Attached files
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, 2010
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 1, 2010, there were 19,419,317 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, 2009
and September 30, 2010 (unaudited) Page 3
Condensed consolidated statements of operations for the three
months and nine months ended September 30, 2009
and 2010 (unaudited) Page 4
Condensed consolidated statements of changes in stockholders'
equity for the nine months ended September 30, 2010
(unaudited) Page 5
Condensed consolidated statements of cash flows for the
nine months ended September 30, 2009 and 2010 (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,
2009 2010
------------ ------------
Current assets:
Cash $ 333,204 $ 238,239
Accounts and notes receivable - net 1,343,500 1,071,925
Inventories 239,006 253,278
Assets held for resale 243,527 243,582
Prepaid expenses 241,852 492,619
Deferred tax asset - current portion 1,050,500 1,050,500
------------ ------------
Total current assets 3,451,589 3,350,143
------------ ------------
Property and equipment:
Equipment 1,133,312 1,137,843
Leasehold improvements 96,512 96,512
------------ ------------
1,229,824 1,234,355
Less accumulated depreciation and amortization 790,134 841,776
------------ ------------
Net property and equipment 439,690 392,579
Deferred tax asset (net of current portion) 10,703,594 10,564,837
Other assets including long-term portion of notes receivable 2,087,644 2,467,025
------------ ------------
Total assets $ 16,682,517 $ 16,774,584
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term note payable $ 1,500,000 $ 1,500,000
Accounts payable and accrued expenses 434,665 724,145
Current portion of note payable to officer 300,000
------------ ------------
Total current liabilities 1,934,666 2,524,145
------------ ------------
Long-term liabilities:
Note payable to bank (net of current portion) 4,125,000 3,000,000
Note payable to officer (net of current portion) 465,821
------------ ------------
Total long-term liabilities 4,125,000 3,465,821
------------ ------------
Stockholders' equity:
Common stock - no par value (25,000,000 shares authorized, 19,412,499 issued
and outstanding as of December 31, 2009 and
19,419,317 issued and outstanding as of September 30, 2010) 23,074,160 23,103,843
Preferred stock (5,000,000 shares authorized and 20,625 issued and
outstanding as of December 31, 2009 and September 30, 2010) 800,250 800,250
Accumulated deficit (13,251,559) (13,119,475)
------------ ------------
Total stockholders' equity 10,622,851 10,784,618
------------ ------------
Total liabilities and stockholders' equity $ 16,682,517 $ 16,774,584
============ ============
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,
2009 2010 2009 2010
------------ ------------ ------------ ------------
Royalties and fees $ 1,778,230 $ 1,712,075 $ 5,277,665 5,026,506
Administrative fees and other 7,818 5,485 45,373 26,193
Restaurant revenue 148,275 135,337 405,908 387,644
------------ ------------ ------------ ------------
Total revenue 1,934,323 1,852,897 5,728,946 5,440,343
Operating expenses:
Salaries and wages 252,048 244,396 795,778 729,912
Trade show expense 77,032 75,463 229,259 226,304
Travel expense 29,927 36,362 108,060 109,365
Other operating expenses 172,268 167,994 564,158 534,552
Restaurant expenses 131,706 131,472 382,531 378,715
Depreciation and amortization 19,557 14,574 59,456 42,792
General and administrative 375,158 394,227 1,097,917 1,204,003
------------ ------------ ------------ ------------
Total expenses 1,057,696 1,064,488 3,237,159 3,225,643
------------ ------------ ------------ ------------
Operating income 876,627 788,409 2,491,787 2,214,700
Interest and other expense 115,682 114,937 353,138 338,478
------------ ------------ ------------ ------------
Income before income taxes from
continuing operations 760,945 673,472 2,138,649 1,876,222
Income tax expense 301,410 266,762 847,120 743,172
------------ ------------ ------------ ------------
Net income from continuing operations 459,535 406,710 1,291,529 1,133,050
Loss from discontinued operations net of
Tax benefit of $604,415 for 2010 -- (935,237) -- (935,237)
------------ ------------ ------------ ------------
Net income (loss) 459,535 (528,527) 1,291,529 197,813
------------ ------------ ------------ ------------
Cumulative preferred dividends 16,455 24,682 49,364 65,729
------------ ------------ ------------ ------------
Net income (loss) available to common
stockholders $ 443,080 $ (553,209) $ 1,242,165 $ 132,084
============ ============ ============ ============
Earnings per share - basic:
Net income from continuing operations $ .02 $ .02 $ .07 $ .06
Net loss from discontinued operations -- (.05) -- (.05)
Net income (loss) .02 (.03) .07 .01
Net income (loss) available to common
stockholders $ .02 $ (.03) $ .06 $ .01
Weighted average number of common shares
outstanding 19,412,499 19,413,092 19,412,499 19,412,699
Diluted earnings per share:
Net income from continuing operations $ .02 $ .02 $ .06 $ .06
Net loss from discontinued operations -- (.05) -- (.05)
Net income (loss) .02 (.03) .06 .01
Net income (loss) available to common
stockholders $ .02 $ (.03) $ .06 $ .01
Weighted average number of common shares
outstanding 19,922,242 20,112,463 19,922,242 20,112,070
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, 2008 $ 800,250 19,412,499 $ 23,023,250 $(14,861,176) $ 8,962,324
2009 net income 1,675,617 1,675,617
Cumulative preferred dividends (66,000) (66,000)
Amortization of value of employee
stock options 50,910 50,910
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2009 $ 800,250 19,412,499 $ 23,074,160 $(13,251,559) $ 10,622,851
Net income for nine months ended
September 30, 2010 197,813 197,813
Cumulative preferred
dividends (65,729) (65,729)
Cashless exercise of warrants 6,818
Amortization of value of employee
stock options 29,683 29,683
