SECURITIES & EXCHANGE COMMISSION EDGAR FILING
NOBLE ROMANS INC
Form: 10-K
Date Filed: 2014-03-12
Corporate Issuer CIK: 709005
NROM
Symbol:
5812
SIC Code:
12/31
Fiscal Year End:
© Copyright 2014, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
☑ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2013.
❑Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
for the transition period from ____ to____.
Commission file number 0-11104
NOBLE ROMAN'S, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
35-1281154
(I.R.S. Employer
Identification No.)
One Virginia Avenue, Suite 300
Indianapolis, Indiana 46204
(Address of principal executive offices)
Registrant's telephone number, including area code: (317) 634-3377
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
❑ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
❑ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☑ No ❑
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232,405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ❑
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229,405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large Accelerated Filer ❑ Accelerated Filer ❑ Non-Accelerated Filer o (do not check if a smaller reporting company) Smaller
Reporting Company ☑
(Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ❑ No ☑
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 28, 2013, the last business day of
the registrant’s most recently completed second fiscal quarter, based on the closing price of the registrant’s common shares on such
date was $11.5 million.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable
date: 19,801,087 shares of common stock as of March 7, 2014.
Documents Incorporated by Reference:
Portions of the definitive proxy statement for the registrant’s 2014 Annual Meeting of Shareholders are incorporated by reference in
Part III.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOBLE ROMAN'S, INC.
FORM 10-K
Year Ended December 31, 2013
Table of Contents
Item # in
Form 10-K
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
Exhibits, Financial Statement Schedules
PART IV
3
Page
4
11
13
13
14
14
14
16
16
24
25
39
39
40
40
40
40
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PART 1
ITEM 1. BUSINESS
General Information
Noble Roman’s, Inc., an Indiana corporation incorporated in 1972 with two wholly-owned subsidiaries, Pizzaco, Inc. and N.R. Realty,
Inc., sells and services franchises and licenses for non-traditional foodservice operations and stand-alone take-n-bake locations
under the trade names “Noble Roman’s Pizza”, “Noble Roman’s Take-N-Bake” and “Tuscano’s Italian Style Subs”. The concepts’
hallmarks include high quality pizza and sub sandwiches, along with other related menu items, simple operating systems, fast service
times, labor-minimizing operations, attractive food costs and overall affordability. Since 1997, the Company has focused its efforts
and resources primarily on franchising and licensing for non-traditional locations and now has awarded franchise and/or license
agreements in 50 states plus Washington, D.C., Puerto Rico, the Bahamas, Italy, the Dominican Republic and Canada. Although
from 2005 to 2007 the Company sold some franchises for its concepts to operate in traditional restaurant locations, the Company now
currently focuses all of its sales efforts on (1) franchises/licenses for non-traditional locations primarily in convenience stores and
entertainment facilities, (2) franchises for stand-alone Noble Roman’s Take-N-Bake Pizza retail outlets and (3) license agreements for
grocery stores to sell the Noble Roman’s Take-N-Bake Pizza. Pizzaco, Inc. is the owner and operator of the two Company locations
used for testing and demonstration purposes. The Company has no plans to operate any other locations. References in this report to
the “Company” are to Noble Roman’s, Inc. and its subsidiaries, unless the context requires otherwise.
Products & Systems
The Company’s non-traditional franchises provide high-quality products, simple operating systems, labor minimizing operations and
attractive food costs.
Noble Roman’s Pizza
The hallmark of Noble Roman’s Pizza is “Superior quality that our customers can taste.” Every ingredient and process has been
designed with a view to produce superior results.
• Crust made with only specially milled flour (except for its gluten-free crust) with above average protein and yeast.
• Fresh packed, uncondensed-never cooked sauce made with secret spices, parmesan cheese and vine-ripened tomatoes.
• 100% real cheese blended from mozzarella and Muenster, with no soy additives or extenders.
• 100% real meat toppings, with no additives or extenders – a distinction compared to many pizza concepts.
• Vegetable and mushroom toppings that are sliced and delivered fresh, never canned.
• An extended product line that includes breadsticks and cheesy stix with dip, pasta, baked sandwiches, salads, wings and a
line of breakfast products.
• A fully-prepared pizza crust that captures the made-from-scratch pizzeria flavor which gets delivered to the franchise location
shelf-stable so that dough handling is no longer an impediment to a consistent product.
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Noble Roman’s Take-N-Bake
The Company developed a take-n-bake version of its pizza as an addition to its menu offerings. The take-n-bake pizza is designed
as an add-on component for new and existing convenience stores, as a stand-alone offering for grocery stores and as the centerpiece
of the Company’s stand-alone take-n-bake retail outlet concept. The Company offers the take-n-bake program in grocery stores as a
license agreement rather than a franchise agreement. The stand-alone take-n-bake pizza is offered under a franchise
agreement. In convenience stores, take-n-bake is an available menu offering under the existing franchise/license agreement. The
Company uses the same high quality pizza ingredients for its take-n-bake pizza as with its standard pizza, with slight modifications to
portioning for enhanced home baking performance.
Tuscano’s Italian Style Subs
Tuscano’s Italian Style Subs is a separate non-traditional location concept that focuses on sub sandwich menu items. Tuscano’s was
designed to be comfortably familiar from a customer’s perspective but with many distinctive features that include an Italian-themed
menu. The franchise fee and ongoing royalty for a Tuscano’s is identical to that charged for a Noble Roman’s Pizza franchise. The
Company awards Tuscano’s franchises in the same facilities as Noble Roman’s Pizza franchises. Noble Roman’s has developed a
grab-n-go service system for a selected portion of the Tuscano’s menu. The grab-n-go system is designed to add sales opportunities
at existing non-traditional Noble Roman’s Pizza locations.
Business Strategy
The Company’s business strategy includes the following principal elements:
1. Focus on revenue expansion through three primary growth vehicles:
Sales of Non-Traditional Franchises and Licenses. The Company believes it has an opportunity for increasing unit growth and
revenue within its non-traditional venues, particularly with convenience stores, travel plazas and entertainment facilities. The
Company’s franchises/licenses in non-traditional locations are foodservice providers within a host business, and usually require a
substantially lower investment compared to a stand-alone traditional location. Non-traditional franchises/licenses are most often sold
into pre-existing facilities as a service and/or revenue enhancer for the underlying business.
As a result of the Company’s major focus on non-traditional franchising/licensing, franchising stand-alone take-n-bake retail outlets
and licensing take-n-bake pizzas for grocery stores, its requirements for overhead and operating costs are significantly less than if it
were focusing on traditional franchising. In addition, the Company does not operate restaurants except for two restaurants it uses for
product testing, demonstration and training purposes. This allows for a more complete focus on selling and servicing franchises and
licenses to pursue increased unit growth.
Licensing and Franchising the Company’s Take-N-Bake Program. The take-n-bake pizza is designed as a stand-alone offering
for grocery stores, an add-on component for new or existing convenience store franchisees/licensees and stand-alone franchise
locations. Since the Company started offering take-n-bake pizza to grocery store chains in late 2009 through March 7, 2014, the
Company has signed agreements for approximately 1,775 grocery store locations to operate the take-n-bake pizza program and has
opened the take-n-bake pizza program in approximately 1,300 of those locations. The Company is currently in discussions with
several grocery store operators for numerous locations for additional take-n-bake license agreements.
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Just recently, the Company re-designed its packaging for the 12” take-n-bake pizza in grocery stores, which is a treated bottom
aluminum baking pan with a clear plastic top, added new mega-topped 14” pizzas (designed as value appeal to the customers)
presented in the same packaging design and added a new gluten-free pizza. The Company’s strategy with these new products is to
secure more shelf space in existing locations, to add appeal of the program in order to attract new locations, and to generally increase
sales of the Company’s products to new and existing customers.
Franchising the Company’s Take-N-Bake Program for Stand-Alone Locations. In 2012, the Company developed a stand-alone
take-n-bake pizza prototype and has entered into agreements for 55 locations as of March 7, 2014. The first stand-alone take-n-
bake pizza location opened in October 2012 and now there have been a total of 22 locations opened. The Company’s stand-alone
take-n-bake program features the chain’s popular traditional Hand-Tossed Style pizza, Deep-Dish Sicilian pizza, SuperThin pizza, the
new gluten-free pizza and Noble Roman’s famous breadsticks with spicy cheese sauce, all in a convenient cook-at-home
format. Additional menu items include fresh salads, cookie dough, cinnamon rounds, bake-able pasta and more. The Company is
currently in discussions with several prospects for its stand-alone program and is advertising for additional franchisees through
various web-based franchise referral systems. In addition, the Company demonstrates the Noble Roman’s stand-alone Take-N-
Bake Pizza concept in select franchise shows.
2. Leverage the results of research and development advances.
The Company has invested significant time and effort to create what it considers to be competitive advantages in its products and
systems for non-traditional and take-n-bake locations. The Company will continue to make these investments the focal point in its
marketing process. The Company believes that the quality of its products, their cost-effectiveness, relatively simple production and
service systems, and its diverse, modularized menu offerings all contribute to the Company’s strategic attributes and growth
potential. Every ingredient and process was designed with a view to producing superior results. The menu items were developed to
be delivered in a ready-to-use form requiring only on-site assembly and baking except for take-n-bake pizza, which is sold to bake at
home, and certain other menu items which require no assembly. The Company believes this process results in products that are
great tasting, quality consistent, easy to assemble, relatively low in food cost, and require very low amounts of labor, thus allowing for
a significant competitive advantage due to the speed at which the products can be prepared, baked and served to customers.
For example, in convenience stores and travel plazas, at competitive retail prices, gross margins on Noble Roman’s products, after
cost of product and royalty, can range from approximately 60% to 68%. The Company believes it maintains a competitive advantage
in product cost by using carefully selected, independent third-party manufacturers and independent third-party distributors. This
allows the Company to contract for production of proprietary products and services with highly efficient suppliers that have the
potential of keeping costs low compared to many competing systems whereby the franchisor owns and operates production and
distribution systems much less efficiently.
3. Aggressively communicate the Company’s competitive advantages to its target market of potential franchisees and
licensees.
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The Company utilizes the following methods of reaching potential franchisees and licensees and to communicate its product and
system advantages: (1) calling from both acquired and in-house prospect lists; (2) frequent direct mail campaigns to targeted
prospects; (3) web-based lead capturing; (4) live demonstrations at trade and food shows; and (5) in the case of prospects for the
stand-alone take-n-bake outlets, requiring visits to the Company headquarters to meet management and to sample the products. In
particular, the Company has found that conducting live demonstrations of its systems and products at selected trade and food shows
across the country allows it to demonstrate advantages that can otherwise be difficult for a potential prospect to visualize. There is
no substitute for actually tasting the difference in a product’s quality to demonstrate the advantages of the Company’s products. The
Company carefully selects the national and regional trade and food shows where it either has an existing relationship or considerable
previous experience to expect that such shows offer opportunities for fruitful lead generation.
The Company’s Chairman and CEO has assumed the lead position at all of the Company’s trade shows across the country, which is
the primary means for demonstrating its product and system advantages to thousands of prospective non-traditional and grocery
operators. This focus by the Company’s CEO has underscored the Company’s current, overriding orientation towards new revenue
generation.
Business Operations
Distribution
Primarily all of the Company’s products are manufactured pursuant to the Company’s recipes and formulas by third-party
manufacturers under contracts between the Company and its various manufacturers. These contracts require the manufacturers to
produce products meeting the Company’s specifications and to sell them to Company-approved distributors at a price negotiated
between the Company and the manufacturer.
