10-Q 1 nrom_10q.htm FORM 10-Q nrom_10q.htm

   

 

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 March 31, 2024

 

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 of organization)

 

(I.R.S. Employer Identification No.)

 

 

 

6612 E. 75th Street, Suite 450

Indianapolis, Indiana

 

46250

(Address of principal executive offices)

 

(Zip Code)

 

(317) 634-3377

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

N/A

N/A

N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definition of “large accelerated filer,”  “accelerated filer,”  “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act). Yes      No ☒

 

As of June 7, 2024, there were 22,215,512 shares of Common Stock, no par value, outstanding.

 

 

 

 

 

PART I  -  FINANCIAL INFORMATION

 

ITEM 1.  Financial Statements

 

The following unaudited consolidated financial statements are included herein:

 

Consolidated balance sheets as of December 31, 2023 and March 31, 2024 (unaudited)

 

Page 3

 

 

 

Consolidated statements of operations for the three-month periods ended March 31, 2023 and 2024 (unaudited)

 

Page 4

 

 

 

Consolidated statements of changes in stockholders’ equity for the three-month periods ended March 31, 2024 and 2023 (unaudited)

 

Page 5

 

 

 

Consolidated statements of cash flows for the three-month periods ended March 31, 2023 and 2024 (unaudited)

 

Page 6

 

 

 

Condensed notes to consolidated financial statements (unaudited)

 

Page 7

 

 
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Noble Roman's, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

 

Assets

 

December 31,

2023

 

 

March 31,

2024

 

Current assets:

 

 

 

 

 

 

Cash

 

$872,335

 

 

$1,165,078

 

Employee Retention Tax Credit Receivable

 

 

507,726

 

 

 

507,726

 

Accounts receivable - net

 

 

1,169,446

 

 

 

720,303

 

Inventories

 

 

965,819

 

 

 

999,555

 

Prepaid expenses

 

 

318,195

 

 

 

280,710

 

Total current assets

 

 

3,833,521

 

 

 

3,673,372

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

Equipment

 

 

4,386,430

 

 

 

4,399,613

 

Leasehold improvements

 

 

3,130,430

 

 

 

3,136,079

 

 

 

 

7,516,860

 

 

 

7,535,692

 

Less accumulated depreciation and amortization

 

 

3,196,993

 

 

 

3,293,259

 

Net property and equipment

 

 

4,319,867

 

 

 

4,242,433

 

Deferred tax asset

 

 

3,374,841

 

 

 

3,374,841

 

Deferred contract cost

 

 

1,403,299

 

 

 

1,407,286

 

Goodwill

 

 

278,466

 

 

 

278,466

 

Operating lease right of use assets

 

 

4,930,014

 

 

 

4,741,552

 

Other assets including long-term portion of receivables-net

 

 

339,817

 

 

 

288,534

 

Total assets

 

$18,479,825

 

 

$18,006,484

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$1,284,210

 

 

$1,089,045

 

Current portion of operating lease liability

 

 

799,165

 

 

 

817,386

 

Corbel loan payable

 

 

1,000,000

 

 

 

7,028,519

 

Subordinated notes payable

 

 

-

 

 

 

575,000

 

Warrant liability

 

 

540,650

 

 

 

665,150

 

Total current liabilities

 

 

3,624,025

 

 

 

10,175,100

 

 

 

 

 

 

 

 

 

 

Long-term obligations:

 

 

 

 

 

 

 

 

Term loan payable to Corbel net of current portion

 

 

6,133,691

 

 

 

-

 

Convertible notes payable

 

 

575,000

 

 

 

-

 

Operating lease liabilities - net of short-term portion

 

 

4,378,927

 

 

 

4,167,011

 

Deferred contract income

 

 

1,577,299

 

 

 

1,556,976

 

Total long-term liabilities

 

 

12,664,917

 

 

 

5,723,987

 

Total liabilities

 

$16,288,942

 

 

$15,899,087

 

See Note 7 regarding contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock – no par value (40,000,000 shares authorized, 22,215,512 issued and outstanding as of December 31, 2023 and as of March 31, 2024)

 

 

24,840,126

 

 

 

24,843,117

 

Accumulated deficit

 

 

(22,649,243)

 

 

(22,735,720)

Total stockholders' equity

 

 

2,190,883

 

 

 

2,107,397

 

Total liabilities and stockholders’ equity

 

$18,479,825

 

 

$18,006,484

 

 

See accompanying condensed notes to consolidated financial statements (unaudited).

 

 
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Noble Roman's, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three-Months Ended

March 31,

 

 

 

2023

 

 

2024

 

Revenue:

 

 

 

 

 

 

Restaurant revenue - company-owned Craft Pizza & Pub

 

$2,090,342

 

 

$1,995,524

 

Restaurant revenue - company-owned non-traditional

 

 

223,381

 

 

 

238,147

 

Franchising revenue

 

 

987,342

 

 

 

1,425,290

 

Administrative fees and other

 

 

6,738

 

 

 

7,144

 

Total revenue

 

 

3,307,803

 

 

 

3,666,105

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Restaurant expenses - company-owned Craft Pizza & Pub

 

 

1,914,821

 

 

 

1,831,444

 

Restaurant expenses - company-owned non-traditional

 

 

121,830

 

 

 

225,760

 

Franchising expenses (benefit)

 

 

(868,946)

 

 

489,667

 

Total operating expenses

 

 

1,167,705

 

 

 

2,546,871

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

95,517

 

 

 

96,266

 

General and administrative expenses

 

 

518,832

 

 

 

577,286

 

Defense against activist shareholder

 

 

-

 

 

 

13,479

 

Total expenses

 

 

1,782,054

 

 

 

3,233,902

 

Operating income

 

 

1,525,749

 

 

 

432,203

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

383,289

 

 

 

394,180

 

Change in fair value of warrants

 

 

-

 

 

 

124,500

 

Income (loss) before income taxes

 

 

1,142,460

 

 

 

(86,477)

Income tax expense (benefit)

 

 

274,190

 

 

 

-

 

Net income (loss)

 

$868,270

 

 

$(86,477)

 

 

 

 

 

 

 

 

 

Earnings per share - basic

 

 

 

 

 

 

 

 

Net income (loss)

 

$0.04

 

 

$(0.00)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

22,215,512

 

 

 

22,215,512

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

Net income (loss) (1)

 

$0.04

 

 

$(0.00)

Weighted average number of common shares outstanding

 

 

23,628,012

 

 

 

22,215,512

 

 

(1) Net loss per share is shown same as basic loss per share because the underlying dilutive securities have anti-dilutive effect.

