Noble Romans Inc 10-Q for FY2024 Q3
Noble Romans Inc (NROM)
About this 10-Q
Noble Romans Inc filed this 10-Q on November 13, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.88M
- up 3.8% from $3.74M a year earlier
- Net income
- $193.31K
- up 25.1% from net income of $154.51K a year earlier
- Diluted EPS
- $0.01
- unchanged from $0.01 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:
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
| ||
(Address of principal executive offices) |
| (Zip Code) |
(
(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.
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 |
|
|
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 November 11, 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 September 30, 2024 (unaudited) |
| Page 3 |
|
|
|
|
|
| Page 4 |
| |
|
|
|
|
| Page 5 |
| |
|
|
|
|
| Page 7 |
| |
|
|
|
|
Notes to condensed consolidated financial statements (unaudited) |
| Page 8 |
|
| 2 |
| Table of Contents |
Noble Roman’s, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
Assets |
| December 31, 2023 |
|
| September 30, 2024 |
| ||
Current assets: |
|
|
|
|
|
| ||
Cash |
| $ |
|
| $ |
| ||
Employee Retention Tax Credit Receivable |
|
|
|
|
|
| ||
Accounts receivable - net |
|
|
|
|
|
| ||
Inventories |
|
|
|
|
|
| ||
Prepaid expenses |
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
Equipment |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Leasehold improvements, net |
|
|
|
|
|
| ||
Less accumulated depreciation and amortization |
|
|
|
|
|
| ||
Net property and equipment |
|
|
|
|
|
| ||
Deferred tax asset |
|
|
|
|
|
| ||
Deferred contract cost |
|
|
|
|
|
| ||
Goodwill |
|
|
|
|
|
| ||
Operating lease right of use assets |
|
|
|
|
|
| ||
Other assets including long-term portion of receivables-net |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ |
|
| $ |
| ||
Current portion of operating lease liability |
|
|
|
|
|
| ||
Current portion of Corbel loan payable |
|
|
|
|
|
| ||
Subordinated note payable |
|
|
|
|
|
| ||
Warrant liability |
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Long-term obligations: |
|
|
|
|
|
|
|
|
Term loan payable to Corbel net of current portion |
|
|
|
|
|
| ||
Convertible notes payable |
|
|
|
|
|
| ||
Operating lease liabilities - net of short-term portion |
|
|
|
|
|
| ||
Deferred contract income |
|
|
|
|
|
| ||
Total long-term liabilities |
|
|
|
|
|
| ||
Total liabilities |
| $ |
|
| $ |
| ||
See Note 9 regarding Contingencies |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Common stock – no par value ( |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Total stockholders’ equity |
|
|
|
|
|
| ||
Total liabilities and stockholders’ equity |
| $ |
|
| $ |
| ||
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, |
| ||||||||||
|
| 2023 |
|
| 2024 |
|
| 2023 |
|
| 2024 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restaurant revenue - company-owned restaurants |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Restaurant revenue - company-owned non-traditional |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Franchising revenue |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Administrative fees and other |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant expenses - company-owned restaurants |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restaurant expenses - company-owned non-traditional |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Franchising expenses |
|
|
|
|
|
|
|
| ( | ) |
|
|
| |||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Defense against activist shareholder |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
(Decrease) in fair value of warrant |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income tax |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Net income |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income tax |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Net income |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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, 2024:
|
| Common Stock |
|
| Accumulated |
|
|
|
| |||||||
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Total |
| ||||
Balance at December 31, 2023 |
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for nine months ended September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of value of employee stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2024 |
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
Three Months Ended
September 30, 2024:
|
| Common Stock |
|
| Accumulated |
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at June 30, 2024 |
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of value of employee stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for three months ended September 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2024 |
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 5 |
| Table of Contents |
Nine Months Ended
September 30, 2023:
|
| Common Stock |
|
| Accumulated |
