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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 for the fiscal year ended December 31, 2004.
Transition Report Pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934
for the transition period from to .
----------------- -----------------
Commission file number 0-11104
NOBLE ROMAN'S, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1281154
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Virginia Avenue, Suite 800
Indianapolis, Indiana 46204
(Address of principal executive offices)
Registrant's telephone number: (317) 634-3377
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
--- ---
The aggregate market value of the voting and non-voting common stock held
by non-affiliates of the registrant as of June 30, 2004, the last business day
of the registrant's most recently completed second fiscal quarter, based on the
closing price of the registrant's common shares on such date was $21,977,816.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 17,136,884 shares of
common stock as of March 15, 2005.
Documents Incorporated by Reference: None
NOBLE ROMAN'S, INC.
FORM 10-K
Year Ended December 31, 2004
Table of Contents
Item #
in Form 10-K Page
PART I
1. Business 3
2. Properties 7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 8
PART II
5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 9
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
7A. Quantitative and Qualitative Disclosures About Market Risk
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 27
9A. Controls and Procedures 27
9B. Other Information 27
PART III
10. Directors and Executive Officers of the Registrant 27
11. Executive Compensation 28
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 31
13. Certain Relationships and Related Transactions 33
PART IV
14. Principal Accounting Fees and Services 34
15. Exhibits, Financial Statements Schedules 35
2
PART 1
ITEM 1. BUSINESS
General Information
- -------------------
Noble Roman's, Inc., an Indiana corporation incorporated in 1972 (the
"Company"), sells and services franchises for non-traditional and co-branded
foodservice operations under the trade names "Noble Roman's Pizza" and
"Tuscano's Italian Style Subs." The concepts' hallmarks include high quality
pizza and sub sandwiches, along with other related menu items, simple operating
systems, labor-minimizing operations, attractive food costs and overall
affordability. Prior to focusing its efforts on franchising for non-traditional
and co-branded foodservice operations, the Company had approximately 25 years'
experience operating full-service pizza restaurants, giving it unique advantages
in the design and consultation of foodservice systems for franchisees. Since
1997, the Company has focused its efforts and resources primarily on franchising
for non-traditional and co-branded locations and now has awarded franchises in
44 states plus Washington, D.C., Puerto Rico, Guam, Italy and Canada. Since the
franchises are typically installed in pre-existing, high-traffic commercial,
military, educational and recreational facilities, a typical franchise requires
an investment of approximately $25,000 to $130,000 per franchise per location.
Royalties and fees from franchise operations accounted for 84.9%, 86.1% and
85.8% of total revenue for 2002, 2003 and 2004, respectively. Other financial
information about the Company's business, including revenue, profit and loss,
and total assets, is detailed in Item 8 - Financial Statements and Supplementary
Data.
Products & Systems
- ------------------
Noble Roman's Pizza
- -------------------
Superior quality that our customers can taste - that is the hallmark of Noble
Roman's Pizza. Every ingredient and process has been developed in such a way as
to produce superior results. Here are a few of the differences that make our
product unique:
o Crust made with only specially milled flour with above average protein
and yeast.
o Fresh packed, uncondensed sauce made with secret spices, parmesan
cheese and vine-ripened tomatoes.
o 100% real cheese blended from mozzarella and muenster, with no soy
additives or extenders.
o 100% real meat toppings, again with no additives or extenders - a real
departure from many pizza concepts.
o Vegetable and mushroom toppings that are sliced and delivered fresh,
never canned.
o An extended product line that includes breadsticks with dip, pasta,
baked sandwiches, salads, wings and a line of breakfast products.
o A recently introduced fully-prepared pizza crust that captures the
made-from-scratch pizzeria flavor which gets delivered to the
franchise location shelf-stable so that dough handling is no longer an
impediment to a consistent product.
3
The Company carefully developed all of its menu items to be delivered in a
ready-to-use form requiring only on-site assembly and baking. These menu items
are manufactured by third party vendors and distributed by unrelated
distributors who deliver throughout all 48 contiguous states. This process
results in products that are great tasting, quality consistent, easy to
assemble, relatively low in food cost and require very low amounts of labor.
The operating systems are also uniquely developed for simplicity of operation
and for minimizing hourly labor requirements and management intensiveness.
Operational layout, product pre-preparation, assembly and baking, and customer
fulfillment were all designed to function efficiently and cost-effectively with
minimal space requirements. Service systems are customizable by franchise venue,
but generally the customers either select from a variety of instantly available
"grab-and-go" products in an attractive countertop kiosk display, or made and
baked-to-order traditional large pizzas with their favorite toppings. Pizzas and
all other menu items have been designed for quick assembly and baking through
stackable conveyor ovens. All menu items can be ready to serve in approximately
five minutes or less utilizing our fully-prepared pizza crust.
A unique feature of the Noble Roman's program is the menu flexibility offered
franchisees. The core package includes such items as 14" large pizzas,
individual sized 7" pizzas and breadsticks with dip. From this core, franchisees
may also select any of the following product extensions: three types of baked
pastas, two flavors of Buffalo wings, three types of hot sandwiches and a
breakfast menu of various biscuit sandwiches, biscuits and gravy and a cinnamon
round.
Tuscano's Italian Style Subs
- ----------------------------
During 2004, the Company improved its cold sub sandwich menu items and expanded
the offerings into a separate concept called Tuscano's Italian Style Subs.
Tuscano's was designed to be comfortably familiar from a customer's perspective
but with many distinctive features that include an Italian themed menu. The
franchise fee and ongoing royalty for a Tuscano's is identical to that charged
for a Noble Roman's Pizza franchise. To date, franchisees have opened 21
Tuscano's locations, and the Company has awarded 21 additional Tuscano's
franchise agreements to be opened soon. For the most part, the Company expects
to award Tuscano's franchises for the same facilities as Noble Roman's Pizza
franchises, although Tuscano's franchises are also available for locations that
do not have a Noble Roman's Pizza franchise.
Tuscano's was created with special distinction designed into every component key
to the operator, from the delicious food, to the simple to operate systems and
to the productivity of the investment itself. With its Italian theme setting it
apart, Tuscano's offers brand name authority with the marketing power of
distinctiveness. Tuscano's was designed to be comfortably familiar with the
customer. For example, like most other brand name sub concepts, customers select
menu items at the start of the counter line then choose toppings and sauces
according to their preference until they reach the cash out point. Yet Tuscano's
has many distinctive competitive features, including its Tuscan theme, the extra
rich yeast content of its fresh baked bread, the thematic menu selections and
serving options, and the generous yet cost effective quality sauces and spreads.
Tuscano's was designed to be premium quality, simple to operate and cost
effective.
Tuscano's menu offers a wide variety of products with built-in simplicity of
operations and with surprisingly few ingredients. The menu offers any of the
sandwiches with the customer's choice of fresh baked white bread, wheat bread or
a tomato basil wrap and the customer further gets to choose to have the sandwich
either cold or grilled. The customers are offered a wide variety of tastes by
choosing their
4
choice of meat, their choice of toppings and any of a host of sauces and
spreads. The menu also offers large and appealing Salad Bowls which can be
upgraded to a Salad Supremo by adding on top any of the pre-set sandwich meat
and topping combinations. In addition, the menu offers a delicious soup of the
day which can be chosen from a variety of soups.
Typical Locations & Growth Plans
- --------------------------------
Typical non-traditional locations include hospitals, military bases,
universities, recreational facilities, hotels, office buildings, convenience
stores, travel plazas and other types of locations with pre-existing customer
traffic. The Company attempts to co-brand Noble Roman's Pizza and Tuscano's
Italian Style Subs where possible, however, the Company has some other
co-branding relationships with other restaurant chains for both traditional and
non-traditional locations. Co-branding allows the owners of the franchises to
include multiple concepts and menu offerings while utilizing their existing
facility investment and overhead structure. With much of the fixed overhead
required already in place for one concept, a second concept can be added with
the potential of extremely attractive margins on the additional sales it
attracts to the location.
The Company has now awarded over 1,300 franchises since 1997 in 44 states plus
Washington, D.C., Puerto Rico, Guam, Italy and Canada. In addition to the
pipeline of sold but unopened locations, it is the Company's plan to
aggressively pursue the sale of additional franchises. The Company is currently
involved in ongoing discussions and negotiations involving many additional
franchise locations.
In December 2004, the Company announced its intent to franchise dual branded
Noble Roman's Pizza and Tuscano's Italian Style Subs restaurants in traditional
locations. These dual branded locations have separate menu boards and counter
designs with different appearances for the two concepts but utilize a central
cashier station between the two operations. The benefits of this concept are
significant to the franchisee as rent and other operating expenses are shared by
the two concepts, employees can be cross-trained and some restaurant equipment
can be shared between the two operations. Another benefit is that, historically,
sandwich restaurants do a majority of their business during the lunch hours
while pizza restaurants do a majority of their sales in the evening hours. In
order to develop these traditional restaurants in central Indiana, the Company
entered into a Development Agreement with an independent Development Agent so as
to not divert the efforts of existing development employees from the continued
franchising of non-traditional locations.
