  competitive  with the Company in the territory,  provided that
                  if the  Company  shall  during any 12  (twelve)  month  period
                  commencing 1 December  2005,  generate  less than US$50 000,00
                  (fifty  thousand US dollars) in revenue in any financial  year
                  in any of the countries  comprising the  territory,  then SPAR
                  shall no longer be bound by the non-compete provisions set out
                  in this  clause  25  insofar  as such  non-compete  provisions
                  relate to the country in which  revenue has fallen below US$50
                  000,00 (fifty thousand US dollars) in any year.

         25.2     Notwithstanding  clause  25.1  above,  in the event  that SPAR
                  enters into an agreement with a customer that covers more than
                  one country and the scope of such agreement  includes services
                  in the territory,  SPAR shall not be prohibited  from entering
                  into or performing such agreement, provided that SPAR shall be
                  obliged to notify the Company of such agreement(s)  (including
                  global  agreements)  and the  SPAR  shall  use all  reasonable
                  endeavours  to procure  that the  Company has a right of first
                  refusal to enter into and perform such agreement(s).

         25.3     In the event that the Company elects to enter into and perform
                  such agreement(s) it shall, within 3 (three) days of receiving
                  such  notification  from SPAR,  notify  SPAR in writing of its
                  intention to enter into and perform such  agreement(s)  on the
                  terms and conditions offered to SPAR.



<PAGE>
                                                                         Page 24


         25.4     In the event that the Company  fails within such 3 (three) day
                  period  to  notify  SPAR of its  election  or,  alternatively,
                  elects not to enter into and perform  such  agreement(s),  the
                  Company   shall  be  deemed  to  have  waived  its  rights  to
                  participate in such agreement(s) and SPAR shall be entitled to
                  enter into and perform such  agreement(s) for its own benefit,
                  provided  that it shall not be on terms  (whether as to price,
                  conditions  or  any  other  material  factor)  which  is  more
                  advantageous than that offered to the Company.

         25.5     It is recorded  that Mason and O'Brien are members in Prestige
                  Retail Services CC ("PRS"), a close corporation which provides
                  services to Spar Group Limited  ("SGL").  It is hereby agreed,
                  subject  to 25.7  below,  that such  interest  in PRS will not
                  constitute   a  breach  of  the   non-competition   provisions
                  contained in this clause 25.

         25.6     Mason, O'Brien, the Meridian Entities and Friedshelf undertake
                  to SPAR and to the  Company  that they will  procure  that the
                  client  base of PRS will not be  extended  beyond  the  single
                  existing client of SGL.

         25.7     The Meridian Entities,  Friedshelf,  Mason and O'Brien warrant
                  and represent to the Company and to SPAR that:

                  25.7.1   the only customer or client of PRS is SGL;

                  25.7.2   the annual nett  profit of PRS before  taxes will not
                           exceed R500 000.00 (five hundred thousand Rand);

                  25.7.3   Mason and O'Brien  will not  together,  in any single
                           week,  commit or spend in excess of 5 (five) hours of
                           their  combined time during  normal  working hours in
                           relation to the business of PRS; and

                  25.7.4   the rendering of services by Mason and O'Brien to PRS
                           will not  materially  adversely  interfere  or affect
                           their  ability to fully and  properly  perform  their
                           obligations  to the Company  pursuant to the terms of
                           the consultancy agreement.

         25.8     In the event that SGL agrees, the Company shall be entitled to
                  acquire  the  members'  interest  or  business  of PRS,  for a
                  nominal amount of R100.00 (one hundred Rand).


<PAGE>
                                                                         Page 25


AMENDMENT FOR PUBLIC OFFERING
-----------------------------


26.      PUBLIC OFFERING

         The  shareholders  acknowledge that the Company may attempt to become a
         listed  company  or  over-the-counter  company on the  territory  Stock
         Exchange or any other stock  exchange or public market in the territory
         (public offering).  The shareholders acknowledge that conversion of the
         Company type and structure,  the number of issued shares, the number of
         shareholders,  the  paid-up  capital and profit  transaction  with each
         shareholder  will be  reviewed  and  instructed  for  amendment  by the
         relevant  governmental  or regulatory  authorities  in accordance  with
         those  bodies'  rules  or  guidelines  for  public  offering.   If  the
         shareholders  agree to undertake a public offering,  they shall discuss
         and  reasonably  co-operate  with each other to amend the  articles  of
         association  and/or the  license  agreement  in order to  complete  the
         public  offering of the Company.  Any changes to the license  agreement
         (annexed hereto as annexure "A") will be effective upon consummation of
         the public  offering  (but not before),  and subject to the approval of
         the boards of directors of the Company, Friedshelf and SPAR.


CONFIDENTIALITY
---------------


27.      CONFIDENTIAL INFORMATION

           Friedshelf  and SPAR shall for the duration of this  agreement,  keep
           secret  and  retain in  strict  confidence  any and all  confidential
           information  and use it only for the  purpose of this  agreement  and
           shall not  disclose  it to a third party  without  the prior  written
           consent of the other party unless the receiving party can demonstrate
           that such  information:  (i) has become public other than as a result
           of  disclosure  by the  receiving  party,  (ii) was  available to the
           receiving party prior to the disclosure by the disclosing  party with
           the right to disclose,  or (iii) has been  independently  acquired or
           developed by the receiving party.






<PAGE>
                                                                         Page 26



GENERAL PROVISIONS
------------------


28.      TERMINATION

         28.1     If either  shareholder  transfers its shares in the Company to
                  the other party  hereto in  accordance  with clause 22 hereof,
                  this agreement shall terminate.

         28.2     If either  shareholder  transfers its shares in the Company to
                  another party, unless expressly agreed by the non-transferring
                  party in  writing,  this  agreement  shall be  assigned to and
                  binding upon such third  party,  provided  that the  assigning
                  shareholder  shall  remain  liable  for all  legal  acts  with
                  respect to this agreement or the Company which occurred before
                  the effective date of such assignment.

         28.3     If any shareholder  breaches a material term of this agreement
                  and fails to remedy  such  breach  within  ninety (90) days of
                  written notice being given to such shareholder the shareholder
                  not in  breach  shall be  entitled  to cancel  this  agreement
                  without  prejudice to any other rights or remedies  which such
                  shareholder may have.

         28.4     Either  shareholder  may  terminate  this  agreement by giving
                  notice in the event of one or more of the following:

                  28.4.1   appointment  of a trustee or receiver  for all or any
                           part of the assets of the other party;

                  28.4.2   insolvency or bankruptcy of the other party;

                  28.4.3   assignment  of the  other  party for the  benefit  of
                           creditor;

                  28.4.4   attachment of the assets of the other party;

                  28.4.5   expropriation  of the business or assets of the other
                           party; and

                  28.4.6   dissolution or liquidation of the other shareholder.

                  If  either  shareholder  is  involved  in any  of  the  events
                  enumerated  in  28.4.1   through   28.4.6   above,   it  shall
                  immediately  notify the other shareholder of the occurrence of
                  such event.


<PAGE>
                                                                         Page 27



         28.5     In the event of the termination of this agreement  pursuant to
                  clause 28.3 or clause 28.4,  the  shareholder  terminating  in
                  accordance  with  this  agreement  shall  have  an  option  to
                  purchase the shares of the other shareholder at the book value
                  to be decided by an internationally recognized accounting firm
                  that  is  not  the   principal   accounting   firm  of  either
                  shareholder or to have the Company dissolved.

         28.6     Upon  termination  of this agreement or SPAR's ceasing to hold
                  at least 51% (fifty one percent) of the shares in the Company,
                  the license agreement shall terminate  immediately if still in
                  effect, unless otherwise agreed by the shareholders.


29.      FORCE MAJEURE

         Neither  shareholder  shall be  liable  to the  other  shareholder  for
         failure or delay in the  performance  of any of its  obligations  under
         this  agreement for the time and to the extent such failure or delay is
         caused by riots, civil commotions,  wars,  hostilities between nations,
         governmental  laws,  orders or regulations,  embargoes,  actions by the
         government  or  any  agency  thereof,   acts  of  God,  storms,  fires,
         accidents,   strikes,   sabotages,   explosions,   or   other   similar
         contingencies beyond the reasonable control of the respective parties.


30.      NOTICES

         30.1     The parties hereby choose domicilia  citandi et executandi for
                  all purposes under this agreement at the following  respective
                  addresses:

                  Meridian:     No.16 Ennisdale Drive,  Durban North, 4051, Kwa-
                                Zulu Natal, South Africa;

                  SPAR:         SPAR Group, Inc. Attention: Mr. Robert G. Brown,
                                Chairman  580  White Plains Road, Tarrytown, NY,
                                USA 10591;

                  Friedshelf:   No.16 Ennisdale Drive, Durban North, 4051, Kwa-
                                Zulu Natal, South Africa, contact: Brian Mason.

         30.2     Each of the parties  shall be entitled  from time to time,  by
                  written  notice  to the  other to vary its  domicilium  to any
                  other address which is not a post office box or post restante.


<PAGE>
                                                                         Page 28

         30.3     Any notice given and any payment made by a party to any of the
                  others (the "addressee") which:

                  30.3.1   is delivered by hand during the normal business hours
                           of the addressee at the  addressee's  domicilium  for
                           the time being shall be presumed, unless the contrary
                           is proved by the addressee,  to have been received by
                           the addressee at the time of delivery;

                  30.3.2   is posted by prepaid registered post to the addressee
                           at the  addressee's  domicilium  for the  time  being
                           shall be  presumed,  unless the contrary is proved by
                           the addressee, to have been received by the addressee
                           on the seventh day after the date of posting.

         30.4     Where,  in  terms  of  this  agreement  any  communication  is
                  required to be in writing,  the term  "writing"  shall include
                  communications  by telex and/or  facsimile.  Communications by
                  telex and/or facsimile shall, unless the contrary is proved by
                  the  addressee,  be  deemed  to  have  been  received  by  the
                  addressee   24  (twenty   four)   hours   after  the  time  of
                  transmission.


31.      ASSIGNMENT

         This agreement and the rights and obligations hereunder are personal to
         the parties hereto,  and shall not be assigned by either of the parties
         to any third.


32.      ARBITRATION

         All disputes, controversies, or differences which may arise between the
         parties  hereto,  out of or in relation to or in  connection  with this
         agreement,  or arising out of deadlock  referred to in clause 21, shall
         be finally  settled by arbitration in the territory in accordance  with
         the rules of the  Arbitration  Foundation of Southern  Africa  ("AFSA")
         except  where  provided  otherwise  in  this  agreement.  Prior  to any
         dispute,  difference or agreement  being  referred to  arbitration  the
         parties shall seek to resolve the matter as follows:

         32.1     The matter shall be referred to the chief  executives  of each
                  party for  consideration  but if they are not able to  resolve
                  the  matter   within   ninety  (90)  days   provisions  as  to
                  arbitration shall take effect.


<PAGE>
                                                                         Page 29

         32.2     The arbitration shall be conducted by three (3) arbitrators in
                  English in  accordance  with AFSA and the laws of South Africa
                  shall be applied  to the  dispute.  In case of a dispute  each
                  party shall appoint one arbitrator. The party having appointed
                  its  arbitrator  shall give  notice to the other party of such
                  appointment  upon  which the other  party  shall  appoint  its
                  arbitrator within 7 days of notice. The third arbitrator shall
                  be  chosen by the two  arbitrators  appointed  by the  parties
                  within 7 days of their  appointment.  In case the  arbitrators
                  cannot  agree on the third  arbitrator  the  third  arbitrator
                  shall be appointed by AFSA. The arbitrators shall conclude the
                  dispute  within 6 months  upon  their  first  gathering.  Such
                  period can only be extended by mutual written agreement of the
                  parties.  The decision of the  arbitrators  shall be final and
                  legally binding upon both parties


33.      IMPLEMENTATION

         The shareholders hereby agree, for themselves,  their successors, heirs
         and legal  representatives,  to vote at shareholders'  meetings, and to
         cause the  directors  they  nominate to vote at board  meetings  and to
         carry out their duties, to prepare,  execute and deliver or cause to be
         prepared,   executed  and  delivered  such  further   instruments   and
         documents,  to take such other  actions  and to cause the  articles  of
         association  of  the  Company  to be  amended  or  adopted  as  may  be
         reasonably  required  to  effect  the  provisions  and  intent  of this
         agreement and the transactions contemplated hereby.


34.      GOVERNING LAW

         This agreement  shall be governed by and interpreted in accordance with
         the laws of the Republic of South Africa.


35.      WAIVER

         Any failure of either  party to enforce,  at any time or for any period
         of time, any of the provisions of this agreement shall not be construed
         as a waiver of such provisions or of the right of such party thereafter
         to enforce each and every such provision.



<PAGE>
                                                                         Page 30


36.      JOINT AND SEVERAL

         36.1     Friedshelf, Derek O'Brien and Brian Mason shall be jointly and
                  severally  liable to SPAR for the due  performance  of all the
                  obligations of the Meridian Entities and Friedshelf under this
                  agreement.

         36.2     The said  parties  do hereby  waive the  legal  exceptions  of
                  excussion,  division  and cession of action,  the full meaning
                  whereof they acknowledge themselves to be fully acquainted.


37.      CO-OPERATION AND GOOD FAITH

         37.1     The parties agree, during the currency of this agreement,  not
                  to enter into an agreement  or do anything  which may conflict
                  with  this  agreement  or  be  detrimental  to  its  aims  and
                  objectives or which will  prejudice the business,  development
                  and activities of the parties.

         37.2     Each of the parties  undertakes to display the highest  degree
                  of  good  faith  towards  the  other  parties  in all  matters
                  relating to this  agreement  and  furthermore  undertakes,  in
                  favour of all the other  parties,  to  refrain  from  doing or
                  cause anything to be done,  whatsoever  which may prejudice or
                  harm (whether actually or potentially) the goodwill,  image or
                  business  operations  and acumen of any of the parties to this
                  agreement.  The provisions of this paragraph shall survive the
                  expiry of this agreement, provided however that the provisions
                  thereof  shall  not at any time  preclude  any of the  parties
                  during the currency of this agreement or  thereafter,  to take
                  whatever steps a party may deem  necessary  against a party in
                  breach of the terms and  conditions of this agreement so as to
                  protect the interests of the parties not in default.


38.      ENTIRE AGREEMENT

         This agreement  constitutes  the entire and only agreement  between the
         parties hereto with respect to the subject matter of this agreement and
         supersedes any other commitments, agreements or understandings, written
         or  verbal,  that the  parties  hereto may have had.  No  modification,
         change  and  amendment  of this  agreement  shall be  binding  upon the
         parties  hereto  except  by  mutual  express   consent  in  writing  of
         subsequent date signed by authorized  officer or representative of each
         of the parties hereto.


<PAGE>
                                                                         Page 31



39.      COSTS

         39.1     Subject to 39.2, prior to the effective date, SPAR, Friedshelf
                  and Meridian shall be responsible  for and pay their own costs
                  and expenses  associated with the establishment of the Company
                  (including   all  travel   costs)  and   including  all  costs
                  associated   with  the  negotiation  and  preparation  of  the
                  necessary legal documentation.

         39.2     Each party shall be  responsible  for and shall pay all legal,
                  accounting  and other costs incurred by it in carrying out its
                  due  diligence  investigation  on  any  other  party  to  this
                  transaction.

         39.3     All legal costs  incurred  after the  effective  date shall be
                  paid by the Company.


40.      HEADINGS AND INTERPRETATION

         40.1     The headings of articles and paragraphs used in this agreement
                  are inserted for  convenience  of reference only and shall not
                  affect  the  interpretation  of the  respective  articles  and
                  paragraphs of this agreement.

         40.2     In the event that there is any inconsistency between the terms
                  of this agreement and the Company's  articles of  association,
                  the terms of this agreement shall prevail.


IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
in two (2) copies by their respective duly authorized  officer or representative
as of the day first above written.



SIGNED AT          ON THE                 DAY OF                           2004.

AS WITNESSES:
                                                For and on behalf of
1..............................                 FRIEDSHELF 401 (PTY) LTD
                                                
                                                
2..............................                 /s/ Derek O'Brien
                                                -------------------------------
                                                being duly authorised thereto
                                             


<PAGE>
                                                                         Page 32


SIGNED AT          ON THE                 DAY OF                           2004.

AS WITNESSES:
                                                For and on behalf of
1. ............................                 SPAR GROUP INTERNATIONAL INC


2..............................                 /s/ Robert G. Brown
                                                -------------------------------
                                                being duly authorised thereto

SIGNED AT          ON THE                 DAY OF                           2004.


AS WITNESSES:
                                                For and on behalf of
1..............................
                                                SGRP MERIDIAN (PTY) LTD


2..............................                 /s/ Brian Mason
                                                -------------------------------
                                                being duly authorised thereto


SIGNED AT          ON THE                 DAY OF                           2004.

AS WITNESSES:

1...............................                /s/ Derek O'Brien
                                                ------------------------------
                                                DEREK O'BRIEN
2.  ............................


SIGNED AT          ON THE                 DAY OF                           2004.

AS WITNESSES:

1................................               /s/ Brian Mason
                                                ------------------------------
                                                BRIAN MASON
2................................



<PAGE>
                                                                         Page 33


SIGNED AT          ON THE                 DAY OF                           2004.


AS WITNESSES:
                                                For and on behalf of
1................................               SMD MERIDIAN CC


2..............................                 /s/ Brian Mason
                                                -------------------------------
                                                being duly authorised thereto

SIGNED AT          ON THE                 DAY OF                           2004.


AS WITNESSES:
                                                For and on behalf of
1................................               MERIDIAN SALES & MERCHANDISING
                                                (WESTERN CAPE) CC

2..............................                 /s/ Brian Mason
                                                -------------------------------
                                                being duly authorised thereto

SIGNED AT          ON THE                 DAY OF                           2004.


AS WITNESSES:
                                                For and on behalf of
1................................               RETAIL CONSUMER MARKETING CC


2..............................                 /s/ Brian Mason
                                                -------------------------------
                                                being duly authorised thereto


SIGNED AT          ON THE                 DAY OF                           2004.


