United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended September 30, 2012
Commission file number: 0-11104
NOBLE ROMAN'S, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1281154
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
One Virginia Avenue, Suite 300
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
(317) 634-3377
(Registrant's telephone number, including area code)
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section
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 [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-Accelerated Filer [ ] Smaller Reporting Company [X]
(do not check if smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 5, 2012, there were 19,516,589 shares of Common Stock, no par
value, outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following unaudited condensed consolidated financial statements are
included herein:
Condensed consolidated balance sheets as of December 31, 2011
and September 30, 2012 (unaudited) Page 3
Condensed consolidated statements of operations for the three
months and nine months ended September 30, 2011 and 2012
(unaudited) Page 4
Condensed consolidated statements of changes in stockholders'
equity for the nine months ended September 30, 2012
(unaudited) Page 5
Condensed consolidated statements of cash flows for the
nine months ended September 30, 2011 and 2012 (unaudited) Page 6
Notes to condensed consolidated financial statements (unaudited) Page 7
2
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, September 30,
2011 2012
------------ ------------
Assets
Current assets:
Cash $ 233,296 $ 162,768
Accounts and notes receivable - net 884,811 1,212,115
Inventories 338,447 424,136
Assets held for resale 252,552 252,552
Prepaid expenses 278,718 507,284
Deferred tax asset - current portion 1,400,000 1,400,000
------------ ------------
Total current assets 3,387,824 3,958,855
------------ ------------
Property and equipment:
Equipment 1,147,109 1,160,824
Leasehold improvements 12,283 12,283
------------ ------------
1,159,392 1,173,107
Less accumulated depreciation and amortization 851,007 892,343
------------ ------------
Net property and equipment 308,385 280,764
Deferred tax asset (net of current portion) 9,613,399 8,920,666
Other assets 3,914,523 4,453,865
------------ ------------
Total assets $ 17,224,131 $ 17,614,150
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term note payable to bank $ 3,575,000 1,250,000
Accounts payable and accrued expenses 665,054 170,267
------------ ------------
Total current liabilities 4,240,054 1,420,267
------------ ------------
Long-term obligations:
Note payable to bank (net of current portion) -- 3,333,333
Note payable to officer 1,255,821 --
------------ ------------
Total long-term liabilities 1,255,821 3,333,333
------------ ------------
Stockholders' equity:
Common stock - no par value (25,000,000 shares authorized, 19,469,317 issued
and outstanding as of December 31, 2011 and 19,516,589 as of
September 30, 2012) 23,239,976 23,337,814
Preferred stock (5,000,000 shares authorized and 20,625 issued and
outstanding as of December 31, 2011 and September 30, 2012) 800,250 800,250
Accumulated deficit (12,311,970) (11,277,514)
------------ ------------
Total stockholders' equity 11,728,256 12,860,550
------------ ------------
Total liabilities and stockholders' equity $ 17,224,131 $ 17,614,150
============ ============
See accompanying notes to condensed consolidated financial statements.
3
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2012 2011 2012
------------ ------------ ------------ ------------
Royalties and fees $ 1,623,943 1,728,207 $ 5,030,533 $ 5,199,187
Administrative fees and other 3,107 5,202 22,502 17,944
Restaurant revenue 138,601 111,259 395,122 358,788
------------ ------------ ------------ ------------
Total revenue 1,765,651 1,844,668 5,448,157 5,575,919
Operating expenses:
Salaries and wages 251,790 250,216 736,929 747,199
Trade show expense 77,112 128,357 260,359 372,481
Travel expense 50,919 46,234 150,393 140,607
Other operating expenses 165,286 170,488 520,516 520,697
Restaurant expenses 137,508 100,514 385,975 332,789
Depreciation and amortization 36,311 28,561 86,170 87,786
General and administrative 405,281 394,122 1,217,099 1,182,508
------------ ------------ ------------ ------------
Total expenses 1,124,207 1,118,492 3,357,441 3,384,067
------------ ------------ ------------ ------------
Operating income 641,444 726,176 2,090,716 2,191,852
Interest and other expense 98,965 61,211 294,823 355,831
------------ ------------ ------------ ------------
Income before income taxes 542,479 664,965 1,795,893 1,836,021
Income tax expense 214,876 263,393 711,353 727,247
------------ ------------ ------------ ------------
Net income from continuing operations 327,603 401,572 1,084,540 1,108,774
Loss from discontinued operations net of
tax benefit of $207,280 for 2011 (316,022) -- (316,022) --
------------ ------------ ------------ ------------
Net income 11,581 401,572 768,518 1,108,774
------------ ------------ ------------ ------------
Cumulative preferred dividends 24,682 24,682 74,047 74,318
------------ ------------ ------------ ------------
Net income (loss) available to common
stockholders $ (13,101) $ 376,890 $ 694,471 $ 1,034,456
============ ============ ============ ============
Earnings per share - basic:
Net income from continuing operations $ .02 $ .02 $ .06 $ .06
Net loss from discontinued operations (.02) -- (.02) --
Net income -- .02 .04 .06
Net income (loss) available to common stockholders $ -- $ .02 $ .04 $ .05
============ ============ ============ ============
Weighted average number of common shares
outstanding 19,469,317 19,506,886 19,453,932 19,491,274
Diluted earnings per share:
Net income from continuing operations $ .02 $ .02 $ .05 $ .06
Net loss from discontinued operations (.02) -- (.02) --
Net income -- .02 .04 .06
Net income available to common stockholders $ -- $ .02 $ .03 $ .05
Weighted average number of common shares
outstanding 20,159,153 20,070,990 20,143,768 20,055,378
See accompanying notes to condensed consolidated financial statements.