Company Strategy
- ----------------
The Company's focus will remain on aggressively growing its business through
franchising non-traditional and co-brand locations with either a "Noble Roman's
Pizza" or a "Tuscano's Italian Style Subs," or preferably both. To accomplish
this goal the Company participates in selective trade shows whereby it rents
trade show space sponsored by various industry organizations. At these trade
shows, the Company displays both of its concepts and prepares, cooks and serves
its various menu items for sampling and demonstration. In addition, the Company
takes its show equipment to various prospects where it sets up a unit in the
prospect's office or in a nearby hotel conference room where the Company
demonstrates its concepts and products in private showings for the individual
prospects. For the next several years the Company plans to concentrate its
growth targets to hospitals, military bases, universities, recreational
facilities, hotels, office buildings, convenience stores, travel plazas and in
traditional locations with its dual branded concepts. In addition, the Company
will aggressively pursue expansion of its dual brand concept for traditional
locations by utilizing independent Development Agents.
5
Competition
- -----------
The restaurant industry in general is very competitive with respect to
convenience, price, product quality and service. In addition, the Company
competes for franchise sales on the basis of product engineering and quality,
investment cost, cost of sales, distribution, simplicity of operation and labor
requirements. A change in the business strategy of one or more of the Company's
competitors could have an adverse effect on the Company's ability to sell
additional franchises, maintain and renew existing franchises or sell its
products through its franchise system. Many of the Company's competitors are
very large, internationally established companies.
Within the competitive environment of the non-traditional franchise segment of
the restaurant industry, management has defined what it believes to be certain
competitive advantages for the Company. First, several of the Company's
competitors in the non-traditional segment are also large chains operating
thousands of franchised, traditional restaurants. Because of the contractual
relationships with many of their franchisees, some competitors may be unable to
offer wide-scale site availability for potential non-traditional franchisees.
The Company is not faced with any significant geographic restrictions.
Several of the Company's competitors in the non-traditional segment were
established with little or no organizational history in owning and operating
traditional foodservice locations. This lack of operating experience may be a
limitation for them in attracting and maintaining non-traditional franchisees
who, by the nature of the segment, often have little exposure to foodservice
operations themselves. The Company's background in traditional restaurant
operations has provided it experience in structuring, planning, marketing, and
cost controlling franchise unit operations which may be of material benefit to
franchisees.
Seasonality of Sales
- --------------------
Direct sales of non-traditional franchises may be affected in minor ways by
certain seasonalities and holiday periods. Franchise sales to certain
non-traditional venues may be slower around major holidays such as Thanksgiving
and Christmas, and during the first couple of months of the year. Franchise
sales to other non-traditional venues show less or no seasonality. Additionally,
in middle and northern climates where adverse winter weather conditions may
hamper outdoor travel or activities, foodservice sales by franchisees may be
sensitive to sudden drops in temperature or precipitation which would in turn
affect Company royalties.
Employees
- ---------
As of February 25, 2005, the Company employed approximately 29 persons full-time
and 34 persons on a part-time, hourly basis. No employees are covered under
collective bargaining agreements, and the Company believes that relations with
its employees are good.
Trademarks and Service Marks
- ----------------------------
The Company owns and protects several trademarks and service marks. Many of
these, including NOBLE ROMAN'S (R), Noble Roman's Pizza(R), Noble Roman's Pizza
Express((TM)), THE BETTER PIZZA PEOPLE (R) and Tuscano's Italian Style Subs(R)
are registered with the United States Patent and Trademark Office as well as
with the corresponding agencies of certain other foreign governments. The
6
Company believes that its trademarks and service marks have significant value
and are important to its sales and marketing efforts.
Government Regulation
- ---------------------
The Company and its franchisees are subject to various federal, state and local
laws affecting the operation of our respective businesses. Each franchise
location is subject to licensing and regulation by a number of governmental
authorities, which include health, safety, sanitation, building and other
agencies and ordinances in the state or municipality in which the facility is
located. The process of obtaining and maintaining required licenses or approvals
can delay or prevent the opening of a franchise location. Vendors, such as our
third party production and distribution services, are also licensed and subject
to regulation by state and local health and fire codes, and U. S. Department of
Transportation regulations. The Company, its franchisees and its vendors are
also subject to federal and state environmental regulations.
The Company is subject to regulation by the Federal Trade Commission ("FTC") and
various state agencies pursuant to federal and state laws regulating the offer
and sale of franchises. Several states also regulate aspects of the
franchisor-franchisee relationship. The FTC requires us to furnish to
prospective franchisees a disclosure document containing certain specified
information. Some states also regulate the sale of franchises and require
registration of a franchise offering circular with state authorities.
Substantive state laws that regulate the franchisor-franchisee relationship
presently exist in a substantial number of states, and bills have been
introduced in Congress from time to time that would provide for federal
regulation of the franchisor-franchisee relationship in certain respects. The
state laws often limit, among other things, the duration and scope of
non-competition provisions and the ability of a franchisor to terminate or
refuse to renew a franchise. Some foreign countries also have disclosure
requirements and other laws regulating franchising and the franchisor-franchisee
relationship, and the Company would be subject to applicable laws in each
jurisdiction where it seeks to market additional franchised units.
ITEM 2. PROPERTIES
The Company's headquarters are located in 8,000 square feet of leased office
space in Indianapolis, Indiana. The lease for this property expires in December
2008.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various litigation relating to claims arising out of
its normal business operations and relating to restaurant facilities closed in
1997 and 2000.
The Company has an outstanding note payable originally made in favor of a bank
with an unpaid principal balance of $7,700,000. By the terms of the note it was
to bear interest of 8.75% per annum payable monthly in arrears. SummitBridge
National Investments, LLC reported that it had purchased this note in October
2003, as well as convertible preferred stock of the Company with an aggregate
liquidation preference of $4,929,275 (convertible into 1,643,092 shares of
common stock of the Company), 3,214,748 shares of common stock and a warrant to
purchase 385,000 shares of common stock at an exercise price of $.01 per share.
The preferred stock, common stock and warrant were issued to the bank lender in
conjunction with various financing transactions. Under the Indiana Control Share
Acquisition Law, SummitBridge currently has no voting rights with respect to the
shares it acquired. The Company also has advised SummitBridge of the Company's
position that the Indiana Business Combination Law prohibits
7
SummitBridge from engaging in certain transactions with the Company until the
fifth anniversary of the acquisition, including receipt of payment in respect of
the debt obligation and receipt of common stock issuable upon conversion of the
convertible preferred stock. The Company also believes that the warrants have
expired and no longer are exercisable.
The Company filed a Complaint For Declaratory Judgment, Money Damages and Jury
Trial in the Marion Superior Court Civil Division against SummitBridge seeking
(among other relief) confirmation of the Company's position under the Indiana
Business Combination Law and as to the Company's obligations under the loan.
SummitBridge filed an Answer, as well as a Counterclaim against the Company
seeking payment of the unpaid principal and interest of the note and against
certain of its subsidiaries and a principal shareholder to enforce certain
purported guarantees.
SummitBridge also filed a motion for Judgment on the Pleadings as to a portion
of the Complaint filed by the Company. That motion sought for the Court to rule
that the Indiana Business Combination Law does not prevent SummitBridge from
enforcing its purported rights under the loan and related instruments it
purchased from the bank. SummitBridge's motion was briefed and argued and the
Court denied SummitBridge's motion. The Company intends to continue to
vigorously prosecute its claims against SummitBridge and to defend against
SummitBridge's counterclaims.
The Company recently filed a Motion For Leave To Amend Its Complaint For
Declaratory Judgment, Money Damages and Jury Trial by adding additional counts
for SummitBridge's tortious interference with its business relationships and
tortious interference with its contractual relationships, as well as treble
damages and that motion recently was granted. SummitBridge has not yet filed its
answer to the amended complaint.
Although there can be no assurance, the Company believes that the outcome of
current legal proceedings, individually or in the aggregate, will not have a
material adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
- ------------------
The Company's common stock is included on Nasdaq "Electronic Bulletin Board" and
trades under the symbol "NROM."
The following table sets forth for the periods indicated, the high and low bid
prices per share of common stock as reported by Nasdaq. The quotations reflect
inter-dealer prices without retail mark-up, mark-down or commissions and may not
represent actual transactions.
2003 2004 2005
---- ---- ----
Quarter Ended: High Low High Low High Low
-------------- ---- --- ---- --- ---- ---
March 31 $ .95 $ .65 $1.55 $1.01 $.95* $.79*
June 30 .95 .65 1.50 1.15
September 30 1.11 .85 1.35 1.00
December 31 1.60 1.10 1.15 .73
*Includes transactions through March 15, 2005.
Holders of Record
- -----------------
As of March 15, 2005, the Company believes there were approximately 349 holders
of record of common stock. This excludes persons whose shares are held of record
by a bank, brokerage house or clearing agency.
Dividends
- ---------
The Company has never declared or paid dividends on its common stock. The
Company intends to retain earnings to fund the development and growth of its
business and does not expect to pay any dividends within the foreseeable future.
Sale of Unregistered Securities
- -------------------------------
None.
