Thomas Walsh - Alliance Advisors Gary Raymond - President and Chief Executive Officer James Segreto - Chief Financial Officer

Stuart Waldman - Waldman Stenstrom Investment Partners Les Sulewski - Sidoti & Company

Good morning, ladies and gentlemen. Welcome to the SPAR Group Incorporated second quarter 2013 update conference call. (Operator Instructions) I would now like to turn the conference over to our host, Mr. Thomas Walsh, of Alliance Advisors. Please go ahead, sir.

Thank you and good morning. I'd like to thank everyone for joining us today for the SPAR Group second quarter 2013 shareholder update conference call. Mr. Gary Raymond, Chief Executive Officer; and Mr. Jim Segreto, Chief Financial Officer of SPAR Group, will be your presenters on the call. Before we begin, I'm going to review the company's Safe Harbor statement. Statements in this conference call that are not descriptions of historical fact are forward-looking statements relating to future events, and as such, all forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially. When used in this conference call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions as they relate to SPAR Group, are such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by SPAR Group at this time. In addition, other risks are more fully described in SPAR Group's public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov. With that, out of the way, I'd now like to turn over the call to Mr. Gary Raymond, CEO of SPAR Group. Gary, please go ahead.

Thank you, Thomas, and thank you, everyone, for joining us today for our second quarter 2013 shareholder update call. Management is pleased with the company's double-digit topline financial growth and market growth that we achieved by our international division. However, SPAR's overall performance resulted in a quarterly loss, something that we have not endured in more than four years. The loss is directly attributed to the mixture of project work versus syndicated business in our domestic operation, which adversely affected our gross profit margin. Additionally, we incurred numerous one-time operational charges attributed to the acquisition of Market Force Information. While management is clearly frustrated by this rare negative result, we remain confident that our margins will improve during the second half of the year. This is due to our traditionally strong second half seasonality related to back-to-school and the holiday season. We expect to reach profitability once again for the remainder of 2013. Additionally, we have analyzed our year-to-date performance and completed the necessary steps to adjust our operating and corporate cost structure accordingly. These restructuring actions will drive efficiencies to further increase revenue and improve earnings throughout all of our business sectors. We have continued to maintain a healthy balance sheet, which will allow us to continue our global growth strategy. We will leverage our balance sheet to find accretive bolt-on acquisitions across both sides of our business. SPAR Group achieved numerous growth initiatives throughout the first half of 2013. First and foremost, we have successfully increased both our year-over-year revenue and overall gross profit for this six months period ending June 30, 2013. This growth is directly attributed to the continued success of our international division, which has increased the six months revenue by 34% and gross profit 11%. Organically, the international division grew by 17%, due in large part by expansion in several international locals such as South Africa, China, Mexico, India and Australia. These markets continue to deliver strong results since their addition to our platform and we are currently targeting acquisition candidates that fit the same criteria as these locations. On the domestic side, we integrated merchandising and certain audit services from Market Force Information. This business has expanded our existing client base, while providing an introduction into a new line of in-store audit services that are expected to generate annualize revenue in the range of $7 million to $8 million. This is a vital addition to our portfolio, as we believe these businesses will go a long way and strengthening our domestic operation by expanding our clientele across numerous retail outlets and increasing our overall service offering. Going forward, SPAR will remain committed to following our proven business model of acquiring and efficiently integrating profitable international subsidiaries, while organically growing domestic earnings via large-scale contracts as well as through other acquisition opportunities. Management is confident that improved seasonality, organic growth and SPAR's continued strategic acquisition model will continue to improve our financial results during the second half of this calendar year. I would now like to turn the call over to Jim Segreto, Chief Financial Officer, who will provide greater detail of our financial results.

