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Executives

Jeff Stanlis - The Hayden IR

Paul Mobley - Chairman and CEO

Analysts

Howard Halpern - Taglich Brothers

John Rolfe - Argand Capital

Bill Chapman - Morgan Stanley

Noble Roman's Inc. (OTCQB:NROM) Q4 2013 Results Earnings Conference Call March 12, 2014 4:30 PM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Noble Roman’s Incorporated Fourth Quarter 2013 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions)

I would now like to turn the conference over to Mr. Jeff Stanlis of Hayden IR. Please go ahead.

Jeff Stanlis

Thank you and good afternoon. The call today will be hosted by Paul Mobley, Chairman and CEO, Noble Roman’s. Following his discussions, there will be a formal Q&A session open to participants on the call. Before we get started, I’m going to review the Safe Harbor statement. This conference call may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve risks, uncertainties and assumptions as described from time to time in registration statements and in reports and other periodic reports the company has filed with the Securities and Exchange Commission. All statements which address the company's expectations, the sources of capital or to address the company's expectations for the future with respect to financial performance or operating strategies can be defined as forward-looking statements.

As a result, there could be no assurance that the company’s results will not be materially different from those described herein. Forward-looking statements maybe identified by such word as belief, anticipate, estimate or expect with respect to current views of the company or expected future events. We caution listeners that the -- these forward-looking statements speak only as of today.

The company expressly -- hereby expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any such statements to reflect any change in the company's expectations or any change in events, conditions or circumstances on which these statements are based.

With that out of the way, Paul, the floor is yours.

Paul Mobley

Thanks Jeff. Thank you to everyone who joined today for earnings call. This has been a very productive year for Noble Roman’s. We expanded our take-n-bake concept with our stand-alone units and our grocery store offering and this concept was well received.

We substantially exceeded our targets for the year in the band -- and the band for future units remains very strong. The company has entered into -- the company has entered into agreements for 55 stand-alone take-n-bake locations and is currently in discussions with many other prospects.

The first stand-alone take-n-bake location opened in October 2012 and today a total of 22 stand-alone take-n-bake pizza locations have been opened with 33 more underdeveloped. And one, sorry to say, without the financial staying power to make it through the business ramp-up period has grown.

Since the beginning, our 2013, the company has signed 56 additional new franchise license agreements for non-traditional locations and is in discussion with numerous other convenience store chains and entertainment facilities for additional non-traditional locations. As in the side, it should be noted that all of our operators especially the stand-alone take-n-bake locations are facing some current headwinds with regard to agricultural commodities particular with routines.

Cheese specifically has set several all-time highs in recent months and has remained at a near-record high today. We believe these commodity pricing pressures are part of the normal ebb-and-flow market.

However, the recent uptick has been influenced by additional exports and reduced output of milk due to the unusually inclement winter weather. Experts in the field have suggested that cheese pricing should return to more normal historical levels as these situations work themselves out this coming spring.

For purposes of comparing current operating results, the 2012 amounts below are adjusted where appropriate for the $400,000 reduction in reserve for collectability of receivables from the Heyser plaintiffs, and the $500,000 adjustment to reduce the valuation of the Heyser case which resulted in a net increase in the net income from continuing operations before taxes, all relating to units no longer operating.

In 2013, there was a $1.21 million adjustment to the valuation of the Heyser plaintiff receivables which resulted in decrease to net income from continuing operations before taxes resulting to units no longer operated. Details regarding these adjustments for the reserve are provided in complete detail in Form 10-K filed with the Securities and Exchange Commission.

For the year 2013, our total revenue was $7.5 million compared to $6.9 million in 2012. However, the revenue in the fourth quarter of 2013 was approximately the same as the fourth quarter of 2012 at $1.7 million. Net income before taxes from continuing operations was $2.65 million or $0.14 per share for 2013 compared to $2 million or $0.10 per share in 2012.

For the quarter, that amount was $496,000 or $0.03 per share, compared to $566,000 or $0.03 per share for the same quarter in 2012. Net income from continuing operations before taxes is an important measure since the company will not pay any income tax on approximately next $25 million in net income, although it is reflected as an expense in our statements of operations.

Net income from continuing operations after tax was $1.6 million or $0.08 per share for 2013 compared to $1.2 million or $0.06 per share for 2012. Fourth quarter was $300,000 or $0.02 per share compared to $342,000 or $0.02 per share in the comparable quarter last year.

In both the fourth quarter and the year, the company recorded a loss on discontinued operations of $780,000 compared to $525,000 in the fourth quarter and year 2012. The loss on discontinued operations for 2013 consisted of $178,000 in legal and settlement costs relating to a restaurant that was closed in conjunction with business activity discontinued in 1999 and later damaged by a tornado.

$147,000 for legal and other costs related to the Heyser case plus $257,000 in receivables and $109,000 in obsolete supporting materials, all relating to the operations discontinued in 2008. These are further discussed in the company's Form 10-K filed with the Securities and Exchange Commission.

Management believes that the company is at or very near the end of any further losses relating to the discontinued operations as all assets related to our operations have now been charged off, but keep in mind that less than 50% of this loss this year was actual cash payments, which was down considerably from prior years. There was actually about half in prior years. The remainder was from charge-off of now obsolete assets relating to the operations discontinued in 2008.

