Operator:

Hello, and welcome to the Rocky Mountain Chocolate Factory’s Second 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 actual results of Rocky Mountain Chocolate Factory to differ materially from these forward-looking statements. 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 franchises to support new stores, customer acceptance of new products, dependence upon major customers, economic and consumer spending needs and such 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 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 Frank Crail. Please go ahead. Franklin Crail: Thank you, operator. Good afternoon, ladies and gentlemen, and welcome to the Rocky Mountain Chocolate Factory’s conference call for the second quarter of fiscal 2013. I’m Frank Crail, the 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 today with Bryan giving you a summary of both our second quarter and 6-month operating results. And at the conclusion of his presentation, we’ll be happy to answer any questions you may have. So, at this point, I’ll turn the call over to Bryan. Bryan Merryman: Thanks, Frank. I’d like to also thank everyone for getting on the call today. The first 6 months of fiscal 2013 have been exciting. We’ve had strong revenue growth driven by increased product sales to virtually all of our customer categories and increased Aspen Leaf Yogurt retail sales, primarily related to new units in operation. We had slightly positive same-store sales for the first 6 months. We also started an international expansion that really began with executing a 100 unit Master Development Agreement covering the country of Japan, and opened our third unit in Japan at the end of September. We also increased our quarterly dividend 10%, to $0.11 per share quarterly, and pursuant to the share repurchase plan that was approved by our Board of Directors in fiscal 2008, we resumed a share repurchases during the first 6 months of the year by purchasing approximately 1,63,000 shares of stock at an average price of $10.50. And in the first 6 months of this year, the core Rocky Mountain Chocolate Factory business net income grew slightly more than 10%. As I said earlier, for the 6 months, revenues increased 7.2%. That was driven by 11.4% increase in the specialty market sales. Our royalty and marketing fees also increased 5.8% in the first 6 months of this year. Franchise fees decreased 36.3%. We had 4 domestic franchise openings this year versus 9 last year. That decrease in franchise fees was partially offset by the Master License Fee that we collected from Japan. Our retail sales increased to 11%. That was mainly driven by an increase in Company-owned units. We had 18 in this first 6 months of this year versus 14 last year, and we had a very slight decrease in Company-owned same-store retail sales of 0.4%. Franchise same-store sales for the first 6 months were up 1.1%. However, same-store pounds purchased in the factory were down 2.7%. Factory adjusted margin increased 110 basis points for the first 6 months of this year, primarily driven by higher sales prices and partially offset by increasing commodity costs. Our net income was $1,891,000 versus $1,831,000. Fully diluted earnings per share were $0.30 versus $0.29. We continued to generate excess cash flow and on September 14, the Company paid its 37th consecutive quarterly cash dividend of $0.11 per share. Despite the sluggish economy, the Company is in excellent financial condition. We have a 4.5:1 current ratio and we remained free of long-term debt. We opened 12 locations in the first 6 months of this year, including 5 co-branded locations with Cold Stone, 3 international locations, and 4 domestic Rocky Mountain Chocolate Factory locations. For the second quarter, total revenues increased 2%. Factory sales were up 2.9%. That was driven by an increase in shipments to our international Master Franchise customers and increase in sales to Cold Stone Creamery locations and was partially offset by a decrease in same-store pounds purchased. Retail sales increased 6.3%. We had 17 Company-owned stores this year versus 13 last year and we also -- that was mostly offset by a 15.8% decline in same-store sales at Company-owned locations, which is really just the grand opening effect from Aspen Leaf Yogurt. The openings were in the prior year. You get a big bump at grand opening and then your sales are lower in the comparable period in this year. Royalty and marketing fees increased 2.5% in the quarter. This was driven by a 1.1% increase in same-store sales, partially offset by increased licensed locations with Cold Stone Creamery: 53 this year versus 44 last year. and we also had a little bit of a bump in our royalty from the structure that we have where if same-store pounds purchased go down, our royalty goes up slightly and that helped royalty and marketing fees in the second quarter as well. Franchise fees declined 75.4% with 2 domestic openings in the second quarter this year versus 5 last year. Factory adjusted margins in the quarter increased 80 basis points. This was due primarily to, again, higher average selling prices, partially offset by increasing commodity costs. Operating expenses increased 3.2%. Mostly that’s related to a decrease in development costs related to Aspen Leaf Yogurt, more than offset by an increase in franchise development for our international initiative. Retail operating expenses