At present, the Company has distribution agreements with 11 primary distributors strategically located throughout the United
States. The distribution agreements require the primary distributors to maintain adequate inventories of all products necessary to
meet the needs of the Company’s franchisees and licensees in their distribution area for weekly deliveries to the franchisee/licensee
locations plus the grocery store distributors in their respective territories. Each of the primary distributors purchases the products
from the manufacturer, under payment terms agreed upon by the manufacturer and the distributor, and distributes the products to the
franchisee/licensee at a price fixed by the distribution agreement, which is landed cost plus a contracted mark-up for
distribution. Payment terms to the distributor are agreed upon between each franchisee/licensee and the respective distributor. In
addition, the Company has agreements with several grocery store distributors located in various parts of the country which agree to
buy their products from one of the primary distributors and to distribute take-n-bake products to their grocery store customers.
Franchising
The Company sells franchises into various non-traditional and traditional venues.
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The initial franchise fees are as follows:
Franchise
Noble Roman’s Pizza
Tuscano’s Subs
Noble Roman’s & Tuscano’s
Noble Roman’s Stand-Alone Take-N-Bake
Non-Traditional,
except
Hospitals
Hospitals
$
$
$
6,000 $
6,000 $
10,000 $
-
10,000 $
10,000 $
18,000 $
- $
Traditional
Stand-Alone
15,000
15,000
18,000
15,000
The franchise fees are paid upon signing the franchise agreement and, when paid, are deemed fully earned and non-refundable in
consideration of the administration and other expenses incurred by the Company in granting the franchises and for the lost and/or
deferred opportunities to grant such franchises to any other party.
Licensing
Noble Roman’s Take-n-Bake Pizza licenses for grocery stores are governed by a supply agreement. The supply agreement
generally requires the licensee to: (1) purchase proprietary ingredients from a Noble Roman’s-approved distributor; (2) assemble the
products using only Noble Roman’s approved ingredients and recipes; and (3) display products in a manner approved by Noble
Roman’s using Noble Roman’s point-of-sale marketing materials. Pursuant to the distribution agreements, the distributors place an
additional mark-up, as determined by the Company, above their normal selling price on the key ingredients as a fee to the Company
in lieu of royalty. The distributors agree to segregate this additional mark-up upon invoicing the licensee, to hold the amount in trust
for the Company and to remit such fees to the Company within ten days after the end of each month.
Competition
The restaurant industry in general is very competitive with respect to convenience, price, product quality and service. In addition, the
Company competes for franchise and license sales on the basis of product engineering and quality, investment cost, cost of sales,
distribution, simplicity of operation and labor requirements. Actions by one or more of the Company’s competitors could have an
adverse effect on the Company’s ability to sell additional franchises or licenses, maintain and renew existing franchises or licenses,
or sell its products. Many of the Company’s competitors are very large, internationally established companies.
Within the competitive environment of the non-traditional franchise and license segment of the restaurant industry, management has
identified what it believes to be certain competitive advantages for the Company. First, some of the Company’s competitors in the
non-traditional segment are also large chains operating thousands of franchised, traditional restaurants. Because of the contractual
relationships with many of their franchisees, some competitors may be unable to offer wide-scale site availability for potential non-
traditional franchisees. The Company is not faced with any significant geographic restrictions in this regard.
Most of the Company’s competitors in the non-traditional segment were established with little or no organizational history in owning
and operating traditional foodservice locations. This lack of operating experience may limit their ability to attract and maintain non-
traditional franchisees or licensees who, by the nature of the segment, often have little exposure to foodservice operations
themselves. The Company’s background in traditional restaurant operations has provided it experience in structuring,
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planning, marketing, and controlling costs of franchise or license unit operations which may be of material benefit to
franchisees or licensees.
Seasonality of Sales
Direct sales of non-traditional franchises or licenses may be affected by seasonalities and holiday periods. Sales to certain non-
traditional venues may be slower around major holidays such as Thanksgiving and Christmas, and during the first quarter of the
year. The Company’s sales of take-n-bake pizza in grocery stores are typically slower during the summer months, especially when
the weather is hot. Additionally, adverse winter weather conditions, compared to the norm for the various regions of the country,
adversely affect franchisee’s/licensee’s sales, which in turn affects Company royalties.
Employees
As of March 7, 2014, the Company employed approximately 23 persons full-time and 11 persons on a part-time, hourly basis, of
which 21 of the full-time employees are employed in sales and service of the franchise/license units and two of the full-time
employees and the 11 employed on a part-time basis manage and work at the two Company locations. No employees are covered
under collective bargaining agreements, and the Company believes that relations with its employees are good.
Trademarks and Service Marks
The Company owns and protects several trademarks and service marks. Many of these, including NOBLE ROMAN’S ®, Noble
Roman's Pizza®, THE BETTER PIZZA PEOPLE ® and Tuscano’s Italian Style Subs®, are registered with the U.S. Patent and
Trademark Office as well as with the corresponding agencies of certain other foreign governments. The Company believes that its
trademarks and service marks have significant value and are important to its sales and marketing efforts.
Government Regulation
The Company and its franchisees and licensees are subject to various federal, state and local laws affecting the operation of our
respective businesses. Each location is subject to licensing and regulation by a number of governmental authorities, which include
health, safety, sanitation, building and other agencies and ordinances in the state or municipality in which the facility is located. The
process of obtaining and maintaining required licenses or approvals can delay or prevent the opening of a location. Vendors, such as
our third-party production and distribution services, are also licensed and subject to regulation by state and local health and fire
codes, and U. S. Department of Transportation regulations. The Company, its franchisees, licensees and vendors are also subject to
federal and state environmental regulations. In certain circumstances, the Company is, or soon may be, subject to various local, state
and/or federal laws requiring disclosure of nutritional and/or ingredient information concerning the Company’s products, its packaging,
menu boards and/or other literature.
The Company is subject to regulation by the Federal Trade Commission (“FTC”) and various state agencies pursuant to federal and
state laws regulating the offer and sale of franchises. Several states also regulate aspects of the franchisor-franchisee relationship.
The FTC requires us to furnish to prospective franchisees a disclosure document containing certain specified information. Several
states also regulate the sale of franchises and require registration of a franchise disclosure document with state authorities.
Substantive state laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states and bills
have been introduced in Congress from time to time that would provide for
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additional federal regulation of the franchisor-franchisee relationship in certain respects. State laws often limit, among other things,
the duration and scope of non-competition provisions and the ability of a franchisor to terminate or refuse to renew a franchise. Some
foreign countries also have disclosure requirements and other laws regulating franchising and the franchisor-franchisee relationship,
and the Company would be subject to applicable laws in each jurisdiction where it seeks to market additional franchised units.
Executive Officers of the Company
Chief Executive Officer and Chairman of the Board - Paul W. Mobley* has been Chairman of the Board, Chief Executive Officer and
Chief Financial Officer since December 1991 and a Director since 1974. Mr. Mobley was President of the Company from 1981 to
1997. From 1975 to 1987, Mr. Mobley was a significant shareholder and president of a company which owned and operated 17
Arby’s franchise restaurants. From 1974 to 1978, he also served as Vice President and Chief Operating Officer of the Company and
from l978 to 1981 as Senior Vice President. He is the father of A. Scott Mobley. Mr. Mobley has a B.S. in Business Administration
from Indiana University and is a CPA.
Chief Operating Officer, President, Secretary and a Director - A. Scott Mobley* has been President since 1997, a Director since
January 1992 and Secretary since February 1993. Mr. Mobley was Vice President from November 1988 to October 1997 and from
August 1987 until November 1988 served as Director of Marketing for the Company. Prior to joining the Company, Mr. Mobley was a
strategic planning analyst with a division of Lithonia Lighting Company. Mr. Mobley has a B.S. in Business Administration from
Georgetown University and an MBA from Indiana University. He is the son of Paul W. Mobley.
Executive Vice President of Franchising - Troy Branson* has been Executive Vice President for the Company since November 1997
and from 1992 to 1997, he was Director of Business Development. Before joining the Company, Mr. Branson was an owner of
Branson-Yoder Marketing Group from 1987 to 1992, after graduating from Indiana University where he received a B.S. in Business.
Vice President of Franchise Services - Mitch Grunat has been Vice President of Franchise Services for the Company since August
2002. Before joining the Company, Mr. Grunat was Chief Operating Officer of Lanter Eye Care from 2001 to 2002, Business
Development Officer for Midwest Bankers from 2001 to 2002 and Chief Operating Officer for Tavel Optical Group from 1987 to
2000. Mr. Grunat has a B.A. degree in English and Philosophy from Muskingum College.
Vice President of Operations - James D. Bales has been Vice President of Operations since March 2008. Before becoming Vice
President of Operations, Mr. Bales held various positions with the Company beginning in March 2004. Before joining the Company,
Mr. Bales had 15 years of management experience in operations and marketing where he held various positions with TCBY starting
in 1989. Mr. Bales attended Northern Kentucky University for Graphic Design, Inver Hills Community College for Business
Management and obtained his B.S. in Business from the University of Phoenix.
*Each of Messieurs Paul W. Mobley, A. Scott Mobley and Troy Branson are “executive officers” of the Company for purposes of the
Securities Exchange Act of 1934, as amended.
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Available Information
We make available, free of charge through our Internet website (http://www.nobleromans.com), our Annual Report on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably
practicable after we electronically file these reports with, or furnish them to, the Securities and Exchange Commission. The
information on our website is not incorporated into this annual report.
ITEM 1A. RISK FACTORS
All phases of the Company’s operations are subject to a number of uncertainties, risks and other influences, many of which
are outside of its control, and any one or a combination of which could materially affect its results of operations. Important
factors that could cause actual results to differ materially from the Company’s expectations are discussed below.
Prospective investors should carefully consider these factors before investing in our securities as well as the information
set forth under “Forward-Looking Statements” in Item 7 of this report. These risks and uncertainties include:
Competition from larger companies.
The Company competes for franchise and license sales with large national companies and numerous regional and local
companies. Many of its competitors have greater financial and other resources than the Company. The restaurant industry
in general is intensely competitive with respect to convenience, price, product quality and service. In addition, the
Company competes for franchise and license sales on the basis of several factors, including product engineering and
quality, investment cost, cost of sales, distribution, simplicity of operation and labor requirements. Activities of the
Company’s competitors could have an adverse effect on the Company’s ability to sell additional franchises or licenses or
maintain and renew existing franchises and licenses or operating results of the Company’s system. Unlike the other non-
traditional agreements, the take-n-bake license agreements with grocery stores are not for any specified period of time
and, therefore, grocery stores could discontinue offering the take-n-bake pizza or other retail items at any time. As a result
of these factors, the Company may have difficulty competing effectively from time to time or in certain markets.
Dependence on growth strategy.
The Company’s primary growth strategy includes selling new franchises or licenses for non-traditional locations and stand-
alone take-n-bake pizza retail outlets. The opening and success of new locations will depend upon various factors, which
include: (1) the traffic generated by and viability of the underlying activity or business in non-traditional locations; (2) the
ability of the franchisees and licensees to operate their locations effectively; (3) their ability to comply with applicable
regulatory requirements; and (4) the effect of competition and general economic and business conditions including food and
labor costs. Many of the foregoing factors are not within the Company’s control. There can be no assurance that the
Company will be able to achieve its plans with respect to the opening or operation of new non-traditional or stand-alone
take-n-bake locations.
Dependence on success of franchisees and licensees.