AS WITNESSES:
                                                For and on behalf of
1................................               MERHOLD HOLDING TRUST


2..............................                 /s/ Brian Mason
                                                -------------------------------
                                                being duly authorised thereto



<PAGE>
                                                                         Page 34




                                                                    ANNEXURE "A"
                                                                    ------------

                          AGREED FORM LICENCE AGREEMENT
                          -----------------------------




<PAGE>
                                                                         Page 35



                                                                    ANNEXURE "B"
                                                                    ------------

                              CONSULTANCY AGREEMENT
                              ---------------------




<PAGE>
                                                                         Page 36



                                                                    ANNEXURE "C"
                                                                    ------------

            30 SEPTEMBER YEAR-END ACCOUNTS FOR THE MERIDIAN ENTITITES
            ---------------------------------------------------------



<PAGE>
                                                                         Page 37



                                                                    ANNEXURE "D"
                                                                    ------------

              MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY
              -----------------------------------------------------



<PAGE>
                                                                         Page 38



                                                                    ANNEXURE "E"
                                                                    ------------

            STATUTORY VALUATION IN RELATION TO TRANSFERRING EMPLOYEES
            ---------------------------------------------------------






                             JOINT VENTURE AGREEMENT
                             -----------------------

This  Agreement  is made as of this 21st day of July,  2003 by and  between  CEO
Produksigon  Tanitim ve Arastirma  Hizmetleri  Ltd Sti, a company  organized and
existing under the law of Turkey and having  principal place of business at 81/2
Buyukdere Cad Kugu Is Merkezi, Mecidiyekoy, Istanbul, Turkey, 34387 (hereinafter
called  "CEO"),  and SPAR  Group  International,  Inc. a company  organized  and
existing under the laws of the State of Nevada,  USA, having its principal place
of business at 580 White Plains Road,  Tarrytown,  NY, USA,  10591  (hereinafter
called "SPAR"),

                                WITNESSETH THAT:

WHEREAS,  CEO is engaged in the retail solution  businesses in Turkey,  having a
wide range of clients and also having various knowledge and human resources with
respect to the retailing businesses in Turkey;

WHEREAS,  SPAR is engaged in the retail  solution  businesses in the USA, having
computer  software useful for agency,  assistance,  instruction and reporting of
storefront  activities and also having operational know-how with respect to such
software; and

WHEREAS,  CEO and SPAR are  desirous  of  organizing  a  corporation  to jointly
conduct retail solution businesses in Turkey (hereinafter called "Territory").

NOW,  THEREFORE,  in  consideration
 of the mutual covenants and agreement herein
contained, the parties hereto agree as follows:

                   CHAPTER I: ORGANIZATION OF THE NEW COMPANY
                              -------------------------------

Article 1.      Establishment

Promptly  after the effective date of this  Agreement,  the parties hereto shall
cause a new company to be  organized  under the laws of  Territory  (hereinafter
called "SPAR Turkey Ltd").  Upon formation,  New Company shall become a party to
this Agreement.


Article 2.      Business Purposes

The business purposes of the New Company shall consist of the following:


                                                                             -1-

<PAGE>


1. Provide retail merchandising and product demonstration services

2. Agency, assistance, instruction and report of storefront sales activities;

3. Implementation of market research and analysis of results thereof;

4. Assembly of setups used for sales promotion;

5. Consulting regarding store management;

6. Development and sale of management system regarding retailing;

7. Designing and sale of database; and

8. Any and all businesses incidental or relating to any of the foregoing.


Article 3.      Trade Name

The New Company shall be named in Territory as "SPAR Alan  Pazarlama  Hizmetleri
Limited Sirketi" and in English as SPAR Turkey Ltd.


Article 4.      Location

The New  Company  shall  have  its main  office  at 81/4  Buyukdere  Cad Kugu Is
Merkezi, Mecidiyekoy, Istanbul, Turkey, 34387.


Article 5.      Articles of Incorporation

The Articles of  Incorporation  of the New Company shall be in the form attached
hereto as Exhibit A.


Article 6.      Capital

The total number of shares which New Company  shall be authorized to issue shall
be 10000  that par value of each share  shall be $10 (ten  USD).  At the time of
establishment of New Company, shares shall be issued and fully subscribed by the
parties hereto as follow:






                                                                             -2-

<PAGE>


                o        CEO:      (49%)    4900 shares
                o        SPAR:     (51%)    5100 shares

All the shares to be issued by New Company shall be nominal and ordinary shares


Article 7.      Payment

Each of the parties hereto shall at the same  proportions  and at the same dates
pay in  Turkish  Liras  and in  cash  the  cash  the  amount  equivalent  to its
subscribed  shares at par value  upon  issuance  of the  shares of New  Company.
Number of shares may change  according  to the value of  $100.000 at the time of
incorporation.


          CHARPTER II: PREPARATION OF ESTABLISHMENT OF THE NEW COMPANY
                       -----------------------------------------------


Article 8.      Preparation of Establishment of the New Company

Each party shall take its role as  described  below for the  preparation  of the
commencement  of New Company's  business.  Any expenses and costs  necessary for
such  preparation  shall be borne by each party.  SPAR shall enter into with New
Company a  license  agreement  in the form  attached  hereto  as  Exhibit B (the
"License  Agreement").   For  reference,  the  License  Agreement  includes  the
obligations of SPAR to:

1. localize and set up software provided by SPAR to work in Turkey;

2. consult on the organization of merchandising services: and;

3.  train  the New  Company's  personnel  in how to  operate  the  merchandising
software;

4. give advice on budgeting and development of each business plan.

SPAR Turkey Ltd shall

1.       provide  office and facility  space to New Company under the terms of a
         supply agreement described in Article 25 herein

2.       arrange meetings with current clients to promote New Company's services



                                                                             -3-

<PAGE>


                  CHAPTER III: GENERAL MEETING OF SHAREHOLDERS
                               -------------------------------


Article 9.      Ordinary and Extraordinary General Meeting

The Ordinary General Meeting of Shareholders  shall be convened by resolution of
the Board of Directors  and held in Turkey or any other  vicinal  place within 3
months, from the last day of each accounting period of New Company.

An Extraordinary  General Meeting shall be convened by a resolution of the Board
of Directors whenever deemed necessary.


Article 10.     Quorum and Resolution

Except as expressly  otherwise  provided in the Articles of Incorporation of New
Company and the  provisions of Turkish  Commercial  Code, and this Agreement all
resolutions  of the  General  Meeting  of  Shareholders  shall be adopted by the
presence and affirmative vote of Shareholders holding at least two thirds of the
shares..


Article 11.     Important Matters

In addition to such matters as required by the Articles of  Incorporation of New
Company or the Commercial Code, any resolutions of the following  matters by the
General Meeting of Shareholders require the presence and the affirmative vote of
shareholders holding at least 2/3 of the capital.

1.       any amendment or modification of the Articles of Incorporation;

2.       increase or decrease in the authorized capital or paid-in capital;

3.       issuance  of new  shares or any  other  kind of  equity  securities  or
         instruments  convertible  into  equity  securities  or the  decision to
         undertake a Public Offering (as defined on Article 29);

4.       issuance of debentures;

5.       transfer of any part or whole of business;

6.       any and all matters relating to dividends of New Company;



                                                                             -4-

<PAGE>


7.       dissolution or amalgamation;

8.       change in number or length of tenure of Directors;


                   CHAPTER IV: BOARD OF DIRECTORS AND OFFICERS
                               -------------------------------

Article 12.     Election of Directors

The Board of Directors of the New Company shall  consist of four (4)  Directors;
two (2) of whom shall be elected  from among those  appointed  by CEO and 2 whom
shall be  elected from those  appointed  by SPAR. The  Chairman  of the Board of
Directors shall be elected from the Directors by the mutual consultation of both
parties.  In case of any  increase or decrease in the number of  Directors,  the
representation stipulated above shall be unchanged and pro-rata at all times.


Article 13.     Election of Officers

Officers  shall be  appointed  by the  Board  of  directors  and  serve at their
pleasure.


Article 14.     Office of Director

The term of office of each  Director  shall  expire at the close of the Ordinary
General Meeting of  Shareholders,  which relates to the closing of accounts last
to occur within three (3) years from his assumption of office.

Article 15.       Quorum

Each Director shall have one (1) voting right in the Board of Directors.  Except
as otherwise  required in the  Articles of  Incorporation  of New Company,  this
Agreement  or a  majority  of the  Directors  shall  constitute  a quorum at any
meeting of their Board of Directors, and all resolutions shall be adopted by the
affirmative vote of more than two-thirds of the votes of the Directors present.

Article 16.     Ordinary Meeting of the Board of Directors

The Ordinary  Meeting of the Board of Directors shall be held quarterly,  and an
Extraordinary  Meeting of the board of Directors  shall be held when  necessary,
both of which  shall be  convened  in  accordance  with  the  provisions  of the
Articles  of  Incorporation.  To the extent then  permitted,  any meeting of the
Board of Directors may be held by interactive  video conference


                                                                             -5-

<PAGE>

or other  similar  electronic or  telephonic  means,  and any action that may be
taken by the Board of Directors at a meeting thereof (whether in person or video
conference) may be effected in lieu of such meeting by unanimous written consent
resolution executed by each member of the Board of Directors. The parties hereto
confirm that the  prevailing  interpretation  in  Territory is that  meetings of
boards of directors may be held by interactive videoconference. For any proposed
meeting of the Board of Directors for which SPAR  requests,  SPAR Turkey Ltd and
SPAR  shall  cooperate  to  arrange  for  such  meetings  to be  held  by  video
conference.  A  written  record  in  Turkish  of all  meetings  of the  Board of
Directors  and all  decisions  maybe by it  together  with  English  translation
thereof shall be made as promptly as practicable after each meeting of the Board
of  Directors  by one of the Board  selected by the Board of  Directors  at each
meeting,  kept in the records of the Company and signed or sealed by each of the
Directors.


Article 17.     Important Matters

In addition to such  matter as  required  by  Articles of  Incorporation  of New
Company,  the following  matters of the Board of Directors meeting shall require
the affirmative vote of more than two-thirds of the votes of the Directors:

1.       Any proposal to the General  Meeting of  Shareholders  or action by the
         Board of Directors for the matters as provided in Article 11 hereof;

2.       any investment or commitment of New Company in amounts  individually in
         excess of $100,000  (one hundred  thousand  USD or in the  aggregate in
         excess of $100,000 (one hundred thousand USD);

3.       any loan or credit taken by New Company

4.       execution,  amendment or termination of agreements or commitments  with
         CEO, SPAR or their subsidiaries or affiliates;

5.       adoption or amendment of the annual  budgets and business  plan subject
         to consequent approval by the Shareholder's General Meeting;

6.       adoption  or  any  material   modification  of  major   regulations  or
         procedures, including any employee rules or handbook;



                                                                             -6-

<PAGE>

7.       change of the auditing firm as provided in Article 20;

8.       initiating  or settling  any  litigation,  arbitration  or other formal
         dispute settlement  procedures or forgiveness of any obligation owed to
         the New Company in excess of $100,000 (one hundred thousand USD);

9.       preparation  of annual  closing of the books of New Company and the New
         Company's  annual  financial  statements,  and  changing of  accounting
         policies and practices

10.      establishment  or  amendment  to the  condition  of  employment  of New
         Company officers, provided that the affirmatives vote of SPAR-nominated
         Directors shall not be withheld unreasonably;

11.      No sale at  disposition  of or  granting a lien,  security  interest or
         similar  obligation  with  respect  to, in one or a series  of  related
         transactions  of New  Company or with  respect  to any major  strategic
         asset of New Company that crucial to New Company' business;

12.      Formation of any  subsidiary of New Company,  entry into (or subsequent
         termination of) any joint venture, partnership or similar agreements;

13.      entering into,  amending or terminating any contract with/or commitment
         to any Director or  shareholder  except for cases foreseen in art 539/2
         of the TCC regarding appointment and dismissal of Directors; and

14.      entering  into any agreement or commitment to provide goods or services
         outside Turkey.


                                CHAPTER V: AUDIT
                                           -----


Article 18.     Accounting Period

The  accounting  periods of New Company shall end on the 30th day of December of
each year.

Article 19.     Statutory Auditors (where required)

A Statutory  Auditor  shall be  appointed  by  (company),  county and  (proposed
person) shall be the initial Statutory Auditor.



                                                                             -7-

<PAGE>


Article 20.     Inspection of Accounting Records and Books

The New Company shall yearly arrange audit on the  accounting  records and books
and shall  submit a report of such audit to each of the  parties  hereto  within
thirty (30) days from the completion of the audit.

Ernst  & Young  shall  be the  accounting  firm  engaged  by New  Company.  Such
accounting firm shall audit the accounting  records and books of New Company and
any other matters relating,  directly or indirectly,  to the financial condition
of New Company.  Any fee for the certified public  accountant for inspection and
audit mentioned above shall be borne by New Company. New Company shall keep true
and correct accounting records and books with regard to all of its operations in
accordance with generally accepted accounting  principals  consistently  applied
("GAAP") in Territory.  All accounting records and books shall be kept ready for
inspection  by the  parties  hereto or by their  authorized  representative.  If
requested by SPAR,  New Company shall  cooperate  with respect to each financial
period  to  provide  such  information  as  required  by SPAR to  reconcile  New
Company's financial statements with U.S. GAAP reporting requirements of SPAR.

Article 21.     Increase of Capital

In case of capital increase of the New Company after its establishment,  CEO and
SPAR shall have the preemptive right to new shares to be issued for such capital
increase in proportion to their respective shareholdings in the New Company.

                         CHAPTER VI: TRANSFER OF SHARES
                                     ------------------


Article 22.     Restrictions on Transfer of Shares

Except as provided in Article 23 hereof, neither party hereto shall, without the
prior  written  consent of the other  party,  assign,  sell,  transfer,  pledge,
mortgage,  or otherwise  dispose of all or any part of its shares (including its
right to subscribe to new shares) of the New Company to any third parties.


Article 23.     Preemptive Right and Option

1.       After three (3) years from the  effective  date of this  Agreement,  if
         either party hereto  (hereinafter  called  "Selling  Party")  wishes to
         transfer and sell all but not less than all of its shares,  the Selling
         Party  shall  furnish to the other  Party  (hereinafter  called  "Other


                                                                             -8-

<PAGE>

         Party") a written notice of a proposed purchaser,  the offered purchase
         price and other major terms and conditions of such proposed sale.

         The Other Party  shall have a right to  purchase  such shares by giving
         Selling  Party a written  notice of its  intention to purchase the same
         within  ninety  (90) days from the receipt of Selling  Party's  notice,
         upon the same terms and conditions as described in the Selling  Party's
         notice.  The  Selling  Party  may sell such  shares  upon the terms and
         conditions  as  described in its notice after ninety (90) days from the
         date of Other Party's receipt of such notice unless Other Party gives a
         notice for its purchase of the shares to Selling  Party.  Unless agreed
         by the. Other Party in writing,  any transferee  party shall be subject
         to this Agreement.

2.       After three (3) years from the effective date of this Agreement, either
         party  may at any time  make a  written  offer to buy all of the  other
         Party's shares in the New Company.  The Other Party shall then,  either
         accept  the  offer  and sell all of its  shares  under  the  terms  and
         conditions offered, or purchase the offering party's shares at the same
         terms and conditions. If the party receiving the initial offer does not
         respond to the initial  offer within one hundred and twenty (120) days,
         the party  receiving  the offer  shall be deemed to have  accepted  the
         offer to sell its shares.  The parties  shall  cooperate  to effect the
         closing  of such  purchase  and  sale of all of the  shares  of the New
         Company  held by the Selling  Party  within 120 days of the decision or
         deemed  decision of the second party.  At such closing,  the purchasing
         party shall pay to the Selling  Party the purchase  price in cash,  and
         the  Selling  Party  shall  deliver  to  the  purchasing   party  share
         certificates representing all of the Selling Party's shares held in the
         New Company, free and clear of any liens.


Article 24.     Cooperation in Financing

1.       The New Company may borrow up to $50,000  (fifty  thousand  USD) as its
         operating  funds,  which shall be guaranteed  by CEO if necessary.  CEO
         shall make its reasonable  efforts to enable such borrowing.  The terms
         of the  borrowing  and any  agreement  between New Company and CEO with
         respect to CEO guarantee shall be matters subject to Section 18 hereof.



                                                                             -9-

<PAGE>

2.       The New Company may borrow an additional  $50,000 (fifty  thousand USD)
         when it needs  additional  funds,  if such  borrowing  is  approved  in
         advance by the Board of Directors as an important  matter under Article
         19 herein.

3.       If CEO pays any creditors of the New Company due to a guarantee made by
         CEO to such creditors in favor of the New Company, SPAR shall reimburse
         CEO for half of the amount paid by CEO,  but only if the New  Company's
         borrowing  of  such  funds  and  CEO  guaranty  of  the  New  Company's
         obligations have been expressly agreed to in advance by SPAR in writing
         or in a Board resolution,  for which both SPAR nominated directors have
         voted affirmatively.


                    CHAPTER VII: ROLE OF CONTRACTING PARTIES
                                 ----------------------------


Article 25.     Supply of Office and Facility

1.       CEO shall  supply  offices and  facilities,  staff  service for general
         affairs and finance,  and intra  company  network  services,  which are
         determined,  at CEO's sole  discretion,  necessary for the operation of
         New Company after the  consultation  between the both  parties,  to New
         Company at no charge for a period of three (3) years. In the event that
         CEO cannot provide such services  within its existing  facilities  then
         CEO will reimburse to SPAR Turkey Ltd the cost of such described office
         and  facilities  so that  SPAR  Turkey  Ltd will  incur no cost for the
         described space and services for three (3) years.

2.       SPAR for first  three  (3)  years  will  provide  up to three  thousand
         (3,000) hours of business support annually.  This support may be in the
         form of general business, consultation or programming support to modify
         or enhance the merchandising  software. SPAR will maintain ownership of
         all  software.  If support  provided  by SPAR  exceeds  three  thousand
         (3,000) hours the  additional  hours will billed by SPAR to SPAR Turkey
         Ltd at fifty five USD ($55.00) per hour.  However a lower price will be
         charged for programming  costs if a less expensive way to hire IT staff
         is  found.  SPAR  Turkey  Ltd  will be able to hire its own IT staff as
         appropriate.

3.       CEO agrees that its  operating  expenses  may not be  allocated to SPAR
         Turkey Ltd.




                                                                            -10-

<PAGE>

Article 26.     Personnel

CEO shall,  at its own  judgment,  second to New Company its  personnel  who are
appropriate  for the startup of business of New Company for a period of one year
without any  consideration.  In principal,  New Company shall be responsible for
the payment of salaries and benefits for such  personnel  and all other  matters
concerning their  employment;  however CEO shall, at its own judgment,  pay such
salaries, etc.


Article 27.     Training

Each party hereto shall  provide the  appropriate  training to the employees for
New Company's  operation at its own site.  The said training  shall be made upon
New Company's request and any necessary expenses for the training shall be borne
by New Company,  except as otherwise provided in License Agreement or the Supply
Agreement.


Article 28.     Non-Competition

For five (5) years from the Execution Date of this  Agreement,  neither SPAR nor
CEO shall without the prior consent of the other, engage in, whether directly or
indirectly,  Merchandising  Services  (as defined in the License  Agreement)  in
Territory or any other business then  competitive with New company in Territory.
However,  in the event that SPAR  enters  into a contract  with a customer  that
covers more than one country and the scope of such agreement  includes  services
in Territory, SPAR shall not be prohibited from entering into or performing such
agreement,  provided  that SPAR shall make  commercially  reasonable  efforts to
enable New Company to  participate  in and be fairly  compensated  for providing
services to any such customer.


