SECURITIES & EXCHANGE COMMISSION EDGAR FILING
NOBLE ROMANS INC
Form: 10-K
Date Filed: 2015-03-12
Corporate Issuer CIK: 709005
NROM
Symbol:
5812
SIC Code:
12/31
Fiscal Year End:
© Copyright 2015, 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, 2014.
❑ 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. ☑
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.
(Check one):
Large Accelerated Filer ❑ Accelerated Filer ❑ Non-Accelerated Filer o (do not check if a smaller reporting company) Smaller
Reporting Company ☑
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 30, 2014, 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
$16.3 million.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable
date: 20,095,087 shares of common stock as of March 9, 2015.
Documents Incorporated by Reference:
Portions of the definitive proxy statement for the registrant’s 2015 Annual Meeting of Shareholders are incorporated by reference in Part
III.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOBLE ROMAN'S, INC.
FORM 10-K
Year Ended December 31, 2014
Table of Contents
Item
Page
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
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
PART III
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
4
11
13
13
14
14
14
15
16
24
25
39
39
40
40
41
41
41
41
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ITEM 1. BUSINESS
General Information
PART 1
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 concentrated 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. The Company 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. owns and operates 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 and 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 under 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 franchise 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.
Licensing and Franchising the Company’s Take-N-Bake Program. The take-n-bake pizza is designed as a unique product offering for
grocery stores, an add-on component for new or existing convenience store franchisees/licensees and stand-alone franchise
locations. The Company is currently in discussions with several grocery store operators for numerous locations for additional take-n-bake
license agreements. In addition, the Company recently signed agreements with four grocery store distributors servicing numerous
locations. In early 2014, the Company completed a re-design of its packaging for take-n-bake pizza in grocery stores, which is a treated
bottom aluminum baking pan with a clear plastic top, added new mega-topped larger pizzas (designed as value appeal to the customers)
and added a new gluten-free crust. 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.
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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. The first stand-alone take-n-bake pizza location opened in October 2012 and, as of March 1, 2015, there are 23
locations open. 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 advertising for additional franchisees through various web-based franchise referral systems and, in
selected markets, newspaper and on-line advertising. The Company conutinues to develop and test several possible enhancments to the
stand-alone take-n-bake concept, with a view to adding revenue to each location and reducing costs.
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.
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 format
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 minimal labor, which allows for a significant competitive advantage due to the speed at
which the products can be prepared, baked and served to customers.
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 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.
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.
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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 nine 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 and to
its grocery store distributors in their respective territories. Each of the primary distributors purchases the products from the manufacturer
at a price negotiated between the Company and the manufacturers, but 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 the Company’s products from one of its primary distributors and to distribute take-n-bake products to their
grocery store customers who have signed license agreements with the Company.
Franchising
The Company sells franchises into various non-traditional and traditional venues.
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.
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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 a 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 and the retail food industry in general are 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 venue 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.
Many of the Company’s competitors in the non-traditional venue 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 venue, often have little exposure to foodservice operations themselves. The Company’s
background in traditional restaurant operations has provided it experience in structuring, 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, extreme 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.
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Employees
As of March 9, 2015, the Company employed approximately 25 persons full-time and 11 persons on a part-time, hourly basis, of which 23
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. 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, as well as laws and regulations relating to minimum wage and other employment-related matters. 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. Changes in the laws and
rules applicable to the Company or its franchisees or licensees, or their interpretation, could have a material adverse effect on our
business.
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 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.
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Executive Officers of the Company
Executive Chairman of the Board and Chief Financial Officer - Paul W. Mobley* was Chairman of the Board, Chief Executive Officer and
Chief Financial Officer from December 1991 until October 2014 when he became Executive Chairman and Chief Financial Officer. Mr.
Mobley has been a Director and an Officer since 1974. From 1975 to 1987, Mr. Mobley was a significant shareholder and president of a
company which owned and operated 17 Arby’s franchise restaurants. He is the father of A. Scott Mobley. Mr. Mobley has a B.S. in
Business Administration from Indiana University and is a CPA.
President, Chief Exeutive Officer, Secretary and a Director - A. Scott Mobley* has been President since 1997, a Director since January
1992, Secretary since February 1993 and Chief Executive Officer since October 2014. 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 magna cum laude 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 Development - James D. Bales has been Vice President of Operations/Development since March 2008. Before
becoming Vice President of Operations/Development, 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.
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.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, most of 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, including grocery stores
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 franchises/licenses 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 Company is dependent on the franchisees to accurately report
their weekly sales and, consequently, the calculation of royalties. If the franchisees do not accurately report their sales, the Company’s
revenue could decline. The 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 to increase the Federal minimum wage could have an adverse financial affect on our franchisees
or licensees by increasing their labor cost.
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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 retail outlet or a limited number of restaurants and retail outlets.
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 Executive Chairman and Chief Financial Officer, and A. Scott Mobley, our President and Chief Executive
Officer. The loss of either of their services could have a material adverse effect on the Company.
Federal, state and local laws with regard to the operation of the businesses.
