SECURITIES & EXCHANGE COMMISSION EDGAR FILING
NOBLE ROMANS INC
Form: 10-K
Date Filed: 2016-03-14
Corporate Issuer CIK: 709005
© Copyright 2016, 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, 2015.
❑ 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 ❑ (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, 2015, 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 $21.6 million.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 20,783,032 shares of common
stock as of March 4, 2016.
Documents Incorporated by Reference:
Portions of the definitive proxy statement for the registrant’s 2016 Annual Meeting of Shareholders are incorporated by reference in Part III.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NOBLE ROMAN'S, INC.
FORM 10-K
Year Ended December 31, 2015
Table of Contents
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item
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
2
Page
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12
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25
40
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PART 1
ITEM 1. BUSINESS
General Information
Noble Roman’s, Inc., an Indiana corporation incorporated in 1972 with two wholly-owned subsidiaries, Pizzaco, Inc. and N.R. Realty, Inc., sells and services
franchises and licenses for non-traditional foodservice operations and stand-alone take-n-bake locations under the trade names “Noble Roman’s Pizza”, “Noble
Roman’s Take-N-Bake” and “Tuscano’s Italian Style Subs”. The concepts’ hallmarks include high quality pizza and sub sandwiches, along with other related
menu items, simple operating systems, fast service times, labor-minimizing operations, attractive food costs and overall affordability. Since 1997, the Company
has 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 a Company location used for testing and demonstration purposes. References in this report to the “Company” are to Noble Roman’s, Inc.
and its subsidiaries, unless the context requires otherwise.
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.
• A fully-prepared pizza crust that captures the made-from-scratch pizzeria flavor which gets delivered to non-traditional and grocery locations shelf-stable
so that dough handling is no longer an impediment to a consistent product in those types of operations.
• 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.
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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 units are 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 baked 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 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. Noble Roman's 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 believes there is a
significant growth opportunity to license additional supermarkets to sell its take-n-bake pizzas in their deli departments.
Franchising the Company’s Take-N-Bake Program for Stand-Alone Locations. The Company has developed a stand-alone take-n-bake pizza prototype,
which features the chain’s popular traditional Hand-Tossed Style pizza, Deep-Dish Sicilian pizza, SuperThin pizza, a gluten-free pizza crust 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 has since developed and continues to develop several enhancements to the stand-alone concept, such as
"You Bake-We Bake", lunch service, limited inside seating and delivery service.
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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, other than one location used for testing and demonstration purposes , which 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 to produce superior results. The menu items in most venues
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 complimentary 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 allow for a significant competitive advantage due to the speed at which
the products can be prepared, baked and served to customers.
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.
Business Operations
Distribution
The Company’s proprietary 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 prices negotiated between the Company and the manufacturer.
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At present, the Company has distribution agreements with its 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 prices 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 determined by the distribution
agreement. Payment terms to the distributor are agreed upon between each franchisee/licensee and the respective distributor. In addition, the Company has
agreements with 29 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 those products only 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 Format
Noble Roman’s Pizza
Tuscano’s Subs
Noble Roman’s & Tuscano’s
Non-Traditional,
Except Hospitals
Hospitals
Traditional
Stand-Alone
$
$
$
7,500 $
6,000 $
11,500 $
10,000 $
10,000 $
18,000 $
25,000
15,000
28,000
The franchise fees are paid upon signing the franchise agreement and, when paid, are deemed fully earned and non-refundable in consideration of the
administration and other expenses incurred by the Company in granting the franchises and for the lost and/or deferred opportunities to grant such franchises to
any other party.
Licensing
Noble Roman’s Take-n-Bake Pizza licenses for grocery stores are governed by a supply agreement. The supply agreement generally requires the licensee
to: (1) only 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.
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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 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.
Employees
As of March 4, 2016, the Company employed approximately 21 persons full-time and seven persons on a part-time, hourly basis, of which 20 of the full-time
employees are employed in sales and service of the franchise/license units and one full-time employee and all seven employed on a part-time manage and work
the Company location. 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.
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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 the Company's 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 is subject to applicable laws in each jurisdiction where it seeks to market additional franchised units.
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. Mr.
Mobley has a B.S. in Business Administration from Indiana University and is a CPA. He is the father of A. Scott Mobley.
President, Chief Executive 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.
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*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.
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 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.
Vice President of Purchasing, Distribution and Supermarket Logistics - Jeffrey Naaman has been Vice President of Supermarket Procurement and Distribution
since February 2016. Before joining the Company, Mr. Naaman was Director of Sales and Marketing for Interstate Cold Storage and Director of Procurement,
Produce and Foods with Caito Foods for more than five years. Prior to Caito Foods, Mr. Naaman held various positions with Meijer Supermarkets, Fresh
Encounter Supermarkets, Central Grocers Supermarkets, Dawn Foods and SuperValu/Cub Foods Supermarkets. Mr. Naaman attended IUPUFW University.
Available Information
We make available, free of charge through our Internet website (http://www.nobleromans.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-
Q and Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after we electronically file these reports with, or furnish them to, the Securities and Exchange
Commission. The information on our website is not incorporated into this annual report.
ITEM 1A. RISK FACTORS
All phases of the Company’s operations are subject to a number of uncertainties, risks and other influences, many of which are outside of its control, and any one
or a combination of which could materially affect its results of operations. Important factors that could cause actual results to differ materially from the Company’s
expectations are discussed below. Prospective investors should carefully consider these factors before investing in our securities as well as the information set
forth under “Forward-Looking Statements” in Item 7 of this report. These risks and uncertainties include:
Competition from larger companies.
The Company competes for franchise and license sales with large national companies and numerous regional and local companies. Many of its competitors
have greater financial and other resources than the Company. The restaurant industry in general is intensely competitive with respect to convenience, price,
product quality and service. In addition, the Company competes for franchise and license sales on the basis of several factors, including product engineering and
quality, investment cost, cost of sales, distribution, simplicity of operation and labor requirements. Activities of the Company’s competitors could have an
adverse effect on the Company’s ability to sell additional franchises or licenses or maintain and renew existing franchises and licenses or operating results of the
Company’s system. Unlike the other non-traditional agreements, 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.
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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 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 effect on our franchisees or licensees by increasing their labor cost.
Dependence on distributors.
The success of the Company's license and franchise offerings depends upon the Company's ability to engage and retain unrelated, third-party distributors. The
Company's distributors collect and remit certain of the Company's royalties and must reliably stock and deliver products to our licensees and franchisees. The
Company's inability to engage and retain quality distributors, or a failure by distributors to peform in accordance with the Company's standards, could have a
material adverse effect on the Company.
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.
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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.
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Obligations under loans.
The Company recently entered into an amendment of the Bank loan.
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,
2018.
The Company also leases space for a Company-owned restaurant in Indianapolis, Indiana which is used as a demonstration and test restaurant. The lease for
this property expires December 31, 2020.
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.
12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
PART II
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:
March 31
June 30
September 30
December 31
Holders of Record
2014
2015
High
Low
High
Low
$
$
$
$
2.24
1.65
1.76
2.22
$
$
$
$
1.39
1.18
1.50
1.58
$
$
$
$
2.47
2.38
2.00
1.55
$
$
$
$
1.97
1.85
1.34
0.94
As of March 4, 2016, there were approximately 265 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.
13
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, 2015 with respect to the shares of our common stock that may be issued under our existing equity
compensation plan.
Equity compensation plans approved by
Equity compensation plans not approved by
Total
Plan Category
stockholders
stockholders
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)
- $
2,637,667 $
2,637,667 $
-
1.22
1.22
-
(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
Loss on restaurant discontinued
Adjust valuation of receivables - including the Heyser case
Income before income taxes from continuing operations
Income taxes
Net income from continuing operations
Loss from discontinued operations
Net income
Cumulative preferred dividends
Net income (loss) available to common stockholders
Weighted average number of common shares
Net income per share from continuing operations
Net income per share
Net income per share available to common stockholders
Balance Sheet Data:
Working capital (deficit)
Total assets
Long-term obligations, net of current portion
Stockholders' equity
$
$
$
$
$
$
$
2011
2012
2013
2014
2015
Year Ended December 31,
6,824
20
456
7,300
2,348
427
116
1,594
2,815
413
-
500
1,902
753
1,149
(525)
624
99
525
19,498
.06
.03
.03
2012
1,964
17,161
3,021
12,379
$
$
$
$
$
$
$
7,083
24
421
7,528
2,527
391
114
1,647
2,849
201
-
1,208
1,440
569
871
(780)
91
99
(8)
19,533
.05
.01
-
2013
1,451
16,374
2,635
11,703
$
$
$
$
$
$
$
7,479
73
363
7,915
2,716
402
112
1,646
3,039
190
-
-
2,849
1,105
1,744
(154)
1,590
-
1,590
19,871
.09
.08
.08
2014
2,267
17,758
1,847
13,766
$
$
$
$
$
$
$
7,465
56
208
7,729
2,774
248
106
1,660
2,941
187
191
1,230
1,333
512
821
(35)
786
-
786
20,518
.04
.04
.04
2015
2,805
18,465
2,141
14,875
$
$
$
$
$
$
$
6,814
44
518
7,376
2,202
508
124
1,620
2,922
390
-
-
2,532
1,003
1,529
(710)
819
99
720
19,458
.08
.04
.04
2011
(852)
17,224
1,256
11,728
14
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 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, Dominican Republic and Canada.
