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, 2011
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 7, 2011, there were 19,469,317 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, 2010
and September 30, 2011 (unaudited) Page 3
Condensed consolidated statements of operations for the three
and nine months ended September 30, 2010 and 2011
(unaudited) Page 4
Condensed consolidated statements of changes in stockholders'
equity for the nine months ended September 30, 2011
(unaudited) Page 5
Condensed consolidated statements of cash flows for the
nine months ended September 30, 2010 and 2011 (unaudited) Page 6
Notes to condensed consolidated financial statements (unaudited) Page 7
2
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
Assets December 31, September 30,
2010 2011
------------ ------------
Current assets:
Cash $ 337,044 $ 248,505
Accounts and notes receivable - net 920,304 1,141,996
Inventories 316,913 343,242
Assets held for resale 246,278 249,671
Prepaid expenses 235,778 323,160
Deferred tax asset - current portion 1,400,000 1,400,000
------------ ------------
Total current assets 3,456,317 3,706,574
------------ ------------
Property and equipment:
Equipment 1,139,050 1,147,749
Leasehold improvements 12,283 12,283
------------ ------------
1,151,333 1,160,032
Less accumulated depreciation and amortization 784,282 832,969
------------ ------------
Net property and equipment 367,051 327,063
Deferred tax asset (net of current portion) 10,150,558 9,646,485
Other assets including long-term receivables - net 2,920,853 3,499,219
------------ ------------
Total assets $ 16,894,779 $ 17,179,341
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term note payable to bank $ 1,875,000 $ 1,975,000
Accounts payable and accrued expenses 654,319 671,448
------------ ------------
Total current liabilities 2,529,319 2,646,448
------------ ------------
Long-term obligations:
Note payable to bank (net of current portion) 2,625,000 1,800,000
Note payable to officer 855,821 1,055,821
------------ ------------
Total long-term liabilities 3,480,821 2,855,821
------------ ------------
Stockholders' equity:
Common stock - no par value (25,000,000 shares authorized, 19,419,317 issued
and outstanding as of December 31, 2010 and 19,469,317 as of
September 30, 2011) 23,116,317 23,214,279
Preferred stock (5,000,000 shares authorized and 20,625 issued and
outstanding as of December 31, 2010 and September 30, 2011) 800,250 800,250
Accumulated deficit (13,031,928) (12,337,457)
------------ ------------
Total stockholders' equity 10,884,639 11,677,072
------------ ------------
Total liabilities and stockholders' equity $ 16,894,779 $ 17,179,341
============ ============
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,
2010 2011 2010 2011
------------ ------------ ------------ ------------
Royalties and fees $ 1,712,075 $ 1,623,943 $ 5,026,506 $ 5,030,533
Administrative fees and other 5,485 3,107 26,193 22,502
Restaurant revenue 135,337 138,601 387,644 395,122
------------ ------------ ------------ ------------
Total revenue 1,852,897 1,765,651 5,440,343 5,448,157
Operating expenses:
Salaries and wages 244,396 251,790 729,912 736,929
Trade show expense 75,463 77,112 226,304 260,359
Travel expense 36,362 50,919 109,365 150,393
Other operating expenses 167,994 165,286 534,552 520,516
Restaurant expenses 131,472 137,508 378,715 385,975
Depreciation and amortization 14,574 36,311 42,792 86,170
General and administrative 394,227 405,281 1,204,003 1,217,099
------------ ------------ ------------ ------------
Total expenses 1,064,488 1,124,207 3,225,643 3,357,441
------------ ------------ ------------ ------------
Operating income 788,409 641,444 2,214,700 2,090,716
Interest and other expense 114,937 98,965 338,478 294,823
------------ ------------ ------------ ------------
Income before income taxes from
continuing operations 673,472 542,479 1,876,222 1,795,893
Income tax expense 266,762 214,876 743,172 711,353
------------ ------------ ------------ ------------
Net income from continuing operations 406,710 327,603 1,133,050 1,084,540
Loss from discontinued operations net of
tax benefit of $604,415 in 2010 and
$207,280 in 2011 (935,237) (316,022) (935,237) (316,022)
------------ ------------ ------------ ------------
Net income (loss) (528,527) 11,581 197,813 768,518
------------ ------------ ------------ ------------
Cumulative preferred dividends 24,682 24,682 65,729 74,047
------------ ------------ ------------ ------------
Net income (loss) available to
common stockholders $ (553,209) $ (13,101) $ 132,084 $ 694,471
============ ============ ============ ============
Earnings per share - basic:
Net income from continuing operations $ .02 $ .02 $ .06 $ .06
Net loss from discontinued operations (.05) (.02) (.05) (.02)
Net income (loss) (.03) .00 .01 .04
Net income (loss) available to common
stockholders $ (.03) $ .00 $ .01 $ .04
Weighted average number of common
shares outstanding 19,413,092 19,469,317 19,412,699 19,453,932
Diluted earnings per share:
Net income from continuing operations $ .02 $ .02 $ .06 $ .05
Net loss from discontinued operations (.05) (.02) (.05) (.02)
Net income (loss) (.03) .00 .01 .04
Net income (loss) available to common
stockholders $ (.03) $ .00 $ .01 $ .03
Weighted average number of common
shares outstanding 20,112,463 20,159,153 20,112,070 20,143,768
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, 2010 $ 800,250 19,419,317 $ 23,116,317 $(13,031,928) $ 10,884,639
Net income for nine months ended
September 30, 2011 768,518 768,518
Cumulative preferred dividends (74,047) (74,047)
Exercise of employee stock options 50,000 18,000 18,000
Amortization of value of stock
options 79,962 79,962
------------ ---------- ------------ ------------ ------------
Balance at September 30, 2011 $ 800,250 19,469,317 $ 23,214,279 $(12,337,457) $ 11,677,072
============ ========== ============ ============ ============
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,
2010 2011
----------- -----------
OPERATING ACTIVITIES
Net income $ 197,813 $ 768,518
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 109,596 160,492
Deferred income taxes 138,757 504,073
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable 460,969 (235,723)
Inventories (14,271) (26,329)
Prepaid expenses (250,766) (87,382)
Other assets (439,402) (635,886)
Decrease in:
Accounts payable and accrued expenses 730,205 478,206
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 932,901 925,969
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (4,585) (8,699)
Investment in assets held for sale -- (3,393)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,585) (12,092)
----------- -----------
FINANCING ACTIVITIES
Payment of obligations from discontinued operations (568,052) (453,034)
Payment of cumulative preferred dividends (65,729) (74,047)
Payment of principal on outstanding debt (1,125,000) (725,000)
Proceeds from exercise of stock options -- 18,000
Payment received on long-term notes receivable -- 31,665
Proceeds from officer loan 735,500 200,000
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (1,023,281) (1,002,416)
----------- -----------
Decrease in cash (94,965) (88,539)
Cash at beginning of period 333,204 337,044
----------- -----------
Cash at end of period $ 238,239 $ 248,505
=========== ===========
Supplemental schedule of non-cash investing and financing activities
None
Cash paid for interest $ 239,121 $ 257,564
See accompanying notes to condensed consolidated financial statements.