increased 13.4%, more than offsetting the increase to retail revenues. Net income was $829,000 in this quarter versus $912,000 last year. Basic earnings per share were 14 versus 15, fully diluted were 13 versus 14. During the quarter, we opened 6 stores: 3 of those stores were co-branded stores with Cold Stone, 2 domestic franchise openings, and 1 international opening in Japan. In the quarter, we continued to generate excess cash flow. We finished the quarter with approximately $3.8 million in cash. For the full year, we expect to open between 6 and 8 domestic franchise stores, 8 to 10 units with Cold Stone Creamery, 5 to 8 international locations, 6 to 8 co-branded Aspen Leaf Yogurt-Rocky Mountain Chocolate Factory locations for a total of 25 to 34 units for the year. And with that, I’ll turn it back over to you, Frank. Franklin Crail: Thanks, Bryan. Okay, at this time, we’d be happy to answer any questions you might have. Operator: [Operator Instructions] Our first question comes from James Fronda with Sidoti. James Fronda: I’m a little new to the story, but I know that you had a pretty decent fourth quarter last year. Any insight into what the next 2 quarters might be looking like on your own and can you give us any color? Franklin Crail: We’ll not really. I mean, we definitely have the insight into it, but we don’t give guidance, so I don’t want to comment on that. James Fronda: If cocoa beans continue to rise, you think you’ll be able to raise prices? Franklin Crail: We have a policy of having an incremental kind of a CPI-type price increase every year. And so in years where commodity prices are increasing more than an inflationary amount, our price increases don’t offset that. And so we would see margins go down. We basically have to pass it on to our franchise system, and that takes profitability out of their operation. So we don’t do 10% price increases like you see some other chocolate companies do. Operator: Our next question comes from George Whiteside with SWS Financial Services. George Whiteside: In the past, you have commented on the fact that your Japanese licensees was having good results and was making progress. Do you see that continuing? Franklin Crail: We do. They have 3 stores opened now. The sales are strong in all 3 locations. And we’re very excited about that agreement. There has been no real change from how we feel about Japan since our last conference call. They continued to get the infrastructure in place to expand. They’ve opened their third unit. They’ve also opened another one of their concepts units this month as well. So they got a couple of units opened this month. So we’re excited about that continuing to get traction and seeing an acceleration of unit openings in the future. George Whiteside: Well, that’s certainly encouraging. My second question has to do with the domestic scene and the banking industry. There have been some news items that banks are becoming more active in terms of loaning or making loans. And you’ve commented on the fact that your domestic expansion has been hampered by the lack of loans to franchisees. Have you -- have the franchisees or are you aware of any improvement in the availability of credit? Bryan Merryman: There has been no improvement in the availability of credit for our business opportunity. So, as it relates to Rocky Mountain Chocolate Factory openings, there has been no improvement. I mean, really what needs to happen before there will be an improvement is a change in the way the SBA approaches its guarantee on those type of loans. Until that changes, do not expect the credit outlook to improve, and it doesn’t matter, I think, what you hear in the press. That’s credit availability to larger organizations, not somebody that’s going to open up a mom-and-pop business. That financing is not available. Operator: Our next question comes from Bob Atley [ph] who is a private investor. Unknown Attendee: I wanted to find out where you guys planning to turn around the franchise for the frozen yogurt and become profitable? Franklin Crail: Well, I don’t think we have a path to profitability in this current year. Hopefully, by next year we’ll see profitability in that initiative. We continue to sell units. I think we’re one of the few small franchisors out there that are selling units. Most of the demand is for co-branded Rocky Mountain Chocolate Factory-Aspen Leaf Yogurt stores. We should see 8 to 10 of those open up this year. I would expect the same sort of openings next year as well. So it’s just a matter of getting to critical mass. We've spent a fair amount of money in the first 6 months on advertising. We've fine-tuned that. The amount that we spent per month going forward will come down there, be a little bit more targeted and then have a, I think, a little bit higher success rate than some of the other forms of advertisings we’ve tried. And so I don’t see it happening this fiscal year, but hopefully by next fiscal year, we’ll have an operation that’s at least not losing money. For the first 6 months of the year, at store level, we were slightly profitable. Operator: [Operator Instructions] Our next question comes from Jeff Geygan with Milwaukee Private Wealth. Jeff Geygan: Bryan, can I just clarify as part of my first question. You said the company was free of long-term debt, but last time I looked at your balance sheet, you really had no long or current debt, unless you’ve drawn on