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, 2022March 31, 2023
Commission file number: 0-11104
NOBLE ROMAN’S, |
(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 | ☐ |
| ☒ | Smaller Reporting Company | ☒ |
Emerging Growth Company | ☐ |
|
|
If-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 October 29, 2022,May 8, 2023, there were 22,215,512 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:
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Notes to condensed consolidated financial statements (unaudited) |
| Page | 7 |
2 |
Table of Contents |
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
|
| December 31, 2021 |
|
| September 30, 2022 |
| ||||||||||
Assets | Assets |
|
| December 31, 2022 |
|
| March 31, 2023 |
| ||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash |
| $ | 1,263,513 |
| $ | 742,989 |
|
| $ | 785,522 |
| $ | 463,283 |
| ||
Accounts receivable – net |
| 904,474 |
| 1,031,063 |
| |||||||||||
Employee Retention Tax Credit Receivable |
| - |
| 1,460,444 |
| |||||||||||
Accounts receivable - net |
| 824,091 |
| 851,225 |
| |||||||||||
Inventories |
| 994,085 |
| 1,011,835 |
|
| 997,868 |
| 1,006,689 |
| ||||||
Prepaid expenses |
|
| 415,309 |
|
|
| 471,646 |
|
|
| 424,822 |
|
|
| 401,369 |
|
Total current assets |
|
| 3,577,381 |
|
|
| 3,257,533 |
|
|
| 3,032,303 |
|
|
| 4,183,010 |
|
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|
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|
| ||||||
Property and equipment: |
|
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| ||||||
Equipment |
| 4,216,246 |
| 4,340,277 |
|
| 4,351,558 |
| 4,358,367 |
| ||||||
Leasehold improvements |
| 3,065,644 |
| 3,115,007 |
|
| 3,116,030 |
| 3,127,880 |
| ||||||
Construction and equipment in progress |
|
| 235,051 |
|
|
| 259,882 |
|
|
| 63,097 |
|
|
| 57,774 |
|
|
| 7,516,941 |
| 7,715,166 |
|
| 7,530,685 |
| 7,544,021 |
| ||||||
Less accumulated depreciation and amortization |
|
| 2,366,927 |
|
|
| 2,704,922 |
|
|
| 2,817,477 |
|
|
| 2,912,993 |
|
Net property and equipment |
|
| 5,150,014 |
|
|
| 5,010,244 |
|
|
| 4,713,208 |
|
|
| 4,631,028 |
|
Deferred tax asset |
| 3,232,406 |
| 3,294,319 |
|
| 3,374,841 |
| 3,100,651 |
| ||||||
Deferred contract cost |
| 810,044 |
| 878,363 |
|
| 934,036 |
| 943,109 |
| ||||||
Goodwill |
| 278,466 |
| 278,466 |
|
| 278,466 |
| 278,466 |
| ||||||
Operating lease right of use assets |
| 6,003,044 |
| 5,832,875 |
|
| 5,660,155 |
| 5,484,455 |
| ||||||
Other assets including long-term portion of receivables – net |
|
| 324,402 |
|
|
| 407,115 |
| ||||||||
Other assets including long-term portion of receivables-net |
|
| 350,189 |
|
|
| 377,611 |
| ||||||||
Total assets |
| $ | 19,375,757 |
|
| $ | 18,958,915 |
|
| $ | 18,343,198 |
|
| $ | 18,998,330 |
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| ||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
| $ | 919,157 |
| $ | 403,402 |
|
| $ | 650,582 |
| $ | 598,748 |
| ||
Current portion of operating lease liability |
| 656,146 |
| 700,516 |
|
| 799,164 |
| 799,164 |
| ||||||
Current portion of Corbel loan payable |
|
| - |
|
|
| 266,664 |
|
|
| 866,667 |
|
|
| 1,000,000 |
|
Total current liabilities |
|
| 1,575,303 |
|
|
| 1,370,582 |
|
|
| 2,316,413 |
|
|
| 2,397,912 |
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Long-term obligations: |
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| ||||||
Term loan payable to Corbel – net of current portion |
| 7,898,941 |
| 7,959,959 |
| |||||||||||
Term loan payable to Corbel |
| 7,470,900 |
| 7,330,892 |
| |||||||||||
Corbel warrant value |
| 29,037 |
| 29,037 |
|
| 29,037 |
| 29,037 |
| ||||||
Convertible notes payable |
| 597,229 |
| 616,455 |
|
| 622,864 |
| 625,000 |
| ||||||
Operating lease liabilities – net of current portion |
| 5,570,639 |
| 5,370,921 |
| |||||||||||
Operating lease liabilities - net of short-term portion |
| 5,103,286 |
| 4,931,053 |
| |||||||||||
Deferred contract income |
|
| 810,044 |
|
|
| 878,363 |
|
|
| 934,036 |
|
|
| 943,109 |
|
Total long-term liabilities |
|
| 14,905,890 |
|
|
| 14,854,735 |
|
|
| 14,160,123 |
|
|
| 13,859,091 |
|
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|
|
|
|
|
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|
|
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| ||||||
Stockholders’ equity: |
|
|
|
|
| |||||||||||
Common stock – no par value (40,000,000 shares authorized, 22,215,512 issued and outstanding as of December 31, 2021 and as of September 30, 2022) |
| 24,791,568 |
| 24,813,707 |
| |||||||||||
Stockholders' equity: |
|
|
|
|
| |||||||||||
Common stock – no par value (40,000,000 shares authorized, 22,215,512 issued and outstanding as of December 31, 2022 and as of March 31, 2023) |
| 24,819,736 |
| 24,826,130 |
| |||||||||||
Accumulated deficit |
|
| (21,897,004 | ) |
|
| (22,080,109 | ) |
|
| (22,953,074 | ) |
|
| (22,084,803 | ) |
Total stockholders’ equity |
|
| 2,894,564 |
|
|
| 2,733,598 |
| ||||||||
Total stockholders' equity |
|
| 1,866,662 |
|
|
| 2,741,327 |
| ||||||||
Total liabilities and stockholders’ equity |
| $ | 19,375,757 |
|
| $ | 18,958,915 |
|
| $ | 18,343,198 |
|
| $ | 18,998,330 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
3 |
Table of Contents |
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
|
| Three months ended September 30, |
| Nine months ended September 30, |
|
| Three-Months Ended March 31, |
| ||||||||||||||||
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
|
| 2023 |
| ||||||
Revenue: |
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| ||||||||||
Restaurant revenue - company-owned restaurants |
| $ | 2,122,352 |
| $ | 2,587,182 |
| $ | 6,495,788 |
| $ | 7,374,143 |
| |||||||||||
Restaurant revenue - company-owned Craft Pizza & Pub |
| $ | 2,283,598 |
| $ | 2,090,342 |
| |||||||||||||||||
Restaurant revenue - company-owned non-traditional |
| 120,316 |
| 195,647 |
| 353,617 |
| 505,891 |
|
| 133,129 |
| 223,381 |
| ||||||||||
Franchising revenue |
| 1,177,776 |
| 1,119,793 |
| 3,430,995 |
| 3,218,401 |
|
| 1,034,244 |
| 987,342 |
| ||||||||||
Administrative fees and other |
|
| 3,734 |
|
|
| 5,961 |
|
|
| 10,803 |
|
|
| 25,226 |
|
|
| 14,215 |
|
|
| 6,738 |
|
Total revenue |
| 3,424,178 |
| 3,908,583 |
| 10,291,203 |
| 11,123,661 |
|
| 3,465,186 |
| 3,307,803 |
| ||||||||||
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| ||||||||||
Operating expenses: |
|
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|
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| ||||||||||
Restaurant expenses - company-owned restaurants |
| 1,893,721 |
| 2,195,261 |
| 5,058,358 |
| 6,416,679 |
| |||||||||||||||
Restaurant expenses - company-owned Craft Pizza & Pub |
| 2,058,529 |
| 1,914,821 |
| |||||||||||||||||||
Restaurant expenses - company-owned non-traditional |
| 126,765 |
| 201,013 |
| 334,579 |
| 503,639 |
|
| 132,877 |
| 121,830 |
| ||||||||||
Franchising expenses |
|
| 491,798 |
|
|
| 499,478 |
|
|
| 1,313,472 |
|
|
| 1,444,073 |
| ||||||||
Franchising expenses (benefit) |
|
| 461,355 |
|
|
| (868,946 | ) | ||||||||||||||||
Total operating expenses |
| 2,512,284 |
| 2,895,752 |
| 6,706,409 |
| 8,364,391 |
|
|
| 2,652,761 |
|
|
| 1,167,705 |
| |||||||
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|
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| ||||||||||
Depreciation and amortization |