The primary driver of growth in revenue was the stand-alone take-n-bake locations. In 2013, revenues from upfront fees were $883,000 compared to $374,000 in 2012. For the fourth quarter, revenue from upfront fees was $147,000 compared to $63,000 in the previous year.

This growth was mostly attributable to the increase in the stand-alone take-n-bake locations. Total revenue from the stand-alone take-n-bake locations and (inaudible) upfront fees was $310,000 in 2013 compared to 10,000 -- $310,000 in 2013 compared to $10,000 in 2012. For the fourth quarter that revenue was $146,000 compared to $10,000 in the comparable quarter in 2012.

To further enhance our stand-alone take-n-bake venue, next week, we are initiating a three unit test of our new in-store baking service, “You Bake or We Bake.” This involves the installation of portable ovens in the three test stores in addition to broadening consumer appeal in general, it is anticipated that this service will expand our take-n-bake daypart earlier into the day to create a lunch business as we have now -- can offer hot pizzas and other menu items for lunch in these three test stores.

The new baking service does not require any substantial change in the unit layout, square footage requirement, or labor requirements, and can easily be incorporated into existing operations as well as new one. Our marketing initiatives to attract potential take-n-bake franchisees continue to be successful in generating a significant number of leads.

Our initial goal was to sign 30 locations in 2013, and we’ve substantially exceeded this goal. Late in the year 2013, we expanded our advertising efforts by increasing the use of web-based franchise referral systems, which we began using in late 2013 from three portals to five portals. In addition, we initiated web-based advertising utilizing Google's pay-per-click and remarketing systems.

Take-n-bake continues to be one of the fastest growing segments of this industry, and Noble Roman's is leveraging this growth, an opportunity with our economic concept, our reputation for fine quality products, and our proven ability to support franchisee base.

Royalties and fees from grocery stores locations were approximately unchanged in 2013 compared to 2012 at $1.3 million. In the fourth quarter, that revenue was $257,000 in 2013 compared to $313,000 in comparable period to 2012.

We believe this severe weather in most parts of the country, late in 2013 and early 2014 has impacted traffic and therefore revenue. I believe that we will turn that around, increasing again in 2014 based on a return of normal spring weather patterns and other specific actions that we’ve taken.

With regard to those actions that we've taken, we’ve added all new products to the grocery line. One is a gluten-free crust which is to appeal to the ever-growing segment of the gluten-free users. Additionally, we’ve added 14-inch pizzas and three varieties with extra topping.

Those are the Extra Meat organic pizza, the Double Topped Pepperoni Pizza and the Extra Cheese Four Cheese. These are all displayed in a bankable, aluminum pan. It has been treated on the bottom with a clear plastic lid for greater exposure and greater appearance of the pizzas to the grocery shoppers and the bakable pans enhance that it can be used to bake pizzas in when they get home and that enhances the cooking qualities of pizza, the treatment on the bottom of the pan is to dry and more heat to make the pizza more crispy on bottom till it get soft in the middle.

And we will now be displaying all of our pizzas in the bankable, treated aluminum pan with clear top. And by the way, so Extra Meat Pizzas, the organic pizzas, we’re value pricing them at $9.99 and the appearance of those pizzas at $9.99. It looks like -- extreme like a value for the consumer.

All of the new product in the packaging were displayed recently at the National Grocers Association Show and drew lots of attention, including creating interest with some distributors much, much larger than any of our current distributors.

And I have been in constant communication with the largest food service -- grocery store distributor in the country since that show and I will be in their offices to further. I've submitted many documents and request information they’ve asked for, which has all been passed on and now I will be sending -- in fact, I will be in their office meeting with their President and several other key executives and their distributor in mid-April.

Revenue from non-traditional franchises other than grocery stores was $4.3 million in 2013 compared to $4.4 million in 2012. For the fourth quarter, that revenue was $1.1 million compared to $1.2 million in comparable period in 2012. We've increased our backlog of non-traditional franchises other than grocery stores, signed but not yet opened.

Starting in December 2013 and continuing through March, these revenues have declined, which many believes to be the result of severe weather in most parts of the country. Weather affects sales on a relative basis. If weather activity is different than expected or anticipated for any given region of the country for particular time of year, sales are negatively impacted.

Royalties and fees from non-traditional locations were $313,000 in 2013. Royalties and fees from traditional locations were $313,000 in 2013 compared to $307,000 in 2012. For the fourth quarter, that revenue was $74,000 in ’13 compared to $67,000 in 2012. They were up for both periods.

Total operating expenses plus interest were $1.9 million in 2013 compared to $4.9 million in 2012. Interest expense decreased by approximately $200,000 and all other operating expenses increased by about $200,000. The company finally received the ruling on its long-standing counterclaims against former plaintiffs in the Heyser case.

On February 13th, judgment was entered by the Hamilton Superior Court in favor of Noble Roman's and against two plaintiffs/counter-defendants in the 2008 lawsuit in the amount of $1.35 million plus court costs and plus interest at 8% per annum.

The attorney for the plaintiffs/counter-defendants has indicated they intend to appeal the judgment. On March 6, 2014, because of their stated intent to appeal, the company filed a motion to require plaintiffs/counter-defendants to post an appeals bond of $1.5 million for each one of them.

On October 31, 2013, the company redeemed all of the outstanding Series B Preferred stock with an aggregate liquidation value of $825,000. Prior to redemption of the Series B Preferred at the option of holder, it could have been converted to 366,666 common shares.

