Hello, and welcome to the Rocky Mountain Chocolate Factory Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Some of the statements made during this call may be considered forward-looking statements that involve a number of risks and uncertainties. There are several factors that could cause the actual results of Rocky Mountain Chocolate Factory to differ materially from those forward-looking statements. Those -- or these factors include, but are not limited to the potential need for additional financing; the availability of suitable locations for new stores and the availability of qualified franchisees to support new stores; customer acceptance of new products; dependence upon major customers; economic and consumer spending trends; and such other factors listed from time-to-time in public announcements and in Rocky Mountain Chocolate Factory’s SEC reports. In addition, please be advised that the financial results for the fiscal periods discussed, presented in this call, do not necessarily indicate the results that may be expected for any future quarters or the upcoming fiscal year. To Rocky Mountain Chocolate Factory’s knowledge, the information relayed in this conference call is correct as of the date of its transmission and the Company does not undertake any obligation to update this information in the future. I would now like to turn the conference over to Franklin Crail, CEO. Mr. Crail, please go ahead.

All right. Thank you, operator. Good afternoon, everyone, and thanks for attending Rocky Mountain Chocolate Factory’s third quarter of fiscal 2013 conference call. I’m Frank Crail, President of Rocky Mountain Chocolate Factory and with me here today is Mr. Bryan Merryman, the Company’s Chief Operating Officer. We're going to start the call this afternoon with Bryan giving you a summary of our operating results for both our third quarter and first 9 months of fiscal 2013. And at the conclusion of his presentation, we’ll be happy to answer any questions that you may have. So, at this point, I’ll turn the call over to Bryan.

Thanks, Frank. I would also like to welcome everybody to our call today. I’m going to start out with some highlights for the first 9 months of fiscal 2013. For the first 9 months of the year, we had solid revenue growth given the continued weak economic environment and tight credit markets. We purchased a 60% interest in U-Swirl, Inc., by acquiring and selling selected assets of Yogurtini International Inc., contributing certain assets of Aspen Leaf Yogurt, LLC and a small amount of cash. We believe these transactions will make U-Swirl a competitive profitable force in the self-serve frozen yogurt market; and operating losses from Aspen Leaf Yogurt by the end of the next quarter be accretive to earnings next fiscal year; and also create a roll-up vehicle for continued aggressive expansion in frozen yogurt; and also create numerous co-branding opportunities for Rocky Mountain Chocolate Factory. We also believe these transactions will provide a more competitive cost structure for all of the company’s franchisees. During the first 9 months of the year, we also executed a licensing agreement with one of the world’s largest consumer food products company to feature the Rocky Mountain Chocolate Factory brand on certain cereal products. The agreement also contains a first right of refusal on certain snack products. We believe this is a true milestone and demonstrates the strength of the Rocky Mountain Chocolate Factory brand. In the first 9 months, we also had slightly positive same-store sales. We executed a 100-unit master development agreement covering the country of Japan and opened our fifth unit at the end of November pursuant to the agreement. We also increased our quarterly dividend 10% to $0.11 per share. Pursuant to a share repurchase plan approved by the Board of Directors in 2008, we reserved -- or we resumed…

Okay. Thanks, Bryan. Right, at this time, we'll be happy to answer any questions that you might have.[Operator Instructions] And the first question comes from James Fronda of Sidoti & Company.

Did you guys give the name of the cereal company?

We did not.

Okay. Is there a reason for that or…?

The only reason that we haven’t is that we're coordinating a marketing press release when the product’s launched. So we’ll announce the company when we do that.

All right. That’s fine. And I guess what is the anticipated growth of the store openings other than the Japanese franchises?

Are you talking domestic stand-alone Rocky Mountain Chocolate Factory’s?

Yes, [indiscernible].

We see -- we continue to see, with this environment, maybe 5 to 10 stores opening annually.

And the next question is from George Whiteside of SWS Financial.

My question relates to your having, in effect, created a roll-up vehicle. I presume that your motivation was two-fold. #1 is to bulk up the frozen yogurt operation, where it would be a bigger factor in the marketplace; and the second was to gain access to an independent management team. Is that a fair assessment?

I think that is a fair assessment, George. There was a number of other reasons that I outlined in the prepared remarks as well, but those 2 are correct.

