-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GcjQ562ilLL/GWZGdpjlkvFtiMuLpMKlbgjqPJzi4CAxitd58ABAT41rCIIprK3O 5pWiMb3SSl7vlmmWIJd+Vw== 0000926274-08-000052.txt : 20080811 0000926274-08-000052.hdr.sgml : 20080811 20080811164353 ACCESSION NUMBER: 0000926274-08-000052 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080630 FILED AS OF DATE: 20080811 DATE AS OF CHANGE: 20080811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOBLE ROMANS INC CENTRAL INDEX KEY: 0000709005 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 351281154 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11104 FILM NUMBER: 081006881 BUSINESS ADDRESS: STREET 1: ONE VIRGINIA AVE STREET 2: STE 800 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 BUSINESS PHONE: 3176343377 MAIL ADDRESS: STREET 1: ONE VIRGINIA AVENUE STREET 2: SUITE 800 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 10-Q 1 nr-608q.txt FORM 10-Q United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2008 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 Identification No.) of organization) One Virginia Avenue, Suite 800 Indianapolis, Indiana 46204 (Address of principal executive offices) (Zip Code) (317) 634-3377 (Registrant's telephone number, including area code) 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer" , "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One): Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller Reporting Company [X] (do not check if smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of August 8, 2008, there were 19,212,499 shares of Common Stock, no par value, outstanding. PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements The following unaudited condensed consolidated financial statements are included herein: Condensed consolidated balance sheets as of December 31, 2007 and June 30, 2008 (unaudited) Page 3 Condensed consolidated statements of operations for the three months and six months ended June 30, 2007 and 2008 (unaudited) Page 4 Condensed consolidated statements of changes in stockholders' equity for the year ended December 31, 2007 and six months ended June 30, 2008 (unaudited) Page 5 Condensed consolidated statements of cash flows for the six months ended June 30, 2007 and 2008 (unaudited) Page 6 Notes to condensed consolidated financial statements (unaudited) Page 7 2 Noble Roman's, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)
Assets December 31, June 30, 2007 2008 ----------- ----------- Current assets: Cash $ 832,207 $ 2,200,515 Accounts and notes receivable (net of allowances of $106,712 as of December 31, 2007 and June 30, 2008) 1,770,994 2,241,981 Inventories 310,362 346,382 Assets held for resale 643,915 1,696,809 Prepaid expenses 175,022 298,917 Current portion of long-term notes receivable 133,736 34,017 Deferred tax asset - current portion 1,971,875 1,588,000 ----------- ----------- Total current assets 5,838,111 8,406,621 ----------- ----------- Property and equipment: Equipment 1,289,795 1,400,585 Leasehold improvements 107,729 110,527 ----------- ----------- 1,397,524 1,511,112 Less accumulated depreciation and amortization 755,987 809,478 ----------- ----------- Net property and equipment 641,537 701,634 Deferred tax asset (net of current portion) 9,106,008 9,120,655 Other assets including long-term portion of notes receivable net of valuation allowances of $550,000 as of December 31, 2007 and June 30, 2008 1,883,644 1,956,876 ----------- ----------- Total assets $17,469,300 $20,185,786 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $ 532,264 $ 268,154 Current portion of long-term note payable 1,500,000 1,500,000 ----------- ----------- Total current liabilities 2,032,264 1,768,154 ----------- ----------- Long-term obligations: Note payable to bank (net of current portion) 4,125,000 6,375,000 ----------- ----------- Total long-term liabilities 4,125,000 6,375,000 ----------- ----------- Stockholders' equity: Common stock - no par value (25,000,000 shares authorized, 19,187,449 issued and outstanding as of December 31, 2007 and 19,212,499 issued and outstanding as of June 30, 2008) 22,905,617 22,952,567 Preferred stock (5,000,000 shares authorized and 20,625 issued and outstanding as of December 31, 2007 and June 30, 2008) 800,250 800,250 Accumulated deficit (12,393,830) (11,710,184) ----------- ----------- Total stockholders' equity 11,312,036 12,042,632 ----------- ----------- Total liabilities and stockholders' equity $17,469,300 $20,185,786 =========== ===========