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2010 $ 800,250 19,419,317 $ 23,103,843 $(13,119,475) $ 10,784,618
============ ============ ============ ============ ============
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,
2009 2010
----------- -----------
OPERATING ACTIVITIES
Net income $ 1,291,529 $ 197,813
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 138,806 109,596
Deferred income taxes 847,120 138,757
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable (305,940) 460,969
Inventories 10,627 (14,271)
Prepaid expenses (16,719) (250,766)
Other assets (543,566) (439,402)
Increase in:
Accounts payable and accrued expenses 238,197 730,205
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,660,054 932,901
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (23,644) (4,585)
Investments in assets held for resale (837) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (24,481) (4,585)
----------- -----------
FINANCING ACTIVITIES
Payment of obligations from discontinued operations (563,159) (568,052)
Payment of cumulative preferred dividends (49,364) (65,729)
Payment of principal on outstanding debt (1,125,000) (1,125,000)
Payments received on long-term notes receivable 14,313 --
Proceeds from officer advance -- 735,500
----------- -----------
NET CASH USED IN FINANCING
ACTIVITIES (1,723,210) (1,023,281)
----------- -----------
Decrease in cash (87,637) (94,965)
Cash at beginning of period 450,968 333,204
----------- -----------
Cash at end of period $ 363,331 $ 238,239
=========== ===========
Supplemental schedule of non-cash investing and financing activities
None.
Cash paid for interest $ 317,750 $ 239,121
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 financial 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, 2009 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, 2010 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2010.
Note 2 - Royalties and fees included $44,000 and $163,500 for the three-month
and nine-month periods ended September 30, 2010, respectively, and $102,050 and
$167,650 for the three-month and nine-month periods ended September 30, 2009,
respectively, for initial franchise fees. Royalties and fees included $16,378
and $103,970 for the three-month and nine-month periods ended September 30,
2010, respectively, and $7,723 and $84,085 for the three-month and nine-month
periods ended September 30, 2009, respectively, for equipment commissions.
Royalties and fees, less initial franchise fees and equipment commissions were
$1,651,697 and $4,759,036 for the three-month and nine-month periods ended
September 30, 2010, respectively, and $1,668,457 and $5,025,930 for the
three-month and nine-month periods ended September 30, 2009, respectively.
Closings of some of the traditional franchises accounted for $71,733 and
$266,273 of the decrease during the comparable periods and decreases in ongoing
royalties and fees from the non-traditional units other than grocery stores
accounted for $74,704 and $242,922 of the decrease during the comparable
periods. This decrease was partially offset by an increase in royalties and fees
from the grocery store take-n-bake operations in the amount of $129,677 and
$242,301 during the respective periods.
There were 834 outlets in operation on December 31, 2009 and 1,035 outlets on
September 30, 2010. During the nine-month period ended September 30, 2010, there
were 229 new outlets opened and 28 outlets closed.
7
Note 3 - 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, 2010:
Three Months Ended September 30, 2010
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net loss $ (528,527) 19,413,092 $ (.03)
Less preferred stock dividends (24,682)
-----------
Earnings per share - basic
Income 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
Income available to common stockholders
and assumed conversions $ (528,527) 20,112,463 $ (.03)
Nine Months Ended September 30, 2010
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
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
8
The following table sets forth the calculation of basic and diluted earnings per
share for the three-month period and nine-month period ended September 30, 2009:
Nine Months Ended September 30, 2009
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net income $ 459,535 19,412,499 $ .02
Less preferred stock dividends (16,455)
-----------
Earnings per share - basic
Income available to common stockholders 443,080 .02
Effect of dilutive securities
Warrants --
Options 143,077
Convertible preferred stock 16,455 366,666
----------- ----------
Diluted earnings per share
Income available to common stockholders
and assumed conversions $ 459,535 19,922,242 $ .02
Nine Months Ended September 30, 2009
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Net income $ 1,291,529 19,412,499 $ .07
Less preferred stock dividends (49,364)
-----------
Earnings per share - basic
Income available to common stockholders 1,242,165 .06
Effect of dilutive securities
Warrants --
Options 143,077
Convertible preferred stock 49,364 366,666
----------- ----------
Diluted earnings per share
Income available to common stockholders
and assumed conversions $ 1,291,529 19,922,242 $ .06
Note 4 - 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 on June 19, 2008 (Cause No. 29D01
0806 PL 739). The Plaintiffs are former franchisees of the Company's traditional
location venue. Originally, the Plaintiffs in this case were Kari and Fred
Heyser and Meck Enterprises, LLC, Shawn and Jamie White and Casual Concepts of
Texas, LLC, Afifa Abdelmalek and St. Markorios Corporation, Robert and Kathleen
Hopkins and Withmere Restaurants, LLC, John and Mariann Dunn and D & G
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Restaurant, LLC, Jason Clark and Nican Enterprises, LLC, Thomas A. Brintle and
Noble Roman's Mt. Airy 100, LLC, Marikate and Paul Morris and Kapza, Inc., Kim
Neal and Mopan Commerce, Inc., and Collett Eugene Harrington and Sazzip, LLC.