 

See accompanying condensed notes to consolidated financial statements (unaudited).

 

 
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Noble Roman's, Inc. and Subsidiaries

Consolidated Statements of Changes in

Stockholders' Equity

(Unaudited)

 

Three Months Ended March 31, 2024:

 

 

 

Common Stock  

 

 

Accumulated

 

 

 

 

 

 Shares  

 

 

     Amount

 

 

Deficit

 

 

Total

 

Balance at December 31, 2023

 

 

22,215,512

 

 

$24,840,126

 

 

$(22,649,243)

 

$2,190,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of value of stock options

 

 

 

 

 

 

2,991

 

 

 

 

 

 

 

2,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for three months ended March 31, 2024

 

 

-

 

 

 

-

 

 

 

(86,477)

 

 

(86,477)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2024

 

 

22,215,512

 

 

$24,843,117

 

 

$(22,735,720)

 

$2,107,397

 

 

Three Months Ended March 31, 2023:

 

 

 

Common Stock

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Total

 

Balance at December 31, 2022, as restated

 

 

22,215,512

 

 

$24,819,736

 

 

$(24,109,527)

 

$710,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of value of stock options

 

 

 

 

 

6,395

 

 

 

 

 

 

 

6,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for three months ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

868,270

 

 

 

868,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2023, as restated

 

 

22,215,512

 

 

$24,826,131

 

 

$(23,241,257)

 

$1,584,874

 

 

See accompanying condensed notes to consolidated financial statements (unaudited)

 

 
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Noble Roman's, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

OPERATING ACTIVITIES

 

Three Months Ended

March 31,

 

 

 

2023

 

 

2024

 

Net income (loss)

 

$868,270

 

 

$(86,477)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Change in fair value of warrants

 

 

-

 

 

 

124,500

 

Amortization of value of stock options

 

 

6,395

 

 

 

2,991

 

Depreciation and amortization

 

 

194,857

 

 

 

212,051

 

Amortization of lease cost in excess of cash paid in accordance with ASU 2016-02

 

 

25,253

 

 

 

15,818

 

Deferred income taxes

 

 

274,190

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

 

 

Employee Retention Tax Credit

 

 

(1,460,444)

 

 

-

 

Accounts receivable

 

 

(27,134)

 

 

449,143

 

Inventories

 

 

(8,821)

 

 

(33,736)

Prepaid expenses

 

 

23,453

 

 

 

37,485

 

Other assets including long-term portion of receivables

 

 

(27,422)

 

 

51,283

 

Decrease in deferred contract income

 

 

-

 

 

 

(20,306)

Increase in deferred contract cost

 

 

-

 

 

 

3,987

 

Decrease in accounts payable and accrued expenses

 

 

(60,834)

 

 

(195,164)

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

 

 

(192,237)

 

 

561,575

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(13,336)

 

 

(18,832)

NET CASH USED IN INVESTING ACTIVITIES

 

 

(13,336)

 

 

(18,832)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Principal payment on Corbel loan

 

 

(116,667)

 

 

(250,000)

NET CASH USED BY FINANCING ACTIVITIES

 

 

(116,667)

 

 

(250,000)

 

 

 

 

 

 

 

 

 

(Decrease) Increase in cash

 

 

(322,240)

 

 

292,743

 

Cash at beginning of period

 

 

785,523

 

 

 

872,335

 

Cash at end of period

 

$463,283

 

 

$1,165,078

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of investing and financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest  

 

$271,160

 

 

$278,395

 

 

See accompanying condensed notes to consolidated financial statements (unaudited)   

 

 
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Condensed Notes to Consolidated Financial Statements (Unaudited)

 

Note 1 - The accompanying unaudited interim 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 consolidated statements have been prepared in accordance with the Company’s accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) 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 three-month period ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024.  

 

Significant Accounting Policies

 

During the first quarter of 2023 the Company determined that it is entitled to an Employee Retention Tax Credit (“ERTC”) of $1.718 million and has submitted amended Federal Form 941 returns claiming that refund.  The ERTC refund is treated as a government grant reducing appropriate expenses for the $1.718 million less expenses for applying for the refund of $258,000, or a net of $1.460 million, which primarily affected franchising venue as other operating expenses, a much smaller amount to general and administrative expenses and approximately $83,000 of the refund was to the Company’s subsidiary, RH Roanoke. This refund applied both to Noble Roman’s, Inc. and its subsidiary, RH Roanoke, Inc.  Although the refund was recorded in the first quarter of 2023, it effectively reimbursed for expenses and lost revenue that occurred over several prior quarters which distorts the comparability of the first quarter of 2024 with  the first quarter of 2023. To date the Company has received all five quarterly refunds for Roanoke, Inc. and three refunds for 2020 and one of the two quarterly refunds for 2021 for Noble Roman’s, Inc. In recent communications, the Internal Revenue Service (the “IRS”), indicated the final refund claim had been received and was in process, but the IRS had put a temporary hold on all additional returns while the IRS addresses administrative issues in processing refunds generally.

 

There have been no significant changes in the Company's accounting policies from those disclosed in the 2023 Form 10-K.

 

Note 2 – As discussed in Note 2 of the Form 10-K for the year ended December 31, 2023, accounts payable and other accrued expenses along with accumulated deficit were restated for the first quarter of 2023 to reflect the balances carried forward from the restated 2022.

 

 
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Note 3 – Inventory.

 

Inventory consists of ingredient inventory used to make products in the Company-owned restaurants, marketing materials to sell to franchisees and equipment inventory to be used in future locations.  At March 31, 2024 and 2023 inventory consisted of the following:

 

 

 

As of 3/31/24

 

 

As of 3/31/23

 

Ingredient inventory used to make products in company locations

 

$182,991

 

 

$191,267

 

Marketing materials

 

 

35,692

 

 

 

29,072

 

Equipment inventory

 

 

780,872

 

 

 

786,350

 

Total

 

$999,555

 

 

$1,006,689

 

 

Note 4 – Royalties and fees included initial franchise fees of $63,779 (after deferring initial fees of $52,500 and amortizing $43,779 of previously deferred fees and receiving $20,000 in transfer fees) for the three-month period ended March 31, 2024, and $60,000 for the three-month period ended March 31, 2023.  Royalties and fees included equipment commissions of $66,585 for the three-month period ended March 31, 2024, and $24,000 for the three-month period ended March 31, 2023.  Royalties and fees, including amortized initial franchise fees and equipment commissions, were $1,456,000 for the three-month period ended March 31, 2024, and $987,000 for the three-month period ended March 31, 2023. Most of the cost for the services required to be performed by the Company are incurred prior to the franchise fee income being recorded, which is based on a contractual liability of the franchisee.