6
Notes to Condensed Consolidated Financial Statements (Unaudited)
----------------------------------------------------------------
Note 1 - 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, 2010 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, 2011 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2011.
Note 2 - On October 28, 2011, the Company entered into a Fifth Amendment to Loan
Agreement (the "Amendment") with Wells Fargo Bank, National Association ("Wells
Fargo") that amended the existing Loan Agreement dated August 25, 2005, between
the Company and Wells Fargo, as previously amended (as so amended, the "Loan
Agreement"). The Amendment reduced monthly principal payments and shortened the
maturity date for borrowings under the Loan from August 13, 2013 to October 1,
2012 at which date the scheduled principal balance payable will be $1,800,000.
The Amendment maintains the current interest rate LIBOR plus 4.25% per annum
applicable to amounts borrowed under the Loan Agreement, but increases to LIBOR
plus 7.25% per annum the interest rate applicable to amounts borrowed under the
Loan Agreement beginning July 1, 2012.
Note 3 - At various times, Paul W. Mobley, the Company's Chairman of the Board
and Chief Executive Officer, made advances to the Company to help fund principal
payments due under its bank loan and payments related to discontinued
operations. The payments related to the discontinued operations were largely for
legal fees related to the Heyser lawsuit, which is described in Note 6 to the
accompanying unaudited condensed consolidated financial statements and in Note
10 of the Company's consolidated financial statements included in its Form 10-K
for the year ended December 31, 2010. The Company issued an amended note in July
2011 in the principal amount of $1,055,821 to reflect the advances. The note
provides for interest at the rate of 8% per annum to be paid monthly on the
unpaid principal balance of the note and continuing on the first day of each
calendar month thereafter until the note is paid in full. The Company has paid
all the required interest payments to date. In addition, the note requires
principal payments commencing on November 1, 2012 and on the first day of each
calendar month thereafter up to and including March 1, 2013 in the amount of
$200,000 per month with a final payment of any remaining principal balance to be
paid on April 1, 2013.
Note 4 - Royalties and fees include $28,333 and $155,818 for the three-month and
nine-month periods ended September 30, 2011, respectively, and $44,000 and
$163,500 for the three-month and nine-month periods ended September 30, 2010,
respectively, of initial franchise fees. Royalties and fees included $11,194 and
$29,673 for the three-month and nine-month periods ended September 30, 2011 and
$16,378 and $103,970 for the three-month and nine-month periods ended September
30, 2010, respectively, of equipment commissions.
7
Royalties and fees, less initial franchise fees and equipment commissions
(collectively "upfront fees") were $1,584,416 and $4,845,042 for the three-month
and nine-month periods ended September 30, 2011 and $1,651,697 and $4,759,036
for the three-month and nine-month periods ended September 30, 2010,
respectively. The breakdown of royalties and fees, less upfront fees, are
royalties and fees from non-traditional franchises other than grocery stores
were $971,313 and $3,133,619 for the three-month and nine-month periods ended
September 30, 2011, respectively, and $1,169,309 and $3,225,837 for the
three-month and nine-month periods ended September 30, 2010, respectively; fees
from the grocery store take-n-bake were $325,419 and $873,019 for the
three-month and nine-month periods ended September 30, 2011, respectively, and
$144,166 and $257,191 for the three-month and nine-month periods ended September
30, 2010, respectively; and royalties and fees from traditional locations were
$287,684 and $838,404 for the three-month and nine-month periods ended September
30, 2011, respectively, and $338,222 and $1,276,008 for the three-month and
nine-month periods ended September 30, 2010, respectively. The Company has no
material amount of past due royalties.
There were 1,112 franchises and licenses in operation on December 31, 2010 and
1,460 franchises and licenses in operation on September 30, 2011. During the
nine-month period ended September 30, 2011 there were 362 new franchises and
licenses opened and 14 franchises closed. The breakdown of the 1,460 franchises
and licenses at September 30, 2011 was 751 non-traditional franchises and
licenses other than grocery stores, 667 grocery stores and 42 traditional
franchises.
