Noble Romans Inc 10-Q for FY2024 Q1
Noble Romans Inc (NROM)
About this 10-Q
Noble Romans Inc filed this 10-Q on June 12, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.67M
- up 10.8% from $3.31M a year earlier
- Net loss
- $86.48K
- compared with net income of $868.27K a year earlier
- Diluted EPS
- $0.00
- compared with $0.04 a year earlier
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
Commission file number:
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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.
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).
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 |
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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
As of June 7, 2024, there were
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) |
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Condensed notes to consolidated financial statements (unaudited) |
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Noble Roman's, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Assets |
| December 31, 2023 |
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| March 31, 2024 |
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Current assets: |
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Cash |
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Employee Retention Tax Credit Receivable |
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Accounts receivable - net |
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Inventories |
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Prepaid expenses |
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Total current assets |
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Property and equipment: |
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Equipment |
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Leasehold improvements |
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Less accumulated depreciation and amortization |
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Net property and equipment |
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Deferred tax asset |
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Deferred contract cost |
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Goodwill |
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Operating lease right of use assets |
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Other assets including long-term portion of receivables-net |
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Total assets |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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Current portion of operating lease liability |
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Corbel loan payable |
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Subordinated notes payable |
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Warrant liability |
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Total current liabilities |
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Long-term obligations: |
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Term loan payable to Corbel net of current portion |
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Convertible notes payable |
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Operating lease liabilities - net of short-term portion |
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Deferred contract income |
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Total long-term liabilities |
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Total liabilities |
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See Note 7 regarding contingencies |
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Stockholders' equity: |
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Common stock – no par value ( |
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Accumulated deficit |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
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See accompanying condensed notes to consolidated financial statements (unaudited).
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Noble Roman's, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
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| Three-Months Ended March 31, |
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Revenue: |
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Restaurant revenue - company-owned Craft Pizza & Pub |
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Restaurant revenue - company-owned non-traditional |
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Franchising revenue |
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Administrative fees and other |
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Total revenue |
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Operating expenses: |
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Restaurant expenses - company-owned Craft Pizza & Pub |
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Restaurant expenses - company-owned non-traditional |
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Franchising expenses (benefit) |
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Total operating expenses |
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Depreciation and amortization |
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General and administrative expenses |
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Defense against activist shareholder |
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Total expenses |
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Operating income |
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Interest expense |
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Change in fair value of warrants |
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Income (loss) before income taxes |
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Income tax expense (benefit) |
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Net income (loss) |
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Earnings per share - basic |
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Net income (loss) |
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Weighted average number of common shares outstanding |
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Diluted earnings per share: |
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Net income (loss) (1) |
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Weighted average number of common shares outstanding |
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(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:
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Balance at December 31, 2023 |
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Amortization of value of stock options |
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Net loss for three months ended March 31, 2024 |
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Balance at March 31, 2024 |
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Three Months Ended March 31, 2023:
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Balance at December 31, 2022, as restated |
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Amortization of value of stock options |
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Net income for three months ended March 31, 2023 |
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Balance at March 31, 2023, as restated |
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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, |
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| 2024 |
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Net income (loss) |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Change in fair value of warrants |
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Amortization of value of stock options |
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Depreciation and amortization |
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Amortization of lease cost in excess of cash paid in accordance with ASU 2016-02 |
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Deferred income taxes |
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Changes in operating assets and liabilities: |
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(Increase) decrease in: |
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Employee Retention Tax Credit |
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Accounts receivable |
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Inventories |
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Prepaid expenses |
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Other assets including long-term portion of receivables |
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Decrease in deferred contract income |
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Increase in deferred contract cost |
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Decrease in accounts payable and accrued expenses |
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES |
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INVESTING ACTIVITIES |
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Purchase of property and equipment |
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NET CASH USED IN INVESTING ACTIVITIES |
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FINANCING ACTIVITIES |
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Principal payment on Corbel loan |
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NET CASH USED BY FINANCING ACTIVITIES |
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(Decrease) Increase in cash |
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Cash at beginning of period |
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Cash at end of period |
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Supplemental schedule of investing and financing activities |
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Cash paid for interest |
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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 $
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:
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Ingredient inventory used to make products in company locations |
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Marketing materials |
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Equipment inventory |
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Total |
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Note 4 – Royalties and fees included initial franchise fees of $
The deferred contract income was $
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 $
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| Three Months Ended March 31, 2024 |
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| Loss (Numerator) |
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Net loss |
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Effect of dilutive securities |
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Stock and warrant dilution |
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Convertible notes |
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Diluted earnings per share |
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Net loss (1) |
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(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:
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| Three Months Ended March 31, 2023 |
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Net income |
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Effect of dilutive securities |
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Stock option and warrant dilution |
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Convertible notes |
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Diluted earnings per share |
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Net income |
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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 $
The Senior Note bears cash interest of SOFR, as defined in the Agreement, plus
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
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At March 31, 2024, the balance of the Senior Note was comprised of:
Principal |
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Carrying Value |
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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 $
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:
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| 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:
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| Three Months ended March 31, |
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| 2023 |
|
| 2024 |
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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, |
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|
| 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, |
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|
| 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. |
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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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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. |
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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.
| 22 |
| Table of Contents |
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: June 12, 2024 | By: | /s/ Paul W. Mobley |
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| Paul W. Mobley, Executive Chairman, Chief Financial Officer and Principal Accounting Officer (Authorized Officer and |
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| Principal Financial Officer) |
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| 23 |
EXHIBIT 31.1
I, A. Scott Mobley, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Noble Roman’s, Inc.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 12, 2024 | /s/ A. Scott Mobley |
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| A. Scott Mobley President and Chief Executive Officer |
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EXHIBIT 31.2
I, Paul W. Mobley, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Noble Roman’s, Inc.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 12, 2024 | /s/ Paul W. Mobley |
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| Paul W. Mobley |
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| Executive Chairman and Chief Financial Officer |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Noble Roman’s, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, A. Scott Mobley, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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| /s/ A. Scott Mobley |
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| A. Scott Mobley President and Chief Executive Officer of Noble Roman’s, Inc.
June 12, 2024 |
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EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Noble Roman’s, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul W. Mobley, Executive Chairman and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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| /s/ Paul W. Mobley |
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| Paul W. Mobley Executive Chairman and Chief Financial Officer of Noble Roman’s, Inc.
June 12, 2024 |
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