                   CHAPTER VIII: AMENDMENT FOR PUBLIC OFFERING
                                 -----------------------------

Article 29.     Public Offering

Both  parties  acknowledge  that the New  Company may attempt to become a listed
company or over-the counter company on the Territory Stock Exchange or any other
stock  exchange or public market in Territory  (public  Offering).  Both parties
acknowledge  that  conversion of the company type and  structure,  the number of
issued  shares,  the number of  shareholders,  the  paid-up  capital  and profit
transaction  with each party,  the  seconded  employees  of New Company  will be
reviewed and instructed for amendment by the relevant governmental or regulatory
authorities


                                                                            -11-

<PAGE>

in accordance  with those bodies' rules or guidelines  for Public  Offering.  If
both parties agree to undertake a Public Offering  pursuant to Article 11 above,
both parties shall discuss and reasonably cooperate with each other to amend the
Articles of  Agreement  and/or the License  Agreement  in order to complete  the
Public  Offering of New Company.  Any changes to the License  Agreement  will be
effective upon consummation of the Public Offering (but not before), and subject
to the approval of the Boards of Directors of the New Company, CEO and SPAR.


                           CHAPTER IX: CONFIDENTIALITY
                                       ---------------

Article 30.     Confidential Information

CEO and SPAR shall  keep  secret  and  retain in strict  confidence  any and all
confidential  information  and use it only for the purpose of this Agreement and
shall not disclose it to a third party without the prior written  consent of the
other party unless the receiving  party can demonstrate  that such  information:
(i) has become  public  other than as a result of  disclosure  by the  receiving
party, (ii) was available to the receiving  party prior to the disclosure by the
disclosing  party with the right to  disclose,  or (iii) has been  independently
acquired or developed by the receiving party.


                          CHAPTER X: GENERAL PROVISIONS
                                     ------------------

Article 31.     Effective Date

This Agreement shall become effective at the time of execution hereof.


Article 32.     Termination

1.       If either  party  transfers  its shares in the New Company to the other
         party hereto in accordance with Article 24 hereof, this Agreement shall
         terminate.  If either party  transfers its shares in the New Company to
         another party, unless expressly agreed by the non-transferring party in
         writing,  this  Agreement  shall be assigned  to and binding  upon such
         third party,  provided that the assigning party shall remain liable for
         all legal  acts  with  respect  to this  Agreement  or the New  Company
         occurred before the Effective Date of such assignment.

2.       Either  party  not in  breach  of this  Agreement  may  terminate  this
         Agreement by written  notice to the other party if any breach shall not
         have been  corrected  by the other party



                                                                            -12-

<PAGE>

         in breach within ninety (90) days after written notice is given by such
         party not in breach complaining of such breach.

3.       Either party may terminate this Agreement by giving notice in the event
         of one or more of the following:

         (a)      Appointment  of a trustee or  receiver  for all or any part of
                  the assets of the other party;

         (b)      Insolvency or bankruptcy of the other party;

         (c)      Assignment of the other party for the benefit of creditor;

         (d)      Attachment of the assets of the other party;

         (e)      Expropriation  of the  business or assets of the other  party;
                  and

         (f)      Dissolution or liquidation of the other party.

If either party is involved in any of the events  enumerated  in (a) through (f)
above,  it shall  immediately  notify the other party of the  occurrence of such
event.

4.       In case of the  termination of this Agreement  pursuant to Article 32.2
         or  Article  32.3,  the  party  terminating  in  accordance  with  this
         Agreement  shall  have an option to  purchase  the  shares of the other
         party at the book value to be decided by an internationally  recognized
         accounting  firm that is not the  principal  accounting  firm of either
         party,  if  either  party  so  requests,  or to have  the  New  Company
         dissolved.

5.       Upon  termination  of this Agreement or SPAR's ceasing to hold at least
         51% of the shares in New Company, the License Agreement shall terminate
         immediately if still in effect, unless otherwise agreed by the parties.


Article 33.     Force Majeure

Neither  party  shall be liable to the other  party for  failure or delay in the
performance of any of its  obligations  under this Agreement for the time and to
the extent such  failure or delay is caused by riots,  civil  commotions,  wars,
hostilities   between  nations,   governmental   laws,  orders  or


                                                                            -13-

<PAGE>

regulations, embargoes, actions by the government or any agency thereof, acts of
God, storms, fires, accidents, strikes, sabotages,  explosions, or other similar
contingencies beyond the reasonable control of the respective parties.


Article 34.     Notices

All notices,  reports and other  communications given or made in accordance with
or in connection  with this Agreement  shall be made in writing and may be given
either by (i) personal delivery, (ii) overnight delivery or (iii) registered air
mail, if properly posted,  with postage fully prepaid,  in an envelope  properly
addressed  to the  respective  parties at the address set forth below or to such
changed  address  as may be given by either  party to the other by such  written
notice.  Any notice, etc by personal delivery or overnight delivery or facsimile
transmission shall be deemed to have been given (7) days after the dispatch.

In any event,  if any notice,  etc. is received other than the regular  business
hours  of the  recipient,  it  shall  be  deemed  to have  been  given as of the
following business day of the recipient.

To:            CEO               81/2 Buyukdere Cad Kugu Is Merkezi,
                                 Mecidiyekoy, Istanbul, Turkey;

               SPAR              SPAR Group, Inc. ATT Robert G. Brown, Chairman
                                 580 White Plains Road, Tarrytown, NY, USA


Article 35.     Assignment

This  Agreement  and the rights and  obligations  hereunder  are personal to the
parties hereto, and shall not be assigned by either of the parties to any third.


Article 36.       Arbitration

All dispute,  controversies,  or differences which may arise between the parties
hereto, out of or in relation to or in connections with this Agreement, shall be
finally  settled by  arbitration  in Territory in  accordance  with the relevant
arbitration  provisions of the Turkish Civil Procedure Act except where provided
otherwise in this Agreement. Prior to any dispute, difference or agreement being
referred to arbitration the parties shall seek to resolve the matter as follows;



                                                                            -14-

<PAGE>

The  matter  shall  be  referred  to the  chief  executives  of each  party  for
consideration  but if they are not able to resolve the matter within ninety (90)
days provisions as to arbitration shall take effect.

The  arbitration  shall be conducted by three (3)  arbitrators in English and in
Turkish in accordance with the Turkish Civil Procedure Act and the provisions of
this  agreement  and Turkish Laws shall be applied to the dispute.  In case of a
dispute each party shall appoint one arbitrator.  The party having appointed its
arbitrator  shall give notice to the other party of such  appointment upon which
the other party shall appoint its arbitrator within 7 days of notice.

 The third  arbitrator  shall be chosen by the two arbitrators  appointed by the
parties within 7 days of their appointment. In case the arbitrators cannot agree
on the third  arbitrator the third  Arbitrator  shall be appointed by the Court.
The  arbitrators  shall  conclude  the dispute  within 6 months upon their first
gathering.  Such period can only be extended by mutual written  agreement of the
Parties. The decision of the arbitrators shall be final and legally binding upon
both parties


Article 37.     Implementation

The Shareholders hereby agree, for themselves, their successors, heirs and legal
representatives,  to vote at Shareholders'  meetings, and to cause the Directors
they  nominate  to vote at Board  meetings  and to carry  out their  duties,  to
prepare,  execute and deliver or cause to be prepared,  executed  and  delivered
such further instruments and documents,  to take such other actions and to cause
the Articles of Incorporation  of New Company,  New Company work rules and other
rules and Commercial registry and any other document to be amended or adopted as
may be reasonably required to effect the provisions and intent of this Agreement
and the transactions contemplated hereby.


Article 38.     Governing Law

This Agreement and all questions arising out of or under this Agreement shall be
governed by and interpreted in accordance with the laws of Territory.

Article 39.     Waiver

1.       Any failure of either  party to enforce,  at any time or for any period
         of time, any of the provisions of this Agreement shall not be construed
         as a waiver of such provisions or of the right of such party thereafter
         to enforce each and every such provision.



                                                                            -15-

<PAGE>

Article 40.     Entire Agreement

This Agreement  constitutes  the entire and only  agreement  between the parties
hereto with respect to the subject  matter of this  Agreement and supersedes any
other  commitments,  agreements or understandings,  written or verbal,  that the
parties  hereto may have had.  No  modification,  change and  amendment  of this
Agreement  shall be binding  upon the parties  hereto  except by mutual  express
consent  in  writing  of  subsequent  date  signed  by  authorized   officer  or
representative of each of the parties hereto.


Article 41.     Headings

The headings of articles and paragraphs  used in this Agreement are inserted for
convenience  of reference  only and shall not affect the  interpretation  of the
respective articles and paragraphs of this Agreement.


Article 42.     Language

This  Agreement  has been  executed in the English and Turkish.  If there is any
discrepancy or inconsistency  between the English and the Turkish versions,  the
English version shall prevail.


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in two (2) copies by their respective duly authorized  officer or representative
as of the day first above written.

CEO

Signature:    /s/ Atilla Akalin
              ---------------------

Name:         Atilla Akalin

Title:        Managing Director



Spar Group International, Inc.


Signature:    /s/ Robert G. Brown
              ---------------------

Name:         Robert G. Brown

Title:        Chairman and CEO





                                                                            -16-





                             JOINT VENTURE AGREEMENT

This  Agreement  made  as of  this 1 day of  May,  2001  by and  between  Paltac
Corporation,  a company organized and existing under the law of Japan and having
its principal place of business at 1-5-9,  Minamikyuhoji-machi,  Chuo-ku, Osaka,
Japan  (hereinafter  called "PALTAC") and Spar Group,  Inc., a company organized
and existing under the law of State of Delaware,  having its principal  place of
business  at 580 White  Plains  Road,  Tarrytown,  NY, USA  (hereinafter  called
"SPAR"),

                                WITNESSETH THAT:

WHEREAS,  PALTAC is engaged in the retail solution businesses in Japan, having a
wide range of clients and also having various knowledge and human resources with
respect to the retailing businesses in Japan;

WHEREAS,  SPAR is engaged in the retail  solution  businesses in the USA, having
computer  software useful for agency,  assistance,  instruction and reporting of
storefront  activities and also having operational know-how with respect to such
software; and

WHEREAS,  PALTAC and SPAR are desirous of  organizing a  corporation  to jointly
conduct retail solution businesses in Japan (hereinafter called "Territory").

NOW,  THEREFORE,  in  consideration of the mutual covenants and agreement herein
contained, the parties agree
 as follows:

                                   CHAPTER I
                         ORGANIZATION OF THE NEW COMPANY

Article 1.        Establishment

Promptly  after the effective date of this  Agreement,  the parties hereto shall
cause a new company to be organized  under the laws of Japan as a stock  company
(hereinafter called "New Company").

Upon formation, New Company shall become a party to this Agreement.

Upon formation, New Company shall become a party to this Agreement.

Article 2.        Business Purposes

The business purposes of New Company shall consist of the followings:

(1)  Agency, assistance, instruction and report of storefront sales activities;

(2)  Implementation of market research and analysis of results thereof;

(3)  Manufacturing and sale of setups used for sales promotion;

(4)  Consulting regarding store management;



<PAGE>

(5)  Development and sale of management system regarding retailing;

(6)  Designing and sale of database; and

(7)  Any and all businesses incidental or relating to any of the foregoing.

Article 3.        Trade Name

New Company shall be named in Japanese as Kabushiki  Kaisha SPAR FM JAPAN and in
English as SPAR FM JAPAN, INC.

Article 4.        Location

New Company shall have its main office at 1-5-9,  Minamikyuhoji-machi,  Chuo-ku,
Osaka, Japan.

Article 5.        Articles of Incorporation

The  Articles  of  Incorporation  of New Company  shall be in the form  attached
hereto as Exhibit A.

Article 6.        Capital

The total number of shares which New Company  shall be authorized to issue shall
be 1600 and the par  value of each  share  shall  be  (Y)50,000.  At the time of
establishment of New Company, 400 shares shall be issued and fully subscribed by
the parties hereto as follows:

                  PALTAC:        200 shares, (Y)10,000,000
                  SPAR:          200 shares, (Y)10,000,000

All the shares to be issued by New Company shall be nominal and ordinary shares.

Article 7.        Payment

Each of the  parties  hereto  shall pay in  Japanese  Yen and in cash the amount
equivalent to its subscribed  shares at par value upon issuance of the shares of
New Company.

                                   CHAPTER II
                   PREPARATION OF ESTABLISHMENT OF NEW COMPANY

Article 8.        Preparation of Establishment of New Company

Each party shall take its role as  described  below for the  preparation  of the
commencement of New Company's  businesses.  Any expenses and costs necessary for
such preparation shall be borne by each party.

A.   SPAR shall  enter  into with New  Company a license  agreement  in the form
     attached hereto as Exhibit B (the "License Agreement").  For reference, the
     License Agreement includes the obligations of SPAR to:



                                      -2-

<PAGE>

(1)  localize and set up software provided by SPAR to work in Japan;

(2)  consult on the organization of merchandising services; and

(3)  train the New  Company's  personnel  in how to  operate  the  merchandising
     software.

Also, SPAR shall give advice on budgeting and development of each business plan.

B.   PALTAC shall:

(1)  arrange contracts with clients;

(2)  provide  office  and  facility  space to New  Company  under the terms of a
     supply agreement described in Article 26 herein;

(3)  set up fast Internet connections for accessing reports and systems;

(4)  prepare and send out instructions to merchandisers;

(5)  hire merchandisers under terms agreed upon in advance by SPAR and PALTAC;

(6)  gain retailers' permission to do in-store merchandising; and

(7)  preparation of annual budget and business plan to be submitted to the Board
     of Directors.

                                  CHAPTER III
                         GENERAL MEETING OF SHAREHOLDERS

Article 9.        Ordinary and Extraordinary General Meeting


The Ordinary General Meeting of Shareholders  shall be convened by resolution of
the Board of Directors and held in Osaka city,  Japan or any other vicinal place
within 3 months from the last day of each accounting period of New Company.



An Extraordinary General Meeting shall be convened by resolution of the Board of
Directors wherever deemed necessary.


Article 10.       Quorum

A quorum  of the  General  Meeting  of  Shareholders  shall be the  shareholders
present  either  in  person  or by proxy  representing  at least 51 % of all the
issued and outstanding shares of New Company.

Article 11.       Resolution

Except as expressly  otherwise  provided in the Articles of Incorporation of New
Company,  this Agreement or the Commercial Code of Japan (Law No. 48 of March 9,
1899, as amended, the 



                                      -3-

<PAGE>

"Commercial Code"), all resolutions of the General Meeting of Shareholders shall
be adopted by the affirmative vote of shareholders  holding at least 51 % of the
shares represented at a meeting for which there is a quorum.

Article 12.       Important Matters

In addition to such matters as required by the Articles of  Incorporation of New
Company or the Commercial Code, any resolutions of the following  matters by the
General Meeting of Shareholders  shall require the affirmative  vote of at least
two-thirds of the votes of the shareholders present:

(1)  any amendment or modification of the Articles of Incorporation;

(2)  increase or decrease in the authorized capital or paid-in capital;

(3)  issuance  of  new  shares  or  any  other  kind  of  equity  securities  or
     instruments convertible into equity securities or the decision to undertake
     a Public Offering (as defined in Article 30);

(4)  issuance of debentures;

(5)  transfer of any part or whole of business;

(6)  any and all matters relating to dividends of New Company;

(7)  dissolution or amalgamation;

(8)  change in number or length of tenure of Directors;

                                   CHAPTER IV
                         BOARD OF DIRECTORS AND OFFICERS

Article 13.       Election of Directors

The Board of Directors of New Company  shall  consist of 4 Directors;  2 of whom
shall be elected  from among  those  appointed  by PALTAC and 2 of whom shall be
elected  from  among  those  appointed  by SPAR.  The  Chairman  of the Board of
Directors shall be elected from the Directors by the mutual consultation of both
parties  and  Robert  Brown  shall  be the  initial  Chairman  of the  Board  of
Directors.  In case of any increase or decrease in the number of Directors,  the
representation stipulated above shall be unchanged and pro-rata at all times.

Article 14.       Election of Officers

A  President  & Chief  Executive  Officer  (CEO)  and a Vice  President  & Chief
Operating  Officer (COO) shall be appointed  from among  Directors  appointed by
PALTAC  by  the  consultation  with  SPAR.  The  President  & CEO  shall  be the
Representative Director. The initial President & CEO shall be Juro Yamagishi and
the initial Vice President & COO shall be Shunichiro Tajiri.



                                      -4-

<PAGE>

Article 15.       Office of Director

The term of office of each  Director  shall  expire at the close of the Ordinary
General Meeting of Shareholders which relates to the closing of accounts last to
occur within 2 years from his assumption of office.

Article 16.       Quorum

Each  Director  shall have 1 voting right in the Board of  Directors.  Except as
expressly  otherwise  required in the Articles of  Incorporation of New Company,
this  Agreement,  or the  Commercial  Code,  a majority of the  Directors  shall
constitute  a  quorum  at any  meeting  of  the  Board  of  Directors,  and  all
resolutions  shall be adopted by the affirmative vote of more than two-thirds of
the votes of the Directors present.

Article 17.       Ordinary Meeting of the Board of Directors

The Ordinary  Meeting of the Board of Directors shall be held quarterly,  and an
Extraordinary  Meeting of the Board of Directors  shall be held when  necessary,
both of which  shall be  convened  in  accordance  with  the  provisions  of the
Articles of  Incorporation.  To the extent then permitted by the Commercial Code
or prevailing  interpretation thereof, any meeting of the Board of Directors may
be  held  by  interactive  video  conference  or  other  similar  electronic  or
telephonic  means, and any action that may be taken by the Board of Directors at
a meeting  thereof  (whether in person or video  conference)  may be effected in
lieu of such meeting by a unanimous written consent resolution  executed by each
member of the Board of Directors. The parties hereto confirm that the prevailing
interpretation  in Japan is that  meetings of boards of directors may be held by
interactive video conference. For any proposed meeting of the Board of Directors
for which SPAR  requests,  PALTAC and SPAR shall  cooperate  to arrange for such
meetings  to be held by video  conference.  A written  record in Japanese of all
meetings of the Board of Directors  and all  decisions  made by it together with
English  translation thereof shall be made as promptly as practicable after each
meeting of the Board of Directors by one of the Directors  selected by the Board
of Directors at each  meeting,  kept in the records of the Company and signed or
sealed by each of the Directors.

Article 18.       Important Matters

In addition to such matters as required by the Articles of  Incorporation of New
Company or the Commercial Code, the following matters of the Board of Directors'
meeting shall require the affirmative  vote of more than two-thirds of the votes
of the Directors:

(1)  any proposal to the General  Meeting of Shareholders or action by the Board
     of Directors for the matters as provided in Article 12 hereof;

(2)  any  investment  or commitment  of New Company in amounts  individually  in
     excess of (Y)10,000,000 or in the aggregate in excess of(Y)10,000,000;

(3)  any loan or credit taken by New Company in amounts  individually  in excess
     of (Y)10,000,000 or in the aggregate in excess of(Y)10,000,000;



                                      -5-

<PAGE>

(4)  execution,  amendment or  termination  of  agreements or  commitments  with
     PALTAC, SPAR or their subsidiaries or affiliates;

(5)  adoption or amendment of the annual budgets and business plan;

(6)  adoption or any material  modification of major  regulations or procedures,
     including any employee rules or handbook;

(7)  change of the auditing firm as provided in Article 21;

(8)  initiating or settling any litigation,  arbitration or other formal dispute
     settlement procedures or forgiveness of any obligation owed the New Company
     in excess of (Y)10,000,000;

(9)  approval  of annual  closing  of the books of the New  Company  and the New
     Company's annual financial statements,  and changing of accounting policies
     and practices or the New Company's accounting periods;

(10) establishment  or amendment to the  conditions of employment of New Company
     Officers,  provided that the affirmative vote of  SPAR-nominated  Directors
     shall not be withheld unreasonably;

(11) selling,  otherwise  disposing of or granting a lien,  security interest or
     similar  obligation  with  respect  to,  in  one  or a  series  of  related
     transactions,  10% or more of the net assets of New Company or with respect
     to any  major  strategic  asset  of New  Company  that  is  crucial  to New
     Company's business;

(12) formation  of any  subsidiary  of New Company,  entry into ( or  subsequent
     termination of) any joint venture, partnership or similar agreement;

(13) entering into,  amending or terminating  any contract with or commitment to
     any Director or shareholder; and

(14) entering  into any  agreement or  commitment  to provide  goods or services
     outside of Japan.