Since the initiation of this lawsuit, however, Plaintiffs Marikate and Paul
Morris and Kapza, Inc. have voluntarily dismissed their claims against the
Company and the Court has issued an Order finding Plaintiffs Henry and Brenda
Villasenor and H&B Villasenor Investments, Inc.in Contempt of Court and has
accordingly dismissed with prejudice the claims filed by the Villasenor
Plaintiffs in this action.
The Defendants in this action originally were the Company, certain of the
Company's officers, namely, Paul W. Mobley, A. Scott Mobley, Troy Branson, and
Mitch Grunat, and co-Defendants, CIT Small Business Lending Corporation and PNC
Bank. The claims against co-Defendants CIT Small Business Lending Corporation
and PNC Bank have since been dismissed with prejudice.
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 seek
compensatory and punitive damages. In the Complaint, the Plaintiffs that remain
in the case claim damages collectively in the amount of $5.1 million. In
addition, some claims include punitive damages, court costs and/or prejudgment
interest. Discovery was completed July 19, 2010. To date, all of the Plaintiffs
remaining in the case have been deposed except the Soltero Plaintiffs.
Plaintiffs' counsel withdrew his representation on behalf of the Soltero
Plaintiffs and counsel for Defendants has been unable to locate the Soltero
Plaintiffs. Therefore, the Soltero Plaintiffs remain parties to this action and
remain unrepresented by counsel.
The Company filed a Counter-Claim for Damages against all of the Plaintiffs in
the approximate amount of $3.6 million plus attorney's fees, cost of collection
and punitive damages in certain instances.
The Company also filed a Motion for Partial Summary Judgment as to several
claims in the Complaint, which the Court granted in September, 2009. In
February, 2010, counsel for the Plaintiffs filed a Notice of Appeal with the
Indiana Court of Appeals as to the Partial Summary Judgment granted by the
Court. On August 19, 2010, the Court of Appeals issued a ruling affirming the
Judgment of the Trial Court. On September 20, 2010, Plaintiffs filed a Petition
for a Rehearing with the Indiana Court of Appeals, which the Court denied on
October 25, 2010.
Defendants have filed Motions for Summary Judgment as to all of the Plaintiffs
remaining in the case, based primarily on their deposition testimony and the
lack of evidence substantiating the Plaintiffs' claims. Plaintiffs filed a
consolidated Response to the Motions for Summary Judgment as to ten of the
Plaintiff groups. The Soltero Plaintiffs and Heyser Plaintiffs did not file a
Response to the Motion for Summary Judgment; therefore, Defendants Motions for
Summary Judgment as to those two Plaintiff groups are unopposed. After receiving
Plaintiffs' Consolidated Response to the Motions for Summary Judgment,
Defendants filed Reply Briefs in support of their Motions for Summary Judgment
against each of the ten Plaintiff groups included in the Response. In the Reply
Briefs, Defendants asked the Court to: 1) strike the improperly designated and
inadmissible materials including affidavits by each of the Plaintiffs which were
in conflict with their sworn testimony; 2) strike their statement of fact
section as failing to comply with Indiana Trial Rule 56; 3) strike arguments
about other states' laws as an improper and belated attempt to amend the
Complaint; 4) strike Plaintiffs' choice of law arguments which includes
arguments that have already been decided by the trial court and the Indiana
Court of Appeals; and 5) enter summary judgment in favor of Defendants. A
hearing on Defendants' Motions for Summary Judgment has been set for November
22, 2010.
10
The Defendants' counterclaims against all of the original Plaintiffs are still
pending. While the counterclaims against the individuals Paul and Marikate
Morris and Kari and Fred Heyser, were stayed due to their bankruptcy filings in
their individual capacities, the counterclaims against their corporate entities,
Kapza, Inc., and Meck Enterprises LLC, respectively, remain pending as the
corporate entities did not file for bankruptcy. Similarly, the counterclaims
against the Villasenor Plaintiffs also remain pending and were not affected by
the court's order dismissing that Plaintiff group with prejudice.
Note 5: At various times during the nine-month period ended September 30, 2010,
Paul W. Mobley, the Company's Chairman of the Board and Chief Executive Officer,
loaned a total of $735,500 to the Company. On November 1, 2010, those amounts
were consolidated, along with accrued interest at 8% per annum, in a promissory
note in the amount of $765,821. The note provides for interest on the unpaid
balance of the note be paid monthly beginning December 1, 2010, and continuing
on the first day of each calendar month thereafter until the note is paid in
full, at a rate of 8% per annum. In addition, the note requires principal
payments commencing on July 1, 2011 and on the first day of each calendar month
thereafter up to and including January 1, 2012 in the amount of $100,000 per
month. The remaining outstanding principal and accrued interest is due to be
paid on February 1, 2012.