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Total |
| ||||
Balance at December 31, 2022 |
|
|
|
| $ |
|
| $ | ( | ) |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for nine months ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of value of employee stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2023 |
|
|
|
| $ |
|
| $ | (22,7661,166 | ) |
| $ |
| |||
Three Months Ended
September 30, 2023:
|
| Common Stock |
|
| Accumulated |
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Deficit |
|
| Total |
| ||||
Balance at June 30, 2023 |
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of value of employee stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for three months ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2023 |
|
|
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 6 |
| Table of Contents |
Noble Roman’s, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
OPERATING ACTIVITIES |
| Nine months ended September 30, |
| |||||
|
| 2023 |
|
| 2024 |
| ||
Net income |
| $ |
|
| $ |
| ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Change in fair value of warrant |
|
|
|
|
|
| ( | ) |
Depreciation and amortization |
|
|
|
|
|
| ||
Interest paid-in-kind |
|
|
|
|
|
| ||
Stock option expense |
|
|
|
|
|
| ||
Amortization of loan cost |
|
|
|
|
|
| ||
Non-cash lease expense |
|
|
|
|
|
| ||
Deferred income taxes |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Employee Retention Tax Credit |
|
| ( | ) |
|
|
| |
Accounts receivable |
|
|
|
|
|
| ||
Inventories |
|
|
|
|
| ( | ) | |
Prepaid expenses |
|
| ( | ) |
|
|
| |
Deferred contract income net of deferred contract cost |
|
|
|
|
|
| ( | ) |
Other assets including long-term portion of receivables |
|
| ( | ) |
|
| ( | ) |
(Decrease) in: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
| ( | ) |
|
| ( | ) |
Lease liability |
|
| ( | ) |
|
| ( | ) |
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| ( | ) |
|
| ( | ) |
NET CASH USED IN INVESTING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Principal payment of convertible notes |
|
| ( | ) |
|
|
| |
Principal payments on Corbel term loan |
|
| ( | ) |
|
| ( | ) |
Lease liabilities |
|
|
|
|
|
| ||
NET CASH USED BY FINANCING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Decrease in cash |
|
| ( | ) |
|
| ( | ) |
Cash at beginning of period |
|
|
|
|
|
| ||
Cash at end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental schedule of investing and financing activities |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for income taxes |
| $ |
|
| $ - |
| ||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 7 |
| 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, 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 and nine-month periods ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024.
Significant Accounting Policies
There have been no significant changes in the Company’s accounting policies from those disclosed in the 2023 Form 10-K.
During the first quarter of 2023, the Company determined that it is entitled to an Employee Retention Tax Credit (“ERTC”) of $
In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” which is intended to simplify various aspects related to accounting for income taxes. ASU 2023-09 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2023-09 are effective for public business entities for fiscal years beginning after December 15, 2024, including interim periods
therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company will adopt ASU 2023-09 for fiscal year ending December 31, 2025. Management does not believe that there are any recently issued and effective or not yet effective accounting pronouncements as of September 30, 2024 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or income statement.
| 8 |
| Table of Contents |
Note 2 – As discussed in Note 2 of the 2023 Form 10-K, accounts payable and other accrued expenses along with accumulated deficit were restated for the first half of 2023 to reflect the balances carried forward from the restated 2022 amounts.
Note 3 – 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 September 30, 2024 and December 31, 2023 inventory consisted of the following:
|
| As of 12/31/23 |
|
| As of 9/30/24 |
| ||
Ingredient inventory used to make products in company locations |
| $ |
|
| $ |
| ||
Marketing materials |
|
|
|
|
|
| ||
Equipment inventory |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
Note 4 – Royalties and fees included initial franchise fees of $
The deferred contract income was $
At December 31, 2023 and September 30, 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 September 30, 2024, will be collected.
During the three-month and nine-month periods ended September 30, 2024 there were no Company-operated or franchised Craft Pizza & Pub restaurants opened or closed. There have been 51 new non-traditional locations opened thus far this year. The Company plans to open an additional 20 to 25 franchise locations prior to December 31, 2024.