Note 5 - 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
-------------------------------------
Income Shares Per-Share
------ ------ 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
8
Nine Months Ended September 30, 2011
------------------------------------
Income Shares Per-Share
------ ------ 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
The following table sets forth the calculation of basic and diluted earnings
(loss) per share for the three-month and nine-month periods ended September 30,
2010:
Three Months Ended September 30, 2010
-------------------------------------
Income Shares Per-Share
------ ------ Amount
(Numerator) (Denominator) ---------
Net loss $(528,527) 19,413,092 $ (.03)
Less preferred stock dividends (24,682)
---------
Earnings per share - basic
Loss available to common stockholders (553,209) (.03)
Effect of dilutive securities
Warrants 33,684
Options 299,021
Convertible preferred stock 24,682 366,666
--------- ----------
Diluted earnings per share
Loss available to common stockholders
and assumed conversions $(528,527) 20,112,463 $ ( .03)
Nine Months Ended September 30, 2010
------------------------------------
Income Shares Per-Share
------ ------ Amount
(Numerator) (Denominator) ---------
Net income $197,813 19,412,699 $ .01
Less preferred stock dividends (65,729)
--------
Earnings per share - basic
Income available to common stockholders 132,084 .01
Effect of dilutive securities
Warrants 33,684
Options 299,021
Convertible preferred stock 65,729 366,666
-------- ----------
Diluted earnings per share
Income available to common stockholders
and assumed conversions $197,813 20,112,070 $ .01
9
Note 6 - 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 Plaintiffs allege
that the Defendants fraudulently induced them to purchase franchises for
traditional locations through misrepresentations and omissions of material facts
regarding the franchises. As relief, the Plaintiffs sought compensatory and
punitive damages in addition to court costs and/or prejudgment interest. The
Court issued an Order dated December 23, 2010 granting summary judgment in favor
of the Company against all of the Plaintiffs on their fraud claims. As a result,
the Plaintiffs' allegations of fraud against the Company and certain of its
officers were determined to be without merit. The Company's counterclaims
against the Plaintiffs for breach of contract and other related claims remain
pending.
The Complaint was originally filed against the Company and certain of its
officers and certain institutional lenders. The Plaintiffs are former
franchisees of the Company's traditional location venue. Initially there were
approximately 14 groups of franchisee-Plaintiffs. Since the inception of the
lawsuit, the Court has dismissed the claims against the institutional lenders.
In addition, one group of franchisee-Plaintiffs voluntarily dismissed its claims
against the Company, another group settled by paying a fee to the Company in
exchange for the Company dismissing its counterclaim against that Plaintiff and
the Court held another group of franchisee-Plaintiffs in contempt and dismissed
its claims with prejudice.
The Company filed counterclaims for damages for breach of contract against all
of the Plaintiffs in the aggregate approximate amount of $3.6 million plus
attorney's fees, interest, cost of collection and punitive damages in certain
instances. The Company intends to prosecute the counterclaims and obtain and
execute on judgments against the Plaintiffs.
In addition to the above actual fraud claims, one group of franchisee-Plaintiffs
asserted a separate claim under the Indiana Franchise Act. The Court's December
23, 2010 Order denied the Company's motion for summary judgment as to the
Indiana Franchise Act claim finding the existence of a genuine issue of material
fact and did not render any opinion on the merits of that claim. The Company
denies liability on this claim and will continue to vigorously prosecute its
defenses against this claim.
The Plaintiffs filed a motion with the Court asking it to correct errors and to
reconsider the Order for summary judgment. The motion was deemed denied on April
25, 2011. The deadline for filing a notice of appeal expired on May 25, 2011 and
none was filed.
On June 28, 2011, Plaintiffs filed a motion asking the Court to reconsider its
Order of December 23, 2010 making it an "Interlocutory" order instead of a
"Final" order. The Company filed its response opposing that motion. However, on
June 8, 2011 Plaintiffs filed an appeal with the Indiana Court of Appeals. On
July 14, 2011, the Company filed a motion with the Indiana Court of Appeals to
dismiss the appeal on the grounds that the appeal was filed after the deadline
of May 25, 2011 for filing of an appeal. On July 29, 2011, Plaintiffs filed a
motion with the Indiana Court of Appeals to voluntarily dismiss the appeal.
Also, on July 29, 2011, Plaintiffs filed a motion with the trial court to reset
the hearing on the motion to reconsider the order of December 23, 2010. The
Company filed a motion opposing the voluntary withdrawal of appeal in the
Indiana Court of Appeals asking the Court to rule on the Company's motion to
dismiss the appeal with prejudice. On August 18, 2011 the Court of Appeals
entered an order dismissing the Plaintiffs' appeal with prejudice. Therefore,
the Company filed a motion in the trial court asking the Court to dismiss
Plaintiffs' July 29, 2011 motion as moot. On October 27, 2011, the Court entered
an Order dismissing all of the July 29, 2011 motion as moot, except for
allegations of misconduct by an adverse party. That allegation is set for
hearing on November 15, 2011.
10
On September 21, 2011, the Company filed motions for partial summary judgment as
to liability against all remaining Plaintiffs on the Company's counterclaims.
Plaintiffs' responses to those motions were due on November 2, 2011, however,
Plaintiffs requested a two-day extension until November 4, 2011. Plaintiff's
actually filed their response on November 7, 2011. After reviewing the response,
the Company will file a reply and the Court has set a hearing on those motions
for December 6, 2011.