4
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in
Stockholders' Equity
(Unaudited)
Preferred Common Stock Accumulated
Stock Shares Amount Deficit Total
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2011 $ 800,250 19,469,317 $ 23,239,976 $(12,311,970) $ 11,728,256
Net income for nine months ended
September 30, 2012 1,108,774 1,108,774
Cumulative preferred dividends (74,318) (74,318)
Exercise of employee stock options 47,272 18,200 18,200
Amortization of value of stock
options 79,638 79,638
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2012 $ 800,250 19,516,589 23,337,814 $(11,277,514) $ 12,860,550
============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
5
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2011 2012
----------- -----------
OPERATING ACTIVITIES
Net income $ 768,518 $ 1,108,774
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 160,492 150,734
Deferred income taxes 504,073 727,248
Changes in operating assets and liabilities:
Increase in:
Accounts and notes receivable (235,723) (327,304)
Inventories (26,329) (85,690)
Prepaid expenses (87,382) (228,566)
Other assets (635,886) (381,558)
Increase (decrease) in:
Accounts payable and accrued expenses 478,206 (86,254)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 925,969 877,384
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (8,699) (13,715)
Investment in assets held for sale (3,393) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (12,092) (13,715)
----------- -----------
FINANCING ACTIVITIES
Payment of obligations from discontinued operations (453,034) (408,533)
Payment of cumulative preferred dividends (74,047) (74,318)
Payment of principal outstanding under prior bank loan (725,000) (3,575,000)
Payment of principal of officer loan -- (1,255,821)
Net proceeds from new bank loan -- 4,812,457
Payment of principal outstanding under new bank loan -- (416,667)
Payment of alternative minimum tax -- (34,515)
Proceeds from the exercise of employee stock options 18,000 18,200
Principal payment received on notes receivable 31,665 --
Proceeds from officer loan 200,000 --
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (1,002,416) (934,197)
----------- -----------
Decrease in cash (88,539) (70,528)
Cash at beginning of period 337,044 233,296
----------- -----------
Cash at end of period $ 248,505 $ 162,768
=========== ===========
Supplemental schedule of non-cash investing and financing
activities
None.
Cash paid for interest $ 257,564 $ 207,123
See accompanying notes to condensed consolidated financial statements.
6
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation. The accompanying unaudited interim condensed
consolidated financial statements, included herein, have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These condensed consolidated statements have been prepared in
accordance with the Company's accounting policies described in the Annual Report
on Form 10-K for the year ended December 31, 2011 and should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in that report. Unless the context indicates otherwise,
references to the "Company" mean Noble Roman's, Inc. and its subsidiaries.
In the opinion of the management of the Company, the information contained
herein reflects all adjustments necessary for a fair presentation of the results
of operations and cash flows for the interim periods presented and the financial
condition as of the dates indicated, which adjustments are of a normal recurring
nature. The results for the nine-month period ended September 30, 2012 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2012.
Note 2 - Note Payable to Bank. On May 15, 2012, the Company entered into a
Credit Agreement with BMO Harris Bank, N.A. for a term loan in the amount of
$5.0 million which is repayable in 48 equal monthly principal installments of
$104,000 plus interest commencing on June 15, 2012 with a final payment due on
May 15, 2016. Interest on the unpaid principal balance is payable at a rate per
annum of LIBOR plus 4%. The proceeds from the term loan, net of certain fees and
expenses associated with obtaining the term loan, were used to repay existing
indebtedness to Wells Fargo Bank, N.A. and to an officer of the Company. The
Company's obligations under the term loan are secured by the grant of a security
interest in essentially all assets of the Company and a personal guaranty of an
officer of up to $1.2 million of the term loan. The Credit Agreement contains
certain restrictions such as a prohibition on the payment of dividends.
Note 3 - Royalties and Fees. Royalties and fees include $131,000 and $256,000
for the three-month and nine-month periods ended September 30, 2012, and $28,000
and $156,000 for the three-month and nine-month periods ended September 30,
2011, respectively, of initial franchise fees. Royalties and fees included
$32,000 and $55,000 for the three-month and nine-month periods ended September
30, 2012, and $11,000 and $30,000 for the three-month and nine-month periods
ended September 30, 2011, respectively, of equipment commissions. Royalties and
fees, less initial franchise fees and equipment commissions were $1.6 million
and $4.9 million for the three-month and nine-month periods ended September 30,
2012 and $1.6 million and $4.8 million for the three-month and nine-month
periods ended September 30, 2011, respectively. The breakdown of royalties and
fees, less upfront fees, were royalties and fees from non-traditional franchises
other than grocery stores were $1.0 million and $3.2 million for the three-month
and nine-month periods ended September 30, 2012, and $971,000 and $3.1 million
for the three-month and nine-month periods ended September 30, 2011,
respectively; royalties and fees from grocery store take-n-bake were $350,000
and $1,045,000 for the three-month and nine-month periods ended September 30,
2012, and $325,000 and $873,000 for the three-month and nine-month periods ended
September 30, 2011, respectively; and royalties and fees from traditional
locations were $179,000 and $640,000 for the three-month and nine-month periods
ended September 30, 2012, and $288,000 and $838,000 for the three-month and
nine-month periods ended September 30, 2011, respectively. The Company has no
material amount of past due royalties.
7
There were 1,460 franchises/licenses in operation on September 30, 2011 and
1,772 franchises/licenses in operation on September 30, 2012. During the
twelve-month period ended September 30, 2012, 326 new franchised/licensed
locations opened and 14 franchised/licensed locations closed. The breakdown of
the 1,772 franchises/licenses at September 30, 2012 was 757 non-traditional
franchises other than grocery stores, 973 grocery stores and 42 traditional
franchises. In the ordinary course, grocery stores from time to time add
products, remove and subsequently re-offer them. Therefore, it is unknown if any
grocery store licensees have left the system.