Note 5 – As the Company reported previously, it is pursuing plans for new financing to repay the loan from Corbel Capital Partners SBIC, L.P. (the “Purchaser” or “Corbel”) and to repay the subordinated notes. There can be no assurance that the Company will be able to obtain the financing as planned 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. Based on terms indicated in ongoing discussions between the Company and potential lenders, the Company currently expects the refinancing will result in some reduction in its effective interest rate and without any equity-dilutive provisions such as were present in its current financing arrangement with Corbel.
| 9 |
| Table of Contents |
Note 6 - The following table sets forth the calculation of basic and diluted earnings per share for the nine-month period ended September 30, 2024. The comparability of results for the nine months ended September 30, 2024 and the nine months ended September 30, 2023 is limited because net income of $
The following table sets forth the calculation of basic and diluted earnings per share for the three-month periods ended September 30, 2024 and September 30, 2023:
|
| Three Months Ended September 30, 2024 |
| |||||||||
|
| Income (Numerator) |
|
| Shares (Denominator) |
|
| Per-Share Amount |
| |||
Net income |
| $ |
|
|
|
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and warrant dilution |
|
|
|
|
|
|
|
|
|
|
| |
Convertible notes |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ |
|
|
|
|
| $ |
| |||
|
| Three Months Ended September 30, 2023 |
| |||||||||
|
| Income (Numerator) |
|
| Shares (Denominator) |
|
| Per-Share Amount |
| |||
Net income |
| $ |
|
|
|
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and warrant dilution |
|
| - |
|
|
|
|
|
|
|
| |
Convertible notes |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ |
|
|
|
|
| $ |
| |||
The following table sets forth the calculation of basic and diluted earnings per share for the nine-month periods ended September 30, 2024 and September 30, 2023:
|
| Nine Months Ended September 30, 2024 |
| |||||||||
|
| Income (loss) (Numerator) |
|
| Shares (Denominator) |
|
| Per-Share Amount |
| |||
Net income |
| $ |
|
|
|
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and warrant dilution |
|
|
|
|
|
|
|
|
|
|
| |
Convertible notes |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ |
|
|
|
|
| $ |
| |||
| 10 |
| Table of Contents |
|
| Nine Months Ended September 30, 2023 |
| |||||||||
|
| Income (Numerator) |
|
| Shares (Denominator) |
|
| Per-Share Amount |
| |||
Net income |
| $ |
|
|
|
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and warrant dilution |
|
| - |
|
|
|
|
|
|
|
| |
Convertible notes |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ |
|
|
|
|
| $ |
| |||
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. 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
| 11 |
| Table of Contents |
At September 30, 2024, the balance of the Senior Note was comprised of:
Principal |
| $ |
| |
Unamortized Warrant Discount and Loan Closing Cost |
|
| ( | ) |
Carrying Value |
| $ |
|
Note 8 – Warrant liability of $
Expected volatility |
|
| % | |
Expected term (in years) |
|
|
| |
Risk-free interest rate |
|
| % |
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.
Note 10 - For the three months ended September 30, 2024, the Company recorded no current and deferred tax expense for an effective tax rate of
For the nine months ended September 30, 2024, the Company recorded no current and deferred tax expense for an effective tax rate of
The effective tax rates have differed from the statutory rate primarily due to changes in the valuation allowance.
Note 11 - The Company estimates the fair value of its option awards on the date of grant using the Black-Scholes option pricing model. The risk-free interest rate is based on external data while all other assumptions are determined based on the Company’s historical experience with stock options. The following assumptions were used for the issuance of
Expected volatility |
|
| % | |
Expected dividend yield |
|
| N/A |
|
Expected term (in years) |
|
|
| |
Risk-free interest rate |
|
| % |
Impact of COVID 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. In addition locations in the entertainment segment were forced and, in most states, required them to be closed for two years. Most of those locations did not have the financial ability left after that closure to reopen. 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 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 results for first quarter and nine months of 2024 with the corresponding periods of 2023.
| 12 |
| Table of Contents |
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 Craft Pizza & Pub 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 addition to the nine Company-operated Craft Pizza & Pub locations, during 2019 and 2020 the Company had three franchised locations opened. Today, in total, there are 12 Craft Pizza & Pub locations in operation.
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. Today the Company is focusing primarily on convenience stores and travel plazas for rapid expansion of its non-traditional franchises. These locations offer 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 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. |
| 13 |
| Table of Contents |
| · | 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, revenue from the franchising venue declined in 2021 and early 2022 due to the number of government-forced closures in an attempt to prevent the spread of COVID. 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 varied in different states but for the most part closing orders were in effect for two years after which most of those franchisees did not have the financial means of reopening.