| 142,133 |
| 112,555 |
| 448,892 |
| 337,994 |
|
| 112,753 |
| 95,517 |
| ||||||||||
General and administrative expenses |
|
| 505,992 |
|
|
| 518,416 |
|
|
| 1,286,530 |
|
|
| 1,598,689 |
|
|
| 540,530 |
|
|
| 518,832 |
|
Total expenses |
|
| 3,160,409 |
|
|
| 3,526,723 |
|
|
| 8,441,831 |
|
|
| 10,301,074 |
|
|
| 3,306,044 |
|
|
| 1,782,054 |
|
Operating income |
|
| 263,769 |
|
|
| 381,860 |
|
|
| 1,849,372 |
|
|
| 822,587 |
|
| 159,142 |
| 1,525,749 |
| |||
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| ||||||||||
Interest expense |
| 343,184 |
| 378,008 |
| 1,016,214 |
| 1,067,605 |
|
|
| 341,879 |
|
|
| 383,289 |
| |||||||
Income (loss) before income taxes |
|
| (79,415 | ) |
|
| 3,852 |
|
|
| 833,158 |
|
|
| (245,018 | ) |
| (182,737 | ) |
| 1,142,460 |
| ||
Income tax benefit |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (61,913 | ) | ||||||||
Income tax expense (benefit) |
|
| (46,041 | ) |
|
| 274,190 |
| ||||||||||||||||
Net income (loss) |
| $ | (79,415 | ) |
| $ | 3,852 |
|
| $ | 833,158 |
|
| $ | (183,105 | ) |
| $ | (136,696 | ) |
| $ | 868,270 |
|
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| ||||||||||
Earnings per share – basic: |
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Net income (loss) before income tax |
| $ | 0.00 |
| $ | 0.00 |
| $ | 0.04 |
| $ | (0.01 | ) | |||||||||||
Earnings (loss) per share - basic |
|
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Net income (loss) |
| $ | 0.00 |
| $ | 0.00 |
| $ | 0.04 |
| $ | (0.01 | ) |
| $ | (.01 | ) |
| $ | .04 |
| |||
Weighted average number of common shares outstanding |
| 22,215,512 |
| 22,215,512 |
| 22,215,512 |
| 22,215,512 |
|
| 22,215,512 |
| 22,215,512 |
| ||||||||||
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Diluted earnings per share: |
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Net income (loss) before income tax |
| $ | 0.00 |
| $ | 0.00 |
| $ | 0.04 |
| $ | (0.01 | ) | |||||||||||
Diluted earnings (loss) per share: |
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| |||||||||||||||||||
Net income (loss) |
| $ | 0.00 |
| $ | 0.00 |
| $ | 0.04 |
| $ | (0.01 | ) |
| $ | (.01 | ) |
| $ | .04 |
| |||
Weighted average number of common shares outstanding |
| 23,522,028 |
| 23,513,954 |
| 23,522,028 |
| 23,513,954 |
|
| 23,465,512 |
| 23,628,012 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
4 |
Table of Contents |
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in
Stockholders' Equity
(Unaudited)
Nine Months Ended September 30, 2022:
|
| Common Stock |
|
| Accumulated |
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Total |
| ||||
Balance at December 31, 2021 |
|
| 22,215,512 |
|
| $ | 24,791,568 |
|
| $ | (21,897,004 | ) |
| $ | 2,894,564 |
|
|
|
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|
|
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Net loss for nine months ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
| (183,105 | ) |
|
| (183,105 | ) |
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|
|
|
|
|
|
|
|
|
|
Amortization of value of employee stock options |
|
|
|
|
| 22,139 |
|
|
|
|
|
| 22,139 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2022 |
|
| 22,215,512 |
|
| $ | 24,813,707 |
|
| $ | (22,080,109 | ) |
| $ | 2,733,598 |
|
Three Months Ended September 30, 2022:March 31, 2023:
|
| Common Stock |
|
| Accumulated |
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Total |
| ||||
|
|
|
|
|
|
|
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|
|
|
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| ||||
Balance at June 30, 2022 |
|
| 22,215,512 |
|
| $ | 24,807,679 |
|
| $ | (22,083,961 | ) |
| $ | 2,723,718 |
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
Amortization of value of employee stock options |
|
|
|
|
|
| 6,028 |
|
|
|
|
|
|
| 6,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for three months ended September 30, 2022 |
|
|
|
|
|
|
|
| 3,852 |
|
|
| 3,852 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2022 |
|
| 22,215,512 |
|
| $ | 24,813,707 |
|
| $ | (22,080,109 | ) |
| $ | 2,733,598 |
|
|
| Common Stock Shares Amount |
|
| Accumulated Deficit |
|
| Total |
| |||||||
Balance at December 31, 2022 |
|
| 22,215,512 |
|
| $ | 24,819,735 |
|
| $ | (22,953,073 | ) |
| $ | 1,866,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
| 22,215,512 |
|
| $ | 24,826,130 |
|
| $ | (22,084,803 | ) |
| $ | 2,741,327 |
|
Three Months Ended March 31, 2022:
|
| Common Stock Shares Amount |
|
| Accumulated Deficit |
|
| Total |
| |||||||
Balance at December 31, 2021 |
|
| 22,215,512 |
|
| $ | 24,791,568 |
|
| $ | (21,897,004 | ) |
| $ | 2,894,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of value of stock options |
|
|
|
|
|
| 7,623 |
|
|
|
|
|
|
| 7,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for three months ended March 31, 2022 |
|
| - |
|
|
| - |
|
|
| (136,696 | ) |
|
| (136,696 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2022 |
|
| 22,215,512 |
|
| $ | 24,799,191 |
|
| $ | (22,033,700 | ) |
| $ | 2,765,491 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
5 |
Nine Months Ended September 30, 2021:
|
| Common Stock |
|
| Accumulated |
|
|
|
| |||||||
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Total |
| ||||
Balance at December 31, 2020 |
|
| 22,215,512 |
|
| $ | 24,763,447 |
|
| $ | (22,406,469 | ) |
| $ | 2,356,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for nine months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
| 833,158 |
|
|
| 833,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of value of employee stock options |
|
|
|
|
| 20,863 |
|
|
|
|
|
| 20,863 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021 |
|
| 22,215,512 |
|
| $ | 24,784,310 |
|
| $ | (21,573,311 | ) |
| $ | 3,210,999 |
|
Three Months Ended September 30, 2021:
|
| Common Stock |
|
| Accumulated |
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at June 30, 2021 |
|
| 22,215,512 |
|
| $ | 24,776,184 |
|
| $ | (21,493,896 | ) |
| $ | 3,282,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of value of employee stock options |
|
|
|
|
|
| 8,126 |
|
|
|
|
|
|
| 8,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for three months ended September 30, 2021 |
|
|
|
|
|
|
|
| (79,415 | ) |
|
| (79,415 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021 |
|
| 22,215,512 |
|
| $ | 24,784,310 |
|
| $ | (21,573,311 | ) |
| $ | 3,210,999 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Table of Contents |
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
OPERATING ACTIVITIES |
| Three Months Ended March 31, |
| |||||||||||||
|
| Nine months ended September 30, |
|
| 2022 |
|
| 2023 |
| |||||||
|
| 2021 |
|
| 2022 |
| ||||||||||
OPERATING ACTIVITIES |
|
|
|
|
| |||||||||||
Net income (loss) |
| $ | 833,158 |
| $ | (183,105 | ) |
| $ | (136,696 | ) |
| $ | 868,270 |
| |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
| |||||||||||
Depreciation and amortization |
| 807,816 |
| 707,040 |
|
| 234,811 |
| 201,252 |
| ||||||
Amortization of lease cost in excess of cash paid |
| 27,151 |
| 14,821 |
| |||||||||||
Deferred income taxes |
| - |
| (61,913 | ) | |||||||||||
Amortization of lease cost in excess of cash paid in accordance with ASU 2016-02 |
| 6,099 |
| 25,253 |
| |||||||||||
Deferred income taxes (benefit) |
| (46,041 | ) |
| 274,190 |