Most of the Company’s earnings comes from royalties and other fees generated by its franchisees and licensees which are
independent operators, and their employees are not the Company’s employees. The
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Company provides training and support to franchisees and licensees but the quality of the store operations and collectability of the
receivables may be diminished by any number of factors beyond the Company’s control. Consequently, franchisees and licensees
may not successfully operate locations in a manner consistent with the Company’s standards and requirements, or may not hire and
train qualified managers and other store personnel. If they do not, the Company’s image and reputation may suffer, and its revenues
and stock price could decline. While the Company attempts to ensure that its franchisees and licensees maintain the quality of its
brand and branded products, franchisees and licensees may take actions that adversely affect the value of the Company’s intellectual
property or reputation. Current initiatives raise the Federal minimum wage could have an adverse financial affect on our franchisees
or licensees by increasing their labor cost, however this is somewhat mitigated by the low labor requirements of the Company’s
concepts.
Dependence on consumer preferences and perceptions.
The restaurant industry and the retail food industry is often affected by changes in consumer tastes, national, regional and
local economic conditions, demographic trends, traffic patterns and the type, number and location of competing
restaurants. The Company can be substantially adversely affected by publicity resulting from food quality, illness, injury,
other health concerns or operating issues stemming from one restaurant or a limited number of restaurants.
Interruptions in supply or delivery of food products.
Dependence on frequent deliveries of product from unrelated third-party manufacturers through unrelated third-party
distributors also subjects the Company to the risk that shortages or interruptions in supply caused by contractual
interruptions, market conditions, inclement weather or other conditions could adversely affect the availability, quality and
cost of ingredients. In addition, factors such as inflation, market conditions for cheese, wheat, meats, paper and labor may
also adversely affect the franchisees and licensees and, as a result, can adversely affect the Company’s ability to add new
franchised or licensed locations.
Dependence on key executives.
The Company’s business has been and will continue to be dependent upon the efforts and abilities of its executive staff
generally, and particularly Paul Mobley, our Chairman, Chief Executive Officer and Chief Financial Officer, and A. Scott
Mobley, our President and Chief Operating Officer. The loss of either of their services could have a material adverse effect
on the Company.
Indiana law with regard to purchases of our stock.
Certain provisions of Indiana law applicable to the Company could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could also
limit the price that certain investors might be willing to pay in the future for shares of its common stock. These provisions
include prohibitions against certain business combinations with persons or groups of persons that become “interested
shareholders” (persons or groups of persons who are beneficial owners of shares with voting power equal to 10% or more)
unless the board of directors approves either the business combination or the acquisition of stock before the person
becomes an “interested shareholder.”
Federal, state and local laws with regard to the operation of the businesses.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company is subject to regulation by the FTC and various state agencies pursuant to federal and state laws regulating the offer
and sale of franchises. Several states also regulate aspects of the franchisor-franchisee relationship. The FTC requires the Company
to furnish to prospective franchisees a disclosure document containing certain specified information. Several states also regulate the
sale of franchises and require registration of a franchise disclosure document with state authorities. Substantive state laws that
regulate the franchisor-franchisee relationship presently exist in a substantial number of states, and bills have been introduced in
Congress from time to time that would provide for federal regulation of the franchisor-franchisee relationship in certain respects. The
state laws often limit, among other things, the duration and scope of non-competition provisions and the ability of a franchisor to
terminate or refuse to renew a franchise. Some foreign countries also have disclosure requirements and other laws regulating
franchising and the franchisor-franchisee relationship, and the Company would be subject to applicable laws in each jurisdiction
where it seeks to market additional franchise units.
Each franchise location is subject to licensing and regulation by a number of governmental authorities, which include
health, safety, sanitation, building and other agencies and ordinances in the state or municipality in which the facility is
located. The process of obtaining and maintaining required licenses or approvals can delay or prevent the opening of a
franchise location. Vendors, such as the Company’s third- party production and distribution services, are also licensed and
subject to regulation by state and local health and fire codes, and U. S. Department of Transportation regulations. The
Company, its franchisees and its vendors are also subject to federal and state environmental regulations.
Inapplicability of corporate governance standards that apply to companies listed on a national exchange.
Our stock is quoted on the OTC Bulletin Board, a Nasdaq-sponsored and operated inter-dealer automated quotation system for
equity securities not included on the Nasdaq Stock Market. We are not subject to the same corporate governance requirements that
apply to exchange-listed companies. These requirements include: (1) a majority of independent directors; (2) an audit committee of
independent directors; and (3) shareholder approval of certain equity compensation plans. As a result, quotation of our stock on the
OTC Bulletin Board limits the liquidity and price of our stock more than if our stock was quoted or listed on a national exchange.
There is no assurance that the Company’s stock will continue to be authorized for quotation by the OTC Bulletin Board or any other
market in the future.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company's headquarters are located in 7,600 square feet of leased office space in Indianapolis, Indiana. The lease for this
property expires in March 2015.
The Company also leases space for a Company-owned, dual-branded, restaurant in Indianapolis, Indiana which is used as a
demonstration and test restaurant. The lease for this property expires December 31, 2015. The Company has the option to extend
the term of this lease for one additional five-year period.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company leases space for operating an additional dual-branded restaurant in Indianapolis, Indiana. The lease for this property
expires in April 2016. The Company has the option to extend the term of this lease for one additional five-year period. This lease
also provides for the Company to assign the lease to a franchisee if and when it is franchised.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is or may become involved in various litigation relating to claims arising out of its normal business
operations.
Currently, the Company has no material litigation pending against it.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company's common stock is included on the Nasdaq “OTC Bulletin Board” and trades under the symbol “NROM”.
The following table sets forth for the periods indicated, the high and low bid prices per share of common stock as reported by
Nasdaq. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commissions and may not represent actual
transactions.
Quarter Ended:
March 31
June 30
September 30
December 31
Holders of Record
2012
2013
High
Low
High
Low
$
$
$
$
.80
.65
.79
.82
$
$
$
$
.50
.51
.61
.63
$
$
$
$
1.07
1.17
1.71
1.99
$
$
$
$
.72
.78
1.22
1.40
As of March 7, 2014, there were approximately 277 holders of record of the Company’s common stock. This excludes persons whose
shares are held of record by a bank, brokerage house or clearing agency.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Dividends
The Company has never declared or paid dividends on its common stock. The Company’s current loan agreement, as described in
Note 3 of the notes to the Company’s consolidated financial statements included in Item 8 of this report, prohibits the payment of
dividends on common stock.
Sale of Unregistered Securities
None.
Equity Compensation Plan Information
The following table provides information as of December 31, 2013 with respect to the shares of our common stock that may be issued
under our existing equity compensation plan.
Number of
Securities to
be issued
upon exercise
of outstanding
options,
warrants and
rights
(a)
Weighted-
average
exercise price of
outstanding
options,
warrants and
rights
(b)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a)) (c)
- $
3,457,500 $
3,457,500 $
-
.95
.95
-
(1)
(1)
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
(1) The Company may grant additional options under the employee stock option plan. There is no maximum number of shares
available for issuance under the employee stock option plan.
The Company maintains an employee stock option plan for its employees, officers and directors. Any employee, officer and director
of the Company is eligible to be awarded options under the plan. The employee stock option plan provides that any options issued
pursuant to the plan will generally have a three-year vesting period and will expire ten years after the date of grant. Awards under the
plan are periodically made at the recommendation of the Chairman/CEO and President and approved by the Board of Directors. The
employee stock option plan does not limit the number of shares that may be issued under the plan.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 6. SELECTED FINANCIAL DATA (In thousands except per share data)
Statement of Operations Data:
Royalties and fees
Administrative fees and other
Restaurant revenue
Total revenue
Operating expenses
Restaurant operating expenses
Depreciation and amortization
General and administrative
Operating income
Interest and other
Adjust valuation of receivables - Heyser Case
Income before income taxes from continuing
operations
Income taxes
Net income from continuing operations
Loss from discontinued operations
Net income
Cumulative preferred dividends
Net income (loss) available to common
stockholders
Weighted average number of common shares
Net income per share from continuing
operations
Net income per share
Net income per share available to
common stockholders
Balance Sheet Data:
Working capital (deficit)
Total assets
Long-term obligations, net of current portion
Stockholders' equity
$
$
2009
6,949
64
537
7,550
2,247
497
79
1,485
3,242
467
-
2,775
1,099
1,676
Year Ended December 31,
$
2010
6,726
40
505
7,271
2,150
502
66
1,610
2,943
441
-
2,502
991
1,511
$
2011
6,814
44
518
7,376
2,202
508
124
1,620
2,922
390
-
2,532
1,003
1,529
$
2012
6,824
20
456
7,300
2,348
427
116
1,594
2,815
413
500
1,902
753
1,149
$
-
1,676
66
$
(1,201)
310
$
91
(710)
819
$
99
(525)
624
$
99
2013
7,083
24
421
7,528
2,527
391
114
1,647
2,849
201
1,208
1,440
569
871
(780)
91
99
$
1,610
$
219
$
720
$
525
$
(8)
19,412
19,415
19,458
19,498
19,533
$
.09
.09
$
.08
.02
$
.08
.04
$
.06
.03
.08
$
.01
$
.04
$
.03
$
.05
.01
-
Year Ended December 31,
2009
1,517
16,683
4,125
10,623
$
$
2010
927
16,895
3,481
10,885
$
$
2011
(852) $
17,224
1,256
11,728
$
2012
1,964
17,161
3,021
12,379
$
$
2013
1,451
16,374
2,635
11,703
$
$
$
$
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company sells and services franchises and licenses for non-traditional foodservice operations and stand-alone take-n-bake
locations under the trade names “Noble Roman’s Pizza”, “Noble Roman’s Take-N-Bake” and “Tuscano’s Italian Style Subs”. The
concepts’ hallmarks include high quality pizza and sub sandwiches, along with other related menu items, simple operating systems,
fast service times, labor-minimizing operations, attractive food costs and overall affordability. Since 1997, the Company has focused
its efforts and resources primarily on franchising and licensing for non-traditional locations and
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
now has awarded franchise and/or license agreements in 50 states plus Washington, D.C., Puerto Rico, the Bahamas, Italy,
Dominican Republic and Canada.
There were 1,847 franchised or licensed outlets in operation on December 31, 2012 and 2,029 on December 31, 2013. During that
twelve-month period, there were 211 new franchised or licensed outlets opened and 29 franchised outlets left the system. Grocery
stores are accustomed to adding products for a period of time, removing them for a period of time and possibly re-offering
them. Therefore, it is unknown how many grocery store licenses have left the system.
As discussed in Note 1 of the notes to the Company’s consolidated financial statements, the Company uses significant estimates in
evaluating such items as notes and accounts receivable to reflect the actual amount expected to be collected for total receivables. At
December 31, 2012 and 2013 the Company reported net accounts receivable of $3.99 million and $3.43 million, respectively, which
were net of allowances of $263,000 to reflect the amount the Company expects to realize for the receivables. The Company has
reviewed each of its accounts and notes receivable and only included receivables in the amount expected to be collected. The
Company has provided an accrual for estimated future expense related to its discontinued operations in the amount of $160,706 as of
December 31, 2012 and $122,797 as of December 31, 2013, which was primarily to provide settlement, rent and tax costs relating to
the restaurant that was closed in conjunction with the business activity discontinued in 1999, as discussed in Note 9 to the financial
statements. The Company, at December 31, 2012 and December 31, 2013, had a deferred tax asset on its balance sheet totaling
$10.639 million and $10.582 million, respectively. After reviewing expected results from the Company’s current business plan, the
Company believes it is more likely than not that the deferred tax assets will be utilized prior to their expiration, which expire between
2018 and 2033.