                                   CHAPTER V
                                      AUDIT

Article 19.       Accounting Period

The  accounting  periods of New Company  shall end on the 30th day of  September
each year.

Article 20.       Statutory Auditor

A Statutory Auditor shall be appointed by PALTAC,  and Yoshiyuki Hakoda shall be
the initial Statutory Auditor.



                                      -6-

<PAGE>

Article 21.       Inspection of Accounting Records and Books

New Company shall yearly arrange audit on the  accounting  records and books and
shall submit a report of such audit to each of the parties hereto within 30 days
from the completion of the audit.

Century Ota Showa & Co.  shall be the  initial  accounting  firm  engaged by New
Company,  however,  if  requested by either P ALTAC or SPAR,  New Company  shall
engage as its accounting firm an internationally recognized accounting firm that
is not  the  principal  accounting  firm of  either  of P ALTAC  or  SPAR.  Such
accounting firm shall audit the accounting  records and books of New Company and
any other matters relating,  directly or indirectly, to the financial conditions
of New Company.  Any fee for the certified public  accountant for inspection and
audit mentioned above shall be borne by New Company. New Company shall keep true
and correct accounting records and books with regard to all of its operations in
accordance with generally accepted accounting  principles  consistently  applied
("GAAP")  in Japan.  All  accounting  records  and books shall be kept ready for
inspection  by the  parties  hereto or by their  authorized  representative.  If
requested by SPAR,  New Company shall  cooperate  with respect to each financial
period  to  provide  such  information  as  required  by SPAR to  reconcile  New
Company's financial statements with U.S. GAAP reporting requirements of SPAR.

Article 22.       Increase of Capital

In case of capital increase of New Company after its  establishment,  PALTAC and
SPAR shall have the preemptive right to new shares to be issued for such capital
increase in proportion to their respective shareholdings in New Company.

                                   CHAPTER VI
                               TRANSFER OF SHARES

Article 23.       Restrictions on Transfer of Shares

Except as provided in Article 24 hereof, neither party hereto shall, without the
prior  written  consent of the other  party,  assign,  sell,  transfer,  pledge,
mortgage or otherwise  dispose of all or any part of its shares  (including  its
right to subscribe to new shares) of New Company to any third parties.

Article 24.       Preemptive Right and Option

1. After 3 years from the  effective  date of this  Agreement,  if either  party
hereto  (hereinafter called "Selling Party") wishes to transfer and sell all but
not less than all of its shares,  Selling Party shall furnish to the other party
(hereinafter called "Other Party") a written notice of a proposed purchaser, the
offered  purchase  price and other major terms and  conditions  of such proposed
sale.

The Other  Party shall have a right to  purchase  such shares by giving  Selling
Party a written notice of its intention to purchase the same within 90 days from
the receipt of Selling  Party's  notice,  upon the same terms and  conditions as
described in the Selling Party's notice.  The Selling Party may sell such shares
upon the terms and  conditions as described in its notice after 90 days from the
date of Other  Party's  receipt of such notice unless Other Party gives a notice
for its  



                                      -7-

<PAGE>

purchase  of the shares to Selling  Party.  Unless  agreed by the Other Party in
writing, any transferree party shall be subject to this Agreement.

2. After 3 years from the effective date of this Agreement,  either party may at
any time make a written offer to buy all of the other party's  shares in the New
Company.  The other party shall then either accept the offer and sell all of its
shares under the terms and conditions  offered, or purchase the offering party's
shares at the same terms and  conditions.  If the party  receiving  the  initial
offer does not respond to the initial offer within 120 days, the party receiving
the offer shall be deemed to have  accepted  the offer to sell its  shares.  The
parties  shall  cooperate to effect the closing of such purchase and sale of all
of the shares of the New Company  held by the selling  party  within 120 days of
the  decision  or deemed  decision of the second  party.  At such  closing,  the
purchasing  party shall pay to the selling party the purchase price in cash, and
the  selling  party shall  deliver to the  purchasing  party share  certificates
representing  all of the selling  party's  shares held in New Company,  free and
clear of any liens.

Article 25.       Cooperation in Financing

1. New Company may borrow up to  (Y)300,000,000  as its operating  funds,  which
shall be  guaranteed by PALTAC if  necessary.  PALTAC shall make its  reasonable
efforts to enable such  borrowing.  The terms of the borrowing and any agreement
between  New Company and PALTAC  with  respect to  PALTAC's  guarantee  shall be
matters subject to Section 18 hereof.

2. New Company may borrow an additional  (Y)300,000,000 when it needs additional
funds,  if such borrowing is approved in advance by the Board of Directors as an
important matter under Article 18 herein.

3. If PALTAC pays any  creditors of New Company due to a guaranty made by PALTAC
to such creditors in favor of New Company,  SPAR shall reimburse PALTAC for half
of the amount paid by PALTAC, but only if New Company's  borrowing of such funds
and PALTAC's guaranty of New Company's obligations have been expressly agreed to
in  advance  by  SPAR  in  writing  or in a  Board  resolution  for  which  both
SPAR-nominated directors have voted affirmatively.

                                  CHAPTER VII
                           ROLE OF CONTRACTING PARTIES

Article 26.       Supply of Office and Facility


PALTAC shall supply offices and  facilities,  staff service for general  affairs
and finance, and intra company network service, which are determined, at PALTACs
sole  discretion,   necessary  for  the  operation  of  New  Company  after  the
consultation between the both parties, to New Company at no charge.


Article 27.       Personnel

PALTAC shall, at its own judgement,  second to New Company its personnel who are
appropriate for the start-up of businesses of New Company for a period of 1 year
without any  



                                      -8-

<PAGE>

consideration. In principle, New Company shall be responsible for the payment of
salaries and benefits for such personnel and all other matters  concerning their
employment; however, PALTAC shall, at its own judgement, pay such salaries, etc.

Article 28.       Training

Each party shall  provide the  appropriate  training to employees of New Company
for New Company's  operation at its own site.  The said  training  shall be made
upon New Company's request and any necessary  expenses for the training shall be
borne by New Company,  except as otherwise  provided in the License Agreement or
the Supply Agreement.

Article 29.       Non-Competition

For 5 years from the Execution Date of this  Agreement,  neither SPAR nor PALTAC
shall,  without  the prior  written  consent  of the other,  engage in,  whether
directly  or  indirectly,  Merchandising  Services  (as  defined in the  License
Agreement) in Japan or any other businesses then competitive with New Company in
Japan.  However,  in the event that SPAR enters into a contract  with a customer
that  covers  more than one  country  and the scope of such  agreement  includes
services in Japan, SPAR shall not be prohibited from entering into or performing
such agreement, provided that SPAR shall make commercially reasonable efforts to
enable New Company to  participate  in and be fairly  compensated  for providing
services to any such customer.

                                  CHAPTER VIII
                          AMENDMENT FOR PUBLIC OFFERING

Article 30.       Public Offering

Both parties acknowledge that New Company may attempt to become a listed company
or over-the-counter company on the Osaka Stock Exchange, Tokyo Stock Exchange or
any other  stock  exchange or public  market in Japan ( Public  Offering ). Both
parties   acknowledge   that  the  number  of  issued  shares,   the  number  of
shareholders,  the paid-up  capital,  profit,  transaction  with each party, the
seconded  employees of New Company will be reviewed and instructed for amendment
by the relevant governmental or regulatory  authorities in accordance with those
bodies'  rules or  guidelines  for a Public  Offering.  If both parties agree to
undertake a Public  Offering  pursuant to Article 12 above,  both parties  shall
discuss and reasonably  cooperate with each other to amend this Agreement and/or
the License  Agreement in order to complete the Public  Offering of New Company.
Any changes  to the License Agreement will be effective upon consummation of the
Public  Offering (but not before),  and subject to the approval of the boards of
directors of New Company, PALTAC and SPAR.

                                   CHAPTER IX
                                 CONFIDENTIALITY

Article 31.       Confidential Information

PALTAC and SPAR shall keep  secret and retain in strict  confidence  any and all
confidential  information  and use it only for the purpose of this Agreement and
shall not disclose it to a third 



                                      -9-

<PAGE>

party  without the prior  written  consent of the  disclosing  party  unless the
receiving  party can  demonstrate  that such  information  (i) has become public
other than as a result of disclosure by the receiving party,  (ii) was available
to the receiving party prior to the disclosure by the disclosing  party with the
right to disclose, or (iii) has been independently  acquired or developed by the
receiving party.

                                   CHAPTER X
                               GENERAL PROVISIONS

Article 32.       Effective Date

This Agreement shall become effective at the time of execution hereof.

Article 33.       Termination

1. If either party transfers its shares in New Company to the other party hereto
in accordance with Article 24 hereof, this Agreement shall terminate.  If either
party  transfers its shares in New Company to another  party,  unless  expressly
agreed  by the  non-transferring  party  in  writing,  this  Agreement  shall be
assigned to and binding upon such third party, provided that the assigning party
shall  remain  liable for all legal acts with  respect to this  Agreement or New
Company from before the Effective Date of such assignment.

2. Either party not in breach of this  Agreement may terminate this Agreement by
written notice to the other party if any breach shall not have been corrected by
the other party in breach within 60 days after  written  notice is given by such
party not in breach complaining of such breach.

3. Either Party may  terminate  this  Agreement  without  giving a notice in the
event of one or more of the followings:

(a)  Appointment  of a trustee or receiver  for all or any part of the assets of
the other party;

(b) Insolvency or bankruptcy of the other party;

(c) Assignment of the other party for the benefit of creditor;

(d) Attachment of the assets of the other party;

(e) Expropriation of the business or assets of the other party; and

(f) Dissolution or liquidation of the other party.

If either party is involved in any of the events  enumerated  in (a) through (f)
above,  it shall  immediately  notify the other party of the  occurrence of such
event.

4. In case of the  termination  of this  Agreement  pursuant to Article  32.2 or
Article 32.3, the party terminating in accordance with this Agreement shall have
an option to  purchase  the  shares of the other  party at the book  value to be
decided  by an  internationally  recognized  accounting  



                                      -10-

<PAGE>

firm that is not the principal  accounting firm of either party, if either party
so requests, or to have New Company dissolved.

5. Upon  termination of this Agreement or SPAR's ceasing to hold at least 50% of
the shares in New Company, the License Agreement shall terminate  immediately if
still in effect.

Article 34.       Force Majeure

Neither  party  shall be liable to the other  party for  failure or delay in the
performance of any of its  obligations  under this Agreement for the time and to
the extent such  failure or delay is caused by riots,  civil  commotions,  wars,
hostilities   between  nations,   governmental   laws,  orders  or  regulations,
embargoes, actions by the government or any agency thereof, acts of God, storms,
fires, accidents, strikes, sabotages, explosions, or other similar contingencies
beyond the reasonable control of the respective parties.

Article 35.       Notice

All notices,  reports and other  communications given or made in accordance with
or in connection  with this Agreement  shall be made in writing and may be given
either by (i) personal  delivery, (ii) telex or facsimile  transmission or (iii)
registered  air mail,  if properly  posted,  with postage fully  prepaid,  in an
envelope properly  addressed to the respective  parties at the address set forth
below or to such changed address as may be given by either party to the other by
such  written  notice.  Any such notice,  etc. by personal  delivery or telex or
facsimile  transmission  shall be deemed  to have  been  given as of the date so
delivered or transmitted.  Any such notice, etc. by registered air mail shall be
deemed to have  been  given 7 days  after the  dispatch.  In any  event,  if any
notice, etc. is received other than the regular business hours of the recipient,
it shall be deemed to have been given as of the  following  business  day of the
recipient.

To:      PALTAC;   1-5-9, Minamikyuhoji-machi, Chuo-ku, Osaka, Japan
         SPAR;     580 White Plains Road, Tarrytown, NY, USA

Article 36.       Assignment

This  Agreement  and the rights and  obligations  hereunder  are personal to the
parties hereto,  and shall not be assigned by either of the parties to any third
party.

Article 37.       Arbitration

All dispute,  controversies,  or differences which may arise between the parties
hereto, out of or in relation to or in connection with this Agreement,  shall be
finally  settled by arbitration in Osaka,  Japan in accordance with the rules of
the Japan  Commercial  Arbitration  Association  if initiated by SPAR, or in New
York City in accordance with the International Arbitration Rules of the American
Arbitration  Association  if  initiated  by  PALTAC.  The  arbitration  shall be
conducted  by 3  arbitrators  in the English  and the  Japanese  languages.  The
arbitration award shall be final and legally binding upon both parties.



                                      -11-

<PAGE>

Article 38.       Implementation

The shareholders hereby agree, for themselves, their successors, heirs and legal
representatives,  to vote at shareholders'  meetings, and to cause the Directors
they  nominate  to vote at Board  meetings  and to carry  out their  duties,  to
prepare,  execute and deliver or cause to be prepared,  executed  and  delivered
such further instruments and documents,  to take such other actions and to cause
the Articles of Incorporation  of New Company,  New Company work rules and other
rules and Commercial Registry and any other document to be amended or adopted as
may be reasonably required to effect the provisions and intent of this Agreement
and the transactions contemplated hereby.

Article 39.       Governing Law

This Agreement and all questions arising out of or under this Agreement shall be
governed by and interpreted in accordance with the laws of Japan.

Article 40.       Waiver

Any failure of either  party to enforce,  at any time or for any period of time,
any of the  provision  of this  Agreement  shall not be construed as a waiver of
such  provisions  or of the right of such party  thereafter  to enforce each and
every such provision.

Article 41.       Entire Agreement

This Agreement  constitutes  the entire and only  agreement  between the parties
hereto with respect to the subject  matter of this  Agreement and supersedes any
other  commitments,  agreements or understandings,  written or verbal,  that the
parties  hereto may have had.  No  modification,  change and  amendment  of this
Agreement  shall be binding  upon the parties  hereto  except by mutual  express
consent  in  writing  of  subsequent  date  signed  by  authorized   officer  or
representative of each of the parties hereto.

Article 42.       Headings

The headings of articles and paragraphs  used in this Agreement are inserted for
convenience  of reference  only and shall not affect the  interpretation  of the
respective articles and paragraphs of this Agreement.

Article 43.       Language

This Agreement has been executed in the English and the Japanese  languages.  If
there is any discrepancy or  inconsistency  between the English and the Japanese
versions, the English version shall prevail.




                                      -12-

<PAGE>


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in 2 copies by their respective duly authorized  officer or representative as of
the day first above written.


Paltac Corporation
Signature:

/s/ Kunio Mikita

Name: Kunio Mikita
Title: Representative Director & President



Spar Group, Inc.
Signature:

/s/  Robert G. Brown

Name: Robert G. Brown
Title: Chairman & CEO







                                      -13-

                                                                  August 1, 2004


                             AGREEMENT ON AMENDMENT

SPAR Group,  Inc.  (hereinafter  referred to as "SPAR") and SPAR FM Japan,  Inc.
(hereinafter referred to as the "Company") agreed to amend the License Agreement
executed as of May 1, 2001 between SPAR and the Company (hereinafter referred to
as the "License Agreement") concerning the royalty, pursuant to Article 3 of the
Agreement  executed  as of April 30,  2004 among  SPAR,  Company and PALTAC Inc.
(hereinafter  referred to as "PALTAC")  (hereinafter referred to as the "Renewed
Agreement").

1.       SPAR and the  Company  agree to amend  the  existing  Article  5 of the
         License  Agreement.  The existing Article 5 shall become Section 5.2 of
         the License  Agreement  and the following  provision  shall be added as
         Section 5.1 of the License Agreement.

"5.1     Royalty  The  Company  shall pay to SPAR the  amount  to be  separately
         agreed upon between the Company and SPAR through mutual consultation as
         a royalty  for the  license  granted by SPAR under  Articles 2 and 3 of
         this  License  Agreement  (provided  that such amount shall be reviewed
         every two years).  The Company shall report to SPAR the amount of sales
         from  January 1 of any year to  December  31 of such year by the end of
         February of the next year,  and shall pay an  appropriately  calculated

         royalty by bank  transfer to the account  designated by SPAR by the end
         of March of such  next  year  (provided  that the  Company  may  deduct
         necessary bank transfer fees from such royalty amount)."

2.       The amendment stipulated in this Agreement shall be deemed to have
         become effective on and from May 1, 2004.

IN WITNESS  WHEREOF,  the parties executed this Agreement on Amendment as of the
date first written above.



<PAGE>


                             MEMORANDUM OF AGREEMENT

                                                                  August 1, 2004

SPAR Group,  Inc.  (hereinafter  referred to as "SPAR") and SPAR FM Japan,  Inc.
(hereinafter  referred to as the  "Company")  agreed as follows  through  mutual
consultation  concerning the royalty under Section 5.1 of the License  Agreement
as of May 1, 2001, as modified  pursuant to the Agreement on Amendment  executed
as of  August  1, 2004  between  the  parties  (hereinafter  referred  to as the
"License Agreement").

1.       The amount payable under Section 5.1 of the License Agreement shall be
         0.5% of the sales amount of the Company.

2.       The  above  provision  shall  be  effective  from May 1,  2004  through
         December  31,  2005.  The parties  shall  consult with each other in or
         after  September  2005 to  determine  the  amount  to be  paid  for the
         subsequent period

IN WITNESS WHEREOF,  the parties executed this Memorandum of Agreement as of the
date first written above.


SPAR GROUP, INC.
By: Robert G .Brown

         /s/ Robert G. Brown                
         -----------------------------------
         (sign or seal)
Title: Chairman & CEO


PALTAC CORPORATION
By: Kunio Mikita

         /s/ Kunio Mikita                   
         -----------------------------------
         (sign or seal)
Title: President & CEO


SPAR FM JAPAN, K.K.
By: Kiyotaka Shimoda

         /s/ Kiyotaka Shimoda               
         -----------------------------------
         (sign or seal)
Title: President & CEO



<PAGE>


                                                                  August 1, 2004

                             AGREEMENT ON AMENDMENT

SPAR  Group,  Inc.  (hereinafter  referred to as  "SPAR"),  SPAR FM Japan,  Inc.
(hereinafter  referred to as the "Company") and PALTAC Corporation  (hereinafter
referred to as "PALTAC") agreed to amend the Joint Venture Agreement executed as
of May 1, 2001 between SPAR and PALTAC concerning economic conditions  involving
provision of offices, facilities, personnel and other items, pursuant to Article
3 of the Agreement as of April 30, 2004 (hereinafter referred to as the "Renewed
Agreement").  All parties to this Agreement  hereby confirm that the following
represents the agreement made among such parties.