There were 2,215 franchised or licensed outlets in operation on December 31, 2014 and 2,562 on December 31, 2015. During the 12-month period ended
December 31, 2015, 404 new franchised or licensed outlets opened and 57 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, 2014 and 2015, the Company
reported net accounts receivable of $3.57 million and $5.09 million, respectively, each of which were net of allowances. The allowance at December 31, 2015
was $1.17 million to reflect the amount the Company expects to realize for the receivables. The Company has reviewed each of its accounts and only included
receivables in the amount expected to be collected. The Company, at December 31, 2014 and December 31, 2015, had a deferred tax asset on its balance
sheet totaling $9.574 million and $9.084 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, between 2019 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.
15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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
Loss on restaurant discontinued
Adjust valuation of receivables – including
the Heyser Case
Income before income taxes
Incime taxes
Net income from continuing operations
$
$
2013
7,082,548
24,138
420,753
7,527,439
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations Data
Years Ended December 31,
2014
2015
94.1% $
0.3
5.6
100.0
7,479,334
72,541
363,340
7,915,215
94.5% $
0.9
4.6
100.0
7,464,963
56,520
207,803
7,729,286
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
14.0
6.8
2.8
9.9
5.2
1.5
21.9
62.1
37.9
2.7
-
16.0
19.2
7.6
11.6% $
16
13.4
6.8
3.0
11.1
5.1
1.4
20.8
61.6
38.4
2.4
-
-
1,141,562
543,354
255,125
834,320
248,139
105,843
1,659,966
4,788,309
2,940,977
186,414
191,390
1,230,000
36.0
14.0
22.0% $
1,333,173
512,671
820,502
96.6%
0.7
2.7
100.0
14.8
7.0
3.3
10.8
3.2
1.4
21.5
62.0
38.0
2.4
2.5
15.9
17.2
6.6
10.6%
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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
Loss on restaurant discontiued
Adjust valuation of receivables – including the Heyser Case
Income before income taxes
Income taxes
Net income from continuing operations
2015 Compared to 2014
Quarters Ended December 31,
2014
2015
$
$
1,708,334
15,359
83,629
1,807,322
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
302,615
94.5% $
0.9
4.6
100.0
1,817,673
11,342
59,040
1,888,055
15.1
7.8
3.6
12.8
5.6
1.6
23.1
69.6
30.4
2.7
-
-
27.7
10.9
16.8%
281,716
137,753
83,427
230,105
62,833
26,780
431,355
1,253,969
634,086
47,774
191,390
380,000
14,923
5,738
9,184
96.3%
0.6
3.1
100.0
14.9
7.3
4.4
12.2
3.4
1.4
22.9
66.5
33.5
2.5
10.1
20.1
0.8
0.3
0.5%
Total revenue for the year 2015 was $7.7 million compared to $7.9 million in 2014. The reason for the decrease was the result of the restaurant discontinued,
which was a part of the discontinued operations from 2008 but continued to operate until the lease (renewed in 2010) expired. For the three months ended
December 31, 2015, total revenue increased to $1.9 million from $1.8 million for the comparable period in 2014. For the year 2015, franchise fees and
equipment commissions (“Upfront Fees”) decreased to $228,000 from $392,000 for 2014. For the three-month period ended December 31, 2015, Upfront Fees
decreased to $16,000 from $74,000 for the comparable period in 2014. Royalties and fees, less Upfront Fees, increased to $7.2 million for 2015 from $7.1
million in 2014. For the three-month period ended December 31, 2015, royalties and fees less Upfront Fees increased to $1.8 million from $1.6 million for the
comparable period in 2014. The breakdown of royalties and fees less Upfront Fees for the year 2015 and for the three months ended December 31, 2015
compared to the comparable periods in 2014, respectively, were: royalties and fees from non-traditional franchises other than grocery stores were $4.4 million
and $1.1 million and $4.5 million and $993,000; royalties and fees from the grocery store take-n-bake were $1.9 million and $530,000 and $1.5 million and
$340,000; royalties and fees from stand-alone take-n-bake franchises were $707,000 and $151,000 and $849,000 and $234,000; royalties and fees from
traditional locations were $265,000 and $64,000 and $283,000 and $67,000. The decline in Upfront Fees was primarily the result of selling fewer franchises for
the Company’s stand-alone franchises. Most of the growth came from licensing grocery store take-n-bake locations where there are no Upfront Fees. The
growth in the royalties and fees from grocery store take-n-bake locations primarily was the result of adding new locations to the system.
17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
Restaurant revenue for 2015 decreased to $208,000 from $363,000 in 2014. The reason for the decrease was the result of the restaurant discontinued, which
was a part of the discontinued operations from 2008 but continued to operate until the lease (renewed in 2010) expired. For the three-month period ended
December 31, 2015, restaurant revenue decreased to $59,000 from $84,000 for the comparable period in 2014. The Company had been operating two
locations used primarily for testing and demonstration purposes, however one of those locations was a quick service restaurant ("QSR") concept, which was part
of the discontinued operations from 2008 but continued to operate until the lease (renewed in 2010) expired in March 2016.
As a percentage of total revenue, salaries and wages for 2015 increased to 14.8% from 13.4% in 2014. For the three-month period ended December 31, 2015,
salaries and wages decreased to 14.9% from 15.1% for the comparable period in 2014. Salaries and wages remained approximately the same at $1.1 million for
both 2015 and 2014. For the three-month period ended December 31, 2015, salaries and wages increased to $282,000 from $274,000 for the comparable
period in 2014.
As a percentage of total revenue, trade show expenses for 2015 increased to 7.0% in 2015 from 6.8% in 2014. For the three-month period ended December
31, 2015, trade show expenses decreased to 7.3% from 7.8% for the comparable period in 2014. Trade show expenses were $543,000 and $138,000,
respectively, for the year and three-month period ended December 31, 2015 compared to $541,000 and $141,000, respectively, for the comparable periods in
2014.
As a percentage of total revenue, travel expenses for 2015 increased to 3.3% from 3.0% in 2014. For the three month period ended December 31, 2015, travel
expense increased to 4.4% from 3.6% for the comparable period in 2014. Travel expenses were $255,000 and $83,000, respectively, for the year and three-
month period ended December 31, 2015 and $235,000 and $64,000, respectively, for the comparable periods in 2014.
As a percentage of total revenue, other operating expenses for 2015 decreased to 10.8% compared to 11.1% in 2014. For the three-month period ended
December 31, 2015, other operating expenses decreased to 12.2% from 12.8% for the comparable period in 2014. Other operating expenses were $834,000
and $230,000 for the year and three-month periods ended December 31, 2015 and $876,000 and $232,000, respectively, for the comparable periods in 2014.
As a percentage of total revenue, restaurant expenses in 2015 decreased to 3.2% from 5.1% in 2014. For the three-month period ended December 31, 2015,
restaurant expenses decreased to 3.4% from 5.6% for the comparable period in 2014. The Company had been operating two locations used primarily for
testing and demonstration purposes, however one of those locations was a QSR concept, which was part of the discontinued operations from 2008 but continued
to operate until the lease (renewed in 2010) expired in March 2016.
As a percentage of total revenue, general and administrative expenses for 2015 increased to 21.5% from 20.8% in 2014. For the three-month period ended
December 31, 2015, general and administrative expenses decreased to 22.9% from 23.1% for the comparable period in 2014. Other general and administrative
expenses were $1.66 million and $431,000 for the year and three-month periods ended December 31, 2015 and $1.65 million and $418,000, respectively, for the
comparable periods in 2014.
18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
As a percentage of total revenue, total expenses for 2015 increased to 62.0% from 61.6% in 2014. For the three-month period ended December 31, 2015, total
expenses decreased to 66.5% from 69.6% for the comparable period in 2014. Total expenses were $4.79 million and $1.25 million for the year and three-month
periods ended December 31, 2015 and $4.88 million and $1.26 million, respectively, for the comparable periods in 2014.