Financial Summary
The preparation of the consolidated financial statements in conformity with United States generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results may differ from those estimates. The Company evaluates the carrying values of its assets,
including property, equipment and related costs, accounts receivable and deferred tax asset, periodically to assess whether any
impairment indications are present due to (among other factors) recurring operating losses, significant adverse legal developments,
competition, changes in demand for the Company’s products or changes in the business climate that affect the recovery of recorded
values. If any impairment of an individual asset is evident, a charge will be provided to reduce the carrying value to its estimated fair
value.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Condensed Consolidated Statement of Operations Data
Noble Roman's, Inc. and Subsidiaries
2011
2012
2013
Years Ended December 31,
Royalties and fees
Administrative fees and other
Restaurant revenue
Total revenue
$ 6,813,946
44,448
517,679
7,376,073
92.4% $ 6,823,811
19,872
456,449
7,300,132
.6
7.0
100.0
93.5% $ 7,082,548
24,138
420,753
7,527,439
.3
6.2
100.0
94.1%
.3
5.6
100.0
Franchise-related operating
expenses:
Salaries and wages
Trade show expense
Travel expense
Other operating expense
Restaurant expenses
Depreciation
General and administrative
Total Expenses
Operating income
Interest and other expense
Adjust valuation of receivables –
Heyser Case
Income before income taxes
Income taxes
Net income from continuing
operations
2013 Compared to 2012
970,966
351,907
191,695
687,519
507,838
124,009
1,619,778
4,453,712
2,922,361
13.2
4.8
2.6
9.3
6.9
1.6
22.0
60.4
39.6
979,447
498,951
183,316
685,836
427,127
116,287
1,593,646
4,484,610
2,815,522
13.4
6.8
2.5
9.4
5.9
1.6
21.8
61.3
38.6
1,056,790
514,570
207,572
747,914
390,507
113,607
1,646,993
4,677,953
2,849,486
390,858
5.3
413,334
5.7
201,381
14.0
6.8
2.8
9.9
5.2
1.5
21.9
62.1
37.9
2.7
-
-
500,000
6.8
1,208,162
16.0
2,531,504
1,002,730
34.3
13.7
1,902,188
753,457
26.1
10.3
1,439,943
568,406
19.2
7.6
$ 1,528,774
20.6% $ 1,148,731
15.8% $
871,537
11.6%
Total revenue increased from $7.3 million to $7.5 million in 2013 compared to 2012, and remained approximately the same at $1.7
million in for the fourth quarter of 2013 compared to the corresponding period in 2012. However, revenues in 2012 included an
adjustment of $400,000 to increase the estimated net realizable value of receivables in the Heyser case for locations no longer
operating. Without the adjustment, revenue would have increased from $6.9 million to $7.5 million in 2013 compared to 2012,
representing an increase of 9.1%. Franchise fees and equipment commissions (“upfront fees”) increased from $374,000 to $883,000
and from $63,000 to $147,000, respectively, for the year and quarter ended December 31, 2013 compared to the corresponding
periods in 2012. The reason for the increases was primarily from the sale of stand-alone take-n-bake franchises. Royalties and fees,
less upfront fees, increased from $6.0 million to $6.2 million and decreased from $1.6 million to $1.5 million, respectively, for the year
and quarter ended December 31, 2013 compared to the corresponding periods in 2012 without the adjustment to receivables in the
Heyser case referenced above. The breakdown of royalties and fees less upfront fees were: royalties and fees from non-traditional
franchises other than grocery stores were $4.3 million and $4.4 million for the year 2013 compared to 2012; royalties and fees from
the grocery store take-n-bake were approximately $1.3 million for both years; royalties and fees from stand-alone take-n-bake
franchises were $310,000 in 2013 and $10,000 in 2012; and royalties and fees from
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
traditional locations were $313,000 in 2013 compared to $307,000 in 2012, without the adjustment related to the Heyser case
receivables. The breakdown of royalties and fees less upfront fees were $1.5 million for the fourth quarter of 2013 compared to $1.6
million for the corresponding period in 2012; royalties and fees from grocery store take-n-bake were $257,000 in the fourth quarter of
2013 compared to $313,000 for the corresponding period in 2012; royalties and fees from the stand-alone take-n-bake franchises
were $146,000 in the fourth quarter of 2013 compared to $10,000 for the corresponding period in 2012; and royalties and fees from
traditional locations were $74,000 for the fourth quarter of 2013 compared to $67,000 for the corresponding period in 2012. Included
in revenue is $192,000 from non-traditional units no longer operating.
Restaurant revenue was $421,000 compared to $456,000 and $83,000 compared to $98,000, respectively, for the year and quarter
ended December 31, 2013 compared to the corresponding periods in 2012. The decreases were the result of same store sales
decreases. The Company only operates two locations used primarily for testing and demonstration purposes.
As a percentage of total revenue, salaries and wages increased from 13.4% to 14.0% and from 13.5% to 16.1%, respectively, for the
year and quarter ended December 31, 2013 compared to the corresonding periods in 2012. Salaries and wages increased from
$979,000 to $1.1 million and from $232,000 to $276,000, respectively, for the year and quarter ended December 31, 2013 compared
to the corresponding periods in 2012.
Trade show expenses remained approximately the same as a percentage of total revenue at 6.8% for 2013 compared to 2012, and
decreased from 7.3% to 7.2% for the quarter ended December 31, 2013 compared to the corresponding period in 2012. Trade show
expenses increased to $515,000 for 2013 compared to $499,000 in 2012, and decreased to $124,000 for the fourth quarter of 2013
compared to $126,000 for the corresponding period in 2012.
As a percentage of total revenue, travel expenses increased from 2.5% to 2.8% and from 2.5% to 3.1%, respectively, for the year and
quarter ended December 31, 2013 compared to corresponding periods in 2012. Travel expense increased from $183,000 to
$208,000 and from $43,000 to $54,000, respectively, for the year and quarter ended December 31, 2013 compared to the
corresponding periods in 2012.
As a percentage of total revenue, other operating expenses increased from 9.4% to 9.9% and from 9.6% to 11.0% , respectively, for
the year and quarter ended December 31, 2013 compared to corresponding periods in 2012. Operating expenses increased from
$686,000 to $748,000 and from $165,000 to $188,000, respectively, for the year and quarter ended December 31, 2013 compared to
the corresponding periods in 2012.
As a percentage of total revenue, restaurant expenses decreased from 5.9% to 5.2% and from 5.5% to 5.0%, respectively, for the
year and quarter ended December 31, 2013 compared to the corresponding periods in 2012. These percentage decreases were
partially the result of a decrease in restaurant revenue as a percentage of total revenue and partially the result of more tightly
controlling restaurant expenses. The Company only operates two restaurants which it uses for demonstration, training and testing
purposes.
As a percentage of total revenue, general and administrative expenses increased from 21.8% to 21.9% and from 23.8% to 24.0%,
respectively, for the year and quarter ended December 31, 2013 compared to the corresponding periods in 2012. The slight increase
in general and administrative expenses was primarily
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
the result of engaging an investor relations advisor in 2013 whereas the Company did not have one in 2012, plus an increase in
group insurance cost.
As a percentage of total revenue, total expenses increased from 61.3% to 62.1% and from 63.9% to 68.1%, respectively, for the year
and quarter ended December 31, 2013 compared to the corresponding periods in 2012.
As a percentage of total revenue, operating income decreased from 38.6% to 37.9% and from 36.1% to 31.9%, respectively, for the
year and quarter ended December 31, 2013 compared to the corresponding periods in 2012.
Interest expense as a percentage of total revenue decreased from 5.7% to 2.7% and from 3.3% to 3.0%, respectively, for the year
and quarter ended December 31, 2013 compared to the corresponding periods in 2012. Interest expense decreased from $413,000
to $201,000 and from $58,000 to $51,000, respectively, for the year and quarter ended December 31, 2013 compared to the
corresponding periods in 2012. The primary reasons for the decreases in interest expense were the refinancing of the Company’s
borrowings with a new bank loan in May 2012 and the continued amortization of the principal balance of loans outstanding.
The reduction of estimated net realizable value of the Company’s counterclaims in the Heyser case was $500,000 in 2012 and $1.1
million in 2013. This reduced the carrying value of those counterclaims to the amount of the judgment received in February 2014.
Net income before taxes from continuing operations was $1.4 million in 2013 compared to $1.9 million in 2012. The decrease in net
income before taxes from continuing operations was primarily the result of the reduction in net realizable value of the Company’s
counterclaims in the Heyser case and a small increase in total expenses which was partially offset by a decrease in interest expense,
and an increase in total revenue. Without the reduction of net realizable value of the Company’s counterclaims in the Heyser case in
both 2012 and 2013, net income before taxes from continuing operations would have increased to $2.5 million in 2013 from $2.4
million in 2012.
The Company reported a net loss on discontinued operations of $780,000 in 2013. This consisted of $178,000 in legal and
settlement costs through the end of the lease relating to a restaurant closed in conjunction with the business activity discontinued in
1999, as discussed in the footnotes to the financial statements included in Item 8 of this report. In addition, the Company incurred
$147,000 for legal and other costs of its lawsuit related to the operations discontinued in 2008, and wrote off $257,000 in receivables
and $199,000 in outdated marketing materials and other costs, all related to the operations discontinued in 2008.
The Company paid dividends on its outstanding Series B Preferred Stock of approximately $99,000 in both 2013 and 2012. That
Series B Preferred Stock was redeemed by the Company in October 2013, therefore the Company will not have any dividends in
2014.
2012 Compared to 2011
Total revenue decreased from $7.38 million in 2011 to $7.30 million in 2012. One-time fees, franchisee fees and equipment
commissions (“upfront fees”) increased from $255,000 in 2011 to $374,000 in 2012. Royalties and fees decreased from $6.56 million
in 2011 to $6.45 million in 2012. The breakdown of royalties and fees, less upfront fees, were: royalties and fees from non-traditional
franchises other than
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
grocery stores were $4.02 million in 2011 and $4.38 million in 2012; fees from the grocery store take-n-bake were $1.17 million in
2011 and $1.37 million in 2012; and royalties and fees from traditional locations were $1.37 million in 2011 and $707,000 in
2012. Included in royalties and fees from traditional locations were $1.02 million in 2011 and $400,000 in 2012 for royalties and fees
recognized as collectible from traditional locations which are no longer operating.
Total fees increased from $1.17 million in 2011 to $1.37 million in 2012, or an increase of $201,000 from grocery store take-n-bake
locations primarily as a result of adding new locations. Royalties and fees from non-traditional locations increased from $4.02 million
in 2011 to $4.38 million in 2012, or an increase of $352,000. The increases of revenue from grocery store take-n-bake locations and
non-traditional locations other than grocery stores were offset by decreases in royalties and fees from traditional locations, which
decreased from $1.37 million in 2011 to $707,000 in 2012, or a decrease of $662,000. The decrease in royalties and fees from
traditional locations was primarily the result of the change in royalties and fees recognized as collectible from traditional locations
which were no longer operating of $1.02 million in 2011 and $400,000 in 2012, or a decrease of $620,000.
Restaurant revenues decreased from $518,000 in 2011 to $456,000 in 2012. This decrease was the result of same store sales
decreasing. The Company only operates two restaurants for testing and demonstration purposes.
Salaries and wages increased from 13.2% of revenue in 2011 to 13.4% of revenue in 2012. This small increase was primarily the
result of a decrease in total revenue. Actual salaries and wages increased slightly from $971,000 in 2011 to $979,000 in 2012.
Trade show expenses increased from 4.8% of revenue in 2011 to 6.8% of revenue in 2012. This increase was the result of more
trade show activity, primarily grocery store shows, as a result of adding more grocery store distributors. Actual trade show expenses
increased from $352,000 in 2011 to $499,000 in 2012.