9
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share data)
Year Ended December 31,
--------------------------------------------------------
Statement of Operations Data: 2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
Royalties and fees $ 4,760 $ 5,162 $ 5,644 $ 6,701 $ 6,789
Administrative fees and other 798 306 294 199 125
Restaurant revenue -- 279 711 882 998
-------- -------- -------- -------- --------
Total revenue 5,559 5,747 6,649 7,782 7,912
Operating expenses 1,903 2,051 2,152 2,328 2,522
Restaurant operating expenses -- 266 702 867 962
Depreciation and amortization 58 54 63 68 50
General and administrative 1,265 1,207 1,255 1,259 1,403
-------- -------- -------- -------- --------
Operating income 2,332 2,169 2,477 3,260 2,975
Interest and other 1,276 1,255 1,254 1,047 946
-------- -------- -------- -------- --------
Income before income taxes from continuing
operations 1,055 914 1,223 2,213 2,029
Income taxes 359 311 416 752 690
-------- -------- -------- -------- --------
Net income from continuing operations 696 603 807 1,461 1,339
Loss from discontinued operations (165) (1,671) (313) (167) (404)
-------- -------- -------- -------- --------
Net income (loss) $ 531 $ (1,068) $ 494 $ 1,294 $ 935
======== ======== ======== ======== ========
Weighted average number of common shares 11,371 14,794 16,058 16,169 16,280
Net income per share from continuing
operations $ .06 $ .04 $ .05 $ .09 $ .08
(Loss) per share from discontinued operations (.01) (.11) (.02) (.01) (.02)
-------- -------- -------- -------- --------
Net income (loss) per share $ .05 $ (.07) $ .03 $ .08 $ .06
======== ======== ======== ======== ========
Balance sheet data (at year end):
Working capital (deficit) $ 1,249 $ (83) $ 16 $ 2,220 $ 2,107
Total assets 12,995 13,192 13,601 14,284 15,249
Long-term obligations 9,999 10,141 9,232 10,099 9,740
Stockholders' equity $ 1,688 $ 675 $ 1,168 $ 2,462 $ 4,256
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The Company's principal business strategy is to grow its business by franchising
primarily in non-traditional locations.
Earlier this year, the Company improved its cold sub sandwich menu items, and
expanded the offerings into a separate concept named Tuscano's Italian Style
Subs. Tuscano's was designed to be comfortably familiar from a customer's
perspective, but with many distinctive features that include an Italian-themed
menu. The franchise fee and ongoing royalty for a Tuscano's is identical to that
charged for a Noble Roman's Pizza franchise. To date, franchisees have opened 21
Tuscano's locations. The Company has awarded 21 additional Tuscano's franchise
agreements to be opened soon. For the most part, the Company expects to award
Tuscano's franchises for the same facilities as Noble Roman's Pizza franchises,
although Tuscano's franchises are also available for locations that do not have
a Noble Roman's Pizza franchise.
10
The Company continues to focus on awarding franchise agreements for both Noble
Roman's Pizza and Tuscano's Italian Style Subs in non-traditional venues such as
hospitals, military bases, universities, convenience stores, attractions,
entertainment facilities, casinos, airports, travel plazas, office complexes and
hotels. Noble Roman's has sold franchises in 44 states from coast-to-coast
within the United States. In addition, it has sold franchise agreements for
military bases in Puerto Rico, Guam and Italy, and for entertainment facilities
and convenience stores in Canada.
Both franchising concepts were designed to capitalize on the rapid growth of
non-traditional locations for quick service restaurants and to be simple to
operate, requiring a modest investment, with minimal staffing requirements while
serving great tasting menu items. The concepts were designed to be convenient
and quick for its customers. Based on the Company's experience, we believe that
franchising for non-traditional locations offers many opportunities for growth
for the foreseeable future.
In December 2004, the Company announced its intent to franchise dual branded
Noble Roman's Pizza and Tuscano's Italian Style Subs restaurants in traditional
locations. These dual branded locations have separate menu boards and counter
designs with different appearances for the two concepts but utilize a central
cashier station as centered between the two operations. The benefits of this
concept are significant to the franchisee as rent and other operating expenses
are shared by the two concepts, employees can be cross-trained and some
restaurant equipment can be shared between the two operations. Another benefit
is that traditionally sandwich restaurants do a majority of their business
during the lunch hour while pizza restaurants do a majority of their sales in
the evening hours. In order to develop these traditional restaurants in central
Indiana, the Company entered into a Development Agreement with an independent
Development Agent so as to not divert the attention of our existing development
employees from the continued development of non-traditional locations.
Based on the Company's 2002, 2003 and 2004 operating results, its business plan,
the number of franchise units now open, the backlog of units sold to be opened,
the backlog of franchise prospects now in ongoing discussions and negotiations,
the Company's trends and the results of its operations thus far in 2005,
management has determined that it is more likely than not that the Company's
deferred tax credits will be fully utilized before the tax credits expire.
Therefore, no valuation allowance was established for its deferred tax asset.
However, there can be no assurance that the franchising growth will continue in
the future. If unanticipated events should occur in the future, the realization
of all or some portion of the Company's deferred tax asset could be jeopardized.
The Company will continue to evaluate the need for a valuation allowance on a
quarterly basis in the future.
The following table sets forth the 2002, 2003 and 2004 operating results
included in the Company's consolidated statement of operations.
11
Condensed Consolidated Statement of Operations
Noble Roman's, Inc. and Subsidiaries
Years Ended December 31,
--------------------------------------------------------------------------
2002 2003 2004
---- ---- ----
Royalties and fees $5,644,548 84.9% $6,700,457 86.1% $6,788,590 85.8%
Administrative fees and other 293,668 4.4 199,231 2.6 124,893 1.6
Restaurant revenue 710,600 10.7 882,305 11.3 998,037 12.6
---------- ------- ---------- ------- ---------- --------
Total revenue 6,648,816 100.0 7,781,992 100.0 7,911,520 100.0
Express operating expenses:
Salaries and wages 1,090,251 16.4 1,083,168 13.9 1,169,701 14.8
Trade show expense 180,866 2.7 327,615 4.2 405,580 5.1
Travel expense 242,470 3.6 219,365 2.8 282,302 3.6
Other operating expense 638,360 9.6 698,120 9.0 664,001 8.4
Restaurant expenses 701,555 10.6 867,227 11.1 961,552 12.2
Depreciation 63,364 1.0 67,938 .9 50,493 .6
General and administrative 1,254,551 18.9 1,259,035 16.2 1,403,338 17.7
---------- ------- ---------- ------- ---------- --------
Operating income 2,477,399 37.3 3,259,524 41.9 2,974,553 37.6
Interest expense 1,254,803 18.9 1,046,581 13.4 946,234 12.0
---------- ------- ---------- ------- ---------- --------
Income before income taxes 1,222,595 18.4 2,212,944 28.4 2,028,319 25.6
Income taxes 415,682 6.3 752,401 9.7 689,628 8.7
---------- ------- ---------- ------- ---------- --------
Net income from continuing
operations $ 806,913 12.1% $1,460,543 18.8% $1,338,691 16.9%
2004 Compared with 2003
- -----------------------
Total revenue increased from $7.8 million in 2003 to $7.9 million in 2004.
Continuing fees such as royalties and product allowances were approximately the
same in 2004 as 2003, while new franchise fees increased approximately $400,000
and commissions on equipment sales decreased by approximately $250,000.
Restaurant revenues increased from approximately $882,000 in 2003 to $998,000 in
2004. This increase was the result of operating more units on a temporary basis
in 2004 than were operated in 2003. From time to time the Company operates units
in military bases and hospitals until a qualified franchisee can be located. The
Company does not plan to operate any units on a permanent basis except for one
location which is used as a test kitchen and demonstration facility.
Salaries and wages increased from 13.9% of revenue in 2003 to 14.8% of revenue
in 2004. This increase was primarily the result of preparing the Company for
additional growth beyond what was realized in 2004. The Company anticipates the
growth in 2005 will result in a decrease in the salary and wage expense as a
percentage of total revenue.
Trade show expenses increased from 4.2% of revenue in 2003 to 5.1% of revenue in
2004. This increase was the result of participating in more national trade shows
to attract franchisees from additional venues to further diversify the Company's
target market. Since the Company does not intend to increase trade show
appearances in 2005, this percentage should decrease as the growth in number of
units continues.
12
Travel expenses increased from 2.8% of revenue in 2003 to 3.6% of revenue in
2004. This increase was the result of more locations opening farther away from
the home office. While the trend of opening farther away from the home office
will continue, the Company anticipates that the additional growth in 2005 will
offset that trend such that travel, as a percentage of revenue, will stabilize
or decrease.
Other operating expenses decreased from 9.0% of revenue in 2003 to 8.4% of
revenue in 2004. This decrease was primarily the result of tightly controlling
operating expenses and the trend is expected to continue with overall revenue
growth from new franchise locations.
Restaurant expenses increased from 11.1% of revenue in 2003 to 12.2% of revenue
in 2004. This increase was the result of operating more units on a temporary
basis in 2004 than were operated in 2003. The Company will seek to minimize the
number of units that it operates on a temporary basis in the future.
General and administrative expenses increased from 16.2% of revenue in 2003 to
17.7% of revenue in 2004. This increase was primarily the result of cost
resulting from the ongoing litigation with SummitBridge. The Company anticipates
that the growth in administrative expense in the future years will be more than
offset by the growth in revenue, therefore maintaining the current cost as a
percent of revenue and possibly lowering it slightly.
Operating income decreased from $3.3 million in 2003 to $3.0 million in 2004.
This decrease was the result of various increases in expenses described above
while achieving less growth in revenue than was expected. Based on the trends of
the first two months in 2005 and the expectations for growth in 2005, the
Company expects operating income to increase in 2005.