Thank you, Gary. SPAR Group has completed numerous achievements during the first half of 2013. We have successfully targeted, acquired and integrated several new businesses, while simultaneously increasing revenue via organic growth amongst our previously established lines of business. Management remains optimistic that the second half seasonality will be even stronger results, as the retail markets traditionally experience the strongest quarters in the later half of the year. As for our most recent financial results, consolidated net revenue for the three and six month periods ended June 30, 2013, increased 18% to $28.7 million and 21% to $54.9 million respectively, when compared to the same periods in 2012. As Gary mentioned, the increases in net revenue were primarily due to strong performances from our subsidiaries in South Africa, India, China, Mexico and Australia. Continued growth in SPAR Group's domestic operation also contributed to the increase that was primarily due to the incremental revenue from the recent acquisition of general merchandising and in-store audit services from Market Force, and the September 2012 acquisition of National Merchandising Services, which was partially offset by decreases in syndicated services. Consolidated gross profit for the three and six month periods ended June 30, 2013, were consistent with the same periods last year. The company's gross profit margins were 24% and 23% for the three and six months period ended June 30, 2013 respectively as compared to 28% for the both periods in 2012. The gross profit margins domestically were 30% and 31% for the three and six month periods ended June 30, 2013 respectively as compared to 34% and 33% for the same periods in 2012. The decline in gross profit margins due primarily to an unfavorable mix of project work compared to syndicated work on a year-over-year basis. International gross profit margins were 20% and 19% for the three and six month periods ended June 30, 2013 respectively as compared to 22% and 23% for the same periods in 2012. The decrease in international gross margin percentages were primarily due to higher cost margin business in new markets of Turkey, India and Romania, and an unfavorable mix of business in our Japan and China markets. The company experienced net losses of $130,000 or $0.01 per diluted share and $87,000 for the three and six month periods ended June 30, 2013 compared to net income of $718,000 or $0.03 per diluted share and $1 million and $0.05 per diluted share for the same periods in 2012. While we are pleased with the overall performance by our international operations in the second quarter of 2013, we are disappointed by the decrease in net experienced in our domestic operation. And as mentioned earlier, we have already taken corrective actions that we believe will result in a return to profitability as we proceed through the second half of this year. As of June 30, 2013, our cash and cash equivalents were $3.1 million, working capital was $8.3 million and the company's current ratio was 1.5 to 1. The total current assets and total assets were $23.5 million and $30.2 million respectively and total current liabilities and total liabilities were $15.3 million and $15.4 million, respectively. Stockholders equity was $14.8 million as of June 30, 2013. I would now like to return the call back to Gary for closing remarks.

Thank you, Jim. As SPAR's continued expansion of revenue growth throughout the first half of 2013, continues to provide optimism to SPAR's management. We have continued to expand our geographic footprint while constantly strengthening our relationships with some of the world's largest retailers and consumer packaged goods manufacturers. The company has previously provided guidance of $115 million in revenue for 2013 and we continue to believe that this milestone will be achieved. The company's current project pipeline remains strong and we remain attentive in targeting and securing additional profitable acquisition candidate to take us into 2014 and beyond. In closing, management remains excited with the direction of the company and look forward to executing on the numerous opportunities that lay ahead during our typically strong second half of the year. On behalf of the entire team at SPAR Group, I would like to thank you all for joining us on today's call. We are now available to answer any questions for the participants on today's call.

(Operator Instructions) Our first question comes from the line of Stuart Waldman from Waldman Stenstrom Investment Partners. Stuart Waldman - Waldman Stenstrom Investment Partners: I wanted to touch on what the status is of moving away from the SMS and SMSI labor agreement and kind of moving towards more of the costs plus 2% deals out there?

You said in terms of moving away from it. Stuart Waldman - Waldman Stenstrom Investment Partners: I mean, I think obviously Mr. Brown and Bartels are owners of the SMS and SMSI companies now that are priced at costs plus 4%. And so we were kind of looking through the Q and looking for more of a trend away from those two companies, but projecting at pretty flat from quarter-to-quarter. And just wanted to understand, that's probably a $0.50 million a year. That seems like a pretty low-hanging fruit, so we just wanted to understand where you're at with those?

We are trying to utilize both of organizations in terms of the labor pool that we use. And I can't get into a too much detail on the call, but there are a lot of different types of work that we have out there in different buckets. I mean we always talk about it in terms of syndicated and project and so forth, but it actually gets a little bit more intricate in that, because as you know we do work on the assembly side of the business as well as those two pieces, of syndicated and project. So depending on the type of work that's there and what type of potential skill sets are needed, we will go to the labor pool that we believe offers the best way in terms of servicing client as well as looking at the cost. So I understand your question, when you get from 30,000 feet when you're looking at and you're like, okay, well that's an easy trend, just transition to just do, but it's not quite as easy when we're looking at the different components of what we need to do to effectively run our business. Stuart Waldman - Waldman Stenstrom Investment Partners: And then quick second question, so what specifically have you guys implemented. It looks like just in international markets, some are profitable, some are not. I guess, can you walk us through some of the couple of the less profitable or negative one, then kind of a what steps that you guys are taking place to meet those breakeven or profitable in the near term?

