10-K 1 nr-04k.txt 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