 

The deferred contract income was $1,557,000 and deferred costs were $1,407,000 as of March 31, 2024.

 

At December 31, 2023 and March 31, 2024, the carrying values of the Company’s franchise receivables have been reduced to anticipated realizable value.  After considering this reduction of carrying value, the Company anticipates that substantially all of its accounts receivable reflected on the consolidated balance sheet as of March 31, 2024, will be collected.  

 

During the three-month period ended March 31, 2024 there were no Company-operated or franchised Craft Pizza & Pub restaurants opened or closed.  During the same three-month period 24 new non-traditional outlets opened and two non-traditional outlets closed.

 

Note 5 –   As the Company reported previously, it is pursuing plans to obtain new financing to repay the Corbel loan prior to its maturity in February 2025 and to repay the subordinated notes entirely. There can be no assurance that the Company will be able to refinance the Senior Note on favorable terms or at all. However, based on its credit metrics, including its recent and forecasted earnings before interest, taxes and depreciation and amortization, the Company believes it will be able to complete the refinancing successfully.  The Company expects that the new financing would result in a reduction in the interest rate it currently pays on the Corbel loan and to repay the subordinated convertible notes with full amortization of its loans over a longer term and at a lower rate of interest.

 

Note 6 –  The following table sets forth the calculation of basic and diluted earnings per share for the three-month period ended March 31, 2024.  The comparability of the three months ended March 31, 2024 and the three months ended March 31, 2023 is reduced because net income of $868,270 for the three months ended March 31, 2023 included $1.46 million of expenses reimbursed by the ERTC refund which related to periods before the three months ended March 31, 2023.  Without that refund being recorded in the first quarter of 2023, the Company would have had a net loss of approximately $592,000, or $(.03) per share.  The ERTC refund reflected excess costs and lost revenue incurred by the Company as a result of government restrictions in an attempt to prevent the spread of a novel strain of Coronavirus (“COVID”).

 

 
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Three Months Ended March 31, 2024

 

 

 

Loss

(Numerator)

 

 

Shares

(Denominator)

 

 

Per-Share

Amount

 

Net loss

 

$(86,477)

 

 

22,215,512

 

 

$(0.00)

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

Stock and warrant dilution

 

 

 

 

 

 

142,943

 

 

 

 

 

Convertible notes

 

 

14,375

 

 

 

1,150,000

 

 

-

 

Diluted earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Net loss (1)

 

$(72,102)

 

 

22,215,512

 

 

$(0.00)

 

(1) Net loss per share is shown same as basic loss per share because the underlying dilutive securities have anti-dilutive effect.

 

The following table sets forth the calculation of basic and diluted earnings per share for the three-month period ended March 31, 2023:

 

 

 

Three Months Ended March 31, 2023

 

 

 

Income

(Numerator)

 

 

Shares

(Denominator)

 

 

Per-Share

Amount

 

Net income

 

$868,270

 

 

 

22,215,512

 

 

$0.04

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

Stock option and warrant dilution

 

 

 

 

 

 

162,500

 

 

 

 

 

Convertible notes

 

 

15,625

 

 

 

1,250,000

 

 

-

 

Diluted earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$883,895

 

 

 

23,628,012

 

 

$0.04

 

 

Note 7 – On February 7, 2020, the Company entered into a Senior Secured Promissory Note and Warrant Purchase Agreement (as amended, the “Agreement”) with Corbel Capital Partners SBIC, L.P. (the “Purchaser” or “Corbel”). Pursuant to the Agreement, the Company issued to the Purchaser a senior secured promissory note (as amended, the “Senior Note”) in the initial principal amount of $8.0 million. The Company has used the net proceeds of the Agreement as follows: (i) $4.2 million was used to repay the Company’s then-existing bank debt which was in the original amount of $6.1 million; (ii) $1,275,000 was used to repay the portion of the Company’s existing subordinated convertible debt the maturity date of which most had not previously been extended; (iii) to pay debt issuance costs; and (iv) the remaining net proceeds were used for working capital or other general corporate purposes, including development of new Company-owned Craft Pizza & Pub locations.

 

The Senior Note bears cash interest of SOFR, as defined in the Agreement, plus 7.75% for an aggregate rate of 13.06% at March 31, 2024 and 11.07% at March 31, 2023.  In addition, the Senior Note requires payment-in-kind interest (“PIK Interest”) of 3% per annum, which is being added to the principal amount of the Senior Note. Interest is payable in arrears on the last calendar day of each month.  Beginning in March 2023, the Senior Note requires principal payments of $83,333 per month continuing until maturity in February 2025, all payments were current as of March 31, 2024.

 

In conjunction with the borrowing under the Senior Note, the Company issued to the Purchaser a warrant (as amended, the “Corbel Warrant”) to purchase up to 2,250,000 shares of Common Stock. The Corbel Warrant entitles the Purchaser to purchase from the Company, at any time or from time to time: (i) 1,200,000 shares of Common Stock at an exercise price of $0.30 per share (“Tranche 1”), (ii) 900,000 shares of Common Stock at an exercise price of $0.30 per share (“Tranche 2”), and (iii) 150,000 shares of Common Stock at an exercise price of $0.30 per share (“Tranche 3”). Cashless exercise of the Corbel Warrant is only permitted with respect to Tranche 3. The Purchaser has the right, within six months after the issuance of any shares under the Corbel Warrant, to require the Company to repurchase such shares for cash or for put notes, at the Company's discretion. The Corbel Warrant expires on the seventh anniversary of the date of its issuance. 

 

 
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At March 31, 2024, the balance of the Senior Note was comprised of:

 

Principal

 

$7,349,095

 

Unamortized Warrant Discount and Loan Closing Cost

 

 

(320,576)

Carrying Value

 

$7,028,519

 

 

See Note 8 for change in the value of the warrant.

 

Note payments are all current and in compliance with the covenants.