Net income from continuing operations decreased from $1.46 million in 2003 to
$1.34 million in 2004. This decrease was primarily the result of the various
increases in expenses, as described above, while less than expected growth in
revenue was achieved. The Company expects net income from continuing operations
to increase as a result of additional growth in the future.
The Company recognized a net loss from discontinued operations in 2004 of
$403,753 after a tax benefit of $243,175. Additionally, the Company recorded
previously unrecorded deferred tax assets from discontinued operations in the
amount of $527,095 in 2004.
2003 Compared with 2002
- -----------------------
Total revenue increased from $6.6 million in 2002 to $7.8 million in 2003, or a
17.0% increase. This increase was primarily a result of increase in royalties
and fees as a result of growth in the number of franchisees. This increase was
partially offset by a decrease in administrative fees and other and the increase
was aided by the increase in restaurant revenue as a result of operating three
locations on military bases until they are sold as franchise locations. The
Company only plans to operate these locations temporarily until a qualified
franchisee can be located.
Royalties and fees increased from $5.6 million in 2002 to $6.7 million in 2003,
or a 18.7% increase. This increase was primarily the result of the growth in the
number of franchise locations open and the higher per unit sales from some of
the more recent openings. Management believes the royalties and fees will
continue to grow significantly in 2004 from additional new franchises and from
higher volume locations.
13
Restaurant revenues increased from approximately $711,000 in 2002 to $882,000 in
2003. This increase was the result of the additions of three military bases in
Rhode Island and Virginia as Company operations during 2002. In 2003, all of
these units were open for the entire year.
Salaries and wages decreased from 16.4% of revenue in 2002 to 13.9% of revenue
in 2003. This decrease was primarily the result of the growth in the number of
franchise locations open while utilizing approximately the same operational
staff.
Trade show expenses increased from 2.7% of revenue in 2002 to 4.2% of revenue in
2003. This increase was the result of participating in more national trade shows
to attract franchisees from additional venues to further diversify the Company's
target market.
Travel expenses decreased from 3.6% of revenue in 2002 to 2.8% of revenue in
2003. This decrease was a result of the growth in revenue from continued growth
in locations while utilizing approximately the same employees and by locating
operational staff in various parts of the country to minimize travel costs.
Other operating expenses decreased from 9.6% of revenue in 2002 to 9.0% of
revenue in 2003. This decrease was the result of the continued growth in
locations that was partially offset by increases in group insurance costs,
additional sales commissions from the sale of new units and the increase in
payroll taxes as a result of the increase in commissions.
Restaurant expenses increased from 10.6% of revenue in 2002 to 11.1% of revenue
in 2003. This increase was the result of the additions of three military bases
in Rhode Island and Virginia as Company operations during 2002. In 2003, all of
these units were open for the entire year.
General and administrative expenses decreased from 18.9% of revenue in 2002 to
16.2% of revenue in 2003. This decrease was the result of the growth in revenue
with the same general administrative structure over the last four years. The
dollar amount of general and administrative expense only grew by 0.4% for the
year ended 2003 compared to 2002, while revenue grew 17.0%.
Operating income increased from $2.5 million in 2002 to $3.3 million in 2003, or
a 31.6% increase. This increase was the result of continued growth in revenues
from franchising by utilizing the operational structure previously put in place
for that growth.
Net income from continuing operations increased from approximately $807,000 in
2002 to $1.46 million in 2003, or a 81.0% increase. This increase was the result
of continued growth in revenues from franchising by utilizing approximately the
same operating and administrative structure.
The Company recognized a net loss from discontinued operations in 2003 of
approximately $167,000 after tax benefit of $86,000. This net loss consisted of
a loss of approximately $1.05 million partially offset by a gain of
approximately $795,000 from previously unrecorded deferred tax asset from
discontinued operations.
Impact of Inflation
- -------------------
The primary inflation factors affecting the Company's operations are food and
labor costs to the franchisee. To date, the Company has been able to offset the
effects of inflation in food costs without significantly increasing prices
through effective cost control methods and greater purchasing power as a
14
result of additional growth. The competition for labor has resulted in higher
salaries and wages for the franchisees, however, that effect is largely
minimized by the relatively low labor requirements of the Company's franchise
concepts.
Liquidity and Capital Resources
- -------------------------------
The Company's strategic direction is to grow its business by franchising
primarily in non-traditional locations. This strategy does not require
significant additional capital.
As a result of the Company's strategy, cash flow generated from operations, the
Company's current rate of entering into new franchises plus the anticipated
growth, the Company believes it will have sufficient cash flow to meet its
obligations and to carry out its current business plan.
The Company has an outstanding note payable originally made in favor of a bank
with an unpaid principal balance of $7,700,000. By the terms of the note it was
to bear interest of 8.75% per annum payable monthly in arrears. SummitBridge
National Investments, LLC reported that it had purchased this note in October
2003, as well as convertible preferred stock of the Company with an aggregate
liquidation preference of $4,929,275 (convertible into 1,643,092 shares of
common stock of the Company), 3,214,748 shares of common stock and a warrant to
purchase 385,000 shares of common stock at an exercise price of $.01 per share.
The preferred stock, common stock and warrant were issued to the bank lender in
conjunction with various financing transactions. Under the Indiana Control Share
Acquisition Law, SummitBridge currently has no voting rights with respect to the
shares it acquired. The Company also has advised SummitBridge of the Company's
position that the Indiana Business Combination Law prohibits SummitBridge from
engaging in certain transactions with the Company until the fifth anniversary of
the acquisition, including receipt of payments in respect of the debt obligation
and receipt of common stock issuable upon conversion of the convertible
preferred stock. The Company also believes that the warrants have expired and no
longer are exercisable.
The Company filed a Complaint For Declaratory Judgment, Money Damages and Jury
Trial in the Marion Superior Court Civil Division against SummitBridge seeking
(among other relief) confirmation of the Company's position under the Indiana
Business Combination Law and as to the Company's obligations under the loan.
SummitBridge filed an Answer, as well as a Counterclaim against the Company
seeking payment of the unpaid principal and interest on the note and against
certain of its subsidiaries and a principal shareholder to enforce certain
purported guarantees.
SummitBridge also filed a motion for Judgment on the Pleadings as to a portion
of the Complaint filed by the Company. That motion sought for the Court to rule
that the Indiana Business Combination Law does not prevent SummitBridge from
enforcing its purported rights under the loan and related instruments it
purchased from the bank. SummitBridge's motion was briefed and argued and the
Court denied SummitBridge's motion. The Company intends to continue to
vigorously prosecute its claims against SummitBridge and to defend against
Summitbridge's counterclaims.
The Company recently filed a Motion For Leave To Amend Its Complaint For
Declaratory Judgment, Money Damages and Jury Trial by adding additional counts
for SummitBridge's tortious interference with its business relationships and
tortious interference with its contractual relationships, as well as treble
damages and that motion recently was granted. SummitBridge has not yet filed its
answer to the amended complaint.
15
Forward Looking Statements
- --------------------------
The statements contained above in Management's Discussion and Analysis
concerning the Company's future revenues, profitability, financial resources,
market demand and product development are forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995)
relating to the Company that are based on the beliefs of the management of the
Company, as well as assumptions and estimates made by, and information currently
available to, the Company's management. The Company's actual results in the
future may differ materially from those projected in the forward-looking
statements due to risks and uncertainties that exist including, but not limited
to, competitive factors and pricing pressures, shifts in market demand, general
economic conditions and other factors, including (but not limited to) changes in
demand for the Company's products or franchises, the impact of competitors'
actions, changes in prices or supplies of food ingredients and labor and
disputes regarding the Company's obligations under certain financing agreements.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions or estimates prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company presently does not use any derivative financial instruments to hedge
its exposure to adverse fluctuations in interest rates, foreign exchange rates,
fluctuations in commodity prices or other market risks, nor does the Company
invest in speculative financial instruments.