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.
12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.”
Inapplicability of corporate governance standards that apply to companies listed on a national exchange.
Our stock is quoted on the OTCQB, 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 OTCQB 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 OTCQB 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 on March 31, 2015. The Company plans to extend its current lease for another three year term.
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.
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.
13
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is or may become involved in various litigation or regulatory proceedings arising out of its normal
business operations.
Currently, there are no such pending proceedings which the Company considers to be material.
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 OTCQB 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:
High
Low
High
Low
2013
2014
$
$
$
$
1.07
1.17
1.71
1.99
$
$
$
$
.72
.78
1.22
1.40
$
$
$
$
2.24
1.65
1.76
2.22
$
$
$
$
1.39
1.18
1.50
1.58
March 31
June 30
September 30
December 31
Holders of Record
As of March 9, 2015, there were approximately 268 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.
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.
Repurchases of Equity Securities
None.
14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Equity Compensation Plan Information
The following table provides information as of December 31, 2014 with respect to the shares of our common stock that may be issued
under our existing equity compensation plan.
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
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)
- $
3,435,000 $
3,435,000 $
-
1.06
1.06
-
(1)
(1)
(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 Executive Chairman and the President and Chief Executive Officer and authorized by the
Board of Directors. The employee stock option plan does not limit the number of shares that may be issued under the plan.
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
$
$
$
$
$
2010
2011
2012
2013
2014
Year Ended December 31,
$
6,726
40
505
7,271
2,150
502
66
1,610
2,943
441
-
2,502
991
1,511
$
6,814
44
518
7,376
2,202
508
124
1,620
2,922
390
-
2,532
1,003
1,529
$
6,824
20
456
7,300
2,348
427
116
1,594
2,815
413
500
1,902
753
1,149
$
7,083
24
421
7,528
2,527
391
114
1,647
2,849
201
1,208
1,440
569
871
(1,201)
310
91
$
(710)
$
819
99
(525)
$
624
99
(780)
$
91
99
7,479
73
363
7,915
2,716
402
112
1,646
3,039
190
-
2,849
1,105
1,744
(154)
1,590
-
219
$
720
$
525
$
(8) $
1,590
19,415
19,458
19,498
19,533
19,871
$
.08
.02
$
.08
.04
$
.06
.03
$
.05
.01
.01
$
.04
$
.03
$
-
$
.09
.08
.08
December 31,
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Balance Sheet Data:
Working capital (deficit)
Total assets
Long-term obligations, net of current portion
Stockholders' equity
2010
2011
2012
2013
2014
$
$
927
16,895
3,481
10,885
$
$
(852) $
17,224
1,256
11,728
$
1,964
17,161
3,021
12,379
$
$
1,451
16,374
2,635
11,703
$
$
2,267
17,758
1,847
13,766
15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 concetrated 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, Dominican Republic and Canada.
There were 2,029 franchised or licensed outlets in operation on December 31, 2013 and 2,215 on December 31, 2014. During that 12-
month period ended December 31, 2014, 242 new franchised or licensed outlets opened and 56 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, 2013 and 2014, the Company reported net accounts receivable of $1.69 million and $3.57 million, respectively, each of
which were net of allowances. The allowance at December 31, 2014 was $2.25 million 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, at December 31, 2013 and December 31, 2014, had a deferred tax asset on its balance
sheet totaling $10.582 million and $9.574 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.
16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Condensed Consolidated Statement of Operations Data
Noble Roman's, Inc. and Subsidiaries
2012
2013
2014
Years Ended December 31,
Royalties and fees
Administrative fees and other
Restaurant revenue
Total revenue
$
6,823,811
19,872
456,449
7,300,132
93.5% $
.3
6.2
100.0
7,082,548
24,138
420,753
7,527,439
94.1% $
.3
5.6
100.0
7,479,334
72,541
363,340
7,915,215
94.5%
.9
4.6
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
Royalties and fees
Administrative fees and other
Restaurant revenue
Total revenue
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
979,447
498,951
183,316
685,836
427,127
116,287
1,593,646
4,484,610
2,815,522
413,334
500,000
1,902,188
753,457
13.4
6.8
2.5
9.4
5.9
1.6
21.8
61.3
38.6
5.7
6.8
26.1
10.3
1,056,790
514,570
207,572
747,914
390,507
113,607
1,646,993
4,677,953
2,849,486
14.0
6.8
2.8
9.9
5.2
1.5
21.9
62.1
37.9
1,063,076
541,385
235,127
876,162
402,281
111,750
1,646,502
4,876,283
3,038,932
201,381
2.7
190,382
1,208,162
1,439,943
568,406
16.0
19.2
7.6
-
2,848,550
1,104,809
13.4
6.8
3.0
11.1
5.1
1.4
20.8
61.6
38.4
2.4
-
36.0
14.0
$
1,148,731
15.8% $
871,537
11.6% $
1,743,741
22.0%
Quarters Ended December 31,
2013
2014
$
1,624,114
9,870
82,533
1,716,517
94.6% $
.6
4.8
100.0
1,708,334
15,359
83,629