The preferred stock prior to redemption provided for cumulative dividend at a rate of 12% per annum on the liquidated value. That redemption eliminates any preferred dividends for two-thirds in ’14, while the company paid $99,000 in dividends in 2013.

In order to complete that redemption, the company borrowed $825,000 by amending an existing loan agreement with BMO Harris Bank. The amendment maintains the same terms as the original loan except it reduced the principal payments on the original loan from $104,000 per month to $80,700 per month and extended maturity until February 15, 2017. All other terms and conditions of the original loan remain the same, including interest on the unpaid principal balance at the rate of LIBOR plus 4%.

The amendment also provided for a new term loan in the original amount of $825,000, requiring monthly payments of $20,600 per month, commencing on November 15, 2013 and continuing thereafter, until the final payment of February 15, 2017. The due loan -- the new term loan also provides interest on the unpaid principal balance at the rate of LIBOR plus 6.08%.

Our focusing efforts during the remainder of 2014 will be to continue to grow our revenue, maintain our total expenses relatively stable as we've been doing thus far and by successfully leveraging our infrastructure as we go. We will continue to make enhancement and our three primary growths been used where possible to enhance the revenue potential of each of them.

Turning to the balance sheet for just a moment, total current assets were approximately $3.5 million and current liabilities totaled $2 million. As of December 31, 2013, compared to total assets of approximately $3.7 million, total current assets were approximately $3.7 million and current liabilities approximately $1.8 million as of December 31, 2012.

Stockholder equity as of December 31st was approximately $11.7 million compared to $12.4 million as of December 31, 2012. The redemption of the preferred stock, which reduced stockholders’ equity by $825,000 and it was increased by net income.

Our total debt was $3.8 million as of December 31st compared to $4.3 million as of December 31, ’12. Our debt was increased by the $825,000 to redeem preferred stock, but our debt was also decreased by $1.24 million and principal payments on the debt during the year.

Operator, I'd now like to turn the questions -- turn this over for questions from any of those who would like to do so.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question is from the line of Howard Halpern with Taglich Brothers. Please go ahead.

Howard Halpern - Taglich Brothers

Good afternoon.

Paul Mobley

Good afternoon.

Howard Halpern - Taglich Brothers

What was the average number of stores opened in the fourth quarter?

Paul Mobley

I don't have that exact number at this time, I have had before. I should get that. I can get it and I can give it you. I can send it you, Howard. It’s approximately 13 or 14 -- 14 or 15.

Howard Halpern - Taglich Brothers

Okay. And I guess really turning to 2014, the 33 that are, I guess, in process remaining, what do you see as the timeline to get those stores up and running, and what is your goal for a new -- new standalone location volume for the year?

Paul Mobley

For this timeframe, because those to open, not all of those that already signed will open this next year, most of them will. But some of the multi-unit developments that we signed earlier on, like an eight unit development provides for development over a two-year period starting last summer. So there will be still a few of those not opened by the end of this year.

However, I can say that the opening schedule right now for the next couple months, we just opened one last week. We have one opening in the next week. We have one opening a week after that, and then we have two opening a couple weeks after that. So, we’ve got quite a bit of activity going, although we got delayed a lot at the start of the year.

Howard Halpern - Taglich Brothers

Yeah.

Paul Mobley

But most of those will open. You can spread most of the 33. We will probably spread 28 of those over the next nine months and the other four-five will come late in the year or into next year.

Howard Halpern - Taglich Brothers

Okay.

Paul Mobley

For new signings.

Howard Halpern - Taglich Brothers

Yeah.

Paul Mobley

I haven't really released the goal yet, but I can do it right now. I mean, I don't -- our goal would be to sign another 75 units between now and the end of the year, and some of those will get opened and many of them will open in 2015. But I would hope that we could have a total of 50 openings during the current year.

Howard Halpern - Taglich Brothers

Okay. And in terms of, I guess, the 56 non-traditional locations, are most of them selling product at this point?

Paul Mobley

No, we went into the year with the backlog of about -- 20 of those yet to be opened. I would say about seven of the 20 has been opened. The others of those will open pretty quickly if they are not spread over a long period of time. So they should be opened in the next three to four months.

Howard Halpern - Taglich Brothers

Okay. And I know it's probably pretty hard to quantify, but I don’t know -- any feedback from franchisees on how much and maybe it’s not even in terms of revenue but how many peer people came in the doors because of this ungodly weather that we have been having this winter? Any color on that --?

Paul Mobley

I could estimate, it’s probably 15% to 20%, but I don't have that exact number.

Howard Halpern - Taglich Brothers

Okay.

Paul Mobley

There is no way for me to exactly measure that because we didn't have a year ago to compare it to.

Howard Halpern - Taglich Brothers

Okay. Well, keep up the good work and look forward to better weather and better spring, better summer and the openings that are coming up.

Paul Mobley

Well, thank you, Howard.

Operator

The next question is from the line of John Rolfe with Argand Capital. Please go ahead.

John Rolfe - Argand Capital

Hi, Paul. I'm sorry I missed the very beginning of Howard's question. But do you have the quarter end unit count numbers for the various channels?

Paul Mobley

I do have. Give me just a second for that.

John Rolfe - Argand Capital

Sure.

Paul Mobley

Great. Thank you. Quarter end, now this is actual opened units.

John Rolfe - Argand Capital

Yeah.

Paul Mobley

760 non-traditional, 37 traditional.

John Rolfe - Argand Capital

Okay.