Note 7: The Company evaluated subsequent events through the date the financial
statements were issued and filed with the Securities and Exchange Commission.
There were no subsequent events that required recognition or disclosure beyond
what is disclosed in this report.
Note 8: Loss on discontinued operations was $316,022, net of a tax benefit of
$207,280, in the three-month and nine-month periods ended September 30, 2011
compared to a loss of $935,237, net of a tax benefit of $604,415, for the
three-month and nine-month periods ended September 30, 2010. In 2011, the loss
on discontinued operations consisted primarily of legal and other expenses
related to the Heyser lawsuit and expenses incurred related to a leased facility
formerly containing one of the full-service restaurants, which was a part of the
1999 discontinued operations. The additional accrual for the Heyser lawsuit was
necessary as actual expenses exceeded previous estimates primarily because,
since the Company was granted summary judgment dismissing their fraud claims on
December 23, 2010, the Plaintiffs have filed numerous motions for
reconsideration and an appeal, all of which created additional legal and other
expenses. The additional accrual for the leased facility was necessary because
the previous estimates for those expenses assumed that the Company would find a
sub-tenant for the building, which it has been unable to do primarily because of
the abundance of commercial space available due to the poor economy. In 2010,
loss on discontinued operations consisted of additional accrual to defend the
Heyser lawsuit, as explained in Note 6, and the write-off of various receivables
originated in 2007 and 2008 relating to the operations that were discontinued in
2008 and, through court proceedings in 2010, were determined to be doubtful of
collection.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
------------
The Company sells and services franchises and licenses for non-traditional and
stand-alone foodservice operations under the trade names "Noble Roman's Pizza",
"Tuscano's Italian Style Subs", "Noble Roman's Bistro", "Noble Roman's
Take-N-Bake" and "Tuscano's Grab-N-Go Subs". The Company believes the attributes
of these concepts include high quality products, simple operating systems, labor
minimizing operations, attractive food costs and overall affordability.
Noble Roman's Pizza
-------------------
"Superior quality that our customers can taste" - that is the hallmark of Noble
Roman's Pizza. Every ingredient and process has been designed with a view to
producing superior results. We believe the following make our products unique:
11
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 real
departure from many pizza concepts.
o Vegetable and mushroom toppings that are sliced and delivered fresh,
never canned.
o An extended product line that includes breadsticks 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.
The Company carefully developed nearly all of its menu items to be delivered in
a ready-to-use form requiring only on-site assembly and baking. The ingredients
for these menu items are manufactured by third-party vendors and distributed by
unrelated distributors who deliver throughout much of the continental United
States. We believe this process results in products that are great tasting,
quality consistent, easy to assemble and relatively low in food cost and that
require relatively low amounts of labor.
Noble Roman's Take-N-Bake Pizza
-------------------------------
In September 2009, the Company introduced a take-n-bake version of its pizza as
an addition to its menu offerings. The Company generates revenues from the
take-n-bake pizza based upon sales by distributors; licensees do not pay a
separate franchise fee. The Company uses the same high-quality pizza ingredients
for its take-n-bake product as with its standard pizza, with slight
modifications to portioning for increased home baking performance. The
take-n-bake pizza is designed as an add-on component for new and existing
convenience store franchises, and as a stand-alone offering for grocery stores.
Since adding this component in September 2009, the Company has signed agreements
for 910 grocery store locations to operate the take-n-bake pizza program and
approximately 730 of these locations have been opened. The Company is also in
discussions with several other grocery store owners. The Company expects the
number of grocery store locations operating the take-n-take program to increase
substantially over the next year. The take-n-bake program has also been
integrated into the operations of several existing convenience store franchises,
generating add-on sales, and is now being offered as a part of their franchise
to all convenience store franchisees. The take-n-bake program in grocery stores
is being offered as a supply agreement rather than a franchise agreement.
To supplement the take-n-bake pizza offering, at the beginning of 2011, the
Company introduced five carton-to-shelf retail items that require no assembly at
the grocery store and as a complement to the take-n-bake program. These five
items are Noble Roman's Pasta Sauce, Noble Roman's Flavor-Aged Parmesan Cheese,
Noble Roman's Deep-Dish Lasagna with Italian Sausage, Noble Roman's Spicy Cheese
Sauce and Noble Roman's Cheesy Stix. In addition to being a complement to the
take-n-bake program, these five products are being offered to all grocery stores
and require no agreement, unlike the take-n-bake program which requires a supply
agreement to help control quality and to protect the Company's proprietary
products, because the pizzas are assembled in the grocery store deli
departments.
12
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 that include an
Italian-themed menu. The franchise fee and ongoing royalty for a Tuscano's is
identical to that charged for a Noble Roman's Pizza franchise. The Company
awards Tuscano's franchises almost always for the same facilities as Noble
Roman's Pizza franchises, for a broader food offering in the non-traditional
locations. Tuscano's franchises are also available for locations that do not
have a Noble Roman's Pizza franchise, however it is not promoted in that manner.
With its Italian theme, Tuscano's offers a distinctive yet recognizable format.
Like most other brand name sub concepts, customers select menu items at the
start of the counter line then choose toppings and sauces according to their
preference until they reach the check out point. Tuscano's, however, has many
unique competitive features, including its Tuscan theme, the extra rich yeast
content of its fresh baked bread, thematic menu selections and serving options,
high quality meats, and generous yet cost-effective quality sauces and spreads.
Tuscano's was designed to be premium quality, simple to operate and
cost-effective.
The Company also has 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 and/or Tuscano's Subs locations.
The grab-n-go system has been integrated into the operations of several existing
locations to generate add-on sales.