Note 4 - Earnings Per Share. The following table sets forth the calculation of
basic and diluted earnings per share for the three-month and nine-month periods
ended September 30, 2012:
Three Months Ended September 30, 2012
-------------------------------------
Per-Share
Income Shares Amount
------ ------ ------
(Numerator) (Denominator)
Net income $ 401,572 19,506,886 $ .02
Less preferred stock dividends 24,682
----------
Earnings per share - basic
Income available to common stockholders 376,890 .02
Effect of dilutive securities
Options 197,438
Convertible preferred stock 24,682 366,666
---------- ----------
Diluted earnings per share
Income available to common stockholders
and assumed conversions $ 401,572 20,070,990 $ .02
========== ==========
Nine Months Ended September 30, 2012
------------------------------------
Per-Share
Income Shares Amount
------ ------ ------
(Numerator) (Denominator)
Net income $1,108,774 19,491,274 $ .06
Less preferred stock dividends 74,318
----------
Earnings per share - basic
Income available to common stockholders 1,034,456 .05
Effect of dilutive securities
Options 197,438
Convertible preferred stock 74,318 366,666
---------- ----------
Diluted earnings per share
Income available to common stockholders
and assumed conversions $1,108,774 20,055,378 $ .06
========== ==========
8
The following table sets forth the calculation of basic and diluted earnings per
share for the three-month and nine-month periods ended September 30, 2011:
Three Months Ended September 30, 2011
-------------------------------------
Per-Share
Income Shares Amount
------ ------ ------
(Numerator) (Denominator)
Net income $ 11,581 19,469,317 $ .00
Less preferred stock dividends (24,682)
----------
Earnings per share - basic
Loss available to common stockholders (13,101) .00
Effect of dilutive securities
Options 323,170
Convertible preferred stock 24,682 366,666
---------- ----------
Diluted earnings per share
Income available to common stockholders
and assumed conversions $ 11,581 20,159,153 $ .00
========== ==========
Nine Months Ended September 30, 2011
------------------------------------
Per-Share
Income Shares Amount
------ ------ ------
(Numerator) (Denominator)
Net income $ 768,518 19,453,932 $ .04
Less preferred stock dividends (74,047)
----------
Earnings per share - basic
Income available to common stockholders 694,471 .04
Effect of dilutive securities
Options 323,170
Convertible preferred stock 74,047 366,666
---------- ----------
Diluted earnings per share
Income available to common stockholders
and assumed conversions $ 768,518 20,143,768 $ .04
========== ==========
Note 5 - Pending Litigation. The Company is a Defendant in a lawsuit styled Kari
Heyser, Fred Eric Heyser and Meck Enterprises, LLC, et al v. Noble Roman's, Inc.
et al, filed in Superior Court in Hamilton County, Indiana in June 2008. The
Court issued an Order dated December 23, 2010 granting summary judgment in favor
of the Company against all of the Plaintiffs. As a result, the Plaintiffs'
allegations of fraud against the Company and certain of its officers were
determined to be without merit. Plaintiffs filed numerous motions and an appeal
to the Indiana Court of Appeals, in an attempt to reverse the December 23, 2010
summary judgment. All of the motions were denied and the Indiana Court of
Appeals dismissed the appeal with prejudice. Plaintiffs' last attempt to vacate
the summary judgment award was their attempt to vacate the Order on the grounds
of misconduct of third parties. On December 1, 2011, the Judge denied their
motion and specifically found "that there was absolutely no evidence of
misconduct" and the Court admonished Plaintiffs and Plaintiffs' counsel for
making such unfounded allegations. The fraud charges against the Company and
certain of its officers are dismissed entirely and Plaintiffs have exhausted
their rights of appeal. The Company then filed a motion for sanctions against
the Plaintiffs and their attorney for the frivolous filings and that motion was
granted by the Court. The sanctions were not paid and the Company filed a motion
for contempt of court or to show cause and the Court has not yet ruled on that
motion. The Company's counterclaims against the Plaintiffs for breach of
9
contract remain pending as to amount of damages, however the Company has been
granted summary judgment as to liability.
The Complaint was originally against the Company and certain officers and
institutional lenders. The Plaintiffs are former franchisees of the Company's
traditional location venue. The Plaintiffs alleged that the Defendants
fraudulently induced them to purchase franchises for traditional locations
through misrepresentations and omissions of material facts regarding the
franchises. In addition to the above claims, one group of franchisee-Plaintiffs
in the same case had asserted a separate claim under the Indiana Franchise Act
as to which the Court's Order denied the Company's motion for summary judgment
as the Court determined that there is a genuine issue of material facts but did
not render any opinion on the merits of the claim. The Company denies any
liability on the Indiana Franchise Act claim and will continue to vigorously
defend against this claim.
The Company filed counterclaims for damages for breach of contract against all
of the Plaintiffs in the approximate amount of $3.6 million plus attorneys'
fees, interest and other costs of collection, or a total of over $5 million. On
September 21, 2011, the Company filed motions for partial summary judgment as to
liability against the Plaintiffs on the Company's counterclaims. As a result,
the Company was granted partial summary judgment as to liability against the
Plaintiffs/Counterclaim-Defendants on the Company's counterclaims against the
Plaintiffs. In this partial summary judgment, the Court determined that the
Plaintiffs were liable to the Company for direct damages and consequential
damages, including future royalties, for breach of their franchise agreements.
In addition, the Court determined that, as a matter of law, Noble Roman's was
entitled to recover attorneys' fees associated with obtaining preliminary
injunctions, fees resulting from the prosecution of Noble Roman's counterclaims
and fees for defending against fraud claims against the Company and certain of
its officers. The amount of the award is to be determined at trial.
The trial began on October 30, 2012 on the one franchisee-Plaintiff's claim
under the Indiana Franchise Act and the Company's counterclaims for damages
against all of the Plaintiffs remaining in the case. As of the date of this
report, the trial is still proceeding. The Judge has indicated, upon completion
of the trial, he will rule on the amount of attorney's fees owed to the Company
by the Plaintiffs.
Note 6 - Subsequent Events. The Company evaluated subsequent events through the
date the financial statements were issued and filed with the SEC. There were no
subsequent events that required recognition or disclosure beyond what is
disclosed in this report.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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
under the trade names "Noble Roman's Pizza", "Noble Roman's Take-N-Bake",
"Tuscano's Italian Style Subs" and "Tuscano's Grab-N-Go Subs". The concepts'
hallmarks include high quality pizza and sub sandwiches, along with other
related menu items, simple operating systems, fast service times,
labor-minimizing operations, attractive food costs and overall affordability.
Since 1997, the Company has focused its efforts and resources primarily on
franchising and licensing for non-traditional locations and now has awarded
franchise and/or license agreements in 49 states plus Washington, D.C., Puerto
10
Rico, the Bahamas, Italy and Canada. Although from 2005 to 2007 the Company sold
some franchises for its concepts in traditional restaurant locations, the
Company is currently focusing its sales efforts primarily on (1) selling
franchises for non-traditional locations primarily in convenience stores and
entertainment facilities, (2) license agreements for grocery stores to sell the
Noble Roman's Take-N-Bake Pizza and (3) the recently developed stand-alone
take-n-bake pizza prototype. The Company has entered into agreements with three
separate existing franchisees to open a total of seven stand-alone take-n-bake
units in the upcoming months, the first of which opened in Greenwood, Indiana, a
suburb of Indianapolis, on October 29, 2012. Pizzaco, Inc. is the owner and
operator of the two Company locations used for testing and demonstration
purposes. The Company has no plans to operate any other locations.