Paul Mobley

And quarter-end on standalone, we've opened through this year, so that would be 20.

John Rolfe - Argand Capital

Okay.

Paul Mobley

Grocery store licenses, approximately 1,250.

John Rolfe - Argand Capital

1200, okay. Okay. And, I'm sorry, could you just repeat, I believe you said you were targeting 75 new signings on the stand-alone in 2014, and then what did you say in terms of how many you were hoping to open, did you give that guidance?

Paul Mobley

Yes. I said my goal would be to sign 75 additional stand-alones in 2014, and my goal would be to get 50 stand-alone units opened in 2015.

John Rolfe - Argand Capital

Okay. Great. And do you have any goals you can talk about or state with respect to either the, I guess, grocery or non-traditional signings for the year?

Paul Mobley

Let me comment first on the non-traditional. We signed -- some of those have been signed this year. I mentioned we’ve signed 53 since January 1 of last year. But a few of those, four, five of those has been signed this year, so we were right at 50 signings for last year for 2013, and I would expect that number to be 50 to 60 again this year.

John Rolfe - Argand Capital

And okay on the non-traditional. And would you expect, I believe I'm just -- I don't have all my numbers in front of me, but I think last year you were looking at gross signings guided of 50 and net openings of about 35, so roughly 15 closures. Is that reasonable to make a similar assumption about the current year 2014?

Paul Mobley

Yes, it is.

John Rolfe - Argand Capital

Okay. And any thoughts just on the grocery side, what your goals would be there in terms of new signings for the year?

Paul Mobley

I'm hesitant put out our goal on those right now. And I can add that a little bit later. We could have -- if things work out with the context that made at the National Grocers Association with those larger distributors, we could sign a lot of the new grocery stores.

John Rolfe - Argand Capital

Okay.

Paul Mobley

It’s promising, it’s not committed. Even if those particular ones don't work out, I am confident with the new packaging, the new products that we’re offering in the grocery stores that we could increase their revenue there by 20%.

John Rolfe - Argand Capital

Okay, great. Appreciate it. Thank you.

Operator

(Operator Instructions) Our next question is from the line of [Vincent Matthew] (ph) with UAM. Please go ahead.

Unidentified Analyst

Good afternoon.

Paul Mobley

Good afternoon.

Unidentified Analyst

A question on -- you had mentioned before when it came to operating expenses that you plan to be flat to up a 100,000 a year, I think you said possibly hiring two 50,000 a year employees kind of per year, it came in a little higher than that which is certainly you’re growing. So I don’t have any problem with it. But just any guidance, has that changed or any color around there?

Paul Mobley

Actually because some of our labor costs includes the amortization of the stock options that have been granted in the past.

Unidentified Analyst

Okay.

Paul Mobley

A big block of those fully amortized at the end of the year. So we will have a reduction in operating expense from that avenue, but there will be some other increases. So I think not more than a 100,000 increase for next year would be more than reasonable.

Unidentified Analyst

Okay. So when we see the cash flow statement, we won’t see that block for last year, is that in the last year? When we see the cash flow statement, last year you said this is a block last year with something adverse for the stock options.

Paul Mobley

We think it won’t really show you soon at the end of that, it just show what the amortization. The cash flow statement will show you what the amortization of stock options was last year, but I was just adding a big block of that fully amortized will not be going forward in 2014.

Unidentified Analyst

Exactly.

Paul Mobley

But what you will see is a say amortization on the cash flow statement or you will see at the stockholders’ equity section, ant it was $117,118.

Unidentified Analyst

In regards to the franchises that closed, yes, two questions on that. I mean, obviously, it’s never good situation, but is the relationship handful as people walked away? And then the second question on that is, how many franchises would you consider right now or kind of in that red zone or struggling if any?

Paul Mobley

I'm not aware of any other expected closings. And yes, that franchises did part amicably. He said that he made a job or made a mistake in selecting his site, although we approved it, but we approved it based on their local knowledge primarily. And he did pretty very amicably and we signed a mutual release with each other for any liability.

Unidentified Analyst

Okay. And say and just regard to the site, when I first knew about a month ago it’s having a lot of trouble?

Paul Mobley

We have another franchisee in that same town with -- in the non-traditional, that’s been franchisee for 10 years and I see him twice a year, some of the tradeshows. And I called him to talk to him about that location and he volunteered to go over on the other side of the town for more years that he volunteered to go over there and take a look at the location. And he called me back right away and he said, well, if he would give me the franchise for me assuming that lease, I would turn it down because it's in the wrong neighborhood to be able to get to for Take-n-Bake. The demographics may look good, but the people there they don't go to that area to shop. And it would be a just mistaken location.

Unidentified Analyst

And just kind of wrong commercial code.

Paul Mobley

That was his opinion which confirmed what the franchisee was doing.

Unidentified Analyst

On the new bacon store, does that require the owner/franchisee put an agreed to that local by local?

Paul Mobley

Well, it’s local by local, but 99% of the time that would be a no, because there's no grease connected to the store coming out of oven, oven baking dry product. And it’s (indiscernible) or anything else, so the answer would be no.

Unidentified Analyst

I would just note like something in the Dallas area around where I am, I know some, especially some of the newer suburbs have kitchens a lot, anytime you're washing dishes of any sort, you will have grease test that may just be around here?