Due to the nature of the Company's borrowings, it has concluded that there is no
material market risk exposure and, therefore, no quantitative tabular
disclosures are required.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
Noble Roman's, Inc. and Subsidiaries
December 31,
----------------------------
Assets 2003 2004
---- ----
Current assets:
Cash - non-restricted $ 237,445 $ 260,025
Cash - restricted -- 196,754
Accounts and notes receivable (net of allowances) 711,385 1,011,758
Inventories 157,192 207,857
Prepaid expenses 439,901 505,646
Current portion of long-term notes receivable 147,923 183,478
Deferred tax asset - current portion 2,250,000 994,148
------------ ------------
Total current assets 3,943,847 3,359,665
------------ ------------
Property and equipment:
Equipment 988,980 1,042,790
Leasehold improvements 86,229 94,017
------------ ------------
1,075,209 1,136,807
Less accumulated depreciation and amortization 441,239 484,068
------------ ------------
Net property and equipment 633,970 652,739
------------ ------------
Deferred tax asset (net of current portion) 7,799,340 9,135,834
Other assets including long-term portion of notes receivable 1,907,133 2,100,436
------------ ------------
Total assets $ 14,284,289 $ 15,248,675
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,057,564 $ 1,252,852
Note payable to officer 65,840 --
Current portion of long-term notes payable 600,000 --
------------ ------------
Total current liabilities 1,723,404 1,252,852
------------ ------------
Long-term obligations:
Note payable to bank net of current portion 7,200,000 7,700,000
Subordinated debentures 2,040,000 2,040,000
Participating income notes 859,060 --
------------ ------------
Total long-term liabilities 10,099,060 9,740,000
------------ ------------
Stockholders' equity:
Common stock (25,000,000 shares authorized, 16,277,827 outstanding
at December 31, 2003 and 17,136,884 outstanding as of December 31, 2004) 17,789,452 18,648,512
Preferred stock (5,000,000 shares authorized) 4,929,274 4,929,274
Accumulated deficit (20,256,901) (19,321,963)
------------ ------------
Total stockholders' equity 2,461,825 4,255,823
------------ ------------
Total liabilities and stockholders' equity $ 14,284,289 $ 15,248,675
============ ============
See accompanying note to consolidated financial statements
17
Consolidated Statements of Operations
Noble Roman's, Inc. and Subsidiaries
Year Ended December 31,
---------------------------------------------
2002 2003 2004
---- ---- ----
Royalties and fees $ 5,644,548 $ 6,700,457 6,788,590
Administrative fees and other 293,668 199,231 124,893
Restaurant revenue 710,600 882,305 998,037
------------ ------------ ------------
Total revenue 6,648,816 7,781,992 7,911,520
Operating expenses:
Salaries and wages 1,090,251 1,083,168 1,169,701
Trade show expense 180,866 327,615 405,580
Travel expense 242,470 219,365 282,302
Other operating expenses 638,360 698,120 664,001
Restaurant expenses 701,555 867,228 961,552
Depreciation and amortization 63,364 67,938 50,493
General and administrative 1,254,551 1,259,035 1,403,338
------------ ------------ ------------
Operating income 2,477,398 3,259,524 2,974,553
Interest and other expense 1,254,803 1,046,581 946,234
------------ ------------ ------------
Income before income taxes from
continuing operations 1,222,595 2,212,944 2,028,319
Income tax expense 415,682 752,401 689,628
------------ ------------ ------------
Net income from continuing operations 806,913 1,460,543 1,338,691
Loss from discontinued operations net of tax benefit
of $161,345, $86,071 and $243,175, respectively (313,198) (167,079) (403,753)
------------ ------------ ------------
Net income $ 493,714 $ 1,293,464 $ 934,938
============ ============ ============
Earnings per share - basic:
Net income before extraordinary item $ .05 $ 09 $ .08
Net income .03 .08 .06
Weighted average number of common shares
outstanding 16,058,199 16,168,911 16,280,171
Diluted earnings per share
Net income before extraordinary item $ .05 $ .09 $ .08
Net income .03 .08 .06
Weighted average number of common shares
outstanding 16,882,342 16,799,214 16,888,236
See accompanying note to consolidated financial statements.
18
Consolidated Statements of Changes in
Stockholders' Equity
Noble Roman's, Inc. and Subsidiaries
Preferred Common Stock Accumulated
Stock Shares Amount Deficit Total
----- ------ ------ ------- -----
Balance at December 31, 2001 $ 4,929,274 16,051,158 $ 17,789,452 $(22,044,079) $ 674,647
Issuance of common stock in
exchange for certain liabilities 115,000
2002 net income 493,714 493,714
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 4,929,274 16,166,158 17,789,452 (21,550,365) 1,168,361
Record the non-cash exercise
of warrants 111,666
2003 net income 1,293,464 1,293,464
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2003 4,929,274 16,277,824 17,789,452 (20,256,901) 2,461,825
Record the conversion of
participating income notes to
common stock 859,060 859,060 859,060
2004 net income 934,938 934,938
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2004 $ 4,929,274 17,136,884 $ 18,648,512 $(19,321,963) $ 4,255,823
See accompanying notes to consolidated financial statements.
19
Consolidated Statements of Cash Flows
Noble Roman's, Inc. and Subsidiaries
Year ended December 31,
-----------------------------------------
OPERATING ACTIVITIES 2002 2003 2004
---- ---- ----
Net income $ 493,714 $ 1,293,464 $ 934,938
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 272,539 235,013 137,172
Deferred federal income taxes 254,337 666,330 446,453
Loss from discontinued segment 474,543 253,150 646,927
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable (485,873) (561,940) (379,616)
Inventories (58,093) (21,964) 57,835
Prepaid expenses (130,230) (118,333) (65,745)
Other assets (240) (30,905) (42,861)
Increase (decrease) in:
Accounts payable 248,514 (738,645) 277,962
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,069,212 976,170 2,013,065
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (131,344) (65,946) (125,851)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (131,344) (65,946) (125,851)
----------- ----------- -----------
FINANCING ACTIVITIES
Payment of obligations from discontinued operations (949,891) (953,881) (1,574,964)
Asset sold for note receivable -- -- (75,000)
Payment of principal on outstanding debt -- (1,713,740) (165,840)
Payment received on long-term notes receivable -- 46,744 147,923
Proceeds from issuance of long-term debt, net of debt
issue costs -- 1,934,919 --
----------- ----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (949,891) (685,958) (1,667,881)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (12,023) 224,266 219,334
Cash at beginning of year 25,203 13,180 237,446
----------- ----------- -----------
CASH AT END OF YEAR $ 13,180 $ 237,446 $ 456,779
=========== =========== ===========
Supplemental Schedule of Non-Cash Investing and Financing Activities
None
See accompanying notes to consolidated financial statements.
20
Notes to Consolidated Financial Statements
Noble Roman's, Inc. and Subsidiaries
Note l: Summary of Significant Accounting Policies
General Organization: The Company sells and services franchises for
non-traditional and co-branded foodservice operations under the trade names
"Noble Roman's Pizza" and "Tuscano's Italian Style Subs."
Principles of Consolidation: The consolidated financial statements include the
accounts of Noble Roman's, Inc. and its subsidiaries, Pizzaco, Inc., N.R.
Realty, Inc., GNR, Inc., LPS, Inc., N.R. East, Inc. and Oak Grove Corporation
(collectively, the "Company"). Inter-company balances and transactions have been
eliminated in consolidation.
Inventories: Inventories consist of food, beverage, restaurant supplies,
restaurant equipment and marketing materials and are stated at the lower of cost
(first-in, first-out) or market.
Property and Equipment: Equipment and leasehold improvements are stated at cost
including property under capital leases. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives. Leasehold
improvements are amortized over the shorter of estimated useful life or the term
of the lease.
Advertising Costs: The Company records advertising costs consistent with
Statement of Position 93-7 "Reporting on Advertising Costs." This statement
requires the Company to expense advertising production costs the first time the
production material is used.
Fair Value of Financial Instruments: The carrying amount of long-term debt net
of the estimated value of the warrant approximates its fair value because the
interest rates are currently at market. Because of the very limited trading in
the Company's common stock, the Company does not believe that traditional
methods of valuing the warrant apply; therefore, the value of the warrant
reflects the Company's estimate of its value. The carrying amount of all other
financial instruments approximate fair value due to the short-term maturity of
these items.
Use of Estimates: 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 could
differ from those estimates. The Company evaluates its property and equipment
and related costs periodically to assess whether any impairment indications are
present, including recurring operating losses and significant adverse changes in
legal factors or business climate that affect the recovery of recorded value. If
any impairment of an individual asset is evident, a loss would be provided to
reduce the carrying value to its estimated fair value.
Intangible Assets: Debt issue costs are amortized to interest expense ratably
over the term of the applicable debt.
Royalties, Administrative and Franchise Fees: Royalties are recognized as income
monthly and are based on a percentage of monthly sales of franchised
restaurants. Administrative fees are recognized as income monthly as earned.
Initial franchise fees are recognized as income when the franchised restaurant
is opened.
21
Income Taxes: The Company provides for current and deferred income tax
liabilities and assets utilizing an asset and liability approach along with a
valuation allowance as appropriate. The Company concluded that no valuation
allowance was necessary at December 31, 2003 and 2004 because it is more likely
than not that the Company will earn sufficient income before the expiration of
its net operating loss carry forwards to fully realize the value of its deferred
tax asset. The net operating loss carry-forward is approximately $30 million
which expires between the years 2011 and 2016. Management made the determination
in 2004 for no valuation allowance after reviewing the Company's business plans,
all known facts to date, recent trends, current performance and analysis of the
backlog of franchises sold but not yet open.
Basic And Diluted Net Income Per Share: Net income per share is based on the
weighted average number of common shares outstanding during the respective year.
When dilutive, stock options and warrants are included as share equivalents
using the treasury stock method.
Note 2: Notes Payable
The Company issued a note payable to a bank in the original principal amount of
$8,000,000 with an unpaid principal amount of $7,700,000. By the terms of the
note, it was to bear interest of 8.75% per annum payable monthly in arrears.
SummitBridge National Investments, LLC ("SummitBridge") reported that it had
purchased this note in October 2003, as well as convertible preferred stock of
the Company with an aggregate liquidation preference of $4,929,275 (convertible
to 1,643,092 shares of common stock of the Company), 3,214,748 shares of common
stock and a warrant to purchase 385,000 shares of common stock at an exercise
price of $.01 per share. Under the Indiana Control Share Acquisition Law,
SummitBridge currently has no voting rights with respect to the shares it
acquired. The Company also has advised SummitBridge of the Company's position
that the Indiana Business Combination Law prohibits SummitBridge from engaging
in certain transactions with the Company until the fifth anniversary of the
acquisition, including receipt of payments in respect of the debt obligation and
receipt of common stock issuable upon conversion of the convertible preferred
stock. The Company also believes that the warrants have expired and no longer
are exercisable.