Products & Systems
------------------
The Company's non-traditional franchises provide high-quality products, simple
operating systems, labor minimizing operations and attractive food costs.
Noble Roman's Pizza
The hallmark of Noble Roman's Pizza is "Superior quality that our customers can
taste." Every ingredient and process has been designed with a view to produce
superior results.
o Crust made with only specially milled flour with above average protein
and yeast.
o Fresh packed, uncondensed sauce made with secret spices, parmesan
cheese and vine-ripened tomatoes.
o 100% real cheese blended from mozzarella and Muenster, with no soy
additives or extenders.
o 100% real meat toppings, again with no additives or extenders - a
distinction compared to many pizza concepts.
o Vegetable and mushroom toppings that are sliced and delivered fresh,
never canned.
o An extended product line that includes breadsticks and cheesy stix
with dip, pasta, baked sandwiches, salads, wings and a line of
breakfast products.
o A fully-prepared pizza crust that captures the made-from-scratch
pizzeria flavor which gets delivered to the franchise location
shelf-stable so that dough handling is no longer an impediment to a
consistent product.
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 and as a stand-alone offering for grocery
stores. The take-n-bake program in grocery stores is being offered as a license
agreement rather than a franchise agreement. In convenience stores, take-n-bake
is an available menu offering under the existing franchise agreement.
The Company has recently developed a stand-alone take-n-bake pizza prototype and
has entered into agreements with three separate existing franchisees to open a
total of seven such units in the upcoming months. The first stand-alone
Take-N-Bake Pizza location opened in Greenwood, Indiana, a suburb of
Indianapolis, on October 29, 2012. The Company uses the same high quality pizza
ingredients for its take-n-bake pizza as with its standard pizza, with slight
modifications to portioning for increased home baking performance. The Company's
stand-alone pizza program features the chains popular traditional Hand-Tossed
Style pizza, Deep-Dish Sicilian pizza, SuperThin pizza and Noble Roman's famous
breadsticks with spicy cheese sauce, all in a convenient cook-at-home format.
Additional menu items include such items as fresh salads, cookie dough, cinnamon
rounds, bake-able pasta and more.
11
Tuscano's Italian Style Subs
Tuscano's Italian Style Subs is a separate restaurant 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 which include an
Italian-themed menu. The franchise fee and ongoing royalty for a Tuscano's
franchise is identical to that charged for a Noble Roman's Pizza franchise. For
the most part, the Company awards Tuscano's franchises for some of the same
facilities as Noble Roman's Pizza franchises, although Tuscano's franchises are
also available for locations that do not have a Noble Roman's Pizza franchise.
Tuscano's Grab-N-Go Subs
Noble Roman's has developed a grab-n-go service system for a select 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 and/or Tuscano's Subs locations.
Franchisees that opened prior to the development of the grab-n-go service system
may add it as an option. The grab-n-go system has already been integrated into
the operations of several existing locations and is now available to all
franchisees. New, non-traditional franchisees have the opportunity to open with
both take-n-bake pizza and grab-n-go subs when they acquire a Noble Roman's
franchise or license.
Business Strategy
-----------------
The Company's business strategy includes the following four elements:
1. Focus on revenue expansion through three primary growth vehicles:
Sales of Non-Traditional Franchises and Licenses. The Company believes that in
today's macroeconomic circumstances, 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 in non-traditional locations are foodservice providers within a host
business, and usually require a substantially less investment compared to a
stand-alone traditional location. Non-traditional franchises and licenses are
most often sold into pre-existing facilities as a service and/or revenue
enhancer for the underlying business. Although the Company's current focus is on
non-traditional franchise or license expansion, the Company will still seek to
capitalize on other franchising opportunities as they present themselves.
As a result of the Company's major focus being on non-traditional franchising
and licensing, its requirements for overhead and operating costs are
significantly less than if it were focusing on traditional franchising. In
addition, the Company does not operate restaurants except for two restaurants it
uses for product testing, demonstration and training purposes. This allows for a
more complete focus on selling and servicing franchises and licenses to pursue
increased unit growth.
Licensing and Franchising the Company's Take-N-Bake Program. In September 2009,
the Company introduced a take-n-bake pizza as an addition to its menu offering.
The take-n-bake pizza is designed as a stand-alone offering for grocery stores
and an add-on component for new and existing convenience store franchisees or
licensees and/or stand-alone franchise locations. Since the Company started
offering take-n-bake pizza to grocery store chains in September 2009, through
November 6, 2012, the Company has signed agreements for approximately 1,350
grocery store locations to operate the take-n-bake pizza program and has opened
12
the take-n-bake pizza program in approximately 1,010 of those locations. The
Company is currently in discussions with numerous grocery store operators for
additional take-n-bake locations. Beginning in August 2011, the Company
introduced six new "Signature Specialty Take-N-Bake Pizza" combinations to its
current standard offerings. These pizzas feature unique, fun combinations of
ingredients with proven customer appeal in other Company venues, and include
Hawaiian pizza, Four Cheese pizza, BBQ Pork pizza, BBQ Chicken pizza, Hoppin'
Jalapeno pizza and Parmesan Tomato pizza. The Company's strategy with these new
combinations is to secure more shelf space in existing locations, to add appeal
of the program in order to attract new locations, and to generally increase
sales of the Company's products.
To further accelerate the growth of take-n-bake pizza in grocery stores, the
Company has focused on signing agreements with various grocery store
distributors to market the take-n-bake pizza program to the distributors'
current customer bases. As of November 6, 2012, the Company had signed 14
grocery distributors to the program, and continues to pursue others as well.
Franchising the Company's Take-N-Bake Program for Stand-Alone Locations. The
Company has recently developed a stand-alone take-n-bake pizza prototype and has
entered into agreements with three separate existing franchisees to open a total
of seven such units in the upcoming months. The first stand-alone Take-N-Bake
Pizza location opened in Greenwood, Indiana, a suburb of Indianapolis, on
October 29, 2012. The Company's stand-alone take-n-bake program features the
chain's popular traditional Hand-Tossed Style pizza, Deep-Dish Sicilian pizza,
SuperThin pizza and Noble Roman's famous breadsticks with spicy cheese sauce,
all in a convenient cook-at-home format. Additional menu items include such
items as fresh salads, cookie dough, cinnamon rounds, bake-able pasta and more.