Travel expenses decreased from 2.6% of revenue in 2011 to 2.5% of revenue in 2012. This decrease was primarily the result of
being able to group grocery store take-n-bake openings together in regions of the country making the travel more efficient. Actual
travel expenses decreased from $192,000 in 2011 to $183,000 in 2012.
Other operating expenses increased from 9.3% of revenue in 2011 to 9.4% of revenue in 2012. This increase was primarily the
result of a decrease in total revenue. Actual other operating expenses decreased from approximately $688,000 in 2011 to $686,000
in 2012.
Restaurant expenses decreased from 6.9% of revenue in 2011 to 5.9% of revenue in 2012. This decrease was primarily the result of
tightly controlling restaurant costs aided by a decrease in restaurant revenue. The Company only operates two restaurants for testing
and demonstration purposes and does not intend to operate any more restaurants.
General and administrative expenses decreased from 22.0% of revenue in 2011 to 21.8% of revenue in 2012. Actual general and
administrative expenses were approximately $1.62 million in 2011 and $1.59 million in 2012. The decrease in percentage was a
result of reduced general and administrative expenses offset by a decrease in total revenue. Actual general and administrative
expenses decreased slightly as a result of tightly controlling costs.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Total expenses were $4.45 million, or 60.4% of total revenue in 2011 and $4.48 million, or 61.4% of total revenue in 2012, with an
approximate increase of $30,000 in 2012. The increased expenses in 2012 were the result of increased trade show expenses mostly
offset by a decrease in other expenses.
Operating income decreased from $2.9 million in 2011 to $2.8 million in 2012. The primary reason for the decrease was an increase
in trade show expenses partially offset by a slight increase in royalties and fees income and a decrease in all other expenses.
Interest expense increased from 5.3% of revenue in 2011 to 5.7% of revenue in 2012. Actual interest expense was $391,000 in 2011
compared to $413,000 in 2012. The increase in interest was primarily the result of the Company expensing $93,000 in unamortized
loan closing costs from the origination of the former bank loan at the time the loan was repaid and recording an expense of $30,000
to terminate the former interest rate swap agreement related to the loan which was repaid. This was mostly offset with the decreased
effective interest rate on the new loan that replaced the former loan.
The Company recorded a $500,000 expense in 2012 by increasing the reserve against receivables from former plaintiffs in the
Heyser case.
Net income from continuing operations decreased slightly from $1.53 million in 2011 to $1.15 million in 2012. This decrease was
primarily the result of increased royalties and fees income from non-traditional locations other than grocery stores and grocery store
take-n-bake offset by a decrease in royalties and fees from traditional locations primarily as a result of recognizing $620,000 less in
royalties and fees recognized as collectible from traditional locations which are no longer operating. In addition, the Company
recorded an additional reserve against collections related to the receivables from the Heyser case.
Net income per share from continuing operations was $.08 per share in 2011 and $.06 per share in 2012. The weighted average
shares outstanding were approximately 19.46 million in 2011 and 19.50 million in 2012. The decrease of $.02 per share was
attributable primarily to the Company recording a $500,000 expense by increasing the reserve against collections related to the
Heyser case. The diluted net income per share from continuing operations was $.08 per share in 2011 and $.06 per share in 2012.
Loss on discontinued operations was $710,000 in 2011 and $525,000 in 2012. The Company made the decision in late 2008 to
discontinue the business of operating traditional restaurants, which had been acquired from struggling franchisees and later sold to
new franchisees, and charged off or dramatically lowered the carrying value of all receivables related to the traditional restaurants and
accrued future estimated expenses related to the estimated cost to prosecute the Heyser lawsuit, as described in Note 10 of the
notes to the accompanying consolidated financial statements. The Company reported an additional loss of $1.2 million in 2010 after
determining the estimate in 2008 was insufficient. Additionally, in reviewing the accounts receivable, various receivables originating
in 2007 and 2008 relating to the operations that were discontinued in 2008 were determined to be doubtful of collection and,
therefore, charged to loss from discontinued operations. The Company had an additional loss of $710,000 in 2011 and $525,000 in
2012 relating to the operations that were discontinued in 2008 for an additional accrual of legal and other costs related to the Heyser
lawsuit and the charge-off of some additional receivables originating in 2007 and 2008 relating to the operations that were
discontinued. The additional accruals were necessary, primarily because, since the Company was granted summary judgment
dismissing their fraud claims on December 23, 2010, the plaintiffs have continued to file numerous motions for reconsideration and
appeals, all of which created additional legal and other expenses.
22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Impact of Inflation
The primary inflation factors affecting the Company's operations are food and labor costs to the franchisee. The commodity prices,
primarily cheese and meats, were at normal levels, near the ten-year average, in 2009; however, commodity prices increased
dramatically in the last half of 2010 and into 2011 until near the end of 2011. During the first portion of 2012, commodity prices
stabilized and cheese prices, which make up the single largest cost of a pizza, had returned to near the ten-year average. However,
cheese prices increased in 2013 and reached an all time record high in January 2014 and remains at nearly record high. This is
believed to be the result of extreme weather conditions in the upper Midwest, which has caused milk production to decline, and milk
production in China has declined resulting in more milk imports from the United States. Labor cost has remained relatively constant
in the past two years and, in addition, any labor cost increase in the future for our franchisees will be mitigated by the relatively low
labor requirements of the Company’s franchise concepts.
Liquidity and Capital Resources
The Company’s current strategy is to grow its business by concentrating on franchising/licensing new non-traditional locations,
licensing grocery stores to sell take-n-bake pizza and other retail products, and franchising stand-alone take-n-bake locations. This
strategy is intended to not require any significant increase in expenses. The Company does not operate, and does not intend to
operate in the future, any restaurants except for two locations for testing and demonstration purposes. This strategy requires limited
overhead and operating expense and does not require significant capital investment.
The Company’s current ratio was 1.7-to-1 as of December 31, 2013 compared to 2.1-to-1 as of December 31, 2012.
On May 15, 2012, the Company entered into a Credit Agreement with a bank for a term loan in the amount of $5.0 million which was
repayable in 48 equal monthly principal installments of approximately $104,000 plus interest with a final payment due on May 15,
2016. Interest on the unpaid principal balance is payable at a rate per annum of LIBOR plus 4%. The proceeds from the term loan,
net of certain fees and expenses associated with obtaining the term loan, were used to repay then-existing bank indebtedness and
borrowing from an officer of the Company. On October 31, 2013, the Company entered into a First Amendment to the Credit
Agreement (“Amendment”) with BMO Harris Bank, N.A. The Amendment maintains the terms of the term loan, as described above,
except for reducing the monthly principal payments from $104,000 to approximately $80,700 and extending the loan’s maturity to
February 15, 2017. All other terms and conditions of the term loan remain the same including interest on the unpaid principal at a
rate per annum of LIBOR plus 4%. The Amendment also provided for a new term loan II in the original amount of $825,000
requiring monthly principal payments of approximately $20,600 per month commencing on November 15, 2013 and continuing
thereafter until the final payment on February 15, 2017. The term loan II provides for interest on the unpaid principal balance to be
paid monthly at a rate per annum of LIBOR plus 6.08%. Proceeds from term loan II were used to redeem the Series B Preferred
Stock.
As a result of the financial arrangements described above and the Company’s cash flow projections, the Company believes it will
have sufficient cash flow to meet its obligations and to carry out its current business plan for the foreseeable future. The Company’s
cash flow projections are based on the Company’s strategy of focusing on growth in non-traditional venues, growth in the number of
grocery store locations licensed to sell the take-n-bake pizza and the anticipated growth from franchising stand-alone take-n-bake
locations.
23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company does not anticipate that any of the recently issued Statement of Financial Accounting Standards will have a material
impact on its Statement of Operations or its Balance Sheet.
Contractual Obligations
The following table sets forth the contractual obligations of the Company as of December 31, 2013:
Long-term debt
Operating leases
Total
Forward-Looking Statements
Total
$ 3,851,458
381,642
$ 4,233,100
Less than
1 Year
$ 1,216,250
238,795
$ 1,455,045
1-3 Years
$ 2,432,500
142,848
$ 2,575,348
$
$
3-5 Years
202,708
-
202,708
The statements contained above in Management’s Discussion and Analysis concerning the Company’s future revenues, profitability,
financial resources, market demand and product development are forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) relating to the Company that are based on the beliefs of the management of the Company,
as well as assumptions and estimates made by and information currently available to the Company’s management. The Company’s
actual results in the future may differ materially from those indicated by the forward-looking statements due to risks and uncertainties
that exist in the Company’s operations and business environment, including, but not limited to competitive factors and pricing
pressures, non-renewal of franchise agreements, shifts in market demand, the success of new franchise programs, including stand-
alone take-n-bake locations, general economic conditions and other factors including, but not limited to, changes in demand for the
Company’s products or franchises, the success or failure of individual franchisees and changes in prices or supplies of food
ingredients and labor as well as the factors discussed under “Risk Factors” above in this annual report. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated, expected or intended.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s exposure to interest rate risk relates primarily to its variable-rate debt. As of December 31, 2013, the Company had
outstanding variable interest-bearing debt in the aggregate principal amount of $3.85 million. The Company’s current borrowings are
at a variable rate tied to the London Interbank Offered Rate (“LIBOR”) plus 4% per annum on $3.07 million and LIBOR plus 6.08% on
$784,000 adjusted on a monthly basis. Based on its current debt structure, for each 1% increase in LIBOR the Company would incur
increased interest expense of approximately $33,550 over the succeeding twelve-month period.
24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
Noble Roman’s, Inc. and Subsidiaries
Assets
Current assets:
Cash
Accounts receivable - net
Inventories
Assets held for resale
Prepaid expenses
Deferred tax asset - current portion
Total current assets
Property and equipment:
Equipment
Leasehold improvements
Less accumulated depreciation and amortization
Net property and equipment
Deferred tax asset (net of current portion)
Other assets including long-term portion of accounts receivable - net
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term notes payable to bank
Accounts payable and accrued expenses
Total current liabilities
Long-term obligations:
Notes payable to bank (net of current portion)
Total long-term liabilities
Stockholders’ equity:
Common stock – no par value (25,000,000 shares authorized, 19,516,589
issued and outstanding as of December 31, 2012 and 19,585,089 as of
December 31, 2013)
Preferred stock (5,000,000 shares authorized, 20,625 issued and
outstanding as of December 31, 2012 and none outstanding as of
December 31, 2013)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
December 31,
2012
2013
$
$
144,354
1,080,362
460,839
259,579
379,669
1,400,000
3,724,803
157,787
1,268,788
337,822
-
472,065
1,250,000
3,486,462
1,166,103
12,283
1,178,386
905,376
273,010
9,238,536
3,924,404
$ 17,160,753
1,361,205
88,718
1,449,923
962,502
487,421
9,332,024
3,067,754
$ 16,373,661
$ 1,250,000
510,710
1,760,710
$ 1,216,250
818,803
2,035,053
3,020,833
3,020,833
2,635,208
2,635,208
23,366,058
23,498,401
800,250
-
(11,787,098) (11,795,001)
11,703,400
12,379,210
$ 16,373,661
$ 17,160,753
Consolidated Statements of Operations
Noble Roman’s, Inc. and Subsidiaries
Year Ended December 31,
2011
$ 6,813,946
44,448
517,679
7,376,073
2012
$ 6,823,811
19,872
456,449
7,300,132
$
2013
7,082,548
24,138
420,753
7,527,439
970,966
351,907
191,695
687,519
507,838
124,009
1,619,778
4,453,712
2,922,361
979,447
498,951
183,316
685,836
427,127
116,287
1,593,646
4,484,610
2,815,522
1,056,790
514,570
207,572
747,914
390,507
113,607
1,646,993
4,677,953
2,849,486
390,858
-
413,334
500,000
201,381
1,108,162
2,531,503
1,002,729
1,528,774
1,902,188
753,457
1,148,731
1,539,943
608,406
931,537
(709,816)
818,958
99,000
(524,588)
624,143
99,271
(780,440)
151,097
99,000
$
719,958
$
524,872
$
52,097
$
$
$
$
.08
$
.06
$
(.04) $
$
.04
(.03) $
$
.03
.04
$
.03
$
.05
(.04)
.01
.01
19,457,810
19,497,638
19,533,201
$
$
$
.08
$
(.04) $
$
.04
.06
$
(.03) $
$
.03
.05
(.04)
.01
20,112,278
20,077,910
20,0472,908
Royalties and fees
Administrative fees and other
Restaurant revenue
Total revenue
Operating expenses:
Salaries and wages
Trade show expense
Travel expense
Other operating expenses
Restaurant expenses
Depreciation and amortization
General and administrative
Total expenses
Operating income
Interest and other expense
Adjust valuation of receivables – Heyser case
Income before income taxes from
continuing operations
Income tax expense
Net income from continuing operations
Loss from discontinued operations net of tax benefit
of $465,570 for 2011, $344,079 for 2012 and
$511,893 for 2013
Net income
Cumulative preferred dividends
Net income available to common
stockholders
Earnings per share - basic:
Net income from continuing operations
Net loss from discontinued operations net of tax
benefit
Net income
Net income available to common
stockholders
Weighted average number of common shares
outstanding
Diluted earnings per share:
Net income from continuing operations
Net loss from discontinued operations net of tax benefit
Net income
Weighted average number of common shares
outstanding
See accompanying notes to consolidated financial statements.