1,807,322
94.5%
.9
4.6
100.0
276,229
124,413
53,987
188,164
86,324
28,572
411,806
1,169,495
547,022
50,771
1,208,162
16.1
7.2
3.1
11.0
5.0
1.7
24.0
68.1
31.9
3.0
70.4
(711,911)
(282,378)
(41.5)
(16.5)
273,547
140,540
64,326
232,224
100,628
28,286
417,578
1,257,129
550,193
49,517
-
500,676
198,061
15.1
7.8
3.6
12.8
5.6
1.6
23.1
69.6
30.4
2.7
-
27.7
10.9
$
(429,533)
(25.0)% $
302,615
16.8%
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2014 Compared to 2013
Total revenue for year 2014 increased to $7.9 million from $7.5 million in 2013. For the three months ended December 31, 2014, total
revenue increased to $1.8 million from $1.7 million for the comparable period in 2013. For the year 2014, franchise fees and equipment
commissions (“Upfront Fees”) decreased to $392,000 from $883,000 for 2013. For the three-month period ended December 31, 2014,
Upfront Fees decreased to $74,000 from $147,000 for the comparable period in 2013. Royalties and fees, less Upfront Fees, increased to
$7.1 million for 2014 from $6.2 million in 2013, or a 14% increase. For the three-month period ended December 31, 2014, royalties and
fees less Upfront Fees increased to $1.6 million from $1.5 million for the comparable period in 2013, or a 7% increase. The breakdown of
royalties and fees less Upfront Fees for year 2014 and for the three months ended December 31, 2014 compared to the comparable
periods in 2013, respectively, were: royalties and fees from non-traditional franchises other than grocery stores were $4.5 million and
$993,000 and $4.3 million and $1.0 million; royalties and fees from the grocery store take-n-bake were $1.5 million and $340,000 and $1.3
million and $257,000; royalties and fees from stand-alone take-n-bake franchises were $849,000 and $234,000 and $310,000 and
$146,000; royalties and fees from traditional locations were $283,000 and $67,000 and $313,000 and $74,000. The decline in Upfront Fees
was the result of selling less franchises for the Company’s stand alone take-n- bake franchise. The growth in the royalties and fees from
grocery store take-n-bake were the result of adding new packaging and new products.
During 2014, the Company began auditing sales used to compute royalties reported by non-traditional franchisees and plans to continue to
do so on an ongoing basis, the effect of which is unknown. The Company estimates franchise sales based on product purchases as
reflected on distributor reports. Where under-reporting is identified, the Company invoiced the franchisees for royalties on the unreported
amount.
18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Restaurant revenue for 2014 decreased to $363,000 from $421,000 in 2013. For the three-month period ended December 31, 2014,
restaurant revenue increased to $84,000 from $83,000 for the comparable period in 2013. The Company only operates two locations
used primarily for testing and demonstration purposes.
As a percentage of total revenue, salaries and wages for 2014 decreased to 13.4% from 14.0% in 2013. For the three-month period ended
December 31, 2014, salaries and wages decreased to 15.1% from 16.1% for the comparable period in 2013. Salaries and wages
remained approximately the same at $1.1 million for both 2014 and 2013. For the three-month period ended December 31, 2014, salaries
and wages decreased to $274,000 from $276,000 for the comparable period in 2013.
As a percentage of total revenue, trade show expenses for 2014 remained the same as 2013 at 6.8%. For the three-month period ended
December 31, 2014, trade show expenses increased to 7.8% from 7.2% for the comparable period in 2013. Trade show expenses were
$541,000 and $141,000,respectively, for the year and three-month period ended December 31, 2014 compared to $515,000 and
$124,000, respectively, for the comparable periods in 2013.
As a percentage of total revenue, travel expenses for 2014 increased to 3.0% from 2.8% in 2013. For the three month period ended
December 31, 2014 travel expense increased to 3.6% from 3.1% for the comparable period in 2013. Travel expense were $235,000 and
$64,000, respectively, for the year and three-month period ended December 31, 2014 and $208,000 and $54,000, respectively, for the
comparable periods in 2013.
As a percentage of total revenue, other operating expenses for 2014 increased to 11.1% compared to 9.9% in 2013. For the three-month
period ended December 31, 2014, other operating expenses increased to 12.8% from 11.0% for the comparable period in 2013. The
primary reasons for the increased other operating expenses were an increase in group insurance, general insurance and advertising costs
while all other operating expenses decreased.
As a percentage of total revenue, restaurant expenses in 2014 decreased to 5.1% from 5.2% in 2013. For the three-month period ended
December 31, 2014, restaurant expenses increased to 5.6% from 5.0% for the comparable period in 2013. 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 for 2014 decreased to 20.8% from 21.9% in 2013. For the three-
month period ended December 31, 2014, general and administation expenses decreased to 23.1% from 24.0% for the comparable period
in 2013. The decrease in general and administrative expenses, as a percentage of total revenue, was the result of revenue increases.