The Company filed a Complaint For Declaratory Judgment, Money Damages and Jury
Trial in the Marion Superior Court Civil Division against SummitBridge seeking
(among other relief) confirmation of the Company's position under the Indiana
Business Combination Law and as to the Company's obligations under the loan.
SummitBridge filed an Answer, as well as a Counterclaim against the Company for
payment of principal and interest under the note and against certain of its
subsidiaries and a principal shareholder to enforce certain purported
guarantees.
SummitBridge also filed a motion for Judgment on the Pleadings as to a portion
of the Complaint filed by the Company. That motion sought for the Court to rule
that the Indiana Business Combination Law does not prevent SummitBridge from
enforcing its purported rights under the loan and related instruments it
purchased from the bank. SummitBridge's motion was briefed and argued and the
Court denied SummitBridge's motion. The Company intends to continue to
vigorously prosecute its claims against SummitBridge and to defend against
SummitBridge's counterclaims.
The Company recently filed a Motion For Leave To Amend Its Complaint For
Declaratory Judgment, Money Damages and Jury Trial by adding additional counts
for SummitBridge's tortious interference with
22
its business relationships and tortious interference with its contractual
relationships, as well as treble damages and the motion recently was granted.
The Company had Participating Income Notes payable to Geovest Capital Partners,
L.P. and Douglas Coape-Arnold in the amount of $859,060. The loans bear interest
at the rate of 859,060 / 2,372,800 x 2.5% of certain defined gross income. On
December 31, 2004, these notes were converted to common stock at the rate of
$1.00 per share in accordance with their terms.
Note 3: Contingent Liabilities for Leased Facilities
The Company formerly leased its restaurant facilities under non-cancelable lease
agreements which generally had initial terms ranging from five to 20 years with
extended renewal terms. These leases have all been assigned to franchisees who
operate them pursuant to a Noble Roman's, Inc. Franchise Agreement. The
assignment passes all liability for future lease payments to the assignees,
however, the Company remains contingently liable on a portion of the leases to
the landlords in the event of default by the assignees. The leases generally
required the Company or its assignees to pay all real estate taxes, insurance
and maintenance costs. The leases provided for a specified annual rental, and
some leases called for additional rental based on sales volume over specified
levels at that particular location. At December 31, 2004, contingent obligations
under non-cancelable operating leases for 2005, 2006, 2007, 2008, 2009 and after
2009 were approximately $358,000, $342,000, $332,000, $323,000, $180,000 and
$916,000, respectively.
Note 4: Income Taxes:
The Company had a deferred tax asset, as a result of prior operating losses, of
$10,049,340 at December 31, 2003 and $10,129,982 at December 31, 2004, most of
which expires between the years 2011 and 2016. In 2002, 2003 and 2004, the
Company used deferred benefits to offset its tax expense of $415,682, $752,401
and $689,628, respectively, and tax benefits from loss on discontinued
operations of $161,345, $86,071 and $243,175 for 2002, 2003 and 2004,
respectively. Additionally, as a result of re-valuing the deferred tax asset,
the Company recorded an increase in its deferred tax asset of $794,576 in 2003
and $527,095 in 2004 for previously unrecorded deferred tax asset from
discontinued operations.
Note 5: Common Stock
During 2002, the Company issued 115,000 shares of common stock in payment of
certain obligations related to its discontinued operations.
During 2003, a certain warrant holder exercised its warrants to purchase 150,000
shares at $.40 per share on a cashless basis and received 111,666 shares of
common stock.
During 2004, the holders of participating income notes exercised their option to
convert those notes to common stock in the amount of 859,060 shares.
The Company has an incentive stock option plan for key employees and officers.
The options are generally exercisable three years after the date of grant and
expire ten years after the date of grant. The option prices are the fair market
value of the stock at the date of grant. Options granted and remaining
outstanding at December 31, 2004 are: 33,000 common shares at $1.75 per share,
40,000 common shares
23
at $1.00 per share, 8,000 common shares at $1.385 per share, 24,250 common
shares at $1.46 per share, 47,500 common shares at $1.45 per share, 75,000
common shares at $1.03 per share, 75,000 common shares at $.55 per share, 10,000
common shares at $.89 and 66,000 common shares at $.83. As of December 31, 2004,
options for 312,750 shares are exercisable.
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", effective with the 1996 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation cost for stock options has been recognized.
Note 6: Loss from Discontinued Operations:
Pursuant to the Company's strategic decision in 1999 to refocus its business on
its non-traditional and co-branding franchising opportunities, the Company
closed or franchised all of its formerly owned full-service restaurants. A loss
on these discontinued operations was recognized of $313,198 after a tax benefit
of $161,365 in 2002, a gross amount of $1,047,726 in 2003 and $403,753 after a
tax benefit of $243,175 in 2004. Additionally, the Company, in 2003, increased
its deferred tax asset by $794,576 to record the previously unrecorded deferred
tax asset from its discontinued operations and by $527,095 in 2004.
Note 7: Contingencies
The Company is involved in various litigation relating to claims arising out of
its normal business operations and relating to restaurant facilities closed in
1997 and 2000. Although litigation is inherently uncertain, the Company believes
that none of its current proceedings, individually or in the aggregate, will
have a material adverse effect upon the Company.
Note 8: Certain Relationships and Related Transactions
The following is a summary of transactions to which the Company and certain
officers and directors of the Company are a party or have a financial interest.
The Board of Directors of the Company has adopted a policy that all transactions
between the Company and its officers, directors, principal shareholders and
other affiliates must be approved by a majority of the Company's disinterested
directors, and be conducted on terms no less favorable to the Company than could
be obtained from unaffiliated third parties.
James Lewis, James Lewis Family Trust, James W. Lewis, MPPP, and James Lewis
Family Investments, LP, were paid $15,987 in 2002, $284,877 in 2003 and none in
2004 for interest on Participating Income Notes.
TradeCo Global Securities, Inc., of which James Lewis is the majority
shareholder, was paid $48,091 in 2002, $17,227 in 2003 and none in 2004 for
interest on Participating Income Notes.
Douglas Coape-Arnold was paid $55,000 and $2,480 in interest on Participating
Income Notes in 2003 and $60,000 in consulting fees and $4,679 of interest on
Participating Income Notes in 2004.
The Provident Bank was paid interest of $709,722 in 2002 and $712,056 in 2003.
In addition, affiliates of SummitBridge National Investments, LLC (collectively,
"SummitBridge"), the acquirer of assets
24
previously owned by Provident Bank, were paid interest of $116,911 in 2003 and
$117,165 in 2004. Under the Indiana Control Share Acquisition Law, SummitBridge
currently has no voting rights with respect to the shares it acquired. The
Company also has advised SummitBridge of the Company's position that the Indiana
Business Combination Law prohibits SummitBridge from engaging in certain
transactions with the Company until the fifth anniversary of the acquisition,
including receipt of payment in respect of the debt obligation and receipt of
common stock issuable upon conversion of the convertible preferred stock. In
view of the foregoing, the Company does not consider SummitBridge to be an
affiliate of the Company.
Note 9: Unaudited Quarterly Financial Information
Quarter Ended
-------------
2004 December 31 September 30 June 30 March 31
---- ----------- ------------ ------- --------
(in thousands, except per share data)
Total revenue $ 1,830 $ 2,016 $ 2,123 $ 1,943
Operating income 574 787 872 742
Income before income taxes from
continuing operations 363 546 622 497
Net income from continuing
operations 235 360 416 328
Net income (loss) $ (169) $ 360 $ 416 $ 328
Net income per common share
from continuing operations
Basic .02 .02 .03 .02
Diluted .02 .02 .02 .02
Net income per share
Basic (.01) .02 .03 .02
Diluted (.01) .02 .02 .02
Quarter Ended
-------------
2003 December 31 September 30 June 30 March 31
---- ----------- ------------ ------- --------
(in thousands, except per share data)
Total revenue $2,090 $1,984 $1,937 $1,771
Operating income 947 796 845 672
Income before income taxes from
continuing operations 669 541 592 411
Net income from continuing
operations 441 357 391 272
Net income $ 273 $ 357 $ 391 $ 272
Net income per common share
from continuing operations
Basic .03 .02 .02 .02
Diluted .03 .02 .02 .02
Net income per share
Basic .02 .02 .02 .02
Diluted .02 .02 .02 .02
25
To the Board of Directors and
Stockholders of Noble Roman's, Inc.
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of Noble Roman's,
Inc. and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of operations, cash flows and changes in stockholders'
equity(deficit) for the years ended December 31, 2004, 2003 and 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Noble Roman's, Inc. and
subsidiaries at December 31, 2004 and 2003, and the results of their operations,
and their cash flows for the years ended December 31, 2004, 2003 and 2002 in
conformity with accounting principles generally accepted in United States.