26
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Consolidated Statements of Changes in
Stockholders’ Equity
Noble Roman’s, Inc. and Subsidiaries
Common Stock
Preferred
Stock
Shares
Amount
Accumulated
Deficit
Total
Balance at December 31, 2010
$
800,250
19,419,317
$ 23,116,317
$(13,031,928) $ 10,884,639
2011 net income
Cumulative preferred dividends
Amortization of value of
stock options
Exercise of employee stock options
818,958
818,958
(99,000)
(99,000)
105,659
105,659
Balance at December 31, 2011
$
800,250
50,000
19,469,317
18,000
$ 23,239,976
18,000
$(12,311,970) $ 11,728,256
2012 net income
Cumulative preferred dividends
Amortization of value of
stock options
Exercise of employee stock options
624,143
624,143
(99,271)
(99,271)
107,882
107,882
Balance at December 31, 2012
$
800,250
47,272
19,516,589
18,200
$ 23,366,058
18,200
$(11,787,098) $ 12,379,210
2013 net income
Cumulative preferred dividends
Amortization of value of
stock options
Redeemed preferred stock
(800,250)
Issurance cost of preferred stock
Exercise of employee stock options
191,097
191,097
(99,000)
(99,000)
117,118
(24,750)
117,118
(800,250)
(24,750)
Balance at December 31, 2013
$
68,500
19,585,089
39,975
$ 23,498,401
39,975
$(11,795,001) $ 11,703,400
-
See accompanying notes to consolidated financial statements..
27
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Consolidated Statements of Cash Flows
Noble Roman’s, Inc. and Subsidiaries
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Non-cash expense from reducing valuation of receivables
Deferred income taxes
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable
Inventories
Prepaid expenses
Other assets
Increase in:
Accounts payable and accrued expenses
NET CASH PROVIDED BY OPERATING
ACTIVITIES
INVESTING ACTIVITIES
Purchase of property and equipment
Assets held for resale
NET CASH USED BY INVESTING ACTIVITIES
FINANCING ACTIVITIES
Payment of cumulative preferred dividends
Payment of principal on outstanding under prior bank loan
Payment of principal officer loan
Payment of principal outstanding on bank loan
Redemption of all preferred stock outstanding
Payment of alternative minimum tax
Payment received on long-term note receivable
Payment of loan modification cost
Proceeds of loan from officer
Proceeds from new bank loan net of closing costs
Proceeds from the exercise of stock options
Year ended December 31,
2011
818,958
$
2012
624,143
$
$
2013
191,097
298,937
-
1,002,729
192,012
-
753,457
174,241
1,208,162
568,406
19,711
(21,534)
(42,940)
(849,910)
(195,553)
(122,392)
(100,950)
147,902
(288,425)
123,018
(92,397)
(370,133)
10,736
205,946
308,093
1,236,687
1,504,565
1,722,062
(8,059)
(6,274)
(14,333)
(18,994)
(7,027)
(26,021)
(11,958)
-
(11,958)
(99,000)
(925,000)
-
-
-
-
33,417
(43,703)
400,000
-
18,000
(99,271)
(3,575,000)
(1,255,821)
(729,167)
-
(34,515)
-
-
-
4,812,457
18,200
(99,000)
-
-
(1,244,375)
(825,000)
-
-
-
-
821,454
39,975
NET CASH USED BY FINANCING ACTIVITIES
(616,286)
(863,117)
(1,306,946)
DISCONTINUED OPERATIONS
Payment of obligations from discontinued operations
Increase (decrease) in cash
Cash at beginning of year
Cash at end of year
(709,816)
(704,369)
(389,725)
(103,748)
337,044
233,296
$
(88,942)
233,296
144,354
$
13,433
144,354
157,787
$
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In 2012, an option to purchase 20,000 shares at $.55 was exercised pursuant to the cashless exercise provision of the option and the
holder received 7,272 shares of common stock.
See accompanying notes to consolidated financial statements.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
28
Notes to Consolidated Financial Statements
Noble Roman’s, Inc. and Subsidiaries
Note l: Summary of Significant Accounting Policies
Organization: The Company sells and services franchises and/or licenses for non-traditional foodservice operations and stand-alone
retail outlets under the trade names “Noble Roman’s Pizza,” “Tuscano’s Italian Style Subs and” “Noble Roman’s Take-N-
Pizza”. Unless the context otherwise indicates, reference to the “Company” are to Noble Roman’s, Inc. and its wholly-owned
subsidiaries.
Principles of Consolidation: The consolidated financial statements include the accounts of Noble Roman’s, Inc. and its wholly-owned
subsidiaries, Pizzaco, Inc. and N.R. Realty, Inc. Inter-company balances and transactions have been eliminated in consolidation.
Inventories: Inventories consist of food, beverage, restaurant supplies, restaurant equipment and marketing materials and are stated
at the lower of cost (first-in, first-out) or market.
Property and Equipment: Equipment and leasehold improvements are stated at cost. Depreciation and amortization are computed
on the straight-line method over the estimated useful lives ranging from five years to 12 years. Leasehold improvements are
amortized over the shorter of estimated useful life or the term of the lease.
Cash and Cash Equivalents: Includes actual cash balance. The cash is not pledged nor are there any withdrawal restrictions.
Assets Held for Resale: The Company records the cost of franchised locations held by the Company on a temporary basis until they
are sold to a franchisee at the Company’s cost adjusted for impaired value, if any, to the estimated net realizable value. The
Company estimates net realizable value using comparative replacement costs for other similar franchise locations that are being built
at the time the estimate is made. Since a decision was made not to sell the assets held for sale on the December 31, 2012 statement,
those assets were moved into equipment and began depreciation.
Advertising Costs: The Company records advertising costs consistent with Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification (“ASC”) Other Expense topic and Advertising Costs subtopic. This statement requires the
Company to expense advertising production costs the first time the production material is used.
Use of Estimates: The preparation of the consolidated financial statements in conformity with United States generally accepted
accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from those estimates. The Company records a valuation
allowance in a sufficient amount to adjust the total notes and accounts receivables value, in its best judgment, to reflect the amount
that the Company estimates will be collected from its total receivables. As any accounts are determined to be permanently impaired
(bankruptcy, lack of contact, age of account balance, etc.), they are charged off against the valuation allowance. The Company
evaluates its assets held for resale, property and equipment and related costs periodically to assess whether any impairment
indications are present, including recurring operating losses and significant adverse changes in legal factors or business climate that
affect the recovery of recorded value. If any impairment of an individual asset is evident, a loss would be provided to reduce the
carrying value to its estimated fair value.
29
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Intangible Assets: Debt issue costs are amortized to interest expense ratably over the term of the applicable debt. The debt issue
cost being amortized is $160,537 with accumulated amortization at December 31, 2013 of $62,676.
Royalties, Administrative and Franchise Fees: Royalties are recognized as income monthly and are based on a percentage of
monthly sales of franchised or licensed restaurants. Fees from the retail products in grocery stores are recognized monthly based on
the distributors’ sale of those retail products to the grocery stores or grocery store distributors. Administrative fees are recognized as
income monthly as earned. Initial franchise fees are recognized as income when the services for the franchised restaurant are
substantially completed.
Exit or Disposal Activities Related to Discontinued Operations: The Company records exit or disposal activity for discontinued
operations when management commits to an exit or disposal plan and includes those charges under results of discontinued
operations, as required by the ASC “Exit or Disposal Cost Obligations” topic.
Income Taxes: The Company provides for current and deferred income tax liabilities and assets utilizing an asset and liability
approach along with a valuation allowance as appropriate. The Company concluded that no valuation allowance was necessary
because it is more likely than not that the Company will earn sufficient income before the expiration of its net operating loss carry-
forwards to fully realize the value of the recorded deferred tax asset. As of December 31, 2013, the net operating loss carry-forward
was approximately $25 million which expires between the years 2018 and 2033. Management made the determination that no
valuation allowance was necessary after reviewing the Company’s business plans, relevant known facts to date, recent trends,
current performance and analysis of the backlog of franchises sold but not yet open.
U.S. generally accepted accounting principles require the Company to examine its tax positions for uncertain positions. Management
is not aware of any tax positions that are more likely than not to change in the next 12 months, or that would not sustain an
examination by applicable taxing authorities. The Company’s policy is to recognize penalties and interest as incurred in its
Consolidated Statements of Operations, none were included for the years ended December 31, 2011, 2012 and 2013. The
Company’s federal and various state income tax returns for 2010 through 2013 are subject to examination by the applicable tax
authorities, generally for three years after the later of the original or extended due date.
Basic and Diluted Net Income Per Share: Net income per share is based on the weighted average number of common shares
outstanding during the respective year. When dilutive, stock options and warrants are included as share equivalents using the
treasury stock method.
The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2011:
Income
Shares
Per Share
(Numerator)
(Denominator)
Amount
Net income
Less preferred stock dividends
$
818,958
(99,000)
Earnings per share – basic
Income available to common
stockholders
Effect of dilutive securities
Options
Convertible preferred stock
Diluted earnings per share
Income available to common stockholders
and assumed conversions
719,958 19,457,810 $
.04
-
99,000
287,802
366,666
$
818, 958 20,112,278 $
.04
30
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2012:
Income
Shares
Per Share
(Numerator)
(Denominator)
Amount
Net income
Less preferred stock dividends
$
624,143
(99,271)
Earnings per share – basic
Income available to common
stockholders
Effect of dilutive securities
Options
Convertible preferred stock
Diluted earnings per share
Income available to common stockholders
and assumed conversions
524,872 19,497,638 $
.03
-
99,271
213,606
366,666
$
624,143 20,0077,910 $
.03
The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2013:
Income
Shares
Per Share
(Numerator)
(Denominator)
Amount
Net income
Less preferred stock dividends
$
191,097
(99,000)
Earnings per share – basic
Income available to common
stockholders
Effect of dilutive securities
Options
Convertible preferred stock
Diluted earnings per share
Income available to common stockholders
and assumed conversions
(7,903) 19,533,201 $
-
-
99,000
939,707
-
$
191,097 20,472,908 $
.01
Subsequent Events: The Company evaluated subsequent events through the date the consolidated statements were issued and filed
with Form 10-K. On February 13, 2014, judgment was entered by the Hamilton Superior Court I in favor of Noble Roman’s, Inc. and
against two plaintiffs/counter-defendants in a lawsuit related to 2008 discontinued operations. No other subsequent event required
recognition or disclosure.