 

Note 8 – Change in fair value of warrants.  Warrant liability using the Black-Scholes method of calculation was included in the balance sheet on December 31, 2023 as $540,650.  At the end of each quarter, including the quarter ended March 31, 2024, the Company is to revalue the warrant liability according to the Black-Scholes method of calculation.  That calculation determined the warrant liability as of March 31, 2024 was $665,150, therefore a change in the fair value of the warrant of $124,500 was recorded as other non-cash expense on the Consolidated Statement of Operations.

 

Note 9 – The Company, from time to time, is or may become involved in litigation or regulatory proceedings arising out of its normal business operations.

 

Currently, there are no such pending proceedings which the Company considers to be material.

 

There are no commitments to any key executives or officers beyond an employment agreement with each of the Executive Chairman and Chief Financial Officer and the President and Chief Executive Officer.

 

Impact of COVID-19 Pandemic

 

In the first quarter of 2020, COVID emerged and spread throughout the United States. The World Health Organization recognized COVID as a pandemic in March 2020. In response to the pandemic, the U.S. federal government and various state and local governments, among other things, imposed travel and business restrictions, including stay-at-home orders and other guidelines that required restaurants and bars to close or restrict inside dining. The pandemic resulted in significant economic volatility, uncertainty and disruption, reduced commercial activity and weakened economic conditions in the regions in which the Company and its franchisees operate.

 

The pandemic and the governmental response had a significant adverse impact on the Company, due to, among other things, governmental restrictions, reduced customer traffic, staffing challenges and supply difficulties.  Many states and municipalities in the United States, including Indiana where all of the Company-owned Craft Pizza & Pub restaurants are located, have from time to time temporarily restricted travel and suspended the operations of dine-in restaurants and other businesses in light of COVID which negatively affected the Company’s operations. 

 

Host facilities for the Company’s non-traditional franchises were also affected by labor shortages which adversely impacted those developments and in turn slowed the sales of franchises. The uncertainty and disruption in the U.S. economy caused by the pandemic are likely to continue to adversely impact the volume and resources of some potential franchisees for both the Company’s Craft Pizza & Pub and non-traditional venues.

 

As described in Note 1 above, the Company applied for and has received payments in respect of the ERTC provided by the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) enacted to address the economic effects of the pandemic and related shut-down orders imposed on businesses.  Although the refund was recorded in  the first quarter of 2023, it reflected expenses and lost revenue incurred by the Company over several prior quarters which distorts the comparability of the first quarter of 2024 with the first quarter of 2023.

 

 
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Noble Roman’s, Inc., an Indiana corporation incorporated in 1972, sells and services franchises and licenses and operates Company-owned stand-alone restaurants and non-traditional foodservice operations under the trade names “Noble Roman’s Craft Pizza & Pub,” “Noble Roman’s Pizza,” “Noble Roman’s Take-N-Bake,” and “Tuscano’s Italian Style Subs.”  References in this report to the “Company” are to Noble Roman’s, Inc. and its wholly-owned subsidiaries, unless the context requires otherwise.  The Company’s only operating subsidiary is RH Roanoke, Inc., which operates a Company-owned non-traditional location.

 

The Company has been operating, franchising and licensing Noble Roman’s Pizza operations in a variety of stand-alone and non-traditional locations across the country since 1972.  Its first Craft Pizza & Pub location opened in January 2017 as a Company-operated restaurant in a northern suburb of Indianapolis, Indiana.  Since then, the Company opened a total of eight more Company-operated locations in 2017, 2018, 2020 and 2021.  The Company-operated locations serve as the base for what it sees as a significant potential future growth driver, including additional Company operated locations and franchising its full-service restaurant format to experienced, multi-unit restaurant operators with a track record of success.  In 2019, the Company executed an agreement with the first franchise operator, Indiana’s largest Dairy Queen franchisee with 19 franchised Dairy Queen locations at that time.  The franchisee opened the first franchised Craft Pizza & Pub location in May 2019 and another location in November 2020.  In November 2019, another franchisee, with an operations background in McDonald’s, opened a Craft Pizza & Pub in Evansville, Indiana. 

 

As discussed elsewhere in this report, the COVID pandemic materially affected the Company’s business and its franchising strategy since the pandemic emerged during the first quarter of 2020.

 

Noble Roman’s Pizza for Non-Traditional Locations

 

In 1997, the Company started franchising non-traditional locations (a Noble Roman’s pizza operation within some other host business or activity with existing traffic) such as entertainment facilities, hospitals, convenience stores and other types of facilities. These locations utilize the two pizza styles the Company started with in 1972, along with its great tasting, high quality ingredients and menu extensions.

 

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The hallmark of Noble Roman’s Pizza for non-traditional locations is “Superior quality that our customers can taste.”  Every ingredient and process has been designed with a view to produce superior results.  

 

 

·

A fully-prepared pizza crust that captures the made-from-scratch pizzeria flavor which gets delivered to non-traditional locations in a shelf-stable condition so that dough handling is no longer an impediment to a consistent product, which otherwise is a challenge in non-traditional locations.

 

·

Fresh packed, uncondensed and never cooked sauce made with secret spices and vine-ripened tomatoes in all venues.

 

·

100% real cheese blended from mozzarella and Muenster, with no additives or extenders.

 

·

100% real meat toppings, with no soy additives or extenders, a distinction compared to many pizza concepts.

 

·

Vegetables (like onions and green peppers) and mushrooms for pizzas are sliced and delivered fresh, never canned.

 

·

An extended product line that includes breadsticks and cheesy stix with dip, pasta, baked sandwiches, salads, wings and a line of breakfast products.

 

·

The fully-prepared crust also forms the basis for the Company’s Take-N-Bake pizza for use as an add-on component for its non-traditional franchise and licensing base.

 

As discussed under Impact of COVID pandemic above, the franchising section of our revenue declined in 2021 and early 2022 due to the number of government forced closures in an attempt to prevent the spread of COVID.  One segment of the franchising section was made up of a number of franchises located in all types of entertainment facilities such as bowling centers and family entertainment centers.  The regulations were different in different states but for the most part that closing order was in effect for two years after which most of those franchisees did not have the financial means of reopening after that period of time.

 

The Company refocused its development plans toward selling more non-traditional franchises as a result of the pandemic coming to an end and the owners of non-traditional locations becoming more willing to look at expansion options and to invest in their growth.  The focus on selling more non-traditional franchise locations, including several locations with higher than average potential volumes, is proceeding and the Company has sold and still has a significant backlog of prospects to expand the franchise locations.  In October 2023 the Company entered into a Development Agreement with Majors Management, LLC for 100 franchise locations to be developed over the next three years.  Currently Majors Management, LLC has opened approximately 37 of the 100 franchised locations and developed them more rapidly than the required schedule.