[Operator Instructions] And we have a question from Jeff Geygan of Milwaukee Private Wealth Management.

Can you provide a little more color on the equity ownership that you’ll have in this new entity and as well as how the restructuring charges of $500,000 to $600,000 tie back to this capital change, if at all?

Certainly. The charges that we’ll take in the next quarter relate to a variety of items: professional fees; also potential lease termination costs. We’ve agreed on 4 locations to cover the operating losses from those 4 locations in their first year. Those are the locations we sold under non-recourse notes. So those are the main components of the charges that we’ll see next quarter. And next quarter, we should complete the restructuring and it shouldn’t go into our next fiscal year. So we should have a clean start in -- at the beginning of fiscal 2014, which begins March 1. In terms of our ownership, we own 60% of the company. We control the board. We will consolidate the company. It will be a consolidated subsidiary of Rocky Mountain Chocolate Factory. We will not manage the company day-to-day. We also have a warrant that allows us to maintain our ownership at 60%, if the existing options and warrants that U-Swirl has are exercised. And so it creates -- I believe U-Swirl now is the only public self-served yogurt company out there. We have a controlling ownership in it at 75 units; 75-plus. We should be about the -- based on our last counts in the industry, about the 10th largest self-served frozen yogurt chain in the country. So I’m not sure if I answered your question completely, but that was an attempt at least.

No, I appreciate that. I thought I read in your release earlier today, a -- the presence of a $900,000 note that came in 2 tranches. And I’m not sure if you can speak to that during this call, or if you have alluded to it previously.

No, I'd be happy to. We sold 2 of our corporate locations, full recourse notes, good company-owned stores, good cash flow, and those are the 2 recourse notes that totals $500,000. We also sold 4 stores that need to be turned around for them to be viable going forward. Those were sold for $400,000 on non-recourse notes. So that’s the difference there. We transferred 6 company-owned stores to U-Swirl, and then we also have sales pending on the other 2 company stores that remain and those will transfer to franchisees and that’s scheduled for February 1.

Got it. And I know I’ve asked my 2 questions, I just want to make a comment with respect to your licensing agreement with this large food company. I think that's an extraordinary positive. I think it’s a complete validation that Rocky Mountain Chocolate brand does matter to the public and I hope that this is the beginning of a lot more growth in that area.

Thanks, Jeff. We feel the same way as you do; same sentiments.

And the next question is from Ralph Obenchain [ph].

25 years ago, I went to my first annual meeting, and I’ve been following it probably longer than anybody. Are you going to open more company stores? That seemed a bit of problem, at that meeting I first went to, was the company-owned stores and you got down to about 3 of them and now you’re back to 15 and is this a change in your methods?

No Ralph [ph], we’re not planning on opening more company stores. We haven’t opened any new Chocolate Factory stores in a long time and the majority of the 15 were the Aspen Leaf Yogurt stores when we got into the business. So the short answer to that question is that we have no intent of opening up company stores.

One other question, I think that the Japanese operation is fantastic. Is there any plan to open up in, say, China or Korea or Macau, or I could think of other places too, Manila?

We continue to have discussions with a variety of parties in a variety of countries, including China. And while we don’t have anything specific to announce today, we continue to have pretty productive discussions and plan to be represented in those countries at some point.

And our next question is from David Luebke of J.P. Turner & Company.

The previous caller asked my question about further color in Asian expansion. I guess, I could -- did I see earlier that there was planned openings in Shanghai and 1 other place outside of Japan?

Yes. At one point, we thought we were pretty close to opening in Shanghai and in Hong Kong. Both of those openings aren’t necessarily off, but didn’t get open for this season. And we continue to discuss the potential for locations in both those markets.

And our next question is from Manilo Salsera [ph] of Grupo Carosa [ph].

Well, I want to ask you, it is not clear for me if this news are good news or bad news and let me explain myself. A couple of years ago, you announced, in a pretty exciting way, that the company was entering into the frozen yogurt market. It’s a hands-on company and now you’re announcing that we are not longer going to be a hands-on company and somebody else is going to market this company. Even though Rocky Mountain is going to be the biggest shareholder, it won’t be involved in the day-to-day operation. So how are you -- why are you changing the -- well, what you had talked a couple of years ago, is this good or is it bad?