1.       SPAR, PALTAC and the Company agree to delete and replace the existing
         Article 26 of the Joint Venture Agreement in its entirety with the
         following provision.

"Article 26 . Other Cooperation

26.1 Other than the warranty  stipulated  in the  preceding  Article 25,  PALTAC
shall  provide the New  Company,  through  their mutual  consultation,  offices,
facilities,  and general  affairs and  accounting  personnel  that PALTAC  deems
necessary to manage the New Company at its sole discretion, services relating to
the non-clerical  operations of the New Company  provided by PALTAC's  employees
who are  dispatched  as  directors  of the New  Company,  and  internal  network
service.

26.2  Separately  from this provision the New Company and PALTAC shall determine
through  negotiation the amount of  consideration to be paid for the warranty in
the preceding  Article 25 and the  cooperation in the preceding  Section 26.1 by
the New Company to PALTAC  (provided  that the New Company and PALTAC may modify
the  amount of such  consideration  every two years  through  negotiation).  The
Company shall report to PALTAC the amount of sales from January 1 of any year to
December 31 of such year by the end of February of the next year,  and shall pay
an  appropriately  calculated  consideration  by bank  transfer  to the  account
designated  by PALTAC by the end of March of such next year  (provided  that the
New Company may deduct  necessary  bank  transfer  fees from such  consideration
amount).

26.3 The purpose of the payment of the  consideration  in the preceding  Section
26.2 shall not be for distribution of profits, but for compensation for expenses
of the New Company paid by PALTAC on behalf of the New Company."



IN WITNESS  WHEREOF,  the parties  execute this Agreement on Amendment as of the
date first written above.


<PAGE>


SPAR GROUP, INC.
By: Robert G .Brown

         /s/ Robert G. Brown                
         -----------------------------------
         (sign or seal)
Title: Chairman & CEO


PALTAC CORPORATION
By: Kunio Mikita

         /s/ Kunio Mikita                   
         -----------------------------------
         (sign or seal)
Title: President & CEO



                             JOINT VENTURE AGREEMENT

This Agreement is made as of this                    , 2005 by and between:

1.       Best Mark  Investments  Holdings Ltd., a corporation duly organized and
         existing  under  the laws of the  British  Virgin  Islands  with it's a
         registered  office at Arias,  Fabrega & Fabrega  Trust Co. BVI Limited,
         325 Waterfront  Drive, Omar Hodge Building,  2nd Floor,  Wickham's Cay,
         Road Town, Tortola,  British Virgin Islands (hereinafter referred to as
         "SIMS"),  which is a wholly owned  subsidiary  of Sims Trading  Company
         Limited,  a company  organized and existing  under the law of Hong Kong
         and having its  registered  office at 10th Floor, DCH Building,  20 Kai
         Cheung Road,  Kowloon Bay, Hong Kong (hereinafter  referred to as "Sims
         Trading"); and

2.       SPAR  International  Ltd., a company  organized and existing  under the
         laws  of  the  Cayman  Islands,  having  its  a  registered  office  in
         Georgetown,  Grand  Cayman  with  an  office  580  White  Plains  Road,
         Tarrytown, NY, USA (hereinafter called "SPAR"),

                                WITNESSETH THAT:

WHEREAS,  SIMS is a wholly owned  subsidiary of Sims Trading which is engaged in
the retail  solution  businesses in Hong Kong and China,  having a wide range of
clients and also having  various  knowledge and human  resources with respect to
the retailing businesses in Hong Kong
 and China.

WHEREAS,  SPAR is engaged in the retail  solution  businesses in the USA, having
computer  software useful for agency,  assistance,  instruction and reporting of
storefront  activities and also having operational know-how with respect to such
software; and

WHEREAS,  SIMS and SPAR are desirous of  organizing a Hong Kong  corporation  to
acquire a company in China to conduct a retail solution  businesses in China and
will further consider  whether to extend the retail solution  businesses to Hong
Kong (Hong Kong and China are collectively referred to as "Territory").

NOW,  THEREFORE,  in  consideration of the mutual covenants and agreement herein
contained, the parties hereto agree as follows:.


                   CHAPTHER I: ORGANIZATION OF THE NEW COMPANY
                               -------------------------------

Article 1.    Establishment

Promptly  after the effective date of this  Agreement,  the parties hereto shall
cause a new  company to be  organized  under the laws of Hong Kong  (hereinafter
called "SPAR  China").  SPAR China shall then 


                                                                             -1-

<PAGE>


form a wholly  owned  subsidiary  in the rest of China and upon  formation,  The
wholly owned  subsidiary  and SPAR China shall become a party to this  Agreement
(herein referred to as the "New Companies").


Article 2.    Business Purposes

The business purposes of the New Companies shall consist of the following:

1. Provide retail merchandising and product demonstration services;

2. Agency, assistance, instruction and report of storefront sales activities;

3. Implementation of market research and analysis of results thereof;

4. Installation of displays for new product launch, cut-ins and category resets;

5. Re-ordering and replenishment; .

6. Assembly of setups used for sales promotion;

7. POSM management/POP monitoring;

8. Consulting regarding store management;

9. Development and sale of management system regarding retailing;

10. Designing and sale of data; and

11. Any and all businesses incidental or relating to any of the foregoing.


Article 3.    Trade Name

The New  Companies  shall be named in the  Territory  as SPAR China  Ltd.  or as
mutually  agreed between the parties.  However at a future date and with written
notice the name of the  companies  may be changed  to reflect  the equal  shared
ownership of the New Companies by Sims Trading using the name "Sims" or "DCH" at
its discretion.


Article 4.    Location

SPAR China shall have its main office in Hong Kong.


Article 5.        Articles of Association

The Articles of Association of SPAR China shall be attached as Exhibit A hereto.



                                                                             -2-

<PAGE>

Article 6.    Capital

The total number of shares which SPAR China shall be  authorized  to issue shall
be  5,000,000  that par value of each  share  shall be  HK$1.00.  At the time of
establishment  of SPAR China shares shall be issued and fully  subscribed by the
parties hereto as follow:

         o    SIMS                 50% HK$800,000.00
         o    SPAR:                50% HK$800,000.00

All the shares to be issued by SPAR China shall be ordinary shares


Article 7.    Payment

Each of the parties hereto shall pay in Hong Kong dollars and in cash the amount
equivalent to its subscribed  shares at par value upon issuance of the shares of
SPAR China.

          CHAPTER II. PREPARATION OF ESTABLISHMENT OF THE NEW COMPANIES
                      -------------------------------------------------

Article 8.    Preparation of Establishment of SPAR China

Each party shall take its role as  described  below for the  preparation  of the
commencement of SPAR China  business.  Any expenses and costs necessary for such
preparation shall be borne by each party.

SPAR shall enter into with SIMS on behalf of SPAR China Ltd. a license agreement
in the  form  attached  hereto  as  Exhibit  B (the  "License  Agreement").  For
reference, the License Agreement includes the obligations of SPAR to:

1.       localize,  set  up, maintain and enhance  software  provided by SPAR to
         work in China;

2.       localize,  set up,  maintain and enhance  software  provided by SPAR to
         work in Hong Kong at the option of the New Companies;

3.       consult on the organization of merchandising services;

4.       train the New Companies'  personnel in how to operate the merchandising
         software;

5.       give advice on budgeting and development of each business plan;

6.       provide 24 hours/day/365days/year IT system support and problem solving
         services  to  the  New  Companies  with  no   consideration   for  time
         differences;

7.       Promote  the  New  Companies'   services  to  SPAR  US  customers  with
         operations in the Territory.



                                                                             -3-

<PAGE>

Sims Trading shall:

1.       provide  office  space,  facility  and other back  office  and  support
         services to the New Companies  under the terms  described in Article 26
         herein;

2.       arrange  meetings  with current  clients to promote the New  Companies'
         services;

3.       transfer such  business as is practical to the New Companies  currently
         performed by Sims  Trading on behalf of Sims  Trading's  principals  at
         charges to be agreed  between the parties  hereto.  [Need to  determine
         pricing.]


                  CHAPTER III: GENERAL MEETING OF SHAREHOLDERS
                               -------------------------------

Article 9.    Annual General Meeting and Extraordinary General Meeting

The Annual  General  Meeting of  Shareholders  shall be held in Hong Kong or any
other  vicinal place within 3 months from the day of each  accounting  period of
SPAR China.

An Extraordinary  General Meeting shall be convened whenever deemed necessary by
the parties hereto.


Article 10.   Quorum

A quorum of the General  Meeting of  Shareholders  shall be the  parties  hereto
present either in person or by proxy.


Article 11.   Resolution

Except as expressly  otherwise  provided in the Articles of  Association of SPAR
China  Ltd.  and this  Agreement,  all  resolutions  of the  General  Meeting of
shareholders shall be adopted by the affirmative vote of shareholders holding at
least 52% of the shares  present or  represented  at meeting  for which there is
quorum or by written resolutions of all shareholders.


Article 12.   Important Matters

In addition to such matters as required by the Articles of  Association  of SPAR
China  and  the  Companies  Ordinance  (Chapter  32,  Laws of  Hong  Kong),  any
resolutions  of the  following  matters by the General  Meeting of  shareholders
require  the  affirmative  vote of at lease  three  quarters of the votes of the
shareholders present:

1.       any amendment or modification of the Articles of Association;



                                                                             -4-

<PAGE>


2.       increase or decrease in the authorized capital or paid-up capital;

3.       issuance  of new  shares or any  other  kind of  equity  securities  or
         instruments  convertible  into  equity  securities  or the  decision to
         undertake a Public Offering (as defined in Article 30);

4.       issuance of debentures;

5.       transfer of any part or whole of business

6.       any and all matters relating to dividends of SPAR China;

7.       dissolution or amalgamation;

8.       change in number or length of tenure of Directors;


                   CHAPTER IV: BOARD OF DIRECTORS AND OFFICERS
                               -------------------------------

Article 13.   Election of Directors

The Board of  Directors of the SPAR China shall  consist of four (4)  Directors;
two (2) of whom shall be elected  from among  those  appointed  by SIMS and 2 of
whom shall be elected from those appointed by SPAR. The Chairman of the Board of
Directors shall be elected from the Directors by the mutual consultation of both
parties.  In case of any  increase or decrease in the number of  Directors,  the
representation stipulated above shall be unchanged and pro-rata at all times.


Article 14.   Election of Officers

Officers  shall be  appointed  by the  Board  of  directors  and  serve at their
pleasure.


Article 15.   Office of Director

The term of office of each  Director  shall  expire at the close of each  Annual
General  Meeting of  Shareholders,  which  relates to the  closing of the annual
accounts, but each of the Directors are eligible for re-election.


Article 16.   Quorum

Each  Director  shall have one (1) voting right in the Board of  Directors.  The
quorum at meetings of the Directors shall be two (2) Directors, provided that at
least one of the  Directors  appointed by SPAR 



                                      -5-

<PAGE>

and at least one of the Directors  appointed by SIMS. All  resolutions  shall be
adopted  by the  affirmative  vote of more than  two-thirds  of the votes of the
Directors that are in attendance or by proxy.


Article 17.   Meetings of the Board of Directors

The Ordinary  Meetings of the Board of Directors  shall be held quarterly and an
Extraordinary  Meeting of the Board of Directors  shall be held when  necessary,
and shall be convened  in  accordance  with the  provisions  of the  Articles of
Association and this Agreement To the extent then permitted,  any meeting of the
Board of Directors may be held by interactive  video conference or other similar
electronic or telephonic means, and any action that may be taken by the Board of
Directors at a meeting  thereof  (whether in person or video  conference) may be
effected  in  lieu of such  meeting  by  unanimous  written  consent  resolution
executed by each member of the Board of Directors.  The parties  hereto  confirm
that the  prevailing  interpretation  in Territory is that meetings of boards of
directors  may be held by  interactive  videoconference.  A  written  record  in
English of all meetings of the Board of Directors and all Board  decisions shall
be made available as promptly as practicable  after each meeting of the Board of
Directors.  At each  meeting,  one Director  shall be selected by the  attending
Directors  to act as the  Secretary  of the  meeting and keep the records of the
meeting.  The records of the meeting shall be confirmed by the signature of each
of the Directors.


Article 18.   Important Matters

In addition to such matters as required by the Articles of  Association  of SPAR
China, the following matters of the Board of Directors meeting shall require the
unanimous vote of all Directors:

1.       Any  proposal to the  shareholders  or action by the Board of Directors
         for the matters as provided in Article 12 hereof;

2.       any investment or commitment of SPAR China in amounts  individually  in
         excess  of  HK   $200,000.00   or  in  the   aggregate   in  excess  of
         HK$400,000.00;

3.       any loan or credit taken by SPAR China;

4.       execution,  amendment or termination of agreements or commitments  with
         SIMS, SPAR or their subsidiaries or affiliates;

5.       adoption or amendment of the annual budgets and business plan;

6.       adoption  or  any  material   modification  of  major   regulations  or
         procedures, including any employee rules or handbook;



                                                                             -6-

<PAGE>

7.       change of the auditing firm as provided in Article 21;

8.       initiating  or settling  any  litigation,  arbitration  or other formal
         dispute settlement  procedures or forgiveness of any obligation owed to
         SPAR China in excess of HK$200,000.00;

9.       approval of annual  closing of the books of SPAR China and SPAR China's
         annual financial  statements,  and changing of accounting  policies and
         practices or SPAR China's accounting periods;

10.      No sale at  disposition  of or  granting a lien,  security  interest or
         similar  obligation  with  respect  to, in one or a series  of  related
         transactions of SPAR China or with respect to any major strategic asset
         of SPAR China that is crucial to SPAR China's business;

11.      Formation of any  subsidiary of SPAR China,  entry into (or  subsequent
         termination of) any joint venture, partnership or similar agreements;

12.      Entering  into  amending or  terminating  agreement  or  commitment  to
         provide goods or services outside the Territory.

13.      Appointment or dismissal of the President or Chief Executive Officer.


                                CHAPTER V: AUDIT
                                           -----

Article 19.   Accounting Period

The  accounting  periods of SPAR China  shall end on the 31st day of December of
each year.


Article 20.   Statutory Auditors

A Statutory Auditor shall be appointed by SPAR China where required by law.


Article 21.   Inspection of Accounting Records and Books

The accounting  records and books of SPAR China shall be audited annually.  SPAR
China shall submit a report of such audit to each of the parties  hereto  within
thirty (30) days from the completion of the audit.

Ernst & Young or KPMG or another mutually accepted  international  auditing firm
shall be the auditing firm engaged by SPAR China. This auditing firm shall audit
the  accounting  records and books of the New  Companies  and any other  matters
relating,  directly or indirectly, to the financial conditions of New Companies.
Any fee for the certified  public  accountant for inspection and audit mentioned



                                      -7-

<PAGE>

above  shall be borne by New  Companies.  SPAR China shall keep true and correct
accounting  records and books with regard to all of its operations in accordance
with generally accepted accounting  principals  consistently applied ("GAAP") in
Territory.  All accounting  records and books shall be kept ready for inspection
by the parties  hereto or by their  authorized  representative.  If requested by
SPAR,  SPAR China  shall  cooperate  with  respect to each  financial  period to
provide such information as required by SPAR to reconcile SPAR China's financial
statements with U.S. GAAP reporting requirements of SPAR.


Article 22.   Increase of Capital

In case of capital increase of SPAR China after its establishment, SIMS and SPAR
shall have the  preemptive  right to new  shares to be issued  for such  capital
increase in proportion to their respective shareholdings in SPAR China.


                         CHAPTER VI: TRANSFER OF SHARES
                                     ------------------

Article 23.   Restrictions on Transfer of Shares

Except as provided in Article 24 hereof, neither party hereto shall, without the
prior  written  consent of the other  party,  assign,  sell,  transfer,  pledge,
mortgage,  or otherwise  dispose of all or any part of its shares (including its
right to subscribe to new shares) of SPAR China to any third parties.


Article 24.   Preemptive Right and Option

1. After five (5) years from the  effective  date of this  Agreement,  if either
party hereto  (hereinafter  called "Selling  Party") wishes to transfer and sell
all but not less than all of its shares,  the Selling Party shall furnish to the
other  shareholder  in SPAR China  (hereinafter  called "Other Party") a written
notice ("Sale  Notice") of the proposed sale. The Sale Notice should include the
offered sale price to be determined in accordance with  sub-paragraph (3) hereof
and other major terms and  conditions  of such  proposed  sale.  Except with the
consent of the Other Party, a Sale Notice shall be irrevocable.

2. The Other Party shall have a right to purchase such shares by giving  Selling
Party a written  notice of its intention to purchase the same within ninety (90)
days ("Acceptance  Period") from the receipt of Selling Party's notice, upon the
same terms and  conditions  as  described  in the Selling  Party's  notice.  The
Selling Party may sell such shares upon the terms and conditions as described in
its notice after ninety (90) days from the date of Other Party's receipt of such
notice.  Unless agreed by the Other Party in writing, any transferee party shall
be subject to this Agreement.



                                                                             -8-

<PAGE>

3. The sale price for the shares shall be the price as may be determined, at the
request of the Other Party and at the cost of SPAR China, by the Auditors of the
New Companies (acting as experts and not as arbitrators) on the basis of the net
asset value and net profit after tax as shown in the latest audited  accounts of
the New Companies  (whichever  is greater),  provided that if at the date of the
Sale  Notice the market  value as between a willing  seller and a willing  buyer
acting at arm's  length of any of the assets of SPAR China is greater or less by
ten  percent  (10%) or more than the book value of such  assets  then the market
value  of such  assets  shall  be  substituted  for the book  value  thereof  in
computing the fair value of the shares.

4. If the Other  Party  does not give  notice to the  Selling  Party  within the
Acceptance  Period that the Other Party is willing to proceed with the purchase,
the Selling  Party shall be at liberty,  within a period of sixty (60) days from
the  expiration  of the  Acceptance  Period,  to sell and  transfer  the  shares
(subject  to  sub-paragraph  7  hereof)  at any price but not less than the sale
price to any other  third  party(ies)  as the  Selling  Party  shall  determine,
provided  that the  shareholders  of SPAR China in  shareholders'  meeting shall
first be reasonably  satisfied as to the financial position and other conditions
of such third party(ies) and its or their ability to comply with the obligations
of the Selling Party before registering the transfer.

5.  Notwithstanding  anything to the  contrary  (expressly  or  implied)  herein
contained,  upon  registration  of the Other  Party or third  party(ies)  as the
shareholder(s)  of all the shares of the Selling  Party of and in SPAR China the
Selling  Party  shall  cease to be bound by the  terms  and  provisions  of this
Agreement and its rights under this Agreement shall be extinguished  but without
prejudice  to any rights  accrued or  accruing  by the virtue of any  antecedent
breach of any term or provision hereof.

