1
================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-K/A

Amendment No. 1

[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934

For the year ended January 1, 1999

Commission file number 0-27824

PIA MERCHANDISING SERVICES, INC.

Delaware                                      33-0684451
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

19900 MACARTHUR BLVD, SUITE 900, IRVINE, CA 92612
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (949) 476-2200

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 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X]

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. [ ]

The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on March 19, 1999, based on the closing price
of the Common Stock as reported by the Nasdaq National Market on such date, was
approximately $10,723,899.

The number of shares of the Registrant's Common Stock outstanding as of
March 19, 1999 was 5,477,846 shares.

DOCUMENTS INCORPORATED BY REFERENCE

None.

================================================================================

2

PIA MERCHANDISING SERVICES, INC.

ANNUAL REPORT ON FORM 10-K/A

INDEX

PART I

PAGE 

Item 1.   Business                                                                  3 

Item 2.   Properties                                                               15 

Item 3.   Legal and Administrative 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 Consolidated Financial Data                                     17 

Item 7.   Management's Discussion and Analysis of Financial Condition and             
Results of Operations                                                    18 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk               25 

Item 8.   Financial Statements and Supplementary Data                              25 

Item 9.   Changes in and Disagreements with Accountants on Accounting and             
Financial Disclosure                                                     25 

PART III                                             

Item 10.  Directors and Executive Officers of the Registrant                       26 

Item 11.  Executive Compensation                                                   29 

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

Item 13.  Certain Relationships and Related Transactions                           38 

PART IV                                             

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K          39 
Signatures                                                               41 

2

3

PART I

THIS ANNUAL REPORT ON FORM 10-K/A INCLUDES "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT INCLUDING, IN PARTICULAR, THE STATEMENTS ABOUT PIA'S PLANS AND
STRATEGIES UNDER THE HEADINGS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." ALTHOUGH PIA
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. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS
MADE IN THIS ANNUAL REPORT ON FORM 10-K/A ARE SET FORTH UNDER THE HEADING "RISK
FACTORS" AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K/A. ALL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO PIA OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED BY THE CAUTIONARY STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON 
FORM 10-K/A.

SEE THE GLOSSARY AT PAGE 13 FOR A DESCRIPTION OF CERTAIN TERMS THAT ARE
USED THROUGHOUT THIS ANNUAL REPORT ON FORM 10-K/A.

ITEM 1.  BUSINESS

GENERAL

PIA Merchandising Services, Inc. ("PIA" or the "Company") is a supplier
of in-store merchandising and sales services in the United States and Canada.
The Company provides these services primarily on behalf of consumer product
manufacturers, consumer service companies and retailers at approximately 17,000
retail grocery stores, 6,000 mass merchandiser and 8,800 drug stores.

The Company currently provides three principal types of services: shared
services, where an associate represents multiple clients; dedicated services,
where associates work for one specific client; and project services, where
associates perform specified in-store activities.

Shared services consist of regularly scheduled, routed merchandising
services provided at the stores for multiple manufacturers, primarily under
multi-year contracts. Shared services may include activities such as: ensuring
that client's products authorized for distribution are in stock and on the
shelf, adding in new products that are approved for distribution but not present
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 clients' products and selling new product and promotional items.

In 1998, PIA developed a new strategy for routed merchandising services.
The stores are selected for routed merchandising services based on two sets of
criteria. The first is the store's weekly All Commodity Volume ("ACV"). The
higher the sales volume of a store, the greater the need for merchandising
services and more frequent visits to the store are required. The second
criterion is based on retailer discipline. This is a subjective determination
and therefore based on retail conditions, schematic discipline and competitive
activity. This new market strategy provides our clients with an added focused
approach to meeting their merchandising needs.

Dedicated services generally consist of merchandising services as
described above except that dedicated services are performed for a specific
retailer or manufacturer by a dedicated organization. The merchandisers and
management team work exclusively for that retailer or manufacturer. These
services are normally provided under multi-year contracts.

For both shared service clients and dedicated service clients, the Company
also performs project services. Project services consist primarily of specific
in-store services initiated by retailers and manufacturers, such as new product
launches, special seasonal or promotional merchandising, focused product support
and product recalls. These services typically are used for large-scale
implementations over 30 days. The Company also performs other project services,
such as new store sets and existing store resets, re-merchandising, remodels and
category implementations, under shared service contracts or stand-alone project
contracts.

3

4

As part of its shared and dedicated services, PIA also collects and
provides to certain clients a variety of merchandising data that is category,
product and store specific.

PIA, organized in 1943, initially provided merchandising services in
grocery retail chains on behalf of manufacturers. In mid-1988, it was determined
that a national merchandising company could capitalize on developments within
the retail grocery industry by providing merchandising services to a variety of
manufacturers in the industry. Until 1989, the Company operated exclusively in
grocery retail chains in California and Arizona. In 1990, PIA implemented a
national expansion strategy to cover the grocery trade. In 1993, the Company
expanded to address additional retail channels, including mass merchandiser,
chain drug and discount drug stores. In 1994, PIA began offering dedicated
services to retailers and manufacturers. In 1997, the Company established a
corporate and division infrastructure for its project services business. The
Company currently performs its services primarily on behalf of approximately 805
consumer product manufacturers.

INDUSTRY OVERVIEW

A number of trends have impacted the retail industry and have created a
demand for providers of third party merchandising services such as those offered
by the Company.

SHIFT OF MERCHANDISING SERVICES

Historically, employees of retailers, consumer product manufacturers and
food brokers principally performed merchandising functions. Retailers staffed
their stores as needed to ensure in-stock conditions, the placement of new items
on shelves, and the maintenance of shelf schematics to approved standards.
Manufacturers typically deployed their own sales people in an effort to ensure
that their products were in distribution and properly positioned on the shelves.
However, the primary function of these sales people was to sell the
manufacturers' products and promotions, and not to perform significant in-store
services at the shelf level. In addition, food brokers performed retail
merchandise services on behalf of the manufacturer in conjunction with their
sales efforts. Brokers also often performed work at the shelf level at the
request of the retailer and their principal client, the manufacturer.

The average grocery store carries approximately 22,000 items. In an
effort to maintain or improve their margins, grocery retailers have broadened
their product offerings and services from traditional grocery, household and
health and beauty care products to include new product categories such as
general merchandise and service departments such as bakery, deli and prepared
fast foods. The Company believes that, as a result, these retailers have shifted
employee hours away from the traditional maintenance of packaged goods in order
to support these new categories and service departments. The Company further
believes retailers have converted many hours of basic merchandising work from
full-time professionals to part-time labor, who are generally less skilled and
trained. These trends have caused poorer shelf conditions and an increasing
number of out-of-stock items, resulting in lost sales. As a result, retailers
are increasingly relying on manufacturers and food brokers, among others, to
support their in-store needs such as new store sets and existing store resets,
re-merchandising, remodels and category implementations. Initially,
manufacturers deployed their sales professionals to perform these
retailer-mandated services. However, manufacturers found the deployment of sales
professionals to perform retail-merchandising services were expensive and not an
effective use of their resources. As manufacturers' costs to perform these
services grew and shelf integrity declined, manufacturers began to outsource
these merchandising activities to third parties such as the Company.

The outsourcing trend to third party merchandisers has resulted in an
increasing number of organizations providing services to manufacturers and
retailers. Certain retailers and manufacturers have chosen to consolidate in
order to reduce the number of third parties they have to manage, to achieve
consistent execution of their retail merchandising strategies, and to customize
the scope of services performed on their behalf.

4

5

RETAILER CONSOLIDATION

As retailer-mandated activities have continued to increase in both
number and type, with a corresponding increase in the amount of labor required
to complete them, manufacturers have increased their use of third party
suppliers. For example, additional category implementation activities are
required to effect retailers' in-store schematics. Schematics are changing more
frequently as the result of a growing number of new product introductions each
year. Retailers continue to require numerous resets, re-merchandising, and
remodels in response to the increasing number of changes in the product mix. PIA
estimates that these activities have doubled over the last five years, so that
most stores are currently re-merchandised or remodeled every 24 months. In
certain areas of the country and with certain retailers, these activities are
conducted annually.

INCREASE IN MERCHANDISING SERVICES REQUIRED IN OTHER RETAIL CHANNELS

Unlike the merchandising services performed for grocery retailers, work
performed by manufacturers in mass merchandiser, chain drug and other retail
formats has historically been much less demanding. In these retail channels,
retailers performed most of their own merchandising work. However, the Company
believes that as these retailers become more competitive, they are attempting to
maintain their margins by requesting more support from the manufacturer
community to provide merchandising services similar to those provided to the
grocery retailers. These retailers have become increasingly important to
manufacturers, causing manufacturers to provide greater retail focus and support
to ensure out-of-stock conditions are reduced, authorized items are available,
and general product conditions are good. Manufacturers have become particularly
sensitive to the requirements of seasonal and promotional activities, which
require rapid and effective in-store support in order to maximize sales.

INCREASE IN USE OF INFORMATION TECHNOLOGIES

Information technology is playing an increasingly important role in the
retail industry, particularly in light of industry initiatives towards efficient
consumer response ("ECR") and category management. Retailers and manufacturers
have expanded their use of information technology to manage product distribution
in stores, item placements on the shelves, and off-shelf displays. In
particular, retailers and manufacturers are increasingly looking for causal data
(e.g., display, pricing and product adjacency information) that is category and
store specific. Both retailers and manufacturers use this information to make
decisions regarding ECR category management, shelf management, and new product
promotion plans. It also gives retailers the ability to tailor their stores to
regional demographics.

BUSINESS STRATEGY

PIA believes the increasing demand for national solutions to
manufacturers' diverse merchandising requirements, together with the
consolidation of the retail industry, has increased the growth of outsourcing.
The increase in required merchandising services, and the increased use of
information technology, will foster the growth of those companies that can
provide these solutions, have the flexibility to respond to the changing retail
environment and have the financial resources to provide rapid deployment of
merchandising resources. The Company has developed a strategy it believes will
address these industry trends. The major components of PIA's strategy are as
follows:

POSITION THE COMPANY AS A NATIONAL, FULL SERVICE RETAIL SOLUTIONS COMPANY

PIA's objective is to strengthen its position as a leading national
supplier of retail solutions by expanding the services it will offer including
category management, data gathering, interpretation and management, to both its
existing and prospective manufacturer clients and its newer and prospective
retailer clients, and to offer its existing and newer services in additional
retail channels.

5

6

SERVE EMERGING DEMAND FOR DEDICATED SERVICES

PIA believes certain retailers and manufacturers will increasingly
prefer merchandising service on a dedicated basis, and the significant size of
such contracts requires substantial financial, recruitment, deployment,
reporting and management capabilities. The Company believes it is positioned
well to serve this emerging need for dedicated services.

INCREASE THE COMPANY'S UTILIZATION OF INFORMATION TECHNOLOGY

The Company has been focusing Information Technology resources on
applications, which help improve productivity of field merchandisers. PIA
believes a commitment to technology will provide a long term competitive
advantage. The Company believes the technology it develops will present
increased opportunities for PIA on project specific requests from manufacturers.
PIA also expects to use technology to expand its informational services and
consulting capabilities. Additionally, the Company will continue to provide its
proprietary software program, Merchandisers Toolbox, to certain retailers. This
program is designed to manage the deployment of manufacturer supplied labor, to
measure their performance against the retailers' in-store plans and to develop
databases that include a "blueprint" of a store by category. The Company also
expects its key account managers will continue to use various shelf technology
programs, which the Company licenses from A.C. Nielsen, IRI and Intactix.

DESCRIPTION OF SERVICES

The Company provides a broad array of merchandising services on a
national, regional and local basis to manufacturers and retailers. PIA believes
its full-line capability of developing plans at one centralized headquarters
location, executing chain wide, fully integrated national solutions and
implementing rapid, coordinated responses to needs on a real time basis
differentiates the Company from its competitors. The Company also believes its
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 it with a competitive
advantage over local, regional or retailer specific competitors.

The Company provides its merchandising and sales services primarily on
behalf of consumer product manufacturers at approximately 17,000 retail grocery,
6,000 mass merchandiser and 8,800 drug stores. PIA currently provides three
principal types of merchandising and sales services: shared services, dedicated
services and project services.

SHARED SERVICES

Shared services consist of regularly scheduled, routed merchandising
services provided at the store level for manufacturers. PIA's shared services
are performed for multiple manufacturers including, in some cases, manufacturers
whose products are in the same product category. Shared services may include
activities such as: 

-   Ensuring that client's products authorized for distribution are in
stock and on the shelf

-   Adding in new products that are approved for distribution but not
present 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 clients' products and

-   Selling new product and promotional items.

The Company's shared services are performed principally by full-time retail
sales merchandisers, retail sales specialists and key account managers, along
with district and division manager supervision.

6

7

RETAIL SALES MERCHANDISERS

PIA's retail sales merchandisers ("RSM") perform shared service coverage
at the store level. These services include a review of the retailer's shelves
and the appropriate store (or chain) prepared shelf schematic to ensure all
clients' approved products are available for sale in the store, that such
products have the approved shelf placement and number of facings (the horizontal
and vertical space occupied by a package front) on the shelf, and the approved
shelf tag is in position. If a product is not in distribution, the RSM adds the
product to the shelf if it is available in the store's product storage area. If
a product is unavailable, the RSM prepares a place on the shelf for this product
and a shelf tag. The presence of a shelf tag is critical to a store's ability to
reorder an individual stock-keeping unit ("SKU") from the distribution center.
The RSM checks for the presence of and replaces, if necessary, the shelf tags
for all client SKUs. The RSM also reviews all SKUs for product freshness, if
appropriate, and for general salability.

KEY ACCOUNT MANAGERS

On behalf of its manufacturer clients, PIA selectively deploys key account
managers ("KAMs") inside of the major retail chains. These KAMs, assigned
exclusively to a single retailer, work with that retailer's headquarters staff
in the execution of category management initiatives and in the development and
implementation of shelf schematics. The KAMs provide both the manufacturer and
PIA with a headquarters' perspective of the retailer and its primary objectives
at the store level. The KAMs work with manufacturer clients to develop and
achieve their merchandising goals, including those related to product
distribution, shelf placement, the number of facings for particular products,
and product adjacencies. The KAMs also work with manufacturer clients to gain
retailer authorization for new products and approval of new category schematics
that are compatible with the retailer's own category management strategies. PIA
generally attempts to position its KAMs within the retailer's organization in a
leadership capacity, both in category management and vendor deployment
activities. The KAMs typically are placed within the retailer's shelf technology
department and are equipped with the specific shelf technology software utilized
by the retailer. The KAMs work with the retailer in the development of new shelf
schematics, category layouts and, in some cases, total store space plans. The
Company is also training its KAMs in category management in order to provide
further value to both the Companies' manufacturer clients and to the retailer.

DEDICATED SERVICES

Dedicated services consist of merchandising services, generally as
described above, that are performed for a specific retailer or manufacturer by a
dedicated organization, including a management team, working exclusively for
that retailer or manufacturer. These services provided are primarily based on
agreed hourly rates and fixed management fees under multi-year contracts.

The Company believes it pioneered the concept of dedicated service in 1994
with a program designed for Thrifty-PayLess Drug Stores. The program covered 995
stores, and PIA was responsible for implementing product selection changes and
resetting all categories to meet Thrifty-PayLess' category management plans. In
implementing the program, PIA was able to ensure placement of new products on
the shelf within five days of availability and completed section changes within
ten days. In 1996, Rite Aid acquired Thrifty-PayLess and the contract was not
renewed beyond December 1996.

In 1997, PIA started a dedicated program with CVS/Revco to convert Revco
stores to the CVS format. The conversion project was a total re-merchandising of
all Revco stores to the new CVS format. PIA moved gondolas, built new gondolas,
and installed new fixtures and re-planogramed all categories to the CVS
conversion plan. In 1999, PIA will be responsible for new store set ups and
special projects for CVS/Revco in the state of Ohio.

The Company has not expanded the dedicated service concept during fiscal
year 1998. Net revenues have decreased from 34.6% in 1997 to 31.9% in 1998,
primarily due to project completions of the CVS/Revco conversions.

7

8

PROJECT SERVICES

Project services consist primarily of specific in-store services
initiated by retailers and manufacturers, such as new product launches, special
seasonal or promotional merchandising, focused product support and product
recalls. These services are used typically for large-scale implementations over
30 days. The Company also performs other project services, such as new store
sets and existing store resets, re-merchandising, remodels and category
implementations, under shared service contracts or stand-alone project
contracts.

RELATED SERVICES

INFORMATION TECHNOLOGY SERVICES

PIA has been focusing information systems resources on applications,
which help improve productivity of field merchandisers. The Labor Tracking
System ("LTS") was introduced to PIA's 12 service centers in 1998. This
proprietary application records actual time spent on each work initiative. The
benefits of the system include real-time reporting, improved client billing, and
more efficient management of the field labor.

In August 1998, the Work Generator System was implemented. This system
schedules shared services and project work from a central system. It reduces the
travel time by coordinating shared service work with project work. The system
provides associates with a daily schedule of work assignments and expected
completion times.

In September 1998, the Company began using Symbol scanners to capture
inventory and returned inventory data for Buena Vista Home Entertainment
("BVHE"). BVHE retrieves the scanner information daily via the Internet from
PIA's server. This information is used for daily updates to BVHE's vendor
managed inventory system.

PIA also expanded the use of its Interactive Voice Response ("IVR")
system. Hourly status updates can now be provided to clients on critical new
item launches, such as BVHE's video releases. The IVR system can process 2,500
calls per day. This gives the Company the ability to give clients
up-to-the-minute status on any work that uses the IVR system.

TELEMARKETING SERVICES

PIA owns 20% of Ameritel, Inc., a company that performs inbound and
outbound telemarketing services, including those on behalf of certain of PIA's
manufacturer clients. Ameritel provides telemarketing sales services for
manufacturers that sell directly into smaller, independent retail stores. The
Company believes that its affiliation with Ameritel provides an additional
merchandising solution for some packaged product manufacturers and retailer
clients.
The Company, in conjunction with Ameritel, developed an automated
interface between the Ameritel Vantive system and the LTS. PIA associates now
telephone work assignment completion information to Ameritel. PIA associates are
able to report hours, mileage, and other completion information for each work
assignment on a daily basis. The information is used to update the LTS the next
day. This provides the 12 service centers with daily, detailed tracking of work
completion.