The Company is currently in discussions with other prospects for its stand-alone
program and plans to commence advertising for additional franchisees in the near
future.
2. Leverage the results of extensive research and development advances.
The Company has invested significant time and effort to create what it considers
to be competitive advantages in its products and systems for non-traditional and
take-n-bake locations. The Company will continue to make these investments the
focal point in its marketing process. The Company believes that the quality of
its products, their cost-effectiveness, relatively simple production and service
systems, and its diverse, modularized menu offerings all contribute to the
Company's strategic attributes and growth potential. Every ingredient and
process was designed with a view to producing superior results. The menu items
were developed to be delivered in a ready-to-use form requiring only on-site
assembly and baking except for take-n-bake pizza, which is sold to bake at home,
and the carton-to-shelf retail items which require no assembly. The Company
believes this process results in products that are great tasting, quality
consistent, easy to assemble, and relatively low in food cost, and which require
very low amounts of labor, thus allowing for a significant competitive advantage
due to the speed at which its products can be prepared, baked and served to
customers.
For example, in convenience stores and travel plazas, at competitive retail
prices, margins on Noble Roman's products, after cost of product and royalty,
can range to approximately 65% to 70%. The Company believes it maintains a
competitive advantage in product cost by using carefully selected independent
third-party manufacturers and independent third-party distributors. This allows
the Company to contract for proprietary products and services with highly
efficient suppliers that have the potential of keeping costs low compared to
typical competing systems whereby the franchisor owns and operates production
and distribution systems much less efficiently.
13
3. Expand the Company's overall capacity to generate new franchises and
licenses.
The Company's Chairman and CEO has assumed the lead position at all of the
Company's trade shows across the country, which is the primary means for
demonstrating its product and system advantages to thousands of prospective
non-traditional and grocery operators. This focus by the Company's CEO has
underscored the Company's current, overriding orientation towards new revenue
generation.
4. Aggressively communicate the Company's competitive advantages to its target
market of potential franchisees and licensees.
The Company utilizes four basic methods of reaching potential franchisees and
licensees and to communicate its product and system advantages. These methods
include: 1) calling from both acquired and in-house prospect lists; 2) frequent
direct mail campaigns to targeted prospects; 3) web-based lead capturing; and 4)
live demonstrations at trade and food shows. 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 they offer opportunities for fruitful lead generation.
Business Operations
-------------------
Distribution
------------
Primarily all of the Company's products are manufactured pursuant to the
Company's recipes and formulas by third-party manufacturers under contracts
between the Company and its various manufacturers. These contracts require the
manufacturers to produce products with various specifications and sell them to
Company-approved distributors at a price negotiated between the Company and the
manufacturer.
At present, the Company has distribution agreements with 12 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
for weekly deliveries to the franchisee/licensee locations plus the grocery
store distributors in their respective territories. Each of the primary
distributors purchases the products from the manufacturer, under payment terms
agreed upon by the manufacturer and the distributor, and distribute the
ingredients to the franchisee/licensee at a price fixed by the distribution
agreement, which is landed cost plus a contracted mark-up for distribution.
Payment terms to the distributor are agreed upon between each
franchisee/licensee and the respective distributor. In addition, the Company has
agreements with 14 grocery store distributors located in various parts of the
country which agree to buy their products from one of the primary distributors
to distribute take-n-bake products to their grocery store customers.
14
Franchising
-----------
The Company sells franchises into various non-traditional and traditional
venues.
The initial franchise fees are as follows:
-----------------------------------------------------------------------------------------
Non-Traditional, Traditional
Franchise except Hospitals Hospitals Stand-Alone
-----------------------------------------------------------------------------------------
Noble Roman's Pizza $ 6,000 $10,000 $15,000
-----------------------------------------------------------------------------------------
Tuscano's Subs $ 6,000 $10,000 $15,000
-----------------------------------------------------------------------------------------
Noble Roman's & Tuscano's $10,000 $18,000 $18,000
-----------------------------------------------------------------------------------------
Noble Roman's Stand-Alone Take-N-Bake $15,000
-----------------------------------------------------------------------------------------
The franchise fees are paid upon signing the franchise agreement and, when paid,
are deemed fully earned and non-refundable in consideration of the
administration and other expenses incurred by the Company in granting the
franchises and for the lost and/or deferred opportunities to grant such
franchises to any other party.
Licensing
---------
Noble Roman's Take-n-Bake Pizza licenses for grocery stores are governed by a
supply agreement. The supply agreement generally requires the licensee to:
purchase proprietary ingredients from a Noble Roman's-approved distributor;
assemble the products using only Noble Roman's approved ingredients and recipes;
and 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 for a fee to the Company in
lieu of royalty. The distributors agree to segregate this additional mark-up
upon invoicing the licensee, hold the amount in trust for the Company and remit
such fees to the Company within ten days after the end of each month.
Financial Summary
-----------------
The preparation of the consolidated financial statements in conformity with
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 periodically evaluates the carrying values of its assets,
including property, equipment and related costs, accounts receivable and
deferred tax assets, 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 value. 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
The following table sets forth the percentage relationship to total revenue of
the listed items included in Noble Roman's consolidated statements of operations
for the three-month and nine-month periods ended September 30, 2011 and 2012,
respectively.