See accompanying notes to condensed consolidated financial statements. 3 Noble Roman's, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2007 2008 2007 2008 ----------- ----------- ----------- ----------- Royalties and fees $ 2,787,232 $ 1,986,932 $ 5,372,640 3,935,085 Administrative fees and other 18,639 20,431 36,985 33,872 Restaurant revenue 274,276 414,679 525,861 803,520 ----------- ----------- ----------- ----------- Total revenue 3,080,147 2,422,042 5,935,486 4,772,477 Operating expenses: Salaries and wages 422,067 349,007 799,612 730,099 Trade show expense 136,048 121,311 273,834 244,784 Travel expense 122,522 109,051 201,762 222,632 Sales commissions 242,592 12,425 357,579 44,113 Other operating expenses 221,325 235,057 447,345 472,531 Restaurant expenses 255,025 389,794 489,432 764,219 Depreciation and amortization 24,359 23,886 45,707 49,205 General and administrative 423,385 420,550 848,415 842,853 ----------- ----------- ----------- ----------- Operating income 1,232,824 760,961 2,471,800 1,402,041 Interest and other expense 166,906 162,011 340,725 316,075 ----------- ----------- ----------- ----------- Income before income taxes 1,065,918 598,950 2,131,075 1,085,966 Income tax expense 362,412 203,643 724,566 369,229 ----------- ----------- ----------- ----------- Net income 703,506 395,307 1,406,509 716,737 Cumulative preferred dividends 34,481 16,455 75,616 33,090 ----------- ----------- ----------- ----------- Net income available to common stockholders $ 669,025 $ 378,852 $ 1,330,893 $ 683,647 =========== =========== =========== =========== Earnings per share- basic: Net income $ .04 $ .02 $ .08 $ .04 Net income available to common stockholders $ .04 $ .02 $ .08 $ .04 Weighted average number of common shares outstanding 17,009,825 19,201,950 16,839,866 19,199,172 Diluted earnings per share: Net income $ .04 $ .02 $ .07 $ .04 Weighted average number of common shares outstanding 19,580,118 20,350,049 19,410,159 20,347,271
See accompanying notes to condensed consolidated financial statements. 4 Noble Roman's, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Common Stock Preferred Accumulated Stock Shares Amount Deficit Total --------- ----------- ----------- ------------ ----------- Balance at December 31, 2007 $ 800,250 19,187,449 $22,905,617 $(12,393,830) $11,312,036 Net income for six months ended June 30, 2008 716,737 716,737 Cumulative preferred dividends (33,091) (33,091) Amortization of value of employee stock options 22,000 22,000 Exercise of employee stock options 15,000 12,450 12,450 Exercise of warrants - 10,000 12,500 - 12,500 --------- ----------- ----------- ------------ ----------- Balance at June 30, 2008 800,250 19,212,449 22,952,567 (11,710,184) 12,042,632 ========= =========== =========== ============ ===========
See accompanying notes to condensed consolidated financial statements. 5 Noble Roman's, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2007 2008 ----------- ----------- OPERATING ACTIVITIES Net income $ 1,406,509 $ 716,737 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 93,585 84,719 Deferred federal income taxes 724,565 369,229 Changes in operating assets and liabilities: (Increase) decrease in: Accounts and notes receivable (262,717) (470,987) Inventories 14,063 (36,020) Prepaid expenses (237,509) (123,894) Other assets (47,900) (7,853) Decrease in: Accounts payable (46,412) (264,109) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,644,184 267,822 ----------- ----------- INVESTING ACTIVITIES Purchase of property and equipment (76,702) (113,589) Assets held for resale (21,410) (1,047,006) ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (98,112) (1,160,595) ----------- ----------- FINANCING ACTIVITIES Payment of obligations from discontinued operations (318,436) (55,520) Payment of cumulative preferred dividends (75,616) (33,090) Payment of principal on outstanding debt (750,000) (750,000) Payments received on long-term notes receivable 92,076 99,717 Proceeds from additional bank borrowings - 2,975,024 Proceeds from the exercise of stock options and warrants 204,171 24,950 ----------- ----------- NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (847,805) 2,261,081 ----------- ----------- Increase in cash 698,267 1,368,308 Cash at beginning of period 920,590 832,207 ----------- ----------- Cash at end of period $ 1,618,857 $ 2,200,515 =========== =========== Supplemental schedule of non-cash investing and financing activities None. Cash paid for interest $ 314,585 $ 289,623