31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Note 2: Accounts Receivable
At December 31, 2012 and 2013, the carrying value of the Company’s accounts receivable has been reduced to anticipated realizable
value. As a result of this reduction of carrying value, the Company anticipates that substantially all of its net receivables reflected on
the Consolidated Balance Sheets as of December 31, 2012 and 2013 will be collected. The allowance to reduce the receivables to
anticipated net realizable value at December 31, 2013 was $263,000.
In 2012, the Company dismissed its counterclaims against certain plaintiffs in the lawsuit related to the operations discontinued in
2008 and reduced the net realizable value by $500,000 related to the Company’s counterclaims against the plaintiffs in the lawsuit
referenced above. In 2013, based on a judgment that was entered on February 13, 2014 in the lawsuit discussed above, the
Company reduced the carrying value of the receivables subject to the counterlaims by $1.1 million. Since the right to receive passive
income in the form of royalties is not a part of the discontinued operations, the adjustments to reflect these two charges was made to
continuing operations.
Note 3: Notes Payable
On May 15, 2012, the Company entered into a Credit Agreement with a bank for a term loan in the amount of $5.0 million which was
repayable in 48 equal monthly principal installments of approximately $104,000 plus interest with a final payment due on May 15,
2016. Interest on the unpaid principal balance is payable at a rate per annum of LIBOR plus 4%. The proceeds from the term loan,
net of certain fees and expenses associated with obtaining the term loan, were used to repay then-existing bank indebtedness and
borrowing from an officer of the Company. On October 31, 2013, the Company entered into a First Amendment to the Credit
Agreement (“Amendment”) with BMO Harris Bank, N.A. The Amendment maintains the terms of the term loan, as described above,
except for reducing the monthly principal payments from $104,000 to approximately $80,700 and extending the maturity to February
15, 2017. All other terms and conditions of the term loan remain the same including interest on the unpaid principal at a rate per
annum of LIBOR plus 4%. The Amendment also provided for a new term loan II in the original amount of $825,000 requiring monthly
principal payments of approximately $20,600 per month commencing on November 15, 2013 and continuing thereafter until the final
payment on February 15, 2017. The term loan II provides for interest on the unpaid principal balance to be paid monthly at a rate
per annum of LIBOR plus 6.08%. Proceeds from term loan II were used to redeem the Series B Preferred Stock. Interest paid on the
term loan in 2013 was $157,000 and interest paid on term loan II in 2013 was $6,000. The Company’s obligations under the term
loan and term II loan are secured by the grant of a security interest in essentially all assets of the Company and a personal guaranty
of an officer of up to $2 million of the loans and certain restrictions apply to the Company such as a prohibition on the payment of
dividends on common stock, as set forth in the Credit Agreement.
Note 4: Royalties and Fees
Approximately $194,000, $294,000 and $788,000 are included in the 2011, 2012 and 2013, respectively, royalties and fees in the
Consolidated Statements of Operations for initial franchise fees. Also included in royalties and fees were approximately $61,000,
$81,000 and $95,000 in 2011, 2012 and 2013, respectively, for equipment commissions. Most of the cost for the services required to
be performed by the Company are incurred prior to the franchise fee income being recorded which is based on contractual liability for
the franchisee. For the most part, the Company’s ongoing royalty income is paid electronically by the Company initiating a draft on
the franchisee’s account by electronic withdrawal. As such, the Company has no material amount of past due royalties.
32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In conjunction with the development of Noble Roman’s Pizza and Tuscano’s Italian Style Subs, the Company has devised its own
recipes for many of the ingredients that go into the making of its products (“Proprietary Products”). The Company contracts with
various manufacturers to manufacture its Proprietary Products in accordance with the Company’s recipes and formulas and to sell
those products to authorized distributors at a contract price which includes an allowance for use of the Company’s recipes. The
manufacturing contracts also require the manufacturers to remit those allowances to the Company on a periodic basis, usually
monthly. The Company recognizes those allowances in revenue as earned based on sales reports from the distributors.
There were 1,847 franchised or licensed outlets in operation on December 31, 2012 and 2,029 on December 31, 2013. During that
12-month period, there were 211 new franchised or licensed outlets opened and 29 franchised or licensed outlets left the
system. Grocery stores are accustomed to adding products for a period of time, removing them for a period of time and possibly
reoffering them. Therefore, it is unknown how many grocery store licenses have left the system.
Note 5: Contingent Liabilities for Leased Facilities
The Company leased its former restaurant facilities under non-cancelable lease agreements which generally had initial terms ranging
from five to 20 years with extended renewal terms. These leases have been terminated or assigned to franchisees who operate them
pursuant to a Noble Roman’s, Inc. Franchise Agreement. The assignment passes all liability for future lease payments to the
assignees, however, the Company remains contingently liable on two of the leases to the landlords in the event of default by the
assignees. The leases generally required the Company or its assignees to pay all real estate taxes, insurance and maintenance
costs. At December 31, 2013, contingent obligations under non-cancelable operating leases for 2014, 2015 and 2016, were
approximately $91,563, $71,343 and $24,675, respectively.
The Company has future obligations of $381,642 under current operating leases as follows: due in less than one year $238,795 and
due in one to three years $142,848.
Note 6: Income Taxes
The Company had a deferred tax asset, as a result of prior operating losses, of $10.64 million at December 31, 2012 and $10.58
million at December 31, 2013, which expires between the years 2018 and 2033. In 2011, 2012 and 2013, the Company used
deferred benefits to offset its tax expense of $1.00 million, $753,000 and $568,000, respectively, and tax benefits from loss on
discontinued operations of $466,000 in 2011, $344,000 in 2012 and $512,000 in 2013. As a result of the tax credits, the Company
did not pay any income taxes in 2011, 2012 and 2013. There are no material differences between reported income tax expense or
benefit and the income tax expense or benefit that would result from applying the Federal and state statutory tax rates.
Note 7: Common Stock
On December 31, 2012, the Company had issued and outstanding Series B Preferred Stock with an aggregate liquidation value of
$825,000 and none on December 31, 2013. Prior to the redemption of the Series B Preferred, at the option of the holder, it could
have been converted to common stock at a conversion price of $2.25 per share, however the Company redeemed the Series B
Preferred stock prior to it being converted. The preferred stock provided for cumulative dividends at the rate of 12% per annum
33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
on the liquidation value. The Company redeemed the Series B Preferred Stock at the liquidation value on October 31, 2013.
On September 6, 2013, an employee exercised an option for 2,500 shares of common stock at a price of $.83 per share. On
September 11, 2013, an employee exercised an option for 30,000 shares of common stock at a price of $.36 per share. On
September 24, 2013, an employee exercised an option for 10,000 shares of common stock at a price of $.36 per share. On
September 27, 2013, an employee exercised an option for 1,000 shares of common stock at a price of $.95 per share. On October 7,
2013, an employee exercised an option for 10,000 shares of common stock at a price of $.83 per share. On December 2, 2013, an
employee exercised an option for 15,000 shares of common stock at a price of $.95 per share.
The Company has an incentive stock option plan for key employees, officers and directors. The options are generally exercisable
three years after the date of grant and expire ten years after the date of grant. The option prices are the fair market value of the stock
at the date of grant. At December 31, 2013, the Company had the following employee stock options outstanding:
$
Exercise Price
# Common Shares
Represented
33,500
57,500
335,000
415,000
1,800,000
155,000
351,000
40,000
270,500
.83
2.30
.36
.95
1.05
.90
.58
.68
1.30
As of December 31, 2013, options for 2,041,000 shares were exercisable.
The Company adopted the modified prospective method to account for stock option grants, which does not require restatement of
prior periods. Under the modified prospective method, the Company is required to record compensation expense for all awards
granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of
adoption, net of an estimate of expected forfeitures. Compensation expense is based on the estimated fair values of stock options
determined on the date of grant and is recognized over the related vesting period, net of an estimate of expected forfeitures.
The Company estimates the fair value of its option awards on the date of grant using the Black-Scholes option pricing model. The
risk-free interest rate is based on external data while all other assumptions are determined based on the Company’s historical
experience with stock options. The following assumptions were used for grants in 2011, 2012 and 2013:
Expected volatility
Expected dividend yield
Expected term (in years)
Risk-free interest rate
20% to 30%
None
5
3.56% to 1.62%
34
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following table sets forth the number of options outstanding as of December 31, 2010, 2011, 2012 and 2013 and the number of
options granted, exercised or forfeited during the years ended December 31, 2011, December 31, 2012 and December 31, 2013:
Balance of employee stock options outstanding as of 12/31/10
Stock options granted during the year ended 12/31/11
Stock options exercised during the year ended 12/31/11
Stock options forfeited during the year ended 12/31/11
Balance of employee stock options outstanding as of 12/31/11
Stock options granted during the year ended 12/31/12
Stock options exercised during the year ended 12/31/12
Stock options forfeited during the year ended 12/31/12
Balance of employee stock options outstanding as of 12/31/12
Stock options granted during the year ended 12/31/13
Stock options exercised during the year ended 12/31/13
Stock options forfeited during the year ended 12/31/13
Balance of employee stock options outstanding as of 12/31/13
1,100,500
2,000,000
(50,000)
(50,000)
3,000,500
401,000
(60,000)
(75,000)
3,266,500
273,000
68,500
13,500
3,457,500
The following table sets forth the number of non-vested options outstanding as of December 31, 2010, 2011, 2012 and 2013, and the
number of stock options granted, vested and forfeited during the years ended December 31, 2011, 2012 and 2013.
Balance of employee non-vested stock options outstanding as of 12/31/10
Stock options granted during the year ended 12/31/11
Stock options vested during the year ended 12/31/11
Stock options forfeited during the year ended 12/31/11
Balance of employee non-vested stock options outstanding as of 12/31/11
Stock options granted during the year ended 12/31/12
Stock options vested during the year ended 12/31/12
Stock options forfeited during the year ended 12/31/12
Balance of employee non-vested stock options outstanding as of 12/31/12
Stock options granted during the year ended 12/31/13
Stock options vested during the year ended 12/31/13
Stock options forfeited during the year ended 12/31/13
Balance of employee non-vested stock options outstanding as of 12/31/13
936,000
2,000,000
(445,000)
(30,000)
2,461,000
401,000
(600,000)
(75,000)
2,187,000
273,000
(1,031,000)
(12,500)
1,416,500
During 2013, employee stock options were granted for 273,000 shares, options for 68,500 shares were exercised and options for
13,500 shares were forfeited. At December 31, 2013, the weighted average grant date fair value of non-vested options was $.95 per
share and the weighted average grant date fair value of vested options was $.95 per share. The weighted average grant date fair
value of employee stock options granted during 2011 was $1.04, during 2012 was $.58 and during 2013 was $1.30. Total
compensation cost recognized for share-based payment arrangements was $105,659 with a tax benefit of $41,841 in 2011, $107,882
with a tax benefit of $42,732 in 2012 and $117,118 with a tax benefit of $46,390 in 2013. As of December 31, 2013, total
compensation cost related to non-vested options was $71,214, which will be recognized as compensation cost over the next six to 30
months. No cash was used to settle equity instruments under share-based payment arrangements.