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. The Company has sold and still has a significant pipeline of prospects to expand the number of franchise locations. In October 2023 the Company entered into a Development Agreement with Majors Management, LLC (“Majors”) for 100 franchise locations to be developed over the succeeding three years. Currently Majors has opened approximately 43 of the 100 franchised locations.
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.
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 Delicious 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.
| 14 |
| Table of Contents |
The Company designed its curbside service for carry-out customers, called “Pizza Valet Service,” to create added value and convenience. With Pizza Valet Service, customers place orders ahead, drive into the restaurant’s reserved valet parking spaces and have their pizza run to their vehicle by specially uniformed pizza valets. Customers who pay when they place their orders are able to drive up and leave with their order very quickly without stepping out of their vehicle. For those who choose to pay after they arrive, pizza valets can take credit card payments on their mobile payment devices right at the customer’s vehicle. With the fast baking times, the entire experience, from order to pick-up can take as little as 12 minutes.
Business Strategy
The Company is focused on revenue expansion while carefully managing corporate-level overhead expenses. The Company refocused its development plans toward selling more non-traditional franchises as a result of the pandemic coming to an end and the owners of non-traditional locations becoming more willing to look at expansion options and to invest in their growth. The Company has a significant pipeline of leads and prospects for future non-traditional franchise sales as well as a significant number of franchised locations sold but not yet open.
The initial franchise fees for a Noble Roman’s Pizza non-traditional location or a Craft Pizza & Pub location are as follows:
|
| Non-Traditional Except Hospitals |
|
| Non-Traditional Hospitals |
|
| Traditional Stand-Alone |
| |||
Either a Noble Roman’s Pizza or Craft Pizza & Pub |
| $ | 7,500 |
|
| $ | 10,000 |
|
| $ | 30,000 |
|
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.
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.
| 15 |
| Table of Contents |
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 percentage relationship to its revenue:
Description |
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||||||||||
|
| 2023 |
|
| 2024 |
|
| 2023 |
|
| 2024 |
| ||||||||||||||||||||
Revenue |
| $ | 2,175,219 |
|
|
| 100 | % |
| $ | 2,195,167 |
|
|
| 100 | % |
| $ | 6,639,213 |
|
|
| 100 | % |
| $ | 6,413,242 |
|
|
| 100 | % |
Cost of sales |
|
| 430,826 |
|
|
| 19.8 |
|
|
| 469,197 |
|
|
| 21.4 |
|
|
| 1,359,126 |
|
|
| 20.5 |
|
|
| 1,350,131 |
|
|
| 21.1 |
|
Salaries and wages |
|
| 643,081 |
|
|
| 29.6 |
|
|
| 632,823 |
|
|
| 28.8 |
|
|
| 1,913,450 |
|
|
| 28.8 |
|
|
| 1,855,157 |
|
|
| 28.9 |
|
Facility cost including rent, common area and utilities |
|
| 399,684 |
|
|
| 18.4 |
|
|
| 410,624 |
|
|
| 18.7 |
|
|
| 1,210,276 |
|
|
| 18.2 |
|
|
| 1,191,496 |
|
|
| 18.6 |
|
Packaging |
|
| 71,586 |
|
|
| 3.3 |
|
|
| 70,765 |
|
|
| 3.2 |
|
|
| 220,694 |
|
|
| 3.4 |
|
|
| 199,838 |
|
|
| 3.1 |
|
Third-party delivery fees |
|
| 26,227 |
|
|
| 1.2 |
|
|
| 45,156 |
|
|
| 2.1 |
|
|
| 86,444 |
|
|
| 1.3 |
|
|
| 146,640 |
|
|
| 2.3 |
|