your line of credit, which I'm not aware that you’ve done? Bryan Merryman: No we have not. We finished the quarter with $3.8 million in cash. Jeff Geygan: Okay. So, in fact, you have no real debt in place. Bryan Merryman: Yes, we have no other than trade debt. Jeff Geygan: Then back to this Aspen Leaf and I appreciate that you broke out on your release here the loss from ops on Aspen Leaf, because I don’t think we’ve seen this in the past. But just piecing this together, it looks like the data we have shows Q1 a year ago, you lost about $20 million followed by a $40 million and jumping forward this year, you lost a $100 million followed by $172 million. Under what circumstance do you believe that you can turn Aspen Leaf next year? Bryan Merryman: We’re just -- by getting more critical mass and spending less on advertising is really the 2 big changes that we’ll make. Jeff Geygan: When you say critical mass, I’d kind of read that as more stores, but I was under the impression you’re done opening stores? Bryan Merryman: We are done opening company stores, but we’re going to have 8 to 10 new stores this year and we expect to have that next year. I don't know if we’ll see an acceleration, but we continue to get leads and we continue to make sales. I’ve followed some other small yogurt franchisors; I don’t think they’re doing as well as we are. What’s carrying that is the co-brand. And so I think we’ll continue to open up units and that will get us to a point where we’re not losing money. I don’t think we’re going to need to make much more in the way of personnel investments, so it’s just getting some scale now. Jeff Geygan: And then thinking about that franchisee who needs to raise some kind of financing, I think intuitively, if the guy that’s going to open up the Rocky Mountain store is having trouble getting financing, wouldn't that apply to the guy trying to open the Aspen Leaf store? Bryan Merryman: It does, however, we’ve been able to find franchisees more so on the co-branded side than on the stand-alone side. And I think some of them have struggled definitely to pull the funds together, and others have been higher-net-worth individuals and a couple of the openings that we’re going to see here very soon from Aspen Leaf Yogurt are going to be by a very high-net-worth company that’s going to open 2 units. So the yogurt is still attracting a little bit different kind of a franchisee. However, the average unit volumes on yogurt are coming down to where they are really very similar to Rocky Mountain Chocolate Factory. And I think that’s what you see in a real deceleration in the opening of those units, although, it’s still a new concept and there’s still a lot of openings that are happening in the industry. Jeff Geygan: Yes. I’ve noticed that as well. And then my second question, I think this is to Frank really. Frank, how satisfied are you with the net income of $829,000 this year versus $912,000 last year, and how might you adjust your course of action, given that decline? Franklin Crail: Bryan, would you take that one for us please? Bryan Merryman: Sure. I mean, I think that the year-over-year decrease is 100% attributable, more than a 100%, to Aspen Leaf. And Aspen Leaf needs to continue to grow and turn to profit. So I think we’ve actually addressed that already. Nobody is happy with putting a lot of work into a concept and having it lose money. But we still haven’t been in this business very long. Our first store opened in December 2010. And we hoped that it would be instantly profitable, but that expectation turned out to be not a very reasonable expectation, given what’s going on in the industry. I think Aspen Leaf Yogurt is going to contribute in the future or we won’t have it. I mean, we’re not going to keep a business around that doesn’t make money. And so we’re going to turn it around. We’re going to get enough units open and it’s going to make money or we'll change course. Franklin Crail: Jeff, in the early… Bryan Merryman: The core chocolate business grew 10%. Franklin Crail: Jeff, in the early days of the Chocolate Factory when we were running 20 units and 30 units, I mean, we weren't profitable at that point in time, because you have to get to a certain scale. And it’s just a matter of we continue to sell our interest in Aspen Leaf right now; we are franchising it, as Bryan has already mentioned. And if we can get the number of units up, we think Aspen Leaf is going to be able to contribute to profitability, and we will be able to grow it as a franchised concept, just like we did the Chocolate Factory. Operator: We have a follow-up question from George Whiteside with SWS Financial Services. George Whiteside: This is also on Aspen Leaf. In previous calls, you have remarked on how competitive the industry is and I presume that has not changed. As if that be the case, do you see any possibility of potential acquisitions in the Yogurt business, or is it that models used by others just wouldn't fit with Rocky Mountain? Bryan Merryman: Well, I think the models that are used by our competitors are nearly identical to a standalone Aspen Leaf Yogurt, other than a standalone Aspen Leaf Yogurt has Rocky Mountain Chocolate Factory toppings. So that certainly is a way for us to get scale, is as the industry shakes out and as smaller franchisors stop opening units, which is happening at least in the few companies that I am very familiar with. Most