Note 6: Loss from discontinued operations was $935,237 in the three-month and
nine-month periods ended September 30, 2010 and none in the corresponding
periods in 2009. In 2008, the Company accrued for estimated cost to defend the
Heyser lawsuit explained in Note 4, however, that estimate was insufficient and
an additional accrual was required. Additionally, in reviewing accounts
receivable, various receivables originated in 2007 and 2008 relating to the
operations that were discontinued in 2008 were determined to be doubtful of
collection, and were, therefore, charged to loss from discontinued operations.
Note 7: On November 9, 2010, the Company entered into a Second Amendment to Loan
Agreement (the "Amendment") with Wells Fargo that amended the existing Loan
Agreement between the Company and Wells Fargo. Pursuant to the Amendment, Wells
Fargo agreed to defer principal payments on the outstanding note payable to the
bank for the months of October through December 2010. The Amendment further
provided that those deferred payments are to be made up with the payment of an
additional $75,000 in principal per month from April 1, 2011 through August 1,
2011. In addition, the interest rate under the note payable was changed from
LIBOR plus 3.75% per annum to LIBOR plus 4.25% per annum.
Note 8: The Company evaluated subsequent events through the date the financial
statements were issued and filed with the Securities and Exchange Commission.
There were no additional subsequent events that required recognition or
disclosure.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
------------
The Company sells and services franchises for non-traditional and stand-alone
foodservice operations under the trade names "Noble Roman's Pizza," "Tuscano's
Italian Style Subs", "Noble Roman's Take-N-Bake", "Tuscano's Grab-N-Go Subs" and
"Noble Roman's Bistro." The Company believes the attributes of these concepts
include high quality products, simple operating systems, labor minimizing
operations, attractive food costs and overall affordability.
11
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:
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. These menu items
are manufactured by third party vendors and distributed by unrelated
distributors who deliver throughout most 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 require
relatively low amounts of labor.
Noble Roman's Take-N-Bake Pizza
-------------------------------
In the third quarter of 2009, the Company began offering 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 store
franchisees and as a stand-alone offering for grocery store chains. The Company
recently developed additional products for grocery stores including pasta sauce,
deep-dish lasagna with Italian sausage, grated parmesan cheese, cheesy stix and
spicy cheese dip. These additional products will be available to grocery stores
in December 2010.
As of September 30, 2010, the Company had signed agreements for 292 grocery
store locations to operate the take-n-bake pizza program, 246 of which were open
at that time. As of November 5, 2010, the Company had signed agreements for 413
grocery store locations to operate the take-n-bake pizza program, 248 of which
were open at that time and the Company anticipates the opening of the remaining
locations within the succeeding 30 to 60 days. Many of the grocery store chains
that have signed agreements for certain of their grocery store locations to
operate the take-n-bake pizza program have indicated their intent to enter into
agreements for the remainder of their locations. The Company expects to sign
several additional units with existing chains and is also in discussions with
several other grocery store chains. The Company had previously announced the
signing of an agreement with a grocery distribution company which distributes to
approximately 1,700 grocery stores in the western United States. This agreement
provides for the grocery distributor to stock the Company's proprietary products
for distribution and promote our proprietary products to all of its 1,700
customers. To date the Company has signed 106 supply agreements with its
customers. Recently the Company signed a similar agreement with a grocery
distribution company in Wisconsin which distributes to approximately 1,000
grocery stores in Wisconsin and surrounding states. The Company, along with the
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distributor, began promoting its proprietary products to this distributor's
customers this week. The Company is currently in discussions with several other
grocery store distributors for similar arrangements.
The take-n-bake program has been integrated into the operations of many of the
Company's existing convenience store franchises, which has generated significant
add-on sales, and is now being offered to all franchise prospects for
convenience stores. The Company uses the same high quality pizza ingredients for
its take-n-bake product as with its standard pizza, with slight modification to
portioning for increased home baking performance.
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. For the most
part, the Company awards Tuscano's franchises for 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.
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 has recently developed a grab-n-go service system for a limited
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 already been integrated into the
operations of several existing locations, generating significant add-on sales.
The system is now being made available to other existing franchisees.
The Company is now offering new, non-traditional franchisees the opportunity to
open with both take-n-bake pizza and grab-n-go subs when they acquire a
dual-branded franchise. 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 Subs franchises at a significantly reduced
investment cost.
Business Strategy
The Company's business strategy can be summarized as follows:
Intensify Focus on Sales of Non-Traditional Franchises. In the current economic
environment the Company believes that it has a unique opportunity for increasing
unit growth and revenue within its non-traditional venues such as hospitals,
military bases, universities, convenience stores, attractions, entertainment
facilities, casinos, travel plazas and grocery stores. The Company's franchises
in non-traditional locations are foodservice providers within a host business,
13
and usually require a minimal investment compared to a stand-alone franchise.
Non-traditional franchises are often sold into pre-existing facilities as a
service and/or revenue enhancer for the underlying business.
In addition to the Company's historical non-traditional venues, the Company has
added grocery stores as an additional target for rapid expansion. Since adding
this venue in the fall of 2009, the Company has signed license agreements for
413 grocery store locations.