RETAIL AND SECONDARY HEADQUARTERS SELLING SERVICES

The Company deploys retail sales specialists ("RSS") to provide product
selling support for certain manufacturers at the retail store and secondary
retailer's headquarters buying offices. These services are performed principally
for manufacturers that choose to outsource their sales function for calls on
wholesaler-supplied individual stores or small chains. Sales services performed
by the RSS's include product sales, selling point of sale promotions, discount
and allowance programs and shelf merchandising plans.

8

9

SALES AND MARKETING

The Company's sales efforts are structured to develop new business in
national and local markets. At the national level, PIA's corporate business
development team directs its efforts toward the senior management of prospective
clients. At the regional level, sales efforts are principally guided through
PIA's 12 service center offices located nationwide.

The Company's corporate account executives play an important role in
PIA's new business development efforts within its existing manufacturer client
base. The corporate account executives are generally located in the clients'
corporate headquarters. The corporate account executives plan merchandising and
product introductions with the manufacturer so that PIA can achieve the
objectives of such clients' major new product and promotional initiatives. In
addition, the corporate account executives present PIA's services to the sales
and marketing executives of these clients, and utilize marketing data provided
by IRI, A.C. Nielsen and others in an effort to ascertain additional market
opportunities for such clients at the local level. Client service managers are
part of the Company's geographic division teams and work with the local
management of the Company's clients. The client service manager's primary
responsibility is to work with the client to establish specific, measurable
objectives for PIA, and to market additional services. As part of this process,
the division account executive is responsible for developing retail
merchandising solutions for such objectives.

As part of 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. PIA has
also responded to this emerging trend by establishing client service offices
that are fully staffed to provide the PIA client and the retailer with access to
all of PIA's services. PIA currently has retailer teams in place at Wal*Mart
(Rogers, Arkansas), Kmart (Detroit, Michigan) and Eckerd Drug (Tampa, Florida).

The Company's business development process encompasses a due diligence
period to determine the objectives of the prospective client, the work to be
performed to satisfy those objectives and the market value of the work to be
performed. PIA 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 quotation approval form that is presented to the
Company's proposal committee for approval. The pricing must meet PIA's
objectives for profitability, which are established as part of the business
planning process. After approval of this quotation by the proposal committee, a
detailed proposal is presented to the prospective client. Following agreement
regarding the elements of service and corresponding rates, a contract is
prepared and executed. See "--Customers."

CUSTOMERS

PIA currently represents approximately 805 manufacturer clients, including
approximately 648 branded product manufacturers and approximately 157 private
label manufacturers. Before 1993, the Company represented its manufacturer
clients primarily in the retail grocery industry. Beginning in 1993, the Company
found that additional opportunities to provide its services existed throughout
the much broader marketplace. This marketplace included mass merchandiser, chain
drug and deep discount drug stores, as well as in other retail trade groups such
as home improvement centers, computer/electronic stores, toy stores, convenience
stores and office supply stores. As a result, the Company has contracted with a
number of manufacturers to provide services in several additional retail
markets, and has agreed to provide services to a number of retailers directly.

9

10

COMPETITION

The third-party merchandising industry is highly competitive and is
comprised of an increasing number of merchandising companies with either
specific retailer, retail channel or geographic coverage, as well as food
brokers. These companies tend to compete with the Company primarily in the
retail grocery channel, and some of them may have a greater presence in certain
of the retailers in whose stores the Company performs its services. The Company
also competes with several companies that are national in scope, such as
Powerforce, Alpha One, Pimms, and SPAR Marketing Force. These companies compete
with PIA principally in the mass merchandiser, chain drug and deep discount drug
retail channels. PIA believes the principal competitive factors within its
industry include development 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.

PIA recently entered into an agreement with SPAR Marketing Force and
certain of its affiliates ("SPAR Group") in which PIA will essentially be
acquired by SPAR Group in a merger in which all the outstanding Common Stock of
SPAR will be exchanged for approximately 12.3 million shares of PIA Common
Stock. See "--Recent Transaction." After the merger, the SPAR Group shareholders
will own approximately 69% of PIA Common Stock.

TRADEMARKS

PIA(R) is a registered trademark of the Company. In addition, the
Company has recently commenced the process of registering the service mark for
the term Precision Merchandising. 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

As of January 1, 1999, the Company employed approximately 1,109
full-time employees, of whom approximately 83 worked in executive,
administrative and clerical capacities at the Company's corporate headquarters,
and 1,026 of whom worked in division offices nationwide. In addition, the
Company employed 1,030 part-time employees. Approximately 180 of the Company's
employees are covered by contracts with labor unions. The Company considers its
relations with its employees and its employees' unions to be good. The Company
also uses the services of up to 3,000 flextime personnel whose payroll is
generated through a company not affiliated with PIA.

RECENT TRANSACTION

On February 28, 1999, PIA entered into an agreement with SPAR Group, a
privately held affiliated group of companies to merge in a stock transaction.
Under the agreement, PIA will issue approximately 12.3 million shares of PIA
Common Stock to the stockholders of SPAR Group. SPAR Group is a privately owned
provider of retail marketing and sales services offering merchandising support,
incentive and motivation marketing programs, information management, marketing
research, data base marketing and promotional analysis and forecasting. The
transaction will be accounted for as a reverse acquisition in which SPAR Group
is deemed to be the accounting acquirer. SPAR Group has annual revenues of
approximately $75 million. After the merger, SPAR Group stockholders will own
approximately 69% of PIA Common Stock. The transaction requires regulatory and
stockholder approval and is expected to close in the second quarter of 1999.

10

11

RISK FACTORS

The following risk factors should be carefully reviewed in addition to
the other information contained in this annual report on Form 10-K

HISTORY OF LOSSES

During the years ended December 31, 1997 and January 1, 1999, the
Company incurred significant losses and experienced substantial negative cash
flow. PIA had net losses of $15.1 million for the fiscal year ended 1997 and
$4.3 million for fiscal year 1998. Losses in 1997 were primarily caused by
margin reductions from the loss of shared service clients, inefficiencies in
field labor execution, poor pricing decisions for some client contracts and
higher business unit overhead costs. The recognition of $5.4 million in
restructuring and other charges was also responsible for the losses. Losses in
1998 primarily were caused by margin reductions and from a decline in revenues
due to loss of shared service clients and completion of dedicated projects. The
Company expects to have further losses for the first quarter of fiscal 1999. As
noted in Recent Transaction, the Company has entered into a merger agreement
with SPAR Group. Should this merger not be completed, the Company will be
required to significantly reduce its operating costs to minimize the effects of
further reductions in revenues and operating losses. PIA cannot guarantee that
it will not sustain further losses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."

LOSS OF BUSINESS

PIA's business mix has changed significantly over the last year, and is
expected to continue to change during 1999, in response to client needs, and the
evolving third party merchandising industry. Due in part to the completion of a
major dedicated client program, and the loss of several shared service clients,
sales have declined over the last 18 months, and no sizable new dedicated
business has been sold to compensate for these losses. The Company has reduced
its dedicated management and personnel infrastructure accordingly.

INDUSTRY CONSOLIDATION; CONCENTRATED CLIENT BASE

The retail and manufacturing industries are undergoing consolidation
processes that result in larger but fewer retailers and suppliers. PIA's success
depends in part upon its ability to maintain its existing clients and to obtain
new clients. Because of industry consolidation, PIA has lost certain clients,
and this trend could continue to have a negative effect on PIA's client base and
results of operations. PIA's ten largest clients generated approximately 75% of
PIA's net revenues for the year ended January 1, 1999, and approximately 69% for
the year ended December 31, 1997. During the year ended January 1, 1999 none of
PIA's manufacturer or retailer clients accounted for greater than 10% of net
revenues other than Eckerd Drug Stores, CVS Pharmacy Incorporated and Buena
Vista Home Entertainment, which account for 15.6%, 12.6% and 10.6%,
respectively. During the year ended December 31, 1997, none of PIA's
manufacturer or retailer clients accounted for greater than 10% of net revenues
other than Buena Vista Home Entertainment and Eckerd Drug Stores which
accounted for 16.0% and 13.6% of net revenues, respectively. The majority of the
Company's contracts with its clients for shared services have multi-year terms.
PIA believes the uncollectibility of amounts due from any of its large clients,
a significant reduction in business from such clients, or the inability to
attract new clients, could have a material adverse effect on the Company's
results of operations.

11

12

UNCERTAINTY OF COMMISSION INCOME

Approximately 15% of the Company's net revenues for the year ended
January 1, 1999 were earned under commission-based contracts. These contracts
provide for commissions based on a percentage of the client's net sales of
certain of its products to designated retailers. Under certain of these
contracts, the Company generally receives a draw on a monthly or quarterly
basis, which is then applied against commissions earned. Adjustments are made on
a monthly or quarterly basis upon receipt of reconciliations between commissions
earned from the client and the draws previously received. The reconciliations
typically result in commissions owed to the Company in excess of previous draws;
however, the Company cannot predict with accuracy the level of its clients'
commission-based sales. Accordingly, the amount of commissions in excess of or
less than the draws previously received will fluctuate and can significantly
affect the Company's operating results in any quarter.

CONTROL BY CERTAIN STOCKHOLDERS

Riordan, Lewis & Haden ("RLH"), a private investment firm, beneficially
owns approximately 29.7% of PIA's outstanding Common Stock. PIA's directors and
officers, in the aggregate, beneficially own approximately 16.2% of PIA's
outstanding Common Stock (excluding the shares owned by Riordan, Lewis & Haden
which are deemed to be beneficially owned by Mr. Haden and Mr. Lewis). While not
controlling a majority of the outstanding shares, RLH, and the directors and
officers acting together generally will have significant influence with respect
to the election of directors and other matters submitted to the PIA
stockholders, including amendments to PIA's charter and Bylaws and approval of
certain mergers or similar transactions and sales of all or substantially all of
PIA's assets. If the merger with the SPAR Group is consummated the current
stockholders of SPAR Group will beneficially own approximately 69% of PIA's
outstanding Common Stock. Accordingly, if they act as a group they will
generally be able to elect all directors and they will have the power to prevent
or cause a change in control of PIA. Such concentration of ownership could have
the effect of making it more difficult for a third party to acquire control of
PIA in the future, and may discourage third parties from attempting to do so.

RESTRICTIONS ON DIVIDENDS

The Company has never paid dividends on its capital stock, and currently
intends to retain any earnings or other cash resources to finance future growth.

EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BY-LAWS AND DELAWARE LAW

The Company's Board of Directors has the authority to issue up to 3,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of PIA.
In addition, PIA is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of Section 203 also could have the effect
of delaying or preventing a change of control of PIA. Certain provisions of
PIA's Certificate of Incorporation and Bylaws could delay or make more difficult
a merger, tender offer or proxy contest involving PIA. For example, PIA's
Bylaws, a special meeting of stockholders may be called only upon the request of
holders of at least 30% of the shares entitled to vote. Any delay in change of
control due to these provisions could adversely affect the market price of PIA's
Common Stock, which could adversely affect the market price of PIA 's Common
Stock.

12

13

GLOSSARY

The following glossary includes definitions of certain general industry
terms as well as terms relating specifically to the company.

CATEGORY - A segment or sub-segment of a department within a retail
outlet. For example, the health and beauty care department consists of
several categories such as oral care and shampoo; and the shampoo section
is divided into sub-categories such as salon formulas and dandruff
control.

CATEGORY MANAGEMENT - A process for managing a retailer's or a
manufacturer's business that recognizes categories as strategic business
units for the purpose of planning sales and profit objectives.

CAUSAL DATA - Data that defines the factors within a retail outlet that
impact sales. These factors usually include display, pricing and product
adjacency information.

EFFICIENT CONSUMER RESPONSE (ECR) - A grocery industry strategy in which
retailers and manufacturers incorporate the principles of efficient
replenishment with effective assortment and promotion of products.

FACING - The horizontal and vertical space occupied by a package front
when displayed on a store shelf.

KEY ACCOUNT MANAGER (KAM) - A KAM is assigned exclusively to a single
retailer and works with that retailer's corporate headquarters staff in
the execution of category management initiatives and in the development
and implementation of shelf schematics.

MASS MERCHANDISER - The segment of retailers that offers multi-departments
in a single location, each of which is typically quite large (at least
75,000 square feet). Examples include Kmart and Wal*Mart.

NEW STORE SET - The initial merchandising of a new retail outlet that was
either built or acquired.

OUT-OF-STOCK - A situation that exists when a product normally carried by
a retailer is temporarily unavailable. This means that shelf allocation
exists, but inventory has been depleted.

RE-MERCHANDISING - A retail unit that is enhanced by the relocation of
sections, aisles and/or departments, and usually involves the total store.

REMODEL - A retail unit that is enhanced by enlargement and/or redesign.
Structural changes most often result in departments and/or services being
added or deleted, which requires the relocation of most products and
sections within the store.

RESET - Relocation of products within a given category or section of a
retail store. A reset typically involves removal of all products from the
retailer's shelves, restocking of products and reallocation of space.

RETAIL AND SECONDARY HEADQUARTERS SELLING - Refers to the selling of
products and/or taking of orders in chains which do not operate their own
warehouses and in stores having the authority to purchase and/or approve
orders.

RETAIL SALES MERCHANDISERS (RSM) - An RSM is a full-time associate who
performs shared service coverage at the store level.

RETAIL SALES SPECIALIST (RSS) - A retail sales specialist provides product
selling support for certain manufacturers at the retail store and
secondary retailers headquarters buying offices.

13

14

RETAILER - An operator of retail stores or groups of retail stores that
are also referred to as chains.

SCHEMATIC - A diagram that lists the specific location and shelf space to
be allocated for all items within a section. The schematic also contains
data relating to merchandising such as width, depth of shelving, shelf
elevations and height of gondola.

SHARED SERVICES - A group of associates who perform specific functions for
multiple clients on each store visit.

STOCK KEEPING UNIT (SKU) - A unit of product having its own unique
size/weight and product description.

VOID - A situation that exists when a retailer does not carry a product
and there is no allocated space or reorder tag present.

14

15

ITEM 2. PROPERTIES.

The Company maintains its corporate headquarters in approximately 20,000
square feet of leased office space located in Irvine, California, under a lease
with a term expiring in February 2000.

The Company leases certain office and storage facilities for its
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.

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

Scottsdale, Arizona                     Southfield, Michigan
Rogers, Arkansas                        Chesterfield Missouri
Irvine, California                      Edison, New Jersey
Pleasanton, California                  Albuquerque, New Mexico
Englewood, Colorado                     Blue Ash, Ohio
Tampa, Florida                          Cranberry Township, Pennsylvania        
Norcross, Georgia                       Carrollton, Texas
Oakwood Terrace, Illinois               Houston, Texas
Overland Park, Kansas                   Bellevue, Washington
Woburn, Massachusetts

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. Certain of the above facilities may be closed or subleased as the
Company streamlines its operations.

ITEM 3. LEGAL AND ADMINISTRATIVE PROCEEDINGS.

On February 25, 1998, the Company and its Canadian subsidiary were
served with two Statements of Claim in the Ontario court (General Division) of
the Province of Ontario, Canada, filed by Merchandising Consultants Associates
("MCA") asserting claims for alleged breach of Confidentiality Agreements dated
October 19, 1996 and July 17, 1997. Both of these lawsuits assert that the
Company and its subsidiary improperly used confidential information provided by
MCA as part of the Company's due diligence concerning its proposed acquisition
of MCA, including alleged clientele, contracts, financial statements and
business opportunities of MCA. In addition, MCA contends that the Company
breached and allegedly reneged upon the terms for acquisition of MCA contained
in a Letter of Intent between the parties dated July 17, 1997, which by its
express terms was non-binding. The Statements of Claim seek damages totaling
$10.2 million.

The Company denies all wrongdoing and intends to defend itself
aggressively in this action. It is not possible to predict the outcome of this
action at this time.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

15

16

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 National
Market. The Common Stock is traded on the Nasdaq National Market under the
symbol "PIAM".

1997                   1998
------------------       -----------------
High       Low         High        Low
-------     ------       ------     ------

First Quarter       $11.000     $5.125       $6.500     $5.000
Second Quarter        7.125      5.375        8.156      3.688
Third Quarter         8.250      5.125        6.844      4.125
Fourth Quarter        9.000      4.875        4.875      2.000

As of March 19, 1999, there were approximately 872 holders of record of
the Company's Common Stock.

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 its 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.

16

17

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.

The following selected consolidated financial data sets forth, for the
periods and the dates indicated, summary consolidated financial data of the
Company and its subsidiaries. Below, with respect to the three years ending
December 31, 1996, December 31, 1997 and January 1, 1999 is the consolidated
statement of operations and the consolidated balance sheet data as of December
31, 1997 and January 1, 1999 have derived from, and are qualified by reference
to the audited consolidated financial statements included elsewhere in this Form
10-K. These statements should be read in conjunction with such financial
statements and related notes thereto in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

YEARS ENDED                         
-----------------------------------------------------------------  
DEC 31,        DEC 31,         DEC 31,      DEC 31,    JAN 1,    
1994           1995            1996         1997       1999     
---------      ---------        ---------   ---------   ---------  
(in thousands, except per share data)             

STATEMENT OF OPERATIONS DATA:                                                                                            
Net revenues                                          $  80,449      $ 104,791        $ 119,940   $ 128,208   $ 121,788  
Operating expenses:                                                                                                      
Field services costs                                  61,876         81,320           94,841     119,830     105,448  
Selling expenses                                       9,028         10,339           11,133      10,482       8,245  
General and administrative expenses                    5,800          6,810            8,081      10,234      11,788  
Restructure and other charges                             --             --               --       5,420          --  
Depreciation and amortization                            339            497              595         997       1,129  
---------      ---------        ---------   ---------   ---------  
Total operating expenses                          77,043         98,966          114,650     146,963     126,610  
---------      ---------        ---------   ---------   ---------  
Operating income (loss)                                   3,406          5,825            5,290     (18,755)     (4,822) 
Other income                                               (725)          (465)             895         895         611  
---------      ---------        ---------   ---------   ---------  
Income (loss) before provision (benefit)                                                                                 
for income taxes                                        2,681          5,360            6,185     (17,860)     (4,211) 
Income tax provision (benefit)                              101          1,829            2,426      (2,761)         55  
---------      ---------        ---------   ---------   ---------  
Net income (loss)                                     $   2,580      $   3,531        $   3,759   $ (15,099)  $  (4,266) 
=========      =========        =========   =========   =========  
Net income (loss) per share - basic(1)                $    0.88      $    1.13        $    0.70   $   (2.72)  $   (0.78) 
=========      =========        =========   =========   =========  
Weighted average shares - basic(1)                        2,923          3,117            5,370       5,551       5,439  
=========      =========        =========   =========   =========  
Net income (loss) per share - diluted(1)              $    0.68      $    0.89        $    0.63   $   (2.72)  $   (0.78) 
=========      =========        =========   =========   =========  
Weighted average shares - diluted(1)                      3,895          3,981            5,990       5,551       5,439  
=========      =========        =========   =========   =========  

Dec 31,        Dec 31,          Dec 31,     Dec 31,     Jan 1,    
1994           1995             1996        1997        1999     
--------       --------         --------    --------    --------  
(in thousands)                        

BALANCE SHEET DATA:                                                                                                      
Working capital                                       $ 3,642        $ 7,131          $32,737    $15,938      $13,844  
Total assets                                           10,224         16,086           47,672     36,467       26,054  
Current portion of long-term debt                         277             --               --         --           --  
Long-term debt, net of current portion                  3,274          3,400               --         --        2,000  
Total stockholders' equity                              2,481          5,988           36,718      18,67       14,724  

(1) Net income (loss) per share has been restated for all applicable periods
presented in accordance with the adoption of SFAS No. 128 Earnings per share.