 

Noble Roman’s Craft Pizza & Pub

 

The Noble Roman’s Craft Pizza & Pub format incorporates many of the basic elements first introduced in 1972 but in a modern atmosphere with up-to-date baking technology and equipment to maximize speed, enhance quality and perpetuate the taste customers love and expect from a Noble Roman’s.

 

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The Noble Roman’s Craft Pizza & Pub provides for a selection of over 40 different toppings, cheeses and sauces from which to choose.  Beer and wine also are featured, with 16 different beers on tap including both national and local craft selections.  Wines include 16 affordably priced options by the bottle or glass in a range of varietals.  Beer and wine service is provided at the bar and throughout the dining room.

 

The Company designed the system to enable fast cook times, with oven speeds running approximately 2.5 minutes for traditional pizzas and 5.75 minutes for Sicilian pizzas. Popular pizza favorites such as pepperoni are options on the menu but also offered is a selection of Craft Pizza & Pub original pizza creations.  The menu also features a selection of contemporary and fresh, made-to-order salads and fresh-cooked pasta.  The menu also incorporates baked sub sandwiches, hand-sauced wings and a selection of desserts, as well as Noble Roman’s famous Breadsticks with Spicy Cheese Sauce, most of which have been offered in its locations since 1972.  In 2022, new salad bars were rolled out over time across all Company-operated restaurants.

 

Additional enhancements include a glass enclosed “Dough Room” where Noble Roman’s Dough Masters hand make all pizza and breadstick dough from scratch in customer view.  Kids and adults enjoy Noble Roman’s self-serve root beer tap, which is also part of a special menu for customers 12 and younger. Throughout the dining room and the bar area there are many giant screen television monitors for sports and the nostalgic black and white shorts featured in Noble Roman’s since 1972.

 

The Company designed its curbside service for carry-out customers, called “Pizza Valet Service,” to create added value and convenience.  With Pizza Valet Service, customers place orders ahead, drive into the restaurant’s reserved valet parking spaces and have their pizza run to their vehicle by specially uniformed pizza valets.  Customers who pay when they place their orders are able to drive up and leave with their order very quickly without stepping out of their vehicle.  For those who choose to pay after they arrive, pizza valets can take credit card payments on their mobile payment devices right at the customer’s vehicle.  With the fast baking times, the entire experience, from order to pick-up can take as little as 12 minutes.

 

Business Strategy

 

The Company is focused on revenue expansion while carefully managing corporate-level overhead expenses.  The Company refocused its development plans toward selling more non-traditional franchises as a result of the pandemic coming to an end and the owners of non-traditional locations becoming more willing to look at expansion options and to invest in their growth.  The Company has a significant pipeline of leads and prospects for future non-traditional franchise sales as well as a significant number of franchised locations sold but not yet open.

 

The initial franchise fees for a Noble Roman’s Pizza non-traditional location or a Craft Pizza & Pub location are as follows:

 

 

 

Non-Traditional Except Hospitals

 

 

Non-Traditional

Hospitals

 

 

Traditional

Stand-Alone

 

Either a Noble Roman’s Pizza or Craft Pizza & Pub

 

$7,500

 

 

$10,000

 

 

$30,000

 

 

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The franchise fees are paid upon signing the franchise agreement and, when paid, are non-refundable in consideration of the administration and other expenses incurred by the Company in granting the franchises and for the lost and/or deferred opportunities to grant such franchises to any other party.

 

The Company’s proprietary ingredients are manufactured pursuant to the Company’s recipes and formulas by third-party manufacturers under contracts between the Company and its various manufacturers.  These contracts require the manufacturers to produce ingredients meeting the Company’s specifications and to sell them to Company-approved distributors at prices negotiated between the Company and the manufacturer.

 

The Company utilizes distributors it has strategically identified in areas across the United States where Company-owned and franchise operations are located.  The distributor agreements require the distributors to maintain adequate inventories of all ingredients necessary to meet the needs of the Company’s franchisees and licensees in their distribution areas for weekly deliveries.

 

Business Operations

 

Distribution

 

The Company’s proprietary ingredients are manufactured pursuant to the Company’s specifications or recipes by third-party manufacturers under contracts between the Company and its various manufacturers.  These contracts require the manufacturers to produce ingredients meeting the Company’s specifications and to sell them to Company-approved third-party distributors at prices negotiated between the Company and the manufacturer.

 

The Company has third-party distributors strategically located throughout the United States.  The agreements require the distributors to maintain adequate inventories of all ingredients necessary to meet the needs of the Company’s franchisees and licensees in their distribution areas for weekly deliveries to the franchisee.  Each of the primary distributors purchases the ingredients from the manufacturers at prices negotiated between the Company and the manufacturers, but under payment terms agreed upon by the manufacturers and the distributor, and distributes the ingredients to the franchisee at a price determined by the distributor agreement.  Payment terms to the distributor are agreed upon between each franchisee and the respective distributor. 

 

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 value of its assets, including property, equipment and related costs, accounts receivable and deferred tax assets, to assess whether any impairment indications are present.  If any impairment of an individual asset is evident, a charge will be provided to reduce the carrying value to its estimated fair value.

 

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The following table sets forth the revenue, expense and margin contribution of the Company’s Craft Pizza & Pub venue and the percentage relationship to its revenue:

 

 

 

Three Months ended March 31,

 

 

 

2023

 

 

2024

 

Revenue

 

$2,090,342

 

 

 

100.0%

 

$1,995,524

 

 

 

100.0%

Cost of sales

 

 

451,359

 

 

 

21.6

 

 

 

417,610

 

 

 

20.9

 

Salaries and wages

 

 

617,463

 

 

 

29.5

 

 

 

595,042

 

 

 

29.8

 

Facility cost including rent, common area and utilities

 

 

404,824

 

 

 

19.4

 

 

 

389,385

 

 

 

19.5

 

Packaging

 

 

72,028

 

 

 

3.4

 

 

 

62,510

 

 

 

3.1

 

Delivery fees

 

 

31,122

 

 

 

1.5

 

 

 

37,059

 

 

 

1.9

 

All other operating expenses

 

 

338,025

 

 

 

16.2

 

 

 

329,838

 

 

 

16.6

 

Total expenses

 