With its major focus being on non-traditional franchising, the Company's
requirements for overhead and operating cost are limited. The Company does not
intend to operate any franchise locations other than the two locations it uses
for testing and demonstration purposes. This allows for a complete focus on
selling and servicing franchises and licenses to capitalize on the attractive
opportunity for increased unit growth in non-traditional franchises and the
take-n-bake licenses for grocery stores.
Enhance Product Offerings. As an addition to the other service systems offered
in its Noble Roman's Pizza and Tuscano's Italian Style Subs concepts, the Noble
Roman's Bistro was designed to appeal to additional types of businesses and
operational objectives with its fresh food display and serve-to-order serving
system. Though presented or packaged differently, the substantial majority of
the menu selections are comprised of ingredients already utilized in Noble
Roman's Pizza and Tuscano's Italian Style Subs, thereby leveraging the Company's
simple systems, distribution and purchasing power.
In 2009, the Company introduced a take-n-bake pizza as an addition to its menu
offering. The take-n-bake pizza is designed as an add-on component for new and
existing convenience store franchisees, and as a stand-alone offering for
grocery store chains. Also, during 2009, the Company developed a grab-n-go
service system for a limited 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 Tuscano's Subs locations.
The Company has completed product research and development on five related
products to be sold through the grocery stores and expects to begin distributing
those products in late November or early December 2010. The five products are
pasta sauce, deep-dish lasagna with Italian sausage, grated aged parmesan
cheese, cheesy stix and spicy cheese dip. Unlike the Company's take-n-bake pizza
which requires on-site assembly by the deli department, these products, except
for the spicy cheese dip, arrive at the grocery store fully prepared and ready
to display and sell. These products were designed to augment the take-n-bake
pizza sales however the Company can offer these products to any grocery store
and is not limited to only those grocery stores that have signed license
agreements because the products do not require any preparation or assembly. Even
though the Company has no sales experience with these products and the products
have no proven market acceptance at this time, the Company believes that the
revenue generated from these products can potentially be significantly higher
than the revenue from the take-n-bake pizza. The Company intends to continue to
focus on enhanced product offerings to augment the Company's sales opportunities
within non-traditional venues.
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.
Most of our 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. The Company believes this process results in products
that are great tasting, quality consistent, easy to assemble, and relatively low
in food cost and that require very low amounts of labor, which allows for a
significant competitive advantage due to the speed at which its products can be
prepared, baked and served to customers.
14
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, 2009 and 2010,
respectively.
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2010 2009 2010
------- ------- -------- --------
Royalties and fees 91.9 % 92.4 % 92.1 % 92.4 %
Administrative fees and other .4 .3 .8 .5
Restaurant revenue 7.7 7.3 7.1 7.1
------- ------- -------- --------
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
------- ------- -------- --------
Operating expenses:
Salaries and wages 13.0 13.2 13.9 13.4
Trade show expense 4.0 4.1 4.0 4.2
Travel expense 1.5 2.0 1.9 2.0
Other operating expense 8.9 9.1 9.8 9.8
Restaurant expenses 6.8 7.1 6.7 7.0
Depreciation and amortization 1.0 .8 1.0 .8
General and administrative 19.4 21.3 19.2 22.1
------- ------- -------- --------
Total expenses 54.6 57.5 56.5 59.3
------- ------- -------- --------
Operating income 45.4 % 42.5 % 43.5 % 40.7 %
Interest and other expense 6.0 6.2 6.2 6.2
------- ------- -------- --------
Income before income taxes 39.4 % 36.3 % 37.3 % 34.5 %
Income tax expense 15.6 14.4 14.8 13.7
------- ------- -------- --------
Net income from continuing operations 23.8 % 21.9 % 22.5 % 20.8 %
======= ======= ======== ========
15
Results of Operations
---------------------
Total revenue decreased from $1,934,323 to $1,852,897 and from $5,728,946 to
$5,440,343 for the three-month and nine-month periods ended September 30, 2010
compared to the corresponding periods in 2009. One-time fees, franchisee fees
and equipment commissions, decreased from $109,773 to $60,378 and increased from
$251,735 to $267,470 during the three-month and nine-month periods ended
September 30, 2010 compared to the corresponding periods in 2009. Ongoing
royalties and fees decreased from $1,668,457 to $1,651,697 and from $5,025,930
to $4,759,036 for the three-month and nine-month periods ended September 30,
2010 compared to the corresponding periods in 2009. Of this decrease, $71,733
and $266,273 resulted from traditional franchise closings and $74,704 and
$242,922 resulted from a decrease in ongoing royalties and fees from
non-traditional units, as a result of same store revenue declines primarily in
bowling centers, other than grocery stores for the three-month and nine-month
periods ended September 30, 2010 compared to the corresponding periods in 2009.
These decreases were partially offset by an increase in ongoing royalties and
fees of $129,677 and $242,301 from the grocery store take-n-bake additions for
the comparable periods.
Restaurant revenue decreased from $148,275 to $135,337 and from $405,908 to
$387,644 for the three-month and nine-month periods ended September 30, 2010
compared to the corresponding period in 2009. The Company does not intend to
operate restaurants except for the two locations that it uses for testing and
demonstration purposes.
Salaries and wages increased from 13.0% to 13.2% and decreased from 13.9% to
13.4% of total revenue for the three-month and nine-month periods ended
September 30, 2010, respectively, compared to the corresponding periods in 2009.