We usually don't disclose all the details of all them I know some of the information certainly in the Q. But I think in the last call that we did, we talked about we had I think three of the joint ventures were unprofitable last year. And I think I stated at the last one that and I have on the investor conferences, that I was hopeful that we would get that down to at least one for this year. As we go through the total year, I think that that probably is the case. I would like to get all of them to the point where they are at a minimum breakeven or certainly profitable. But that hasn't been the case at least for the quarter, but I'm actually pretty pleased with the kind of the direction and productivity right now that we're getting out of the majority of the JVs. It's partly influenced by getting some bigger quality programs that we're doing. The biggest one is being, South Africa clearly, Mexico certainly, as well as we're getting some very good improved performance from Australia. And some of the new contracts that we've gotten in places like India, in terms of our expansion. We're really positive on as well. So there are couple that are still straggling out there. And we want them to improve, but I'm pretty happy where the majority of them are today.

And our next question comes from the line of Matt Paul from Sidoti & Company. Les Sulewski - Sidoti & Company: This is actually, Les in for Matt Paul. Just a follow-up on the international side and was there any areas that you've seen that that you can penetrate up perhaps weren't there or you didn't foresee about a year ago?

Say that again. I'm not sure, I understood your question. Les Sulewski - Sidoti & Company: Essentially, what I wanted to know if there are any international areas that you can penetrate that you didn't foresee in the previous year?

As far as current market, is that what you're asking or new market? Les Sulewski - Sidoti & Company: New markets?

One of the things that we have talked about previously is the ability to expand into incremental markets. And I think we've touched on trying to go into South America, and our first venture was going to try to, go and do something in Brazil. I say right now that that expansion, at least into Brazil is on hold, not because we don't want to still do the expansion, but the companies that we were looking at performing a partnership with, doesn't seem like it's an appropriate deal for the parties right now. So we are not going forward with that specific company. But having said that, we are still interested in clearly expanding and we are looking at markets in South America not just in Brazil, but are also looking at some other incremental market like Chile and Columbia as potential expansion opportunities. Les Sulewski - Sidoti & Company: And then regarding the gross margin on the international side, what are you expecting for the second half of the year somewhere in a little bit of a high over the 20s range or any guidance on that?

Well we generally don't opt for guidance on it, but we're always hopeful that we are going to keep improving the margins. We don't talk a lot about the mix issues internationally. We always talk about it domestically. But by country, there are some mixes issues that we've got. There are some that are a little bit more profitable than other. So I know we've talked in the past about Mexico, when they were growing at rapid pace and becoming a larger percentage of our international revenue that it was actually hurting our margins last year. This year that it's flattened out there, but we've got other pieces. We've got some sizeable revenue opportunities that are popped in larger CPG companies and some of the startup cost and work for that have some influence in some of the contracts, when we look at the total mix of our business generally give us a little bit unfavorability on the gross margin line. But again it's nothing that's really troubling from our perspective. I mean we take a look at it and think that they're hopefully going to flattened out or potentially improve a little bit as we get further, and further along in this contract.

And I show no further questions. I would like to teleconference back over to Gary for any closing remarks.

Thank you, everyone. Thanks for participating on the call today. Certainly, as we mentioned earlier, we're very pleased with some of our topline growth, in some of our comments earlier. And we're looking forward to seeing improved profitability on the net income line as we go forward in the back half of this year as well as into 2014. So with that, again, thank you everybody for participating. And that we appreciate it. And anybody who has any follow-up calls or wants to talk individually, you're certainly welcome to do so going through Alliance Advisors. So again, thank you very much. And everybody have a great day.

Ladies and gentlemen, that does conclude the SPAR Group Incorporated second quarter 2013 update conference call. We appreciate your participation. And you may now disconnect.