See accompanying notes to condensed consolidated financial statements. 6 Notes to Condensed Consolidated Financial Statements (Unaudited) - ---------------------------------------------------------------- Note 1 - The interim condensed consolidated financial statements, included herein, are unaudited, but reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods presented and the financial condition as of the dates indicated, which adjustments are of a normal recurring nature. The results for the six-month period ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008. Note 2 - Approximately $103,000 and $238,500 are included in royalty and fee income for the three-month and six-month periods ended June 30, 2008, respectively, and approximately $300,000 and $766,000 are included in the three-month and six-month periods ended June 30, 2007, respectively, for initial franchise fees. Approximately $96,597 and $207,072, and approximately $236,948 and $444,358 are included in royalty and fee income for the three-month and six-month periods ended June 30, 2008 and 2007, respectively, for equipment commissions. In addition, included in royalties and fees were approximately $104,825 and $104,825, and $686,000 and $1,046,000, in the three-month and six-month periods ended June 30, 2008 and 2007, respectively, for the sale of Area Development Agreements. Royalty and fee income, less initial franchise fees, equipment commissions and area development fees were $1,682,510 and $3,384,688, and $1,564,284 and $3,116,282 for the three-month and six-month periods ended June 30, 2008 and 2007, respectively. During the six-month period ending June 30, 2008 there were 40 franchised units opened and 30 franchised units closed. The Company's ongoing royalty income is primarily paid electronically by the Company initiating a draft on the franchisee's account by electronic withdrawal. As such, the Company has no material amount of past due royalties. Note 3 - The following table sets forth the calculation of basic and diluted earnings per share for the three-month period and six-month period ended June 30, 2008:
Three-Months Ended June 30, 2008 Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Net income $ 395,307 19,201,950 $ .02 Less preferred stock dividends (16,455) --------- Earnings per share - basic Income available to common stockholders 378,852 .02 Effect of dilutive securities Warrants 676,333 Options 105,100 Convertible preferred stock 16,455 366,666 --------- ----------- Diluted earnings per share Income available to common stockholders and assumed conversions $ 395,307 20,350,049 $ .02
7
Six-Months Ended June 30, 2008 Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Net income $ 716,737 19,199,172 $ .04 Less preferred stock dividends (33,090) --------- Earnings per share - basic Income available to common stockholders 683,647 .04 Effect of dilutive securities Warrants 676,333 Options 105,100 Convertible preferred stock 33,090 366,666 --------- ----------- Diluted earnings per share Income available to common stockholders and assumed conversions $ 716,737 20,347,271 $ .04
Note 4 - Kari Heyser, Fred Eric Heyser and Meck Enterprises, LLC, et al v. Noble Roman's, Inc. et al was filed in Superior Court in Hamilton County, Indiana on June 19, 2008 (Cause No. 29D01 0806 PL 739). The Plaintiffs in the case are eight former franchisees and two existing franchisees of the dual-branded traditional franchise of the Company. The Defendants are the Company, Paul W. and A. Scott Mobley, Troy Branson, Mitch Grunat, CIT Small Business Lending Corporation and PNC Bank. The Plaintiffs all allege that they purchased traditional franchises as a result of certain fraudulent representations by the Defendants and the omission of certain material facts regarding the franchises and seek compensatory and punitive damages. The Defendants have filed a Motion to Dismiss the lawsuit. In addition, the Company has filed a Counter-Claim for Damages, Preliminary Injunction and Permanent Injunction against all ten of the Plaintiffs. In addition, the Company filed a Motion for Preliminary Injunction against the eight Plaintiffs that are former franchisees. Although litigation is inherently uncertain, the Company believes that it has strong and meritorious legal and factual defenses to these claims and will vigorously defend its interests in this case. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction - ------------ The Company sells and services franchises for non-traditional, co-branded and stand-alone foodservice operations under the trade names "Noble Roman's Pizza" and "Tuscano's Italian Style Subs." Both concepts' hallmarks include high quality products, simple operating systems, labor minimizing operations, attractive food costs and overall affordability. 