17

18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

PIA provides merchandising services to manufacturers and retailers
principally in grocery, mass merchandiser and chain and discount drug stores.
For the years ended December 31, 1997, and January 1, 1999, the Company
generated approximately 74% and 59% of its net revenues from manufacturer
clients and 26% and 41% from retailer clients, respectively.

During the five years that ended January 1, 1999, none of the Company's
manufacturer or retailer clients accounted for greater than 10% of the Company's
net revenues, other than Thrifty-Payless, which accounted for approximately 13%
of net revenues for the year ended December 31, 1995, and BVHE and S.C. Johnson
which accounted for 11.7% and 10.3% of net revenues, respectively, for the year
ended December 31, 1996, and BVHE and Eckerd Drug Stores which accounted for
approximately 16.0% and 13.6% respectively, of net revenues for the year ended
December 31, 1997, and Eckerd Drug Store, CVS Pharmacy, and BVHE which accounted
for approximately 15.6%, 12.6% , and 10.6% respectively, of net revenues for the
year ended January 1, 1999.

During the fiscal year 1998, the Company continued to experience a
decline in its shared service business. Shared services consist of regularly
scheduled, routed merchandising services provided at the store level for
manufacturers, primarily under multi-year contracts. Due in part to industry
consolidation, increased competition, and performance, the Company lost a number
of shared service clients in 1997 and 1998. The Company has historically
required a significant fixed management and personnel infrastructure to support
shared services. Accordingly, the loss of shared services business, without
offsetting gains, had a material adverse effect on the Company's results of
operations in 1997 and 1998. These losses have been partially offset with
additional project revenue from shared service clients. In 1997 and 1998, shared
service client's accounted for $83.8 and $83.0 million in net revenue and
dedicated clients accounted for $44.4 and $38.8 million in net revenue,
respectively. The Company believes revenues in fiscal year 1999 from shared
service clients will decline as a result of the wind-down of the lost business.

The Company's profitability has been adversely affected by the loss of
its dedicated client services business in 1998. However, this decline has been
offset by an increase in gross margin, both in absolute amount and as a
percentage of net revenues, as a result of the effects of improved labor
productivity and service cost reduction in the field. Dedicated services consist
of merchandising services that are performed for a specific retailer or
manufacturer by a dedicated organization, including a management team, working
exclusively for that retailer or manufacturer. The net revenues associated with
dedicated clients decreased as a percentage of overall net revenues, from 34.6%
in 1997 to 31.9% in 1998.

Due to the change in business mix, and resulting negative impact on
margins, the Company realigned its cost structure, and, in the third quarter of
1997, recorded a charge of $5.4 million for restructuring and other costs
associated with the realignment of management structure and the organization.
The Company continues to review its organizational structure and the fixed and
variable costs associated with delivery of its services. It is anticipated that
further organizational changes will take place in the fiscal year 1999, as the
Company puts structure, programs and processes in place to reduce its fixed
overhead in line with lower revenue levels.

18

19
The following table sets forth certain financial data as a percentage of net
revenues for the periods indicated:

YEARS ENDED
---------------------------------------------
DECEMBER 31,     DECEMBER 31,      JANUARY 1,
1996             1997              1999
============     ============      ==========

Net revenues                                                        100.0%           100.0%            100.0%
Operating expenses:
Field services costs                                          79.1             93.5              86.6
Selling expenses                                               9.3              8.2               6.8
General and administrative expenses                            6.7              8.0               9.7
Restructure and other charges                                  0.0              4.2               0.0
Depreciation and amortization                                  0.5              0.8               0.9
------           ------            ------
Total operating expenses                        95.6            114.7             104.0
------           ------            ------
Operating income (loss)                                               4.4            (14.7)             (4.0)
Other income                                                          0.8              0.7               0.5
------           ------            ------
Income (loss) before provision (benefit) for income taxes             5.2            (14.0)             (3.5)
Provision (benefit) for income taxes                                  2.0             (2.2)               --
------           ------            ------
Net income (loss)                                                     3.2%           (11.8)%            (3.5)%
======           ======            ======

YEAR ENDED JANUARY 1, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1997

NET REVENUES

For fiscal year 1998, net revenues were $121.8 million, compared to
$128.2 million in 1997, a 5.0% decrease. Shared service and project client net
revenues decreased from $83.8 million in 1997 to $83.0 million in 1998, a
decrease of $0.8 million or 1.0%. In 1998, the traditional shared services,
consisting of regularly scheduled routed merchandising service, decreased from
$44.9 million in 1997 to $40.1 million. This decrease of $4.8 million or 10.7%
was due in part to industry consolidation, increased competition and client
reorganization of marketing strategy. During the same period project revenues
for shared service clients increased by $4.0 million or 10.3% primarily due to a
major client switching from a dedicated program to a shared service program. The
Company's dedicated client net revenues declined from $44.4 million in 1997 to
$38.8 million in 1998, representing a 12.6% decrease. This decrease in dedicated
client net revenues resulted primarily from the completion of a major drug chain
dedicated program. Management expects that net revenues from dedicated clients
will decrease in 1999 due to the completion of a $15.0 million project in the
last quarter of 1998.

The following table sets forth net revenues by client type as a percentage of
net revenues for the periods indicated:

YEARS ENDED
------------------------------------------------------------------
DECEMBER 31,            JANUARY 1,
1997                   1999                     CHANGE
------------------     -------------------      ------------------
(dollars in millions)
AMOUNT       %         AMOUNT        %          AMOUNT       %
-------    -------     -------     -------      -------    -------

Shared service and project client net revenues    $  83.8      65.4%     $  83.0      68.1%       $ (0.8)      (1.0)%
Dedicated client net revenues                        44.4      34.6         38.8      31.9          (5.6)     (12.6)
-------     -----      -------     -----        ------      -----
Net revenues                                      $ 128.2     100.0%     $ 121.8     100.0%       $ (6.4)      (5.0)%
=======     =====      =======     =====        ======      =====

19

20
OPERATING EXPENSES

Field service costs were $105.4 million in the fiscal year 1998 compared
to $119.8 million in 1997, representing a decrease of $14.4 million, or 12.0%.
As a percentage of net revenues, field service costs were 93.5% of net revenues
in 1997 versus 86.6% of net revenues in 1998. Field service costs are comprised
principally of field labor and related costs and overhead expenses required to
provide services to both dedicated and shared service clients. The decrease in
field service costs is primarily due to significant labor efficiency savings
from new labor deployment systems and controls and a decline in services due to
the completion of a dedicated project in the third quarter 1998.

Selling expenses were $8.2 million in 1998, compared to $10.5 million in
the prior year. As a percentage of net revenues, selling expenses were 6.8% in
1998, compared to 8.2% in 1997. This decrease in costs, both in absolute amount
and as a percentage of net revenues, is a result of lower staffing and travel
expenses.

General and administrative expenses increased 15.2% in 1998 to $11.8
million, compared to $10.2 million in 1997. This increase was due primarily to
consulting and promotional expenses of $1.0 million, salary and salary related
expenses of $0.5 million to support technology advancements, office equipment
and leases of $0.7 million, offset by a reduction in bad debt provision of $0.8
million due to improved collection of outstanding accounts.

Restructuring and other charge payments of $5.0 million did not
significantly differ from the initial restructuring and other charges expense.
In addition, accrued liabilities for restructuring at January 1, 1999 of $0.4
million will be sufficient to pay remaining employee separation costs and
special computer equipment under long-term operating leases no longer in use.
(See Note F-12).

Depreciation and amortization expenses were $1.1 million in 1998
compared to $1.0 million in 1997, an increase of $0.1 million as a result of
depreciation, amortization on computer hardware, software development costs for
shelf technology and for general business purposes.

OTHER INCOME

Interest income decreased 42.2% or $0.3 million in 1998 compared to
1997, due to lower cash balances available for investment in 1998.

Equity in earnings of affiliate represents the Company's share of the
earnings of Ameritel, Inc., a full service telemarketing company. Equity of
earnings of affiliate increased 55.2% or 0.1 million in 1998 compared to 1997.
During 1996, the Company exercised its option to increase its ownership of
Ameritel to 20% and is now required for financial reporting purposes to
recognize its equity interest in Ameritel's earnings.

INCOME TAXES

Income tax expense was approximately $0.1 million in 1998, compared to
an income tax benefit of $2.8 million in 1997, representing an effective rate of
1.3% and (15.5)%, respectively. The 1998 tax rate differed from the expected
federal tax rate of 35% due to a valuation allowance of $1.6 million on the
Company's deferred tax asset, caused by a net operating loss carryforward
created in 1998 and the uncertainty over the future utilization of such 
carryforwards. An income tax benefit in 1997 was derived from carrying back 
net operating losses to previous years and obtaining an income tax refund of 
$2.9 million.

NET LOSS

The Company incurred a net loss of approximately $4.3 million in 1998,
$0.78 per diluted share, compared to a net loss of approximately $15.1 million,
or $2.72 per diluted share, in 1997. The improved performance during 1998 was
primarily due to labor efficiency savings from utilizing new labor systems and
controls, reduction in field service costs from the implementation of the 1997
restructure programs. The loss incurred in 1998 is primarily a result of margin
reductions because of reductions in dedicated clients and higher business unit
overhead rates.

20

21
NEW FINANCIAL MODEL

The Company has developed a new financial model with which its business
can be analyzed to assist in the understanding of the operating results and
impact of various cost functions within the organization. This model follows
more standard metrics and allows the Company to analyze and manage at the
business unit level. The following table illustrates this financial model for
the years ended December 31, 1997 and January 1, 1999.

Management expects to continue to review the business results based on
the comparable financial statement format contained in this Form 10-K until
comparisons can be made using the new financial model.

YEARS ENDED
--------------------------------------------------------
DECEMBER 31                      JANUARY 1
1997                            1999
-----------------------          -----------------------
(dollars in millions)
AMOUNT             %             AMOUNT              %
------           ------          ------           ------

Net revenues                                                  $128.2            100.0%         $121.8            100.0%

Direct business unit field expense                         98.7             77.0            88.9             73.0
------           ------          ------           ------
Gross margin                                                    29.5             23.0            32.9             27.0

Overhead and allocated field expense                       26.6             20.7            20.8             17.1
------           ------          ------           ------
Business unit margin                                             2.9              2.3            12.1              9.9
------           ------          ------           ------

Selling, general and administrative expenses               15.3             11.9            15.8             12.9
Restructure and non-recurring charges                       5.4              4.2             0.0              0.0
------           ------          ------           ------
Total selling, general and administrative expenses              20.7             16.1            15.8             12.9
------           ------          ------           ------

Earnings (loss) before interest, taxes, depreciation
and amortization  (EBITDA)                                     (17.8)           (13.8)           (3.7)            (3.0)

Depreciation and amortization                              (1.0)            (0.8)           (1.1)            (0.9)
Other income                                                0.9              0.7             0.6              0.5
Income tax benefit (provision)                              2.8              2.1            (0.1)            (0.1)
------           ------          ------           ------

Net loss                                                      $(15.1)           (11.8)%        $ (4.3)            (3.5)%
======           ======          ======           ======

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET REVENUES

For 1997, net revenues were $128.2 million, compared to $119.9 million
in 1996, a 6.9% increase. The Company's dedicated client net revenues had grown
from $21.9 million in 1996 to $44.4 million in 1997, a 102.7% increase. This
increase in dedicated client net revenues resulted from the addition of two
major new clients. Shared service and project client net revenues decreased from
$98.0 million in 1996 to $83.8 million in 1997, a decrease of $14.2 million or
14.5%. In 1997, the traditional shared services, consisting of regularly
scheduled routed merchandising services, decreased from $68.4 million in 1996 to
$44.9 million in 1997. Resulting in a decrease of $23.5 million or 34.4%, while
project revenues for shared clients increased to $9.3 million or 31.4%

21

22

The following table sets forth net revenues by client type as a percentage of
net revenues for the periods indicated:

YEARS ENDED
-------------------------------------------------------------------------
DECEMBER 31,              DECEMBER 31,
1996                       1997                     CHANGE
--------------------       -------------------       --------------------
(dollars in millions)
AMOUNT          %          AMOUNT          %         AMOUNT           %
------        ------       ------       ------       ------        ------

Shared service and project client net revenues   $ 98.0          81.7%      $ 83.8         65.4%      $(14.2)        (14.5)%
Dedicated client net revenues                      21.9          18.3         44.4         34.6         22.5         102.7
------        ------       ------       ------       ------        ------
Net revenues                                     $119.9         100.0%      $128.2        100.0%      $  8.3           6.9 %
======        ======       ======       ======       ======        ======

OPERATING EXPENSES

In 1997, field service costs increased $25.0 million, or 26.3%, to
$119.8 million, as compared to $94.8 million in 1996. As a percentage of net
revenues, field service costs were 79.1% of net revenues in 1996 versus 93.5% of
net revenues in 1997. Field service costs are comprised principally of field
labor and their related costs, and overhead expenses required to provide
services to both dedicated and shared service clients. The increase in field
service costs is due primarily to labor costs required to provide the necessary
level of business support for dedicated clients. In addition, the Company did
not adequately decrease shared client service labor and overhead costs as the
net revenue from this client base decreased.

Selling expenses were $10.5 million in 1997, compared to $11.1 million
in 1996. As a percentage of net revenues, selling expenses were 8.2% in 1997,
compared to 9.3% in 1996. This decrease in costs, both in absolute amount and as
a percentage of net revenues, is a result of lower staffing and travels.

General and administrative expenses increased 25.9% in 1997 to $10.2
million, compared to $8.1 million in 1996. The increase in general and
administrative expenses was due to increases in expenses that were required to
support overall business growth, including a larger dedicated client base. The
major increases included executive salaries and salary related expenses of $0.3
million, recruiting, employment and training of $0.3 million, and consulting,
legal and office lease expense of $0.6 million. In addition, increased costs
were experienced due to termination costs.

During 1997, the Company experienced declining gross margins, and
resultant operating losses, due to service performance issues and the loss of
several shared clients. This decline in margins has resulted in insufficient
margin dollars to cover the overhead structure, which had developed at the field
level and in the general corporate area. In the quarter ended September 30,
1997, the Company began to address these conditions by restructuring its
operations. The Company redirected its focus in the quarter ended September 30,
1997, on a more disciplined and functional structure. These strategies resulted
in a $5.4 million charge for the restructuring and other additional charges. The
restructure and other charges consisted of $1.5 million of identified severance,
lease costs in various management and administrative functions and $2.1 million
in write-downs and accruals associated with the redirection of the Company's
technology strategies. Additional charges consist primarily of $1.3 million of
reserves, write-offs related to unprofitable contracts and $0.5 million of costs
associated with changes in the Company's service delivery model.

Depreciation and amortization expenses were $1.0 million in 1997
compared to $0.6 million in 1996. The depreciation and amortization on computer
hardware and the software development costs for shelf technology increased this
expense $0.4 million.

22

23
OTHER INCOME

Interest income decreased slightly in 1997 compared to 1996, due to
lower cash balances available for investment in 1997. Other income included
interest income on the net proceeds from the Company's initial public offering,
which took place in March 1996.

Equity in earnings of affiliate represents the Company's share of the
earnings of Ameritel, Inc., a full service telemarketing company. Equity in
earnings of affiliate increased by 33.3% in 1997 compared to 1996. During 1996,
the Company exercised its option to increase its ownership of Ameritel to 20%
and is now required for financial reporting purposes to recognize its equity
interest in Ameritel earnings.

INCOME TAXES

Income tax benefit was approximately $2.8 million in 1997, compared to
income tax expense of $2.4 million in 1996, representing an effective rate of
(15.5%) and 39.2%, respectively. The 1997 tax benefit rates differed from the
expected Federal and tax rate of 35% due to a valuation allowance of $3.6
million on the Company's deferred tax asset, caused by a net operating loss
carryforward created in 1997.

NET LOSS

The Company incurred a net loss of approximately $15.1 million in 1997,
$2.72 per diluted share, compared to net income of approximately $3.8 million,
or $0.63 per diluted share, in 1996. The net loss for 1997 included the net
impact, after related tax benefit, of restructure and other charges of $4.6
million, or $0.83 per diluted share. The loss incurred in 1997 is primarily a
result of margin reductions due to reductions in shared service clients and
start up expenses on dedicated client services, inefficiencies in field labor
execution, poor pricing decisions for some client contracts, higher business
unit overhead costs and the recognition of restructure charges and other
non-reoccurring charges.

LIQUIDITY AND CAPITAL RESOURCES

On March 1, 1996, the Company completed an initial public offering of
its Common Stock, raising $26.5 million. Prior to this offering, the Company's
primary sources of financing were senior borrowings from a bank under a
revolving line of credit and subordinated borrowings from two stockholders. As
of January 1, 1999, the Company used the proceeds from the offering to repay
bank debt of $3.4 million, to repurchase 507,000 shares of the Company's stock
for approximately $3.0 million and to fund the Company's operating losses in
1997 and 1998. During the year ended January 1, 1999, the Company had a net
decrease in cash of $1.9 million, resulting from its operating losses and
restructure charge payments and a reduction in accounts payable, that were
offset partially by a reduction in accounts receivable, income tax receivable
and proceeds of $2.0 million from its line of credit.