| ||||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
(Increase) decrease in: |
|
|
|
|
|
|
|
|
|
| ||||||
Employee Retention Tax Credit |
| - |
| (1,460,444 | ) | |||||||||||
Accounts receivable |
| (51,452 | ) |
| (126,589 | ) |
| 18,096 |
| (27,134 | ) | |||||
Inventories |
| (28,612 | ) |
| (17,750 | ) |
| (6,363 | ) |
| (8,821 | ) | ||||
Prepaid expenses |
| 24,068 |
| (56,337 | ) |
| (26,305 | ) |
| 23,453 |
| |||||
Other assets including long-term portion of receivables |
| (55,299 | ) |
| (82,714 | ) |
| (66,407 | ) |
| (27,422 | ) | ||||
(Decrease) in: |
|
|
|
|
| |||||||||||
Accounts payable and accrued expenses |
|
| (395,514 | ) |
|
| (170,512 | ) | ||||||||
Decrease in accounts payable and accrued expenses |
|
| 33,662 |
|
|
| (60,834 | ) | ||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
| 1,161,316 |
|
|
| 22,941 |
|
|
| 10,856 |
|
|
| (192,237 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
| ||||||
Purchase of property and equipment |
|
| (566,409 | ) |
|
| (543,465 | ) |
|
| (466,382 | ) |
|
| (13,336 | ) |
NET CASH USED IN INVESTING ACTIVITIES |
|
| (566,409 | ) |
|
| (543,465 | ) |
| (466,382 | ) |
| (13,336 | ) | ||
|
|
|
|
|
|
|
|
|
|
| ||||||
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
| ||||||
Lease liabilities |
|
| - |
|
|
| - |
| ||||||||
NET CASH USED BY FINANCING ACTIVITIES |
|
| - |
|
|
| - |
| ||||||||
Payment of principal on convertible notes |
| - |
| - |
| |||||||||||
Principal payment on Corbel loan |
|
| - |
|
|
| (116,667 | ) | ||||||||
NET CASH PROVIDED BY FINANCINGACTIVITIES |
|
| - |
|
|
| (116,667 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Increase (decrease) in cash |
| 594,907 |
| (520,524 | ) |
| (455,526 | ) |
| (322,240 | ) | |||||
Cash at beginning of period |
|
| 1,194,363 |
|
|
| 1,263,513 |
|
|
| 1,263,513 |
|
|
| 785,523 |
|
Cash at end of period |
| $ | 1,789,270 |
|
| $ | 742,989 |
|
| $ | 807,987 |
|
| $ | 463,283 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental schedule of investing and financing activities |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for interest |
| $ | 675,466 |
| $ | 720,697 |
|
| $ | 227,099 |
| $ | 271,160 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Table of Contents |
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - The accompanying unaudited interim condensed consolidated financial statements, included herein, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated statements have been prepared in accordance with the Company’s accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 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, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023, especially in light of past and potential future volatility and uncertainty resulting from the Coronavirus (“COVID-19”) pandemic and the governmental and consumer response.
Significant Accounting Policies
On February 5, 2021, the Company borrowed $940,734 under the Paycheck Protection Program (the “PPP”). The funds, accordingEmployee Retention Tax Credit (“ERTC”) is a refundable tax credit that businesses can claim on qualified wages paid to the provision ofemployees. The program was introduced on March 27, 2020 in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), could to incentivize employers to keep their employees on their payroll during the pandemic and economic shutdown. The credit applies to all qualified wages, including certain health plan expenses, paid during the period in which the operations were fully or partially suspended due to a government shutdown order or where there was significant decline in gross receipts.
When first established under the CARES Act, the tax credit was equal to 50% of the qualified wages an eligible employer paid to employees after March 12, 2020 and before January 1, 2021. The credit was also limited to a maximum annual per employee credit of $5,000. The credit was then extended through June 30, 2021 by the Tax Payer Certainty and Disaster Relief Act (“Relief Act”) (Division EE of the Consolidated Appropriations Act). The Relief Act modified the credit to be used for payroll costs including payroll benefits, interest on mortgage obligations, rent under lease agreements70% of up to $10,000 of qualified wages per quarter in 2021 through June 30, 2021. The program was further extended through December 31, 2021 by the American Rescue Plan Act of 2021 (“ARPA”) but was retroactively reduced by the Infrastructure Investment and utilities. SinceJobs Act, to end effective September 30, 2021.
During the first quarter of 2023 the Company met all of the eligibility requirements to participate in the PPP anddetermined that it was probable from the beginningentitled to an ERTC of $1.718 million and submitted amended federal Form 941 returns claiming that the Company’s PPP borrowing would be forgiven, the Company’s participation in the PPP program was accounted forrefund. The ERTC refund is treated as a government grant. Since the entire amount of the PPP participation was used to pay qualified expenses prior to March 31, 2021, the qualifying expenses are presented herein as a reduction of those related expensesgrant and recognized in the first quarter ended March 31, 2021.of 2023 as reducing appropriate expenses for the $1.718 million less expense of $258,000 for applying for the refund or a net benefit of $1.460 million.
7 |
Table of Contents |
There have been no other significant changes in the Company's accounting policies from those disclosed in its Annual Report on Form 10-K.
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 and nine-month periods ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022, especially in light of past and potential future volatility and uncertainty resulting from the Coronavirus (“COVID-19”) pandemic and the governmental and consumer response.
Note 2 – Royalties and fees included initial franchise fees of $60,500 and $203,500$60,000 for the three-month period ended March 31, 2023, and nine-month periods ended September 30, 2022, and $24,000 and $175,500$83,000 for the three-month and nine-month periodsperiod ended September 30, 2021.March 31, 2022. Royalties and fees included equipment commissions of $12,500 and $41,300$24,000 for the three-month period ended March 31, 2023, and nine-month periods ended September 30, 2022, and $2,200 and $25,900$8,007 for the three-month and nine-month periodsperiod ended September 30, 2021.March 31, 2022. Royalties and fees, including amortized initial franchise fees and equipment commissions, were $1.1 million and $3.2 million$987,000 for the three-month period ended March 31, 2023, and nine-month periods ended September 30, 2022, and $1.2 million and $3.4 million$934,000 for the three-month and nine-month periodsperiod ended September 30, 2021.March 31, 2022. 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 effect on comparable periodsperiod amounts within the financial statements by recording franchise fees and cost of opening the units as deferred contract costs and deferred contract income is not material as the initial franchise fee for the non-traditional franchise is intended to defray the initial contract costs, and the franchise fees and contract costs initially incurred and paid approximate the relative amortized franchise fees and contract costs for those same periods.