 

1,914,821

 

 

 

91.6

 

 

 

1,831,444

 

 

 

91.8

 

Margin contribution

 

$175,521

 

 

 

8.4%

 

$164,080

 

 

 

8.2%

 

The following table sets forth the revenue, expense and margin contribution of the Company's franchising venue and the percentage relationship to its revenue:

 

 

 

Three Months ended March 31,

 

 

 

2023

 

 

2024

 

Royalties and fees from franchising

 

$987,342

 

 

 

100%

 

$1,425,290

 

 

 

100%

Salaries and wages

 

 

222,458

 

 

 

22.5

 

 

 

233,893

 

 

 

16.4

 

Trade show expense

 

 

90,200

 

 

 

9.1

 

 

 

60,000

 

 

 

4.2

 

Insurance

 

 

91,175

 

 

 

9.2

 

 

 

72,185

 

 

 

5.1

 

Travel and auto

 

 

32,130

 

 

 

3.3

 

 

 

47,210

 

 

 

3.3

 

All other operating expenses (benefit)

 

 

(1,304,909)

 

 

(132.1)

 

 

76,379

 

 

 

5.4

 

Total expenses

 

 

(868,946)

 

 

(88.0)

 

 

489,667

 

 

 

34.4

 

Margin contribution

 

$1,856,288

 

 

 

188.0%

 

$935,623

 

 

 

65.6%

 

Note:  The credit to all other expenses in 2023 is the result of recording the ERTC in the first of 2023 although much of the reimbursed expenses and lost revenue were incurred by the Company in prior quarters and prior years.

 

The following table sets forth the revenue, expense and margin contribution of the Company-owned non-traditional venue and the percent relationship to its revenue:

 

 

 

Three Months ended March 31,

 

 

 

2023

 

 

2024

 

Revenue

 

$223,381

 

 

 

100.0%

 

$238,147

 

 

 

100%

Total expenses

 

 

121,830

 

 

 

54.5

 

 

 

225,760

 

 

 

94.8

 

Margin contribution

 

$101,551

 

 

 

45.5%

 

$12,387

 

 

 

5.2%

 

Note:  The significant increase in revenue was primarily the result of the hospital releasing most of its pandemic restrictions by allowing employees and guests to travel throughout the hospital.

 

Total expenses were reduced by $83,177 as a result of recording the ERTC in the first quarter of 2023 although the  reimbursed expenses and lost revenue were incurred by the Company  in prior quarters and prior years.

 

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Results of Operations

 

Company-Owned Craft Pizza & Pub

 

The revenue from this venue was $2.0 million for the three months ended March 31, 2024 compared to $2.1 million for the corresponding period in 2023.  In the first quarter of 2024 sales declined about 4.5%, due in part to localized bad weather often on weekends and particularly throughout January and February.  In the winter, while school is in session, sales are heavily skewed towards weekends so bad weather on the weekends can severely impact sales. The weekend beginning February 16, 2024 was the worst with heavy snow impacting the entire day, forcing the early closure of operations.  Separating out January and February and looking only at March, sales were off about 1.7% compared to the corresponding period in 2023.  For the three months ended March 31, 2024 the average check was down approximately 4% compared to the corresponding period in 2023.  Partially offsetting this reduction in average check the guest count increased compared to the corresponding period in 2023.  To a lesser extent, the decrease was also a result of a decrease in third party deliveries. 

 

Cost of sales decreased to 20.9% for the three months ended March 31, 2024 from 21.6% in the corresponding period last year.  This decrease was because of an improvement in the consistency of portioning controls as a result of more experienced employees, despite the inflationary pressures on essentially all products, some with significant price inflation.

 

Salaries and wages increased to 29.8% for the three months ended March 31, 2024 from 29.5% for the comparable period in 2023, was the result of more efficient use of labor due to increased average tenure and experience of the Company’s workforce which mostly offset the significant salary and wage rate increases caused by overall salary and wage inflation.

 

Gross margin contribution decreased slightly to 8.2% for the three months ended March 31, 2024 from 8.4% for the quarter compared to the comparable period last year, which was primarily the result of a decrease in revenue as explained in the paragraph above plus inflationary pressures on most all expenses.    

 

Franchising

 

As described in Note 1 to the accompanying consolidated financial statements, comparability of the franchising venue for the first quarter 2024 to the first quarter of 2023 is difficult because the Company applied for and has received payments in respect of the ERTC provided by the CARES Act enacted to address the economic effects of the pandemic and related shut-down orders imposed on businesses.  Although the refund for extra expenses and lost revenue was recorded in the first quarter of 2023, it actually reimbursed certain expenses and lost revenue incurred by the Company over several quarters.   Most of that reimbursement was recorded as a credit to other operating expenses in the franchising venue although a much smaller portion was recorded in general and administrative expenses and other operating expenses in the Company-owned non-traditional location.

 

The revenue from this venue increased by a significant 44.4% to $1.4 million from $987,000 for the three months ended March 31, 2024 compared to the corresponding period in 2023.  This increase was the result of the significant growth in the number of non-traditional franchises opened during 2023 and continuing at an accelerated pace during 2024.  The Company has a significant pipeline of interested prospects for additional franchise sales and a significant number of franchised locations sold but not yet opened. 

 

Salaries and wages decreased to 16.4% from 25.0% for the comparable period in 2023, primarily related to the growing the number of franchises sold and opened without the necessity of adding additional staff. The Company’s franchising business model allows it to substantially grow the number of opened units with significantly lower levels of matching incremental overhead expense.

 

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Company-Owned Non-Traditional Locations

 

Gross revenue from this venue increased to $238,000 from $223,000 in the three-month period ended March 31, 2024 compared to the corresponding period in 2023.  The primary reason for this increase was the lifting of the restrictions placed on the hospital as a result of the COVID-19 pandemic whereby the hospital was restricted from having outside visitors and staff inside the hospital going from one area of the hospital to another.  The Company does not intend to operate any more Company-owned non-traditional locations except the one location that it is currently operating. 

 

Total expenses for this venue increased to $226,000 from $122,000 for the three-month period ended March 31, 2024 compared to the corresponding period in 2023, as a result of reducing expenses by recording ERTC in this venue by $83,000 in 2023.  

 

Other Expenses

 

Depreciation and amortization remained approximately constant at $96,000 for the three-month periods ended March 31, 2024 and 2023.  The primary reason for this consistency is the fact that no additional new Company-owned locations have opened since late 2021. 