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
2011 2012 2011 2012
----- ----- ----- -----
Royalties and fees 92.1 % 93.7 % 92.3 % 93.3 %
Administrative fees and other 0.2 0.3 0.4 0.3
Restaurant revenue 7.7 6.0 7.3 6.4
----- ----- --- ---
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
----- ----- ----- -----
Operating expenses:
Salaries and wages 14.3 13.6 13.5 13.4
Trade show expense 4.4 7.0 4.8 6.7
Travel expense 2.9 2.5 2.8 2.5
Other operating expense 9.4 9.2 9.6 9.3
Restaurant expenses 7.8 5.4 7.1 6.0
Depreciation and amortization 2.0 1.5 1.6 1.6
General and administrative 22.9 21.4 22.2 21.2
----- ----- ---- ----
Total expenses 63.7 60.6 61.6 60.7
----- ----- ---- ----
Operating income 36.3 39.4 38.4 39.3
Interest and other expense 5.6 3.3 5.4 6.4
----- ----- --- ---
Income before income taxes 30.7 36.1 33.0 32.9
Income tax expense 12.1 14.3 13.1 13.0
----- ----- ---- ----
Net income 18.6 % 21.8 % 19.9 % 19.9 %
===== ===== ==== ====
Results of Operations
---------------------
Total revenue increased from $1.77 million to $1.84 million and from $5.45
million to $5.58 million for the respective three-month and nine-month periods
ended September 30, 2012 compared to the corresponding periods in 2011.
Franchisee fees and equipment commissions ("upfront fees") increased from
$39,500 to $163,000 and increased from $185,000 to $311,000 during the
respective three-month and nine-month periods ended September 30, 2012 compared
to the corresponding periods in 2011. Royalties and fees, less upfront fees,
remained approximately the same at $1.56 million for the three-month periods
ended September 30, 2012 and 2011, and increased from $4.85 million to $4.89
million for the nine-month period ended September 30, 2012 compared to the
corresponding periods in 2011. The breakdown of royalties and fees less upfront
fees: royalties and fees from non-traditional franchises other than grocery
stores were $1.04 million and $3.20 million for the three-month and nine-month
periods ended September 30, 2012, and $971,000 and $3.13 million for the
three-month and nine-month periods ended September 30, 2011, respectively;
royalties and fees from the grocery store take-n-bake were $350,000 and $1.05
million for the three-month and nine-month periods ended September 30, 2012 and
$325,000 and $873,000 for the three-month and nine-month periods ended September
30, 2011, respectively; and royalties and fees from traditional locations were
$179,000 and $640,000 for the three-month and nine-month periods ended September
30, 2012, and $288,000 and $838,000 for the three-month and nine-month periods
ended September 30, 2011, respectively. Included in royalties and fees from
traditional locations were $100,000 and $400,000 for the three-month and
nine-month periods ended September 30, 2012, and $200,000 and $600,000 for the
three-month and nine-month periods ended September 30, 2011, respectively, for
royalties and fees recognized as collectible from traditional locations which
are no longer operating.
16
Restaurant revenue decreased from $139,000 to $111,000 and from $395,000 to
$359,000 for the respective three-month and nine-month periods ended September
30, 2012 compared to the corresponding periods in 2011. The decreases were a
result of same store sales decreases. The Company only operates two locations
primarily for testing and demonstration purposes.
Salaries and wages decreased, as a percentage of total revenue, from 14.3% to
13.6% and from 13.5% to 13.4% for the respective three-month and nine-month
periods ended September 30, 2012 compared to the corresponding periods in 2011.
The decreases were primarily the result of revenue increases. The amount of
salaries and wages decreased slightly from $252,000 to $250,000 for the
three-month period ended September 30, 2012 compared to the corresponding period
in 2011, and increased from $737,000 to $747,000 for the nine-month period ended
September 30, 2012 compared to the corresponding period in 2011.
Trade show expenses increased from 4.4% to 7.0% of total revenue and from 4.8%
to 6.7% of total revenue for the three-month and nine-month periods ended
September 30, 2012, respectively, compared to the corresponding periods in 2011.
These increases were the result of scheduling more trade shows for marketing to
grocery stores.
Travel expenses decreased from 2.9% to 2.5% of total revenue and from 2.8% to
2.5% of total revenue for the three-month and nine-month periods ended September
30, 2012, respectively, compared to the corresponding periods in 2011. The
amount of travel expense decreased from $51,000 to $46,000 and from $150,000 to
$141,000 for the respective three-month and nine-month periods ended September
30, 2012 compared to the corresponding periods in 2011. The decreases were
partially the result of increased revenue and partially the result of efficiency
in scheduling openings in groups by region of the country.
Other operating expenses decreased, as a percentage of total revenue, from 9.4%
to 9.2% and from 9.6% to 9.3% for the three-month and nine-month periods ended
September 30, 2012, respectively, compared to the corresponding periods in 2011.
The amount of operating expenses increased from $165,000 to $170,000 for the
three-month period ended September 30, 2012 compared to the corresponding period
in 2011, and remained constant at $521,000 for the nine-month periods ended
September 30, 2012 and 2011. This reflected management's effort to tightly
control operating expenses while increasing revenue.
Restaurant expenses decreased as a percentage of total revenue from 7.8% to 5.4%
and from 7.1% to 6.0% for the three-month and nine-month periods ended September
30, 2012, respectively, compared to the corresponding periods in 2011. The
decrease was primarily a result of the restaurant revenue decrease and as a
result of the increase in total revenue. The Company only operates two
restaurants which it uses for demonstration, training and testing purposes.
General and administrative expenses decreased as a percentage of total revenue
from 22.9% to 21.4% and from 22.2% to 21.2% for the three-month and nine-month
periods ended September 30, 2012, respectively, compared to the corresponding
periods in 2011. The amount of general and administrative expenses decreased
from $405,000 to $394,000 and from $1.22 million to $1.18 million for the
three-month and nine-month periods ended September 30, 2012, respectively,
compared to the corresponding periods in 2011. The decrease in general and
administrative expense was primarily the result of tightly controlling costs.
17
Total expenses decreased as a percentage of total revenue from 63.7% to 60.6%
and from 61.6% to 60.7% for the three-month and nine-month periods period ended
September 30, 2012, respectively, compared to the corresponding periods in 2011.
The amount of total actual expenses was $1.12 million and $1.12 million, and
$3.36 million and $3.38 million, respectively, for the three-month and
nine-month periods ended September 30, 2012, respectively, compared to the
corresponding periods in 2011. The decrease in total expenses as a percentage of
total revenue was primarily the result of increases in total revenue. Trade show
expenses in both the three-month and nine-month periods in 2012 compared to the
corresponding periods in 2011 increased, but were offset by decreases in other
expense categories.
Operating income increased as a percentage of total revenue from 36.3% to 39.4%
and from 38.4% to 39.3% for the three-month and nine-month periods ended
September 30, 2012, respectively, compared to the corresponding periods in 2011.