The Company offers new, non-traditional franchisees the opportunity to open with
both take-n-bake pizza and grab-n-go subs when they acquire a franchise or
license. Additionally, through changes in the menu, operating systems and
equipment structure, the Company is now able to offer dual Noble Roman's Pizza
and Tuscano's Grab-N-Go Subs franchises at a much reduced investment cost
compared to the previous offering.
Business Strategy
-----------------
The Company's business strategy can be summarized as follows:
Sales of Non-Traditional Franchises and Licenses. The Company believes that it
has an opportunity for increasing unit growth and revenue within its
non-traditional venues such as hospitals, military bases, universities,
convenience stores, grocery stores, attractions, entertainment facilities,
casinos, airports, travel plazas, office complexes and hotels. The Company's
franchises in non-traditional locations are foodservice providers within a host
business, and usually require a minimal investment compared to a stand-alone
franchise. Non-traditional franchises or 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 cost 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.
13
Licensing 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. Since September 2009, when the Company started offering take-n-bake
pizza to grocery store chains through November 5, 2011, the Company has signed
agreements with 910 grocery store locations to operate the take-n-bake pizza
program and has opened take-n-bake pizza in approximately 730 of those
locations. The Company is currently in discussions with numerous grocery store
owners 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 combination
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, appeal to the
program to attract new locations and to generally increase sales of the
Company's products.
At the start of 2011, to supplement the take-n-bake pizza offering and expand
merchandising space, the Company introduced five carton-to-shelf retail items
that require no assembly at the grocery store and help expand the merchandising
visibility of the Noble Roman's brand. These five items are Noble Roman's Pasta
Sauce, Noble Roman's Flavor-Aged Parmesan Cheese, Noble Roman's Deep-Dish
Lasagna with Italian Sausage, Noble Roman's Spicy Cheese Sauce and Noble Roman's
Cheesy Stix.
In an attempt to accelerate the growth of take-n-bake pizza in grocery stores,
the Company has been focusing on signing agreements with various grocery store
distributors to market the take-n-bake pizza program to the distributor's
current customer base. In July 2010, the Company signed an agreement with a
grocery store distributor headquartered in California and the Company now has
252 take-n-bake agreements with its customers. In October 2010, the Company
signed an agreement with a grocery store distributor in Wisconsin, however, they
did not stock their warehouse until February 2011. The Company now has 25
take-n-bake agreements with its customers. In January 2011, the Company signed
an agreement with a grocery store distributor headquartered in Connecticut. The
Company now has 69 take-n-bake agreements with its customers. In March 2011, the
Company signed an agreement with a grocery store distributor in Oklahoma. The
Company now has 90 take-n-bake agreements with its customers. Also in March
2011, the Company signed an agreement with a grocery store distributor in Utah.
The Company now has 77 take-n-bake agreements with its customers. In April 2011,
the Company signed an agreement with a grocery store distributor in
Pennsylvania. The Company now has 26 take-n-bake agreements with its customers.
In May 2011, the Company signed an agreement with a grocery store distributor in
New Hampshire. The Company now has 19 take-n-bake agreements with its customers.
In August 2011, the Company signed an agreement with a grocery store distributor
in Indiana. The Company now has 14 take-n-bake agreements with its customers.
Also in August 2011, the Company signed an agreement with a grocery store
distributor in Texas. The Company now has 67 take-n-bake agreements with its
customers. The Company is currently in discussion with a number of other grocery
store distributors.
Maintain Superior Product Quality. The Company believes that the quality of its
products will contribute to the growth of its non-traditional locations. 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 new 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
14
requiring very low amounts of labor, allowing for a significant competitive
advantage due to the speed at which its products can be prepared, baked and
served to customers.
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 asset, 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.
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, 2010 and 2011,
respectively.
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2010 2011 2010 2011
---- ---- ---- ----
Royalties and fees 92.4 % 92.1 % 92.4 % 92.3 %
Administrative fees and other .3 .2 .5 .4
Restaurant revenue 7.3 7.7 7.1 7.3
----- ----- ----- -----
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
----- ----- ----- -----
Operating expenses:
Salaries and wages 13.2 14.3 13.4 13.5
Trade show expense 4.1 4.4 4.2 4.8
Travel expense 2.0 2.9 2.0 2.8
Other operating expense 9.1 9.4 9.8 9.6
Restaurant expenses 7.1 7.8 7.0 7.1
Depreciation and amortization .8 2.0 .8 1.6
General and administrative 21.2 22.9 22.1 22.2
----- ----- ----- -----
Total expenses 57.5 63.7 59.3 61.6
----- ----- ----- -----
Operating income 42.5 36.3 40.7 38.4
Interest and other expense 6.2 5.6 6.2 5.4
----- ----- ----- -----
Income before income taxes 36.3 30.7 34.5 33.0
Income tax expense 14.4 12.1 13.7 13.1
----- ----- ----- -----
Net income from continuing operations 21.9 % 18.6 % 20.8 % 19.9 %
===== ===== ===== =====
Results of Operations
---------------------
Total revenue decreased from $1,852,897 to $1,765,651 and increased from
$5,440,343 to $5,448,157 for the three-month and nine-month periods ended
September 30, 2011, respectively, compared to the corresponding periods in 2010.