As a percentage of total revenue, total expenses for 2014 decreased to 61.6% from 62.1% in 2013. For the three-month period ended
December 31, 2014, total expenses increased to 69.6% from 68.1% for the comparable period in 2013. The decrease for the year was the
result of increased revenue partially offset by an increase in the amount of expenses.
As a percentage of total revenue, operating income for 2014 increased to 38.4% from 37.9% in 2013.
19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
For the three-month period ended December 31, 2014, operating income decreased to 30.4% from 31.9% for the comparable period in
2013. The increase for the year was a result of the success of the Company’s strategies to increase revenue while maintaining relatively
stable operating expenses.
Interest expense, as a percentage of total revenue, for 2014 decreased to 2.4% from 2.7% in 2013. For the three-month period ended
December 31, 2014, interest expense decreased to 2.7% from 3.0% for the comparable period in 2013. Actual interest expense
decreased to $190,000 and $50,000, respectively, for the year and three month period ended December 31, 2014 compared to $201,000
and $51,000, respectively, for the comparable periods in 2013. The primary reason for the decrease in interest expense was the
continued amortization of the principal balance of notes payable.
Net income before income taxes from continuing operations for 2014 increased to $2.8 million from $1.4 million in 2013; however, 2013
included a valuation allowance related to the Heyser case of $1.2 million. For the three-month period ended December 31, 2014, net
income before income taxes from continuing operations was $501,000 compared to a loss of $712,000 for the comparable period in
2013. Although income tax expense is reflected on the Condensed Consolidated Statement of Operations, the Company will not pay any
income tax on approximately the next $22.6 million in net income before income taxes due to its net operating loss carry-forwards.
Loss on discontinued operations decreased to $153,000 in 2014 compared to $780,000 in 2013. This decrease is the result of the issues,
related to the discontinued operations in 1999 and 2008, having been mostly resolved.
Net income for 2014 increased to $1.6 million from $91,000 in 2013. The increase in net income was a result of the Company’s strategies
to increase revenue while maintaining total expenses relatively stable. In addition, the Company’s net income in 2013 was reduced by the
recording of a valulation allowance related to the Heyser case with an aftertax effect of $730,000.
2013 Compared to 2012
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%. 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 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 $217,000 from non-traditional units no
longer operating.
20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 which were 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 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.
21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 expiration 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. The
Company redeemed all outstanding Series B Preferred Stock in October 2013, which eliminated the dividend requirements going forward.
Impact of Inflation
The primary inflation factors affecting the Company's operations are food and labor costs to the franchisee. Cheese makes up the single
largest cost of a pizza. Cheese prices increased in 2013. They reached an all-time record high in April 2014 and maintained at historically
high prices until mid-September 2014. They have since decreased until they are approximately 10% below the ten-year average price. The
Company’s business was affected by the increased cost of meats during 2014. Labor cost has remained relatively constant in the past
two years. We believe 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.
22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 2.1-to-1 as of December 31, 2014 compared to 1.7-to-1 as of December 31, 2013.
In May, 2012, the Company entered into a Credit Agreement with BMO Harris Bank, N.A. (the “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 in May, 2016. Interest on the unpaid principal balance is payable at a rate per annum of the London Interbank Offered Rate (“
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. In October, 2013, the Company entered into a
First Amendment to the Credit Agreement (the“First Amendment”) with the bank. The First 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, 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 First Amendment also provided for a new term loan in the original amount of
$825,000 requiring monthly principal payments of approximately $20,600 per month commencing in November, 2013 and continuing
thereafter until the final payment in February, 2017. The term loan provides for interest on the unpaid principal balance to be paid monthly
at a rate per annum of LIBOR plus 6.08%. Proceeds from the term loan were used to redeem the Series B Preferred Stock.
In October, 2014, the Company entered into a Second Amendment to its Credit Agreement (the “Second Amendment”) with the
Bank. Pursuant to the Second Amendment, the Company borrowed $700,000 in the form of a term loan repayable in 36 equal monthly
installments of principal in the amount of $19,444 plus interest on the unpaid balance of LIBOR plus 6% per annum. The terms and
conditions of the Credit Agreement were otherwise unchanged. The Company used the proceeds from the loan for additional working
capital, as a result of the recent growth in the grocery store take-n-bake venue resulting in increased receivable balance.
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.
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.