Paul Mobley

It would not increase our washing the dishes all, all we wash now dishes and all we would wash them in dishes because the product is made on the same bakable tray that they take it home. And so that you're not washing anything extra, all we’re washing in the Take-N-Bake stores are the low-ingredient cups that set on the make tables the whole ingredient they put on the top of the pizza. That’s really all the risks they are washing and that’s just done by hand, there is no dish washroom between, that amounts about 15 plastic cups today.

Unidentified Analyst

Okay. And what’s the additional capital you have to put in for the portable oven?

Paul Mobley

Well, in the test, we are putting two ovens in each store and they cost about $4,200 each. So it’s based on 200. Now whether or not they really need two per store, they do one per store, we will kind of learn after testing. But my thinking is they probably will need two, so it’s about $8,000, basic $500, okay. There is additional equipment required. They are rolling Casper. They roll into the store.

Unidentified Analyst

Okay. And then, is there any platform -- are there any changes whether it’s B2U or whether it’s B2, the grocery store on the margin profile that you’re selling the new pizza with the metal pay and the extra packaging, I mean does the packaging affect the margin that you guys collect from the store?

Paul Mobley

Actually it does not affect the margin that we collect. We still get the same margin for pizza. It totals about a $1.03 or $1.04, something in that range. It’s actually for the standard 12 inch pizzas that we’re selling today, putting them in the new packaging and retailers that I have talked to and the people I've met NGA show have all concurred with our thinking that there is no additional value that you could charge a dollar more for pizza. So there is net -- their net margin would actually go up a few percentage.

Unidentified Analyst

All right. I appreciate the color. Thank you.

Paul Mobley

You are welcome.

Operator

(Operator Instructions) Your next question is from the line of Bill Chapman with Morgan Stanley. Please go ahead.

Bill Chapman - Morgan Stanley

Good afternoon.

Paul Mobley

Good afternoon, Bill.

Bill Chapman - Morgan Stanley

Just a couple of quick things if I could please. My last count on the number of signings you had going into the first year was around 44. So have you signed 11 in the last month or so on the standalone?

Paul Mobley

In the November 7th press release, Bill, I announced 45 signings.

Bill Chapman - Morgan Stanley

Yes, 45 okay.

Paul Mobley

Since that time, we have signed 10 more.

Bill Chapman - Morgan Stanley

Okay. So that was recent then I'm assuming the 10 because I think you had the winner, it was affecting you dramatically like everyone else, okay.

Paul Mobley

Okay. We are good. Congratulations on that.

Bill Chapman - Morgan Stanley

And I was very glad to see the you bake or we bake, it just makes a lot of sense because I have noticed that in the 8, the Papa Murphy's they have here and provide those frequently, and yes it did, lunch time to about 2, 2.30 afternoon and it starts picking up to all the 9 pm. So this is a good strategy and assumes to be.

Paul Mobley

We think we can get quite a bit of lunch business build by having hot pizzas and their lion’s size pizza and the bread stick in the salad. Those what have been we think we will add to pretty significant volume to units. By doing this we are going to find out the next couple of weeks.

Bill Chapman - Morgan Stanley

Are your trails going to be there in Indianapolis at some other stores or you guys spread to that?

Paul Mobley

The three of the stores in Indianapolis first.

Bill Chapman - Morgan Stanley

Okay.

Paul Mobley

And we can get to those, see them everyday and see what they are doing in lunch etcetera, etcetera.

Bill Chapman - Morgan Stanley

Good. I was curious to know too on the franchises on the standalones, how are they marketing to build the business, coupons are…

Paul Mobley

Well they are doing in different forms. There is marriage mailers that some of them are using in this area, they are called add those in other areas they are called by not their name but they are owned by the same company. They are like older pieces with stuff to coupons an d so forth in between. Lot of them are using that in the zone, you can zone those to cover the zone around your store maybe at two zones to cover your market. Some of them have used direct mail postcards to all those zip codes that cover their immediate market. And some of them just -- the most effective I think, one of the most effective I think has been door hangers or it doesn’t cost a lot of money to do is go out and put nice printed attractive door hanging piece with some coupons on, on the door in the area around the door and obviously in the area of the store.

There are other methods people are using which have been successful. Our franchisees in Minneapolis has been doing two different things pretty effectively. He found popular grocery store very close to his location that has a nice wine department. That wine department has a tasting once a week. He is furnishing he got with the grocery stores and they agreed to let him furnish pieces, cut up in small pieces or sampling while they are having the wine taste. And so if they want to eat, they have to add and improvise that and introduce a lot of new people to the product from the sampler.

He is also doing the same thing with a liquor store, kind of on the other side of this immediate market and they also have to taste them once a week and is providing pizza sampling and is doing a quite a good recognition out there.

Bill Chapman - Morgan Stanley

Doe that what it takes good?

Paul Mobley

The other popular program is working with the schools in the area. One franchisee contacted all the schools in his immediate market. And to honor the outer rolls business and anyone who makes outer roll get the certificate for the free individual size pizza. And then they post those when they bring those certificates and redeem it, they post them on a wall. He built a cleared board in the store, so that the student can come back in with his family hopefully and get if repeat more than likely the family who buy another pizza. And -- but then every time he comes, he will see his picture and certificate posted on the wall of being an honorable student.

Bill Chapman - Morgan Stanley

That’s good to hear. You’ve got these entrepreneurs that are looking for ways to grow their stores, so that’s what it takes to be successful, so I am glad to hear this. All right. Great job. Thank you.