Well, I mean, of course, my opinion, and maybe it’s not an objective opinion, is that it’s excellent. It’s very good transaction. One of the problems we had with the frozen yogurt business was our timing. We didn’t get to market soon enough. Many companies got to market before we did and then there was an explosion of mom-and-pop locations and the potential for units in the nation really was saturated very quickly. There's obviously still markets where units are opening, but definitely in the Western United States, we’re seeing more closures than we’re seeing openings. There was no near-term or even intermediate-term path to profitability for Aspen Leaf Yogurt on a stand-alone basis. And both U-Swirl and Yogurtini were great systems, but they weren’t opening units anymore. Either most of the chains out there right now are not opening a lot of units, some are still reporting, quite a few units under development, but you just don’t really see a lot of units opening right now. We’ve been working on this transaction for over a year now. It puts together a critical mass of stores that allows the 3 companies, all of which were not profitable prior to the transaction, to become profitable after a transition period that we hope is very short and will be completed in our fourth quarter. We expect that this business will be profitable and that it will be a conduit for a roll-up in the industry. We think there's quite a number of other players out there in 20 to 50 unit range, maybe more, that would like a way to become profitable. And we have LOIs with 2 bother companies right now that we’re investigating potential further acquisitions through U-Swirl. The relationship between Rocky Mountain Chocolate Factory and U-Swirl won’t be a completely hands-off, where we’re not involved in day-to-day operations as it relates to the Rocky Mountain Chocolate Factory brand. We will very much partner with U-Swirl. We will use the new system of stores to market Rocky Mountain Chocolate Factory too and create co-branded locations like we have with Cold Stone Creamery. And so it becomes a big opportunity for Rocky Mountain Chocolate Factory as well. We think that we also create for our franchise system a lot more purchasing power, so we should be able to favorably impact the cost structure for our franchisees. They'll now be part of an entity that’s profitable, at least that’s our anticipation it'll be profitable next year, so that they can be part of a going concern and an entity that can really bring some value and support them. So I think it’s positive on a number of fronts and those are the main reasons why.

Okay. Good. That answers my question. I appreciate your sincere response. I hope you are right. I have a second question. Am I able to ask a second question?

Sure.

So it relates to the expansion of the company in other countries. Are you working hard in that area? What I mean is I think the company should have many more locations all over the world and it's taking a while for the company to get there. I don’t know if it’s because there's a lack of interest of -- from investors from around the world or maybe because your time was focused on national leads and you’ve even focused on this area of expansion for the last couple of years. Can you explain a little why we are taking so long?

Sure, I mean, I don’t -- during the period of time where the company was growing very rapidly up until the recession, we were 100% focused on unit growth for Rocky Mountain Chocolate Factory. When we went into the recession and financing dried up and we were no longer able to really grow the domestic Rocky Mountain Chocolate Factory system, we started to focus on alternative type locations, co-branded locations, locations like that. And there was also a period of time during the recession where we were just very defensive and we weren’t doing a lot of development; we were just trying to manage the business very conservatively and make sure that we made it through the recession. As we started to come out of the recession and things started to turn around, albeit pretty lackluster basis, we were fortunate enough to meet our partners in Japan. And we really haven’t focused on in international expansion or put any resources toward our international expansion, except for in the last year or so and so -- and that started really with meeting our partners in Japan, negotiating a master license agreement, getting the first unit open, supporting that effort there, which we have continued to do. We also invested some time and energy in traveling around the world and trying to get some additional interest in a variety of countries during the time that we were getting them set up in Japan. So it's really only been about a year of effort to expand the company internationally. We were focused on Aspen Leaf Yogurt as well and we will be focused on international growth to be a big part of our growth strategy going forward. If we could sign 1 or 2 deals of year, we'd be very happy, but we expect that we can do that. So we’ll continue to expand internationally. Hopefully, as we sign additional countries on, that will create even more interest. And at some point, we’ll see a more rapid expansion just outside of Japan and the Middle East. So certainly an area of focus and we are committing resources to it.

And we show no further questions at this time. So I will turn the conference back over to management for any closing remarks.

Thank you. Again, I'd like to thank everybody for attending our conference call this afternoon and we look forward to talking to you again at year’s end. So have a nice day and we'll be talking to you soon.

Thank you.

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