23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Contractual Obligations
The following table sets forth the contractual obligations of the Company as of December 31, 2014:
Long-term debt
Operating leases
Total
Forward-Looking Statements
Total
3,315,764
202,785
3,518,549
$
$
$
$
Less than
1 Year
1,469,028
143,770
1,612,798
1-3 Years
1,846,736
59,014
1,905,750
$
$
$
$
3-5 Years
-
-
-
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, changes in demand for the Company’s products or franchises, the impact of franchise regulation, 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, 2014, the Company had
outstanding variable interest-bearing debt in the aggregate principal amount of $3.3 million. The Company’s current borrowings are at a
variable rate tied to LIBOR plus 4% per annum on $2.1 million, LIBOR plus 6.08% on $536,000, and LIBOR plus 6% on $681,000,
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 $24,000 over the succeeding 12-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
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
December 31,
2013
2014
$
$
157,787
1,268,788
337,822
472,065
1,250,000
3,486,462
200,349
1,687,954
381,400
467,721
1,675,000
4,412,424
1,361,205
88,718
1,449,923
962,502
487,421
9,332,024
3,067,754
$ 16,373,661
1,383,380
88,718
1,472,098
1,041,951
430,147
7,899,497
5,015,931
$ 17,757,999
$
$
1,216,250
818,803
2,035,053
1,469,028
676,386
2,145,414
2,635,208
2,635,208
1,846,736
1,846,736
Stockholders’ equity:
Common stock – no par value (25,000,000 shares authorized, 19,585,089 issued and outstanding as of
December 31, 2013 and 20,095,087 as of December 31, 2014)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
23,498,401
23,970,654
(11,795,001) (10,204,805)
13,765,849
11,703,400
$ 17,757,999
$ 16,373,661
See accompanying notes to consolidated financial statements.
25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Consolidated Statements of Operations
Noble Roman’s, Inc. and Subsidiaries
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
Year Ended December 31,
$
$
2012
6,823,811
19,872
456,449
7,300,132
2013
7,082,548
24,138
420,753
7,527,439
$
2014
7,479,334
72,541
363,340
7,915,215
979,447
498,951
183,316
685,836
427,127
116,287
1,593,646
4,484,610
2,815,522
413,334
500,000
1,902,188
753,457
1,148,731
1,056,790
514,570
207,572
747,914
390,507
113,607
1,646,993
4,677,953
2,849,486
201,381
1,208,162
1,439,943
568,406
871,537
1,063,076
541,385
235,127
876,162
402,281
111,750
1,646,502
4,876,283
3,038,932
190,382
-
2,848,550
1,104,809
1,743,741
Loss from discontinued operations net of tax benefit of $344,079 for 2012, $511,893 for
2013 and $97,284 for 2014
Net income
Cumulative preferred dividends
Net income (loss) available to common stockholders
(524,588)
624,143
99,271
524,872
$
(780,440)
91,097
99,000
(7,903) $
(153,545)
1,590,196
-
1,590,196
$
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
.09
$
.05
$
.06
$
(.01)
(.04) $
(.03) $
$
.08
$
.01
$
.03
$
$
$
$
.08
-
.03
19,870,904
19,533,201
19,497,638
$
.06
$
.05
$
.08
(.04) $
(.03) $
$
(.01)
.07
$
.01
$
.03
$
21,204,439
20,472,908
20,077,910
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
Preferred
Stock
Common Stock
Accumulated
Shares
Amount
Deficit
Total
Balance at December 31, 2011
$
800,250
19,469,317
$ 23,239,976
$ (12,311,970) $ 11,728,256
2012 net income
Cumulative preferred dividends
Amortization of value of stock options
107,882
Exercise of employee stock options
47,272
18,200
624,143
624,143
(99,271)
(99,271)
107,882
18,200
Balance at December 31, 2012
$
800,250
19,516,589
$ 23,366,058
$ (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
117,118
(24,750)
Exercise of employee stock options
68,500
39,975
91,097
91,097
(99,000)
(99,000)
117,118
(800,250)
(24,750)
39,975
Balance at December 31, 2013
$
-
19,585,089
$ 23,498,401
$ (11,795,001) $ 11,703,400
2014 net income
1,590,196
1,590,196
Cashless exercise of employee stock option
214,998
Amortization of value of stock options
48,815
Stock issued in exchange for payables
180,000
318,208
Exercise of employee stock options
115,000
105,230
48,815
318,208
105,230
Balance at December 31, 2014
$
-
20,095,087
$ 23,970,654
$ (10,204,805) $ 13,765,849
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 including long-term portion of accounts receivable
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 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
Proceeds from new bank loan net of closing costs
Proceeds from the exercise of stock options
Year ended December 31,
2012
624,143
$
2013
$
91,097
$
192,012
-
753,457
174,241
1,208,162
568,406
2014
1,590,196
128,265
-
1,007,526
(195,553)
(122,392)
(100,950)
147,902
(288,425)
123,018
(92,397)
(370,133)
(419,166)
(43,578)
4,344
(1,861,460)
205,946
1,504,565
308,093
1,722,062
263,622
669,749
(18,994)
(7,027)
(26,021)
(11,958)
-
(11,958)
(22,176)
-
(22,176)
(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
-
-
-
(1,235,694)
-
-
697,704
105,230
NET CASH USED BY FINANCING ACTIVITIES
(863,117)
(1,306,946)
(432,760)
DISCONTINUED OPERATIONS
Payment of obligations from discontinued operations
Increase (decrease) in cash
Cash at beginning of year
Cash at end of year
(704,369)
(389,725)
(172,251)
(88,942)
233,296
144,354
$
13,433
144,354
157,787
$
42,562
157,787
200,349
$
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.
