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4. Royalties and Fees
12 Months Ended
Dec. 31, 2012
Accounting Policies [Abstract]  
Note 4 - Royalties and Fees

Approximately $266,500, $194,000 and $294,000 are included in the  2010, 2011 and 2012, respectively, royalties and fees in the Consolidated Statements of Operations for initial franchise fees.  Also included in royalties and fees were approximately $110,000, $61,000 and $81,000 in 2010, 2011 and 2012, respectively, for equipment commissions.  Most of the cost for the services required to be performed by the Company are incurred prior to the franchise fee income being recorded which is based on contractual liability for the franchisee.  For the most part, the Company’s ongoing royalty income is 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.

 

In conjunction with the development of Noble Roman’s Pizza and Tuscano’s Italian Style Subs, the Company has devised its own recipes for many of the ingredients that go into the making of its products (“Proprietary Products”).  The Company contracts with various manufacturers to manufacture its Proprietary Products in accordance with the Company’s recipes and formulas and to sell those products to authorized distributors at a contract price which includes an allowance for use of the Company’s recipes.  The manufacturing contracts also require the manufacturers to remit those allowances to the Company on a periodic basis, usually monthly.  The Company recognizes those allowances in revenue as earned based on sales reports from the distributors.

 

There were 1,583 franchised or licensed outlets in operation on December 31, 2011 and 1,847 on December 31, 2012.  During that 12-month period there were 291 new franchised or licensed outlets opened and 27 franchised or licensed outlets left the system.  Grocery stores are accustomed to adding products for a period of time, removing them for a period of time and possibly reoffering them.  Therefore, it is unknown how many grocery store licenses have left the system.