 

General and administrative expenses increased to $577,000 from $519,000 for the three-month period ended March 31, 2024 compared to the corresponding period in 2023.  The primary reason for the increase was the result of 2023 expenses being decreased by certain of the ERTC refunds recorded in first quarter of 2023, as explained above, plus the recording of impairment of value to older assets that had not been used for several years in the amount of $29,231.

 

Interest expense increased to $394,000 from $383,000 for the three-month period ended March 31, 2024 compared to the corresponding period in 2023.  The primary reason for the increase was the addition of non-cash PIK interest to the principal balance of the Senior Note and the increase in the variable rate which was only partially offset by the principal reductions of nearly $1.7 million in the principal amount on the Senior Note since February 2023.  

 

Net loss was $86,477 for the period ended March 31, 2024 compared to $868,000 in net income for the corresponding period in 2023.  As noted above, the comparability of the three months ended March 31, 2024 and the three months ended March 31, 2023 is reduced because the net income of $868,000 for the three months ended March 31, 2023 included $1.46 million of income from the ERTC refund which was a refund for expenses and lost revenue incurred by the Company in periods before March 31, 2023.  Without that refund being recorded in the first quarter of 2023, the Company would have reported a net loss of approximately $592,000, or $(.03) per share for the first quarter of 2023.  For the quarter ended March 31, 2024, the Company recorded a non-cash expense of approximately $125,000 for change in fair value of warrants, non-cash charges for the impairment of some older assets and a non-cash adjustment for allowance receivables. Had it not been for those additional non-cash expenses the Company would have reported a net income of $98,000.

 

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Liquidity and Capital Resources

 

The Company’s current ratio was .4-to-1 as of March 31, 2024 compared to 1.1-to-1 as of December 31, 2023.  As the Company reported previously, it is pursuing plans to obtain new financing to repay the Corbel loan prior to its maturity in February 2025 and to repay the subordinated notes entirely. There can be no assurance that the Company will be able to refinance the Senior Note on favorable terms or at all. However, based on its credit metrics, including its recent and forecasted earnings before interest, taxes and depreciation and amortization, the Company believes it will be able to complete the refinancing successfully.  The Company expects that the new financing would result in a reduction in the interest rate it currently pays on the Corbel loan and to repay the subordinated convertible notes with full amortization of its loans over a longer term and at lower rates of interest.    

 

In January 2017, the Company completed the offering of $2.4 million principal amount of convertible common stock at $0.50 per share and warrants to purchase up to 2.4 million shares of the Company’s Common Stock at an exercise price of $1.00 per share, subject to adjustment. In 2018, $400,000 principal amount of Notes was converted into 800,000 shares of the Company’s Common Stock, in January 2019 another Note in the principal amount of $50,000 was converted into 100,000 shares of the Company’s Common Stock, and in August 2019 another Note in the principal amount of $50,000 was converted into 100,000 shares of the Company’s Common Stock, leaving principal amounts of Notes of $1.9 million outstanding as of December 31, 2019.  Holders of Notes in the principal amount of $775,000 extended their maturity date to January 31, 2023.  In February 2020, $1,275,000 principal amount of the Notes were repaid in conjunction with a new financing leaving a principal balance of $625,000 of subordinated convertible notes outstanding due January 31, 2023. In April 2023, the holder of $50,000 principal amount of the subordinated convertible notes were repaid by the Company leaving $575,000 outstanding.  These Notes bear interest at 10% per annum, including the Notes which have not been extended, paid quarterly and are convertible to Common Stock any time prior to maturity at the option of the holder at $0.30 per share. 

 

In February 2020, the Company entered into the Agreement with Corbel, pursuant to which the Company issued to Corbel the Senior Note in the initial principal amount of $8.0 million. The Company used the net proceeds of the Agreement as follows: (i) $4.2 million to repay the Company’s then-existing bank debt which were in the original amount of $6.1 million; (ii) $1,275,000 to repay the portion of the Company’s existing subordinated convertible debt the maturity date of which most had not previously been extended; (iii) to pay debt issuance costs; and (iv) for working capital and other general corporate purposes, including development of new Company-owned Craft Pizza & Pub locations.

 

The Senior Note bears cash interest of SOFR, as defined in the Agreement, plus 7.75%. In addition, the Senior Note requires PIK Interest of 3% per annum, which is added to the principal amount of the Senior Note. Interest is payable in arrears on the last calendar day of each month. The Senior Note matures on February 7, 2025. The Senior Note, as amended, requires principal payments of $83,333 per month beginning March 2023 and continuing until maturity. In July 2023, the Company has voluntarily prepaid principal of approximately $579,000. 

 

See Note 1 to the Company’s consolidated financial statements for discussion of funds received from the ERC.

 

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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.  The Company’s cash flow projections for the next two years are primarily based on the Company’s strategy of growing the non-traditional franchising/licensing venues, operating Craft Pizza & Pub locations and pursuing a franchising program for Craft Pizza & Pub restaurants as market conditions allow. The Company intends to refinance its outstanding debt payable to Corbel before maturity in February 2025.

 

The Company does not anticipate that any of the recently issued pronouncements relating to the Statement of Financial Accounting Standards will have a material impact on its Consolidated Statement of Operations or its Consolidated 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 indicated by the forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment, including, but not limited to the effects of the COVID pandemic and its aftermath, competitive factors and pricing and cost pressures, non-renewal of franchise agreements or the openings contemplated by the Development Agreement not occurring, the Company’s ability to successfully remediate material weakness in its internal control over financial reporting, shifts in market demand, the success of franchise programs, general economic conditions, changes in demand for the Company’s products or franchises, the Company’s ability to service its loans and refinance the Senior Note before its maturity in 2025, the acceptance of the amended federal Form 941 return relating to the ERC, the impact of franchise regulation, the success or failure of individual franchisees and inflation, other changes in prices or supplies of food ingredients and labor and as well as the factors discussed under “Risk Factors” contained in 2023 Form 10-K.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended.   If activist stockholder activities ensue, the Company business could be adversely impacted.

 

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 March 31, 2024, the Company had outstanding variable interest-bearing debt in the aggregate principal amount of $7.3 million.  The Company’s current borrowings were at a variable rate tied to SOFR plus 7.75% per annum adjusted on a monthly basis. Based on its current debt structure, for each 1% increase in SOFR the Company would incur increased interest expense of approximately $72,000 over the succeeding 12-month period.     