/s/ LARRY E. NUNN & ASSOCIATES, LLC
Columbus, Indiana
March 11, 2005
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Based on his evaluation as of the end of the period covered by this report, Paul
W. Mobley, the Company's Chief Executive Officer and Chief Financial Officer,
has concluded that the Company's disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) are effective. There have been no changes in internal controls over
financial reporting during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are:
Name Age Positions with the Company
---- --- --------------------------
Paul W. Mobley 64 Chairman of the Board and Director
A. Scott Mobley 41 President, Secretary and Director
Douglas H. Coape-Arnold 59 Director
Troy Branson 41 Executive Vice President of Franchising
George Apostolopoulos 59 Executive Vice President of Development
Mitchell Grunat 52 Vice President of Franchise Services
The executive officers of the Company serve at the discretion of the Board
of Directors and are elected at the annual meeting of the Board. Directors serve
one-year terms or until their successors are elected and qualified. The
following is a brief description of the previous business background of the
executive officers and directors:
Paul W. Mobley has been Chairman of the Board since December 1991 and a
Director since 1974. Mr. Mobley was President and Chief Executive Officer of the
Company from 1981 to 1997. From 1975 to 1987, Mr. Mobley was a significant
shareholder and president of a company which owned and operated 17 Arby's
franchise restaurants. From 1974 to 1978, he also served as Vice President and
Chief Operating Officer of the Company and from l978 to 1981 as Senior Vice
President. He is the father of A. Scott Mobley. Mr. Mobley has a B.S. in
Business Administration from Indiana University and is a CPA. Mr. Mobley is also
a Director of Monroe Bancorp.
A. Scott Mobley has been President since October 1997 and a Director since
January 1992, and Secretary since February 1993. Mr. Mobley was Vice President
from November 1988 to October 1997
27
and from August 1987 until November 1988 served as Director of Marketing for the
Company. Prior to joining the Company Mr. Mobley was a strategic planning
analyst with a division of Lithonia Lighting Company. Mr. Mobley has a B.S. in
Business Administration from Georgetown University and an MBA from Indiana
University. He is the son of Paul Mobley.
Douglas H. Coape-Arnold was appointed a Director of the Company in May
1999. Mr. Coape-Arnold has been Managing General Partner of Geovest Capital
Partners, L.P. since January 1997, and was Managing Director of TradeCo Global
Securities, Inc. from May 1994 to December 2002. Mr. Coape-Arnold's prior
experience includes serving as Vice President of Morgan Stanley & Co., Inc. from
1982 to 1986, President & Chief Executive Officer of McLeod Young Weir
Incorporated from 1986 to 1988, and Senior Vice President of GE Capital's
Transportation & Industrial Funding Corp. from 1988 to 1991. Mr. Coape-Arnold is
a Chartered Financial Analyst.
Troy Branson, has been Executive Vice President of Franchising for the
Company since November 1997 and since 1992, he was Director of Business
Development. Prior to joining the Company, Mr. Branson was an owner of
Branson-Yoder Marketing Group since 1987, after graduating from Indiana
University where he received a B.S. in Business.
George Apostolopoulos, has been Executive Vice President of Development for
the Company since April 2002. Prior to joining the Company, Mr. Apostolopoulos
was National Manager Hotels and Resorts for Tricon Global Restaurants, Inc.
since 1986. Mr. Apostolopoulos has an Associate Degree in Restaurant and
Hospitality Management from San Diego City College.
Mitchell Grunat, has been Vice President of Franchise Services for the
Company since August 2002. Prior to joining the Company, Mr. Grunat was Chief
Operating Officer of Lanter Eye Care since 2001, Business Development Officer
for Midwest Bankers since 2000 and Chief Operating Officer for Tavel Optical
Group since 1987. Mr. Grunat has B.A. degree in English and Philosophy from
Muskingum College.
Section l6(a) Beneficial Ownership Reporting Compliance
Based solely on a review of the copies of reports of ownership and changes
in ownership of the Company's common stock, furnished to the Company, or written
representations that no such reports were required, the Company believes that
during 2004 all filing requirements under Section 16(a) of the Securities
Exchange Act of 1934 were complied with.
Since no separate Audit Committee has been established, the Board of
Directors, as a whole, act as the Audit Committee. Mr. Coape-Arnold is qualified
as an "Audit Committee Financial Expert".
The Company has adopted a code of ethics for its Senior Executive and
Financial Officers. The code of ethics can be obtained by contacting the office.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation for each
of the Company's last three years awarded to or earned by the Chief Executive
Officer and two other highest paid executive officers of the Company.
28
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long-Term Compensation
------------------- Securities Underlying
Name and Principal Position Year Salary (l) Bonus Options #
- --------------------------- ---- ---------- ----- ---------------------
Paul Mobley 2004 $360,000 $ -- --
Chairman of the Board 2003 $318,000 $ -- --
2002 $300,000 $ -- 20,000
A. Scott Mobley 2004 $234,189 $ -- 20,000
President and Secretary 2003 $209,135 $ -- --
2002 $193,923 $ -- 20,000
Troy Branson 2004 $100,000 $82,075 15,000
Executive Vice President of Franchising 2003 $100,000 $83,722 --
2002 $100,000 $45,723 15,000
(1) The Company did not have any bonus, retirement, or other arrangements or
plans respecting compensation, except for an Incentive Stock Option Plan for
executive officers and other employees.
Option Grants In Last Year
The following table sets forth information concerning stock option grants
made in the year ended December 31, 2004, to the executive officers named in the
Summary Compensation Table.
Individual Grant
----------------------------------------------------------
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise or
Options Fiscal Base Price Expiration
Name Granted (#)(1) Year (%) ($/Sh) Date(2)
---- -------------- -------- ------ -------
Paul Mobley -- -- -- --
A. Scott Mobley 20,000 30.3% $ .83 12/22/2014
Troy Branson 15,000 22.7% $ .83 12/22/2014
(1) The options become exercisable on the third anniversary of the date of
grant.
(2) The options terminate ten years after the date of grant.
29
Aggregate Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
---------------------------------------------
The following table sets forth information concerning the number of exercisable
and unexercisable stock options held at December 31, 2004 by the executive
officers named in the Summary Compensation Table.
Number of Securities Values of Unexercised
Underlying Unexercised In-The-Money
Options at 12/31/04 Options at 12/31/04 (1)
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
Paul W. Mobley 30,000 / 0 $ 7,000 / $ 0
A. Scott Mobley 70,000 / 20,000 7,000 / 1,400
Troy Branson 65,000 / 15,000 5,250 / 1,050
----------
(1) Based on a per share price of $.90, the last reported transaction
price of the Company's common stock on December 31, 2004.
Employment Agreements
- ---------------------
Mr. Paul Mobley has an employment agreement with the Company which fixes his
base compensation at $368,012 per year for 2004, provides for reimbursement of
travel and other expenses incurred in connection with his employment, including
the furnishing of an automobile, health and accident insurance similar to that
provided other employees, and life insurance in an amount related to his base
salary. The initial term of the agreement is seven years and is renewable each
year for a seven-year period unless the Board takes specific action to not
renew. The agreement is terminable by the Company for just cause as defined in
the agreement.
Mr. A. Scott Mobley has an employment agreement with the Company which fixes his
base compensation at $234,189 per year for 2004, provides for reimbursement of
travel and other expenses incurred in connection with his employment, including
the furnishing of an automobile, health and accident insurance similar to that
provided other employees, and life insurance in an amount related to his base
salary. The initial term of the agreement is five years and is renewable each
year for a five-year period unless the Board takes specific action to not renew.
The agreement is terminable by the Company for just cause as defined in the
agreement.
The Company does not pay any separate compensation for Directors that are also
employees of the Company. During 2004, the Company paid its non-employee
Director a fee of $60,000.
30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of March 15, 2005, there were 17,136,884 shares of the Company's common
stock outstanding and and 25,000,000 shares are authorized. The following table
sets forth the amount and percent of the Company's voting common stock
beneficially owned on March 15, 2005 by (i) each director and named executive
officer individually, (ii) each beneficial owner of more than five percent of
the Company's outstanding common stock and, (iii) all executive officers and
directors as a group:
Name and Address Amount and Nature Percent of Outstanding
of Beneficial Owner of Beneficial Ownership (1) Voting Common Stock (2)
------------------- --------------------------- -----------------------
Paul W. Mobley
One Virginia Avenue, Suite 800
Indianapolis, IN 46204 3,471,018 (3) 21.5%
A. Scott Mobley (1)
One Virginia Avenue, Suite 800
Indianapolis, IN 46204 1,417,326 (4) 9.3%
Troy Branson
One Virginia Avenue, Suite 800
Indianapolis, IN 46204 65,100 (8) --
George Apostolopoulos
One Virginia Avenue, Suite 800
Indianapolis, IN 46204 75,000 (9) --
Mitchell Grant
One Virginia Avenue, Suite 800
Indianapolis, IN 46204 20,000 (10) --
Geovest Capital Partners, L.P.
750 Lexington Avenue, 4th Floor
New York, N.Y. 10022 1,667,741 (5) 12.0%
James W. Lewis
335 Madison Ave., Suite 1702
New York, N.Y. 10017 1,709,580 (6) 12.3%
Douglas H. Coape-Arnold
750 Lexington Avenue, 4th Floor
New York, N.Y. 10022 250,000 (7) 1.8%
Zyville E. Lewis
456 N. Maple Street
Greenwich, CT 06830 1,145,396 8.2%
All Executive Officers and
Directors as a Group (6 Persons) 5,298,444 29.8%
(1) All shares owned directly unless otherwise noted.