One-time fees, franchisee fees and equipment commissions ("upfront fees")
decreased from $60,378 to $39,527 and from $267,470 to $185,491 during the
three-month and nine-month periods ended September 30, 2011 compared to the
corresponding periods in 2010. Ongoing royalties and fees decreased from
$1,651,697 to $1,584,416 and increased from $4,759,036 to $4,845,041 for the
three-month and nine-month periods ended September 30, 2011, respectively,
15
compared to the corresponding periods in 2010. The breakdown of royalties and
fees, less upfront fees, are royalties and fees from non-traditional franchises
other than grocery stores were $971,313 and $3,133,619 for the three-month and
nine-month periods ended September 30, 2011, respectively, and $1,169,309 and
$3,225,837 for the three-month and nine-month periods ended September 30, 2010,
respectively; fees from the grocery store take-n-bake were $325,419 and $873,019
for the three-month and nine-month periods ended September 30, 2011,
respectively, and $144,166 and $257,191 for the three-month and nine-month
periods ended September 30, 2010, respectively; and royalties and fees from
traditional locations were $287,684 and $838,404 for the three-month and
nine-month periods ended September 30, 2011, respectively, and $338,222and
$1,276,008 for the three-month and nine-month periods ended September 30, 2010,
respectively. Included in royalties and fees from traditional locations were
$200,000 and $600,000 for the three-month and nine-month periods ended September
30, 2011, respectively, and $275,000 and $1,080,000 for the three-month and
nine-month periods ended September 30, 2010, respectively, for royalties and
fees recognized as collectible from traditional locations which are no longer
operating.
Total fees increased $181,253 and $615,828 for the three-month and nine-month
periods ended September 30, 2011 compared to the corresponding periods in 2010
from grocery stores take-n-bake locations primarily as a result of adding new
locations partially offset by lower sales per location due to the unusually hot
summer months. The increase of revenue from grocery store take-n-bake locations
was offset by decreases in royalties and fees from non-traditional locations
other than grocery stores and traditional locations. Royalties and fees from
non-traditional locations decreased $197,996 and $92,218 for the three-month and
nine-month periods ended September 30, 2011 compared to the corresponding
periods in 2010. The decreases in the non-traditional royalties and fees were
primarily from sales decreases in entertainment centers of all types including
family entertainment centers, bowling centers, parks and zoos. We believe this
resulted from the unusually hot summer weather throughout most of the country
combined with low consumer spending. Royalties and fees from traditional
locations decreased $50,538 and $437,604 for the three-month and nine-month
periods ended September 2011 compared to the corresponding periods in 2010. This
decrease was the result of a decrease of $75,000 and $480,000 for the
three-month and nine-month periods ended September 30, 2011 in royalties and
fees recognized as collectible from traditional locations which are no longer
operating.
Restaurant revenue increased from $135,337 to $138,601 and from $387,644 to
$395,122 for the three-month and nine-month periods ended September 30, 2011
compared to the corresponding periods in 2010. The increases in the third
quarter and in the nine-month period were a result of same store sales
increasing. The Company only operates two locations primarily for testing and
demonstration purposes.
Salaries and wages increased, as a percentage of total revenue, from 13.2% to
14.3% and from 13.4% to 13.5% for the three-month and nine-month periods ended
September 30, 2011 compared to the corresponding periods in 2010. The increases
were the result of the revenue decrease in the three-month period with a slight
increase in actual salaries and wages, and in the nine-month period a slight
increase in revenue with a slight increase in actual salaries. Salaries and
wages increased slightly from $244,396 to $251,790 and from $729,912 to $736,929
for the three-month and nine-month periods ended September 30, 2011 compared to
the corresponding periods in 2010.
Trade show expenses increased from 4.1% to 4.4% of total revenue and from 4.2%
to 4.8% of total revenue for the three-month and nine-month periods ended
September 30, 2011, respectively, compared to the corresponding periods in 2010.
These increases were the result of scheduling more trade shows for grocery
stores.
16
Travel expenses increased from 2.0% to 2.9% of total revenue and from 2.0% to
2.8% of total revenue for the three-month and nine-month periods ended September
30, 2011, respectively, compared to the corresponding periods in 2010. Actual
travel expense increased from $36,362 to $50,919 and from $109,365 to $150,393
for the three-month and nine-month periods ended September 30, 2011 compared to
the corresponding periods in 2010. These increases were the result of opening
341 take-n-bake locations in grocery stores throughout the country during the
first nine months of 2011 compared to opening 200 locations in the corresponding
period of 2010.
Other operating expenses increased, as a percentage of total revenue, from 9.1%
to 9.4% and decreased from 9.8% to 9.6% for the three-month and nine-month
periods ended September 30, 2011, respectively, compared to the corresponding
periods in 2010. Actual operating expenses decreased from $167,994 to $165,286
and from $534,552 to $520,516 for the three-month and nine-month periods ended
September 30, 2011 compared to the corresponding periods in 2010. These
decreases were the result of management's effort to tightly control operating
expenses. The percentage increase in the three-month period was the result of a
slight decrease in total revenue and the percentage decrease in the nine-month
period was the result of a slight increase in total revenue.
Restaurant expenses increased as a percentage of total revenue from 7.1% to 7.8%
and from 7.0% to 7.1% for the three-month and nine-month periods ended September
30, 2011, respectively, compared to the corresponding periods in 2010. The
increase in percentage for the three-month period was a result of the slight
decrease in total revenue and the increase percentage in the nine-month period
was a result of the increased restaurant activity as a result of same store
sales increases. The Company only operates two restaurants which it uses for
demonstration, training and testing purposes.