6. The remaining  shareholders  shall procure that SPAR China release  forthwith
any  Director(s) of SPAR China  appointed by the Selling Party after the sale or
transfer  of the  shares  by the  Selling  Party  from  all  their  offices  and
employments  with SPAR China and the  Selling  Party  shall upon  request of the
remaining  shareholders  procure that any such Director(s)  resign forthwith all
their  offices  and   employments   with  SPAR  China  without  payment  of  any
compensation by the SPAR China to such  Director(s) in respect thereof and shall
indemnify  SPAR China  against any claim by any such  Director(s)  in connection
with such loss of office and employment.

7. Any  transfer  of  shares  in SPAR  China  pursuant  to  Article  24 shall be
conditional  upon the  transferee  entering into an agreement  with the existing
shareholder(s)  whereby the transferee shall agree to be bound by and to observe
and perform the terms and conditions of this Agreement.

Article 25.   Cooperation in Financing

1. SPAR China may borrow up to  HK$8,000,000  as its operating funds which shall
be  guaranteed by 


                                                                             -9-

<PAGE>

Sims Trading if necessary.  As a condition  precedent to Sims Trading  executing
any  guarantee or  providing  any form of security to the Lender as security for
the facility, SPAR has to execute a guarantee or provide other forms of security
in  favour  of Sims  Trading  as  security  for up to  half  of  Sims  Trading's
liabilities,  costs and expenses (legal or otherwise)  under such facility.  The
terms of the  borrowing  and any  agreement  between SPAR China and Sims Trading
with respect to Sims Trading  guarantee  shall be matters  subject to Article 18
hereof.

2. SPAR China may borrow an  additional  HK$8,000,000  when it needs  additional
funds,  if such borrowing is approved in advance by the Board of Directors as an
important matter under Article 18 herein.

3. If Sims Trading is required to pay any amounts  under Article 25(1) and 25(2)
due to a guarantee made by Sims Trading for such amounts in favor of SPAR China,
SPAR shall  forthwith  reimburse  Sims  Trading  for half of the amount  paid or
payable by Sims  Trading.  SPAR's  failure  to comply  this  Article  25(3) will
entitle Sims Trading to enforce its rights  against SPAR under any of the deeds,
guarantee  or documents  executed by SPAR in favour of Sims Trading  pursuant to
Article 25(1) hereof.


                    CHAPTER VII: ROLE OF CONTRACTING PARTIES
                                 ---------------------------

Article 26.   Supply of Office and Facility

1. Sims Trading  shall at Sims  Trading's  sole  discretion  supply  offices and
facilities,  staff  service for general  affairs and finance,  and intra company
network services building on the  infrastructure of Sims Trading's four regional
offices, namely, Guangzhou,  Shenzhen, Shanghai and Beijing, which are necessary
for the  operation  of the New  Companies  after the  consultation  between both
parties,  and at no charge to the New  Companies for a period of four (4) years.
PROVIDED  ALWAYS THAT (a) Sims Trading's total  incremental  cash expenses under
this  Article  26(1)  in  the  4-year  period  shall  not in  any  event  exceed
HK$1,750,000;  and (b) any such  incremental  cash  expenses  exceeding the said
limit of HK$1,750,000 shall be borne by the New Companies absolutely and the New
Companies  shall settle in favour of Sims Trading in full all the expenses  each
month  without  delay;  and (c) any  office(s) of the New Companies to be set up
outside Sims Trading's  four regional  offices in China shall be at the sole and
absolute  discretion of Sims Trading and in reaching its decision,  Sims Trading
shall be entitled to take into accounts matters  including  without  limitation,
the  profitability  of  customers'  needs and  requests  for the New  Companies'
services,  feasibility  studies and prospect of development and expansion of the
business.

2. SPAR for first  four (4) years will  provide  up to a total of four  thousand
(4,000)  hours of business  


                                                                            -10-

<PAGE>

support.  This support may be in the form of general  business,  consultation or
programming support to modify or enhance the merchandising  software.  SPAR will
maintain  ownership of all  software.  Ownership of any of the  information  and
database of SPAR China clients shall belong to SPAR China absolutely. If support
provided exceeds four thousand (4,000) hours the additional hours will be billed
by SPAR to SPAR China at US$55.00 per hour.  Coach travel for work  performed on
behalf of the Joint Venture by SPAR or SIMS or Sims Trading would be paid for by
SPAR China.

3.  Both  Parties  agree  that  their  operating  expenses,  which  include  the
management hours of the Directors and other senior  management staff, may not be
allocated to SPAR China in the first five (5) years.


Article 27.   Personnel

Sims Trading shall, at its own judgment,  second to SPAR China its personnel who
are  appropriate  for the start-up of business of the New Companies for a period
of one (1) year without any  consideration.  In  principal,  SPAR China shall be
responsible for the payment of salaries and benefits for full time personnel and
all other matters  concerning their  employment;  however Sims Trading shall, at
its own  judgment,  pay such  salaries and benefits as necessary to maintain the
profitability of SPAR China.


Article 28.   Training

Each party hereto shall  provide the  appropriate  training to the employees for
the New  Companies'  operation at its own site.  The said training shall be made
upon SPAR China's  request and any necessary  expenses for the training shall be
borne by SPAR  China,  except as  otherwise  provided  in License  Agreement  as
provided by article 26.


Article 29.   Non-Competition

For five (5) years from the Execution Date of this  Agreement,  neither SPAR nor
Sims Trading shall without the prior  written  consent of the other,  engage in,
whether  directly  or  indirectly,  Merchandising  Services  (as  defined in the
License Agreement) in Territory or any other business then competitive with SPAR
China in Territory  save and except that Sims Trading  shall be allowed  without
any restrictions  whatsoever to continue to carry on its Merchandising  Services
under Twin Tiger International  Limited in Hong Kong any time whether during the
subsistence of this Agreement or after its  termination.  In the event that SPAR
enters into an agreement  with a customer  that covers more than one country and
the scope of such agreement includes service in the Territory, SPAR shall not be
prohibited from entering into or performing  such agreement,  provided that SPAR
shall be obliged to notify  SPAR 


                                                                            -11-

<PAGE>

China of such agreement(s)  (including global agreements) and SPAR shall use all
reasonable  efforts to procure  that SPAR China has a right of first  refusal to
enter into and perform  such  agreements  and the terms so offered to SPAR China
shall always be no less  favourable  than the terms so offered to any subsequent
parties.  Notwithstanding  any provisions to the contrary  herein,  in the event
that any Merchandising Services or any other business then competitive with SPAR
China in the Territory is carried out by SPAR directly or indirectly and whether
alone or  jointly  with any other  third  party(ies)  whatsoever,  SIMS shall be
entitled to charge a commission on the gross fees so received by SPAR at rate to
be fairly and reasonably determined by both parties and in any event the charges
for the merchandising services shall not be lower than the standard rate charged
by SPAR China.

For the avoidance of doubt, SPAR China has been granted the non-transferable and
exclusive  license to use the  Licensed  Technology  (as  defined in the License
Agreement) in the Territory under the License Agreement.  During the subsistence
of this Agreement and the License Agreement,  SPAR shall not further license the
Licensed  Technology to any other party(ies) in the Territory whether or not for
the purpose of providing such Merchandising  Services or any other business then
competitive  with SPAR China which SPAR China has  exercised  its first right of
refusal to take up.

Sims Trading may also continue to offer services to Sims Trading's  clients that
exist on the date of  execution  of  contract  as long as they  are  similar  to
services  offered  prior to the  execution of this contract and Sims Trading has
made reasonable effort to transfer such business to the New Companies.


                   CHAPTER VIII: AMENDMENT FOR PUBLIC OFFERING
                                 -----------------------------

Article 30.   Public Offering

Both parties  acknowledge that SPAR China may attempt to become a listed company
or  over-the-counter  company on the Territory Stock Exchange or any other stock
exchange or public  market in Territory  (the "Public  Offering").  Both parties
acknowledge that the number of issued shares,  the number of  shareholders,  the
paid-up capital and profit  transaction with each party, the seconded  employees
of SPAR China will be reviewed  and  instructed  for  amendment  by the relevant
governmental or regulatory authorities in accordance with those bodies' rules or
guidelines  for Public  Offerings.  If both parties  agree to undertake a Public
Offering pursuant to Article 12 above, both parties shall discuss and reasonably
cooperate with each other to amend the Articles of Agreement  and/or the License
Agreement in order to complete the Public Offering of SPAR China. Any changes to
the License Agreement will be effective upon consummation of the Public Offering
(but not before),


                                                                            -12-

<PAGE>

and subject to the approval of the Boards of  Directors of SPAR China,  SIMS and
SPAR.


                           CHAPTER IX: CONFIDENTIALITY
                                       ---------------

Article 31.   Confidential Information

SIMS and SPAR shall keep  secret  and  retain in strict  confidence  any and all
confidential  information  and use it only for the purpose of this Agreement and
shall not disclose it to a third party without the prior written  consent of the
other party unless the receiving  party can demonstrate  that such  information:
(i) has become  public  other than as a result of  disclosure  by the  receiving
party,  (ii) was available to the receiving party prior to the disclosure by the
disclosing  party with the right to  disclose,  or (iii) has been  independently
acquired or developed by the receiving party.


                          CHAPTER X: GENERAL PROVISIONS
                                     ------------------

Article 32.   Effective Date and Duration

1.       This Agreement shall become effective at the time of execution hereof.

2.       Subject to the following provisions of Article 33, this Agreement shall
         take effect from the effective  date and shall  continue in force for a
         term of five (5) years.  This Agreement shall  automatically  renew for
         successive  five (5) year periods  following the end of each  preceding
         five (5) year period unless one of the parties  hereto serves a written
         notice of  termination  to the other six (6)  months  before the end of
         each period before termination can take effect.


Article 33.   Termination

1.       If either party  transfers  its shares in SPAR China to the other party
         hereto in accordance  with Article 24 hereof,  this Agreement  shall be
         terminated after completion of the transfer of shares under Article 24.
         If either party  transfers  its shares in SPAR China to another  party,
         unless expressly agreed by the non-transferring  party in writing, this
         Agreement  shall be  assigned  to and  binding  upon such third  party,
         provided  that the  assigning  party shall remain  liable for all legal
         acts with respect to this Agreement or the SPAR China  occurred  before
         the Effective Date of such assignment.

2.       In the event of a breach of this Agreement,  the party not in breach of
         this  Agreement,  may terminate this Agreement by written notice to the
         party in breach of this  Agreement  if such breach  shall not have been
         corrected by the party in breach  within ninety (90) days after written
         notice is given by 


                                                                            -13-

<PAGE>

the party not in breach.

3.       Either party may terminate this Agreement by giving notice in the event
         of one or more of the following:

(a)      Appointment  of a trustee or receiver for all or any part of the assets
         of the other party;

(b)      Insolvency or bankruptcy of the other party;

(c)      Assignment of the other party for the benefit of creditor;

(d)      Attachment of the assets of the other party;

(e)      Expropriation of the business or assets of the other party; and

(f)      Dissolution or liquidation of the other party.

If either party is involved in any of the events  enumerated  in (a) through (f)
above,  it shall  immediately  notify the other party of the  occurrence of such
event.

4. In case of the  termination  of this  Agreement  pursuant to Article  33.2 or
Article 33.3, the party terminating in accordance with this Agreement shall have
an option to  purchase  the  shares of the other  party at the book  value to be
decided  by an  internationally  recognized  accounting  firm  that  is not  the
principal  accounting firm of either party,  if either party so requests,  or to
have SPAR China dissolved.

5. Upon  termination of this Agreement or SPAR's ceasing to hold at least 50% of
the shares in SPAR China, the License  Agreement shall be terminable  within two
(2) years thereafter.

6. Upon the  termination of this Agreement or if SPAR wishes to sell all or part
of its shares in SPAR China to a third  party or SIMS or Sims  Trading,  SPAR is
committed to supply:

         (a)      its name for two additional years at no cost; and

         (b)      its  software  to SPAR  China  for  additional  2 years at the
                  following cost:

                  (i) First 12 months: out of pocket costs

                  (ii)     Next 12 months: $3,000 / month + out of pocket costs

                  and

         (c)      SIMS or Sims  Trading  will  have an  option  to  license  the
                  software for two  additional  years at a fair market fee to be
                  mutually  agreed to and which both  parties  will arrive at in
                  good faith negotiations.

Article 34.   Force Majeure

Neither  party  shall be liable to the other  party for  failure or delay in the
performance of any of its  obligations  under this Agreement for the time and to
the extent such  failure or delay is caused by riots,  civil  commotions,  wars,
hostilities   between  nations,   governmental   laws,  orders  or  regulations,
embargoes, actions by the government or any agency thereof, acts of God, storms,
fires, accidents, strikes, sabotages, explosions, or other similar contingencies
beyond the reasonable control of the


                                      -14-

<PAGE>

respective parties.


Article 35.   Notices

All notices (including without limitation notices for arbitration),  reports and
other communications given or made in accordance with or in connection with this
Agreement  shall be made in  writing  and may be given  either  by (i)  personal
delivery,  (ii)  overnight  delivery or (iii)  registered  air mail, if properly
posted,  with postage fully prepaid,  in an envelope  properly  addressed to the
respective  parties at the address set forth below or to such changed address as
may be given by either  party to the other by such written  notice.  Any notice,
etc by personal delivery or overnight  delivery or facsimile  transmission shall
be deemed to have been given (7) days after the dispatch.  In any event,  if any
notice, etc. is received other than the regular business hours of the recipient,
it shall be deemed to have been given as of the  following  business  day of the
recipient.

For SIMS,

To:      Best Mark Investments Holdings Ltd.
         c/o Sims Trading Company Ltd.
         10/F, DCH Building, 20 Kai Cheung Road, Kowloon Bay, Hong Kong
         Attn:  Glenn Smith, CEO

For SPAR,

To:      SPAR International Ltd.
         580 White Plains Road, Tarrytown, NY,  USA
         Attn: Robert G Brown, Chairman and CEO


Article 36.   Assignment

This  Agreement  and the rights and  obligations  hereunder  are personal to the
parties hereto, and shall not be assigned by either of the parties to any third.


Article 37.   Arbitration

All dispute,  controversies,  or differences which may arise between the parties
hereto, out of or in relation to or in connections with this Agreement, shall be
finally  settled by arbitration in Territory in accordance with the rules of the
Territory  Commercial  Arbitration  Association  if initiated by SPAR, or in New
York City in accordance with the International Arbitration Rules of the American
Arbitration Association if initiated by SIMS. The arbitration shall be conducted
by a single arbitrator in English.


                                                                            -15-

<PAGE>


The arbitration shall be final and legally binding upon both parties.


Article 38.   Implementation

The Shareholders hereby agree, for themselves, their successors, heirs and legal
representatives,  to vote at Shareholders'  meetings, and to cause the Directors
they  nominate  to vote at Board  meetings  and to carry  out their  duties,  to
prepare,  execute and deliver or cause to be prepared,  executed  and  delivered
such further instruments and documents,  to take such other actions and to cause
the  Articles of  Incorporation  of SPAR China , SPAR China work rules and other
rules and Commercial registry and any other document to be amended or adopted as
may be reasonably required to effect the provisions and intent of this Agreement
and the transactions contemplated hereby.


Article 39.   Governing Law

This Agreement and all questions arising out of or under this Agreement shall be
governed by and interpreted in accordance with the laws of The Hong Kong Special
Administrative Region.


Article 40.   Waiver

Any failure of either  party to enforce,  at any time or for any period of time,
any of the  provisions of this  Agreement  shall not be construed as a waiver of
such  provisions  or of the right of such party  thereafter  to enforce each and
every such provision.


Article 41.   Entire Agreement

This Agreement  constitutes  the entire and only  agreement  between the parties
hereto with respect to the subject  matter of this  Agreement and supersedes any
other  commitments,  agreements or understandings,  written or verbal,  that the
parties  hereto may have had.  No  modification,  change and  amendment  of this
Agreement  shall be binding  upon the parties  hereto  except by mutual  express
consent  in  writing  of  subsequent  date  signed  by  authorized   officer  or
representative of each of the parties hereto.


Article 42.   Headings

The headings of articles and paragraphs  used in this Agreement are inserted for
convenience  of reference  only and shall not affect the  interpretation  of the
respective articles and paragraphs of this 


                                      -16-

<PAGE>

Agreement.


Article 43.   Language

This Agreement has been executed in the English.


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in two (2) copies by their respective duly authorized  officer or representative
as of the day first above written.

SIGNED BY:                                        WITNESSED BY:

Best Mark Investments Holdings Ltd.

Signature: /s/ Glen Robert Sturrock Smith         Signature: /s/ Mary Lee
           ------------------------                         --------------------

Name:      Glen Robert Sturrock Smith             Name:  Mary Lee

Title:     Director                               Company:  SIMS Trading 
                                                            Company Ltd.

                                                  Title:    Financial Controller


SIGNED BY:                                        WITNESSED BY:

Spar International Ltd.

Signature: /s/ Robert G Brown                     Signature:/s/ Mindy Asiedo
           ------------------------                         --------------------

Name:      Robert G Brown                         Name:     Mindy Asiedo

Title:     Chairman & Chief Executive Officer     Company:  Notary

                                                  Title:






                                                                            -17-


                             JOINT VENTURE AGREEMENT

This  Agreement  is made as of this 14th day of  December,  2004 by and  between
Field Insights S.R.L, a company  organized and existing under the law of Romania
and having its  headquarters  at Aleea Ilioara nr. 1, Bloc PM29,  Sc. B, Etaj 4,
Ap. 55, Sector 3,  Bucharest,  Romania  (hereinafter  called  "FI"),  Spar Group
International  Inc.,  a Nevada  corporation,  with an office at 580 White Plains
Road,  Tarrytown New York, USA (hereinafter called "SPAR"),  and Adinel Tudor, a
Romanian  citizen  identified with Identity Card series DP no. 104864,  Personal
Numerical Code  1771115100037,  domiciled at Calea  Dorobantilor  nr. 73, Ap. 3,
Sector 1, Bucharest ("Tudor"),

                                WITNESSETH THAT:

WHEREAS,  FI is engaged in the retail solution  businesses in Romania,  having a
wide range of clients and also having various knowledge and human resources with
respect to the retailing businesses in Romania;

WHEREAS,  SPAR is engaged in the retail  solution  businesses in the USA, having
computer  software useful for agency,  assistance,  instruction and reporting of
storefront  activities and also having operational know-how with respect to such
software; and

WHEREAS, FI and SPAR are desirous of organizing a corporation to jointly conduct
retail solution businesses
 in Romania (hereinafter called "Territory").

NOW,  THEREFORE,  in  consideration of the mutual covenants and agreement herein
contained, the parties hereto agree as follows:

                   CHAPTER I: ORGANIZATION OF THE NEW COMPANY
                              -------------------------------

Article l.      Establishment

Promptly  after the effective date of this  Agreement,  the parties hereto shall
cause a new company to be  organized  under the laws of  Territory  (hereinafter
called "SPAR Romania  S.R.L." or "New  Company").  Upon  formation,  New Company
shall become a party to this Agreement  through  approval by the General Meeting
of Shareholders of New Company and signature for acknowledgement of all original
copies.