(2) The percentage calculations are based upon 13,922,136 shares of the
Company's common stock, eligible to vote, issued and outstanding as of
March 15, 2005 and, for each officer or director of the group, the
number of
31
shares subject to options, warrants or conversion rights exercisable
currently or within 60 days of March 15, 2005.
(3) The total includes a warrant to purchase 600,000 shares of stock at an
exercise price of $.40 per share which expires December 31, 2007, a
warrant to purchase 700,000 shares of common stock at an exercise
price of $.93 per share which expires December 31, 2007, a warrant to
purchase 600,000 shares at an exercise price of $.93 per share which
expires January 7, 2010, a warrant to purchase 300,000 shares at an
exercise price of $.93 which expires January 24, 2011, 10,000 shares
subject to options granted under an employee stock option plan which
are currently exercisable at $1.00 per share and 20,000 shares subject
to options granted under an Employee Stock Option Plan which are
currently exercisable at $.55 per share..
(4) This total includes 70,000 shares subject to options granted under an
employee stock option plan which are currently exercisable at $1.75
per share for 20,000 common shares, $1.00 per share for 10,000 common
shares, $1.45 per share for 20,000 common shares and $.55 per share
for 20,000 common shares. Also includes a warrant to purchase 400,000
shares of common stock at an exercise price of $.40 per share which
expires December 31, 2007 and a warrant to purchase 300,000 shares of
common stock at an exercise price of $.93 per share which expires
December 31, 2007, a warrant to purchase 300,000 shares of common
stock at an exercise price of $.93 per share which expires January 7,
2010, and a warrant to purchase 200,000 shares of common stock at an
exercise price of $.93 per share which expires January 24, 2011.
(5) Mr. Douglas H. Coape-Arnold is Managing Partner of Geovest Capital
Partners, LP, however, Mr. Coape-Arnold disclaims beneficial ownership
of such shares beyond his interest in Geovest Capital Partners.
(6) This total includes 138,580 shares of common stock owned by James
Lewis Family Investments LP and 220,000 shares of our common stock
owned by James W. Lewis MPPP.
(7) This total includes a warrant to purchase 100,000 shares of common
stock at an exercise price of $.93 per share which expires January 7,
2010 and a warrant to purchase 100,000 shares of common stock at an
exercise price of $.93 per share which expires January 24, 2011.
(8) This total includes 65,000 shares subject to options granted under an
employee stock option plan which are currently exercisable at $.55 per
share for 15,000 common shares, $1.45 per share for 20,000 common
shares, $1.46 per share for 15,000 common shares, $1.38 per share for
5,000 common shares and $1.75 per share for 10,000 common shares.
(9) This total includes 75,000 shares subject to options granted under an
employee stock option plan which are currently exercisable at $1.03
per share.
32
(10) This total includes 20,000 shares subject to options granted under an
employee stock option plan which are currently exercisable at $.89 per
share for 10,000 common shares and $.55 per share for 10,000 common
shares.
The following information is based on a Schedule 13D, dated February 11, 2004,
jointly filed by SummitBridge National Investments LLC, Drawbridge Special
Opportunities Fund LP, Drawbridge Special Opportunities Advisors LLC, Fortress
Investment Group LLC, Highbridge/Zwirn Special Opportunities Fund, L.P.,
Highbridge/Zwirn Capital Management LLC, D.B. Zwirn & Co., LLC, and Daniel B.
Zwirn (collectively "SummitBridge"). SummitBridge reported shared dispositive
power over 5,242,840 shares of common stock of the Company. However,
SummitBridge acknowledged that they currently have no voting rights as to such
shares due to the applicability of the Indiana Control Share Acquisition Law.
This total includes preferred stock with an aggregate liquidation preference of
$4,929,275 (convertible into 1,643,092 shares of common stock of the Company),
3,214,748 shares of common stock and a warrant to purchase 385,000 shares of
common stock at an exercise price of $.01 per share. The Company's position is
that the warrant to purchase the 385,000 shares expired by its terms April 15,
2003. The Company also has advised SummitBridge of the Company's position that
the Indiana Business Combination Law prohibits SummitBridge from engaging in
certain transactions with the Company until the fifth anniversary of the
acquisition, including receipt of payment in respect of the debt obligation and
receipt of common stock issuable upon conversion of the convertible preferred
stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of transactions to which the Company and certain
officers and directors of the Company are a party or have a financial interest.
The Board of Directors of the Company has adopted a policy that all transactions
between the Company and its officers, directors, principal shareholders and
other affiliates must be approved by a majority of the Company's disinterested
directors, and be conducted on terms no less favorable to the Company than could
be obtained from unaffiliated third parties.
Douglas Coape-Arnold was paid $60,000 in consulting fees and $4,679 of interest
on Participating Income Notes in 2004.
Affiliates of SummitBridge National Investments, LLC (collectively,
"SummitBridge"), the acquirer of assets previously owned by Provident Bank were
paid interest of $117,165 in 2004. Under the Indiana Control Share Acquisition
Law, SummitBridge currently has no voting rights with respect to the shares it
acquired. The Company has also advised SummitBridge of the Company's position
that the Indiana Business Combination Law prohibits SummitBridge from engaging
in certain transactions with the Company until the fifth anniversary of the
acquisition, including receipt of payment in respect of the debt obligation and
receipt of common stock issuable upon conversion of the convertible preferred
stock.
33
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents fees for professional audit
services rendered by Larry E. Nunn & Associates, LLC for the audit of our annual
financial statements, and fees billed for other services rendered by Larry E.
Nunn & Associates, LLC for the fiscal years shown.
Fiscal Year Ended Fiscal Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Audit Fees (1) ........... $ 22,759 $ 22,251
- --------------
(1) Audit Fees consist of fees rendered for professional services rendered for
the audit of our financial statements included in our Forms 10-K and 10-Qs
during the years ended December 31, 2004 and 2003 and services that are
normally provided by Larry E. Nunn & Associates, LLC in connection with
statutory and regulatory filings or engagement.
The hiring of Larry E. Nunn and Associates, LLC for conducting the audit of
its financial statements and the review of its Form 10-Q's during the years
ended December 31, 2004 and 2003, was pre-approved by the Company's Board
of Directors. Larry E. Nunn and Associates, LLC has not been engaged by the
Company to perform any other services.
34
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Noble
Roman's, Inc. and subsidiaries are included in Item 8: Page
----
Consolidated Balance Sheets - December 31, 2003 and 2004 17
Consolidated Statements of Operations - years ended
December 31, 2002, 2003 and 2004 18
Consolidated Statements of Changes in Stockholders'
Equity - years ended December 31, 2002, 2003 and 2004 19
Consolidated Statements of Cash Flows - years ended
December 31, 2002, 2003 and 2004 20
Notes to Consolidated Financial Statements 21
Report of Independent Auditors - Larry E. Nunn &
Associates, LLC 26
Exhibits
Exhibit No.
-----------
3.1 Amended Articles of Incorporation of the Registrant (1)
3.2 Amended and Restated By-Laws of the Registrant
4.1 Specimen Common Stock Certificates (1)
10.3 Employment Agreement with Paul W. Mobley dated
November 15, 1994 (3)
10.4 Employment Agreement with A. Scott Mobley dated
November 15, 1994
10.5 Credit Agreement with The Provident Bank dated
December 1, 1995 (5)
10.6 1984 Stock Option Plan
10.7 Form of Stock Option Agreement (6)
11.1 Statement Re: Computation Per Share Earnings
21.1 Subsidiaries of the Registrant (2)
31.1 CEO Certification under Rule 13a-14(a)/15d-14(a)
31.2 CFO Certification under Rule 13a-14(a)/15d-14(a)
32.1 CEO Certification under Section 1350
32.2 CFO Certification under Section 1350
- ---------------
(1) Incorporated by reference from Registration Statement filed
by the Registrant on Form S-18 on October 22, 1982 and
ordered effective on December 14, 1982 (SEC No. 2-79963C),
and, for the Amended Articles of Incorporation, from the
Registrant's Amendment No. 1 to the Post Effective Amendment
No. 2 to Registration Statement on Form S-1 on July 1, 1985.
(SEC File No.2-84150).
(2) Incorporated by reference to the Registrant's Registration
Statement on Form SB-2 (SEC File No. 33-66850) ordered
effective on October 26, 1993.
(3) Incorporated by reference from the Form 8-K filed by the
registrant on February 17, 1993.
(4) Incorporated by reference from the Form 8-K filed by the
registrant on June 3, 1993.
(5) Incorporated by reference from the Form 8-K filed by the
registrant on December 5, 1995.
(6) Incorporated by reference from the Form S-8 filed by the
registrant on November 29, 1994 (SEC File No. 33-86804).
35
SIGNATURES
In accordance with of Section 13 or 15(d) 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: March 15, 2005 By: /s/ Paul W. Mobley
-------------------------------------------
Paul W. Mobley, Chief Executive Officer and
Chief Financial Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Date: March 15, 2005 /s/ Paul W. Mobley
-------------------------------------------
Paul W. Mobley
Chairman of the Board and Director
Date: March 15, 2005 /s/ A. Scott Mobley
-------------------------------------------
A. Scott Mobley
President and Director
Date: March 15, 2005 /s/ Douglas H. Coape-Arnold
-------------------------------------------
Douglas H. Coape-Arnold
Director
36