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 designed with a view to produce superior results. Here are a few of the differences that we believe make our product unique: 8 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 for non-traditional locations. o A 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. 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 in an independent national network that allows the Company to service franchisees throughout the country. 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. Tuscano's Italian Style Subs - ---------------------------- Tuscano's Italian Style Subs is a separate restaurant concept with an Italian-themed menu that focuses on sub sandwich menu items. Tuscano's was designed to be comfortably familiar from a customer's perspective but with many distinctive features. The franchise fee and ongoing royalty for a Tuscano's is identical to that charged for a Noble Roman's Pizza franchise. For the most part, the Company awards Tuscano's franchises for the same facilities as Noble Roman's Pizza franchises, although Tuscano's franchises are also available for non-traditional locations that do not have a Noble Roman's Pizza franchise. However, in the traditional stand-alone locations we only sell franchises for Noble Roman's Pizza/Tuscano's Subs together as a dual-branded concept. With its Italian theme, Tuscano's offers a distinctive yet recognizable format. 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 check out point. Tuscano's, however, has many unique competitive features, including its Tuscan theme, the extra rich yeast content of its fresh baked bread, the thematic menu selections and serving options, high quality meats, and generous yet cost-effective quality sauces and spreads. Tuscano's was designed to be premium quality, simple to operate and cost-effective. Business Strategy The Company's business strategy can be summarized as follows: Continue Focus on Sales of Non-Traditional Franchises. The Company plans to continue its 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. The Company has pursued this focus for the past several years and has recently increased its focus on planned increases in the growth of non-traditional locations. 9 Growth of our Traditional Concept. In order to seek more rapid growth, the Company initiated a strategy to sell franchises and to sell development territories to Area Developers for stand-alone traditional locations. Area Developers have the exclusive right to develop the traditional concept in their areas. Area Developers generally pay a development fee of $.05 per capita in their development area and will receive 30% of the initial franchise fee and 2/7ths of the royalty from the franchise locations developed pursuant to those Development Agreements. The Company retains all training and supervision responsibilities and must approve all franchisees and all locations. In order to maintain the rights to develop the territories, each Developer has to meet the minimum development schedule stipulated in the Area Development Agreement. The Company is continuing to implement the initiatives it announced in November 2007 that it believes will enhance the operations of its traditional co-brand franchise program. These enhancements include: more rigorous franchisee selection criteria; a longer, more robust training period for new franchisees; more direct franchise involvement in the construction and marketing process; and intensified monitoring and enforcement of operating standards and unit performance Recognizing that these steps have slowed the speed of franchise development within territories covered by existing Area Development Agreements, the Company intends to offer reasonable accommodations to the exclusive development time frames specified in those agreements as long as the Area Developer is diligently pursuing franchise development for growth of the traditional franchise program. Maintain Superior Product Quality. The Company believes that the quality of its products will contribute to the growth of both its non-traditional and traditional locations. Every ingredient and process was designed with a view to producing superior results. Most of our menu items were developed to be delivered in a ready-to-use form requiring only on-site assembly and baking. The Company believes this process results in products that are great tasting, quality consistent, easy to assemble, relatively low in food cost and requiring very low amounts of labor, which allows for a significant competitive advantage due to the speed at which its products can be prepared, baked and served to customers. Financial Summary - ----------------- The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates. The Company periodically evaluates the carrying