Paul Mobley

Thanks, Bill.

Operator

Our next question is from the line of [Marcel Herbst, Winthrop Capital Management] (ph). Please go ahead.

Unidentified Analyst

Good afternoon, and thanks so much for taking my question. Looking at the Take-N-Bake location that had these couple of quarters to the interaction, what is on average there and you will say those run rate and operating margin?

Paul Mobley

Well, I can answer that in reverse, so I don't put after-sales for those, but I can answer it in reverse. During the third quarter, I announced in the conference call that we received an average that we had X number of stores open for the quarter and revise that for the total revenues that we had from those stores. Our revenue for that quarter was a little over $11,000, which was like $11,100. So if you go back to that you can -- knowing our royalty, you can calculate the run rate of sales during that quarter.

Now the fourth quarter, we were running ahead of that number in November and December and then -- October and November, then December came along and with a lot of fall off in that and we ended up slightly under $11,000 for -- that is $10,800 for the average revenue to us per store during that quarter based on the average number of stores open.

Unidentified Analyst

Okay. And what assume that it takes some times for a customer following to be built and the stores to ramp up? How long does it typically take for a Take-N-Bake location to reach breakeven about steady level?

Paul Mobley

I don't, I can't really give you that. Some of them do that right away and some of them take some time. We haven't got along enough track record on that history with those new units and maybe give you any a valid data on that. On overall basis, I can just tell you that some of them have been above the breakeven point in the first week they opened and some of them have not. None of those have been opened long enough to really give you any kind of solid prints.

Unidentified Analyst

Yeah, that makes sense. What were the ongoing royalties at least for Take-N-Bake in the fourth quarter? I think you’ve guided last quarter to like the estimate as 185,000 that you would expect in the neighborhoods?

Paul Mobley

No, I gave you that number -- let me look back, it was not what I have projected because we didn't have the -- that revenue was $146,000 and that was less than I had projected in those guidance, because there was average stores open than I had anticipated and is a little follow-up in the volume in the December. But that actual number is 146,000 going-forward.

Unidentified Analyst

Okay. Thank you. One last question if I may. As per your Q2 presentation, you had a test unit for a non-traditional locations line with The Pantry. Can you give us an update on your progress with that account? Did they open several more locations or what happened?

Paul Mobley

For The Pantry, I don't remember when that one unit was signed because The Pantry talked to us over a long period of time that committed to sign, then the next day after I was in their office, I hope I didn't call us, but their CEO got fired. They’ve brought in another one after that, who has since been fired and they're now on their third CEO since then, so they have not been going forward with anything. I think they did. I don't remember them actually signing one in a -- maybe they did sign one, but anyway they have not progress with anything.

Unidentified Analyst

Okay.

Paul Mobley

They are in significant difficulties, not financial difficulties for survival, but difficulties from their margins have been grossly aligned and their income has been on a steady decline now for the last three years. And I think that’s the reason why you are seeing such a changes in their CEO and their reluctance to move forward with any program.

Unidentified Analyst

Yes. Well, that might be a particularly good reason for them to meet the Take-B-Bake concepts with you?

Paul Mobley

Well, I know it is a good reason and that I didn't miss that opportunity in telling them, but still when you're in a decline and your stockholders were unhappy investing new capital is sometimes not done, maybe it should be done, and I think it should be done. That is the time you invest some new capital, I guess new revenue, but they didn't look at it that way.

Unidentified Analyst

Okay. Congratulations on your improvement on that packaging and very good idea on the We Bake, You Bake and hopefully, you will have better weather in the future. Thanks so much.

Paul Mobley

Thank you.

Operator

The next question is from [Andrew Neal] (ph), Private Investor. Please go ahead. Sir, your line is open. Please check your mute button. Hello, Mr. Neal.

Our next question is from the line of Brandon Mackey, another Private Investor. Please go ahead.

Unidentified Analyst

Hi, Paul. Good afternoon.

Paul Mobley

Good afternoon, how are you?

Unidentified Analyst

I’m well.

Paul Mobley

Good. I was just wondering with the new in-store baking concept you mentioned. Should this prove successful in building a kind of lunch crowd, what sort of sales volume impact are you setting as a goal? Do you have any idea of what kind of uplift you could see?

Paul Mobley

I haven’t said that here, Brandon. I’d give you more information on that that we’re putting it in. We've been doing very busy, putting it all together and putting some promotion around it and creating some materials forward to promote the lunch business as well as the night-time business. I am not ruling out the additional revenue we are bringing at night. And I also look forward to -- just brings in more people to sample the product, if we can get them in there for lunch. They will likely come back in different occasional order Take-N-Bake because they like to beat them. But I have not established any goals for that. We’re creating all the materials now and we had all the ovens hooked up this afternoon.

And they were test fired to make sure they’re all working well. And Friday, I said the test will start next Monday. Actually, they’re going to be offering the service on Friday but no one will know about it because we don't have the marketing material out yet, except people have to come in the store. But we’ll have the marketing material out by the start of the next week. So we should be able to get a feel for what that might do, let say in next two, three weeks.

Unidentified Analyst

Okay. Great. I think it’s a great idea. Have you had pretty good response from your franchisees? You think a lot of people would be eager to sign onto it, should it prove successful?

Paul Mobley

Yes, every franchisee that I’ve heard from, about the subject has thought it was an excellent idea and looking forward to seeing similar results.