General and administrative expenses increased as a percentage of total revenue
from 21.2% to 22.9% and from 22.1% to 22.2% for the three-month and nine-month
periods ended September 30, 2011, respectively, compared to the corresponding
periods in 2010. General and administrative expense increased from $394,227 to
$405,281 and from $1,204,003 to $1,217,099 for the three-month and nine-month
periods ended September 30, 2011, respectively, compared to the corresponding
periods in 2010. The increase in general and administrative expense was
primarily the result of an increase in the expense from amortization of stock
options.
Total expenses increased as a percentage of total revenue from 57.5% to 63.7%
and from 59.3% to 61.6% for the three-month and nine-month periods period ended
September 30, 2011, respectively, compared to the corresponding periods in 2010.
Total expenses increased from $1,064,488 to $1,124,207 and from $3,225,643 to
$3,357,441 for the three-month and nine-month periods ended September 30, 2011,
respectively, compared to the corresponding periods in 2010. These increases
were primarily the result of the increase in trade show expense and travel
expenses due to more openings. The Company opened a total of 357 locations in
the nine-month period of 2011 compared to a total of 229 locations in the
corresponding period in 2010.
Operating income decreased as a percentage of total revenue from 42.5% to 36.3%
and from 40.7% to 38.4% for the three-month and nine-month periods ended
September 30, 2011, respectively, compared to the corresponding periods in 2010.
Operating income decreased from $788,409 to $641,444 and from $2,214,700 to
$2,090,716 for the three-month and nine-month periods ended September 30, 2011,
respectively, compared to the corresponding periods in 2010.
Interest expense decreased as a percentage of total revenue from 6.2% to 5.6%
and from 6.2% to 5.4% for the three-month and nine-month periods ended September
30, 2011, respectively, compared to the corresponding periods in 2010. These
decreases were primarily the result of a decrease in notes payable outstanding.
17
Net income from continuing operations decreased from $406,710 to $327,603 and
from $1,133,050 to $1,084,540 for the three-month and nine-month periods ended
September 30, 2011 compared to the corresponding periods in 2010.
Liquidity and Capital Resources
-------------------------------
The Company's current strategy is to grow its business by concentrating on
franchising non-traditional locations and licensing grocery stores to sell
take-n-bake pizza and the other retail products. The Company has chosen that
strategy as a means to accelerate non-traditional unit growth by increasing
revenue without the need to incur significant increase in expenses.
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.
The Company's current ratio was 1.4-to-1 at both September 30, 2011 and December
31, 2010.
At various times, Paul W. Mobley, the Company's Chairman of the Board and Chief
Executive Officer, made advances to the Company to help fund principal payments
due under its bank loan and payments related to discontinued operations. The
payments related to the discontinued operations were largely for legal fees
related to the Heyser lawsuit, which is described in Note 6 to the accompanying
unaudited condensed consolidated financial statements and in Note 10 of the
Company's consolidated financial statements included in its Form 10-K for the
year ended December 31, 2010. The Company issued an amended note in July 2011 in
the principal amount of $1,055,821 to reflect the advances. The note provides
for interest at the rate of 8% per annum to be paid monthly on the unpaid
principal balance of the note and continuing on the first day of each calendar
month thereafter until the note is paid in full. The Company has paid all the
required interest payments to date. In addition, the note requires principal
payments commencing on November 1, 2012 and on the first day of each calendar
month thereafter up to and including March 1, 2013 in the amount of $200,000 per
month with a final payment of any remaining principal balance to be paid on
April 1, 2013.
On October 28, 2011, the Company entered into a Fifth Amendment to Loan
Agreement (the "Amendment") with Wells Fargo Bank, National Association ("Wells
Fargo") that amended the existing Loan Agreement dated August 25, 2005, between
the Company and Wells Fargo, as previously amended (as so amended, the "Loan
Agreement"). The Amendment reduces monthly principal payments and shortens the
maturity date for borrowings under the loan from August 13, 2013 to October 1,
2012 at which date the principal balance payable will be $1,800,000. The
Amendment maintains the current interest rate applicable to amounts borrowed of
LIBOR plus 4.25% per annum, but increases the interest rate applicable to
amounts borrowed under the Loan Agreement beginning July 1, 2012 to LIBOR plus
7.25% per annum.
18
Below are the monthly required principal amortization amounts under the Loan
Agreement:
Date Amount
---- ------
October 1, 2011 $125,000
November 1, 2011 -
December 1, 2011 $125,000
January 1, 2012 $125,000
February 1, 2012 $200,000
March 1, 2012 $200,000
April 1, 2012 $200,000
May 1, 2012 $200,000
June 1, 2012 $200,000
July 1, 2012 $200,000
August 1, 2012 $200,000
September 1, 2012 $200,000
October 1, 2012 $1,800,000
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 entirely on growth in non-traditional venues and the growth in the
number of grocery store locations licensed to sell the take-n-bake pizza and
other retail products for grocery stores.
In February 2008, the Company elected to trade its previous swap contract for a
new swap contract fixing the rate on 50% of the principal balance under the
Company's Loan Agreement(approximately $1,375,000 as of November 5, 2011) at an
annual interest rate of 8.2%.
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 market acceptance of
recently introduced products, competitive factors and pricing pressures, the
current litigation with certain former traditional franchisees, non-renewal of
franchise agreements, shifts in market demand, compliance with the terms of the
Company's bank credit agreement, general economic conditions and other factors
including, but not limited to, changes in demand for the Company's products or
franchises, the success or failure of individual franchisees and changes in
prices or supplies of food ingredients and labor as well as the factors
discussed under "Risk Factors" as contained in our Annual Report on Form 10-K
for the year ended December 31, 2010. Should one or more of these risks or
19
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, 2011, the Company had outstanding
variable rate interest-bearing debt in the aggregate principal amount of $3.8
million. The Company's current bank borrowings are at a variable rate tied to
the London Interbank Offered Rate ("LIBOR") plus 4.25% per annum through June
2012 and plus 7.25% per annum beginning July 1, 2012 adjusted on a monthly
basis. To mitigate interest rate risk, the Company purchased a swap contract
fixing the rate on 50% of the principal balance outstanding at 8.2% per annum.