 

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ITEM 4.  Controls and Procedures

 

In connection with the preparation of this quarterly report, management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures are designed only to provide reasonable assurance, and no matter how well designed and operated, there can be no assurance that disclosure controls and procedures will operate effectively in all circumstances. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of March 31, 2024, the Company’s disclosure controls and procedures were not effective based on the criteria in Internal Control – Integrated Framework issued by the COSO, version 2013, as discussed below.

 

Management’s Report on Internal Control Over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s internal control over financial reporting. The Company’s management used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) to perform this evaluation. As a result of this assessment, management identified a material weakness in internal control over financial reporting control environment for accounts payable, and accrued liabilities.  The material weakness resulted in reporting errors requiring a restatement of our consolidated financial statements previously included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Prior Statements”) as described in additional detail in the 2023 Form 10-K.

 

Remediation Effort That Addressed the Material Weakness

 

Management, including our Chief Financial Officer, moved all of the accounts payable and accrued expense accounts into one general ledger account and adopted procedures, including management reviews, to complete reconcile accounts payable and accrued expenses and confirm amounts are balanced to the general ledger on a quarterly basis, beginning with the first quarter of 2024.

 

In addition to the item noted above the Company will continue to evaluate, remediate and improve its internal control over financial reporting.  Except as disclosed above, there have been no changes in internal controls over financial reporting during the period covered by this report materially affected, or are likely to materially affect, the Company’s internal controls or financial reporting.

 

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PART II  -  OTHER INFORMATION

 

ITEM 1. Legal Proceedings.

 

The Company is not involved in material litigation against it.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

ITEM 5. Other Information.

 

Not applicable.

 

ITEM 6. Exhibits.

 

Index to Exhibits

 

 

Exhibit Number  

 

Description

3.1

 

Amended Articles of Incorporation of the Registrant, filed as an exhibit to the Registrant’s Amendment No. 1 to the Post-Effective Amendment No. 2 to Registration Statement on Form S-1 filed July 1, 1985 (SEC File No.2-84150), is incorporated herein by reference.

 

 

 

3.2

 

Amended and Restated By-Laws of the Registrant, as currently in effect, filed as an exhibit to the Registrant’s Form 8-K filed December 23, 2009, is incorporated herein by reference.

 

 

 

3.3

 

Articles of Amendment of the Articles of Incorporation of the Registrant effective February 18, 1992 filed as an exhibit to the Registrant’s Registration Statement on Form SB-2 (SEC File No. 33-66850), ordered effective on October 26, 1993, is incorporated herein by reference.

 

 

 

3.4

 

Articles of Amendment of the Articles of Incorporation of the Registrant effective May 11, 2000, filed as Annex A and Annex B to the Registrant’s Proxy Statement on Schedule 14A filed March 28, 2000, is incorporated herein by reference.

 

 

 

3.5

 

Articles of Amendment of the Articles of Incorporation of the Registrant effective April 16, 2001 filed as Exhibit 3.4 to Registrant’s annual report on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.

 

 

 

3.6

 

Articles of Amendment of the Articles of Incorporation of the Registrant effective August 23, 2005, filed as Exhibit 3.1 to the Registrant’s current report on Form 8-K filed August 29, 2005, is incorporated herein by reference.

 

 

 

3.7

 

 

Articles of Amendment of the Articles of Incorporation of the Registrant effective February 7, 2017, filed as Exhibit 3.7 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 33-217442) filed April 25, 2017, is incorporated herein by reference.

 

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4.1

 

Description of Registered Securities, dated May 11, 2022, filed as Exhibit 4.1 to the Registrant’s Form 10-Q, is incorporated herein by reference.

 

 

 

4.2

 

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.

 

 

 

4.3

 

Warrant to purchase common stock, dated July 1, 2015, filed as Exhibit 10.11 to the Registrant’s Form 10-Q filed on August 11, 2015, is incorporated herein by reference.

 

 

 

4.4

 

Form of Senior Secured Promissory Note issued by Registrant to Corbel Capital Partners SBIC, L.P. dated February 7, 2020, filed as Exhibit 4.3 to Registrant’s annual report on Form 10-K for the year ended December 31, 2019, is incorporated herein by reference.

 

 

 

4.5

 

Form of Warrant issued to Corbel Capital Partners SBIC, L.P. dated February 7, 2020, filed as Exhibit 4.4 to Registrant’s annual report on Form 10-K for the year ended December 31, 2019, 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

 

Agreement dated April 8, 2015, by and among the Registrant and the shareholder parties, filed as Exhibit 10.1 to Registrant’s Form 8-K filed on April 8, 2015, is incorporated herein by reference.

 

 

 

10.4

 

Form of 10% Convertible Subordinated Unsecured note filed as Exhibit 10.16 to the Registrant’s Form 10-K filed on March 27, 2017, is incorporated herein by reference.

 

 

 

10.5

 

Form of Redeemable Common Stock Purchase Class A Warrant filed as Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 33-217442) on April 25, 2017, is incorporated herein by reference.

 

 

 

10.6

 

Registration Rights Agreement dated October 13, 2016 by and between the Registrant and the investors signatory thereto, filed as Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 33-217442) on April 25, 2017, is incorporated herein by reference.

 

 

 

10.7

 

First Amendment to the Registration Rights Agreement dated February 13, 2017 by and between the Registrant and the investors signatory thereto, filed as Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 33-217442) on April 25, 2017, is incorporated herein by reference.

 

 

 

10.8

 

Senior Secured Note and Warrant Purchase Agreement dated February 7, 2020 by and between the Registrant and Corbel Capital Partners SBIC, L.P. filed as Exhibit 10.11 to Registrant’s annual report on Form 10-K for the year ended December 31, 2019 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. Certification under Rule 13a-14(a)/15d-14(a)

 

 

 

31.2

 

C.F.O. Certification under Rule 13a-14(a)/15d-14(a)

 

 

 

32.1

 

C.E.O. Certification under 18 U.S.C. Section 1350

 

 

 

32.2

 

C.F.O. Certification under 18 U.S.C. Section 1350

 

 

 

101

 

Interactive Financial Data

 

*Management contract or compensation plan.

 

 
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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: June 12, 2024

By:

/s/ Paul W. Mobley

 

 

 

Paul W. Mobley, Executive Chairman,

Chief Financial Officer and Principal

Accounting Officer (Authorized Officer and

 

 

 

Principal Financial Officer)

 

 

 
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