Unidentified Analyst

Okay. Good. And just one follow-up question, you mentioned with -- the average sales for Take-N-Bake store came in about $10,800 this past quarter. Do you have any idea where that….

Paul Mobley

Brandon, that’s not what I said.

Unidentified Analyst

Okay.

Paul Mobley

I didn't say average sales. I said average revenue per store to Noble Roman’s. That means, royalty coming into Noble Roman’s, that’s not their sale.

Unidentified Analyst

Okay. I apologize. Do you have any feel for where that number could have been, should December not have had the bad weather that it did?

Paul Mobley

Well, I think it was trending to be up $11,750 or possible $12,000. I was hoping that would go to $12,000, because I was expecting the December to continue improving with more people out about way, but with the horrendously cold weather in the Midwest to South, the upper Midwest, traffic was really down.

Unidentified Analyst

Okay. Well, thanks a lot. That’s all I had. Best of luck to you, Paul and look forward to watching you progress.

Paul Mobley

Thank you.

Operator

The next question is from the line of Andrew Neal, Private Investor. Please go ahead.

Unidentified Analyst

Hello, Paul.

Paul Mobley

Yes. How are you?

Unidentified Analyst

Good. How are you?

Paul Mobley

Good.

Unidentified Analyst

So, I had a little problem with the phone last time out. Most of my questions were touched on by earlier callers, but I just wanted to just swing back again for the royalties for stand-alone. Just hoping maybe you could tell me what you are referencing because there is -- seems like a few different factors that go into it. You have -- I guess, what I’d first ask, is there trend where the stand-alones that have been opened the longest has the highest royalties to you and that is, what sort of drives the math as new ones come on and they have lower royalties and older ones have higher and that’s the blend and then you have this weather impact, or is that not the right way to look at it?

Paul Mobley

No, the older have been and the newer, it’s kind of individual store-by-store. Some of the new wins have got just as a good volume as some of the older ones. I mean old, none have enrolled.

Unidentified Analyst

Right.

Paul Mobley

So, it’s kind of location-by-location and more than case and now they have start off. And yes, we’re worried. It definitely impacts the good weather, so there is no question in our mind that it would. That answers your question?

Unidentified Analyst

I think so. I think I possibly asked it wrong and now that I hear your answer, for each individual location, I guess each one has the ramp-up period. So when you look at one location, I’m assuming that there is some ramp up in there and therefore, compared to what its ultimate potential is, it’s reporting, given our lower revenue -- lower royalty then it will ultimately and that sort of blends into the average as you have your newer units versus ones that have established themselves?

Paul Mobley

That's correct.

Unidentified Analyst

Right. But that -- I suppose that could drive the average higher or lower depending on just how many new openings you have in a given quarter versus....

Paul Mobley

Right.

Unidentified Analyst

…versus, yes, okay. I think around longer period. Yes, you are right. I see. Okay. And then I was also curious just about the accounts receivable. I think before -- on the previous call you mentioned that you are sort of floating franchises. How does that eventually come up for you as when they actually opened a location and they have a lot of financing and that's when they take it down kind of an AUR or just expand on that?

Paul Mobley

Okay. There is two things. The primary driver to increase account receivable is take the eight unit development, I used the example a while ago. When they signed that development agreement, they paid for five of the eight franchise fees upfront, agreed to pay the sixth fee when they open the first store, the seventh fee when they open the second store. So there was -- initially, when we signed that, it was $45,000 went into account receivable. On that particular thing, that $45,000 as now they have opened store one and store two, so they have paid for 6 and 7. So that $45,000 now by year end had gone down to $15,000.

Unidentified Analyst

I see.

Paul Mobley

Every development schedule is little bit different. When we had multi-unit deals, I had to take into account the needs, the situation of the area developer because my interest there is, I want as many of their fees as I can get paid upfront and we carry less number two. Our sales goal was not to do that. We signed another eight unit agreement. As an example, their first unit opened last Friday and they have got two more units opening in about three, four weeks. They are already under construction. He signed for eight units, he paid two full fees upfront and then he paid a $5,000 deposit each on the next six fees and when he signed the lease for the second store, the balance of that 15, he had $5,000 deposit. So the balance of that same balance was paid again in December. So now he has got five, he is last on his development schedule to pay but he has got $5,000 of the $15,000 paid on each one of them. Does that make sense and you follow me?

Unidentified Analyst

Yes.

Paul Mobley

Each time he signs a new lease, he has to pay another 10, until he gets the balance that borrowers tend to pay.

Unidentified Analyst

Actually right. So actually it’s a case-by-case kind of a situation.

Paul Mobley

Yes, it’s very -- now again like I say my goal always on those negotiations is to get as much as the fees paid upfront as we can but also you get them signed and get them started if they are a bit personalized and I -- just last one, I was talking about I think its going to be a very good operator. He has a got a good steady businesses in that area right now, two different one and he does very well with them. And I look forward in doing same thing with him.

Unidentified Analyst

Okay. And just to jump around a little more, just by coincidence, I am sure you saw that Papa Murphy’s filed S-1 for their IPO this morning or last night, I guess it was...

Paul Mobley

Yes, I have seen that. Two or three people have sent me emails about that. I have been totally swamp today with filing and getting the press release out but I haven’t had chance to read any of that yet but I understand that they have raised 70 million.

Unidentified Analyst

Yes.

Paul Mobley

It’s what their goal is.

Unidentified Analyst

Yeah.