In March 1997, the Company's Board of Directors approved a stock
repurchase program under which the Company was authorized to repurchase up to
1,000,000 shares of Common Stock from time to time in the open market, depending
on market conditions. This program was funded by proceeds from the initial
public offering. As of July 14, 1997, the Company repurchased an aggregate of
507,000 shares of its Common Stock for an aggregate price of approximately $3.0
million. No further repurchases are currently planned.

In December 1998, PIA Merchandising Co., Inc. ("PIA Co.") and another
subsidiary of PIA entered into a loan and security agreement with Mellon Bank,
N.A. The agreement provides for a revolving line of credit that allows maximum
borrowing of $20.0 million and requires PIA Co. to borrow and maintain a minimum
balance of $2.0 million. The three-year credit facility will be used for working
capital purposes and potential acquisitions.

Cash and cash equivalents totaled $11.1 million at January 1, 1999
compared with $13.0 million at December 31, 1997. At January 1, 1999 and
December 31, 1997, the Company had working capital of $13.8 million and $15.9
million, respectively, and current ratios of 2.50 and 1.95, respectively.

23

24

Net cash used in operating activities in 1998 was $3.4 million, compared
with $2.8 million in 1997. This use of cash for operating activities in 1998
resulted primarily from net operating losses of $4.3 million and a reduction in
accrued liabilities primarily attributed to the Company's 1997 restructuring and
other charges and a reduction in accounts payable of $2.2 million related to a
reduction in third party payroll liability. These uses were offset by an income
tax refund of $2.9 million outstanding in 1997 and a decrease in account
receivable of $5.1 million from improved collection of outstanding accounts. Net
cash used in investing activities for 1998 was $0.7 million compared to $0.8
million in 1997 from additions to property and equipment and internally
developed software. Net cash provided by financing activities for 1998 was $2.1
million, compared to net cash used in financing activities of $2.9 million in
1997. In 1998 the Company received net proceeds from the issuance of common
stock of $0.1 million and increased the line of credit by $2.0 million.

The above activity resulted in a decrease in cash and cash equivalents
of $1.9 million for the year ended January 1, 1999.

Cash and cash equivalents and the timely collection of its receivables
provide the Company's current liquidity. However, the potential uncollectibility
of receivables due from any of PIA's major clients, or a significant reduction
in business from such clients, or the inability to acquire new clients would
have an adverse material effect on the Company's cash resources and its ongoing
ability to fund operations.

The Company had a 4.3 million loss and experienced a decrease in cash
and cash equivalents of $1.9 million for the year ended January 1, 1999.
However, with the addition of the revolving line of credit, timely collection of
receivables, and the Company's positive working capital position, management
believes the funding of operations over the next twelve months will be
sufficient.

PIA may incur additional indebtedness in 1999 in connection with the
merger. SPAR Group acquired the assets of an incentive marketing company in
January 1999. A portion of the purchase price was paid through the issuance of a
promissory note in the principal amount of $12,422,189 (plus an earn out, if
any), which matures on September 15, 1999. As of March 1, 1999, the amount owed
under the note was $9.3 million, excluding the earn out payment, if any. In
addition, the principal stockholders of SPAR Group loaned SPAR Group $2,958,000
to facilitate the acquisition. If this indebtedness is not repaid before the
transaction with PIA is consummated, the combined company will assume these
obligations. PIA will also be obligated, under certain circumstances, to pay
severance compensation to its employees in connection with the merger. Further,
PIA will incur substantial costs in connection with the transaction, including
legal, accounting and investment banking fees estimated to be an aggregate of
approximately $2.4 million and severance payments estimated to be approximately
$3 million. PIA has entered into discussions with its bank to increase its
credit line to enable it to meet cash needs in connection with the merger and
future potential acquisitions in 1999.

YEAR 2000 SOFTWARE COSTS

Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. As a result, many
date-sensitive computer applications will fail beginning January 1, 2000 because
they are unable to process dates properly beyond December 31, 1999. PIA has
reviewed its computer systems to identify areas that could be affected by Year
2000 issues and has implemented a plan to resolve these issues.

PIA has substantially completed the evaluation of its information
technology infrastructure, software, hardware and communications systems. PIA
believes that its critical hardware and software applications are currently Year
2000 compliant. Completion of PIA's plan to upgrade all hardware and software
applications to be Year 2000 compliant is expected by the third quarter of 1999.
Third party vendors are also being reviewed for Year 2000 compliance and PIA
expects this risk assessment to be complete by the second quarter of 1999. PIA's
assessment and evaluation efforts include testing systems, inquiries of third
parties and other research. By implementing significant systems upgrades, PIA
believes that it has substantially reduced its potential internal exposure to
Year 2000 problems.

24

25

PIA will utilize internal resources to reprogram, or replace and test
the software for Year 2000 modifications. The total cost of the Year 2000
project is estimated at $67,000 and is being funded through operating cash
flows. Of the total project cost, approximately $6,000 was expensed in the
fiscal year 1998 and the remaining $61,000 will be expensed in 1999. It is not
expected that these costs will have a material effect on the results of
operations.

The extent and magnitude of the Year 2000 problem as it will affect PIA
externally, both before and after January 1, 2000, is difficult to predict or
quantify for a number of reasons. These include the lack of control over systems
that are used by third parties that are critical to PIA's operation, the
complexity of testing inter-connected networks and applications that depend on
third party networks. If any of these third parties experience Year 2000
problems, it could have a material adverse effect on PIA. Due to the nature of
its business, however, PIA does not believe that its operations are dependent on
third party systems. Furthermore PIA believes that manual processes
could be implemented if certain systems failed to function properly.

PIA is not currently aware of any material operational issues associated
with preparing its internal systems for the Year 2000, or the adequacy of
critical third party systems. PIA has not developed a contingency plan in case
it does not achieve Year 2000 compliance on or before December 31, 1999. The
results of its evaluation and assessment efforts do not indicate a need for
contingency planning. PIA intends to continue assessing its Year 2000
compliance, implementing compliance plans and communicating with third parties
about their Year 2000 compliance. If PIA's continued efforts indicate that
contingency planning is prudent, PIA will undertake appropriate planning at that
time.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to market risk related to changes in interest
rates. A discussion of the Company's accounting policies for financial
instruments and further disclosures relating to financial instruments is
included in the Summary of Significant Accounting Policies in the Notes to
Consolidated Financial Statements. The Company's monitors the risks associated
with interest rates and financial instrument positions.

The Company's revenue derived from international operations is not
material and, therefore, the risk related to foreign currency exchange rates is
not material.

INVESTMENT PORTFOLIO

The Company has no derivative financial instruments or derivative
commodity instruments in its cash and cash equivalents and investments. The
Company invests its cash and cash equivalents and investments in high-quality
and highly liquid investments consisting of taxable money market instruments,
corporate bonds and some tax-exempt securities. The average yields on the
Company's investments in fiscal 1998 resulted primarily from investments and
averaged approximately 4.9%. As of January 1, 1999, PIA's cash and cash
equivalents and investments consisted primarily of taxable money market
instruments, corporate and tax-exempt securities with maturities of less than
one year with an average yield of approximately 3.7%.

DEBT

The Company's debt is comprised of a line of credit with Mellon Bank
N.A. and requires monthly interest payments based on a variable interest rate
applied to the outstanding loan balance. If there were a 1% change in the
interest rate based upon, the Company's minimum borrowing requirement of
$2,000,000, interest expense would increase or decrease by $20,000 per annum.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See Item 14 of this Annual Report on Form 10-K/A.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

25

26
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

Set forth in the table below is certain information concerning incumbent
directors and the nominees for election as directors of PIA. Ages are shown as
of March 1, 1999. All of the incumbent directors are also nominees for the
election as directors at PIA's 1999 Annual Meeting of Stockholders. Each nominee
has consented to being named in this Form 10-K/A as a nominee for director and
has agreed to serve as a director if elected. None of the nominees has any
family relationship to any other nominee or to any executive officer of PIA. No
arrangement or understanding exists between any nominee and any other person or
persons pursuant to which any nominee was or is to be selected as a director or
nominee other than with respect to Mr. Owens who has a contractual right to be
nominated as a director as long as he holds at least 250,000 shares of PIA
Common Stock. Mr. Owens has indicated that he will waive his contractual right
to be nominated to the PIA Board if the merger (the "Merger") with SPAR Group is
consummated. In connection with the consummation of the Merger, each of the
nominees other than Messrs. Collins and Lewis has agreed to resign from the PIA
Board, and Messrs. Collins and Lewis will fill three of the five remaining
vacancies with the following persons designated by SPAR Group: Robert G. Brown
(SPAR Group's Chairman, Chief Executive Officer and President), William H.
Bartels (SPAR Group's Vice Chairman, Senior Vice President and Treasurer) and
Robert O. Aders.

NAME                            Age                     Position with PIA
- --------------------------     ------       -----------------------------------------------

Terry R. Peets                  54          Chief Executive Officer, President and Director
Patrick W. Collins(1)           70          Director
John A. Colwell                 48          Director
Joseph H. Coulombe(2)           68          Director
Patrick C. Haden(1)(2)          46          Director
J. Christopher Lewis            42          Director
Clinton E. Owens                57          Chairman of the Board and Director

- ----------

(1)  Member of the Compensation Committee.

(2)  Member of the Audit Committee.

Set forth below is a brief description of the business experience for the
previous five years of all nominees for directors of PIA.

Mr. Peets joined PIA in August 1997 as Chief Executive Officer, President
and Director. Mr. Peets served as Executive Vice President of The Vons
Companies, Inc. from 1995 to April 1997. Prior to joining Vons, Mr. Peets served
in various sales, marketing and operation roles as Senior Vice President for
Ralphs Grocery Company from 1977 to 1994, until he was named Executive Vice
President in 1994. Mr. Peets also serves as a director of Supermarkets Online, a
division of Catalina Marketing Corporation, a provider of in-store electronic
marketing services and Diamond Brands, Inc., a manufacturer and marketer of
branded household products.

Mr. Collins has been a member of the PIA Board since May 1998. Mr. Collins
served as Chief Operating Officer of Ralphs Grocery Company for 18 years, 17 of
which he served as President and one year as Vice Chairman. Mr. Collins also
serves as a director of Catalina Marketing Corporation, a provider of in-store
electronic marketing services, and New Bristol Farms, Inc., a gourmet food
grocery chain.

26

27

Mr. Colwell has been a member of the PIA Board since March 1991, and
currently serves as a consultant to PIA. From February 1997 through August 1997,
Mr. Colwell served as interim Vice Chairman of the Board. Mr. Colwell is sole
proprietor of a consulting and interim management firm bearing his name, and
President of Facility Development Corporation. Since 1991, Mr. Colwell has
served as a Managing Director of Lineberger & Co., a private equity investment
firm. From November 1991 through February 1997, Mr. Colwell was Senior Vice
President of River City Plastics, Inc., a manufacturer of polyvinyl chloride
pipe.

Mr. Coulombe has been a member of the PIA Board since May 1993. Mr.
Coulombe is the founder and former Chief Executive Officer of Trader Joe's, a
specialty food grocery chain. Mr. Coulombe sold Trader Joe's in 1979 and
remained the Chief Executive Officer of Trader Joe's until January 1989. From
February 1995 to April 1995, Mr. Coulombe served as President and Chief
Executive Officer of Sport Chalet, and served as a director of Sport Chalet from
February 1993 to June 1994. From February 1994 to January 1995, Mr. Coulombe
served as Chief Executive Officer of Provigo Corp., the Northern California
subsidiary of Provigo Inc., of Montreal. From June 1992 to January 1994, Mr.
Coulombe served as a member of the Board of Directors of Imperial Bank, a
subsidiary of Imperial Bancorp. Mr. Coulombe also serves as a director of Cost
Plus World Market, a home furnishings store chain, and New Bristol Farms, Inc.,
a gourmet food grocery chain.

Mr. Haden became a member of the PIA Board in August 1988 in connection
with PIA's acquisition. Since 1987, Mr. Haden has been a general partner of
Riordan, Lewis & Haden (RLH), equity investors in California-based enterprises.
RLH's portfolio interests emphasize high growth middle market companies,
especially those in the value added service sector. Mr. Haden also serves as a
director of Tetra Tech, Inc., an environmental engineering and consulting firm,
Data Processing Resources Corporation, a provider of information technology
specialty staffing services, and several privately-held companies.

Mr. Lewis has been a member of the PIA Board since April 1997. Since 1981,
Mr. Lewis has been a general partner of Riordan, Lewis & Haden. Mr. Lewis also
serves as a director of Tetra Tech, Inc., Data Processing Resources Corporation,
SM&A Corporation, California Beach Restaurants, Inc., an owner and operator of
restaurants, and several privately-held companies.

Mr. Owens has been Chairman of PIA since August 1988 and served as Chief
Executive Officer of PIA from August 1988 to August 1997. Mr. Owens has over 30
years experience in the merchandising services and packaged goods industries.
Mr. Owens previously has served as Senior Vice President of Sales and Marketing
of Coca Cola Foods, and has also served in various management positions with RJR
Foods and Procter & Gamble, among others.

DIRECTOR MEETINGS AND COMMITTEES

During fiscal 1998, the PIA Board held nine meetings and took various
actions by written consent. Each incumbent director attended at least 75% of the
aggregate of (i) the total number of meetings held by the PIA Board during
fiscal 1998 and (ii) the total number of meetings held by all committees of the
PIA Board during that period within which he was a Director or member of such
committee of the PIA Board.

The standing committees of the PIA Board are the Audit Committee (the
"Audit Committee") and the Compensation Committee (the "Compensation
Committee"). The Audit Committee held two meetings and the Compensation
Committee held one meeting during fiscal 1998. PIA does not have a standing
nominating committee or any committee performing the functions thereof.

The Audit Committee presently consists of Messrs. Haden and Coulombe. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants; reviews with the independent public accountants the plans
for and scope of the audit, reviews the results of the audit; approves the
professional services provided by the independent public accountants; reviews
the independence of the public accountants; and reviews the adequacy and
effectiveness of PIA's internal accounting control.

27

28

The Compensation Committee presently consists of Messrs. Haden and Collins.
The Compensation Committee determines compensation for PIA's executive officers
and administers PIA's stock incentive plans.

EXECUTIVE OFFICERS

Set forth in the table below are the names, ages and positions of the
current executive officers of PIA. Ages are shown as of March 1, 1999. Executive
officers are elected by and serve at the discretion of the PIA Board. None of
the executive officers has any family relationship to any nominee for director
or to any other executive officer of PIA.

NAME                       Age                          Position with PIA
- --------------------      -----        ---------------------------------------------------------------

Clinton E. Owens           57          Chairman of the Board and Director
Terry R. Peets             54          Chief Executive Officer, President and Director
Cathy L. Wood              51          Executive Vice President, Chief Financial Officer and Secretary
Donald H. Holman           42          Executive Vice President-- Marketing and Sales
John R. Bain               52          Executive Vice President-- Operations
Mark J. Hallsman           44          Senior Vice President-- Field Logistics and Operations Planning

Set forth below is a brief description of the business experience for the
previous five years of all current executive officers of PIA except Messrs.
Peets and Owens whose business experience has been previously described. In
connection with the consummation of the Merger, each of the above executive
officers has agreed to resign other than Ms. Wood who will remain in her current
position and Mr. Peets who will become Vice Chairman of PIA. If the Merger is
consummated, the other executive officers of PIA will be as follows: Mr. Brown,
Chairman, Chief Executive Officer and President, Mr. Bartels, Vice Chairman and
James R. Ross, Treasurer.

Ms. Wood joined PIA in August 1997 as Executive Vice President, Chief
Financial Officer and Secretary. Ms. Wood served as Vice President and Chief
Financial Officer of Giant Group Ltd., a NYSE listed company specializing in
acquisitions, from 1995 to 1997. From 1989 to 1995, Ms. Wood served in various
capacities at Wherehouse Entertainment, Inc. prior to being named Senior Vice
President and Chief Financial Officer in 1993. From 1972 to 1989, Ms. Wood
served in various credit and lending positions at Mellon Bank, N.A., including
from 1982 to 1989, Vice President of Consumer Products and Retail Credit
Analysis.

Mr. Holman joined PIA in June 1992 and has served as Executive Vice
President of Marketing and Sales since August 1998. From June 1996 to August
1998, Mr. Holman served as PIA's Vice President of Sales. From January 1995 to
June 1996, Mr. Holman served as PIA's Vice President of Business Development and
from June 1992 to December 1994, Mr. Holman served as PIA's Vice President
Division Manager.

Mr. Bain joined PIA in November 1997 as Senior Vice President of Operations
and became Executive Vice President of Operations in August 1998. Mr. Bain
served as Executive Vice President of Shasta Beverages in the Western Division
from October 1995 to November 1997. Before joining Shasta Beverages, Mr. Bain
served as Vice President of Sales and Marketing for Casablanca Food Company, and
Divisional Vice President for Continental Baking Company, from 1992 to 1994.

Mr. Hallsman joined PIA in August 1993 and has served as Senior Vice
President of Field Logistics and Operations Planning since August 1998. From
December 1995 to August 1998, Mr. Hallsman served as PIA's Senior Vice President
of Human Resources and from August 1993 to December 1995, Mr. Hallsman served as
Vice President of Human Resources. From September 1985 to August 1993, Mr.
Hallsman served as Director, Human Resources of Con-Way Western Express, a
provider of short-haul trucking services.