All other operating expenses |
|
| 403,230 |
|
|
| 18.5 |
|
|
| 393,263 |
|
|
| 17.9 |
|
|
| 1,124,658 |
|
|
| 16.9 |
|
|
| 1,088,282 |
|
|
| 16.9 |
|
Total expenses |
|
| 1,974,635 |
|
|
| 90.8 |
|
|
| 2,021,828 |
|
|
| 92.1 |
|
|
| 5,914,648 |
|
|
| 89.1 |
|
|
| 5,831,544 |
|
|
| 90.9 |
|
Margin contribution |
| $ | 200,584 |
|
|
| 9.2 | % |
| $ | 173,339 |
|
|
| 7.9 | % |
| $ | 724,565 |
|
|
| 10.9 | % |
| $ | 581,698 |
|
|
| 9.1 | % |
The following table sets forth the revenue, expense and margin contribution of the Company’s franchising venue and the percentage relationship to its revenue:
Description |
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||||||||||
|
| 2023 |
|
| 2024 |
|
| 2023 |
|
| 2024 |
| ||||||||||||||||||||
Royalties and fees franchising |
| $ | 1,310,284 |
|
|
| 100 | % |
| $ | 1,437,697 |
|
|
| 100 | % |
| $ | 3,671,160 |
|
|
| 100 | % |
| $ | 4,298,735 |
|
|
| 100 | % |
Salaries and wages |
|
| 193,781 |
|
|
| 14.8 |
|
|
| 222,910 |
|
|
| 15.5 |
|
|
| 648,342 |
|
|
| 17.7 |
|
|
| 685,321 |
|
|
| 15.9 |
|
Franchise promotion expense |
|
| 44,936 |
|
|
| 3.4 |
|
|
| 60,105 |
|
|
| 4.2 |
|
|
| 229,056 |
|
|
| 6.2 |
|
|
| 180,682 |
|
|
| 4.2 |
|
Travel and auto |
|
| 37,908 |
|
|
| 2.9 |
|
|
| 40,038 |
|
|
| 2.8 |
|
|
| 96,057 |
|
|
| 2.6 |
|
|
| 122,404 |
|
|
| 2.8 |
|
All other operating expenses (benefit) |
|
| 119,152 |
|
|
| 9.1 |
|
|
| 176,728 |
|
|
| 12.3 |
|
|
| (1,009,710 | ) |
|
| (27.5 | ) |
|
| 461,736 |
|
|
| 10.8 |
|
Total expenses |
|
| 395,777 |
|
|
| 30.2 |
|
|
| 499,781 |
|
|
| 34.8 |
|
|
| (36,255 | ) |
|
| (1.0 | ) |
|
| 1,450,143 |
|
|
| 33.7 |
|
Margin contribution |
| $ | 914,507 |
|
|
| 69.8 | % |
| $ | 937,916 |
|
|
| 65.2 | % |
| $ | 3,707,415 |
|
|
| 101 | % |
| $ | 2,848,592 |
|
|
| 66.3 | % |
| 16 |
| Table of Contents |
The following table sets forth the revenue, expense and margin contribution of the Company-owned non-traditional venue and the percentage relationship to its revenue:
Description |
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||||||||||||||||||
|
| 2023 |
|
| 2024 |
|
| 2023 |
|
| 2024 |
| ||||||||||||||||||||
Revenue |
| $ | 247,252 |
|
|
| 100 | % |
| $ | 218,193 |
|
|
| 100 | % |
| $ | 707,217 |
|
|
| 100 | % |
| $ | 693,045 |
|
|
| 100 | % |
Total expenses |
|
| 240,245 |
|
|
| 97.2 |
|
|
| 269,674 |
|
|
| 123.6 |
|
|
| 566,225 |
|
|
| 80.1 |
|
|
| 730,723 |
|
|
| 105.4 |
|
Margin contribution (loss) |
| $ | 7,007 |
|
|
| 2.8 | % |
| $ | (51,481 | ) |
|
| (23.6 | )% |
| $ | 140,992 |
|
|
| 19.9 | % |
| $ | (37,676 | ) |
|
| (5.4 | )% |
Results of Operations
Company-Owned Craft Pizza & Pub
The revenue from this venue increased from $2.175 million to $2.195 million for the three-months ended September 30, 2024 compared to the corresponding period in 2023, and decreased from $6.64 million to $6.41 million for the nine-month period ended September 30, 2024 compared to the corresponding period in 2023. The increase in revenue for the three-month period was a result of a recent turnaround in same store sales over a year ago and the decrease in revenue for the nine-month period was the result of declines in same store sales earlier in the year due to the weakness in consumer spending resulting from an increase in credit card debt, an increase in gas prices and overall inflation resulting in less disposable income resulting in consumers spending less on each trip out. Since the end of the third quarter, sales have continued to trend over same weeks in 2023 at a faster pace.