As a percentage of total revenue, operating income for 2015 decreased to 38.0% from 38.4% in 2014. For the three-month period ended December 31, 2015,
operating income increased to 33.5% from 30.4% for the comparable period in 2014. Operating income was $2.94 million and $634,000 for the year and three-
month periods ended December 31, 2015 and $3.04 million and $550,000, respectively, for the comparable periods in 2014.
Interest expense, as a percentage of total revenue, remained the same at 2.4% for both 2015 and 2014. For the three-month period ended December 31, 2015,
interest expense decreased to 2.5% from 2.7% for the comparable period in 2014. Actual interest expense decreased to $186,000 and $48,000, respectively,
for the year and three month period ended December 31, 2015 compared to $190,000 and $50,000, respectively, for the comparable periods in 2014. The
primary reason for the decrease in interest expense was the continued amortization of the principal balance of notes payable partially offset by a slightly higher
effective rate of interest.
Loss on restaurant discontinued was $191,390 in 2014 and none in 2013. This restaurant was part of the discontinued operations in 2008 but the decision was
made at that time to continue to operate this location until the lease (renewed in 2010) expired. This is a non-recurring expense.
Net income before income taxes from continuing operations for 2015 decreased to $1.3 million from $2.8 million in 2014; however, 2015 included a valuation
allowance of $1.2 million related to receivables including the Heyser case and a loss on restaurant discontinued of $191,000. For the three-month period ended
December 31, 2015, net income before income taxes from continuing operations was $15,000 compared to $501,000 for the comparable period in 2014,
however, included in the three-month period ended December 31, 2015 was a valuation allowance of $380,000 related to receivables including the Heyser case
and a loss on restaurant discontinued of $191,000. 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 $21.4 million in net income before income taxes due to its net operating loss carry-forwards.
Loss on discontinued operations was approximately $35,000 in 2015 and $154,000 in 2014. This loss on discontinued operations was the result of the issues
related to the discontinued operations in 1999 and 2008, most of which have been resolved. The loss in 2015 consisted of $4,800 as a final payment on a
property that was closed in conjunction with the 1999 discontinued operations. In addition, the Company incurred a loss of $30,000 for rent and legal fees
related to the operations discontinued in 2008.
Net income for 2015 decreased to $786,000 from $1.6 million in 2014. The decrease in net income was primarily a result of recognizing a valuation allowance
of $1.2 million for receivables including the Heyser case in 2015.
19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2014 Compared to 2013
Total revenue for the 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, 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 fewer franchises for the Company’s stand alone take-n- bake franchises. The growth in the royalties and fees
from grocery store take-n-bake locations primarily was the result of adding new packaging and new products.
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 operated 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 administrative 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.
20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
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 of $1.2 million related to the Heyser case. 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 did not pay any income tax on its 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 was the result of resolution of issues related to
the discontinued operations in 1999 and 2008.
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 valuation allowance related
to the Heyser case with an after-tax effect of $730,000.
21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Impact of Inflation
The primary inflation factors affecting the Company's operations are food and labor costs to the franchisee. 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.
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 franchising stand-alone take-n-bake locations. This strategy is intended to not require any significant increase in expenses. The
Company does not intend to operate any restaurants except for the location it is currently using 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 2.9-to-1 as of December 31, 2015 compared to 2.1-to-1 as of December 31, 2014.
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. In October, 2013, the
Company entered into a First Amendment to the Credit Agreement (the “First Amendment”). The First Amendment maintained the terms of the term loan
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 remained 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, used to redeem the Series B Preferred Stock, 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 provided
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”). 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.
In July, 2015, the Company borrowed $600,000 from a third-party lender, evidenced by a promissory note which matures in July 1, 2017. Interest on the note is
payable at the rate of 8% per annum quarterly in arrears and this loan is subordinate to borrowings under the Company's bank loan. In connection with the loan,
the Company issued, to the holder of the promissory note, a warrant entitling the holder to purchase up to 300,000 shares of the Company's common stock at a
price per share of $2.00. The warrant expires July 1, 2020. Proceeds were used to increase working capital in anticipation of expected growth due to the
Company hiring two new sales people, a Vice President of Supermarket Development, and entering into an agreement with a franchise broker.
22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In December 2015, the Company borrowed $175,000 from two officers of the Company, which are evidenced by promissory notes which mature in January
2017. Interest on the notes are payable at the rate of 10% per annum quarterly in arrears and the loans are unsecured.
In January, 2016, the Company entered into a Third Amendment to its Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, the
Company consolidated its three term loans with the Bank into a new term loan of $1,967,000 repayable in monthly payments of principal in the amount of
$54,654 plus interest on the unpaid balance of LIBOR plus 6% per annum. The new term loan matures March 31, 2017 when all remaining principal balance
becomes due. In addition, the Third Amendment provides for a revolving loan in the maximum amount of $500,000 with a maturity of March 31, 2017. Interest
on the outstanding balance of the revolving loan is payable at the rate of LIBOR plus 6% per annum payable monthly in arrears.
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 at least until March 31, 2017 when the Company may need to refinance its $1.2 million remaining
debt. 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 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 except:
The FASB recently issued ASU 2015-17 as part of its Simplification Initiative. The amendments eliminate the guidance in Topic 740, Income Taxes, that required
an entity to separate deferred tax liabilities and assets between current and noncurrent amounts in a classified balance sheet. Rather, deferred taxes will be
presented as noncurrent under the new standard. It takes effect in 2017 for public companies and early adoption is permitted.
On February 25, 2016, the FASB issued ASU 2016-02, its highly-anticipated leasing standard for both lessees and lessors. Under its core principle, a lessee will
recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. The new standard takes effect in 2019 for
public business entities.
Contractual Obligations
The following table sets forth the contractual obligations of the Company as of December 31, 2015:
Long-term debt (1)
Operating leases
Total
(1) The amounts do not include interest.
Forward-Looking Statements
Total
2,742,535
499,759
3,242,294
$
$
$
$
Less than
1 Year
1-3 Years
3-5 Years
601,081
206,290
807,371
$
$
2,141,454
245,183
2,386,637
$
$
-
48,286
48,286
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,
the ability to refinance its debt in 2017, 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.
23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, 2015, the Company had outstanding variable
interest-bearing debt in the aggregate principal amount of $2.0 million. The Company’s current borrowings are at a variable rate tied to LIBOR plus 6% per
annum 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 $16,900 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)
Notes payable to officers
Note payable to Kingsway America
Total long-term liabilities
Stockholders’ equity:
Common stock – no par value (25,000,000 shares authorized, 20,095,087 issued and outstanding as of December 31,
2014 and 20,775,921 issued and outstanding as of December 31, 2015)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
25
$
$
$
December 31,
2014
2015
$
200,349
1,687,954
381,400
467,721
1,675,000
4,412,424
194,021
2,007,751
492,222
634,016
925,000
4,253,010
1,383,380
88,718
1,472,098
1,041,951
430,147
7,899,497
5,015,931
17,757,999
1,469,028
676,386
2,145,414
1,846,736
-
-
1,846,736
$
$
1,376,190
88,718
1,464,908
1,092,785
372,123
8,158,523
5,681,272
18,464,928
601,081
847,418
1,448,499
1,366,454
175,000
600,000
2,141,454
23,970,654
(10,204,805)
13,765,849
17,757,999
$
24,294,002
(9,419,027)
14,874,975
18,464,928
$
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
Loss on restaurant discontinued
Adjust valuation of receivables - including Heyser case
Income before income taxes from continuing operations
Income tax expense
Net income from continuing operations
Loss from discontinued operations net of tax benefit of $511,893 for 2013, $97,284 for 2014 and
$21,697 for 2015
Net income
Cumulative preferred dividends
Net income (loss) available to common stockholders
Earnings per share - basic:
Net income from continuing operations
Net loss from discontinued operations net of tax benefit
Net income
Net income available to common stockholders
Weighted average number of common shares outstanding
Diluted earnings per share:
Net income from continuing operations
Net loss from discontinued operations net of tax benefit
Net income
Weighted average number of common shares outstanding
See accompanying notes to consolidated financial statements.