values of its assets, including property, equipment and related costs, accounts receivable and deferred tax asset, to assess whether any impairment indications are present due to (among other factors) recurring operating losses, significant adverse legal developments, competition, changes in demands for the Company's products or changes in the business climate that affect the recovery of recorded value. If any impairment of an individual asset is evident, a charge will be provided to reduce the carrying value to its estimated fair value. The following table sets forth the percentage relationship to total revenue of the listed items included in Noble Roman's consolidated statements of operations for the three-month and six-month periods ended June 30, 2007 and 2008, respectively. 10
Royalties and fees 90.5 % 82.0 % 90.5 % 82.5 % Administrative fees and other .6 .9 .6 .7 Restaurant revenue 8.9 17.1 8.9 16.8 ----- ----- ----- ----- Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Operating expenses: Salaries and wages 13.7 14.4 13.5 15.3 Trade show expense 4.4 5.0 4.6 5.1 Travel expense 4.0 4.5 3.4 4.7 Sales commissions 7.9 .5 6.0 .9 Other operating expense 7.2 9.7 7.5 9.9 Restaurant expenses 8.3 16.1 8.2 16.0 Depreciation and amortization .8 1.0 .8 1.0 General and administrative 13.7 17.4 14.3 17.7 ----- ----- ----- ----- Operating income 40.0 % 31.4 % 41.7 % 29.4 % Interest and other expense 5.4 6.7 5.7 6.6 ----- ----- ----- ----- Income before income taxes 34.6 24.7 36.0 22.8 Income tax expense 11.8 8.5 12.2 7.7 ----- ----- ----- ----- Net income 22.8 % 16.2 % 23.8 % 15.1 % ===== ===== ===== =====
Recent Development - ------------------ On March 19, 2008, the Company announced that it had engaged Roth Capital Partners, LLC to act as its financial advisor to advise and assist the Company with respect to defining objectives and evaluating certain strategic alternatives to enhance shareholder value. The Company anticipates that a range of options will be presented as a result of this analysis, which the Company will then review in consultation with its board of directors and advisors. Results of Operations - --------------------- Noble Roman's, Inc. and Subsidiaries Results of Operations - Three-Month and Six-Month Periods Ended June 30, 2007 and 2008 Total revenue decreased from $3,080,147 to $2,422,042 and from $5,935,846 to $4,772,477 for the three-month and six-month periods ended June 30, 2008, respectively, compared to the corresponding periods in 2007. These decreases were a result of selling fewer franchises, less equipment commissions and less Area Development Agreements in both the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These decreases were partially offset by increases in ongoing royalties and fees of $118,226 and $268,406, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the same periods in 2007. Approximately $103,000 and $238,500 are included in royalty and fee income for the three-month and six-month periods ended June 30, 2008, respectively, and approximately $300,000 and $766,000 are included in the three-month and six-month periods ended June 30, 2007, respectively, for initial franchise fees. Approximately $96,597 and $207,072, and approximately $236,948 and $444,358 are included in royalty and fee income for the three-month and six-month periods ended June 30, 2008 and 11 2007, respectively, for equipment commissions. In addition, included in royalties and fees were approximately $104,825 and $104,825, and $686,000 and $1,046,000, in the three-month and six-month periods ended June 30, 2008 and 2007, respectively, for the sale of Area Development Agreements. Royalty and fee income, less initial franchise fees, equipment commissions and area development fees were $1,682,510 and $3,384,688, and $1,564,284 and $3,116,282 for the three-month and six-month periods ended June 30, 2008 and 2007, respectively. Restaurant revenues increased from approximately $274,276 to $414,679 and $525,861 to $803,520 for the three-month and six-month periods ended June 30, 2008, respectively, compared to the corresponding periods in 2007. The Company only intends to operate two restaurants to be used for testing and demonstration purposes, but from time to time temporarily operates others until a suitable franchisee is located. Restaurant revenue increased because the Company was operating more restaurants in the three-month and six-month periods ended June 30, 2008 than in the corresponding periods in 2007. Salaries and wages increased from 13.7% of total revenue to 14.4% of total revenue and from 13.5% of total revenue to 15.3% of total