The deferred contract income and deferred costs were $878,400$943,000 on September 30, 2022.March 31, 2023.
At December 31, 20212022 and September 30, 2022,March 31, 2023, the carrying valuevalues of the Company’s franchise receivables have been reduced to anticipated realizable value. As a result ofAfter considering this reduction of carrying value, the Company anticipates that substantially all of its accounts receivable reflected on the consolidated balance sheetssheet as of DecemberMarch 31, 2021 and September 30, 2022,2023, will be collected. In 2020, in light of the additional uncertainty created as a result of the COVID-19 pandemic, the Company decided to create a reserve for uncollectability on all long-term franchisee receivables. The Company will continue to pursue collection where circumstances are appropriate and all collections of these receivables in the future will result in additional royalty income at the time received.
During the nine-monththree-month period ended September 30, 2022March 31, 2023 there were no company-operated or franchised Craft Pizza & Pub restaurants opened or closed. During the same nine-monththree-month period there were 2310 new non-traditional outlets opened and six0 non-traditional outlets closed.
Note 3 -3. The following table sets forth the calculation of basic and diluted earnings (loss) per share for the three-month and nine-month periodsperiod ended September 30, 2022:March 31, 2023:
|
| Three Months Ended September 30, 2022 |
| |||||||||
|
| Income (Numerator) |
|
| Shares (Denominator) |
|
| Per-Share Amount |
| |||
Net income |
| $ | 3,852 |
|
|
| 22,215,512 |
|
| $ | 0.00 |
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock dilution |
|
| - |
|
|
| 48,442 |
|
|
|
|
|
Convertible notes |
|
| 15,625 |
|
|
| 1,250,000 |
|
|
|
| |
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | 19,477 |
|
|
| 23,513,954 |
|
| $ | 0.00 |
|
|
| Nine Months Ended September 30, 2022 |
|
| Three Months Ended March 31, 2023 |
| ||||||||||||||||||
|
| Income (Numerator) |
|
| Shares (Denominator) |
|
| Per-Share Amount |
|
| Income (Numerator) |
| Shares (Denominator) |
| Per-Share Amount |
| ||||||||
Net loss |
| $ | (183,105 | ) |
| 22,215,512 |
| $ | (0.01 | ) | ||||||||||||||
Net income |
| $ | 868,270 |
| 22,215,512 |
| $ | 0.04 |
| |||||||||||||||
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Stock dilution |
| - |
| 48,442 |
|
|
|
|
|
| 162,500 |
|
|
| ||||||||||
Convertible notes |
|
| 46,875 |
|
|
| 1,250,000 |
|
|
|
|
|
| 15,625 |
|
|
| 1,250,000 |
|
|
|
| ||
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net income |
| $ | (136,230 | ) |
|
| 23,513,954 |
|
| $ | (0.01 | ) |
| $ | 883,895 |
|
|
| 23,628,012 |
|
| $ | 0.04 |
|
Table of Contents |
The following table sets forth the calculation of basic and diluted earnings (loss) per share for the three-month and nine-month periodsperiod ended September 30, 2021:March 31, 2022:
|
| Three Months Ended September 30, 2021 |
| |||||||||
|
| Income (Numerator) |
|
| Shares (Denominator) |
|
| Per-Share Amount |
| |||
Net loss |
| $ | (79,415 | ) |
|
| 22,215,512 |
|
| $ | (0.00 | ) |
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock dilution |
|
| - |
|
|
| 56,516 |
|
|
|
|
|
Convertible notes |
|
| 15,625 |
|
|
| 1,250,000 |
|
|
|
| |
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (63,790 | ) |
|
| 23,522,028 |
|
| $ | (0.00 | ) |
|
| Nine Months Ended September 30, 2021 |
| |||||||||
|
| Income (Numerator) |
|
| Shares (Denominator) |
|
| Per-Share Amount |
| |||
Net income |
| $ | 833,158 |
|
|
| 22,215,512 |
|
| $ | 0.04 |
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock dilution |
|
| - |
|
|
| 56,516 |
|
|
|
|
|
Convertible notes |
|
| 46,875 |
|
|
| 1,250,000 |
|
|
|
| |
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 880,033 |
|
|
| 23,522,028 |
|
| $ | 0.04 |
|
(1) Net loss per share is shown as basic loss per share because the underlying dilutive securities have an anti-dilutive effect.
|
| Three Months Ended March 31, 2022 |
| |||||||||
|
| Income (Numerator) |
|
| Shares (Denominator) |
|
| Per-Share Amount |
| |||
Net loss |
| $ | (136,696 | ) |
|
| 22,215,512 |
|
| $ | (0.01 | ) |
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock dilution |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes |
|
| 15,625 |
|
|
| 1,250,000 |
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (121,071 | ) |
|
| 23,465,512 |
|
| $ | (0.01 | ) |
Note 4 -– On February 7, 2020, the Company entered into a Senior Secured Promissory Note and Warrant Purchase Agreement (the(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 (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 to repay the Company’s then-existing bank debt which was 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) the remaining net proceeds 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 LIBOR, plus 7.75% per annum, as defined in the Agreement.Agreement, plus 7.75%. In addition, the Senior Note requires payment-in-kind (“PIK”) interest (“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. TheAt the end of the third quarter 2022, the Company entered into an amendment to the Senior Note does not require any fixed principal payments until February 28, 2023, at which timeagreement changing the required monthly payments of principal beginning in March 2023 from $33,333 per month to $83,333 per month in exchange for lowering the amount of $33,333 beginfinancial covenants and continue until maturity. The Senior Note requireseliminating the Company to make additional payments on the principal balance of the Senior Note based on its consolidated excess cash flow requirement. In addition, when LIBOR is phased out it will be replaced with SOFR, as defined in the Agreement. The Senior Note, as amended, requires principal payments of $33,333 in February 2023 and beginning in March 2023 payments of $83,333 per month continuing until maturity.
In conjunction with the borrowing under the Senior Note, the Company issued to the Purchaser a warrant (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 $0.57 per share (“Tranche 1”), (ii) 900,000 shares of Common Stock at an exercise price of $0.72 per share (“Tranche 2”); and (iii) 150,000 shares of Common Stock at an exercise price of $0.97 per share (“Tranche 3”). The Purchaser is required to exercise the Corbel Warrant with respect to Tranche 1 if the Common Stock is trading at $1.40 per share or higher for a specified period, and is further required to exercise the Corbel Warrant with respect to Tranche 2 if the Common Stock is trading at $1.50 per share or higher for a specified period. 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 (as defined in the Agreement), at the Company's discretion. The Corbel Warrant expires on the sixth anniversary of the date of its issuance.
Note 5 -– The Company evaluated subsequent events through the date the financial statements were issued and filed with SEC. There were no subsequent events that required recognition or disclosure beyond what is disclosed in this report.
9 |
Table of Contents |
Impact of COVID-19 Pandemic
In the first quarter of 2020, a novel strain of coronavirus (COVID-19) emerged and spread throughout the United States. The World Health Organization recognized COVID-19 as a pandemic in March 2020. In response to the pandemic, the U.S. federal government and various state and local governments have, 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 especially as a result of the emergence of the Omicron and other variants of COVID-19 in late 2021 and early in 2022. 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 operationoperations of dine-in restaurants and other businesses in light of COVID-19 which negatively affected the Company’s operations. As the duration and scope of the pandemic is uncertain these orders are subject to further modification, which could adversely affect the Company. Further, the Company can provide no assurance the phase out of restrictions will have a positive effect on the Company’s business.