26
Year Ended December 31,
$
$
2013
7,082,548
24,138
420,753
7,527,439
$
2014
7,479,334
72,541
363,340
7,915,215
2015
7,464,963
56,520
207,803
7,729,286
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
(780,440)
91,097
99,000
(7,903)
.05
(.04)
.01
-
19,533,201
.05
(.04)
.01
20,472,908
$
$
$
$
$
$
$
$
(153,545)
1,590,196
-
1,590,196
.09
(.01)
.08
.08
19,870,904
.08
(.01)
.07
21,204,439
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,141,562
543,354
255,125
834,320
248,139
105,843
1,659,966
4,788,309
2,940,977
186,414
191,390
1,230,000
1,333,173
512,671
820,502
(34,724)
785,778
-
785,778
.04
(.00)
.04
.04
20,517,846
.04
(.00)
.04
21,439,242
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, 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
Exercise of employee stock options
Balance at December 31, 2013
2014 net income
117,118
(24,750)
91,097
91,097
(99,000)
(99,000)
117,118
(800,250)
(24,750)
39,975
11,703,400
1,590,196
1,590,196
$
-
68,500
19,585,089
$
39,975
23,498,401
$
(11,795,001)
$
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
Balance at December 31, 2014
$
-
115,000
20,095,087
$
105,230
23,970,654
$
(10,204,805)
$
48,815
318,208
105,230
13,765,849
2015 net income
785,778
785,778
Cashless exercise of employee stock option
360,167
Amortization of value of stock options
Stock issued in exchange for payables
Exercise of employee stock options
Balance at December 31, 2015
26,962
50,000
95,000
270,667
201,386
26,962
95,000
201,386
$
-
20,775,921
$
24,294,002
$
(9,419,027)
$
14,874,975
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
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
NET CASH USED BY INVESTING ACTIVITIES
FINANCING ACTIVITIES
Payment of cumulative preferred dividends
Payment of principal outstanding on bank loan
Redemption of all preferred stock outstanding
Proceeds from new bank loan net of closing costs
Proceeds from new Kingsway America loan
Proceeds from officers loans
Proceeds from the exercise of stock options
Year ended December 31,
2013
$
91,097
$
174,241
568,406
(188,425)
123,018
(92,397)
738,029
308,093
1,722,062
2014
1,590,196
128,265
1,007,526
(419,166)
(43,578)
4,344
(1,861,460)
263,622
669,749
2015
$
785,778
98,826
490,974
(319,797)
(110,822)
(166,295)
(665,341)
322,453
435,776
(11,958)
(11,958)
(22,176)
(22,176)
(13,840)
(13,840)
(99,000)
(1,244,375)
(825,000)
821,454
-
-
39,975
-
(1,235,694)
-
697,704
-
-
105,230
-
(1,348,229)
-
-
600,000
175,000
201,386
NET CASH USED BY FINANCING ACTIVITIES
(1,306,946)
(432,760)
(371,843)
DISCONTINUED OPERATIONS
Payment of obligations from discontinued operations
Increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Supplemental Schedule of Non-Cash Investing and Financing Activities:
(389,725)
(172,251)
(56,421)
13,433
144,354
157,787
$
42,562
157,787
200,349
$
(6,328)
200,349
194,021
$
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. Also in 2014, the Company issued 180,000 shares of common
stock in exchange for $318,000 in payables.
In 2015, options to purchase 90,000 shares at $.36 per share, 100,000 shares at $.95 per share, 300,000 shares at $1.05 per share, 66,666 shares at $.58 per
share and 30,000 shares at $.90 per share were exercised pursuant to the cashless exercise provision of the options and the holders received 360,167 shares
of common stock. Also in 2015, the Company issued 50,000 shares of common stock in exchange for $95,000 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
$163,727 with accumulated amortization at December 31, 2015 of $125,503.
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 including interest per the franchise agreement 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,
2015, the net operating loss carry-forward was approximately $21.4 million which expires between the years 2019 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, 2013, 2014 and 2015. The Company’s federal and various state income tax returns for 2012 through 2015 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, 2013:
Net income
Less preferred stock dividends
Earnings per share – basic
Loss available to common
stockholders
Effect of dilutive securities
Options
Convertible preferred stock
Diluted earnings per share
Income available to common stockholders
and assumed conversions
Income
Shares
(Numerator)
(Denominator)
Per Share
Amount
$
91,097
(99,000)
(7,903)
19,533,201 $
(939,707)
-
99,000
-
$
91,097
20,472,908
$
.01
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, 2014:
Earnings per share – basic
Net income
Effect of dilutive securities
Options
Diluted earnings per share
Net income
Income
Shares
(Numerator)
(Denominator)
Per Share
Amount
$
1,590,196
19,870,904
$
.08
-
1,333,535
$
1,590,196
21,204,439
$
.07
The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2015:
Earnings per share – basic
Net income
Effect of dilutive securities
Options
Diluted earnings per share
Net income
Income
Shares
(Numerator)
(Denominator)
Per Share
Amount
$
785,778
20,517,846
$
.04
-
921,396
$
785,778
21,439,242
$
.04
Subsequent Events: The Company evaluated subsequent events through the date the consolidated statements were issued and filed with the annual report. In
January, 2016, the Company entered into a Third Amendment to its Credit Agreement (the “Third Amendment”) with the Bank. Pursuant to the Third
Amendment, the Company consolidated its three term loans with the Bank into a new term loan of $1,967,000 repayable in monthly payments of principal in
the amount of $54,654 plus interest on the unpaid balance of LIBOR plus 6% per annum. The new term loan matures March 31, 2017 when all remaining
principal balance becomes due. In addition, the Third Amendment provides for a revolving loan in the maximum amount of $500,000 with a maturity of March
31, 2017. Interest on the outstanding balance of the revolving loan is payable at the rate of LIBOR plus 6% per annum payable monthly in arrears.
No subsequent event required recognition or disclosure except as discussed above.
31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Note 2: Accounts Receivable
At December 31, 2014 and 2015, 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, 2014 and 2015 will be collected. The allowance to reduce the receivables to anticipated net realizable value at December 31, 2015 was $1.17 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 in February 2014 in the lawsuit, the Company reduced the carrying value of the receivables subject to the counterclaims 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. In 2015, the Company made an adjustment for valuation of receivables, including the Heyser case above, of $1.2 million.
Note 3: Notes Payable
In May, 2012, the Company entered into a Credit Agreement with 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. In October, 2013, the Company entered into a First
Amendment to the Credit Agreement (the “First Amendment”). The First Amendment maintained the terms of the term loan 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
remained 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, used to redeem the Series B Preferred Stock, 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 provided 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”). 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 and certain equipment for use in supermarkets, as a result of the growth in the grocery store take-n-bake venue.
In January, 2016, the Company entered into the Third Amendment (the "Third Amendment"). Pursuant to the Third Amendment, the Company consolidated its
three term loans with the Bank into a new term loan of $1,967,000 repayable in monthly payments of principal in the amount of $54,654 plus interest on the
unpaid balance of LIBOR plus 6% per annum. The new term loan matures March 31, 2017 when all remaining principal balance becomes due. In addition, the
Third Amendment provides for a revolving loan in the maximum amount of $500,000 with a maturity of March 31, 2017. Interest on the outstanding balance of
the revolving loan is payable at the rate of LIBOR plus 6% per annum payable monthly in arrears.
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 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.
In July, 2015, the Company borrowed $600,000, evidenced by a promissory note which matures on July 1, 2017. Interest on the note is payable at the rate of
8% per annum quarterly in arrears and this loan is subordinate to borrowings under the Company's bank loan. In connection with the loan, the Company issued,
to the holder of the promissory note, a warrant entitling the holder to purchase up to 300,000 shares of the Company's common stock at a price per share of
$2.00. The warrant expires July 1, 2020. Proceeds were used to increase working capital in anticipation of expected growth due to the Company hiring two new
sales people, a Vice President of Supermarket Development, and entering into an agreement with a franchise broker. In December 2015 the Company borrowed
$175,000 from two officers of the Company evidenced by promissory notes which matures in January 2017.Interest on the notes is payable at the rate of 10%
per annum payable quarterly in arrears and these loans are unsecured.
Interest paid on the Company's loans in 2015 was $139,328.
32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Note 4: Royalties and Fees
Approximately $788,000, $313,000 and $163,000 are included in the 2013, 2014 and 2015, respectively, royalties and fees in the Consolidated Statements of
Operations for initial franchise fees. Also included in royalties and fees were approximately $95,000, $80,000 and $65,000 in 2013, 2014 and 2015, 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. A substantial portion of 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.
There were 2,215 franchised or licensed outlets in operation on December 31, 2014 and 2,562 on December 31, 2015. During the 12-month period ended
December 31, 2015, there were 404 new franchised or licensed outlets opened and 57 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 1,797
included in the December 31, 2015 count, how many grocery store licenses were actually operating at any given time.
Note 5: Contingent Liabilities for Leased Facilities
The Company is no longer contingently liable on any leased facilities.
The Company has future obligations of $499,759 under current operating leases as follows: due in less than one year $206,290, due in one to three years
$245,183 and due in three to five years $48,286.