Based upon the principal balance outstanding as of November 5, 2011 of $3.65
million for each 1.0% increase in LIBOR, the Company would incur increased
interest expense of approximately $13,000 over the succeeding twelve-month
period.
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 Plaintiffs allege that the
Defendants fraudulently induced them to purchase franchises for traditional
locations through misrepresentations and omissions of material facts regarding
the franchises. As relief, the Plaintiffs sought compensatory and punitive
damages in addition to court costs and/or prejudgment interest. The Court issued
an Order dated December 23, 2010 granting summary judgment in favor of the
Company against all of the Plaintiffs on their fraud claims. As a result, the
Plaintiffs' allegations of fraud against the Company and certain of its officers
were determined to be without merit. The Company's counterclaims against the
Plaintiffs for breach of contract and other related claims remain pending.
The Complaint was originally filed against the Company and certain of its
officers and certain institutional lenders. The Plaintiffs are former
franchisees of the Company's traditional location venue. Initially there were
approximately 14 groups of franchisee-Plaintiffs. Since the inception of the
lawsuit, the Court has dismissed the claims against the institutional lenders.
In addition, one group of franchisee-Plaintiffs voluntarily dismissed its claims
against the Company, another group settled by paying a fee to the Company in
exchange for the Company dismissing its counterclaim against that Plaintiff and
the Court held another group of franchisee-Plaintiffs in contempt and dismissed
its claims with prejudice.
20
The Company filed counterclaims for damages for breach of contract against all
of the Plaintiffs in the aggregate approximate amount of $3.6 million plus
attorney's fees, interest, cost of collection and punitive damages in certain
instances. The Company intends to prosecute the counterclaims and obtain and
execute on judgments against the Plaintiffs.
In addition to the above actual fraud claims, one group of franchisee-Plaintiffs
asserted a separate claim under the Indiana Franchise Act. The Court's December
23, 2010 Order denied the Company's motion for summary judgment as to the
Indiana Franchise Act claim finding the existence of a genuine issue of material
fact and did not render any opinion on the merits of that claim. The Company
denies liability on this claim and will continue to vigorously prosecute its
defenses against this claim.
The Plaintiffs filed a motion with the Court asking it to correct errors and to
reconsider the Order for summary judgment. The motion was deemed denied on April
25, 2011. The deadline for filing a notice of appeal expired on May 25, 2011 and
none was filed.
On June 28, 2011, Plaintiffs filed a motion asking the Court to reconsider its
Order of December 23, 2010 making it an "Interlocutory" order instead of a
"Final" order. The Company filed its response opposing that motion. However, on
June 8, 2011 Plaintiffs filed an appeal with the Indiana Court of Appeals. On
July 14, 2011, the Company filed a motion with the Indiana Court of Appeals to
dismiss the appeal on the grounds that the appeal was filed after the deadline
of May 25, 2011 for filing of an appeal. On July 29, 2011, Plaintiffs filed a
motion with the Indiana Court of Appeals to voluntarily dismiss the appeal.
Also, on July 29, 2011, Plaintiffs filed a motion with the trial court to reset
the hearing on the motion to reconsider the order of December 23, 2010. The
Company filed a motion opposing the voluntary withdrawal of appeal in the
Indiana Court of Appeals asking the Court to rule on the Company's motion to
dismiss the appeal with prejudice. On August 18, 2011 the Court of Appeals
entered an order dismissing the Plaintiffs' appeal with prejudice. Therefore,
the Company filed a motion in the trial court asking the Court to dismiss
Plaintiffs' July 29, 2011 motion as moot. On October 27, 2011, the Court entered
an Order dismissing all of the July 29, 2011 motion as moot, except for
allegations of misconduct by an adverse party. That allegation is set for
hearing on November 15, 2011.
On September 21, 2011, the Company filed motions for partial summary judgment as
to liability against all remaining Plaintiffs on the Company's counterclaims.
Plaintiffs' responses to those motions were due on November 2, 2011, however,
Plaintiffs requested a two-day extension until November 4, 2011. Plaintiff's
actually filed their response on November 7, 2011. After reviewing the response,
the Company will file a reply and the Court has set a hearing on those motions
for December 6, 2011.
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.
By: /s/ Paul W. Mobley
---------------------------------------------------
Paul W. Mobley, Chairman, Chief Executive Officer,
Chief Officer and Principal Accounting Officer
(Authorized Officer and Principal Financial Officer)
Date: November 10, 2011
22
Index to Exhibits
Exhibit
-------
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 24, 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.
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.
23
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 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.
10.6 First Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated February 4, 2008, filed as Exhibit 10.1 to the
Registrant's report on Form 8-K filed February 8, 2008, is
incorporated herein by reference.
10.7 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.
10.8 Third Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated March 10, 2011, filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2010, is incorporated herein by reference.
10.9 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 on November 10, 2010, is
incorporated herein by reference.
10.10 Fourth Amendment to Loan Agreement with Wells Fargo Bank,
N.A. dated July 19, 2011, filed on August 10, 2011, 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-15(e).
32.1 C.E.O. and C.F.O. Certification under Section 1350.
101 Interactive Financial Data
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