revenue, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These increases were the result of the decrease in revenue, as discussed above. The actual expense decreased from $422,067 to $349,007 and from $799,612 to $730,099 for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. In April 2008, the Company took action to reduce salaries and wages as a result of the slower growth of new franchises resulting from a stronger emphasis on non-traditional franchises and from the initiatives it announced in November 2007 that it believes will enhance the operations of its traditional co-brand franchise program. Trade show expenses increased from 4.4% of total revenue to 5.0% of total revenue and 4.6% of total revenue to 5.1% of total revenue, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These increases were the result of the decrease in revenue with the actual amount of trade show expense decreasing slightly in both the three-month and six-month periods in 2008 compared to 2007. Travel expenses increased from 4.0% of total revenue to 4.5% of total revenue and 3.4% of total revenue to 4.7% of total revenue, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These increases were the result of a decrease in revenue and the actual amount of travel expenses decreased $13,471 in the three-month period and increased $20,870 in the six-month period ended June 30, 2008 compared to the corresponding periods in 2007. Sales commissions decreased from 7.9% of total revenue to .5% of total revenue and 6.0% of total revenue to .9% of total revenue, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These decreases were the result of fewer franchise sales and Area Development Agreement sales. Other operating expenses increased, as a percentage of total revenue, from 7.2% of total revenue to 9.7% of total revenue and 7.5% of total revenue to 9.9% of total revenue, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These increases were primarily the result of a decrease in revenue. Restaurant expenses increased as a percentage of total revenue from 8.3% of total revenue to 16.1% of total revenue and 8.2% of total revenue to 16.0% of total revenue, respectively, for the three-month 12 and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These increases were primarily a result of an increase in the number of restaurants operated by the Company while total revenues decreased. The Company only intends to operate two restaurants to be used for testing and demonstration purposes, but from time to time temporarily operates others until a suitable franchisee is located. General and administrative expenses increased as a percentage of total revenue from 13.7% of total revenue to 17.4% of total revenue and 14.3% of total revenue to 17.7% of total revenue, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These increases were the result of the decrease in total revenue. The actual amount of the general and administrative expense decreased in both the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. Operating income decreased as a percentage of total revenue from 40.0% of total revenue to 31.4% of total revenue and 41.7% of total revenue to 29.4% of total revenue, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. The primary reason for these decreases were the decrease in total revenue. Actual operating expenses, excluding restaurant expenses, decreased by approximately $321,009 and $368,038 for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. Interest expense increased as a percentage of total revenue from 5.4% of total revenue to 6.7% of total revenue and 5.7% of total revenue to 6.6% of total revenue, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These increases were primarily the result of the decrease in revenue. The amount of interest decreased in both the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. This decrease was the result of lower interest rates offset by the increased amount of debt outstanding due to the additional borrowing of $3 million in February 2008 offset by $1.5 million debt re-payments during the past twelve months. Net income decreased from 22.8% of total revenue to 16.2% of total revenue and 23.8% of total revenue to 15.1% of total revenue, respectively, for the three-month and six-month periods ended June 30, 2008 compared to the corresponding periods in 2007. These decreases in net income were primarily the result of the decrease in total revenue, partially offset by the decrease in operating expenses. Liquidity and Capital Resources - ------------------------------- The Company's strategy is to grow its business by continuing to focus on franchising non-traditional locations and