Note 6: Income Taxes
The Company had a deferred tax asset, as a result of prior operating losses, of $9.57 million at December 31, 2014 and $9.08 million at December 31, 2015,
which expires between the years 2019 and 2033. In 2013, 2014 and 2015, the Company used deferred benefits to offset its tax expense of $568,000, $1.1
million and $513,000, respectively, and tax benefits from loss on discontinued operations of $512,000 in 2013, $97,000 in 2014 and $22,000 in 2015. As a
result of the loss carry-forwards, the Company did not pay any income taxes in 2013, 2014 and 2015. 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 March 23, 2015, an employee exercised a stock option for 30,000 shares of common stock at a price of $.36. On April 23, 2015, an employee exercised a
stock option for 100,000 shares of common stock at a price of $.95 in a cashless exercise and was issued 58,696 shares of common stock, an stock option for
300,000 shares of common stock at a price of $1.05 in a cashless exercise and was issued 163,043 shares of common stock, and a stock option for 66,666
shares of common stock at a price of $.58 in a cashless exercise and was issued 49,855 shares of common stock. On April 24, 2015, an employee exercised a
stock option for 66,667 shares of common stock at a price of $.58 per share . On April 27, 2015, an employee exercised a stock option for 30,000 shares of
common stock at a price of $.90 in a cashless exercise and was issued 18,412 shares of common stock. On May 12, 2015, an employee exercised a stock
option for 100,000 shares of common stock at a price of $1.05 per share. On June 5, 2015, a director exercised a stock option for 45,000 shares of common
stock at a price of $.36 per share in a cashless exercise and was issued 36,900 shares of common stock. On June 29, 2015, an employee exercised a stock
option for 30,000 shares of common stock at a price of $.58 per share. On June 29, 2015,an employee exercised a stock option for 4,000 shares of common
stock at a price of $.58 per share. On July 23, 2015, an employee exercised a stock option for 15,000 shares of common stock at a price of $.68 per share. On
August 31, 2015, an employee exercised a stock option for 25,000 shares of common stock at a price of $.68 per share. On November 19, 2015, a director
exercised a stock option for 45,000 shares of common stock at a price of $.36 per share in a cashless exercise and was issued 33,261 shares of common
stock. On June 12, 2015, the Company issued 50,000 shares of common stock as payment of certain payables at an issuance price of $1.90 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, 2015, the
Company had the following employee stock options outstanding:
# Common Shares Represented
Exercise Price
47,500
155,000
1,400,000
31,000
143,667
230,500
267,500
362,500
$ 2.30
.95
1.05
.90
.58
1.30
1.55
1.85
As of December 31, 2015, options for 1,907,166 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 2013, 2014 and 2015:
Expected volatility
Expected dividend yield
Expected term (in years)
Risk-free interest rate
34
20% to 30%
None
3 to 5
1.62% to 2.64%
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following table sets forth the number of options outstanding as of December 31, 2012, 2013, 2014 and 2015 and the number of options granted, exercised
or forfeited during the years ended December 31, 2013, December 31, 2014 and December 31, 2015:
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
Stock options granted during the year ended 12/31/15
Stock options exercised during the year ended 12/31/15
Stock options forfeited during the year ended 12/31/15
Balance of employee stock options outstanding as of 12/31/15
3,266,500
273,000
(68,500)
(13,500)
3,457,500
370,000
(390,000)
(2,500)
3,435,000
410,000
(877,333)
(330,000)
2,637,667
The following table sets forth the number of non-vested options outstanding as of December 31, 2012, 2013, 2014 and 2015, and the number of stock options
granted, vested and forfeited during the years ended December 31, 2013, 2014 and 2015.
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
Stock options granted during the year ended 12/31/15
Stock options vested during the year ended 12/31/15
Stock options forfeited during the year ended 12/31/15
Balance of employee non-vested stock options outstanding as of 12/31/15
35
2,187,000
273,000
(1,031,000)
(12,500)
1,416,500
370,000
(755,000)
-
1,031,500
410,000
(380,999)
(330,000)
730,501
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
During 2015, employee stock options were granted for 410,000 shares, options for 877,333 shares were exercised and options for 330,000 shares were
forfeited. At December 31, 2015, the weighted average grant date fair value of non-vested options was $1.65 per share and the weighted average grant date
fair value of vested options was $1.06 per share. The weighted average grant date fair value of employee stock options granted during 2013 was $1.30, during
2014 was $1.55 and during 2015 was $1.85. Total compensation cost recognized for share-based payment arrangements was $117,118 with a tax benefit of
$46,390 in 2013, $48,815 with a tax benefit of $18,935 in 2014, and $26,961 with a tax benefit of $10,369 in 2015. As of December 31, 2015, total
compensation cost related to non-vested options was $92,500, 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 except:
The FASB recently issued ASU 2015-17 as part of its Simplification Initiative. The amendments eliminate the guidance in Topic 740, Income Taxes, that required
an entity to separate deferred tax liabilities and assets between current and noncurrent amounts in a classified balance sheet. Rather, deferred taxes will be
presented as noncurrent under the new standard. It takes effect in 2017 for public companies and early adoption is permitted.
On February 25, 2016, the FASB issued ASU 2016-02, its highly-anticipated leasing standard for both lessees and lessors. Under its core principle, a lessee will
recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. The new standard takes effect in 2019 for
public business entities.
Note 9: Loss on Restaurant Discontinued
This restaurant was a part of the discontinued operations in 2008 but the decision was made to continue to operate this location until the lease (renewed in
2010) expired. This is a non-recurring expense.
Note 10: 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. As a result, the Company charged off or dramatically lowered the carrying value of all receivables related to
the traditional restaurants and accrued future estimated expenses related to the estimated cost to prosecute a lawsuit related to those discontinued
operations. The ongoing right to receive passive income in the form of royalties is not a part of the discontinued segment.
A full-service restaurant that was closed in conjunction with the business activity discontinued in 1999 was sublet to an unrelated party. In late 2008, the
Company lost that sub-tenant and the building was severely damaged by a tornado. As a result, the Company incurred additional cost related to the 1999
discontinued operations as well as the ones that were 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.
36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company reported a net loss on discontinued operations of $153,000 in 2015. This consisted of $4,800 as a final payment on a property that was closed in
conjunction with the 1999 discontinued operations. In addition, the Company incurred a loss of $30,000 for rent and legal fees related to the operations
discontinued in 2008.
Note 11: 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 12: 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 former 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 $200,000, $320,000 and $95,000 in 2013, 2014 and 2015, respectively.
In December 2015, the Company borrowed $175,000 from two officers of the Company evidenced by promissory notes which mature in January 2017. Interest
on the notes is payable at the rate of 10% per annum payable quarterly in arrears and these notes are unsecured.
The Company executed a franchise agreement for three stand-alone take-n-bake retail outlets during 2012. The franchisee includes partial ownership by certain
officers of the Company, however, these individuals are not involved in the management of the franchisee’s operations. The Company recognized license fee
revenue from the franchisee in the approximate amount of $30,400, $22,600 and $27,500 for the years ended December 31, 2013, 2014 and 2015,
respectively. The Company has advanced funds to the franchisee in the approximate amount of $323,000 and $597,000 at December 31, 2014 and 2015,
respectively, which are unsecured and noninterest bearing, and are a component of “Other assets including long-term portion of accounts receivable – net” on the
accompanying Consolidated Balance Sheets. The Company’s future maximum exposure to loss could only increase if the Company voluntarily provided
additional financial support to the franchisee. Neither the Company, nor any officers of the Company, have guaranteed any obligations of the franchisee. While
the franchisee has been determined to be a variable interest entity as defined by accounting principles generally accepted in the United States of America,
management has determined that the Company has a significant variable interest but does not have the power to direct the activities of the variable interest
entity that most significantly impact its economic performance. Therefore, the Company is not the primary beneficiary of the franchisee, and as such, is not
required to present consolidated financial statements with the franchisee.
Note 13: Unaudited Quarterly Financial Information
2015
Total revenue
Operating income
Loss on restaurant discontinued
Valuation allowance for receivables - including Heyser case
Net income before income taxes from continuing operations
Net income (loss) from continuing operations
Loss from discontinued operations
Net income (loss)
Net income from continuing operations per common share
Basic
Diluted
Net income per common share
Basic
Diluted
December 31
September 30
(in thousands, except per share data)
June 30
March 31
Quarter Ended
$
1,888
634
191
380
15
10
(35)
(25)
-
-
-
-
$
1,918
725
-
250
425
261
-
261
.01
.01
.01
.01
$
2,096
918
-
600
276
170
-
170
.01
.01
.01
.01
1,827
664
-
-
618
380
-
380
.02
.02
.02
.02
$
37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2014
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
Quarter Ended
December 31
September 30
June 30
March 31
(in thousands, except per share data)
$
$
1,807
550
$
2,107
857
$
2,089
855
1,912
777
501
303
154
149
.02
.01
.01
.01
813
499
-
499
.03
.02
.03
.02
808
503
-
503
.03
.02
.03
.02
727
439
-
439
.02
.02
.02
.02
38
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, 2015 and 2014, 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,
2015. 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, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
Indianapolis, Indiana
March 14, 2016
39
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 internal control over financial reporting as of December 31, 2015. Our
management has concluded that the Company’s internal controls over financial reporting are effective.