The amount of salaries and wages decreased from $252,048 to $244,396 and from
$795,778 to $729,912 for the three-month and nine-month periods ended September
30, 2010 compared to the corresponding periods in 2009 as a result of fewer
employees.
Trade show expenses increased from 4.0% to 4.1% and from 4.0% to 4.2% of total
revenue for the three-month and nine-month periods ended September 30, 2010,
respectively, compared to the corresponding periods in 2009. These increases
were the result of the reductions in revenue. Trade show expenses were $75,463
and $226,304 in the three-month and nine-month periods ended September 30, 2010,
respectively, compared to $77,032 and $229,259 for the corresponding periods in
2009.
Travel expenses increased from 1.5% to 2.0% and from 1.9% to 2.0% of total
revenue for the three-month and nine-month periods ended September 30, 2010,
respectively, compared to the corresponding periods in 2009. The amount of
travel expense increased from $29,927 to $36,362 and from $108,060 to $109,365
for the three-month and nine-month periods ended September 30, 2010,
respectively, compared to the corresponding periods in 2009. The increases were
the result of opening more units, including take-n-bake grocery locations,
further away from the home office.
Other operating expenses increased from 8.9% to 9.1% and remained constant at
9.8% of total revenue for the three-month and nine-month periods ended September
30, 2010, respectively, compared to the corresponding periods in 2009. The
amount of operating expenses decreased from $172,268 to $167,994 and from
$564,158 to $534,552 for the three-month and nine-month periods ended September
30, 2010, respectively, compared to the corresponding periods in 2009. These
decreases in operating expenses were the result of the Company's efforts to
control expenses.
16
Restaurant expenses increased from 6.8% to 7.1% and from 6.7% to 7.0% of total
revenue for the three-month and nine-month periods ended September 30, 2010,
respectively, compared to the corresponding periods in 2009. These increases
were the result of a decrease in total revenue. The amount of expenses slightly
decreased in both periods. The Company operates two locations for testing and
demonstration purposes.
General and administrative expenses increased from 19.4% to 21.3% and from 19.2%
to 22.1% of total revenue for the three-month and nine-month periods ended
September 30, 2010, respectively, compared to the corresponding periods in 2009.
The amount of general and administrative expense increased from $375,158 to
$394,227 and from $1,097,917 to $1,204,003 for the three-month and nine-month
periods ended September 30, 2010, respectively, compared to the corresponding
periods in 2009. The increase in year-to-date expenses was the result of an
increase in legal expenses of $59,467 primarily as a result of the cost of the
Company's annual meeting of shareholders and related investor relations matters,
an increase of rent expense of $50,689 and an increase in Directors' fees of
$18,000 as a result of increasing the size of the Board of Directors. Those
increases were partially offset by a reduction of $22,070 in all other expenses.
The Company had no rent expense for the first three months in 2009 due to the
building housing the Company's leased offices being under massive remodeling.
The Company's former office lease expired in December 2008 and the new lease did
not commence until the remodel was complete in April 2009.
Total expenses increased from 54.6% to 57.5% and from 56.5% to 59.3% of total
revenue for the three-month and nine-month periods ended September 30, 2010,
respectively, compared to the corresponding periods in 2009. The amount of
expenses increased from $1,057,696 to $1,064,488 and from $3,237,159 to
$3,225,643 for the three-month and nine-month periods ended September 30, 2010,
respectively, compared to the corresponding periods in 2009. These increases
were the result of an increase in general administrative expense, as explained
above, mostly offset by decreases in other expenses due to the Company's efforts
to control expenses, while the percentage increases were the result of the
reduction in revenue as explained above.
Operating income decreased from 45.4% to 42.5% and from 43.5% to 40.7% of total
revenue for the three-month and nine-month periods ended September 30, 2010,
respectively, compared to the corresponding periods in 2009. The primary reason
for this decrease was the reduction in total revenue, as explained above, with
only a slight increase in total expenses as explained in the previous paragraph.
Interest expense remained nearly constant at approximately 6.2% of total revenue
for the three-month and nine-month periods ended September 30, 2010 and 2009.
This was the result of a combination of a decrease in notes payable outstanding
and lower interest rates offset by a decrease in revenue as explained above
Net income from continuing operations decreased from $459,535 to $406,710 and
from $1,291,529 to $1,133,050 for the three-month and nine-month periods ended
September 30, 2010, respectively, compared to the corresponding periods in 2009.
The primary reason for this decrease was the decrease in revenue with only a
slight increase in expenses as previously explained.
Loss from discontinued operations was $935,237 in the three-month and nine-month
periods ended September 30, 2010 and none in the corresponding periods in 2009.
In 2008, the Company accrued for estimated cost to defend the Heyser lawsuit
described in Note 4 to the accompanying financial statements, however, that
estimate was insufficient and an additional accrual was required. Additionally,
in reviewing accounts receivable, various receivables originated in 2007 and
17
2008 relating to the operations that were discontinued in 2008 were determined
to be doubtful of collection, therefore, charged to loss on discontinued
operations.