Article 2.      Business Purposes

The business purposes of the New Company shall consist of the following:


<PAGE>

1. Provide retail merchandising and product demonstration services;

2. Agency, assistance, instruction and report of storefront sales activities;

3. Implementation of market research and analysis of results thereof;

4. Assembly of setups used for sales promotion;

5. Consulting regarding store management;

6. Development and sale of management system regarding retailing;

7. Designing and sale of database; and

8. Any and all businesses incidental or relating to any of the foregoing.


Article 3.      Trade Name

The New Company shall be named in Territory as S.C. SPAR Romania S.R.L. and in
English as SPAR Romania Ltd.


Article 4. Location

The New  Company  shall have its  headquarters  at Strada  Vasile  Lascar nr.
18, ap. 8, etaj 1,  Sector 2,  020491
Bucharest, Romania.


Article 5.      Constitutive Act

The  Constitutive Act of the New Company shall be in the form attached hereto as
Exhibit A.


Article 6.      Capital

The total number of shares which New Company shall issue at incorporation  shall
be fifteen  thousand  shares  and the par value of each  share  shall be 100,000
Romanian  lei. At the time of  establishment  of New  Company,  shares  shall be
issued and fully subscribed by the parties hereto as follows:

         o  SPAR:                       51%      7,650 social parts

         o  FI:                         42%      6,300 social parts

         o  Tudor:                      7%       1,050 social parts.

All the shares to be issued by New Company shall be nominal and ordinary shares.




                                       2

<PAGE>

Article 7. Payment

Each of the  parties  hereto  shall pay in  Romanian  lei and in cash the amount
equivalent to its subscribed  shares at par value upon issuance of the shares of
New Company.


           CHAPTER II: PREPARATION OF ESTABLISHMENT OF THE NEW COMPANY
                       -----------------------------------------------

Article 8.      Preparation of Establishment of the New Company

Each party shall take its role as  described  below for the  preparation  of the
commencement  of New Company's  business.  All expenses in connection  with this
Agreement,  the  setting  up of the  New  Company  and  the  preparation  of the
commencement  of New  Company's  business will be advanced by FI and/or SPAR and
reimbursed by the New Company if set up. If the joint venture is not  completed,
each party will pay their own costs.

SPAR shall enter into New Company with a license  agreement in the form attached
hereto as  Exhibit B (the  "License  Agreement").  For  reference,  the  License
Agreement includes the obligations of SPAR to:

1. localize and set up software provided by SPAR to work in Territory; and

2. consult on the organization of merchandising services; and

3.  train  the New  Company's  personnel  in how to  operate  the  merchandising
software; and

4. give advice on budgeting and development of each business plan
and FI shall

1.  provide office and facility space to New Company under the terms of a supply
    agreement described in Article 26 herein; and

2.  arrange meetings with current clients to promote New Company's services


                  CHAPTER III: GENERAL MEETING OF SHAREHOLDERS
                               -------------------------------

Article 9.      Ordinary and Extraordinary General Meeting

The Ordinary General Meeting of Shareholders  shall be convened by resolution of
the Board of Directors and held in Territory or any other place that FI and SPAR
may agree  within 3 months  from the last day of each  accounting  period of New
Company.



                                       3

<PAGE>

An Extraordinary  General Meeting shall be convened by a resolution of the Board
of Directors whenever deemed necessary.


Article 10.     Quorum

A quorum  of the  General  Meeting  of  Shareholders  shall be the  shareholders
present either in person or by proxy  representing  at least 51% of all the paid
share capital of New Company.


Article 11.     Resolution

Except as expressly otherwise provided in the Constitutive Act of New Company or
this Agreement,  all resolutions of the General Meeting of Shareholders shall be
adopted  by the  affirmative  vote of  Shareholders  holding at least 51% of the
shares present or represented at meeting for which there is quorum.


Article 12.     Important Matters

In addition to such matters as required by the  Constitutive  Act of New Company
or the applicable laws in Romania,  any resolutions of the following  matters by
the General Meeting of Shareholders require the affirmative vote of shareholders
representing at least two-thirds of the paid-in social capital:

1.   any amendment or modification of the Constitutive Act;

2.   increase,  decrease or change of structure in the social capital,  but only
     subject to provisions of Chapter VI;

3.   issuance  of  new  shares  or  any  other  kind  of  equity  securities  or
     instruments convertible into equity securities or the decision to undertake
     a Public Offering (as defined on Article 30);

4.   issuance of debentures;

5.   transfer of any part or whole of business;

6.   approval,  rejection or change of the balance sheet,  profit assignment and
     dividends of New Company;

7.   splitting, dissolution or amalgamation;

8.   dismissal,  replacement,  change of  powers,  change in number or length of
     tenure of Directors, subject to the rights of FI and SPAR under Article 13;



                                       4

<PAGE>

9.   any decision given by the applicable laws or by the Constitutive Act to the
     Directors.


                   CHAPTER IV: BOARD OF DIRECTORS AND OFFICERS
                               -------------------------------

Article 13.     Election of Directors

The Board of Directors of the New Company shall  consist of four (4)  Directors;
two (2) of whom shall be elected  from among  those  appointed  by FI and 2 whom
shall be  elected  by those  appointed  by SPAR.  The  Chairman  of the Board of
Directors shall be elected from the Directors by the mutual consultation of both
parties.  In case of any  increase or decrease in the number of  Directors,  the
representation stipulated above shall be unchanged and pro-rata at all times.


Article 14.     Election of Officers

Officers  shall be appointed by the Board of directors and serve at the pleasure
of the Board of Directors.  The Chief Executive  Officer of New Company shall in
any case be elected from among candidates nominated by FI.


Article 15.     Office of Director

The term of office of each  Director  shall  expire at the close of the Ordinary
General Meeting of  Shareholders,  which relates to the closing of accounts last
to occur within three (3) years from his assumption of office.

Article 16.     Quorum

Each Director shall have one (1) voting right in the Board of Directors.  Except
as otherwise  required in the Constitutive Act of New Company or this Agreement,
a majority of the  Directors  shall  constitute a quorum at any meeting of their
Board of Directors, and all resolutions shall be adopted by the affirmative vote
of more than two-thirds of the votes of the Directors present.



                                       5

<PAGE>

Article 17.          Ordinary Meeting of the Board of Directors

The Ordinary  Meeting of the Board of Directors shall be held quarterly,  and an
Extraordinary  Meeting of the board of Directors  shall be held when  necessary,
both of which  shall be  convened  in  accordance  with  the  provisions  of the
Constitutive  Act.  To the extent  then  permitted,  any meeting of the Board of
Directors  may  be  held  by  interactive  video  conference  or  other  similar
electronic or telephonic means, and any action that may be taken by the Board of
Directors at a meeting  thereof  (whether in person or video  conference) may be
effected  in  lieu of such  meeting  by  unanimous  written  consent  resolution
executed by each member of the Board of Directors.  The parties  hereto  confirm
that the interpretation in Territory is that meetings of boards of directors may
be  held  by  interactive   videoconference  if  stipulated   expressly  in  the
Constitutive Act of SPAR Romania S.R.L. For any proposed meeting of the Board of
Directors for which SPAR requests,  SPAR Romania S.R.L. and SPAR shall cooperate
to arrange for such meetings to be held by video conference. A written record in
Romanian of all meetings of the Board of Directors and all decisions  made by it
together  with  English  translation  thereof  shall  be  made  as  promptly  as
practicable  after each  meeting of the Board of  Directors  by one of the Board
selected by the Board of Directors at each  meeting,  kept in the records of the
Company and signed or sealed by each of the Directors.


Article 18.     Important Matters

In addition to such matter as required by Constitutive  Act of New Company,  the
following   matters  of  the  Board  of  Directors  meeting  shall  require  the
affirmative vote of more than two-thirds of the votes of the Directors:

1.   Any proposal to the General  Meeting of Shareholders or action by the Board
     of Directors for the matters as provided in Article 12 hereof;

2.   any  investment  or commitment  of New Company in amounts  individually  in
     excess of US$50,000 or in the aggregate in excess of US$50,000;

3.   any loan or credit taken by New Company;

4.   execution,  amendment or termination of agreements or commitments  with FI,
     SPAR or their subsidiaries or affiliates;

5.   adoption or amendment of the annual budgets and business plan;

6.   adoption or any material  modification of major  regulations or procedures,
     including any employee rules or handbook;

7.   change of the auditing firm as provided in Article 21;

8.   initiating or settling any litigation,  arbitration or other formal dispute
     settlement  procedures or  forgiveness  of any  obligation  owed to the New
     Company in excess of US$25,000;



                                       6

<PAGE>

9.   approval  of  annual  closing  of the  books  of New  Company  and  the New
     Company's annual financial statements,  and changing of accounting policies
     and practices or the New Company's accounting periods;

10.  establishment  or amendment to the  condition of  employment of New Company
     officers,  provided that the affirmatives vote of SPAR-nominated  Directors
     shall not be withheld unreasonably;

11.  sale or  disposition  of or granting a lien,  security  interest or similar
     obligation  with respect to, in one or a series of related  transactions of
     New  Company or with  respect to any major  strategic  asset of New Company
     that is crucial to New Company' business;

12.  Formation  of any  subsidiary  of New  Company,  entry into (or  subsequent
     termination of) any joint venture, partnership or similar agreements;

13.  entering into,  amending or terminating any contract with/or  commitment to
     any Director or shareholder; and

14.  entering  into any  agreement or  commitment  to provide  goods or services
     outside Territory.


                                CHAPTER V: AUDIT
                                           -----

Article 19.     Accounting Period

The  accounting  periods of New Company shall end on the 31st day of December of
each year or another date if permitted by applicable law.


Article 20.     Statutory Auditors (where required)

A Statutory  Auditor shall be appointed by New Company if required by applicable
law. The parties confirm that presently a Statutory Auditor is not required.

Article 21.     Inspection of Accounting Records and Books

The New Company shall yearly arrange audit on the  accounting  records and books
and shall  submit a report of such audit to each of the  parties  hereto  within
thirty (30) days from the completion of the audit.



                                       7

<PAGE>

An internationally recognized auditing firm shall be the accounting firm engaged
by New Company.  Such  accounting  firm shall audit the  accounting  records and
books of New Company and any other matters relating,  directly or indirectly, to
the  financial  condition  of New  Company.  Any fee for  the  certified  public
accountant  for  inspection  and  audit  mentioned  above  shall be borne by New
Company.  New Company shall keep true and correct  accounting  records and books
with regard to all of its  operations  in  accordance  with  generally  accepted
accounting principals consistently applied ("GAAP") in Territory. All accounting
records and books shall be kept ready for inspection by the parties hereto or by
their  authorized  representative.  If  requested  by SPAR,  New  Company  shall
cooperate with respect to each financial  period to provide such  information as
required by SPAR to reconcile New Company's financial  statements with U.S. GAAP
reporting  requirements  of SPAR.  SPAR and FI shall  each have the right at any
time to have an  outside  auditor  inspect  all the  books  and  records  of New
Company, and New Company shall cooperate fully with any such audit.

Article 22.     Increase of Capital

In case of capital  increase of the New  Company  after its  establishment,  FI,
Tudor and SPAR  shall have the  preemptive  right to new shares to be issued for
such capital increase in proportion to their respective shareholdings in the New
Company.


                         CHAPTER VI: TRANSFER OF SHARES
                                     ------------------

Article 23.     Restrictions on Transfer of Shares

Except as  provided in Article 24 hereof,  no party  hereto  shall,  without the
prior  written  consent of each other party,  assign,  sell,  transfer,  pledge,
mortgage,  or otherwise  dispose of all or any part of its shares (including its
right to subscribe to new shares) of the New Company to any third parties.


Article 24.     Preemptive Right and Option

1. At no time may any party  transfer  less than all of its shares.  After three
(3)  years  from the  effective  date of this  Agreement,  if any  party  hereto
(hereinafter  called  "Selling  Party")  wishes to transfer and sell all but not
less than all of its  shares,  the  Selling  Party  shall  furnish  to the other
parties  (hereinafter  called  "Other  Parties") a written  notice of a proposed
purchaser,  the offered  purchase  price and other major terms and conditions of
such proposed sale.

2. If the Selling Party is SPAR, then FI and Tudor shall jointly have a right to
purchase such shares by giving Selling Party a written notice of their intention
to purchase the same within ninety (90)


                                       8

<PAGE>

days  from the  receipt  of  Selling  Party's  notice,  upon the same  terms and
conditions as described in the Selling Party's notice. In such case, the Selling
Party may sell such shares upon the terms and  conditions  as  described  in its
notice  after  ninety  (90) days from the date of FI's  receipt  of such  notice
unless FI and Tudor  give  notice  for their  purchase  of the shares to Selling
Party.  If the  Selling  Party is not  SPAR,  then  SPAR  shall  have a right to
purchase such shares by giving  Selling Party a written  notice of its intention
to purchase the same within ninety (90) days from the receipt of Selling Party's
notice,  upon the same terms and conditions as described in the Selling  Party's
notice.  In such case, the Selling Party may sell such shares upon the terms and
conditions  as  described  in its notice after ninety (90) days from the date of
SPAR's receipt of such notice unless SPAR gives a notice for its purchase of the
shares to Selling Party.  In either case,  unless agreed by the Other Parties in
writing,   any   transferee   party   shall  be  subject   to  this   Agreement.
Notwithstanding  anything to the  contrary  above,  (1) FI may not  transfer its
shares  unless Tudor  transfers his shares at the same time, as part of the same
transaction  and on the same terms;  and (2) Tudor may not  transfer  his shares
unless FI transfers its shares at the same time, as part of the same transaction
and on the same terms,  except for the case where Tudor  transfers his shares to
FI.

3. After three (3) years from the effective date of this Agreement,  SPAR may at
any time make a written offer to buy all of the Other Parties' shares in the New
Company. Each Other Party shall then either accept the offer and sell all of its
shares  under  the terms and  conditions  offered,  or FI alone or pro rata with
Tudor (if Tudor shall so elect) may purchase SPAR's shares at the same terms and
conditions.  If any party  receiving  the initial  offer does not respond to the
initial offer within one hundred and twenty (120) days, such party receiving the
offer shall be deemed to have accepted the offer to sell its shares. After three
(3) years from the effective date of this  Agreement,  FI may at any time make a
written  offer to buy all of the SPAR's  shares in the New  Company.  SPAR shall
then  either  accept  the offer and sell all of its  shares  under the terms and
conditions  offered, or purchase FI' shares and Tudor's shares at the same terms
and conditions. If SPAR does not respond to the initial offer within one hundred
and twenty (120) days,  SPAR shall be deemed to have  accepted the offer to sell
its shares.  In any case,  the parties shall  cooperate to effect the closing of
such  purchase  and sale of all of the  shares  of the New  Company  held by the
Selling  Party within 120 days of the decision or deemed  decision of the second
party. At such closing,  the purchasing party shall pay to the Selling Party the
purchase  price in cash,  and the Selling Party shall deliver to the  purchasing
party all of the Selling Party's shares held in the New Company,  free and clear
of any liens.

4. Each party shall vote in favor of any transfer  effected  pursuant to Article
24(1, 2 and 3) at the shareholders meeting approving such transfer.



                                       9

<PAGE>

5.

5.1 Notwithstanding the general arbitration provisions in Article 37, should:

5.1.1  there  be any  deadlock  at any  meeting  of the  Board  of  Directors
and/or  at any  General  Meeting  of
Shareholders of New Company; or

5.1.2 a quorum at any  meeting of the Board of  Directors  and/or at any
General  Meeting of  Shareholders  of New
Company be broken;

then in such  event  the  parties  shall  attempt  to  resolve  these  issues by
mediation as soon as possible and failing such resolution within twenty-one (21)
business  days  after  having  been  referred  to  mediation,  any  director  or
shareholder  (as the case may be) shall be  entitled  by  written  notice to New
Company to claim  that all or any of the  matters  which  were under  discussion
and/or  to be  discussed  at  that  meeting,  be  submitted  to and  decided  by
arbitration in terms of Article 37.

5.2 Notwithstanding that a deadlock may have arisen in terms of clause 5.1, such
deadlock  shall not alone  constitute a ground for any  shareholder  to apply to
court for the winding up of New Company.

Article 25.     Cooperation in Financing

1. The New Company may borrow up to  US$25,000  as its  operating  funds,  which
shall  be  guaranteed  by FI in its  discretion.  FI shall  make its  reasonable
efforts to enable such  borrowing.  The terms of the borrowing and any agreement
between New Company and FI with respect to FI guarantee shall be matters subject
to Article 18 hereof.

2. The New Company may borrow an additional  US$50,000 when it needs  additional
funds,  if such borrowing is approved in advance by the Board of Directors as an
important matter under Article 18 herein.

3. If FI pays any creditors of the New Company due to a guarantee  made by FI to
such  creditors in favor of the New Company,  SPAR and Tudor shall  reimburse FI
pro rata with their respective share capital percentage in New Company as at the
date of reimbursement, but only if the New Company's borrowing of such funds and
FI guaranty of the New Company's  obligations  have been expressly  agreed to in
advance  by  SPAR  in  writing  or  in  a  Board   resolution,   for  which  all
SPAR-nominated directors have voted affirmatively.

4. For the first three years of operations  subsequent to the effective  date of
this Agreement (the "Maximum Loss Period"),  if for any year the net loss of the
New Company exceeds  US$20,000 (the "Annual Maximum Loss"), FI shall make a cash
payment to the New Company  equal to the amount of the net loss in excess of the
Annual Maximum Loss (the "Annual Maximum Loss Payment"),  which payment shall be
in the form of a fully subordinated, non-amortizing,  interest-free loan with an
initial  term of the later of one year and the date  following  the close of any
fiscal year where the New Company has profits, which term shall be automatically
extended by successive  12-month  periods until


                                       10

<PAGE>

such loan shall have been repaid from a quota not less than one-third of the New
Company's profits  determined as sum of the accounting profits at the end of the
fiscal  year  and the  total  amount  of the  investments  made  throughout  the
respective  fiscal year, such payment to occur within 45 days after the issuance
of the annual audit report by the outside auditing firm specified in Article 21.


                    CHAPTER VII: ROLE OF CONTRACTING PARTIES
                                 ---------------------------

Article 26.     Supply of Office and Facility

1. Based on a supply agreement ("Supply Agreement") to be concluded between SPAR
Romania S.R.L. and FI, FI shall supply offices and facilities, staff service for
general  affairs and finance,  and intra  company  network  services,  which are
determined, at FI's sole discretion,  necessary for the operation of New Company
after the  consultation  between FI and SPAR,  to New Company at no charge for a
period of three (3) years up to a maximum value of US$ 200,000.