40
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
There have been no changes in internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report in this annual report.
Management’s Evaluation of Disclosure Controls and Procedures
Based on 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.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE
PART III
Information concerning this item is included under captions “Election of Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Corporate
Governance” in our Proxy Statement for our 2016 Annual Meeting of Shareholders (the “2016 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 2016 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 2016 Proxy Statement and is incorporated herein by reference.
41
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 2016 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 2016 Proxy Statement and is incorporated herein by
reference.
42
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Noble
Roman's, Inc. and Subsidiaries are included in Item :
Consolidated Balance Sheets - December 31, 2014 and 2015 26
Consolidated Statements of Operations - years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Changes in Stockholders' Equity - years ended December 31, 2013, 2014 and 2015
Consolidated Statements of Cash Flows - years ended December 31, 2013, 2014 and 2015
Notes to Consolidated Financial Statements
Report of Independent Registered Accounting Firm. – Somerset CPAs, P.C.
Exhibits
Exhibit Number Description
Page
25
26
27
28
29
39
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
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.
Warrant to purchase common stock, dated July 1, 2015, filed as Exhibit 10.11 to the Registrant's Form 10-Q filed on August 11, 2015, is
incorporated herein by reference.
10.1
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.
10.2
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.
10.3
Credit Agreement with BMO Harris Bank, N.A., dated May 25, 2012, filed as Exhibit 10.17 to the Registrant’s quarterly report on Form 10-Q
filed on August 13, 2012, is incorporated herein by reference.
10.4
First Amendment to Credit Agreement with BMO Harris Bank, N.A. dated October 31, 2013, filed 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.
10.5
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.
10.6
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 as Exhibit 10.7 to the Registrants Annual
Report on Form 10-K filed on March 12, 2015, is incorporated herein by reference.
10.8
Promissory Note with BMO Harris Bank, N.A. dated October 15, 2014, filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K
filed on March 12, 2015, is incorporated herein by reference.
10.9
Agreement dated April 8, 2015, by and among Noble Roman's, Inc. and the shareholder parties, filed as Exhibit 10.1 to Registrant's Form 8-K
filed on April 8, 2015, is incorporated herein by reference.
10.10
Promissory Note payable to Kingsway America, Inc., dated July 1, 2015, filed as Exhibit 10.10 to the Registrant's Form 10-Q filed on August
10.11
10.12
10.13
10.14
10.15
21.1
31.1
31.2
32.1
32.2
101
11, 2015, is incoporated herein by reference.
Third Amendment to Credit Agreement with BMO Harris Bank, N.A. dated January 22, 2016, filed herewith.
Promissory Note payable to BMO Harris Bank, N.A., dated January 22, 2016, filed herewith.
Promissory Note payable to BMO Harris Bank, N.A., dated January 22, 2016, filed herewith.
Promissory Note payable to Paul Mobley, dated December 21, 2015, filed herewith.
Promissory Note payable to A. Scott Mobley, dated December 21, 2015, filed herewith.
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.
C.E.O. Certification under Rule 13a-14(a)/15d-14(a)
C.F.O. Certification under Rule 13a-14(a)/15d-14(a)
C.E.O. Certification under Section 1350
C.F.O. Certification under Section 1350
Interactive Financial Data
43
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
Date: March 14, 2016
NOBLE ROMAN'S, INC.
By:
/s/ Scott Mobley
Scott Mobley, President and Chief Executive
Officer
Date: March 14, 2016
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.
Date: March 14, 2016
By:
/s/ Paul W. Mobley
Paul W. Mobley
Executive Chairman of the Board,
Chief Financial Officer and Director
Date: March 14, 2016
By:
/s/ A. Scott Mobley
A. Scott Mobley
President, Chief Executive Officer and Director
Date: March 14, 2016
Date: March 14, 2016
By:
/s/ Douglas H. Coape-Arnold
Douglas H. Coape-Arnold
Director
By:
/s/ Schuster Tanger
Schuster Tanger
Director
44
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PROMISSORY NOTE
EXHIBIT 10.14
$100,000.00
December 21, 2015
FOR VALUE RECEIVED, Noble Roman's, Inc, an Indiana corporation (the “ Debtor”), hereby promises to pay to Paul and Jenny Mobley (the “ Holder”)
the principal sum of One Hundred Thousand and 00/100 Dollars ($100,000.00), together with interest, in the manner provided herein. Each of the Holder and
the Debtor are collectively referred to herein as the “Parties”.
1. Repayment of Principal. The entire principal balance of this Note shall be due and payable on January 10, 2017 and (b) the exercise of remedies by
the Holder pursuant to Section 4, of this Note (the “Final Payment Date”). All principal and interest payable pursuant to this Note may be prepaid in whole or in
part at any time, without payment of any penalty or premium.
2. Interest on Unpaid Principal Balance. Interest shall accrue on the unpaid principal balance of this Note at a rate of ten percent (10%) per annum
(computed on the basis of a 360-day year containing 12 months, counting the actual number of days in each month), such accrued and unpaid interest shall be
paid quarterly in arrears on the last business day of March, June, September and December of each year commencing March 31, 2016. All accrued and unpaid
interest shall be due and payable at the Final Payment Date.
3. Payments. The Debtor will pay to Holder, by check for all amounts payable to the Holder in respect of the principal of, or interest on, this Note,
without any presentation of this Note. Each such payment, when paid, shall be applied first to the payment of interest, fees, expenses and other charges
accrued and unpaid under this Note in such order as Holder shall determine and second to the payment or prepayment of the principal hereof. Notwithstanding
anything herein to the contrary, all outstanding principal, accrued interest and all other amounts under this Note shall be immediately due and payable in full at
the Final Payment Date.
4. Event of Default . The occurrence of any one or more of the following events will constitute an “Event of Default” hereunder:
(a) Nonpayment of any installment of principal and/or interest due under this Note when it shall become due and payable (no prior
demand therefor being necessary);
(b) Any representation or warranty made or deemed to be made by Debtor in this Note, or any other document, instrument or certificate
delivered in connection herewith or therewith is or shall be incorrect in any material respect on or as of the date when made or deemed to have been
made; provided, that any representation or warranty that is already qualified in the text thereof as to “materiality”, “material adverse effect” or similar
language shall be true and correct in all respects so stated on the applicable date;
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(c) The Debtor shall default in the performance of any other obligation, covenant or agreement contained in this Note (subject to any
applicable grace periods), provided that the Debtor shall have the opportunity to cure such default within ten (10) business days of its receipt of notice of
default;
(d) (i) the appointment of a receiver, trustee, custodian or other fiduciary, for, or for any of the property of, the Debtor; or (ii) the making
of an assignment for the benefit of creditors by the Debtor; and if any of (i) through (ii) are involuntary, the failure to discharge same within sixty (60)
days;
(e) The filing of a petition, complaint, motion or other pleading seeking relief under any receivership, insolvency, or debtor relief law, or
seeking any readjustment of indebtedness, reorganization, composition, extension or any similar type of relief, or the filing of a petition, complaint, or
motion under any chapter of the federal bankruptcy code, 11 U.S.C. 101 et seq., as the same now exists or may hereafter be amended (the “Bankruptcy
Code”), by the Debtor;
(f) The filing of a petition, complaint, motion or other pleading seeking any relief under any receivership, insolvency, or debtor relief law,
or under any chapter of the Bankruptcy Code, or seeking any readjustment of indebtedness, reorganization, composition, extension or any similar type
of relief, or the entry of any order for relief under any chapter of the Bankruptcy Code, against, the Debtor; provided, however, that if the Debtor shall
notify Holder in writing of the filing of any such petition, complaint, motion or other pleading against the Debtor and shall provide evidence satisfactory to
Holder that the Debtor has in good faith and within thirty (30) days after the filing of any such petition, complaint, motion or other pleading filed an
answer thereto contesting same, then there shall be no Event of Default under this subparagraph (e) until the earliest of (i) the entry of an order for relief
or a judgment under any proceedings referred to in this subparagraph (e), (ii) the appointment of a receiver, trustee, custodian or other fiduciary in any
such proceeding or (iii) the expiration of a period of sixty (60) days, at the end of which such petition, complaint, motion or other pleading remains
undismissed;
(g) The dissolution, liquidation or termination of existence of the Debtor;
(h) A Sale of the Company shall occur;
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(i) Debtor fails to make any of its filings required by the Securities Exchange Act of 1934, as amended, by the dates they are required to
be filed in accordance with the rules and regulations promulgated by the Securities and Exchange Commission from time to time (without giving effect to
any available extension of time with respect to any such filing);
(j) A delisting of the Debtor’s Common Stock from the OTCQB marketplace.