Liquidity and Capital Resources
-------------------------------
The Company's current strategy is to grow its business by concentrating on
franchising new non-traditional locations, licensing convenience stores to add
Noble Roman's to their locations pursuant to a license agreement, licensing
grocery stores to sell take-n-bake pizza in all of their locations and to sell
recently developed retail products through grocery stores. The Company developed
a licensing concept for convenience stores, take-n-bake pizza for grocery stores
and other retail products to sell through grocery stores all as a means to
accelerate non-traditional unit growth and as a way to increase revenue without
any 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 1.3-to-1 as of September 30, 2010 compared to
1.8-to-1 at December 31, 2009.
At various times during the nine-month period ended September 30, 2010, Paul W.
Mobley, the Company's Chairman of the Board and Chief Executive Officer, loaned
a total of $735,500 to the Company to help fund $1,125,000 in principal payments
to the bank and $568,052 in payments related to discontinued operations. The
payments related to the discontinued operations were largely for legal fees
related to the Heyser case, which is described in Note 4 of the accompanying
financial statements. On November 1, 2010, the amounts advanced to the Company
were consolidated, along with accrued interest at 8% per annum, in a promissory
note in the amount of $765,821. The note provides for interest to be paid
monthly on the unpaid principal balance of the note beginning December 1, 2010,
and continuing on the first day of each calendar month thereafter until the note
is paid in full, at the rate of 8% per annum. In addition, the note requires
principal payments commencing on July 1, 2011 and on the first day of each
calendar month thereafter up to and including January 1, 2012 in the amount of
$100,000 per month. The remaining outstanding principal and accrued interest is
due to be paid on February 1, 2012.
On November 9, 2010, the Company entered into a Second Amendment to Loan
Agreement (the "Amendment") with Wells Fargo that amended the existing Loan
Agreement between the Company and Wells Fargo. Pursuant to the Amendment, Wells
Fargo agreed to defer principal payments on the outstanding notes payable to the
bank for the months of October through December 2010. The Amendment further
provides that those deferred payments are to be made up with an additional
$75,000 in principal per month from April 1, 2011 through August 1, 2011. In
addition, the interest rate under the note payable was changed from LIBOR plus
3.75% per annum to LIBOR plus 4.25% per annum.
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, the growth in the
number of grocery store locations licensed to sell the take-n-bake pizza and the
recent introduction of the additional retail products for grocery stores
including pasta sauce, deep-dish lasagna with Italian sausage, grated parmesan
cheese, cheesy stix and spicy cheese dip.
18
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, the current litigation with certain former traditional
franchisees, non-renewal of franchise agreements, shifts in market demand,
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, the impact of competitors' actions and
changes in prices or supplies of food ingredients and labor as well as the
factors discussed under "Risk Factors" in the Company's annual report on Form
10-K for the year-ended December 31, 2009. In addition, the Company has no
previous experience selling its products to retail channels and there can be no
assurance that grocers will stock them or that customers will buy them. 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, 2010, the Company had outstanding
interest-bearing debt in the aggregate principal amount of $4.5 million. The
Company's current borrowings are at a variable rate tied to the London Interbank
Offered Rate ("LIBOR") plus 4.25% per annum 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%. Based upon the
principal balance outstanding as of November 5, 2010 of $4.5 million for each
1.0% increase in LIBOR, the Company would incur increased interest expense of
approximately $20,156 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.
19
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 on June 19, 2008 (Cause No. 29D01 0806 PL
739). The Plaintiffs are former franchisees of the Company's traditional
location venue. Originally, the Plaintiffs in this case were Kari and Fred
Heyser and Meck Enterprises, LLC, Shawn and Jamie White and Casual Concepts of
Texas, LLC, Afifa Abdelmalek and St. Markorios Corporation, Robert and Kathleen
Hopkins and Withmere Restaurants, LLC, John and Mariann Dunn and D & G
Restaurant, LLC, Jason Clark and Nican Enterprises, LLC, Thomas A. Brintle and
Noble Roman's Mt. Airy 100, LLC, Marikate and Paul Morris and Kapza, Inc., Kim
Neal and Mopan Commerce, Inc., and Collett Eugene Harrington and Sazzip, LLC.
Since the initiation of this lawsuit, however, Plaintiffs Marikate and Paul
Morris and Kapza, Inc. have voluntarily dismissed their claims against the
Company and the Court has issued an Order finding Plaintiffs Henry and Brenda
Villasenor and H&B Villasenor Investments, Inc.in Contempt of Court and has
accordingly dismissed with prejudice the claims filed by the Villasenor
Plaintiffs in this action.
The Defendants in this action originally were the Company, certain of the
Company's officers, namely, Paul W. Mobley, A. Scott Mobley, Troy Branson, and
Mitch Grunat, and co-Defendants, CIT Small Business Lending Corporation and PNC
Bank. The claims against co-Defendants CIT Small Business Lending Corporation
and PNC Bank have since been dismissed with prejudice.
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 seek
compensatory and punitive damages. In the Complaint, the Plaintiffs that remain
in the case claim damages collectively in the amount of $5.1 million. In
addition, some claims include punitive damages, court costs and/or prejudgment
interest. Discovery was completed July 19, 2010. To date, all of the Plaintiffs
remaining in the case have been deposed except the Soltero Plaintiffs.