Cost of sales, as a percentage of revenue, increased from 19.8% to 21.4% for the three-month period and from 20.5% to 21.1% for the nine-month period ended September 30, 2024 compared to the corresponding periods in 2023. The Company has incurred significant increases in product cost, especially with cheese prices, but was able to offset some of that extra cost after manufacturer negotiations, with internal adjustments to operating systems and with efficiency gained in operations as staffing levels stabilized and employee experience levels increased.
Salaries and wages, as a percentage of revenue, decreased from 29.6% to 28.8% for the three-month period ended September 30, 2024 compared to the corresponding period in 2023, and increased from 28.8% to 28.9% for the nine-month period ended September 30, 2024 compared to the corresponding period in 2023. The cost of salaries and wages has increased significantly due to the competitive environment for available labor caused by the general shortage of available labor, which was partially offset by a menu price increase in early 2022. The Company, in October 2024, took a small menu price increase which was the first increase since early 2022. The Company has largely offset the salary and wage increases with more efficient planning and supervision of labor usage.
Gross margin contribution as a percentage of revenue was 7.9% and 9.1% for the three-month and nine-month periods ended September 30, 2024 compared to 9.2% and 10.9% for the corresponding periods in 2023. The decrease in margin was primarily due to the increase in cost of sales, increase in cost of third-party deliveries and small increase in facility cost mostly as a result of increased utility costs.
| 17 |
| Table of Contents |
Franchising
Total revenue was $1.44 million and $4.30 million for the three-month and nine-month periods ended September 30, 2024, compared to $1.31 million and $3.67 million for the comparable periods in 2023, respectively. Franchising revenue reflected strong increase in both the three-month and nine-month periods over the corresponding periods in 2023 because of the increase in number of franchise locations opened in these periods. During the fourth quarter of 2022, the Company recognized that with the pandemic winding down non-traditional locations, particularly in the convenience stores and travel plazas, were strongly considering better food options to grow their business and increase their margins. By shifting emphasis to growth in the non-traditional segment the Company was able to take advantage of that new opportunity without incurring additional overhead. The interest in new growth opportunities in this venue is continuing, and with new franchise agreements and the backlog of prospects, this trend is expected to continue. In addition, on October 27, 2023, the Company entered into a Development Agreement with Majors Management, LLC (“Majors”) for the development of 100 new non-traditional franchise locations. The Development Agreement requires the developer to have 31 locations open by June 30, 2024, 50 locations open by December 31, 2024, with the remainder of the 100 locations to be open by September 30, 2026. Due to Majors’ employee issues, which have delayed opening new locations, they are expected to be slightly short of the 50 locations opened by December 31, 2024 and the Company has granted them a waiver on that requirement without changing the requirements for future periods.
Salaries and wages, franchise promotion expense, insurance and other operating costs as a percentage of revenue were 19.3% and 17.8% for the three-month and nine-month periods ended September 30, 2024 compared to 15.4% and (18.7)%, respectively, for the corresponding periods in 2023. The Company applied for and has received payments in respect of the ERTC provided by the Coronavirus Aid, Relief and Economic Security 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 results for the nine months of 2024 with the corresponding period in 2023.
Margin contribution was 65.2% and 66.3%, as a percentage of revenue, for the three-month and nine-month periods ended September 30, 2024, compared to 69.8% and 101% for the comparable periods in 2023, respectively. The increase in margin contribution during the three-month period ended September 30, 2024, was a result of the growth in revenue, as described above, plus a corresponding reduction of operating expenses. The Company applied for and has received payments in respect of the ERTC provided by the Coronavirus Aid, Relief and Economic Security 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 results for the nine months of 2024 with the corresponding period in 2023. Even though the periods are not comparable, as described above, current year performance does show that extra revenue generated by the opening of new locations highly contributes to future net income based on this demonstrative margin.