In 2014, options to purchase 215,000 shares at $.36, 20,000 shares at $.83 and 40,000 shares at $.95 were exercised pursuant to the
cashless exercise provision of the options and the holders received a total of 214,998 shares of common stock.
In 2014, the Company issued 180,000 shares of common stock in exchange for $318,000 in payables.
See accompanying notes to consolidated financial statements.
28
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
Advertising Costs: The Company records advertising costs consistent with the 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 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 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.
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 $162,833 with accumulated amortization at December 31, 2014 of $93,707.
Royalties, Administrative and Franchise Fees: Royalties are generally recognized as income monthly based on a percentage of monthly
sales of franchised or licensed restaurants and from audits and other inspections as they come due and payable by the franchisee. 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.
29
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, 2014, the net operating loss carry-forward was approximately $22.6 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, 2012, 2013 and 2014. The Company’s federal and various state
income tax returns for 2011 through 2014 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, 2012:
Net income
Less preferred stock dividends
Earnings per share – basic
Income available to common stockholders
Effect of dilutive securities
Options
Convertible preferred stock
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
$
624,143
(99,271)
524,872 19,497,638 $
.03
-
99,271
213,606
366,666
Diluted earnings per share
Income available to common stockholders and assumed conversions
$
624,143 20,077,910 $
.03
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, 2013:
Net income
Less preferred stock dividends
Earnings per share – basic
Loss available to common stockholders
Effect of dilutive securities
Options
Convertible preferred stock
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
$
91,097
(99,000)
(7,903) 19,533,201 $
-
-
99,000
939,707
-
Diluted earnings per share
Income available to common stockholders and assumed conversions
$
91,097 20,472,908 $
.01
The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2014:
Earnings per share – basic
Net income
Effect of dilutive securities
Options
Diluted earnings per share
Net income
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
1,590,196 19,870,904 $
.08
-
1,333,535
$
1,590,196 21,204,439 $
.07
Subsequent Events: The Company evaluated subsequent events through the date the consolidated statements were issued and filed with
Form 10-K. No subsequent event required recognition or disclosure.
Note 2: Accounts Receivable
At December 31, 2013 and 2014, 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, 2013 and 2014 will be collected. The allowance to reduce the receivables to anticipated
net realizable value at December 31, 2014 was $2.25 million.
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, 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 were made to continuing operations.
31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Note 3: Notes Payable
In May 15, 2012, the Company entered into a Credit Agreement with BMO Harris Bank, N.A. (the”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 in May, 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. In October, 2013, the Company entered into a First Amendment to the Credit Agreement (the
“FirstAmendment”) with the Bank. The First 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, 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 First
Amendment also provided for a new term loan in the original amount of $825,000 requiring monthly principal payments of approximately
$20,600 per month commencing in November, 2013 and continuing thereafter until the final payment in February, 2017. The term loan
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 were used to redeem the Series B Preferred Stock. In October, 2014, the Company entered into a Second Amendment to its Credit
Agreement (the “Second Amendment”) with the Bank. Pursuant to the Second Amendment, the Company borrowed $700,000 in the form
of a term loan repayable in 36 equal monthly installments of principal in the amount of $19,444 plus interest on the unpaid balance of
LIBOR plus 6% per annum. The terms and conditions of the Credit Agreement were otherwise unchanged. The Company used the
proceeds from the loan for additional working capital, as a result of the recent growth in the grocery store take-n-bake venue. Interest paid
on the term loans in 2014 was $156,468. The Company’s obligations under the term loans 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 $2.78 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 $294,000, $788,000 and $313,000 are included in the 2012, 2013 and 2014, respectively, royalties and fees in the
Consolidated Statements of Operations for initial franchise fees. Also included in royalties and fees were approximately $81,000, $95,000
and $80,000 in 2012, 2013 and 2014, 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.
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.
32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
There were 2,029 franchised or licensed outlets in operation on December 31, 2013 and 2,215 on December 31, 2014. During the 12-
month period ended December 31, 2014, there were 242 new franchised or licensed outlets opened and 56 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 of the 1,409 included in the December 31, 2014 count, how many grocery store licenses were
actually operating.
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, 2014,
contingent obligations under non-cancelable operating leases for 2015, 2016 and 2017, were approximately $71,343, $24,675 and none,
respectively.
The Company has future obligations of $202,785 under current operating leases as follows: due in less than one year $143,770 and due in
one to three years $59,014.