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 salesales 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 potential franchisees for both the Company'sCompany’s Craft Pizza & Pub and non-traditional venues.
On February 5, 2021,Tax laws that address the financial impact of the lockdowns and restrictions provided relief to the Company received an additional loanin the form of $940,734 under the PPP. In accordance withERTC. During the applicable accounting policy adopted,first quarter of 2023, the Company accounted for the loandetermined that it was entitled to an ERTC of $1.718 million and submitted amended federal Form 941 returns claiming that refund. The ERTC refund is treated as a government grant and presented it in the Condensed Consolidated Statement of Operations as a reduction of certain qualifying expenses incurred during the three-month period ended March 31, 2021. The expenses included payroll costs and benefits, interest on mortgage obligations, rent under lease agreements and utilities and other qualifying expenses pursuant to the CARES ACT. Because the $940,734 loan was applied against relevant expensesrecognized in the first quarter 2021, the results of operations2023 as reducing appropriate expenses for the nine-month periods$1.718 million less expenses for applying for the refund of $258,000 or a net benefit of $1.460 million.
The ERTC is a refundable tax credit that businesses can claim on qualified wages paid to employees. The program was introduced on March 27, 2020 in the CARES Act to incentivize employers to keep their employees on their payroll during the pandemic and economic shutdown. The credit applies to all qualified wages, including certain health plan expenses, paid during the period in which the operations were fully or partially suspended due to a government shutdown order or where there was significant decline in gross receipts.
When first established under the CARES Act, the tax credit was equal to 50% of the qualified wages an eligible employer paid to employees after March 12, 2020 and before January 1, 2021. The credit was also limited to a maximum annual per employee credit of $5,000. The credit was then extended through June 30, 2021 by the Relief Act. The Relief Act modified the credit to be 70% of up to $10,000 of qualified wages per quarter in 2021 through June 30, 2021. The program was further extended through December 31, 2021 by the American Rescue Plan Act of 2021 (“ARPA”) but was retroactively reduced by the Infrastructure Investment and 2022 are of limited comparability.Jobs Act, to end effective September 30, 2021.
Table of Contents |
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results ofOperations
General Information
Noble Roman’s, Inc., an Indiana corporation incorporated in 1972, sells and services franchises and licenses and operates Company-owned foodservice locations for 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 two wholly-owned subsidiaries, Pizzaco, Inc. and RH Roanoke, Inc., unless the context requires otherwise. Pizzaco, Inc. currently does not own any locations and has no income or expense.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.locations in 2017, 2018, 2020 and 2021. The Company-operated locations serve as the base for franchising which the Companywhat it sees as a strongsignificant potential future growth driver.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 suchfranchise operator, Indiana’s largest Dairy Queen franchisee with 19 franchised Dairy Queen locations at thethat time. The franchisee opened the first franchised Craft Pizza &Pub& 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. In the second quarter of 2022 the Company completed planning and development for a new generation Craft Pizza & Pub which will be smaller, easier to operate and requires less initial investment, factors which the Company believes could broaden the appeal of the concept to a greater franchising audience.
As discussed above under “Impact of COVID-19 Pandemic”elsewhere in this report, the COVID-19 pandemic materially affected the Company’s business especiallyand its franchising strategy since the pandemic emerged during the first quarter of 2020.
Noble Roman’s Craft Pizza & Pub
The Noble Roman’s Craft Pizza & Pub utilizesformat incorporates many of the basic elements first introduced in 1972 but in a modern atmosphere with up-to-date systemsbaking technology and equipment to maximize speed, enhance quality and perpetuate the taste customers love and expect from a Noble Roman’s.
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. TraditionalPopular pizza favorites such as pepperoni are options on the menu but also offered is a selection of Craft Pizza & Pub original specialty pizza creations. The menu also features a selection of contemporary and fresh, made-to-order salads a salad bar and fresh-cooked pasta. The menu also incorporates baked sub sandwiches, hand-sauced boneless 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.
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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 historically featured in Noble Roman’s.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.
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 that haswith 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.
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, parmesan cheese and vine-ripened tomatoes in all venues. |
| · | 100% real cheese blended from mozzarella and Muenster, with no |
| · | 100% real meat toppings, with no soy additives or extenders, a distinction compared to many pizza concepts. |
| · | Vegetables (like onions and |
| · | 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 |
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Business Strategy
The Company is focused on revenue expansion while continuing to minimizecarefully managing corporate-level overhead.overhead expenses. To accomplish this, the Company willplans to continue developing, owning and operating Craft Pizza & Pub locations and franchising that format to qualified multi-unit franchisees. At the same time, the Company will continue to focus on franchising/licensing for non-traditional locations by franchising that format primarily to convenience stores and entertainment centers.
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 |
| |||
Noble Roman’s Pizza or Craft Pizza & Pub |
| $ | 7,500 |
|
| $ | 10,000 |
|
| $ | 30,000 | (1) |
|
| 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 | (1) |
(1) With the sale of multiple traditional stand-alone franchises to a single franchisee, the franchise fee for the first unit is $30,000, the franchise fee for the second unit is $25,000 and the franchise fee for the third unit and any additional unit is $20,000.
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 specifications, recipes orand 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.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.
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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/licensee. 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/licensee at a price determined by the distributor agreement. Payment terms to the distributor are agreed upon between each franchisee/licensee 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.
The following table sets forth the revenue, expense and margin contribution of the Company's Craft Pizza & Pub venue and the percentpercentage relationship to its revenue:
|
| Three months ended September 30, |
| Nine months ended September 30, |
|
| Three Months ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||
Description |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| |||||||||||||||||||||||||||||||||||||||
|
| 2022 |
| 2023 |
| |||||||||||||||||||||||||||||||||||||||||||
Revenue |
| $ | 2,122,352 |
| 100 | % |
| $ | 2,587,182 |
| 100 | % |
| $ | 6,495,788 |
| 100 | % |
| $ | 7,374,143 |
| 100 | % |
| $ | 2,283,596 |
|
|
| 100.0 |
|
| $ | 2,090,342 |
|
|
| 100.0 |
| ||||||||
Cost of sales |
| 444,831 |
| 21.0 |
| 569,470 |
| 22.0 |
| 1,355,148 |
| 20.9 |
| 1,562,878 |
| 21.2 |
|
| 470,273 |
|
| 20.6 |
|
| 451,359 |
|
| 21.6 |
| |||||||||||||||||||
Salaries and wages |
| 618,729 |
| 29.2 |
| 712,239 |
| 27.5 |
| 1,489,980 |
| 22.9 |
| 2,155,734 |
| 29.2 |
|
| 722,958 |
|
| 31.7 |
|
| 617,463 |
|
| 29.5 |
| |||||||||||||||||||
Facility cost including rent, common area and utilities |
| 353,382 |
| 16.7 |
| 432,126 |
| 16.7 |
| 808,134 |
| 12.4 |
| 1,232,359 |
| 16.7 |
|
| 393,697 |
|
| 17.2 |
|
| 404,824 |
|
| 19.4 |
| |||||||||||||||||||
Packaging |
| 69,792 |
| 3.3 |
| 93,647 |
| 3.6 |
| 184,191 |
| 2.8 |
| 259,390 |
| 3.5 |
|
| 80,738 |
|
| 3.5 |
|
| 72,028 |
|
| 3.4 |
| |||||||||||||||||||
Third-party delivery fees |
| 97,998 |
| 4.6 |
| 39,330 |
| 1.5 |
| 284,215 |
| 4.4 |
| 115,677 |
| 1.6 |
| |||||||||||||||||||||||||||||||
Delivery fees |
| 36,924 |
|
| 1.6 |
|
| 31,122 |
|
| 1.5 |
| ||||||||||||||||||||||||||||||||||||
All other operating expenses |
|
| 308,989 |
|
|
| 14.6 |
|
|
| 348,448 |
|
|
| 13.5 |
|
|
| 936,690 |
|
|
| 14.4 |
|
|
| 1,090,641 |
|
|
| 14.8 |
|
|
| 353,939 |
|
|
| 15.5 |
|
|
| 338,025 |
|
|
| 16.2 |
|
Total expenses |
|
| 1,893,721 |
|
|
| 89.4 |
|
|
| 2,195,260 |
|
|
| 84.8 |
|
|
| 5,058,358 |
|
|
| 77.8 |
|
|
| 6,416,679 |
|
|
| 87.0 |
|
|
| 2,058,529 |
|
|
| 90.1 |
|
|
| 1,914,821 |
|
|
| 91.6 |
|
Margin contribution |
| $ | 228,631 |
|
|
| 10.6 | % |
| $ | 391,922 |
|
|
| 15.2 | % |
| $ | 1,437,430 |
|
|
| 22.2 | % |
| $ | 957,464 |
|
|
| 13.0 | % |
| $ | 225,067 |
|
|
| 9.9 | % |
| $ | 175,521 |
|
|
| 8.4 | % |
Note: Margin contribution from this venue for the nine-month period ended September 30, 2022 was decreased $14,228by $3,757 for non-cash expense related to the adoption of Accounting Standards Update ("ASU 2016-022016-02") accounting for leases which became effective after January 1, 2019 for publicly reporting companies.