| 18 |
| Table of Contents |
Company-Owned Non-Traditional Locations
Gross revenue was $218,000 and $693,000 during the three-month and nine-month periods ended September 30, 2024, compared to $247,000 and $707,000 for the comparable periods in 2023, respectively. During the three-month period ended September 30, 2024, as a result of a major expansion in the hospital bed capacity, the cafeteria area which contains in part the Noble Roman’s Pizza and Tuscano’s Subs facilities, were closed and moved to a temporary location with very limited hours resulting in a decrease in sales during that period. That cafeteria remodeling has now been completed in October and both the Noble Roman’s and Tuscano’s have returned to their prior positions and regular hours and sales have thus far increased to more than they were prior to the temporary shutdown. 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 were $270,000 and $731,000 for the three-month and nine-month periods ended September 30, 2024, compared to $240,000 and $566,000 for the comparable periods in 2023, respectively. The Company applied for and has received payments in respect of the ERTC provided by the Coronavirus Aid, Relief and Economic Security 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 results for the nine months of 2024 with the corresponding period in 2023. To compound the non-comparability was the closure of the locations in their normal position and move to a temporary location with limited hours.
Corporate Level Results of Operations
Depreciation and amortization were $96,000 and $289,000 for the three-month and nine-month periods ended September 30, 2024, compared to $96,000 and $287,000 for the comparable periods in 2023, respectively. Depreciation remains relatively constant as the Company has not added any new Craft Pizza & Pub locations in the last two years.
General and administrative expenses were $566,000 and $1.71 million for the three-month and nine-month periods ended September 30, 2024, compared to $519,000 and $1.56 million for the comparable periods in 2023, respectively. The Company maintained tight control of its operating expenses while growing its franchising revenue.
Operating income was $417,000 and $1.41 million for the three-month and nine-month periods ended September 30, 2024 compared to $514,000 and $2.74 million for the comparable periods in 2023, respectively. The comparability of results for the nine months ended September 30, 2024 and the nine months ended September 30, 2023 is limited because operating income of $2.74 million for the nine months ended September 30, 2023 included $1.46 million of reimbursement of expenses by the ERTC refund which related to periods before the nine months ended September 30, 2023. Without that refund being recorded in the first quarter of 2023, the Company would have reported an operating income of approximately $1.28 million. The ERTC refund reflected excess costs and lost revenue incurred by the Company as a result of government restrictions in an attempt to prevent the spread of a novel strain of COVID.
Interest expense was $416,000 and $1.24 million for the three-month and nine-month periods ended September 30, 2024 compared to $359,000 and $1.12 million for the comparable periods in 2023, respectively. The interest expense was reduced by the monthly principal payments required by the loan agreement in addition to voluntary payments to amortize principal totaling approximately $579,000, offset by an increase in principal by adding the PIK note interest to the principal amount each month and the increase in the variable rate of the Corbel loan which is tied to SOFR plus 7.75% for cash payments plus other accruals.
| 19 |
| Table of Contents |
The fair market value of the Company’s outstanding warrants decreased from $731,037 to $538,822 as computed by an outside expert using the Black-Scholes method of calculation for the three-month period ended September 30, 2024.
As a result of the above factors, net income was $193 thousand and $164 thousand for the three-month and nine-month periods ended September 30, 2024, compared to $154.5 thousand and $1.35 million for the comparable periods in 2023, respectively. The comparability of results for the nine months ended September 30, 2024 and the nine months ended September 30, 2023 is limited because net income of $1.35 million for the nine months ended September 30, 2023 included $1.46 million of reimbursement of expenses claimed on amended IRS 941 returns in accordance with ERTC provisions net of expenses to prepare the amended 941 returns which related to periods before the nine months ended September 30, 2023. Without that refund being recorded in the first quarter of 2023, the Company would have reported a net loss of approximately $110,000. The ERTC refund reflected excess costs and lost revenue incurred by the Company as a result of government restrictions in an attempt to prevent the spread of a novel strain of COVID.
Liquidity and Capital Resources
The Company’s current ratio was .3-to-1 as of September 30, 2024 compared to 1.1-to-1 as of December 31, 2023. As the Company reported previously, it is pursuing plans for new financing to repay the Corbel loan and to repay the subordinated notes. There can be no assurance that the Company will be able to obtain the financing as planned on favorable terms. 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. Based on terms indicated in ongoing discussions between the Company and potential lenders, the Company currently expects the financing will result in a reduction in its effective interest rate and without any equity-dilutive provisions such as were present in its current financing arrangement with Corbel.