Note 6: Income Taxes
The Company had a deferred tax asset, as a result of prior operating losses, of $10.58 million at December 31, 2013 and $9.57 million at
December 31, 2014, which expires between the years 2018 and 2033. In 2012, 2013 and 2014, the Company used deferred benefits to
offset its tax expense of $753,000, $568,000 and $1.1 million, respectively, and tax benefits from loss on discontinued operations
of $344,000 in 2012, $512,000 in 2013 and $97,000 in 2014. As a result of the tax credits, the Company did not pay any income taxes in
2012, 2013 and 2014. 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 January 13, 2014, employees exercised options for a total of 215,000 shares of common stock at a price $.36, 20,000 shares of
common stock at a price of $.83 and 40,000 shares of common stock at a price of $.95 in a cashless exercises and were issued a total of
214,998 shares of common stock. On February 27, 2014, an employee exercised an option for 1,000 shares of common stock at a price of
$.83 per share. On September 11, 2014, an employee exercised an option for 50,000 shares of common stock at a price of $.95 per
share and an option for 30,000 shares of common stock at a price of $.90 per share. On October 20, 2014, an employee exercised an
option for 4,000 shares of common stock at a price of $.90 per share. On October 29, 2014, an employee exercised an option for 10,000
shares of common stock at a price of $.83 per share. On December 1, 2014, an employee exercised an option for 20,000 shares of
common stock at a price of $.90 per share. On four different dates in 2014, the Company issued a total of 180,000 shares of common
stock as payment of certain payables at an average issuance price of $1.77 per share.
33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, 2014, the Company had the following employee stock options outstanding:
# Common Shares
Represented
57,500
120,000
325,000
1,800,000
101,000
351,000
40,000
270,500
330,000
40,000
Exercise Price
$
2.30
.36
.95
1.05
.90
.58
.68
1.30
1.55
1.65
As of December 31, 2014, options for 2,403,500 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 2012, 2013 and 2014:
30%
Expected volatility
Expected dividend yield None
Expected term (in
years)
Risk-free interest rate
5
1.62% to 2.64%
The following table sets forth the number of options outstanding as of December 31, 2011, 2012, 2013 and 2014 and the number of options
granted, exercised or forfeited during the years ended December 31, 2012, December 31, 2013 and December 31, 2014:
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
Stock options granted during the year ended 12/31/14
Stock options exercised during the year ended 12/31/14
Stock options forfeited during the year ended 12/31/14
Balance of employee stock options outstanding as of 12/31/14
34
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3,000,500
401,000
(60,000)
(75,000)
3,266,500
273,000
68,500
13,500
3,457,500
370,000
(390,000)
(2,500)
3,435,000
The following table sets forth the number of non-vested options outstanding as of December 31, 2011, 2012, 2013 and 2014, and the
number of stock options granted, vested and forfeited during the years ended December 31, 2012, 2013 and 2014.
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
Stock options granted during the year ended 12/31/14
Stock options vested during the year ended 12/31/14
Stock options forfeited during the year ended 12/31/14
Balance of employee non-vested stock options outstanding as of 12/31/14
2,461,000
401,000
(600,000)
(75,000)
2,187,000
273,000
(1,031,000)
(12,500)
1,416,500
370,000
(755,000)
-
1,031,500
During 2014, employee stock options were granted for 370,000 shares, options for 390,000 shares were exercised and options for 2,500
shares were forfeited. At December 31, 2014, the weighted average grant date fair value of non-vested options was $1.12 per share and
the weighted average grant date fair value of vested options was $1.03 per share. The weighted average grant date fair value of
employee stock options granted during 2012 was $.59, during 2013 was $1.30 and during 2014 was $1.56. Total compensation cost
recognized for share-based payment arrangements was $107,882 with a tax benefit of $42,732 in 2012, $117,118 with a tax benefit of
$46,390 in 2013, and $48,815 with a tax benefit of $18,935 in 2014. As of December 31, 2014, total compensation cost related to non-
vested options was $122,000, 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.
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.
35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 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 expiration 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.
The Company reported a net loss on discontinued operations of $154,000 in 2014. This consisted of $9,600 in legal and settlement costs
through the expiration 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 $139,600 for legal and other costs related to the operations discontinued in 2008,
and wrote off $4,300 in receivables related to the operations discontinued in 2008.
Note 10: Contingencies
The Company, from time to time, is or may become involved in various litigation or regulatory proceedings arising out of its normal
business operations.
Currently, there are no such pending proceedings which the Company considers to be material.
Note 11: Certain Relationships and Related Transactions
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 $382,000, $200,000 and $320,000 in
2012, 2013 and 2014, respectively.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Note 12: Unaudited Quarterly Financial Information
2014
December 31
September
30
June 30
March 31
Quarter Ended
Total revenue
Operating income
Net income before income taxes from continuing operations
Net income from continuing operations
Loss from discontinued operations
Net income
Net income from continuing operations per common share
Basic
Diluted
Net income per common share
Basic
Diluted
$
1,807
550
501
303
154
149
.02
.01
.01
.01
(in thousands, except per share data)
$
$
2,089
855
808
503
-
503
$
1,912
777
727
439
-
439
.02
.02
.02
.02
2,107
857
813
499
-
499
.03
.02
.03
.02
.03
.02
.03
.02
Quarter Ended
2013
December 31 September 30
June 30
March 31
(in thousands, except per share data)
$
$
1,933
752
705
427
-
427
1,987
805
754
456
-
456
$
1,891
746
693
418
-
418
.02
.02
.02
.02
.02
.02
.02
.02
.02
.02
.02
.02
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
$
1,717
547
(712)
(430)
780
(1,210)
(.02)
(.02)
(.06)
(.06)
37
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,
2014 and 2013, 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, 2014. 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, 2014 and 2013, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of
America.