The following table sets forth the revenue, expense and margin contribution of the Company's franchising venue and the percentpercentage relationship to its revenue:
|
| Three months ended September 30, |
| Nine months ended September 30, |
|
| Three Months ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||
Description |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| |||||||||||||||||||||||||||||||||||||||
Royalties and fees franchising |
| $ | 1,177,776 |
| 100 | % |
| $ | 1,119,793 |
| 100 | % |
| $ | 3,430,995 |
| 100 | % |
| $ | 3,218,401 |
| 100 | % | ||||||||||||||||||||||||
|
| 2022 |
| 2023 |
| |||||||||||||||||||||||||||||||||||||||||||
Royalties and fees from franchising |
| $ | 1,034,244 |
|
| 100.0 | % |
| $ | 987,343 |
|
| 100 | % | ||||||||||||||||||||||||||||||||||
Salaries and wages |
| 207,046 |
| 17.6 |
| 227,441 |
| 20.3 |
| 503,596 |
| 14.7 |
| 637,695 |
| 19.8 |
|
| 193,596 |
|
| 18.7 |
|
| 222,458 |
|
| 22.5 |
| |||||||||||||||||||
Trade show expense |
| 105,000 |
| 8.9 |
| 90,000 |
| 8.0 |
| 294,000 |
| 8.6 |
| 225,000 |
| 7.0 |
|
| 90,000 |
|
| 8.7 |
|
| 90,200 |
|
| 9.1 |
| |||||||||||||||||||
Insurance |
| 95,851 |
|
| 9.3 |
|
| 91,175 |
|
| 9.2 |
| ||||||||||||||||||||||||||||||||||||
Travel and auto |
| 13,539 |
| 1.1 |
| 22,348 |
| 2.0 |
| 51,823 |
| 1.5 |
| 81,158 |
| 2.5 |
|
| 18,808 |
|
| 1.8 |
|
| 32,130 |
|
| 3.3 |
| |||||||||||||||||||
All other operating expenses |
|
| 166,213 |
|
|
| 14.2 |
|
|
| 159,689 |
|
|
| 14.3 |
|
|
| 464,053 |
|
|
| 13.5 |
|
|
| 500,220 |
|
|
| 15.6 |
|
|
| 63,100 |
|
|
| 6.1 |
|
|
| (1,304,909 | ) |
|
| (132.1 | ) |
Total expenses |
|
| 491,798 |
|
|
| 41.8 |
|
|
| 499,478 |
|
|
| 44.6 |
|
|
| 1,313,472 |
|
|
| 38.3 |
|
|
| 1,444,073 |
|
|
| 44.9 |
|
|
| 461,355 |
|
|
| 44.6 |
|
|
| (868,946 | ) |
|
| (88.0 | ) |
Margin contribution |
| $ | 685,978 |
| 58.2 | % |
| $ | 620,315 |
| 55.4 | % |
| $ | 2,117,523 |
| 61.7 | % |
| $ | 1,774,328 |
| 55.1 | % |
| $ | 572,889 |
|
|
| 55.4 | % |
| $ | 1,856,289 |
|
|
| 188.0 | % |
Note: The credit to all other expenses is the result of recording the ERTC in quarter one although the extra expenses which this program was designed to reimburse the Company for occurred in 2020 and 2021.
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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 September 30, |
| Nine months ended September 30, |
|
| Three Months ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||
Description |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| |||||||||||||||||||||||||||||||||||||||
|
| 2022 |
| 2023 |
| |||||||||||||||||||||||||||||||||||||||||||
Revenue |
| $ | 120,316 |
| 100 | % |
| $ | 195,647 |
| 100 | % |
| $ | 353,617 |
| 100 | % |
| $ | 505,891 |
| 100 | % |
| $ | 133,129 |
|
|
| 100.0 | % |
| $ | 223,381 |
|
|
| 100 | % | ||||||||
Total expenses |
|
| 126,765 |
|
|
| 105.4 |
|
|
| 201,013 |
|
|
| 102.7 |
|
|
| 334,579 |
|
|
| 94.6 |
|
|
| 503,639 |
|
|
| 99.6 |
|
|
| 132,877 |
|
|
| 99.8 |
|
|
| 121,830 |
|
|
| 54.5 |
|
Margin contribution |
| $ | (6,449 | ) |
| (5.4 | )% |
| $ | (5,366 | ) |
| (2.7 | )% |
| $ | 19,038 |
| 5.4 | % |
| $ | 2,252 |
| .4 | % |
| $ | 252 |
|
|
| .2 | % |
| $ | 101,551 |
|
|
| 45.5 | % |
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 quarter one although the extra expenses, which the program was designed to reimburse the Company for occurred in 2020 and 2021.
Results of Operations
Company-Owned Craft Pizza & Pub
The revenue from this venue increased fromwas $2.1 million to $2.6 million and from $6.5 million to $7.4 million for the respective three-monththree months ended March 31, 2023 compared to $2.3 million for the corresponding period in 2022. The primary reason for this decrease was the two restaurants that opened near the end of 2021 had less sales as a result of their still benefiting from their opening period in early 2022. To a lesser extent, the decrease was a result of a decrease in third party deliveries which was not totally offset by an increase in dine-in sales.
Cost of sales increased to 21.6% for the three months ended March 31, 2023 from 20.6% in the corresponding period last year. This increase was the result of the inflationary pressures on essentially all products partially offset by more strict controls as a result of more experienced employees and nine-month periodsmenu price increases.
Salaries and wages decreased to 29.5% for the three months ended September 30,March 31, 2023 from 31.7% for the comparable period in 2022, which was the result of more efficient use of labor because employees had been there longer and more strict controls which offset the salary and wage rate increases caused by the overall labor shortage.
Gross margin contribution decreased to 8.4% for the three months ended March 31, 2023 from 9.9% 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.