of the small franchisors in the 20- to 40-unit range are struggling to get new units open and sold, and so I still think there's a lot of units opening from the mom-and-pops and the very first players in the industry. So there is definitely that opportunity once these guys see there really isn’t a path to profitability for themselves to get realistic about what their businesses should be valued at. And I think that a roll of opportunity is definitely on the horizon. George Whiteside: So that sounds as though maybe their concerns are similar to yours in that you want to achieve scale and these other competitors also want to, but, as you point out, they don't have Rocky Mountain behind them. And therefore, they might be interested in the combination. Franklin Crail: And I think what we have going for us that they don't is that we have Rocky Mountain Chocolate Factory and the interest we’re seeing is to open up a co-branded store that differentiates itself from the competitors that are on every corner. We just opened a market where there is 3 or 4 store within a mile. And still yet another Yogurt store opened up, but it opened up with Rocky Mountain Chocolate Factory, and in that way it’s different. And it's doing well. The numbers are good. The product mix is good. And so we have an angle on this that nobody else has. So while we’re 14 units and growing toward 20, 25 right now, when we get there, we still are going to be able to sell, maybe it will accelerate, more than 10 in a year. What we are seeing with other concepts is they’re not able to sell any more units. And it is almost impossible to have a profitable franchise company with 20 units. So I think we have a huge advantage just on Aspen Leaf standalone, and then we have the ability -- I think we’ll have the ability in the future to roll up companies, if that's what we want to do. Operator: We have another follow-up question from Bob Atley [ph] who is a private investor. Unknown Attendee: Yes, I have a follow-up question. In the last couple of years I have realized that many of the existing franchisee has been closing locations and you guys should have replaced those locations with co-branded stores. So can you explain or give us a little bit more details, why they are closing those stores and you are not able to replace them with new franchisee Rocky Mountain Chocolate instead of going and doing co-branded with franchisee? Bryan Merryman: I think we have explained it already. And we talked about it on every single conference call and in every press release and that is, without the ability to borrow money and help fund an opening, a franchisee in the old days didn't have to have $100,000 or $150,000 in cash to open up a unit. The SBA guaranteed 90% of the loans… Unknown Attendee: No, no I understand that. I didn’t express myself well. I understand that completely, the point is that… Franklin Crail: That’s why I want to interrupt. I wasn't finished. Unknown Attendee: Why they are closing in the first place? Does that mean they are not profitable or what? They already have the loan and they already in operation? Franklin Crail: I mean, there's -- I guess that in my estimation, there’s one reason to close a business and that is because it’s not making money. So of course, if the unit is closing, it’s closing because the economics are not good. Bryan Merryman: That you have alternative… Unknown Attendee: Do you guys support them? Do you help them? Do you teach them what they can fix? Because what I think when you guys take over some of the stores, you make them profitable, but when they manage them, they cannot manage to become profitable. That’s my point. When the franchisees manage, they cannot make them profitable. Obviously, nobody wants to lose money and they close it down, but some of the stores you guys take over and you make them how you are able to make them profitable, so somewhere down the line probably you don’t teach them or they don’t understand or I don’t know what. That’s what I’m trying to understand. Bryan Merryman: I think that our concept like every other concept that is in our revenue category, you get a variety of people come in and try the concept and some of them just aren’t good business people. We offer tremendous support. We will support a franchisee if they’ll take our support at any level and do anything to keep the store open. And so usually when you see a store closure, it’s a combination of 2 issues: poor operations and poor location, or a location that was good and became poor. But the number one reason that operator doesn’t make money is, because they are not good at the business. And we spend a tremendous amount and have very dedicated support people that that’s all they do is try to help keep franchisees in business. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Frank Crail for any closing remarks. Franklin Crail: Okay, thank you. I’d like to thank you all again for attending our second quarter conference call, and we would look forward to talking with you again in 3 months. So, have a nice day and we will talk to you later. Good-bye. Operator: To access the digital replay of this conference, you may dial 1(877) 344-7529 or 1 (412) 317-0088, beginning at 6:00 pm Eastern today. You will be prompted to enter a conference number, which will be 10018338. Please record your name and company when joining. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.