Paul Mobley

Now you’ll get to the banker. Somebody told me who’s the banker was but it has slipped my mind.

Unidentified Analyst

Yes, its not on to my tongue either but yes, one of them I hear but probably it just remind me of Papa Murphy when I just was reading through the S-1, I think that's definitely some difference still about similarities obviously. But some differences too in terms of sort of where these guys are going to market with this bank. And I am just curious if the goal is, I know, that you have mentioned in earlier calls that you are getting interest from franchisees in geographic areas that already have Papa Murphy’s because those people understand take-n-bake already whereas someone like me from New York, it’s more of a foreign concept?

Paul Mobley

Right.

Unidentified Analyst

But in the end, is it the goal to just be competing head-to-head with Papa Murphy’s, one next to the other kind of thing or is it different economics and everything of Noble Roman’s franchise limits of maybe just slightly different locations or areas that can viable for other franchise businesses. Is it …?

Paul Mobley

Those units will be in the market where they already add for the next few years. However, with the much less investment, that investment cost ranges from 80,000 -- to the franchisee ranges 80,000 to 160,000 depending on the site improvement. And with that investment cost, we can look at a franchisee in a smaller market than Papa Murphy’s public because their investment cost ranges from 250,000 to 380,000, I believe the numbers are something close to that.

And to that much additional investment cost, their overhead is more because they are making all the dough in the store and they have got lots of dough equipment and they have got parts of labor going into that. And they have got variable product quality because of it. So their overhead is more than ours on a push door basis. So that to say we can put a franchisee in a -- I don’t want to go in tying market but we can go in a franchisee in a smaller market than the Papa Murphy’s would go in and where we could be the only take-n-bake in town.

Unidentified Analyst

Right, yes and even may be within the same broader market, possibly you have more locations as that where the numbers works may be or something in, right?

Paul Mobley

Right.

Unidentified Analyst

Right, I guess I don’t know about some of those but just talking about Papa Murphy is that, I only pick this up from the previous question but the Bake Yourself oven idea, is that come up through the Papa Murphy’s or did you -- I am just kind of wondering where it came from? Was it an idea you have been working on so while, did it come up from the franchisees or something else?

Paul Mobley

No it came -- we brought it up. We have been aware -- have been aware of those stores that Bill Chapman was talking about a while ago in San Antonio where he lives. He told me about those probably a year ago where they were baking in those stores. And I researched around the country and different prices and they are doing that in more and more of their stores.

So obviously they are finding some benefit to it because they continue to add the baking inside the store. There is also one other minor player in the take-n-bake arena, south -- in the west coast, around the same place where Papa Murphy is originated. And they -- I forget how many stores they have, not a lot but they have been around for long time but they don’t have a lot of number of stores.

But they also have baked -- they have a baking option in all their stores as well. So we have been working on it since the very beginning but -- we spend a lot of time analyzing those things and making sure that we are not creating a different business model and that we are not creating additional overhead or significant different investment criteria. So that's where we spend a quite bit of time analyzing before we went ahead and developed the system.

That’s how we would operate in the stores and then we got the layout and we rearranged -- very small rearrangements of the stores. If this drive in place operationally and we have a nice place to put it inside or adjusting layout just by moving the table or two around a little bit, so it all worked out very nicely and layout go efficiently through the system. So we have been spending a last couple of weeks for creating marketing material report. So we are going to test it on Monday, actually we will be cooking some big pizzas on Friday.

Unidentified Analyst

Okay, does this affect the EBT eligibility…?

Paul Mobley

EBT is still qualified on the all-over take-n-bakes. It’s actually still qualified for a pizza that you sell, that you turnaround and cook in the store if they order a take-n- bake pizza and pay us an extra dollar for baking it. Then it becomes a separate transaction. So it’s still eligible for EBT. That seems shady to me and kind of a twist to the law but that's what the regulation say but what we are going to be doing is separating the EBT and bringing them separately for, we are going to ask the people upfront whether they are going to bake it or we are going to bake it. And if they are going to bake it, we bring it up under one category. We are going to bake it. We will bring it up another and we accept EBT on the category that is designed for which is the take-n- bake.

Unidentified Analyst

I see. Okay. I’ll let other people go in. Thank you. Thanks so much.

Operator

Ladies and gentlemen, we have reached up the time allotted for Q&A session. I’ll now turn the call back over to management for closing remarks.

Paul Mobley

Thank you very much for your time and attention and for all the good questions. I think we are gaining significant momentum in franchise sales for a stand-alone take-n-bake concept. We entered 2014 with the sizable backlog of franchisees sold in both the stand-alone and non-traditional to be open in the future months. And we will continue to leverage those opportunities to deliver accelerating growth in both revenues and profits.

We continue to closely monitor the cost and continuing to pay down debt. Our strategic positioned us forefront as the very best growing take-n-bake segment of the industry in our pipeline in non-traditional venue is also encouraging. We are still committed to raising awareness. We’re unique in superior product qualities and systems to potential price elasticity and our more aggressive marketing programs in trade show participation and by adding enhancements through our program wherever possible. Our diversified platform and the growth in the stand-alone take-n-bake franchise give me lots of confidence that 2014 will produce significant growth in revenues and profits. Thank you.

Operator

Ladies and gentlemen that does conclude the Noble Roman's Incorporated fourth quarter 2013 financial results conference call. Thank you for your participation. You may now disconnect.

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