/s/ Somerset CPA’s, P.C.
Indianapolis, Indiana
March 12, 2015
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 Executive Chairman of the Board and Chief Financial Officer and A. Scott
Mobley, the Company’s President and Chief Executive Officer, conducted an evaluation of the effectiveness of our internral control over
financial reporting as of December 31, 2014. 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.
In May 2013, the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") released an updated version
of its Internal Control - Integrated Framework ("2013 Framework"), Initially issued in 1992, the original framework ("1992
Framework") provided guidance to organizations to design, implement and evaluate the effectiveness of internal control
concepts and simplify their use and application. The 2013 Framework is intended to improve upon systems of internal control
over external financial reporting by formalizing the principles embedded in the 1992 Framework, incorporating business and
operating environment changes and increasing the framework ease of use and application. The 1992 Framework remained
available until December 15, 2014, after which it was superseded by the 2013 Framework. As of December 31, 2014, the
Company transitioned to the 2013 Framework. The Company did not experience significant changes to its internal control over
financial reporting as a result from the transition to the 2013 Framework.
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 their evaluation, as of the end of the period covered by this report, Paul W. Mobley, the Company’s Executive Chairman of the
Board and Chief Financial Officer and A.Scott Mobley,the company’s President and Chief Executive Officer, have 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.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE
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 2015 Annual Meeting of Shareholders (the “2015 Proxy
Statement”) and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this item is included under the captions “Executive Compensation”, “Director Compensation” and “Compensation
Committee Interlocks and Insider Participation” in the 2015 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 2015 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 2015 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 2015 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, 2013 and 2014
Consolidated Statements of Operations - years ended December 31,
2012, 2013 and 2014
Consolidated Statements of Changes in Stockholders' Equity - years
ended December 31, 2012, 2013 and 2014
Consolidated Statements of Cash Flows - years ended December
31, 2012, 2013 and 2014
Notes to Consolidated Financial Statements
Report of Independent Registered Accounting Firm. – Somerset
CPAs, P.C.
41
Page
25
26
27
28
29
38
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibits
Exhibit Number
3.1
3.2
3.3
3.4
3.5
3.6
4.1
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.
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.
10.1
10.2
10.3
10.4
10.5
10.6
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.
First Amendment to Credit Agreement with BMO Harris Bank, N.A. dated October 31, 2013, filed as Exhibit 10.4 to the
Registrant’s annual report on
Form 10-K for the year ended December 31, 2013, is incorporated herein by reference.
Promissory Note (Term Loan) with BMO Harris Bank, N.A. dated October 31, 2013, filed as Exhibit 10.5 to the Registrant’s
annual report on Form 10-K for the year ended December 31, 2013 is incorporated herein by reference.
Promissory Note (Term Loan II) with BMO Harris Bank, N.A. dated October 31, 2013, filed as Exhibit 10.6 to the
Registrant’s annual report on Form
10-K for the year ended December 31, 2013 is incorporated herein by reference.
10.7 Second Amendment to Credit Agreement with BMO Harris Bank, N.A. dated October 15, 2014, filed herewith.
10.8 Promissory Note with BMO Harris Bank, N.A. dated October 15, 2014, 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. Certification under Rule 13a-14(a)/15d-14(a)
31.2 C.F.O. Certification under Rule 13a-14(a)/15d-14(a)
32.1 C.E.O. Certification under Section 1350
32.2 C.F.O. Certification under Section 1350
101 Interactive Financial Data
42
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
SIGNATURES
March 12, 2015
NOBLE ROMAN'S, INC.
By: /s/ A. Scott Mobley
A. Scott Mobley
President and Chief Executive Officer
March 12, 2015
By: /s/ Paul W. Mobley
Paul W. Mobley
Executive Chairman, 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.
March 12, 2015
March 12, 2015
March 12, 2015
March 12, 2015
/s/ Paul W. Mobley
Paul W. Mobley
Executive Chairman of the Board, Chief
Financial Officer and Director
/s/ A. Scott Mobley
A. Scott Mobley
President, Chief Executive Officer and Director
/s/ Douglas H. Coape-Arnold
Douglas H. Coape-Arnold
Director
/s/ Jeffrey R. Gaither
Jeffrey R. Gaither
Director
43
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.1
I, A. Scott 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, 2015
/s/ A. Scott Mobley
A. Scott Mobley
President and Chief Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.2
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, 2015
/s/ Paul W. Mobley_________
Executive Chairman 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 year ended December 31, 2014, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, A. Scott Mobley, President and Chief Executive
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.
/s/ A. Scott Mobley
A. Scott Mobley
President and Chief Executive Officer
Of Noble Roman’s, Inc.
March 12, 2015
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 32.2
In connection with the Annual Report of Noble Roman’s, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2014, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), Paul Mobley, Executive Chairman 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.
Paul W. Mobley
/s/ Paul W. Mobley
Executive Chairman and Chief Financial
Officer of Noble Roman’s, Inc.
March 12, 2015
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.