2. SPAR for first  three (3) years  will  provide up to three  thousand  (3,000)
hours of business support  annually.  This support may be in the form of general
business,   consultation  or  programming  support  to  modify  or  enhance  the
merchandising software. SPAR will maintain ownership of all software. If support
provided by SPAR exceeds three thousand  (3,000) hours the additional hours will
be billed by SPAR to SPAR Romania Ltd. at fifty five US$55.00 per hour.  However
a lower price will be charged for  programming  costs if a less expensive way to
hire IT staff is found.  SPAR Romania Ltd. will be able to hire its own IT staff
if cost effective for the JV and appropriate.

3. If after  three (3) years from the  effective  date of this  Agreement,  SPAR
sells its interest to a third party or FI or Tudor, SPAR is committed to supply:

         3.1   Its name for an additional year at no cost; and

         3.2   Its Licensed  Technology (as defined in the License Agreement) to
               the New Company for an additional year at the following cost:

               3.2.1     First six (6) months: out of pocket costs; and

               3.2.2     Next six (6) months:  US$3,000/month plus out of pocket
                         costs.

At the end of such additional year, in the case of both clauses 3.1 and 3.2, the
New  Company  shall  immediately  cease  using the name  "SPAR" and the  License
Agreement shall be terminated.

4.   FI agrees that its operating  expenses may not be allocated to SPAR Romania
     Ltd.

5.   SPAR and FI shall set up project  teams as they may agree to supervise  the
     operations of the joint venture.  All salaries of any such employees  shall
     be borne by the respective parties.



                                       11

<PAGE>

6.   All  marketing  agents and other  employees  involved  only in  supervising
     marketing agents shall be engaged by and at the cost of New Company.


Article 27.     Personnel

FI shall, at its own judgment,  second to New Company at least one non-marketing
management  level  employee  appropriate  for the  start-up  of  business of New
Company for a period of one (1) year without any consideration.


Article 28.     Training

SPAR and FI shall  provide the  appropriate  training to the  employees  for New
Company's  operation at its own site.  The said training  shall be made upon New
Company's request and any necessary  expenses for the training shall be borne by
New  Company,  except as otherwise  provided in License  Agreement or the Supply
Agreement.


Article 29.     Non-Competition

For five (5) years  from the  Execution  Date of this  Agreement,  neither  SPAR
without  the consent of FI, nor FI or Tudor  without the consent of SPAR,  shall
engage in, whether directly or indirectly, Merchandising Services (as defined in
the License  Agreement) in Territory or any other business then competitive with
New company in Territory. However, in the event that SPAR enters into a contract
with a  customer  that  covers  more  than  one  country  and the  scope of such
agreement  includes  services in Territory,  SPAR shall not be  prohibited  from
entering  into or  performing  such  agreement,  provided  that SPAR  shall make
commercially  reasonable  efforts to enable New Company to participate in and be
fairly compensated for providing services to any such customer.


                   CHAPTER VIII: AMENDMENT FOR PUBLIC OFFERING
                                 -----------------------------

Article 30.     Public Offering

The  parties  acknowledge  that the New  Company  may attempt to become a listed
company or over-the-counter company on the Bucharest Stock Exchange or any other
stock  exchange or public  market in Territory  (Public  Offering).  The parties
acknowledge that the number of issued shares,  the number of  shareholders,  the
paid-up capital and profit  transaction with each party, the seconded  employees
of New Company will be reviewed  and  instructed  for  amendment by the relevant
governmental or


                                       12

<PAGE>

regulatory  authorities in accordance with those bodies' rules or guidelines for
Public Offering. If SPAR and FI agree to undertake a Public Offering pursuant to
Article 12 above,  all parties shall discuss and reasonably  cooperate with each
other to amend the  Constitutive  Act and/or the License  Agreement  in order to
complete  the  Public  Offering  of New  Company.  Any  changes  to the  License
Agreement will be effective upon  consummation  of the Public  Offering (but not
before),  and  subject to the  approval  of the Boards of  Directors  of the New
Company, FI and SPAR.


                           CHAPTER IX: CONFIDENTIALITY
                                       ---------------

Article 31.     Confidential Information

FI, Tudor and SPAR shall keep secret and retain in strict confidence any and all
confidential  information  and use it only for the purpose of this Agreement and
shall not disclose it to a third party without the prior written  consent of the
other party unless the receiving  party can demonstrate  that such  information:
(i) has become  public  other than as a result of  disclosure  by the  receiving
party,  (ii) was available to the receiving party prior to the disclosure by the
disclosing  party with the right to  disclose,  or (iii) has been  independently
acquired or developed by the receiving party. These  confidentiality  provisions
shall survive termination of this Agreement.


                          CHAPTER X: GENERAL PROVISIONS
                                     ------------------

Article 32.     Effective Date

This Agreement shall become effective at the time of execution hereof.


Article 33.     Termination

1. If SPAR  transfers  its shares in the New  Company to FI or Tudor,  or FI and
Tudor  transfer  their  respective  social parts in the New Company to SPAR,  in
accordance with Article 24 hereof, this Agreement shall terminate.  If any party
transfers  its  shares in the New  Company to another  party,  unless  expressly
agreed by the  non-transferring  parties in  writing,  this  Agreement  shall be
assigned to and binding upon such third party, provided that the assigning party
shall remain liable for all legal acts with respect to this Agreement or the New
Company occurred before the effective date of such assignment.



                                       13

<PAGE>

2. If SPAR is not in breach of this  Agreement,  it may terminate this Agreement
by written notice to the other parties if any breach by either other party shall
not have been  corrected by such other party in breach  within  ninety (90) days
after  written  notice is given by SPAR. If neither FI nor Tudor is in breach of
this  Agreement,  FI may terminate this Agreement by written notice to the other
parties  if any  breach by SPAR  shall not have been  corrected  by SPAR  within
ninety (90) days after written notice is given by FI. If FI or SPAR disputes the
exercise of any rights under this provision, such disputing party may invoke the
arbitration provisions in Article 37.

3. SPAR may  terminate  this  Agreement by giving  notice in the event of one or
more of the following  with respect to FI or Tudor,  and FI may  terminate  this
Agreement  by giving  notice in the event of one or more of the  following  with
respect to SPAR:

(a) Appointment of a trustee or receiver for all or any part of its assets;

(b) Insolvency or bankruptcy;

(c) Assignment for the benefit of any creditor;

(d) Attachment of assets;

(e) Expropriation of business or assets; and

(f) Dissolution or liquidation.

If any party is  involved  in any of the events  enumerated  in (a)  through (f)
above, it shall  immediately  notify the other parties of the occurrence of such
event.

4. In case of the  termination  of this  Agreement  pursuant to Article  33.2 or
Article 33.3, the party terminating in accordance with this Agreement shall have
an option to  purchase  the shares of the other  parties at the book value to be
decided  by an  internationally  recognized  accounting  firm  that  is not  the
principal  accounting firm of either party,  if either party so requests,  or to
have the New Company dissolved.

5. Upon  termination of this Agreement or SPAR's ceasing to hold at least 51% of
the shares in New Company, the License Agreement shall terminate  immediately if
still in effect, unless otherwise agreed by the parties.


Article 34.     Force Majeure

No party  shall  be  liable  to any  other  party  for  failure  or delay in the
performance of any of its  obligations  under this Agreement for the time and to
the extent such  failure or delay is caused by riots,  civil  commotions,  wars,
hostilities   between  nations,   governmental   laws,  orders  or  regulations,


                                       14

<PAGE>

embargoes, actions by the government or any agency thereof, acts of God, storms,
fires, accidents, strikes, sabotages, explosions, or other similar contingencies
beyond the reasonable control of the respective parties.


Article 35.     Notices

All notices,  reports and other  communications given or made in accordance with
or in connection  with this Agreement  shall be made in writing and may be given
either by (i) personal delivery, (ii) overnight delivery or (iii) registered air
mail, if properly posted,  with postage fully prepaid,  in an envelope  properly
addressed  to the  respective  parties at the address set forth below or to such
changed  address  as may be given by either  party to the other by such  written
notice.  Any notice, etc by personal delivery or overnight delivery or facsimile
transmission shall be deemed to have been given (7) days after the dispatch.  In
any event, if any notice, etc. is received other than the regular business hours
of the  recipient,  it shall be deemed to have  been  given as of the  following
business day of the recipient.

To:        FI              18 Vasile Lascar Street, apt. 8, 1st floor, 020491
                           Bucharest 2, Romania;

           SPAR            Spar Group International Inc.,
                           ATT Robert G. Brown, Chairman
                           580 White Plains Road, Tarrytown New York, USA

           Tudor           Calea Dorobantilor nr. 73, Ap. 3, Sector 1, Bucharest


Article 36.     Assignment

This  Agreement  and the rights and  obligations  hereunder  are personal to the
parties hereto, and shall not be assigned by either of the parties to any third.


Article 37.     Arbitration

All dispute,  controversies, or differences which may arise between SPAR, on the
one hand,  and FI or Tudor,  on the other  hand,  out of or in relation to or in
connections  with this  Agreement,  shall be finally  settled by  arbitration in
Territory in accordance with the rules of the International Arbitration Court of
the  Bucharest  Chamber of Commerce and Industry if initiated by SPAR, or in New
York City in accordance with the International Arbitration Rules of the American
Arbitration  Association if initiated by any other party hereto. The arbitration
shall be conducted  by three (3)  arbitrators  in


                                       15

<PAGE>

English and in Romanian. The arbitration shall be final and legally binding upon
both parties.


Article 38.     Implementation

The Shareholders hereby agree, for themselves, their successors, heirs and legal
representatives,  to vote at Shareholders'  meetings, and to cause the Directors
they  nominate  to vote at Board  meetings  and to carry  out their  duties,  to
prepare,  execute and deliver or cause to be prepared,  executed  and  delivered
such further instruments and documents,  to take such other actions and to cause
the Constitutive Act of New Company,  New Company work rules and other rules and
Commercial  registry  and any other  document to be amended or adopted as may be
reasonably  required to effect the  provisions  and intent of this Agreement and
the transactions contemplated hereby.


Article 39.     Governing Law

This Agreement and all questions arising out of or under this Agreement shall be
governed by and interpreted in accordance with the laws of Territory.


Article 40.     Waiver

Any failure of any party to enforce,  at any time or for any period of time, any
of the provisions of this  Agreement  shall not be construed as a waiver of such
provisions  or of the right of such party  thereafter  to enforce each and every
such provision.


Article 41.     Entire Agreement

This  Agreement  constitutes  the entire and only  agreement  among the  parties
hereto with respect to the subject  matter of this  Agreement and supersedes any
other  commitments,  agreements or understandings,  written or verbal,  that the
parties  hereto may have had.  No  modification,  change and  amendment  of this
Agreement  shall be binding  upon the parties  hereto  except by mutual  express
consent  in  writing  of  subsequent  date  signed  by  authorized   officer  or
representative  of each of the  parties  hereto  or of the  party  against  whom
enforcement is sought.


Article 42.     Headings

The headings of articles and paragraphs  used in this Agreement are inserted for
convenience  of reference  only and shall not affect the  interpretation  of the
respective articles and paragraphs of this Agreement.




                                       16

<PAGE>

Article 43.     Language

This Agreement has been executed in the English and Romanian language.  If there
is any  discrepancy  or  inconsistency  between  the  English  and the  Romanian
versions, the English version shall prevail.


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in four (4) copies by their respective duly authorized officer or representative
as of the day first above written.

FIELD INSIGHTS S.R.L.

Signature: /s/ Laurentiu Nicolae Belu
           --------------------------

Name:      Laurentiu Nicolae Belu

Title:     Managing Director



Spar Group International Inc.

Signature: /s/ Robert G Brown
           --------------------------

Name:      Robert G Brown

Title:     Chairman and CEO


Adinel Tudor

Signature: /s/ Adinel Tudor
           --------------------------

Name:      Adinel Tudor


SPAR Romania S.R.L.

Signature: 
           --------------------------

Name:

Title:

Date:





                                       17


                                                                    Exhibit 21.1

                                SPAR Group, Inc.
                              List of Subsidiaries


100% Owned Subsidiaries...........................State/Country of Incorporation
-----------------------                           ------------------------------
PIA Merchandising Co., Inc............................................California
PIA Merchandising Limited....................................Nova Scotia, Canada
Pacific Indoor Display Co., Inc.......................................California
Pivotal Field Services, Inc...............................................Nevada
Pivotal Sales Company.................................................California
Retail Resources, Inc.....................................................Nevada
SPAR Acquisition, Inc.....................................................Nevada
SPAR All Store Marketing Services, Inc....................................Nevada
SPAR Bert Fife, Inc.......................................................Nevada
SPAR/Burgoyne Retail Services, Inc. (f/k/a SPAR Retail 
  Information, Inc.)........................................................Ohio
SPAR Canada Company..........................................Nova Scotia, Canada
SPAR Canada, Inc..........................................................Nevada
SPAR Group International, Inc.............................................Nevada
SPAR Inc., (f/k/a SPAR/Burgoyne Information Services, Inc.)...............Nevada
SPAR Incentive Marketing, Inc...........................................Delaware
SPAR International LTD............................................Cayman Islands
SPAR Marketing, Inc.......................................................Nevada
SPAR Marketing, Inc. (f/k/a SPAR Acquisition, Inc.).....................Delaware
SPAR Marketing Force, Inc.................................................Nevada
SPAR Megaforce, Inc.......................................................Nevada
SPAR/PIA Retail Services, Inc.............................................Nevada
SPAR Technology Group, Inc. (f/k/a SPARinc.com, Inc.).....................Nevada
SPAR Trademarks, Inc......................................................Nevada
                                                              
51% Owned International Subsidiaries.....................................Country
------------------------------                                           -------
SGRP Meridian (Pty), Ltd............................................South Africa
SPAR Merchandising Romania, Ltd..........................................Romania
SPAR Solutions India Private Limited.......................................India
SPAR Turkey, Inc..........................................................Turkey
                                                              
50% Owned International
 Joint Ventures...................................Country
--------------------------------                                         -------
SGRP China Ltd.............................................................China
SPAR FM Japan, Inc.........................................................Japan












                                                                    Exhibit 23.1

            Consent of Independent Registered Public Accounting Firm


We consent to the incorporation by reference in the Registration  Statement Form
S-8 No.  333-07377  pertaining to the 1995 Stock Option Plans,  in  Registration
Statement Form S-8 No. 333-53400  pertaining to the Special Purpose Stock Option
Plan, in Registration  Statement Form S-8 No.  333-73000  pertaining to the 2001
Employee Stock Purchase Plan, in Registration  Statement Form S-8 No.  333-73002
pertaining to the 2000 Stock Option Plan and in Registration  Statement Form S-8
No.  333-72998  pertaining to the 2001  Consultant  Stock  Purchase Plan of SPAR
Group,  Inc. of our report dated February 28, 2005, with respect to the December
31, 2004 consolidated  financial  statements of SPAR Group, Inc. included in the
Annual Report (Form 10-K), for the year ended December 31, 2004.



                                                   /s/ Rehmann Robson

Troy, Michigan
April 5, 2005














                                      Ex-2




                                                                    Exhibit 23.2


            Consent of Independent Registered Public Accounting Firm



We consent to the incorporation by reference in the Registration  Statement Form
S-8 No.  333-07377  pertaining to the 1995 Stock Option Plans,  in  Registration
Statement Form S-8 No. 333-53400  pertaining to the Special Purpose Stock Option
Plan, in Registration  Statement Form S-8 No.  333-73000  pertaining to the 2001
Employee Stock Purchase Plan, in Registration  Statement Form S-8 No.  333-73002
pertaining to the 2000 Stock Option Plan and in Registration  Statement Form S-8
No.  333-72998  pertaining to the 2001  Consultant  Stock  Purchase Plan of SPAR
Group,  Inc. of our report dated February 13, 2004, with respect to the December
31, 2003 and 2002 consolidated  financial statements and schedule of SPAR Group,
Inc.  included in the Annual Report (Form 10-K), for the year ended December 31,
2004.


                                                /s/ Ernst & Young LLP

Minneapolis, Minnesota
April 6, 2005











                                      Ex-2




                                                                    Exhibit 31.1


              CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

        I, Robert G. Brown, certify that:

        1. I have reviewed this annual report on Form 10-K of SPAR Group, Inc.;

        2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

        3. Based on my knowledge, the financial statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

        4. The registrant's other certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        (a) Designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by
 others within those entities,  particularly
during the period in which this annual report is being prepared;

        (b) Evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

        (c)  Presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

        5. The  registrant's  other  certifying  officers and I have  disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

        (a) All significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

        (b) Any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

        6. The registrant's  other  certifying  officers and I have indicated in
this annual report whether there were significant  changes in internal  controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: April 12, 2005                              /s/ Robert G. Brown
                                                  ----------------------------
                                                  Robert G. Brown
                                                  Chairman, President and
                                                  Chief Executive Officer


                                      Ex-3



                                                                    Exhibit 31.2


              CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


        I, Charles Cimitile, certify that:

        1. I have reviewed this annual report on Form 10-K of SPAR Group, Inc.;

        2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

        3. Based on my knowledge, the financial statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

        4. The registrant's other certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        (a) Designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us
 by others within those entities,  particularly
during the period in which this annual report is being prepared;

        (b) Evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

        (c)  Presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

        5. The  registrant's  other  certifying  officers and I have  disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

        (a) All significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

        (b) Any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

        6. The registrant's  other  certifying  officers and I have indicated in
this annual report whether there were significant  changes in internal  controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: April 12, 2005            /s/ Charles Cimitile
                                ---------------------
                                Charles Cimitile
                                Chief Financial Officer, Treasurer and Secretary



                                      Ex-3


                                                                    EXHIBIT 32.1



              Certification of Chief Executive Officer Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002

In connection  with the Annual  Report on Form 10-K for the year ended  December
31, 2004 (the "Report"), by SPAR Group, Inc. (the "Registrant"), the undersigned
hereby certifies that, to his knowledge:

1. The Report fully complies with the  requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, and

2. The  information  contained in the Report  fairly  presents,  in all material
respects, the financial condition and results of operations of the Registrant.



                                           /s/ Robert G. Brown
                                           ------------------------------------
                                           Robert G. Brown
                                           Chairman, President and
                                           Chief Executive Officer

                                           April 12, 2005


A signed  original of this  written  statement  required by Section 906 has been
provided to SPAR Group,  Inc.  and will be  retained  by SPAR Group,  Inc.,  and
furnished to the Securities and Exchange Commission or its staff upon request.






                                      Ex-3





                                                                    EXHIBIT 32.2



              Certification of Chief Financial Officer Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002

In connection  with the Annual  Report on Form 10-K for the year ended  December
31, 2004 (the "Report"), by SPAR Group, Inc. (the "Registrant"), the undersigned
hereby certifies that, to his knowledge:

1. The Report fully complies with the  requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, and

2. The  information  contained in the Report  fairly  presents,  in all material
respects, the financial condition and results of operations of the Registrant.




                               /s/ Charles Cimitile
                               --------------------
                               Charles Cimitile
                               Chief Financial Officer, Treasurer and Secretary

                               April 12, 2005



A signed  original of this  written  statement  required by Section 906 has been
provided to SPAR Group,  Inc.  and will be  retained  by SPAR Group,  Inc.,  and
furnished to the Securities and Exchange Commission or its staff upon request.







                                      Ex-4