28

29

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5s were
required for those persons, PIA believes that its Insiders complied with all
applicable Section 16(a) filing requirements for fiscal 1998, with the exception
of Messrs. Bain, Colwell, Haden, Holman, Lewis, Owens and Peets and Ms. Wood,
each of which filed a late Form 5 reporting one transaction and Mr. Coulombe who
filed a late Form 5 reporting two transactions.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth all compensation received for services
rendered to PIA in all capacities for the three fiscal years ended January 1,
1999 by (i) PIA's Chief Executive Officer during fiscal 1998, and (ii) each of
the other four most highly compensated executive officers of PIA who were
serving as executive officers at the end of fiscal 1998 (collectively, the
"Named Executive Officers"):

SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION
ANNUAL COMPENSATION          AWARDS
-------------------------    -------------
SECURITIES        ALL OTHER
FISCAL                                    UNDERLYING       COMPENSATION
NAME AND PRINCIPAL  POSITIONS                               YEAR       SALARY ($)(1)    BONUS ($)     OPTIONS (#)         ($)(2)
- -------------------------------------------------         --------    --------------  ------------  -------------     ------------

Terry R. Peets                                              1998        $  253,894     $      --         35,000        $   7,667
President and Chief Executive Officer                     1997           111,757            --        250,000           10,675
1996                --            --             --               --

Clinton E. Owens                                            1998           340,833            --             --           13,442
Chairman of the Board                                    1997           400,000            --             --           34,557
1996           400,000        50,000             --           36,820

Cathy L. Wood                                               1998           202,366            --         65,000               --
Executive Vice President, Chief                           1997            96,692            --        100,000               --
Financial Officer and Secretary                       1996                --            --             --               --

John R. Bain                                                1998           160,625            --         45,000            2,463
Executive Vice President-- Operations                     1997            18,750            --         25,000               --
1996                --            --             --               --

Donald H. Holman                                            1998           168,317            --         52,500            2,966
Executive Vice President-- Marketing and Sales            1997           120,118            --         15,000            2,434
1996           107,056         9,000         10,000            2,174

- --------

(1)  For the year ended December 31, 1996, includes $109,500 and $4,347 deferred
at the election of Messrs. Owens and Holman, respectively; for the year
ended December 31, 1997, includes $2,500, $95,833 and $4,867, deferred at
the election of Messrs. Peets, Owens and Holman, respectively; and for the
year ended January 1, 1999, includes $10,000, $8,802, $9,850 and $5,933,
deferred at the election of Messrs. Peets, Owens, Bain and Holman,
respectively; pursuant

29

30

to PIA's 401(k) Plan and Deferred Compensation Arrangement. See "--
Compensation Plans -- 401(k) Plan" and "-- Deferred Compensation
Arrangement."

(2)  Consists of contributions to the 401(k) Plan made by PIA on behalf of each
of Messrs. Peets, Owens, Bain and Holman, respectively. Also includes an
aggregate of $4,236 and $2,630 in insurance premiums paid by PIA on behalf
of Mr. Peets during the years ended December 31, 1997 and January 1, 1999,
respectively, for certain life insurance and disability insurance policies
of which Mr. Peets is the sole beneficiary. Also includes an aggregate of
$29,820, $14,891 and $9,145 in insurance premiums paid by PIA on behalf of
Mr. Owens during the years ended December 31, 1996, December 31, 1997 and
January 1, 1999, respectively, for certain life and disability insurance
policies of which Mr. Owens is the sole beneficiary.

EMPLOYMENT AGREEMENTS, SEVERANCE ARRANGEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

Mr. Peets entered into an at will employment agreement with PIA on June 25,
1997. Such agreement is terminable by PIA at any time, subject to, among other
things, severance payments as provided in the employment agreement. From June
25, 1997 through August 9, 1997, Mr. Peets received a salary of $1,200 per day
and from August 10, 1997 to August 9, 1998 he received a salary of $20,834 per
month. Mr. Peets' employment agreement was amended on October 1, 1998 whereby
effective August 10, 1998, Mr. Peets receives a salary of $21,459 per month,
subject to annual review by the PIA Board for possible increases, with a minimum
increase tied to the Los Angeles-Long Beach-Anaheim consumer price index. Mr.
Peets is also entitled to a yearly bonus of up to 100% of his base salary based
upon PIA achieving certain operating results. PIA's obligation to pay a
pro-rated bonus to Mr. Peets upon an acquisition event (such term, as defined in
his employment agreement, includes the consummation of the Merger) is contingent
on PIA achieving certain operating results prior to such event. It is currently
anticipated that no bonus will be payable to Mr. Peets in connection with the
consummation of the Merger. The employment agreement also provides for payment
of Mr. Peets' salary for 18 months if PIA terminates his employment without
cause (as defined in his employment agreement) during the two year period
following a material corporate event (which term, as defined in his employment
agreement, includes the consummation of the Merger) or if Mr. Peets terminates
his employment for material reason (as defined in his employment agreement)
within one year following such event. His employment agreement further provides
that the vesting schedule for Mr. Peets' unvested options (222,500 at January 1,
1999) be accelerated by two years upon the occurrence of an acquisition event.
Mr. Peets' employment agreement was amended further to provide that his consent
to certain actions taken by PIA following the Merger, including the change in
Mr. Peets' title, will not require him to waive his right to resign for material
reason, nor will he be deemed to have waived such right.

Mr. Owens entered into an agreement with PIA on August 10, 1998 that
settles all differences arising out of or relating to Mr. Owen's employment with
PIA. Pursuant to the agreement, Mr. Owens resigned as an employee of PIA and all
its subsidiaries effective November 10, 1998 but continues to serve as Chairman
of the Board and a director of PIA. The agreement provides, among other things,
for severance payments of $37,500 per month for a period of nine months
following the date of his resignation as an employee. In addition, under the
terms of the agreement, Mr. Owens has the right to be nominated to serve on the
PIA Board as long as he holds at least 250,000 shares of PIA Common Stock. Mr.
Owens has indicated that he will waive this right in connection with the Merger.

Ms. Wood entered into a severance agreement with PIA on February 20, 1998
which was amended and restated on October 1, 1998. Ms. Wood or PIA may terminate
the agreement at any time. The agreement provides, among other things, for
payment of Ms. Wood's salary for 18 months if PIA terminates her employment
without cause (as defined in Ms. Wood's severance agreement) during the two year
period following a change of control (such term, as defined in her severance
agreement, includes the consummation of the Merger) or if Ms. Wood terminates
her employment for good reason (as defined in her severance agreement) within
one year following such event. The agreement further provides that the vesting
schedule for her unvested stock options (140,000 at January 1, 1999) shall be
accelerated by two years upon the occurrence of a change of control of PIA
(which includes the Merger). Ms. Wood's agreement was further amended to provide
that her consent to certain actions by PIA following the Merger will not require
her to waive her right to resign for good reason, nor will she be deemed to have
waived such right.

30

31

PIA currently has no written employment or severance contracts with any of
the Named Executive Officers other than as described above.

Messrs. Bain, Holman and Hallsman are entitled to receive severance
payments pursuant to PIA's severance policy. Messrs. Bain and Holman will
receive their salary for 12 months and Mr. Hallsman will receive his salary for
nine months if they are terminated without cause within two years following a
material corporate event (such term, as defined by the PIA Board, includes the
consummation of the Merger). In addition, pursuant to action taken by the PIA
Board, all of the unvested options held by each executive officer of PIA will be
automatically vested in full if such executive officer is terminated without
cause within two years following a material corporate event. The vesting
schedule for such options will be accelerated by two years upon the occurrence
of an acquisition event (such term, as defined by the PIA Board, includes the
consummation of the Merger).

STOCK OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding each grant of stock
options made during the year ended January 1, 1999 to each of the Named
Executive Officers. No stock appreciation rights ("SARs") were granted during
such period to such persons.

INDIVIDUAL GRANTS (1)
-----------------------------------------------------------------
NUMBER OF       PERCENT OF                                          POTENTIAL REALIZABLE VALUE AT
SECURITIES     TOTAL OPTIONS                                         ASSUMED ANNUAL RATES OF STOCK
UNDERLYING       GRANTED TO                                         PRICE APPRECIATION FOR OPTION(2)
OPTIONS       EMPLOYEES IN      EXERCISE         EXPIRATION      ---------------------------------
NAME                        GRANTED (#)      PERIOD (%)     PRICE ($/SH)          DATE               5% ($)           10% ($)
- -----------------------   --------------  ---------------  --------------    --------------    ---------------    --------------

Terry R. Peets                35,000           10.2            4.500           09/21/08             99,051          251,014
Clinton E. Owens                  --             --               --                 --                 --               --
Cathy L. Wood                 50,000           14.5            5.870           08/02/08            168,765          428,068
15,000            4.4            4.500           09/21/08             42,450          107,578
John R. Bain                  10,000            2.9            4.875           04/07/08             30,659           77,695
35,000           10.2            6.250           08/12/08            137,571          348,631
Donald H. Holman              10,000            2.9            4.875           04/07/08             30,659           77,695
32,500            9.4            6.250           08/12/08            127,744          323,729
10,000            2.9            4.000           10/28/08             25,156           63,750

- ----------

(1)  All such options vest over four year periods at an annual rate of 25%
beginning on the first anniversary of the date of grant. Notwithstanding
the foregoing, the vesting schedule for all such options will accelerate by
two years upon the occurrence of an acquisition event (such as the Merger)
and all such options will be fully vested for any officer who is terminated
without cause within two years following an acquisition event.

(2)  The potential realizable value is calculated based on the term of the
option (ten years) 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.

31

32

AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

The following table sets forth the number and value of the exercisable and
unexercisable options held by each of the Named Executive Officers at January 1,
1999. None of the Named Executive Officers exercised any options during the
fiscal year ended January 1, 1999.

NUMBER OF SECURITIES                  VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED                 IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END (#)            FISCAL YEAR-END ($)(1)
-------------------------------------    ---------------------------------

NAME                                  EXERCISABLE            UNEXERCISABLE    EXERCISABLE         UNEXERCISABLE
- -----------------------              --------------          -------------    -----------         -------------

Terry R. Peets                           62,500                 222,500            0                     0
Clinton E. Owens                        227,026                      --            0                     0
Cathy L. Wood                            25,000                 140,000            0                     0
John R. Bain                              6,250                  63,750            0                     0
Donald H. Holman                         11,182                  68,750            0                     0

- ---------

(1)  All options held by PIA Named Executive Officers were out of the money at
January 1, 1999. As of the year ended January 1, 1999 the fair market value
of PIA Common Stock (as reported by the Nasdaq National Market) was $2.50
which was less than the exercise price of the outstanding options.

COMPENSATION PLANS

1990 Stock Option Plan. In June 1990, PIA adopted a stock incentive plan
(as amended, the "1990 Option Plan"), covering 810,811 shares of PIA Common
Stock that may be granted to certain employees and directors to help them to
acquire shares of PIA Common Stock and thereby benefit directly from PIA's
growth, development and financial success. As of January 1, 1999, there were
393,031 options outstanding under the 1990 Option Plan at a weighted average
exercise price of $6.11 per share, and 95,814 shares of PIA Common Stock had
been issued upon exercise of options at a weighted average price of $5.10 per
share. In December 1995, the PIA Board determined that no further option grants
would be made under the 1990 Option Plan.

The 1990 Option Plan is administered by PIA's Compensation Committee.
Officers, key employees, consultants and directors of PIA and its subsidiaries
are eligible to receive grants under the 1990 Option Plan. Stock options granted
under the 1990 Option Plan are priced at no less than 85% of the fair market
value of the PIA Common Stock on the date of the grant.

1995 Option Plan. In December 1995, PIA adopted the 1995 Option Plan. The
1995 Option Plan currently covers 1,300,000 shares of PIA Common Stock that may
be granted to certain employees, directors, consultants and other persons
providing valuable services to PIA. In connection with the consummation of the
Merger, PIA will increase the number of shares under the 1995 Option Plan to
3,500,000. As of January 1, 1999, there were 1,016,254 options outstanding under
the 1995 Option Plan at a weighted average exercise price of $5.69 per share,
and 2,000 shares of PIA Common Stock had been issued upon exercise of options at
a weighted average price of $9.87 per share.

The 1995 Option Plan is administered by PIA's Compensation Committee.
Officers, certain directors, key employees and consultants of PIA and its
subsidiaries are eligible to receive grants under the 1995 Option Plan. In
February 1999, PIA approved the amendment and restatement of the 1995 Option
Plan to provide that, among other things, grants may also be made to other
persons providing valuable services to PIA. Stock options granted under the 1995
Option Plan are priced at not less than the fair market value of the PIA Common
Stock on the date of grant.

32

33

Special Purpose Stock Option Plan. In February 1999, PIA adopted the
Special Purpose Stock Option Plan (the "Special Plan") to provide solely for the
issuance of PIA options ("Substitute Options") to holders of SPAR Group options
in exchange for such SPAR Group options in connection with the Merger. The
Special Plan is administered by the PIA Board. All available options to acquire
stock under the Special Plan will be granted at the effective time of the Merger
and no further Substitute Options may be granted under the Special Plan.

Employee Stock Purchase Plan. On February 17, 1997, PIA adopted an Employee
Stock Purchase Plan ("ESP Plan"). The ESP Plan allows employees of PIA to
purchase PIA Common Stock at a discount, without having to pay any commissions
on the purchases. The maximum amount that any employee can contribute to the ESP
Plan per quarter is $6,250, and the total number of shares which are reserved by
PIA for purchase under the ESP Plan is 200,000. As of January 1, 1999, 12,290
shares of PIA Common Stock had been issued at a weighted average price of $3.69
per share.

401(k) Plan. The PIA Savings and Retirement 401(k) Plan (the "401(k) Plan")
covers all PIA employees that do not participate in the pension plans described
below. An employee may elect to defer, in the form of Company contributions to
the 401(k) Plan on his or her behalf, up to 15% of the total compensation that
would otherwise be paid to the employee, not to exceed the amount allowed by
applicable IRS guidelines. In addition, PIA makes matching contributions to the
401(k) Plan each year equal to 50% of the participant's elective contributions
(not to exceed 4% of the total compensation) for such year, and may also make
additional contributions to the 401(k) Plan for one or more plan years to be
allocated to eligible participants in proportion to their total compensation
(including deferred salary contributions) for the year. Contributions are
allocated to each employee's individual account and are invested in a variety of
mutual funds according to the directions of the employee. Employee contributions
are fully vested and non-forfeitable at all times. Company matching
contributions vest over five years.

Deferred Compensation Arrangement. The Deferred Compensation Arrangement
(the "DCA") permits a certain group of highly compensated employees who are
designated by the PIA Board to defer the receipt of some or all of their
compensation until a subsequent year. Participants are not subject to income tax
on the amount of their contributions to the DCA ("Deferrals"), but those amounts
are subject to federal employment taxes. PIA will generally make matching
contributions on behalf of the contributions made by participants to the DCA and
participants will gain a vested interest in the matching contributions, to the
same extent as under the 401(k) Plan. Participants always have a fully vested
right to their Deferrals. Although no amounts are set aside by PIA to pay the
benefits under the DCA, a trust has been established to "informally" fund the
benefits under the DCA. Participants can direct the manner in which the amounts
held on their behalf under the DCA are invested. Although the DCA is not a
tax-qualified retirement plan, under certain circumstances, a participant's
Deferrals may be transferred to the 401(k) Plan. A participant's benefit under
the DCA will be paid in either a lump sum or in installments, as elected by the
participant.

Exec-U-Care Plan. Under the Exec-U-Care Plan (the "Exec-U-Care Plan"), PIA
provides the Chairman and certain other officers of PIA up to $100,000
supplemental medical coverage in addition to the standard medical coverage
generally offered to such persons by PIA. The Exec-U-Care Plan requires that the
employees covered thereunder have a primary medical insurance plan which meets
certain minimum standards of coverage; the Exec-U-Care Plan then covers the
deductible and certain other expenses not paid for by the basic medical
insurance plan.

Pension Plans. Certain of PIA's employees are covered by union-sponsored,
collectively bargained, multi-employer pension plans. PIA has no current
intention of withdrawing from any of these plans.

Incentive Compensation Plan. PIA has established its Incentive Compensation
Plan (the "Incentive Plan") for the compensation of its employees and
executives. All payments under the Incentive Plan are contingent on PIA
achieving its corporate profit goals, PIA's operating divisions achieving their
profit goals, the employee achieving his/her expected performance level, and
approval by the PIA Board.

33

34

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee was at any time during the year
ended January 1, 1999 or at any other time an officer or employee of PIA. No
executive officer of PIA serves as a member of the PIA Board or compensation
committee of any other entity, which has one or more executive officers serving
as a member of the PIA Board or Compensation Committee.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

PIA's Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a company will not be personally liable for monetary damages for breach of
their fiduciary duties as directors, except for liability (i) for any breach of
their duty of loyalty to the company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. Pursuant to the merger agreement governing the Merger
of SPAR Group and PIA (the "Merger Agreement"), if the Merger is consummated,
SPAR and PIA have agreed not to amend such provisions limiting personal
liability in PIA's charter documents for six years following the Merger.

PIA's bylaws provide that PIA may indemnify its officers, directors,
employees and other agents to the fullest extent permitted by law. Pursuant to
the Merger Agreement, if the Merger is consummated, PIA and SPAR Group have
agreed to indemnify to the fullest extent permitted by law (i) each of the seven
nominees for director of PIA, (ii) each person who has served as a director of
PIA prior to February 28, 1999, and (iii) each officer holding a title of Senior
Vice President or higher with PIA, PIA Co. or any of PIA Co.'s subsidiaries as
of February 28, 1999 for six years following the consummation of the Merger.
PIA's bylaws also permit it to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the bylaws would permit
indemnification. PIA currently maintains such insurance and PIA and SPAR Group
have also agreed to maintain PIA's current directors' and officers' liability
insurance for PIA as in effect on the closing date of the Merger for six years
following the Merger.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of PIA in which indemnification will be
required or permitted. PIA is not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.

DIRECTOR COMPENSATION

During the year ended January 1, 1999, PIA paid to Messrs. Coulombe and
Edwin Epstein, a former director, an aggregate of $10,500 and $15,750,
respectively, for services as members of the PIA Board and as consultants, and
also reimbursed Messrs. Coulombe and Epstein for certain expenses in connection
with their attendance at PIA Board and committee meetings. Messrs. Haden and
Lewis received no compensation for their services as directors (other than the
grant of options as described in the following paragraphs). Commencing April 1,
1998, Mr. Colwell receives an annual salary of $50,000 for consulting services.
Mr. Colwell is also entitled to receive a success fee in the event certain
transactions (approximately $150,000 in connection with the Merger) are
completed by PIA. Prior to April 1, 1998, Mr. Colwell received a monthly salary
of $16,667 for his services as a director. During fiscal 1998, PIA paid Mr.
Colwell an aggregate of $120,790 for his services as a member of the PIA Board
and consultant, and also reimbursed Mr. Colwell for certain expenses in
connection with his attendance at PIA Board meetings. In addition, beginning in
April 1998, Messrs. Collins and Coulombe receive a $3,000 fee for regular
meetings (up to a maximum of four meetings) and a $500 fee for special meetings
(including telephonic meetings). Mr. Collins deferred receipt of his
compensation until January 1999.