Upon the occurrence and continuance of any Event of Default, this Note, at the option of the Holder, shall become immediately due and payable without notice of
any kind; provided that this Note shall become automatically due and payable upon any Event of Default occurring under clauses (d), (e) and (f) above without
any further action on behalf of Holder. The Holder’s failure to exercise such option shall not constitute a waiver of the right to exercise it at any other
time. Irrespective of the exercise or non-exercise of the foregoing option, if any payment of principal and/or interest is not paid in full on the date the same is
due, the interest rate under this Note on the overdue amount shall be increased to eighteen percent (18%) per annum until said amount is paid in full.
Notwithstanding any provisions of this Note, it is the understanding and agreement of the Debtor and the Holder that the maximum rate of interest to be
paid by the Debtor to the Holder shall not exceed the highest or maximum rate of interest permissible to be charged to a commercial borrower under any law
applicable hereto. Any amount paid in excess of such rate shall be considered to have been payments in reduction of principal, and if there shall be no principal
amount then outstanding, such excess shall be returned to the Debtor as an overpayment of principal.
5. Representations and Warranties.
(a) Power and Authority; Execution and Delivery . Debtor has the corporate or other organizational power and authority to execute,
deliver, perform and otherwise carry out the terms and provisions of this Note and the Warrant ( including such power and authority to borrow the funds
as contemplated herein and to issue the equity securities as contemplated by the Warrant) and has taken all necessary corporate or other
organizational action to authorize the execution, delivery and performance of this Note. Debtor has duly executed and delivered this Note and any
documents executed and delivered in connection herewith or therewith.
(b) Enforceability. This Note constitutes the legal, valid and binding obligation of Debtor, enforceable against Debtor in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization and other similar laws relating to or
affecting creditors’ rights generally.
3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(c) No Violation. The execution, delivery and performance by Debtor of this this Note, the compliance with the terms and provisions
hereof and thereof, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) conflict with, contravene or
violate any provision of any applicable law, (ii) violate any order or decree of, or require any authorization, consent, approval, exemption or other action
by or notice to, any Person which has not been obtained and is in full force and effect, (iii) conflict with, result in a breach of any of the terms, covenants,
conditions or provisions of, constitute a default under, otherwise result in the termination of or a termination right under, (x) any material indenture, note,
loan agreement, lease agreement, mortgage, deed of trust or other financing or security agreement, or (y) any other material agreement to which it or
any of its property or assets is bound, or (iv) violate any provision of the its organization documents (i.e., charter, by-laws, etc.) or any material permit or
license of Debtor.
6. Definitions. The following terms, as used herein, have the following respective meanings:
“Sale of the Company ” means the sale (in a single transaction or a series of related transactions) of the Company to any Independent Third Party or group of
Independent Third Parties pursuant to which such Independent Third Party or group of Independent Third Parties acquires (a) a majority of the Common Stock
on a Fully-Diluted Basis (whether by merger, consolidation, sale or Transfer of Common Stock, reorganization, recapitalization or otherwise), or (b) all or
substantially all of the assets of the Company and its Subsidiaries, determined on a consolidated basis. For purposes of this definition, all Common Stock that is
issuable upon exercise or conversion of any Stock Equivalents acquired by an Independent Third Party shall be deemed to be issued and held by such
Independent Third Party.
“Subsidiary” means any corporation, limited liability company, partnership, association, joint stock company, trust, joint venture or unincorporated organization of
which the Company, at the time in respect of which such term is used, (a) owns directly or indirectly more than fifty percent (50%) of the equity or beneficial
interests, on a consolidated basis, or (b) owns directly or controls with power to vote, indirectly through one or more subsidiaries, shares of capital stock or
beneficial interests having the power to cast a majority of the votes entitled to be cast for the election of directors, trustees, managers or other officials having
powers analogous to those of directors of a corporation. Unless otherwise specifically indicated, when used in this Agreement, the term Subsidiary shall refer to
a direct or indirect Subsidiary of the Company.
4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
“Transfer” means any direct or indirect transfer, donation, sale, assignment, pledge, encumbrance, hypothecation, gift, creation of a security interest in or lien
on, or other disposition, irrespective of whether any of the foregoing are effected with or without consideration, voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise, inter vivos or upon death.
7. No Security. This Note is unsecured on a senior basis.
8. Costs. If, and as often as, this Note is referred to an attorney for the collection of any sum payable hereunder, or to defend or enforce any of the
Parties’ rights hereunder, or to commence an action, cross-claim, third-party claim or counterclaim relating to this Note, the Debtor hereby agrees to pay all
reasonable costs incurred by the Parties in connection therewith including reasonable attorneys' fees (including such fees incurred in appellate, bankruptcy or
insolvency proceedings), with or without the institution of any action or proceeding.
9. Governing Law. This Agreement shall be governed by and construed in accordance with the domestic Laws of the State of Indiana without giving
effect to any choice or conflict of Law provision or rule (whether of the State of Indiana or any other jurisdiction) that would cause the application of the Laws of
any jurisdiction other than the State of Indiana.
10. Waiver of Jury Trial. EACH OF THE PARTIES WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OR RELATED TO THIS PROMISSORY NOTE IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY
TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AFFILIATE OF ANY OTHER SUCH PARTY, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. THE PARTIES AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH
SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS PROMISSORY NOTE OR ANY PROVISION
HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE.
11. Assignment. This Note and the rights and obligations hereunder shall be freely assignable, in whole or in part, by the Holder without the
consent of the Debtor or any other Person; provided that any proposed assignee shall expressly agree to be bound by the terms of the Subordination
Agreement.
5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IN WITNESS WHEREOF, the Debtor has caused this Promissory Note to be duly executed as of the day and year first above written.
DEBTOR:
NOBLE ROMAN'S, INC.
By:_________________________________
Name: A. Scott Mobley
Title: President and CEO
On this 21st day of December, 2015
6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 10.15
PROMISSORY NOTE
$75,000.00
December 21, 2015
FOR VALUE RECEIVED, Noble Roman's, Inc, an Indiana corporation (the “ Debtor”), hereby promises to pay to Scott Mobley (the “ Holder”) the
principal sum of Seventy-Five Thousand and 00/100 Dollars ($75,000.00), together with interest, in the manner provided herein. Each of the Holder and the
Debtor are collectively referred to herein as the “Parties”.
1. Repayment of Principal. The entire principal balance of this Note shall be due and payable on January 10, 2017 and (b) the exercise of remedies by
the Holder pursuant to Section 4, of this Note (the “Final Payment Date”). All principal and interest payable pursuant to this Note may be prepaid in whole or in
part at any time, without payment of any penalty or premium.
2. Interest on Unpaid Principal Balance. Interest shall accrue on the unpaid principal balance of this Note at a rate of ten percent (10%) per annum
(computed on the basis of a 360-day year containing 12 months, counting the actual number of days in each month), such accrued and unpaid interest shall be
paid quarterly in arrears on the last business day of March, June, September and December of each year commencing March 31, 2016. All accrued and unpaid
interest shall be due and payable at the Final Payment Date.
3. Payments. The Debtor will pay to Holder, by check for all amounts payable to the Holder in respect of the principal of, or interest on, this Note,
without any presentation of this Note. Each such payment, when paid, shall be applied first to the payment of interest, fees, expenses and other charges
accrued and unpaid under this Note in such order as Holder shall determine and second to the payment or prepayment of the principal hereof. Notwithstanding
anything herein to the contrary, all outstanding principal, accrued interest and all other amounts under this Note shall be immediately due and payable in full at
the Final Payment Date.