Actual operating income increased from $641,000 to $726,000 and from $2.09
million to $2.19 million for the three-month and nine-month periods ended
September 30, 2012, respectively, compared to the corresponding periods in 2011.
Interest expense decreased as a percentage of total revenue from 5.6% to 3.3%
for the three-month period ended September 30, 2012 compared to the
corresponding period in 2011, and increased from 5.4% to 6.4% for the nine-month
period ended September 30, 2012 compared to the corresponding period in 2011.
The decrease in the three-month period was primarily the result of the
re-financing of the Company's debt that was completed in the second quarter at a
lower effective rate. The increase for the nine-month period was primarily the
result of the Company expensing $93,000 in the unamortized loan closing costs
from the origination of the former bank loan at the time the loan was repaid and
recording expense of $30,000 to terminate the former interest rate swap
agreement related to the loan which was repaid.
Net income from continuing operations increased from $328,000 to $402,000 and
from $1.08 million to $1.11 million for the respective three-month and
nine-month periods ended September 30, 2012, compared to the corresponding
periods in 2011.
The Company recorded a loss from discontinued operations net of tax benefit of
$316,000 in both the three-month and nine-month periods ended September 30, 2011
and none for the corresponding periods in 2012.
Liquidity and Capital Resources
-------------------------------
The Company's current strategy is to grow its business by concentrating on
franchising/licensing new non-traditional locations, licensing grocery stores to
sell take-n-bake pizza and other retail products, and franchising stand-alone
take-n-bake locations. This strategy is intended to not require any significant
increase in expenses. The Company previously announced that by developing the
take-n-bake concept, which it has been distributing through grocery stores, it
created a stand-alone take-n-bake concept for revenue growth opportunity. The
Company has signed agreements for seven such locations, the first of which
opened on October 29, 2012, while the other six remain under development and are
expected to open soon. The strategy is to franchise the stand-alone take-n-bake
products, which the Company believes can be done within its existing overhead
structure. Additionally, the Company does not operate any restaurants except for
two locations for testing and demonstration purposes. This strategy requires
limited overhead and operating expense and does not require significant capital
investment.
18
The Company's current ratio was 2.8-to-1 on September 30, 2012 compared to
0.8-to-1 on December 31, 2011. This significant improvement was achieved by
refinancing all of its debt into one 48-month term loan and the continued net
income from operating activities.
On May 15, 2012, the Company entered into a Credit Agreement with a bank for a
term loan in the amount of $5.0 million which is repayable in 48 equal monthly
principal installments of $104,000 plus interest commencing on June 15, 2012
with a final payment due on May 15, 2016. Interest on the unpaid principal
balance is payable at a rate per annum of LIBOR plus 4%. The proceeds from the
term loan, net of certain fees and expenses associated with obtaining the term
loan, were used to repay existing bank indebtedness and borrowing from an
officer of the Company.
As a result of the financial arrangements described above and the Company's cash
flow projections, the Company believes it will have sufficient cash flow to meet
its obligations and to carry out its current business plan for the foreseeable
future. The Company's cash flow projections are based on the Company's strategy
of focusing on growth in non-traditional venues, growth in the number of grocery
store locations licensed to sell the take-n-bake pizza, and the anticipated
growth from franchising the new stand-alone take-n-bake locations.
The Company does not anticipate that any of the recently issued Statement of
Financial Accounting Standards will have a material impact on its Statement of
Operations or its Balance Sheet.
Forward Looking Statements
--------------------------
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 projected in the forward-looking
statements due to risks and uncertainties that exist in the Company's operations
and business environment, including, but not limited to competitive factors and
pricing pressures, non-renewal of franchise agreements, shifts in market demand,
general economic conditions, changes in demand for the Company's products or
franchises, the success or failure of individual franchisees and changes in
prices or supplies of food ingredients and labor, the success of its recently
developed stand-alone take-n-bake concept, and the factors discussed under "Risk
Factors" as contained in the Company's annual report on Form 10-K. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions or estimates prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated, expected or
intended.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's exposure to interest rate risk relates primarily to its
variable-rate debt. As of September 30, 2012, the Company had outstanding
variable interest-bearing debt in the aggregate principal amount of $4.6
million. The Company's current borrowings are at a variable rate tied to the
London Interbank Offered Rate ("LIBOR") plus 4% 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 $39,600 over the
succeeding twelve-month period.
19
ITEM 4. Controls and Procedures
Based on his evaluation as of the end of the period covered by this report, Paul
W. Mobley, the Company's Chief Executive Officer and Chief Financial Officer,
has concluded that the Company's disclosure controls and procedures and internal
controls over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) are effective. 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.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is a Defendant in a lawsuit styled Kari Heyser, Fred Eric Heyser and
Meck Enterprises, LLC, et al v. Noble Roman's, Inc. et al, filed in Superior
Court in Hamilton County, Indiana in June 2008. The Court issued an Order dated
December 23, 2010 granting summary judgment in favor of the Company against all
of the Plaintiffs. As a result, the Plaintiffs' allegations of fraud against the
Company and certain of its officers were determined to be without merit.
Plaintiffs filed numerous motions and an appeal to the Indiana Court of Appeals,
in an attempt to reverse the December 23, 2010 summary judgment. All of the
motions were denied and the Indiana Court of Appeals dismissed the appeal with
prejudice. Plaintiffs' last attempt to vacate the summary judgment award was
their attempt to vacate the Order on the grounds of misconduct of third parties.
On December 1, 2011, the Judge denied their motion and specifically found "that
there was absolutely no evidence of misconduct" and the Court admonished
Plaintiffs and Plaintiffs' counsel for making such unfounded allegations. The
fraud charges against the Company and certain of its officers are dismissed
entirely and Plaintiffs have exhausted their rights of appeal. The Company then
filed a motion for sanctions against the Plaintiffs and their attorney for the
frivolous filings and that motion was granted by the Court. The sanctions were
not paid and the Company filed a motion for contempt of court or to show cause
and the Court has not yet ruled on that motion. The Company's counterclaims
against the Plaintiffs for breach of contract remain pending as to amount of
damages, however the Company has been granted summary judgment as to liability.