34

35

Under the 1995 Option Plan, on April 8, 1998, PIA granted Messrs. Collins
and Coulombe an option to purchase 10,000 shares and 4,000 shares, respectively,
of PIA Common Stock at an exercise price of $4.875 per share. Such options vest
over four years at an annual rate of 25% beginning on the first anniversary of
the date of grant, provided that such option will automatically vest in full
upon the consummation of the Merger or another acquisition event as described in
the following paragraph.

1995 Stock Option Plan for Nonemployee Directors. PIA adopted its 1995
Stock Option Plan for Nonemployee Directors in December 1995 (the "Nonemployee
Directors Plan"), covering 100,000 shares of PIA Common Stock. Under the
Nonemployee Directors Plan, each of Messrs. Coulombe, Haden and Lewis was
granted an option to purchase 1,500 shares of PIA Common Stock at an exercise
price of $5.32 per share that became fully exercisable on May 12, 1998. Messrs.
Colwell, Coulombe, Haden and Lewis were each granted an option to purchase 1,500
shares of PIA Common Stock at an exercise price of $5.125 per share on May 12,
1998, that will become fully exercisable on the date of PIA's 1999 Annual
Meeting of Stockholders if they are reelected as a director. Notwithstanding the
foregoing, pursuant to action taken by the PIA Board in February 1999, all
options granted to nonemployee directors will automatically vest in full upon
the occurrence of an acquisition event (such term, as defined by the PIA Board,
includes the consummation of the Merger).

PIA's Compensation Committee administers the Nonemployee Directors Plan.
Each member of the PIA Board who is not otherwise an employee or officer of PIA
or any subsidiary of PIA (each, an "Eligible Director") is eligible to
participate in the Nonemployee Directors Plan. Directors who are consultants of,
but not otherwise employees or officers of, PIA are Eligible Directors.

Under the Nonemployee Directors Plan, an option to purchase 1,500 shares of
PIA Common Stock is granted to each Eligible Director immediately following each
annual meeting of stockholders of PIA. Each option vests and becomes exercisable
in full at the next annual meeting of stockholders, provided that the optionee
is reelected as a director of PIA. The maximum term of options granted under the
Nonemployee Directors Plan is ten years and one day, subject to earlier
termination following an optionee's cessation of service with PIA. The exercise
price of stock options granted under the Nonemployee Directors Plan will be the
fair market value of the PIA Common Stock on the date of grant.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial
ownership of the PIA Common Stock as of March 1, 1999 by: (i) each person (or
group of affiliated persons) who is known by PIA to own beneficially more than
5% of PIA Common Stock; (ii) each of PIA's directors; (iii) each of the Named
Executive Officers; and (iv) PIA's directors and 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 PIA Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
The proposed Merger with SPAR Group will, if consummated, result in a change in
control of PIA.

NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER                               BENEFICIALLY OWNED    PERCENTAGE
- -------------------------------------------                        ------------------    ---------

Riordan, Lewis & Haden (1)                                           1,637,151(2)         29.7%
300 S.  Grand Avenue, 29th Floor
Los Angeles, California  90071

Clinton E. Owens (3)                                                   615,802(4)         11.0

35

36

NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER                               BENEFICIALLY OWNED    PERCENTAGE
- -------------------------------------------                        ------------------    ---------

Heartland Advisors, Inc.                                             1,423,800(5)         26.0
790 North Milwaukee Street
Milwaukee, Wisconsin  53202

California Community Foundation                                        480,872(6)          8.7
606 S.  Olive Street, Suite 2400
Los Angeles, California  90014

Terry R. Peets (3)                                                     102,500(7)          2.0

Cathy L. Wood (3)                                                       26,000(8)           *

Donald H. Holman (3)                                                    18,594(9)           *

John R. Bain (3)                                                         8,750(10)          *

Patrick W. Collins (3)                                                   2,500(11)          *

John A. Colwell (3)                                                     67,011(12)         1.2

Joseph H. Coulombe (3)                                                  18,310(13)          *

Patrick C. Haden                                                     1,641,151(14)        29.8
300 S.  Grand Avenue, 29th Floor
Los Angeles, California  90071

J. Christopher Lewis                                                 1,641,151(15)        29.8
300 S.  Grand Avenue, 29th Floor
Los Angeles, California  90071

All directors and executive officers as a group (11                  2,531,899            43.3%
persons)

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

*   Less than 1%.

(1)  Shares are owned by RVM/PIA, a California limited partnership managed by
Riordan, Lewis & Haden ("RLH").

(2)  Includes 29,729 shares issuable upon exercise of certain warrants to
purchase PIA Common Stock owned by RLH.

(3)  The address of such persons is c/o PIA Merchandising Services, Inc., 19900
MacArthur Boulevard, Suite 900, Irvine, California 92718.

(4)  Includes 498,394 shares held by Clinton E. and Mary Ann Owens as Trustees
of The Owens Family Trust dated June 20, 1994, 9,300 shares held by Clinton
E. Owens as Trustee of the Welch Trust for Marcia

36

37

Browning and 108,108 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, March 1,
1999.

(5)  All information regarding share ownership is taken from and furnished in
reliance upon the Schedule 13G (Amendment No. 4), dated January 28, 1999,
filed by Heartland Advisors, Inc. with the Securities and Exchange
Commission on February 2, 1999.

(6)  All information regarding share ownership is taken from and furnished in
reliance upon Schedule 13G (Amendment No. 2), dated February 12, 1999,
filed by California Community Foundation with the Securities and Exchange
Commission on February 12, 1999. Includes 66,666 shares issuable upon
exercise of a warrant to purchase PIA Common Stock.

(7)  Includes 62,500 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, March 1,
1999.

(8)  Includes 25,000 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, March 1,
1999.

(9)  Includes 17,432 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, March 1,
1999.

(10) Includes 8,750 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, March 1,
1999.

(11) Includes 2,500 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, March 1,
1999.

(12) Includes 64,206 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, March 1,
1999.

(13) Includes 6,905 shares held by Joseph H. Coulombe as Trustee of The Coulombe
Family Trust dated July 26, 1980 and 11,405 shares issuable upon the
exercise of options which are exercisable as of, or will become exercisable
within 60 days of, March 1, 1999.

(14) Includes 1,637,151 shares (including 29,729 shares issuable upon exercise
of warrants) owned by RLH. Mr. Haden, a director of PIA, may be deemed to
share voting and investment power with respect to all such shares as a
general partner of RLH. No other person, other than J. Christopher Lewis, a
director of PIA, has voting power or investment power with respect to such
shares. Also includes 4,000 shares issuable upon the exercise of options
held by Mr. Haden which are exercisable as of, or will become exercisable
within 60 days of, March 1, 1999.

(15) Includes 1,637,151 shares (including 29,729 shares issuable upon exercise
of warrants) owned by RLH. Mr. Lewis, a director of PIA, may be deemed to
share voting and investment power with respect to all such shares as a
general partner of RLH. No other person, other than Patrick C. Haden, a
director of PIA, has voting power or investment power with respect to such
shares. Also includes 4,000 shares issuable upon the exercise of options
held by Mr. Lewis which are exercisable as of, or will become exercisable
within 60 days of, March 1, 1999.

Immediately following the Merger and assuming full exercise of all
Substitute Options, the holders of SPAR Group stock and the holders of
Substitute Options (assuming full exercise thereof) will hold an aggregate of

37

38

approximately 69.3% of PIA Common Stock then outstanding and the holders of PIA
Common Stock immediately prior to the Merger will hold approximately 30.7% of
the PIA Common Stock then outstanding.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

38

39

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)   1. INDEX TO FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT:

Independent Auditors' Report                                                 F-1

Consolidated Balance Sheets as of December 31, 1997 and January 1, 1999      F-2

Consolidated Statements of Operations for the three years
in the period ended January 1, 1999                                      F-4

Consolidated Statements of Stockholders' Equity for the three years
in the period ended January 1, 1999                                      F-5

Consolidated Statements of Cash Flows for the three years in the period
ended January 1, 1999                                                    F-6

Notes to Consolidated Financial Statements for the three years
in the period ended January 1, 1999                                      F-8

2. FINANCIAL STATEMENT SCHEDULES.

Schedule II - Valuation and Qualifying Accounts for the three years in
the period ended January 1, 1999                                         F-25

3. EXHIBITS.

EXHIBIT
NUMBER         DESCRIPTION
- ------         -----------

3.1     Certificate of Incorporation of PIA (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 on
December 14, 1995 (the "Form S-1")

3.2     By-laws of PIA (incorporated by reference to the Form S-1).

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-Bankverein
(incorporated by reference to the Form S-1).

10.1     1990 Stock Option Plan (incorporated by reference to the Form S-1).

10.2     Amended and Restated 1995 Stock Option Plan (incorporated by reference
of Exhibit 10.2 to the Company's Form 10-Q for the 2nd Quarter ended
July 3, 1998).

10.3     1995 Stock Option Plan for Non-employee Directors (incorporated by
reference to the Form S-1).

10.4+*   Employment Agreement dated as of June 25, 1997 between PIA and Terry R.
Peets (incorporated by reference to Exhibit 10.5 to the Company's Form
10-Q for the 2nd Quarter ended June 30, 1997)

10.5+*   Severance Agreement dated as of February 20, 1998 between PIA and Cathy
L. Wood (incorporated by reference to Exhibit 10.5 to the Company's
Form 10-Q for the 1st Quarter ended April 30, 1998) 

39

40

EXHIBIT
NUMBER             DESCRIPTION
- ------             -----------

10.6*    Severance Agreement dated as of August 10, 1998 between PIA and Clinton
E. Owens (incorporated by reference to Exhibit 10.6 to the Company's
Form 10-Q for the 3rd Quarter ended October 2, 1998).

10.7+*   Amendment No. 1 to Employment Agreement dated as of October 1, 1998
between PIA and Terry R. Peets.

10.8+*   Amended and Restated Severance Compensation Agreement dated as of
October 1, 1998 between PIA and Cathy L. Wood.

10.9+    Loan and Security Agreement dated December 7, 1998 among Mellon Bank,
N.A., PIA Merchandising Co., Inc., Pacific Indoor Display Co. and PIA.

10.10+   Agreement and Plan of Merger dated as of February 28, 1999 among PIA,
S.G. Acquisition, Inc., PIA Merchandising Co., Inc., SPAR Acquisition,
In., SPAR Marketing, Inc., SPAR Marketing Force, Inc., SPAR, Inc.,
SPAR/Burgoyne Retail Services, Inc., SPAR Incentive Marketing, Inc.,
SPAR MCI Performance Group, Inc. and SPAR Trademarks, Inc.

10.11+   Voting Agreement dated as of February 28, 1999 among PIA, Clinton E.
Owens, RVM/PIA, California limited partnership, Robert G. Brown and
William H. Bartels.

21.1     Subsidiaries of the Company (incorporated by reference to the Form
S-1).

23.1+    Consent of Deloitte & Touche LLP.

27.1+    Financial Data Schedule.

+   Previously filed with initial Form 10-K for the fiscal year ended 
January 1, 1999.

*   Management contract or compensatory plan or arrangement required to be 
filed as an exhibit pursuant to applicable rules of the Securities and 
Exchange Commission.

(b) REPORTS ON FORM 8-K.

None

40

41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1943, the Registrant has duly caused this amendment to the
report to be signed on its behalf by the undersigned, thereunto duly authorized.

PIA MERCHANDISING SERVICES, INC.

By: /s/ Terry R. Peets
-------------------------------
Terry R. Peets
President, Chief Executive Officer and Director

Date:      April 30 , 1999
-------------------------------

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                                    DATE       
- ---------                    -----                                    ----       

/s/ Clinton E. Owens         Chairman of the Board                April 30, 1999
- -------------------------                                                          
Clinton E. Owens                                                               

/s/ Terry R. Peets           President, Chief Executive           April 30, 1999
- -------------------------    Officer and Director                 
Terry R. Peets                                      

/s/ Cathy L. Wood            Executive Vice President,            April 30, 1999
- -------------------------    Chief Financial Officer and            
Cathy L. Wood            Secretary (Principal Financial
and Accounting Officer)                               

/s/ Patrick C. Haden         Director                             April 30, 1999
- -------------------------                                                          
Patrick C. Haden                                                               

/s/ J. Christopher Lewis     Director                             April 30, 1999
- -------------------------
J. Christopher Lewis

41

42
PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

PAGE
----

INDEPENDENT AUDITORS' REPORT                                                 F-1

FINANCIAL STATEMENTS:

Consolidated balance sheets as of December 31, 1997 and January 1, 1999      F-2

Consolidated statements of operations for each of the three years
in the period ended January 1, 1999                                       F-4

Consolidated statements of stockholders' equity for each
of the three years in the period ended January 1, 1999                    F-5

Consolidated statements of cash flows for each of the three years
in the period ended January 1, 1999                                       F-6

Notes to consolidated financial statements for each of the three years

in the period ended January 1, 1999                                       F-8

Schedule II - Valuation and qualifying accounts                              F-25

43

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
PIA Merchandising Services, Inc.:

We have audited the accompanying consolidated balance sheets of PIA
Merchandising Services, Inc. and subsidiaries (the Company) as of December 31,
1997 and January 1, 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended January 1, 1999. Our audits also included the financial statement schedule
listed in Item 14(a) 2. These consolidated financial statements and financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of PIA Merchandising
Services, Inc. and subsidiaries as of December 31, 1997 and January 1, 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended January 1, 1999 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

Deloitte & Touche LLP

Costa Mesa, California
February 18, 1999
(Except for Note 14, as to which the date is February 28, 1999)

F-1

44

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

DECEMBER 31,   JANUARY 1,
1997           1999
-----------    ----------

CURRENT ASSETS:
Cash and cash equivalents                              $   12,987     $  11,064
Accounts receivable, net (Note 3)                          16,053        11,222
Income tax refund receivable (Note 6)                       2,905            81
Prepaid expenses and other current assets                     816           712
----------     ---------

Total current assets                                   32,761        23,079

PROPERTY AND EQUIPMENT, net (Note 3)                        2,416         1,991

INVESTMENTS AND OTHER ASSETS:
Investment in affiliate (Note 4)                              418           553
Other assets                                                  872           431
----------     ---------

Total investments and other assets                      1,290           984
----------     ---------

Total assets                                       $   36,467     $  26,054
==========     =========

See notes to consolidated financial statements

F-2

45

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)

LIABILITIES AND STOCKHOLDERS' EQUITY

DECEMBER 31,      JANUARY 1,
1997             1999
------------      ----------

CURRENT LIABILITIES:
Accounts payable                                               $  3,442         $  1,194
Other current liabilities (Note 3)                               13,334            7,951
Income taxes payable (Note 6)                                        47               90
--------         --------

Total current liabilities                                    16,823            9,235

LINE OF CREDIT AND LONG-TERM LIABILITIES (Note 5)                   966            2,095

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS' EQUITY (Notes 10 and 11):
Preferred stock, $.01 par value;
3,000,000 shares authorized; none issued and 
outstanding Common stock, $.01 par value;
15,000,000 shares authorized; 5,392,558 and 
5,477,846 shares issued and
outstanding as of December 31, 1997
and January 1, 1999, respectively                                  59               60
Additional paid-in capital                                       33,429           33,740
Accumulated deficit                                             (11,806)         (16,072)
Less treasury stock at cost (507,000 shares at 
December 31, 1997 and January 1, 1999)                         (3,004)          (3,004)
--------         --------

Total stockholders' equity                                   18,678           14,724
--------         --------

Total liabilities and stockholders' equity                 $ 36,467         $ 26,054
========         ========

See notes to consolidated financial statements

F-3

46

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEARS ENDED
----------------------------------------------- 
DECEMBER 31,      DECEMBER 31,       JANUARY 1,
1996              1997               1999
------------      ------------       ---------- 

NET REVENUES (Note 13)                                        $ 119,940         $ 128,208         $ 121,788

OPERATING EXPENSES:
Field service costs                                              94,841           119,830           105,448
Selling expenses                                                 11,133            10,482             8,245
General and administrative expenses (Notes 7, 8 and 9)            8,081            10,234            11,788
Restructuring and other charges (Note 2)                                            5,420
Depreciation and amortization                                       595               997             1,129
---------         ---------         ---------

Total operating expenses                                    114,650           146,963           126,610
---------         ---------         ---------

OPERATING INCOME (LOSS)                                           5,290           (18,755)           (4,822)

OTHER INCOME:
Interest expense                                                    (46)                                (25)
Interest income                                                     869               799               487
Equity in earnings of affiliate (Note 4)                             72                96               149
---------         ---------         ---------

Total other income                                             895               895               611
---------         ---------         ---------

INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES                                                6,185           (17,860)           (4,211)

INCOME TAX PROVISION (BENEFIT) (Note 6)                           2,426            (2,761)               55
---------         ---------         ---------

NET INCOME (LOSS)                                             $   3,759         $ (15,099)        $  (4,266)
=========         =========         =========

BASIC EARNINGS (LOSS) PER SHARE (Note 12)                     $    0.70         $   (2.72)        $   (0.78)
=========         =========         =========

DILUTED EARNINGS (LOSS) PER SHARE (Note 12)                   $    0.63         $   (2.72)        $   (0.78)
=========         =========         =========

WEIGHTED AVERAGE COMMON SHARES - BASIC                            5,370             5,551             5,439
=========         =========         =========

WEIGHTED AVERAGE COMMON SHARES - DILUTED                          5,990             5,551             5,439
=========         =========         =========

See notes to consolidated financial statements

F-4

47

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

Years ended December 31, 1996 and 1997 and January 1, 1999

RETAINED
COMMON STOCK            TREASURY STOCK        ADDITIONAL   EARNINGS      TOTAL
---------------------     --------------------      PAID-IN  (ACCUMULATED STOCKHOLDERS'
SHARES       AMOUNT       SHARES      AMOUNT       CAPITAL    DEFICIT)      EQUITY
--------     --------     --------    --------    ---------  ------------ -------------

BALANCE, January 1, 1996                       3,564     $  6,454           --    $     --     $     --    $   (466)    $  5,988

Change in stated par value of
shares from no par to $.01                               (6,418)                                6,418                         
Stock issued to the public                     2,138           21                                26,499                   26,520
Stock options exercised                           58            1                                   334                      335
Tax benefit related to exercise of stock
options                                                                                           116                      116
Cashless exercise of warrants (Note 11)          131                                                                            
Net income                                                                                                    3,759        3,759
--------     --------     --------    --------     --------    --------     --------
BALANCE, December 31, 1996                     5,891           58                                33,367       3,293       36,718