Franchising
The revenue from this venue decreased from $1.03 million to $987 thousand for the three months ended March 31, 2023 compared to the corresponding periodsperiod in 2021. Revenue reflected2022. This decrease was the openingresult of additional Craft Pizza & Pub restaurants in October and December 2021 and same store sales increases, boththe closure of which were partially offset byseveral non-traditional locations as a result of the impactemergence of the Omicron variant of COVID-19, in January and February 2022.
Cost of sales as a percentage of revenue from this venue increased from 21.0% to 22.0% for the three-month period and from 20.9% to 21.2% for the nine-month period ended September 30, 2022 compared to the corresponding periods in 2021. The Company incurred significant increases in product cost but was able to offset most of that cost with menu price increases and efficiency gained as staffing levels stabilized and employee experience levels increased.
Salaries and wages, as a percentage of revenue from this venue, were 27.5% and 29.2% for the three-month and nine-month periods ended September 30, 2022 compared to 29.2% and 22.9% for the corresponding periods in 2021. The cost of salaries and wages for this venuewhich has increased significantly due to the competitive environment for available labor causednow been offset by the general shortageopening of available labor in 2022, which was mostly offset by menu price increases. For the nine months ended September 30, 2021 salariesadditional locations and wages were reducedimproved sales. This venue is now continuing to 22.9% of revenuegrow again as a result of the PPP loan/grant used in part to reimburse the Company $370,832has sold approximately 26 new franchises since January 1, 2023 with a significant number of payroll costsprospects in the first quarter 2021.
Gross margin contribution as a percentage of revenue for this venue was 15.2% and 13.0% for the three-month and nine-month periods ended September 30, 2022 compared to 10.6% and 22.2% for the corresponding periods in 2021. The margin of 13.0% for the nine-month period was adversely affected in January and February because of the spread of the Omicron variant in the market area where the Company-owned restaurants are located. The increase in margin in the most recent three-month period reflected more efficient use of labor and facility cost. The increase in margin for the nine-month period ended September 30, 2021 was primarily a result of certain expenses being reimbursed in 2021 by the PPP loan/grant including the reimbursement of $370,832 payroll costs in the first quarter 2021.pipeline.
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Franchising
Total revenue was $1.1 millionSalaries and $3.2 million for the three-month and nine-month periods ended September 30, 2022, comparedwages increased to $1.2 million and $3.4 million22.5% from 18.7% for the comparable periodsperiod in 2021, respectively. Franchising had a significant loss2022, primarily the result of sales during the COVID-19 pandemic primarily because of closures of many host locationsadding additional staff to add renewed emphasis on growth in different partsthis venue as some of the country which were forced to close due to government regulations to restrict the spread of COVID-19. The revenue hasCOVID restrictions have been gradually increasing again due to the opening of new locations and on a sequential quarter basis revenue from this venue increased from $1,013,000 in the three-months ended December 31, 2021, to $1,034,000 in the three-months ended March 31, 2022, to $1,064,000 in the three-months ended June 30, 2022, and to $1,120,000 in the three-months ended September 30, 2022, respectively. The Company expects the trend to continue to increase asminimized.
As a result of new openings anticipated duringrecording a reduction of expenses by recording ERTC by approximately $1.38 million, gross margin contribution increased to 188.0% from 55.4% for the balance of 2022 and into 2023.
Salaries and wages, trade show expense, insurance andquarter compared to the comparable period last year. The reduction in other operating costs as a percentage of revenue from this venue were 44.6% and 44.9% for the three-month and nine-month periods ended September 30, 2022 compared to 41.8% and 38.3%, respectively, for the corresponding periods in 2021. The 38.3% for total expenses, as a percentage of revenue from this venue, in the nine-months ended September 30, 2021 reflected the reduction of payroll and other expenses partially reimbursed by the PPP loan/grant in February 2021, but whichcost was partially offset in the nine months ended September 30, 2022 by a reduction in trade show cost as a result of participatingrecording the ERTC in fewer trade shows.
Margin contributionthe first quarter of 2023 although the extra expenses and lost revenue which this program was 55.4%designed to reimburse the Company for occurred in 2020 and 55.1%, as a percentage of revenue from this venue, for the three-month and nine-month periods ended September 30, 2022, compared to 58.2% and 61.7% for the comparable periods in 2021, respectively. The decrease in margin contribution was partially the result of the decrease in revenue. As explained above franchising revenue decreased due to the closure of locations throughout the country during the COVID-19 pandemic as a result of government regulations. That revenue decrease is gradually improving as a result of the opening of new locations, as explained above.2021.
Company-Owned Non-Traditional Locations
Gross revenue from this venue was $196,000 and $506,000 duringincreased to $223,000 from $133,000 in the three-month and nine-month periodsperiod ended September 30, 2022,March 31, 2023 compared to $120,000 and $354,000 for the comparable periodscorresponding period in 2021, respectively.2022. The primary reason for thethis increase during both periods was the withdrawallifting of the restrictions placed on the hospital locations as a result of the COVID-19 pandemic that prevented hospitalswhereby the hospital was restricted from having outside visitors and staff inside the hospital restricted from 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.
TotalAs a result of reducing expenses were $201,000 and $504,000by recording ERTC in this venue by $83,177, total expenses decreased to $122,000 from $133,000 for the three-month and nine-month periodsperiod ended September 30, 2022,March 31, 2023 compared to $127,000 and $335,000 for the comparable periodscorresponding period in 2021, respectively.2022. The primary reason for the increase in both periodsthis decrease was the increase in revenue as a result of lifting restrictionsstricter controls on the hospital duecosts to maintain service in the COVID-19 pandemic, as explained above.hospital.
Corporate Level Results of OperationsOther Expenses
Depreciation and amortization weredecreased to $96,000 from $113,000 and $338,000 for the three-month and nine-month periodsperiod ended September 30, 2022,March 31, 2023 compared to $142,000 and $449,000the corresponding periods in 2022. The primary reason for the comparable periods in 2021, respectively. The depreciation decrease was the resultlack of not opening anybuilding new corporate-ownedCompany-owned locations to date in 2022.since late 2021.
General and administrative expenses were $518,000 and $1.6 milliondecreased to $519,000 from $541,000 for the three-month and nine-month periodsperiod ended September 30, 2022,March 31, 2023 compared to $506,000 and $1.3 millionthe corresponding period in 2022. The primary reason for the comparable periodsdecrease was the tighter control on expenses.
Interest expense increased to $383,000 from $342,000 for the three-month period ended March 31, 2023 compared to the corresponding period in 2021, respectively.2022. The primary reason for the increase was a partial reimbursementresult of certain qualifyingadding non-cash PIK interest to the principal balance of the Senior Note and was partially offset by beginning principal payments on the Senior Note in February 2023.
Net income before taxes increased to $1.1 million compared to a loss of $200 thousand for the period ended March 31, 2023 compared to the corresponding period in 2022. Net income before income tax is an important measure for the Company since it has deferred tax credits on the balance sheet to offset any income tax expense for approximately the next $12 million in net income before taxes. The primary reason for the significant increase was the recording of the ERTC in the first quarter of 2023 in the amount of $1.46 million, which is net of the expenses throughof $258,000 for applying for the February 2021 PPP loan/grant andrefund.
Net income increased to $868,000 from a net loss of $137,000 for the hiring of an outside investor relations consultant.three-month period ended March 31, 2023 compared to the corresponding period in 2022.
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Operating income was $382,000 and $823,000 for the three-month and nine-month periods ended September 30, 2022 compared to $264,000 and $1.8 million for the comparable periods in 2021, respectively. The primary reason for the decrease in year-to-date was the $941,000 PPP loan/grant in February 2021 which reduced certain qualifying expenses during that period.