4. Event of Default . The occurrence of any one or more of the following events will constitute an “Event of Default” hereunder:
(a) Nonpayment of any installment of principal and/or interest due under this Note when it shall become due and payable (no prior
demand therefor being necessary);
(b) Any representation or warranty made or deemed to be made by Debtor in this Note, or any other document, instrument or certificate
delivered in connection herewith or therewith is or shall be incorrect in any material respect on or as of the date when made or deemed to have been
made; provided, that any representation or warranty that is already qualified in the text thereof as to “materiality”, “material adverse effect” or similar
language shall be true and correct in all respects so stated on the applicable date;
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(c) The Debtor shall default in the performance of any other obligation, covenant or agreement contained in this Note (subject to any
applicable grace periods), provided that the Debtor shall have the opportunity to cure such default within ten (10) business days of its receipt of notice of
default;
(d) (i) the appointment of a receiver, trustee, custodian or other fiduciary, for, or for any of the property of, the Debtor; or (ii) the making
of an assignment for the benefit of creditors by the Debtor; and if any of (i) through (ii) are involuntary, the failure to discharge same within sixty (60)
days;
(e) The filing of a petition, complaint, motion or other pleading seeking relief under any receivership, insolvency, or debtor relief law, or
seeking any readjustment of indebtedness, reorganization, composition, extension or any similar type of relief, or the filing of a petition, complaint, or
motion under any chapter of the federal bankruptcy code, 11 U.S.C. 101 et seq., as the same now exists or may hereafter be amended (the “Bankruptcy
Code”), by the Debtor;
(f) The filing of a petition, complaint, motion or other pleading seeking any relief under any receivership, insolvency, or debtor relief law,
or under any chapter of the Bankruptcy Code, or seeking any readjustment of indebtedness, reorganization, composition, extension or any similar type
of relief, or the entry of any order for relief under any chapter of the Bankruptcy Code, against, the Debtor; provided, however, that if the Debtor shall
notify Holder in writing of the filing of any such petition, complaint, motion or other pleading against the Debtor and shall provide evidence satisfactory to
Holder that the Debtor has in good faith and within thirty (30) days after the filing of any such petition, complaint, motion or other pleading filed an
answer thereto contesting same, then there shall be no Event of Default under this subparagraph (e) until the earliest of (i) the entry of an order for relief
or a judgment under any proceedings referred to in this subparagraph (e), (ii) the appointment of a receiver, trustee, custodian or other fiduciary in any
such proceeding or (iii) the expiration of a period of sixty (60) days, at the end of which such petition, complaint, motion or other pleading remains
undismissed;
(g) The dissolution, liquidation or termination of existence of the Debtor;
(h) A Sale of the Company shall occur;
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(i) Debtor fails to make any of its filings required by the Securities Exchange Act of 1934, as amended, by the dates they are required to
be filed in accordance with the rules and regulations promulgated by the Securities and Exchange Commission from time to time (without giving effect to
any available extension of time with respect to any such filing);
(j) A delisting of the Debtor’s Common Stock from the OTCQB marketplace.
Upon the occurrence and continuance of any Event of Default, this Note, at the option of the Holder, shall become immediately due and payable without notice of
any kind; provided that this Note shall become automatically due and payable upon any Event of Default occurring under clauses (d), (e) and (f) above without
any further action on behalf of Holder. The Holder’s failure to exercise such option shall not constitute a waiver of the right to exercise it at any other
time. Irrespective of the exercise or non-exercise of the foregoing option, if any payment of principal and/or interest is not paid in full on the date the same is
due, the interest rate under this Note on the overdue amount shall be increased to eighteen percent (18%) per annum until said amount is paid in full.
Notwithstanding any provisions of this Note, it is the understanding and agreement of the Debtor and the Holder that the maximum rate of interest to be
paid by the Debtor to the Holder shall not exceed the highest or maximum rate of interest permissible to be charged to a commercial borrower under any law
applicable hereto. Any amount paid in excess of such rate shall be considered to have been payments in reduction of principal, and if there shall be no principal
amount then outstanding, such excess shall be returned to the Debtor as an overpayment of principal.
5. Representations and Warranties.
(a) Power and Authority; Execution and Delivery . Debtor has the corporate or other organizational power and authority to execute,
deliver, perform and otherwise carry out the terms and provisions of this Note and the Warrant ( including such power and authority to borrow the funds
as contemplated herein and to issue the equity securities as contemplated by the Warrant) and has taken all necessary corporate or other
organizational action to authorize the execution, delivery and performance of this Note. Debtor has duly executed and delivered this Note and any
documents executed and delivered in connection herewith or therewith.
(b) Enforceability. This Note constitutes the legal, valid and binding obligation of Debtor, enforceable against Debtor in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization and other similar laws relating to or
affecting creditors’ rights generally.
3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(c) No Violation. The execution, delivery and performance by Debtor of this this Note, the compliance with the terms and provisions
hereof and thereof, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) conflict with, contravene or
violate any provision of any applicable law, (ii) violate any order or decree of, or require any authorization, consent, approval, exemption or other action
by or notice to, any Person which has not been obtained and is in full force and effect, (iii) conflict with, result in a breach of any of the terms, covenants,
conditions or provisions of, constitute a default under, otherwise result in the termination of or a termination right under, (x) any material indenture, note,
loan agreement, lease agreement, mortgage, deed of trust or other financing or security agreement, or (y) any other material agreement to which it or
any of its property or assets is bound, or (iv) violate any provision of the its organization documents (i.e., charter, by-laws, etc.) or any material permit or
license of Debtor.
6. Definitions. The following terms, as used herein, have the following respective meanings:
“Sale of the Company ” means the sale (in a single transaction or a series of related transactions) of the Company to any Independent Third Party or group of
Independent Third Parties pursuant to which such Independent Third Party or group of Independent Third Parties acquires (a) a majority of the Common Stock
on a Fully-Diluted Basis (whether by merger, consolidation, sale or Transfer of Common Stock, reorganization, recapitalization or otherwise), or (b) all or
substantially all of the assets of the Company and its Subsidiaries, determined on a consolidated basis. For purposes of this definition, all Common Stock that is
issuable upon exercise or conversion of any Stock Equivalents acquired by an Independent Third Party shall be deemed to be issued and held by such
Independent Third Party.
“Subsidiary” means any corporation, limited liability company, partnership, association, joint stock company, trust, joint venture or unincorporated organization of
which the Company, at the time in respect of which such term is used, (a) owns directly or indirectly more than fifty percent (50%) of the equity or beneficial
interests, on a consolidated basis, or (b) owns directly or controls with power to vote, indirectly through one or more subsidiaries, shares of capital stock or
beneficial interests having the power to cast a majority of the votes entitled to be cast for the election of directors, trustees, managers or other officials having
powers analogous to those of directors of a corporation. Unless otherwise specifically indicated, when used in this Agreement, the term Subsidiary shall refer to
a direct or indirect Subsidiary of the Company.
4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
“Transfer” means any direct or indirect transfer, donation, sale, assignment, pledge, encumbrance, hypothecation, gift, creation of a security interest in or lien
on, or other disposition, irrespective of whether any of the foregoing are effected with or without consideration, voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise, inter vivos or upon death.
7. No Security. This Note is unsecured on a senior basis.
8. Costs. If, and as often as, this Note is referred to an attorney for the collection of any sum payable hereunder, or to defend or enforce any of the
Parties’ rights hereunder, or to commence an action, cross-claim, third-party claim or counterclaim relating to this Note, the Debtor hereby agrees to pay all
reasonable costs incurred by the Parties in connection therewith including reasonable attorneys' fees (including such fees incurred in appellate, bankruptcy or
insolvency proceedings), with or without the institution of any action or proceeding.
9. Governing Law. This Agreement shall be governed by and construed in accordance with the domestic Laws of the State of Indiana without giving
effect to any choice or conflict of Law provision or rule (whether of the State of Indiana or any other jurisdiction) that would cause the application of the Laws of
any jurisdiction other than the State of Indiana.
10. Waiver of Jury Trial. EACH OF THE PARTIES WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OR RELATED TO THIS PROMISSORY NOTE IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY
TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AFFILIATE OF ANY OTHER SUCH PARTY, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. THE PARTIES AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH
SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS PROMISSORY NOTE OR ANY PROVISION
HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE.
11. Assignment. This Note and the rights and obligations hereunder shall be freely assignable, in whole or in part, by the Holder without the
consent of the Debtor or any other Person; provided that any proposed assignee shall expressly agree to be bound by the terms of the Subordination
Agreement.
5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IN WITNESS WHEREOF, the Debtor has caused this Promissory Note to be duly executed as of the day and year first above written.
DEBTOR:
NOBLE ROMAN'S, INC.
By: [Missing Graphic Reference]
Name: Paul Mobley
Title: Executive Chairman
On this 21st day of December, 2015
6
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)
Date: March 14, 2016
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.
By:
/s/ A. Scott Mobley
A. Scott Mobley
President, 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 14, 2016
By:
/s/ Paul W. Mobley
Paul W. Mobley
Executive Chairman
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, 2015, 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.
By:
/s/ A. Scott Mobley
A. Scott Mobley
President, Chief Executive Officer
Of Noble Roman’s, Inc.
March 14, 2016
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, 2015, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, 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.
By:
/s/ Paul W. Mobley
Paul W. Mobley
Executive Chairman and Chief Financial
Officer of Noble Roman’s, Inc.
March 14, 2016
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.