The Complaint was originally against the Company and certain officers and
institutional lenders. The Plaintiffs are former franchisees of the Company's
traditional location venue. The Plaintiffs alleged that the Defendants
fraudulently induced them to purchase franchises for traditional locations
through misrepresentations and omissions of material facts regarding the
franchises. In addition to the above claims, one group of franchisee-Plaintiffs
in the same case had asserted a separate claim under the Indiana Franchise Act
as to which the Court's Order denied the Company's motion for summary judgment
as the Court determined that there is a genuine issue of material facts, but did
not express any opinion on the merits of the claim. The Company denies any
liability on the Indiana Franchise Act claim and will continue to vigorously
defend against this claim.
The Company filed counterclaims for damages for breach of contract against all
of the Plaintiffs in the approximate amount of $3.6 million plus attorneys'
fees, interest and other costs of collection, or a total of over $5 million. On
September 21, 2011, the Company filed motions for partial summary judgment as to
liability against the Plaintiffs on the Company's counterclaims. As a result,
the Company was granted partial summary judgment as to liability against the
Plaintiffs/Counterclaim-Defendants on the Company's counterclaims against the
20
Plaintiffs. In this partial summary judgment, the Court determined that the
Plaintiffs were liable to the Company for direct damages and consequential
damages, including future royalties, for breach of their franchise agreements.
In addition, the Court determined that, as a matter of law, Noble Roman's was
entitled to recover attorneys' fees associated with obtaining preliminary
injunctions, fees resulting from the prosecution of Noble Roman's counterclaims
and fees for defending against fraud claims against the Company and certain of
its officers. The amount of the award is to be determined at trial.
The trial began on October 30, 2012 on the one franchisee-Plaintiff's claim
under the Indiana Franchise Act and the Company's counterclaims for damages
against all of the Plaintiffs remaining in the case. As of the date of this
report, the trial is still proceeding. The Judge has indicated, upon completion
of the trial, he will rule on the amount of attorney's fees owed to the Company
by the Plaintiffs.
ITEM 6. Exhibits.
(a) Exhibits: See Exhibit Index appearing on page 23.
21
SIGNATURES
Pursuant to the requirements 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.
NOBLE ROMAN'S, INC.
Date: November 8, 2012 By: /s/ Paul W. Mobley
---------------------------------
Paul W. Mobley, Chairman,
Chief Executive Officer,
Chief Financial Officer and
Principal Accounting Officer
(Authorized Officer and Principal
Financial Officer)
22
Index to Exhibits
Exhibit
Number Description
------ -----------
3.1 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.
3.2 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.
3.3 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.
3.4 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.
3.5 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.
3.6 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.
4.1 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.
4.2 Form of Warrant Agreement filed as Exhibit 4.1 to the
Registrant's current report on Form 8-K filed August 29,
2005, 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.
23
10.3 1984 Stock Option Plan filed with the Registrant's
Form S-8 filed November 29, 1994 (SEC File No. 33-86804),
is incorporated herein by reference.
10.4 Noble Roman's, Inc. Form of Stock Option Agreement filed
with the Registrant's Form S-8 filed November 29, 1994
(SEC File No. 33-86804), is incorporated herein by
reference.
10.5 Settlement Agreement with SummitBridge dated August 1,
2005, filed as Exhibit 99.2 to the Registrant's current
report on Form 8-K filed August 5, 2005, is incorporated
herein by reference.
10.6 Loan Agreement with Wells Fargo Bank, N.A. dated August
25, 2005 filed as Exhibit 10.1 to the Registrant's current
report on Form 8-K filed August 29, 2005, is incorporated
herein by reference.
10.7 First Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated February 4, 2008, filed as Exhibit 10.1 to the
Registrant's current report on Form 8-K filed February 8,
2008, is incorporated herein by reference.
10.8 Registration Rights Agreement dated August 1, 2005 between
the Company and SummitBridge National Investments filed as
an Exhibit to the Registrant's Form S-1 filed on April 19,
2006, is incorporated herein by reference.
10.9 Second Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated November 10, 2010 filed as Exhibit 10.7 to the
Registrant's current report on Form 10-Q filed on November
10, 2010, is incorporated herein by reference.
10.10 Third Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated March 10, 2011, filed as Exhibit 10.10 to the
Registrant's current report on Form 10-K filed on March
13, 2012, is incorporated herein by reference.
10.11 Promissory Note payable to Paul Mobley dated November 1,
2010 filed as Exhibit 10.8 to the Registrant's current
report on Form 10-Q filed November 10, 2010, is
incorporated herein by reference.
10.12 Fourth Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated July 19, 2011, filed as Exhibit 10.12 to the
Registrant's current report on Form 10-K filed on March
13, 2012, is incorporated herein by reference.
10.13 Fifth Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated October 28, 2011, filed as Exhibit 10.13 to the
Registrant's current report on Form 10-K filed on March
13, 2012, is incorporated herein by reference.
10.14 Sixth Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated December 1, 2011, filed as Exhibit 10.14 to the
Registrant's current report on Form 10-K filed on March
13, 2012, is incorporated herein by reference.
24
10.15 Seventh Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated January 30, 2012, filed as Exhibit 10.15 to the
Registrant's current report on Form 10-K filed on March
13, 2012, is incorporated herein by reference.
10.16 Amended Promissory Note to Paul Mobley dated December 21,
2011, filed as Exhibit 10.16 to the Registrant's current
report on Form 10-K filed on March 13, 2012, is
incorporated herein by reference.
10.17 Credit Agreement with BMO Harris Bank, N.A. dated May 15,
2012 filed as Exhibit 10.17 to the Registrant's current
report on Form 10-Q filed on August 13, 2012, is
incorporated herein by reference.
10.18 Promissory Note to BMO Harris Bank, N.A. dated May 15,
2012 filed as Exhibit 10.18 to the Registrant's current
report on Form 10-Q filed on August 13, 2012, is
incorporated herein by reference.
21.1 Subsidiaries of the Registrant filed in the Registrant's
Registration Statement on Form SB-2 (SEC File No.
33-66850) ordered effective on October 26, 1993, is
incorporated herein by reference.
31.1 C.E.O. and C.F.O. Certification under
Rule 13a-14(a)/15d-14(a)
32.1 C.E.O. and C.F.O. Certification under Section 1350
101 Interactive Financial Data
25