Interest expense was $378,000 and $1.1 million for the three-month and nine-month periods ended September 30, 2022 compared to $343,000 and $1.0 million for the comparable periods in 2021, respectively. The primary reason for the increases was the non-cash PIK interest which adds to the principal amount of the Corbel loan outstanding.
As a result of the above factors, net income (loss) was $4,000 and $(183,000) for the three-month and nine-month periods ended September 30, 2022, compared to $(79,000) and $833,000 for the comparable periods in 2021, respectively.
Liquidity and Capital Resources
The Company’s strategy is to grow its business by concentrating on franchising/licensing non-traditional locations, franchising its updated stand-alone concept, Craft Pizza & Pub, and operating a limited number of Company-owned Craft Pizza & Pub restaurants. The Company added new Company-operated Craft Pizza & Pub locations in January and November 2017, January and June 2018, March, October and December 2020,November2020, and October and December 2021. The Company added no new Company-operated Craft Pizza & Pub locations during 2022; however locations of non-traditional franchising have increased in recent months.
The Company is operating one non-traditional location in a hospital and has no plans for operating any additional Company-owned non-traditional locations.
The Company’s current ratio was 2.38-to-11.7-to-1 as of September 30, 2022,March 31, 2023 compared to 2.27-to-11.3-to-1 as of December 31, 2021.2022. The Company’s current ratio was significantly impacted by the recording of the ERTC in the first quarter of 2023 when the Company applied for the credit.
In January 2017, the Company completed the private placementoffering of $2.4 million principal amount of the Notespromissory notes (the “Notes”) convertible to common stockCommon Stock at $0.50 per share and Warrantswarrants (the “Warrants”) to purchase up to 2.4 million shares of the Company’s common stockCommon 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,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,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,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 and recently holders of the Notes in the principal amount of $475,000 extended the maturity until February 28, 2025.2023. 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 with $475,000 due February 28, 2025 and $150,000 due January 31, 2023. During 2022, all of those Notes were extended except for Notes with outstanding principal of $150,000 which cannot be repaid until the Corbel Note is repaid. These Notes bear interest at 10% per annum, including the Notes which have not been extended, paid quarterly and are convertible to common stockCommon Stock any time prior to maturity at the option of the holder at $0.50 per share and are subordinate to the senior note payable to Corbel Capital Partners SBIC, L.P.share. The remaining Warrants to purchase 775,000 shares were re-priced to $0.57 per share as a result of the financing completed in February 2020.
On February 7, 2020, the Company entered into the Agreement with Corbel, pursuant to which the Company issued to the purchaserCorbel 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 were 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;extended, (iii) debt issuance costs; and (iv) the remaining net proceeds were used for working capital orand other general corporate purposes, including development of new Company-owned Craft Pizza & Pub locations.
The Senior Note bears cash interest of LIBOR, plus 7.75% per annum, as defined in the Agreement.Agreement, plus 7.75%. In addition, the Senior Note requires 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. The Senior Note matures on February 7, 2025. The Senior Note, does not require any fixedas amended, requires principal payments of $33,333 in February 2023 and beginning in March 2023 principal payments of $83,333 per month continuing until February 28, 2023, at which timematurity. At the end of the third quarter 2022, the Company entered into an amendment to the Senior Note agreement changing the required monthly payments of principal beginning in March 2023 from $33,333 per month to $83,333 per month in exchange for lowering the amount of $33,333 beginfinancial covenants and continue until maturity. The Senior Note requireseliminating the Company to make additional payments on the principal balance of the Senior Note based on its consolidated excess cash flow as definedrequirement. In addition, when LIBOR is phased out it will be replaced with SOFR.
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The Company, in the Agreement.
On February 5,first quarter of 2023, submitted amended federal Form 941 returns for 2020 and 2021 the Company received an additional loan of $940,734to obtain a credit under the PPP. The Company used the proceeds of this loan for qualifying expenses under the CARES ACT. On November 19, 2021, the Company received formal notice from the SBA that the entire $940,734 loan was forgiven in accordance with the provisionsERTC (which is a part of the CARES ACT. The Company had already treatedAct) of $1.718 million which will be reduced by $258,000 expenses of obtaining the loancredit for a net of $1.461 million. While the ERTC applies to prior periods, the expected net refund was recorded when the claim was filed as a grant because forgiveness was probable.reduction in expenses in the first quarter of 2023 and is expected to be received within a few months.
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&Pub locations and pursuing a franchising program for Craft Pizza & Pub restaurants.restaurants as market conditions allow. The Company intends to refinance its outstanding debt before the maturity of the Corbel debt in February 2025.
The Company does not anticipate that any of the recently issued accounting pronouncements relating to the Statement of Financial Accounting Standards will have a material impact on its consolidated financial statements.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-19 pandemic the availability and cost of hourly and management labor to adequately staff Company-operated and franchise operations,its aftermath, competitive factors and pricing pressures, accelerating inflation and the cost of labor, food items and supplies,pressures, non-renewal of franchise agreements, shifts in market demand, the success of new franchise programs, including the smaller Noble Roman’s Craft Pizza & Pub format, under development, the Company’s ability to successfully operate an increased number of Company-owned restaurants, the outcome of the election of directors at the Company’s 2023 annual meeting of shareholders (as discussed under “Part II-Other Information”), general economic conditions, changes in demand for the Company’s products or franchises, the Company’s ability to service its loans, the acceptance of the amended federal Form 941 returns relating to the ERTC, the impact of franchise regulation, the success or failure of individual franchisees and inflation and other changes in prices or supplies of food ingredients and labor as well as the factors discussed under “Risk Factors "Factors” contained in thethis Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022. 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,December 31, 2022, the Company had outstanding variable interest-bearing debt in the aggregate principal amount of $8.7$8.4 million. The Company’s current borrowings were at a variable rate tied to LIBOR plus 7.25% per annum adjusted on a monthly basis. Based on its current debt structure, for each 1% increase in LIBOR the Company would incur increased interest expense of approximately $87,000$85,000 over the succeeding 12-month period. At the end of the third quarter 2022, the Company entered into an amendment to the Senior Note agreement changing the required payments of principal beginning in March 2023 from $33,333 per month to $83,333 per month in exchange for lowering the financial covenants and eliminating the excess cash flow requirement. In addition, when LIBOR is phased out it will be replaced with SOFR.
ITEM 4. Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, A. Scott Mobley, the Company’s President and Chief Executive Officer, and Paul W. Mobley, the Company’s Executive Chairman and Chief Financial Officer, have concluded that the Company’s disclosure controls and procedures (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.
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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.
BT Brands, Inc. (“BT Brands”) has notified the Company that it intends to nominate Gary Copperud for election as a Class III director at the annual meeting in opposition to A. Scott Mobley, President and Chief Executive Officer of Noble Roman’s. Mr. Mobley has been nominated and unanimously endorsed by the Board of Directors. The shareholders may receive proxy solicitation materials from BT Brands including a proxy statement and proxy card. The Board of Directors of the Company recommends to the shareholders that they not return the proxy card. The Company is not responsible for the accuracy of any information provided by or relating to BT Brands contained in any proxy solicitation materials filed or disseminated by, or on behalf of, BT Brands or any other statements that BT Brands or its representatives may have made or otherwise make. The Board, including all of its independent directors, strongly urges the shareholders NOT to sign or return any proxy card sent to them by or on behalf of BT Brands.
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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. |
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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. |
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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. |
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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. |
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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. | ||||
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Date: May 10, 2023 | By: | /s/ Paul W. Mobley | ||
Paul W. Mobley, Executive Chairman, | ||||
Chief Financial Officer and Principal | ||||
Accounting Officer (Authorized Officer and | ||||
Principal Financial Officer) |