In January 2017, the Company completed the offering of $2.4 million principal amount of subordinated promissory notes (the “Notes”) convertible into 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 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 million principal amount of the Notes was repaid in conjunction with a new financing leaving a principal balance of $625,000 of Notes outstanding due January 31, 2023. In April 2023, a Note in the principal amount of $50,000 was repaid by the Company, with the approval of senior lender, 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 million 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.
| 20 |
| Table of Contents |
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 currently, requires principal payments of $83,333 per month and continuing until maturity. In July 2023, the Company voluntarily prepaid principal of approximately $579,000.
See Note 1 to the Company’s consolidated financial statements for discussion of funds received from the ERTC.
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. Based upon ongoing discussions with potential lenders, the Company expects to obtain new financing to pay its outstanding debt payable to Corbel and the outstanding subordinated notes 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 service its loans and to obtaining financing to pay the Senior Note and the remaining subordinates notes before their maturity in 2025, shifts in market demand, the success of franchise programs, general economic conditions, changes in demand for the Company’s products or franchises, the acceptance of the amended federal Form 941 return relating to the ERTC, 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 the 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.
| 21 |
| Table of Contents |
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Company’s exposure to interest rate risk relates primarily to its variable-rate debt and the rate that will be required for the new financing. As of September 30, 2024, the Company had outstanding variable interest-bearing debt in the aggregate principal amount of approximately $6.9 million. The Company’s current borrowings are 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.
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 September 30, 2024, the Company’s disclosure controls and procedures were 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, which has now been corrected.
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 the reconciliation of 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 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.
| 22 |
| Table of Contents |
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is not involved in material litigation against it.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
ITEM 5. Other Information.
Not applicable.
ITEM 6. Exhibits.
Index to Exhibits
Exhibit Number
Description
3.1 |
| Amended Articles of Incorporation of the Registrant, filed as an exhibit to the Registrant’s Amendment No. 1 to the Post-Effective Amendment No. 2 to Registration Statement on Form S-1 filed July 1, 1985 (SEC File No.2-84150), is incorporated herein by reference. |
|
|
|
| ||
|
|
|
3.3 |
| 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. |
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
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. |
|
|
|
| ||
|
|
|
| ||
|
|
|
|
| 23 |
| Table of Contents |
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
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. |
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
101 |
| Interactive Financial Data |
*Management contract or compensation plan.
| 24 |
| 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. | |||
| Date: November 13, 2024 | By: | /s/ Paul W. Mobley | |
| Paul W. Mobley, Executive Chairman, Chief Financial Officer and Principal Accounting Officer (Authorized Officer and Principal Financial Officer) | ||
| 25 |
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.; |
|
|
|
|
|
| 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; |
|
|
|
|
|
| 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; |
|
|
|
|
|
| 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: |
|
| (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; |
|
|
|
|
|
| (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; |
|
|
|
|
|
| (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 |
|
|
|
|
|
| (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): |
|
| (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 |
|
|
|
|
|
| (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: November 13, 2024 | /s/ A. Scott Mobley | ||
|
|
| A. Scott Mobley President and Chief Executive Officer |
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.; |
|
|
|
|
|
| 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; |
|
|
|
|
|
| 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; |
|
|
|
|
|
| 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: |
|
| (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; |
|
|
|
|
|
| (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; |
|
|
|
|
|
| (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 |
|
|
|
|
|
| (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): |
|
| (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 |
|
|
|
|
|
| (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: November 13, 2024 | /s/ Paul W. Mobley | ||
|
|
| Paul W. Mobley Executive Chairman and Chief Financial Officer |
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 September 30, 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:
|
| (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 |
|
|
|
|
|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ A. Scott Mobley | |||
|
|
| A. Scott Mobley President and Chief Executive Officer of Noble Roman’s, Inc. | |
| November 13, 2024 |
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 September 30, 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:
|
| (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 |
|
|
|
|
|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Paul W. Mobley | |||
|
|
| Paul W. Mobley Executive Chairman and Chief Financial Officer of Noble Roman’s, Inc. | |
| November 13, 2024 |