Plaintiffs' counsel withdrew his representation on behalf of the Soltero
Plaintiffs and counsel for Defendants has been unable to locate the Soltero
Plaintiffs. Therefore, the Soltero Plaintiffs remain parties to this action and
remain unrepresented by counsel.
The Company filed a Counter-Claim for Damages against all of the Plaintiffs in
the approximate amount of $3.6 million plus attorney's fees, cost of collection
and punitive damages in certain instances.
The Company also filed a Motion for Partial Summary Judgment as to several
claims in the Complaint, which the Court granted in September, 2009. In
February, 2010, counsel for the Plaintiffs filed a Notice of Appeal with the
Indiana Court of Appeals as to the Partial Summary Judgment granted by the
Court. On August 19, 2010, the Court of Appeals issued a ruling affirming the
Judgment of the Trial Court. On September 20, 2010, Plaintiffs filed a Petition
for a Rehearing with the Indiana Court of Appeals, which the Court denied on
October 25, 2010.
Defendants have filed Motions for Summary Judgment as to all of the Plaintiffs
remaining in the case, based primarily on their deposition testimony and the
lack of evidence substantiating the Plaintiffs' claims. Plaintiffs filed a
consolidated Response to the Motions for Summary Judgment as to ten of the
Plaintiff groups. The Soltero Plaintiffs and Heyser Plaintiffs did not file a
Response to the Motion for Summary Judgment; therefore, Defendants Motions for
Summary Judgment as to those two Plaintiff groups are unopposed. After receiving
Plaintiffs' Consolidated Response to the Motions for Summary Judgment,
20
Defendants filed Reply Briefs in support of their Motions for Summary Judgment
against each of the ten Plaintiff groups included in the Response. In the Reply
Briefs, Defendants asked the Court to: 1) strike the improperly designated and
inadmissible materials including affidavits by each of the Plaintiffs which were
in conflict with their sworn testimony; 2) strike their statement of fact
section as failing to comply with Indiana Trial Rule 56; 3) strike arguments
about other states' laws as an improper and belated attempt to amend the
Complaint; 4) strike Plaintiffs' choice of law arguments which includes
arguments that have already been decided by the trial court and the Indiana
Court of Appeals; and 5) enter summary judgment in favor of Defendants. A
hearing on Defendants' Motions for Summary Judgment has been set for November
22, 2010.
The Defendants' counterclaims against all of the original Plaintiffs are still
pending. While the counterclaims against the individuals Paul and Marikate
Morris and Kari and Fred Heyser, were stayed due to their bankruptcy filings in
their individual capacities, the counterclaims against their corporate entities,
Kapza, Inc., and Meck Enterprises LLC, respectively, remain pending as the
corporate entities did not file for bankruptcy. Similarly, the counterclaims
against the Villasenor Plaintiffs also remain pending and were not affected by
the court's order dismissing that Plaintiff group with prejudice.
Other than as disclosed above, the Company is involved in no other litigation
requiring disclosure.
ITEM 5. Other Information.
At various times during the nine-month period ended September 30, 2010, Paul W.
Mobley, the Company's Chairman of the Board and Chief Executive Officer, loaned
a total of $735,500 to the Company to help fund $1,125,000 in principal payments
to the bank and $568,052 in payments related to discontinued operations. The
payments related to the discontinued operations were largely for legal fees
related to the Heyser case, which isdescribed in Note 4 of the accompanying
financial statements. On November 1, 2010, the amounts advanced to the Company
were consolidated, along with accrued interest at 8% per annum, in a promissory
note in the amount of $765,821. The note provides for interest to be paid
monthly on the unpaid principal balance of the note beginning December 1, 2010,
and continuing on the first day of each calendar month thereafter until the note
is paid in full, at the rate of 8% per annum. In addition, the note requires
principal payments commencing on July 1, 2011 and on the first day of each
calendar month thereafter up to and including January 1, 2012 in the amount of
$100,000 per month. The remaining outstanding principal and accrued interest is
due to be paid on February 1, 2012.
On November 9, 2010, the Company entered into a Second Amendment to Loan
Agreement (the "Amendment") with Wells Fargo that amended the existing Loan
Agreement between the Company and Wells Fargo. Pursuant to the Amendment, Wells
Fargo agreed to defer principal payments on the outstanding notes payable to the
bank for the months of October through December 2010. The Amendment further
provides that those deferred payments are to be made up with an additional
$75,000 in principal per month from April 1, 2011 through August 1, 2011. In
addition, the interest rate under the note payable was changed from LIBOR plus
3.75% per annum to LIBOR plus 4.25% per annum.
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 10, 2010 By: /s/ Paul W. Mobley
-----------------------------------------
Paul W. Mobley, Chairman of the Board and
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
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 November 15,
1994 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 November 15,
1994 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 9, 2010, filed herewith.
10.8 Promissory Note dated November 1, 2010, issued by the Company
in favor of Paul W. Mobley, filed herewith.
21.1 Subsidiaries of the Registrant filed in the Registrant's
Registration Statement on Form SB-2 (SEC File No. 33-66850)
ordered effective on October 26, 1993, is incorporated herein
by reference.
31.1 C.E.O. and C.F.O. Certification under Rule 13a-14(a)/
15d-15(e).
32.1 C.E.O. and C.F.O. Certification under Section 1350.
2
