1. Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Accounting Policies [Abstract]

Note 1 - Summary of Significant Accounting Policies

Organization:  The Company sells and services franchises and/or licenses for non-traditional foodservice operations under the trade names “Noble Roman’s Pizza,” “Tuscano’s Italian Style Subs” and “Noble Roman’s Take-N-Pizza.”   Unless the context otherwise indicates, reference to the “Company” are to Noble Roman’s, Inc. and its wholly-owned subsidiaries.

Principles of Consolidation:  The consolidated financial statements include the accounts of Noble Roman’s, Inc. and its wholly-owned subsidiaries, Pizzaco, Inc. and N.R. Realty, Inc.  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.  Depreciation and amortization are computed on the straight-line method over the estimated useful lives ranging from five years to 12 years.  Leasehold improvements are amortized over the shorter of estimated useful life or the term of the lease.

Cash and Cash Equivalents:  Includes actual cash balance plus cash invested overnight pursuant to an agreement with a bank.  Neither the cash or cash equivalents are pledged nor are there any withdrawal restrictions.

Assets Held for Resale:  The Company records the cost of franchised locations held by the Company on a temporary basis until they are sold to a franchisee at the Company’s cost adjusted for impaired value, if any, to the estimated net realizable value.  The Company estimates net realizable value using comparative replacement costs for other similar franchise locations that are being built at the time the estimate is made.

Advertising Costs:  The Company records advertising costs consistent with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Other Expense topic and Advertising Costs subtopic.  This statement requires the Company to expense advertising production costs the first time the production material is used.

Fair Value Measurements and Disclosures:  The Fair Value Measurements and Disclosures topic of the FASB’s ASC requires companies to determine fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.  The Fair Value Measurements and Disclosures topic emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

·   Level 1:  Quoted market prices in active markets for identical assets or liabilities.

·   Level 2:  Observable market-based inputs or unobservable inputs that are corroborated by market data.

·   Level 3:  Unobservable inputs that are not corroborated by market data.

As of December 31, 2011, the Company held an interest rate swap, a financial liability that is required to be measured at fair value on a recurring basis utilizing Level 2 inputs.  The carrying value for this liability approximated its fair value, and is not material to the Company’s 2011 consolidated financial statements. The former interest rate swap was paid off in 2012.

Use of Estimates:  The preparation of the consolidated financial statements in conformity with United States 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 records a valuation allowance in a sufficient amount to adjust the total notes and accounts receivables value, in its best judgment, to reflect the amount that the Company estimates will be collected from its total receivables.  As any accounts are determined to be uncollectible, they are charged off against the valuation allowance.  The Company evaluates its assets held for resale, 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.  The debt issue cost being amortized is $156,991 with accumulated amortization at December 31, 2012 of $24,654.

Royalties, Administrative and Franchise Fees:  Royalties are recognized as income monthly and are based on a percentage of monthly sales of franchised or licensed restaurants.  Fees from the retail products in grocery stores are recognized monthly based on the distributors’ sale of those retail products to the grocery stores.  Administrative fees are recognized as income monthly as earned.  Initial franchise fees are recognized as income when the services for the franchised restaurant are substantially completed.

Exit or Disposal Activities Related to Discontinued Operations:  The Company records exit or disposal activity for discontinued operations when management commits to an exit or disposal plan and includes those charges under results of discontinued operations, as required by the ASC “Exit or Disposal Cost Obligations” topic.

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 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 the recorded deferred tax asset.  As of December 31, 2012, the net operating loss carry-forward was approximately $24.3 million which expires between the years 2018 and 2028.  Management made the determination that no valuation allowance was necessary after reviewing the Company’s business plans, relevant known facts to date, recent trends, current performance and analysis of the backlog of franchises sold but not yet open.

U.S. generally accepted accounting principles require the Company to examine its tax positions for uncertain positions.  Management is not aware of any tax positions that are more likely than not to change in the next 12 months, or that would not sustain an examination by applicable taxing authorities.  The Company’s policy is to recognize penalties and interest as incurred in its Consolidated Statements of Operations, which were none for the years ended December 31, 2010, 2011 and 2012.  The Company’s federal and various state income tax returns for 2009 through 2012 are subject to examination by the applicable tax authorities, generally for three years after the later of the original or extended due date.

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.

The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2010:

		Income (Numerator)		Shares (Denominator)		Per Share Amount
Net income	$	310,313
Less preferred stock dividends		( 90,682	)
Earnings per share – basic Income available to common stockholders		219,631			19,414,367	$	.01
Effect of dilutive securities Options		-			313,928
Convertible preferred stock		90,682			366,666
Diluted earnings per share
Income available to common stockholders and assumed conversions	$	310,313			20,094,961	$	.02

The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2011:

	Income (Numerator)			Shares (Denominator)		Per Share Amount
Net income	$	818,958
Less preferred stock dividends		(99,000	)
Earnings per share – basic
Income available to common stockholders		719,958			19,457,810	$	.04
Effect of dilutive securities     Options		-			287,802
Convertible preferred stock		99,000			366,666
Diluted earnings per share
Income available to common stockholders and assumed conversions	$	818,958			20,112,278	$	.04

The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2012:

	Income (Numerator)			Shares (Denominator)		Per Share Amount
Net income	$	624,143
Less preferred stock dividends		(99,271	)
Earnings per share – basic Income available to common stockholders		524,872			19,497,638	$	. 03
Effect of dilutive securities     Options		-			213,606
Convertible preferred stock		99,271			366,666
Diluted earnings per share Income available to common stockholders and assumed conversions	$	624,143			20,077,910	$	.03

Subsequent Events:  The Company evaluated subsequent events through the date the consolidated statements were issued and filed with Form 10-K.  No subsequent event  required recognition or disclosure.