35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Note 8: Statements of Financial Accounting Standards
The Company does not believe that the recently issued Statements of Financial Accounting Standards will have any material impact
on the Company’s Consolidated Statements of Operations or its Consolidated Balance Sheets.
Note 9: Loss from Discontinued Operations
The Company made the decision in 1999 to discontinue operations of its full-service restaurants and made the decision in late 2008
to discontinue the business of operating traditional quick service restaurants, which had been acquired from struggling franchisees
and later sold to new franchisees. As a result, the Company charged off or dramatically lowered the carrying value of all receivables
related to the traditional restaurants and accrued future estimated expenses related to the estimated cost to prosecute a lawsuit
related to those discontinued operations. The ongoing right to receive passive income in the form of royalties is not a part of the
discontinued segment.
A full-service restaurant that was closed in conjunction with the business activity discontinued in 1999 was sublet to an unrelated
party. In late 2008, the Company lost that sub-tenant and the building was severely damaged by a tornado. As a result, the
Company incurred additional cost related to the 1999 discontiniued operations as well as the ones that were discontinued in 2008.
The Company reported net loss from discontinued operations in 2011 of $710,000. This was comprised of $111,000 for the leased
property discussed above. The Company disclosed the contingent lease liability portion of this cost in the footnotes to the
consolidated financial statements under “Contingent Liabilities for Leased Facilities.” The net loss also included $230,000 for legal
and other expenses related to a California foodservice distributor arising out of the operations discontinued in 2008 and $370,000 for
estimated legal and other costs of a lawsuit related to those discontinued operations.
The Company reported a net loss from discontinued operations of $525,000 in 2012. This consisted of $110,000 in legal and other
costs relating to the restaurant that was closed in conjunction with the business activity discontinued in 1999 discussed above. The
primary reason for this additional loss was the insurance company’s denial of all except a small portion of the Company’s claim for
damages from the tornado. In addition, the Company accrued an additional loss of $415,000 for legal and other costs of a lawsuit
related to the operations discontinued in 2008.
The Company reported a net loss on discontinued operations of $780,000 in 2013. This consisted of $178,000 in legal and
settlement costs through the end of the lease relating to the restaurant that was closed in conjunction with the business activity
discontinued in 1999 discussed above. In addition, the Company incurred $147,000 for legal and other costs of its lawsuit related to
the operations discontinued in 2008, and wrote off $257,000 in receivables of which $123,000 were from various distributors and
$199,000 in obsolete support materials and other costs, all related to the operations discontinued in 2008.
Note 10: Contingencies
The Company, from time to time, is or may become involved in various litigation relating to claims arising out of its normal business
operations.
Currently, the Company has no material litigation pending against it.
Note 11: Certain Relationships and Related Transactions
36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following is a summary of transactions to which the Company and certain officers and directors of the Company are a party or
have a financial interest. The Board of Directors of the Company has adopted a policy that all transactions between the Company
and its officers, directors, principal shareholders and other affiliates must be approved by a majority of the Company's disinterested
directors, and be conducted on terms no less favorable to the Company than could be obtained from unaffiliated third parties.
Jeffrey R. Gaither, a Director, is Managing Partner of Bose McKinney & Evans, LLP, a law firm that performs legal services for the
Company. The Company paid Bose McKinney for services rendered in the approximate amount of $428,000, $382,000 and
$200,000 in 2011, 2012 and 2013, respectively.
Note 12: Unaudited Quarterly Financial Information
Quarter Ended
December
31
September
30
June 30
March 31
(in thousands, except per share data)
$
$
$
$
1,717
547
1,933
752
1,987
805
(712)
(430)
(780)
(1,210)
(.02)
(.02)
(.06)
(.06)
705
427
-
427
.02
.02
.02
.02
754
456
-
456
.02
.02
.02
.02
1,891
746
693
418
-
418
.02
.02
.02
.02
Quarter Ended
December
31
September
30
June 30
March 31
(in thousands, except per share data)
$
$
1,724
624
$
1,845
726
$
1,894
765
1,838
700
66
40
525
(485)
-
-
(.02)
(.02)
665
402
-
402
.02
.02
.02
.02
567
342
-
342
.02
.02
.02
.02
605
365
-
365
.02
.02
.02
.02
37
2013
Total revenue
Operating income
Net income (loss) before income taxes from
continuing operations
Net income (loss) from continuing operations
Loss from discontinued operations
Net income (loss)
Net income (loss) from continuing operations
per common share
Basic
Diluted
Net income (loss) per common share
Basic
Diluted
2012
Total revenue
Operating income
Net income before income taxes from
continuing operations
Net income from continuing operations
Loss from discontinued operations
Net income (loss)
Net income from continuing operations
per common share
Basic
Diluted
Net income (loss) per common share
Basic
Diluted
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
NOBLE ROMAN’S, INC. AND SUBSIDIARIES
Indianapolis, Indiana
We have audited the accompanying consolidated balance sheets of NOBLE ROMAN’S, INC. AND SUBSIDIARIES, as of
December 31, 2013 and 2012, and the related consolidated statements of operations, changes in stockholders’ equity and
cash flows for each of the three years in the period ended December 31, 2013. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of NOBLE ROMAN’S, INC. AND SUBSIDIARIES, as of December 31, 2013 and 2012, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Somerset CPA’s, P.C.
Indianapolis, Indiana
March 12, 2014
38
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Exchange Act Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive and
principal financial officers, or persons performing similar functions, and effected by the Company's Board of Directors, management,
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with United States generally accepted accounting principles (“GAAP”) and includes
those policies and procedures that:
(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company's assets that could have a material effect on the financial statements.
Because of applicable limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by
internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
The Public Company Accounting Oversight Board’s Auditing Standard No. 5 defines a material weakness as a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A
deficiency in internal control over reporting exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
Our management, including Paul W. Mobley, the Company’s Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of our internral control over financial reporting as of December 31, 2013. Our management has
concluded that the Company’s internal controls over financial reporting are effective.
39
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
There have been no changes in internal controls over financial reporting during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this
annual report.
Management’s Evaluation of Disclosure Controls and Procedures
Based on his evaluation, as of the end of the period covered by this report, Paul W. Mobley, the Company’s Chief Executive Officer
and Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) are effective.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND
CORPORATE GOVERNANCE
PART III
Information concerning this item is included under captions “Election of Directors”, “Section 16(a) Beneficial Ownership Reporting
Compliance,” and “Corporate Governance” in our Proxy Statement for our 2014 Annual Meeting of Shareholders (the “2014 Proxy
Statement”) and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this item is included under the caption “Executive Compensation”, “Director Compensation” and
“Compensation Committee Interlocks and Insider Participation” in the 2014 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information concerning this item is included in Item 5 of this report under the caption “Equity Compensation Plan Information” and
under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 2014 Proxy Statement and is
incorporated herein by reference.
40
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Information concerning this item is included under the caption “Corporate Governance” in the 2014 Proxy Statement and is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information concerning this item is included under the caption “Independent Auditors’ Fees” in the 2014 Proxy Statement and is
incorporated herein by reference.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
The following consolidated financial statements of Noble
Roman's, Inc. and Subsidiaries are included in Item 8:
Consolidated Balance Sheets - December 31, 2012 and 2013
Consolidated Statements of Operations - years ended December 31, 2011, 2012 and 2013
Consolidated Statements of Changes in Stockholders' Equity - years ended
December 31, 2011, 2012 and 2013
Consolidated Statements of Cash Flows - years ended December 31, 2011, 2012 and 2013
Notes to Consolidated Financial Statements
Report of Independent Registered Accounting Firm. – Somerset CPAs, P.C.
Page
25
26
27
28
29
38
Exhibits
Exhibit
Number
3.1
3.2
3.3
Description
Amended Articles of Incorporation of the Registrant, filed as an exhibit to the Registrant’s Amendment No. 1 to the Post
Effective Amendment No. 2 to Registration Statement on Form S-1 filed July 1, 1985 (SEC File No.2-84150), is
incorporated herein by reference.
Amended and Restated By-Laws of the Registrant, as currently in effect, filed as an exhibit to the Registrant’s Form 8-K
filed December 23, 2009, is incorporated herein by reference.
Articles of Amendment of the Articles of Incorporation of the Registrant effective February 18, 1992 filed as an exhibit to
the Registrant’s Registration Statement on Form SB-2 (SEC File No. 33-66850), ordered effective on October 26,
1993, is incorporated herein by reference.
41
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3.4
3.5
3.6
4.1
10.1
10.2
10.3
Articles of Amendment of the Articles of Incorporation of the Registrant effective May 11, 2000, filed as Annex A and
Annex B to the Registrant’s Proxy Statement on Schedule 14A filed March 28, 2000, is incorporated herein by
reference.
Articles of Amendment of the Articles of Incorporation of the Registrant effective April 16, 2001 filed as Exhibit 3.4 to
Registrant’s annual report on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.
Articles of Amendment of the Articles of Incorporation of the Registrant effective August 23, 2005, filed as Exhibit 3.1 to
the Registrant's current report on Form 8-K filed August 29, 2005, is incorporated herein by reference.
Specimen Common Stock Certificates filed as an exhibit to the Registrant’s Registration Statement on Form S-18 filed
October 22, 1982 and ordered effective on December 14, 1982 (SEC File No. 2-79963C), is incorporated herein by
reference.
Employment Agreement with Paul W. Mobley dated January 2, 1999 filed as Exhibit 10.1 to Registrant’s annual report
on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.
Employment Agreement with A. Scott Mobley dated January 2, 1999 filed as Exhibit 10.2 to Registrant’s annual report
on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.
Credit Agreement with BMO Harris Bank, N.A., dated May 25, 2012, filed as Exhibit 10.17 to the Registrant’s quarterly
report on Form 10-Q filed on August 13, 2012, is incorporated herein by reference.
10.4
First Amendment to Credit Agreement with BMO Harris Bank, N.A. dated October 31, 2013, filed herewith.
10.5
Promissory Note (Term Loan) with BMO Harris Bank, N.A. dated October 31, 2013, herewith.
10.6
Promissory Note (Term Loan II) with BMO Harris Bank, N.A. dated October 31, 2013, filed herewith.
21.1
Subsidiaries of the Registrant filed in the Registrant’s Registration Statement on Form SB-2 (SEC File No. 33-66850)
ordered effective on October 26, 1993, is incorporated herein by reference.
31.1
C.E.O. and C.F.O. Certification under Rule 13a-14(a)/15d-14(a)
32.1
C.E.O. and C.F.O. Certification under Section 1350
101
Interactive Financial Data
42
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SIGNATURES
In accordance with of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 12, 2014
By: /s/ Paul W. Mobley
NOBLE ROMAN'S, INC.
Paul W. Mobley, Chairman, Chief Executive Officer,
Chief Financial Officer and Principal Accounting
Officer
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 12, 2014
By: /s/ Paul W. Mobley
Paul W. Mobley
Chairman of the Board and Director
Date: March 12, 2014
Date: March 12, 2014
Date: March 12, 2014
By: /s/ A. Scott Mobley
A. Scott Mobley
President and Director
By: /s/ Douglas H. Coape-Arnold
Douglas H. Coape-Arnold
Director
By: /s/ Jeffrey R. Gaither
Jeffrey R. Gaither
Director
43
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.1
I, Paul W. Mobley, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Noble Roman’s, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 12, 2014
By: /s/ Paul W. Mobley
Paul W. Mobley
Chief Executive Officer and
Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Noble Roman’s, Inc. (the “Company”) on Form 10-K for the period ending December 31,
2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul W. Mobley, Chief Executive
Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
March 12, 2014
By: /s/ Paul W. Mobley
Paul W. Mobley
Chief Executive Officer and Chief Financial
Officer of Noble Roman’s, Inc.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.