Stock options exercised                            9            1                                    62                       63
Repurchase of common stock                      (507)                      507      (3,004)                               (3,004)
Net loss                                                                                                    (15,099)     (15,099)
--------     --------     --------    --------     --------    --------     --------
BALANCE, December 31, 1997                     5,393           59          507      (3,004)      33,429     (11,806)      18,678

Stock options exercised                           30                                                 88                       88
Employee stock purchases                          12                                                 45                       45
Shares issued as bonus (Note 10)                  43            1                                   178                      179
Net loss                                                                                                     (4,266)      (4,266)
--------     --------     --------    --------     --------    --------     --------
BALANCE, January 1, 1999                       5,478     $     60          507    $ (3,004)    $ 33,740    $(16,072)    $ 14,724
========     ========     ========    ========     ========    ========     ========

See notes to consolidated financial statements

F-5

48

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEARS ENDED
--------------------------------------------
DECEMBER 31,     DECEMBER 31,     JANUARY 1,
1996             1997             1999
------------    -------------     ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                             $  3,759         $(15,099)        $ (4,266)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization                                    595              997            1,129
Equity in earnings of affiliate                                  (72)             (96)            (149)
Deferred income taxes, net                                      (167)             360
Provision for doubtful receivables and other, net                105              918             (270)
Restructuring and other charges (Note 2)                                        5,420
Changes in assets and liabilities:
Accounts receivable                                        (10,522)           5,659            5,101
Income tax refund receivable                                                   (2,905)           2,824
Prepaid expenses and other current assets                       74             (252)             104
Other assets                                                   213             (744)             441
Accounts payable                                            (1,066)           2,670           (2,248)
Other current liabilities                                    5,657              173           (5,204)
Income taxes payable                                          (228)             (64)              43
Other liabilities                                                               131             (871)
--------         --------         --------
Net cash used in operating activities                     (1,652)          (2,832)          (3,366)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment                               (332)            (759)            (516)
Capitalization of software development costs                    (1,987)                             (174)
Investment in affiliate                                           (150)
--------         --------         --------

Net cash used in investing activities                     (2,469)            (759)            (690)

See notes to consolidated financial statements

F-6

49

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)

YEARS ENDED
---------------------------------------------
DECEMBER 31,    DECEMBER 31,       JANUARY 1,
1996             1997             1999
------------    ------------       ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt                             $ (3,400)        $     --         $     --
Proceeds from long-term debt                                                                          2,000
Proceeds from issuance of common stock to the public               26,520
Proceeds from issuance of common stock                                335               63              133
Repurchase of common stock                                                          (3,004)
--------         --------         --------
Net cash provided by(used in) financing activities           23,455           (2,941)           2,133
--------         --------         --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS                                                 19,334           (6,532)          (1,923)

CASH AND CASH EQUIVALENTS, beginning of period                        185           19,519           12,987
--------         --------         --------
CASH AND CASH EQUIVALENTS, end of period                         $ 19,519         $ 12,987         $ 11,064
========         ========         ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION - Cash paid (refunded) during the year for:
Interest                                                       $     69         $     --         $     25
========         ========         ========
Income taxes                                                   $  2,853         $    129         $ (2,753)
========         ========         ========

See Notes 10 and 11 to consolidated financial statements for description of
noncash transactions.

See notes to consolidated financial statements

F-7

50

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company Description - PIA Merchandising Services, Inc. and subsidiaries
("Company") provides in-store merchandising services primarily on behalf
of branded product manufacturers at retail grocery stores, mass
merchandisers, drug stores and discount drug stores. The Company's
in-store services include checking for authorized distribution of client
products, cutting in products approved for distribution but not present on
the shelf, setting category shelves in accordance with approved store
schematics, ensuring shelf tags are in place, checking for the overall
salability of clients' products, and performing new product and promotion
selling. The Company also performs special in-store projects, such as new
store sets and existing store resets, remerchandisings, remodels and
category implementations, and executes and maintains point of purchase
displays and materials. In addition, the Company collects and provides to
certain clients a variety of merchandising data that is category and
store-specific. The Company is also a supplier of regularly scheduled,
shared merchandising services in the United States. The Company's
management has evaluated the allocation of resources in assessing
performance and determined the Company operates in three operating
segments, dedicated services, shared services, and project services (Note
13).

Principles of Consolidation - The consolidated financial statements
include the accounts of PIA Merchandising Services, Inc. and its wholly
owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. The equity method of accounting is
used for the Company's investment in affiliate (Note 4).

Cash Equivalents - The Company considers all highly liquid short-term
investments with original maturities of three months or less to be cash
equivalents.

Accounts Receivable and Credit Risk - During the ordinary course of the
Company's business, the Company grants trade credit to its clients, which
consist primarily of packaged goods manufacturers and retailers. The
Company's ten largest clients generated approximately 57.0%, 69.0% and
75.0% of the Company's net revenues for the fiscal years ended December
31, 1996, December 31, 1997 and January 1, 1999, respectively.

During the fiscal year ended January 1, 1999, three of the Company's
clients accounted for 15.6%, 12.6% and 10.6% of the Company's net
revenues. During 1997, two clients accounted for 16.0% and 13.6% of the
Company's net revenues. Given the significant amount of net revenues
derived from certain clients, collectibility issues arising from financial
difficulties of any of these clients or the loss of any such clients could
have a material adverse effect on the Company's business. Unbilled
accounts receivable represent merchandising services performed that are
pending billing until the requisite documents have been processed or
projects have been completed (Note 3).

Property and Equipment - Property and equipment are stated at cost and
depreciated on the straight-line method over estimated useful lives,
ranging from three to seven years. Leasehold improvements are amortized
over the estimated useful life of the asset or the term of the lease,
whichever is shorter.

F-8

51

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

The Company has chosen to early adopt Statement of Position ("SOP") No. 98
-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use as of January 1, 1998. The SOP provides guidance in
accounting for the costs of computer software developed or obtained for
internal use. The effects of the adoption of the SOP have been reflected
in the 1998 consolidated financial statements and are not material.

Other Assets - Other assets consist primarily of refundable deposits.

Deferred Revenue - Client payments received in advance of merchandising
services performed are classified as deferred revenue (Note 3).

Amounts Held on Behalf of Third Parties - Amounts held on behalf of third
parties arise from agreements with retailers to provide services for their
private label manufacturers' products and represent amounts to be utilized
for certain future services including merchandising-related expenditures
on behalf of the retailers (Note 3). These agreements renew annually and
are cancelable on December 31 of each year or upon ninety-day written
notice by either party.

Revenue Recognition - The Company's services are provided under various
types of contracts, which consist primarily of fixed fee and
commission-based arrangements. Under fixed fee arrangements, revenues are
recognized monthly based on a fixed fee per month over a service period of
typically one year, as defined in the contract.

The Company's commission-based contracts provide for commissions to be
earned based on a specified percentage of the client's net sales of
certain products to designated retail chains. In conjunction with these
commission arrangements, the Company receives draws on a monthly basis,
which are to be applied against commissions earned. These draws
approximate estimated minimum revenue to be earned on the contract and are
recognized on a monthly basis, over a service period of typically
one-year. The Company recognizes adjustments on commission-based sales in
the period such amounts become determinable. Commissions are usually owed
to the Company in excess of draws received.

The Company also performs services on a specific project basis. Revenues
related to these projects are recognized as services are performed or
costs are incurred. Certain of the Company's contracts are to perform
project work over a specified period ranging from one to twelve months.
Revenue under these types of contracts is recognized essentially on the
percentage of completion method. Provisions for estimated losses on
uncompleted contracts are recorded in the period in which such losses are
determinable.

Field Service Costs - Field service costs are comprised principally of
field labor and related costs and expenses required to provide shared
services, project activities, key account management and related
technology costs, as well as field overhead required to support the
activities of these groups of employees.

F-9

52

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

Accounting for Stock-Based Compensation - Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, requires disclosure of 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 transactions under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees. The Company has disclosed in Note 11 to the
consolidated financial statements pro forma diluted net income (loss) and
net income (loss) per share as if the Company had applied the fair value
method of accounting.

Income Taxes - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between
the basis of assets and liabilities for financial and tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which 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 financial reporting bases and tax bases of the
Company's assets and liabilities result in deferred tax assets, an
evaluation of the probability of being able to realize the future benefits
indicated by such asset is required. 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.

Comprehensive Income - The Company has adopted SFAS No. 130, Reporting
Comprehensive Income. For the years ended January 1, 1999, December 31,
1997 and December 31, 1996, the Company has no reported differences
between net income (loss) and comprehensive income (loss). Therefore,
statements of comprehensive income (loss) have not been presented.

Earnings Per Share - The Company has adopted SFAS No. 128, Earnings per
Share, which replaces the presentation of "Primary" earnings per share
with "Basic" earnings per share and the presentation of "Fully Diluted"
earnings per share with "Diluted" earnings per share. Prior periods have
been restated to reflect the change in presentation.

Basic earnings per share amounts are based upon the weighted-average
number of common shares outstanding. Diluted earnings per share amounts
are based upon the weighted-average number of common and potential common
shares for each period presented. Potential common shares include stock
options, using the treasury stock method.

Vendor Concentration - In addition to the Company's own employees, the
Company utilizes a force of trained merchandisers employed by a
third-party payrolling company engaged principally in the performance of
retailer-mandated and project activities. For the fiscal years ended
December 31, 1996, December 31, 1997 and January 1, 1999, the Company
paid this payrolling company approximately $31,145,000, $38,936,000 and
$32,213,000, respectively (Note 3).

F-10

53

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles 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
these estimates.

Fair Value of Financial Instruments - The Company's consolidated balance
sheets include the following financial instruments: cash and cash
equivalents, accounts receivable, accounts payable and long term debt. 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 carrying amounts of long-term debt approximate fair value
because the obligation bears interest at a floating rate.

Change in Fiscal Year - Effective January 1, 1998, the Company changed its
fiscal year end for financial statement purposes from a calendar year to a
52/53-week fiscal year. Beginning with fiscal year 1998, the Company's
fiscal year will end on the Friday closest to December 31. The years ended
December 31, 1997 and January 1, 1999 each consist of approximately 52
weeks. The Company does not believe that this change has a material impact
on the financial statements.

New Accounting Pronouncements - The Company has adopted SFAS No. 131.
Disclosure About Segments of an Enterprise and Related Information. In
accordance with SFAS No. 131, the Company has disclosed in Note 13 certain
information about the Company's products and major customers.

In June 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which the Company is required to adopt effective in its fiscal
year 2000. SFAS No. 133 will require the Company to record all derivatives
on the balance sheet at fair value. The Company does not currently engage
in hedging activities and will continue to evaluate the effect of adopting
SFAS No. 133. The Company is expected to adopt SFAS No. 133 in its fiscal
year 2000.

F-11

54

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

2.    RESTRUCTURING AND OTHER CHARGES

During 1997, the Company experienced declining gross margins and resultant
operating losses, due to service performance issues and the loss of several
shared clients. This decline in margins has resulted in insufficient margin
dollars to cover the overhead structure, which had developed at the field level
and in the general corporate area. In the quarter ended September 30, 1997, the
Company addressed these conditions by restructuring its operations, focusing on
a more disciplined and functional operational structure, and redirecting its
technology strategies, resulting in a $5,420,000 charge for restructuring and
other charges. The restructuring charges consist of $1,522,000 identified
severance of corporate and field employees and lease costs in various management
and administrative functions. The restructuring charges also include $2,121,000
in the write downs and accruals associated with the abandonment of certain
internally developed software and specialized computer equipment under long-term
operating leases due to a redirection of the Company's technology strategies
(Note 3). Other charges consisted primarily of $1,297,000 of reserves and write
offs related to unprofitable contracts, and $480,000 of costs associated with
changes in the Company's service delivery model. At January 1, 1999, $428,000 is
remaining in accrued liabilities in the accompanying consolidated balance sheet
consisting of $410,000 to specialized computer equipment under long-term
operating leases no longer in use and $18,000 to employee separation costs.

The following table displays a rollforward of the liabilities for restructuring
and other charges from December 31, 1996 to January 1, 1999 (in thousands):

INITIAL                        DECEMBER 31,                     JANUARY 1,
RESTRUCTURING         1997           1997            1998            1999
TYPE OF COST                         AND OTHER CHARGES   DEDUCTIONS       BALANCE        DEDUCTIONS       BALANCE
- ----------------------------------  ------------------- ------------   --------------   ------------    ------------

Employee Separation                     $ 1,372         $  (885)        $   487         $  (469)        $    18
Facility Closing                            150                            150             (150)
Technology writedown
and related operating leases          2,121          (1,086)          1,035            (625)            410
Unprofitable Contracts                    1,297            (797)            500            (500)
Other                                       480            (338)            142            (142)
-------         -------         -------         -------         -------
$ 5,420         $(3,106)        $ 2,314         $(1,886)        $   428
=======         =======         =======         =======         =======

Management believes that the remaining reserves for restructuring are adequate
to complete its plan.

F-12

55
PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

3.    SUPPLEMENTAL BALANCE SHEET INFORMATION

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

DECEMBER 31,      JANUARY 1,
1997             1999
------------      ----------

Trade                                            $ 15,411         $  9,511
Unbilled                                            2,034            2,358
Non-trade                                              59              174
--------         --------

17,504           12,043
Allowance for doubtful accounts and other          (1,451)            (821)
--------         --------

$ 16,053         $ 11,222
========         ========

Property and equipment, net, consist of the following (in thousands):

DECEMBER 31,      JANUARY 1,
1997             1999
------------      ----------

Equipment                                        $  3,680         $  3,873
Furniture and fixtures                                662              719
Leasehold improvements                                160              165
Capitalized software development costs                902            1,076
--------         --------

5,404            5,833
Less accumulated depreciation and amortization     (2,988)          (3,842)
--------         --------

$  2,416         $  1,991
========         ========

During 1997, the Company recorded certain restructuring charges (Note 2).
In connection with the restructuring, the Company recorded a charge of
approximately $1,000,000 for the impairment of capitalized software costs.

F-13

56
PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

Other current liabilities consist of the following (in thousands):

DECEMBER 31,    JANUARY 1,
1997           1999
------------    ----------

Accrued salaries and other related costs          $ 1,237        $ 1,123
Accrued payroll to third party                      2,847          1,557
Accrued medical and compensation insurance          1,456          1,906
Deferred revenue                                    1,039            426
Amounts held on behalf of third parties             1,116            641
Accrued rebate                                      2,200
Restructuring costs                                 1,475            428
Other                                               1,964          1,870
-------        -------
$13,334        $ 7,951
=======        =======

4.    INVESTMENT IN AFFILIATE

During 1996, the Company increased its voting ownership in Ameritel
Corporation, a full-service telemarketing company, to 20%. Accordingly,
the Company changed its method of carrying the investment from cost to
equity as required by generally accepted accounting principles. The change
in method was not material to the carrying value of the investment in the
accompanying financial statements.

Following is a summary of condensed unaudited financial information
pertaining to Ameritel Corporation (in thousands):

DECEMBER 31,    JANUARY 1, 
1997           1999    
------------    ---------- 

Current assets                                     $1,545         $2,816   
Noncurrent assets                                   1,252          3,786   
Current liabilities                                 1,443          1,827   
Long-term liabilities                                 128          2,803   
Stockholders' equity                                1,226          1,972   
Net income for the year                               523            746   

F-14

57

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

5.    LINE OF CREDIT

On December 10, 1998, the Company entered a long-term revolving line of
credit agreement a bank to provide an asset-based credit facility with
maximum borrowing up to $20.0 million. Under this agreement, the line is
to expire on December 7, 2001. All revolving credit loans bear interest at
the agent bank's prime rate plus 0.25 % (7.75% at January 1, 1999, or
8.0%), or the London Interbank Offered Rate ("LIBOR") plus 2.75% (5.06% at
January 1, 1999, or 7.81%) at the Company's option. As of January 1, 1999,
the outstanding balance on the line of credit was $2,000,000. The
Company's available borrowing is the sum of 80% of all eligible accounts
receivable, plus 100% of eligible cash collateral less outstanding
revolving credit loan.

Under the terms of the long-term debt agreement, the Company is subject to
certain financial covenants. Key covenants require the Company to maintain
a minimum current ratio, total liabilities to tangible net worth ratio,
tangible net worth, working capital, and net income. At January 1, 1999,
the Company complied with all such covenants. As of January 1, 1999,
available borrowings were $4,796,000.

6.    INCOME TAXES

The provision (benefit) for income taxes is summarized below for the years
ended December 31, 1996, December 31, 1997 and January 1, 1999 (in
thousands):

YEARS ENDED                 
------------------------------------------- 
DECEMBER 31,    DECEMBER 31,     JANUARY 1, 
1996            1997            1999     
------------    ------------     ---------- 

Current income taxes:                                                              
Federal                                $ 2,163         $(3,082)        $    --   
State                                      430             (19)             55   
-------         -------         -------   

2,593          (3,101)             55   
Deferred income taxes:                                                             
Federal                                   (135)         (2,846)         (1,554)  
State                                      (32)           (380)             (1)  
-------         -------         -------   

(167)         (3,226)         (1,555)  
Increase in valuation allowance                            3,566           1,555   
-------         -------         -------   

Provision (benefit) for income taxes     $ 2,426         $(2,761)        $    55   
=======         =======         =======   

F-15

58
PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

Reconciliation between the provision (benefit) for income taxes as
required by applying the federal statutory rate of 35% to that included in
the financial statements is as follows (in thousands):

YEARS ENDED
-------------------------------------------
DECEMBER 31,    DECEMBER 31,     JANUARY 1,
1996            1997            1999
------------    ------------     ----------

Provision (benefit) for income taxes at
federal statutory rate                          $ 2,165         $(6,251)        $(1,473)
State income taxes, net of federal benefit            259             (12)             14
Other permanent differences                           (31)
Change in valuation allowance                                       3,566           1,555
Other                                                  33             (64)            (41)
-------         -------         -------

Provision (benefit) for income taxes              $ 2,426         $(2,761)        $    55
=======         =======         =======

Deferred taxes consist of the following (in thousands):

DECEMBER 31,     JANUARY 1,
1997            1999
------------     ----------

Net operating loss carryforwards                                  $ 1,877         $ 3,880
State tax provision                                                  (270)           (146)
Accrued compensation                                                  131             229
Accrued insurance                                                     427             793
Allowance for doubtful accounts and other receivable                1,158             312
Depreciation                                                         (180)            (52)
Other                                                                 423             105
-------         -------

Deferred tax assets                                                 3,566           5,121
Valuation allowance                                                (3,566)         (5,121)
-------         -------

Net deferred taxes                                                $    --         $    --
=======         =======

At January 1, 1999, the Company has net operating loss carry forwards of
$10,688,000 available to reduce future federal taxable income and
$3,815,000 available to reduce future California State taxable income. The
Company has Federal and California net operating loss carry forwards which
begin expiring in the year 2012 and 2002, respectively. The Company has
established a full valuation allowance for the deferred tax assets due to
its continuing losses.