by franchising in traditional locations partially through the use of Area Developers. This strategy does not require significant capital. As a result of the Company's strategy, cash flow generated from operations and the anticipated growth in Franchise Agreements and Area Development Agreements in the future, the Company believes it will have sufficient cash flow to meet its obligations and to carry out its current business plan. On February 4, 2008, the Company and certain of its subsidiaries, entered into a First Amendment to Loan Agreement (the "Amendment") with Wells Fargo Bank, N.A. that amended the existing Loan Agreement dated August 25, 2005, between the Company and Wells Fargo (the "Loan Agreement"). Under the Amendment, Wells Fargo loaned the Company an additional $3.0 million. The Amendment also reduced the interest rate applicable to amounts borrowed under the Loan Agreement from LIBOR 13 plus 4% per annum to LIBOR plus 3.75% per annum and extended the maturity date for borrowings under the loan from August 31, 2011 to August 31, 2013. Finally, the Amendment provides that the Company may repurchase shares of its common stock in such amounts and on such terms as are approved by the Company's board of directors from time to time, provided the aggregate purchase price of such repurchased shares shall not exceed $3.0 million. The Board has not yet approved any such share repurchases. On February 6, 2008, the Company elected to trade its previous swap contract for a new swap contract fixing the rate on 50% of the principal balance under the Loan Agreement, as amended by the Amendment (approximately $4.2 million as of February 6, 2008), at an annual interest rate of 8.20%. This swap contract replaces the previously existing swap contract that fixed the interest rate on $3,000,000 of the outstanding principal balance under the Loan Agreement at an annual interest rate of 8.83% at the time it was replaced. The Company does not anticipate that any of the recently issued Statement of Financial Accounting Standards will have a material impact on its Statement of Operations or its Balance Sheet. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The Company's exposure to interest rate risk relates primarily to its variable-rate debt. As of June 30, 2008, the Company had outstanding interest-bearing debt in the aggregate principal amount of $7,875,000. The Company's current borrowings are at a monthly variable rate tied to the London Interbank Offered Rate ("LIBOR") plus 3.75% per annum adjusted on a monthly basis. To mitigate interest rate risk, the Company purchased a swap contract fixing the rate on 50% of the principal balance under the loan agreement, as amended by the amendment, at an annual interest rate of 8.20%. Based upon the principal balance outstanding at June 30, 2008, for each 1.0% increase in LIBOR, the Company would incur increased interest expense of approximately $36,000 over the succeeding twelve-month period. ITEM 4. 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. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. Kari Heyser, Fred Eric Heyser and Meck Enterprises, LLC, et al v. Noble Roman's, Inc. et al was filed in Superior Court in Hamilton County, Indiana on June 19, 2008 (Cause No. 29D01 0806 PL 739). The Plaintiffs in the case are eight former franchisees and two existing franchisees of the dual-branded traditional franchise of the Company. The Defendants are the Company, Paul W. and A. Scott Mobley, Troy Branson, Mitch Grunat, CIT Small Business Lending Corporation and PNC Bank. The 14 Plaintiffs all allege that they purchased traditional franchises as a result of certain fraudulent representations by the Defendants and the omission of certain material facts regarding the franchises and seek compensatory and punitive damages. The Defendants have filed a Motion to Dismiss the lawsuit. In addition, the Company has filed a Counter-Claim for Damages, Preliminary Injunction and Permanent Injunction against all ten of the Plaintiffs. In addition, the Company filed a Motion for Preliminary Injunction against the eight Plaintiffs that are former franchisees. Although litigation is inherently uncertain, the Company believes that it has strong and meritorious legal and factual defenses to these claims and will vigorously defend its interests in this case. The Company, from time to time, is involved in various litigation relating to claims arising out of its normal business operations. ITEM 6. Exhibits. (a) Exhibits: See Exhibit Index appearing on page 17. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NOBLE ROMAN'S, INC. Date: By: /s/ Paul W. Mobley -------------------------------------- Paul W. Mobley, Chairman of the Board and Chief Financial Officer (Authorized Officer and Principal Financial Officer) 16 Index to Exhibits Exhibit - ------- 3.1 Amended Articles of Incorporation of the Registrant, filed as an exhibit to the Registrant's Amendment No. 1 to the Post Effective Amendment No. 2 to Registration Statement on Form S-1 filed July 1, 1985 (SEC File No.2-84150), is incorporated herein by reference. 3.2 Amended and Restated By-Laws of the Registrant, as currently in effect, filed as an exhibit to the Registrant's Registration Statement on Form S-18 filed October 22, 1982 and ordered effective on December 14, 1982 (SEC File No. 2-79963C), is incorporated herein by reference. 3.3 Articles of Amendment of the Articles of Incorporation of the Registrant effective February 18, 1992 filed as an exhibit to the Registrant's Registration Statement on Form SB-2 (SEC File No. 33-66850), ordered effective on October 26, 1993, is incorporated herein by reference. 3.4 Articles of Amendment of the Articles of Incorporation of the Registrant effective May 11, 2000, filed as Annex A and Annex B to the Registrant's Proxy Statement on Schedule 14A filed March 28, 2000, is incorporated herein by reference. 3.5 Articles of Amendment of the Articles of Incorporation of the Registrant effective April 16, 2001 filed as Exhibit 3.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference. 3.6 Articles of Amendment of the Articles of Incorporation of the Registrant effective August 23, 2005, filed as Exhibit 3.1 to the Registrant's current report on Form 8-K filed August 29, 2005, is incorporated herein by reference. 4.1 Specimen Common Stock Certificates filed as an exhibit to the Registrant's Registration Statement on Form S-18 filed October 22, 1982 and ordered effective on December 14, 1982 (SEC File No. 2-79963C), is incorporated herein by reference. 4.2 Form of Warrant Agreement filed as Exhibit 4.1 to the Registrant's current report on Form 8-K filed August 29, 2005, is incorporated herein by reference. 10.1 Employment Agreement with Paul W. Mobley dated November 15, 1994 filed as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference. 10.2 Employment Agreement with A. Scott Mobley dated November 15, 1994 filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference. 10.3 1984 Stock Option Plan filed with the Registrant's Form S-8 filed November 29, 1994 (SEC File No. 33-86804), is incorporated herein by reference. 17 10.4 Noble Roman's, Inc. Form of Stock Option Agreement filed with the Registrant's Form S-8 filed November 29, 1994 (SEC File No. 33-86804), is incorporated herein by reference. 10.5 Settlement Agreement with SummitBridge dated August 1, 2005, filed as Exhibit 99.2 to the Registrant's current report on Form 8-K filed August 5, 2005, is incorporated herein by reference. 10.6 Loan Agreement with Wells Fargo Bank, N.A. dated August 25, 2005 filed as Exhibit 10.1 to the Registrant's current report on Form 8-K filed August 29, 2005, is incorporated herein by reference. 10.7 First Amendment to Loan Agreement with Wells Fargo Bank, N.A. dated February 4, 2008, filed as Exhibit 10.1 to the Registrant's report on Form 8-K filed February 8, 2008, is incorporated herein by reference. 10.8 Registration Rights Agreement dated August 1, 2005 between the Company and SummitBridge National Investments filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (SEC file No. 333-133382) filed April 19, 2006, is incorporated herein by reference. 21.1 Subsidiaries of the Registrant filed in the Registrant's Registration Statement on Form SB-2 (SEC File No. 33-66850) ordered effective on October 26, 1993, is incorporated herein by reference. 31.1 C.E.O. and C.F.O. Certification under Rule 13a-14(a)/15d-15(e). 32.1 C.E.O. and C.F.O. Certification under Section 1350. 18 EX-31.1 2 ex31-1.txt EXHIBIT 31.1 Exhibit 31.1 ------------ CERTIFICATION I, Paul W. Mobley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Noble Roman's, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (that registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: /s/ Paul W. Mobley --------------------------- Paul W. Mobley Chief Executive Officer and Chief Financial Officer EX-32.1 3 ex32-1.txt EXHIBIT 32.1 Exhibit 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Noble Roman's, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul W. Mobley, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Paul W. Mobley --------------------------- Paul W. Mobley Chief Executive Officer and Chief Financial Officer of Noble Roman's, Inc. Date: -----END PRIVACY-ENHANCED MESSAGE-----