F-16

59

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

7.    EMPLOYEE BENEFITS

Pension Plans - Certain of the Company's employees are covered by
union-sponsored, collectively bargained, multi-employer pension plans.
Pension expense related to these plans was approximately $172,000,
$178,000 and $202,000 for the years ended December 31, 1996, December 31,
1997 and January 1, 1999, respectively. The administrators have advised
the Company that there were no withdrawal liabilities as of December 1990,
the most recent date for which an analysis was made. The Company has no
current intention of withdrawing from any of these plans.

Retirement Plan - The Company has a 401(k)-retirement plan covering all
employees not participating in the pension plans. Eligible employees, as
defined by the 401(k) plan, may elect to contribute up to 15% of their
total compensation; not to exceed the amount allowed by the Internal
Revenue Service code guidelines. The Company makes matching contributions
to the 401(k) plan each year equal to 50% of the employee contributions,
not to exceed 4% of the total compensation, and can also make
discretionary matching contributions. Employee contributions are fully
vested at all times, and the Company's matching contributions vest over
five years. The Company's matching contributions were approximately
$468,000, $506,000 and $471,000 for the years ended December 31, 1996,
December 31, 1997 and January 1, 1999, respectively.

8.    COMMITMENTS AND CONTINGENCIES

The Company leases its facilities under operating leases and leases
certain computer and office equipment under two- to five-year operating
lease agreements. Total rent expense relating to these leases was
approximately $2,756,000, $6,369,000 and $5,646,000 for the years ended
December 31, 1996, December 31, 1997 and January 1, 1999, respectively,
with sublease income of $101,000 in fiscal year 1998.

The following table sets forth future minimum lease payments under
noncancelable operating leases as of January 1, 1999 (in thousands):

Fiscal Year:
Rent    Sublease    Total
------   --------   ------

1999                                 $4,038    $ (261)   $3,777
2000                                  1,882               1,882
2001                                  1,238               1,238
2002                                    903                 903
2003                                    147                 147
------    ------    ------
Total future minimum lease payments  $8,208    $ (261)   $7,947
======    ======    ======

F-17

60

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

9.    RELATED-PARTY TRANSACTIONS

The Company receives legal services from a law firm previously affiliated
with its principal stockholder and paid approximately $516,000, $189,000
and $114,000 for such legal services during the years ended December 31,
1996, December 31, 1997 and January 1, 1999, respectively.

The Company has an investment in an affiliate, which provides
telemarketing and related services (Note 4). The Company paid
approximately $524,000 and $898,000 during the years ended December 31,
1997 and January 1, 1999, respectively. Approximately $50,000 was payable
to the affiliate at January 1, 1999.

10.   STOCK TRANSACTIONS AND WARRANTS

In March 1996, the Company completed an initial stock offering and sold
1,788,000 shares of its common stock, at a net price of $13.02 per share.
An additional 349,800 shares of common stock were sold also at a net
$13.02 per share, pursuant to an underwriters over-allotment provision.
The net proceeds of the approximately $26.5 million raised by the Company
were used, in part, to repay existing bank debt.

During the three fiscal years 1996, 1997 and 1998, the Company issued the
following shares of common stock, 57,798 shares, 8,107 shares, and 30,328
shares, respectively as a result of options that were exercised (Note 11).
The income tax effect of any difference between the market price of the
Company's common stock at the grant date and the market price at the
exercise date is credited to additional paid-in capital, as required.

On February 17, 1997, the Company adopted an Employee Stock Purchase Plan
("ESP Plan"). The ESP Plan allows employees of the Company to purchase
common stock at a discount, without having to pay any commissions on the
purchases. The discount is the greater of 15% of the fair market value
("FMV") at the end of the reportable period or the difference between the
FMV at the beginning and end of the reportable period. The maximum amount
that any employee can contribute to the ESP Plan per quarter is $6,250,
and the total number of shares reserved by the Company for purchase under
the ESP Plan is 200,000. During 1998, the Company issued 12,290 shares of
common stock, at a weighted average price of $3.69 per share.

In May 1998, the Company issued 42,670 shares of common stock to two
employees as compensation for services and recorded $179,000 of
compensation expense.

F-18

61

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

During February 1996, 100,000 warrants issued in conjunction with a 1992
line of credit for the purchase of 152,405 shares of common stock at $1.82
per share, were exercised through a cashless exercise, based on the
estimated fair market value of the Company's common stock, at the date of
exercise of $14.00, reduced the number of shares issued to 87,000. During
October 1996, the remaining warrants to purchase 52,405 shares of common
stock at $1.82 per share were exercised through a cashless exercise, based
on the estimated fair value of the Company's common stock at the date of
exercise of $12.75, reduced the number of shares issued to 44,924.

11.   STOCK OPTIONS

The Company has three stock option plans: the 1990 Stock Option Plan (1990
Plan), the 1995 Stock Option Plan (1995 Plan), and the 1995 Director's
Plan (Director's Plan).

The 1990 Plan is a nonqualified option plan providing for the issuance of
up to 810,811 shares of common stock to officers, directors and key
employees. The options have a term of 10 years and one week and are either
fully vested or will vest ratably no later than five years from the grant
date. During 1995, the Company elected to no longer grant options under
this plan.

The 1995 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 1,300,000 shares of the
Company's common stock. The options have a term of ten years, except in
the case of incentive stock options granted to greater than ten-percent
stockholders of the Company, for which 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; 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. At January 1, 1999, options to purchase 281,746 shares were
available for grant under this plan.

The Director's Plan is a stock option plan for nonemployee directors and
provides for the purchase of up to 100,000 shares of the Company's common
stock. An option to purchase 1,500 shares of the Company's common stock
shall be granted automatically each year to each director, following the
Company's annual stockholders' meeting. The exercise price of options
issued under this plan shall be not less than the fair market value of the
Company's common stock on the date of grant. Each option under this plan
shall vest and become exercisable in full on the first anniversary of its
grant date, provided the optionee is reelected as a director of the
Company. The maximum term of options granted under the plan is ten years
and one day, subject to earlier termination following an optionee's
cessation of service with the Company. At January 1, 1999, options to
purchase 89,500 shares were available for grant under this plan.

F-19

62
PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. No compensation cost has been
recognized for the stock option plans. The impact of stock options granted
prior to 1995 has been excluded from the pro forma calculation;
accordingly, the 1996, 1997 and 1998 pro forma adjustments may not be
indicative of future period pro forma adjustments, when the calculation
will apply to all applicable future stock options. Had compensation cost
for the Company's option plans been determined based on the fair value at
the grant date for awards in 1996, 1997 and 1998 consistent with the
provisions of SFAS No. 123, the Company's net income (loss) and net income
(loss) per share would have been reduced to the pro forma amounts
indicated below:

Years Ended
------------------------------------------------
DECEMBER 31,      DECEMBER 31,         JANUARY 1,
1996              1997               1999
------------      ------------        ----------

Net income (loss), as reported (in thousands)           $    3,759        $  (15,099)        $   (4,266)
Net income (loss), pro forma (in thousands)             $    3,564        $  (15,808)        $   (5,420)

Basic net income (loss) per share, as reported          $     0.70        $    (2.72)        $    (0.78)
Basic net income (loss) per share, pro forma            $     0.66        $    (2.85)        $    (1.00)

Diluted net income (loss) per share, as reported        $     0.63        $    (2.72)        $    (0.78)
Diluted net income (loss) per share, pro forma          $     0.60        $    (2.85)        $    (1.00)

The fair value of each option grant is estimated based on the date of
grant using the Black-Scholes option-pricing model, using the return on a
ten year treasury bill, with the following weighted-average assumptions
used for grants in 1998: dividend yield of 0%; expected volatility of
104.6%; risk-free interest rate of 4.7%; and expected lives of six years.
The following weighted-average assumptions were used for grants in 1997:
dividend yield of 0%; expected weighted-average volatility of 79.5%;
risk-free interest rate of 6.2%; and expected lives of six years. The
following assumptions were used for grants in 1996: dividend yield of 0%;
expected volatility of 101.7%; risk-free interest rate of 6.3%; and
expected lives of six years.

F-20

63

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

The following table summarizes activity under the Company's 1990 Plan,
1995 Plan and Directors' Plan:

YEARS ENDED                                            
-------------------------------------------------------------------------------------------------- 
DECEMBER 31,                       DECEMBER 31,                      JANUARY 1,           
1996                               1997                              1999              
----------------------------       ----------------------------       ---------------------------- 
WEIGHTED-                          WEIGHTED-                          WEIGHTED-  
AVERAGE                            AVERAGE                           AVERAGE    
EXERCISE                           EXERCISE                          EXERCISE   
SHARES            PRICE            SHARES            PRICE            SHARES            PRICE    
----------        ----------       ----------        ----------       ----------        ---------- 

Options                                                                                                                       
outstanding,                                                                                                                
beginning of year           791,356         $   6.76           883,202         $   8.12         1,526,851         $   6.10  
Options granted               234,540         $  13.57           938,325         $   5.55           350,500         $   5.49  
Options exercised             (57,798)        $   5.85            (8,107)        $   7.77           (30,328)        $   2.91  
Options canceled                                                                                                              
or expired                 (84,896)        $   9.25          (286,569)        $  10.45          (408,738)        $   6.51  
----------                         ----------                         ----------                   

Options                                                                                                                       
outstanding,                                                                                                                
end of year                 883,202         $   8.12         1,526,851         $   6.10         1,438,285         $   5.91  
==========                         ==========                         ==========                   
Option price                                                                                                                  
range at                                                                                                                    
end of year              $     2.78 to                      $     2.78 to                      $     2.78 to                
$    14.00                         $    14.00                         $    14.00                   

Option price                                                                                                                  
range for                $     2.78 to                      $     7.40 to                      $     2.78 to                
exercised shares         $     9.81                         $     8.51                         $     5.32                   

Weighted-average                                                                                                              
fair value of                                                                                                               
options granted                                                                                                             
during the year          $    11.18                         $     4.01                         $     5.49                   

F-21

64

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

The following table summarizes information about fixed-price stock options
outstanding at January 1, 1999:

OPTIONS OUTSTANDING                            OPTIONS EXERCISABLE
-------------------------------------------------        ------------------------------
WEIGHTED-
NUMBER             AVERAGE           WEIGHTED-           NUMBER            WEIGHTED-
RANGE OF            OUTSTANDING AT       REMAINING           AVERAGE         EXERCISABLE AT        AVERAGE
EXERCISE              JANUARY 1,        CONTRACTUAL          EXERCISE          JANUARY 1,          EXERCISE
PRICES                 1999               LIFE               PRICE              1999               PRICE
---------------         --------------      -----------         ---------        --------------       ---------

$2.78             129,729               3.17          $    2.78            129,729          $    2.78
$3.69-$6.25           1,005,119               8.91          $    5.51            208,537          $    5.55
$7.40-$9.81             263,302               5.09          $    7.75            261,275          $    7.74
$14.00              40,135               7.51          $   14.00             35,135          $   14.00
---------                                                ---------
$2.78 to $14.00           1,438,285               7.65          $    5.91            634,676          $    6.35
=========                                                =========        

Outstanding warrants are summarized below:

SHARES               EXERCISE
SUBJECT TO            PRICE PER
WARRANTS               SHARE
-----------          -------------

Balance, January 1, 1996             248,800           $1.82 - $8.51
Exercised                         (152,405)                  $1.82
--------

Balance, December 31, 1996            96,395           $2.78 - $8.51
--------

Balance, December 31, 1997            96,395           $2.78 - $8.51
--------

Balance, January 1, 1999              96,395           $2.78 - $8.51
========

The above warrants expire at various dates from 2002 through 2004.

F-22

65
PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

12.   EARNINGS PER SHARE

YEARS ENDED
------------------------------------------------
DECEMBER 31,      DECEMBER 31,        JANUARY 1,
1996              1997               1999
------------      ------------        ----------
(in thousands, except per share data)

Basic:
Weighted-average common shares outstanding             5,370             5,551              5,439

Net income (loss)                                     $  3,759          $(15,099)          $ (4,266)
========          ========           ========

Basic earnings per share                              $   0.70          $  (2.72)          $  (0.78)
========          ========           ========

Diluted:
Weighted-average common shares - basic                 5,370             5,551              5,439
Potential common shares                                  620
--------          --------           --------

Weighted-average common shares - diluted               5,990             5,551              5,439
========          ========           ========

Net income (loss)                                     $  3,759          $(15,099)          $ (4,266)
========          ========           ========

Diluted earnings per share                            $   0.63          $  (2.72)          $  (0.78)
========          ========           ========

F-23

66
PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JANUARY 1, 1999

13.   SEGMENTS

Utilizing the management approach, the Company has broken down its
business based upon the nature of services provided, i.e., dedicated,
shared service and project. The Company does not allocate operating
expenses to these segments, nor does it allocate specific assets to these
segments. Therefore, segment information reported in the following
includes only net revenues (in thousands):

BUSINESS SEGMENTS
--------------------------------------------------------------
DEDICATED      SHARED SERVICE       PROJECTS           TOTAL
--------       --------------       --------          --------

Fiscal year 1998
Net revenues            $ 38,766          $ 40,216          $ 42,806          $121,788
========          ========          ========          ========

Fiscal year 1997
Net revenues            $ 44,423          $ 44,932          $ 38,853          $128,208
========          ========          ========          ========

Fiscal year 1996
Net revenues            $ 21,894          $ 68,446          $ 29,600          $119,940
========          ========          ========          ========

During the years ended January 1, 1999, December 31, 1997 and December 31,
1996, sales to two major customers (three major customers for year ended
January 1, 1999) totaled $47.3 million, 38.0 million and $26.4 million,
respectively.

14.   SUBSEQUENT EVENT

On February 28, 1999, the Company signed a definitive agreement with the
SPAR Group to merge in a stock transaction involving the issuance of
approximately 12.3 million of PIA stock to the shareholders of the SPAR
Group. The transaction is subject to shareholder and regulatory approval.
After the merger, SPAR Group shareholders will own approximately 69% of
PIA Common Stock. The Companies expect to complete the transaction by May
1999.

F-24

67

EXHIBIT 11.1

PIA MERCHANDISING SERVICES, INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

ADDITIONS       WRITE OFFS
BALANCE AT      CHARGED TO          AND         BALANCE AT
BEGINNING      COSTS AND        ALLOWANCE         END
OF YEAR       EXPENSES(1)       CHARGES        OF YEAR
----------     ------------     -----------     ---------

DESCRIPTION

Year ended December 31, 1996 -
Allowance for doubtful accounts and other        $    424        $  105           $   54         $    583

Year ended December 31, 1997 -
Allowance for doubtful accounts and other        $    583        $  918           $  (50)        $  1,451

Year ended January 1, 1999 -
Allowance for doubtful accounts and other        $  1,451        $ (270)          $ (360)        $    821

(1)  Includes amounts charged to revenues for rebates, price adjustments and other.

F-25

68

EXHIBIT INDEX

EXHIBIT
NUMBER         DESCRIPTION
- ------         -----------

3.1     Certificate of Incorporation of PIA (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 on
December 14, 1995 (the "Form S-1")

3.2     By-laws of PIA (incorporated by reference to the Form S-1).

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-Bankverein
(incorporated by reference to the Form S-1).

10.1     1990 Stock Option Plan (incorporated by reference to the Form S-1).

10.2     Amended and Restated 1995 Stock Option Plan (incorporated by reference
of Exhibit 10.2 to the Company's Form 10-Q for the 2nd Quarter ended
July 3, 1998).

10.3     1995 Stock Option Plan for Non-employee Directors (incorporated by
reference to the Form S-1).

10.4+*   Employment Agreement dated as of June 25, 1997 between PIA and Terry R.
Peets (incorporated by reference to Exhibit 10.5 to the Company's Form
10-Q for the 2nd Quarter ended June 30, 1997)

10.5+*   Severance Agreement dated as of February 20, 1998 between PIA and Cathy
L. Wood (incorporated by reference to Exhibit 10.5 to the Company's
Form 10-Q for the 1st Quarter ended April 30, 1998) 

10.6*    Severance Agreement dated as of August 10, 1998 between PIA and Clinton
E. Owens (incorporated by reference to Exhibit 10.6 to the Company's
Form 10-Q for the 3rd Quarter ended October 2, 1998).

10.7+*   Amendment No. 1 to Employment Agreement dated as of October 1, 1998
between PIA and Terry R. Peets.

10.8+*   Amended and Restated Severance Compensation Agreement dated as of
October 1, 1998 between PIA and Cathy L. Wood.

10.9+    Loan and Security Agreement dated December 7, 1998 among Mellon Bank,
N.A., PIA Merchandising Co., Inc., Pacific Indoor Display Co. and PIA.

10.10+   Agreement and Plan of Merger dated as of February 28, 1999 among PIA,
S.G. Acquisition, Inc., PIA Merchandising Co., Inc., SPAR Acquisition,
In., SPAR Marketing, Inc., SPAR Marketing Force, Inc., SPAR, Inc.,
SPAR/Burgoyne Retail Services, Inc., SPAR Incentive Marketing, Inc.,
SPAR MCI Performance Group, Inc. and SPAR Trademarks, Inc.

10.11+   Voting Agreement dated as of February 28, 1999 among PIA, Clinton E.
Owens, RVM/PIA, California limited partnership, Robert G. Brown and
William H. Bartels.

21.1     Subsidiaries of the Company (incorporated by reference to the Form
S-1).

23.1+    Consent of Deloitte & Touche LLP.

27.1+    Financial Data Schedule.

+   Previously filed with initial Form 10-K for the fiscal year ended 
January 1, 1999.

*   Management contract or compensatory plan or arrangement required to be 
filed as an exhibit pursuant to applicable rules of the Securities and 
Exchange Commission.