U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K10-K/A
(AMENDMENT NO. 1)
(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, 2005.2006.
Transition Report Pursuant to Section 13 or 15 (d) of the Securities
---- ----- Exchange Act of 1934 for the transition period from ____ to____.______ 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 if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes No X
--- ---
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes No X
--- ---
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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer X
---- --- ---
---1
Indicate by check mark whether the registrant is a shell company (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, 2005,2006, 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 $8,054,060.$20,093,119.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 16,322,13616,742,688 shares of
common stock as of March 1, 2006.April 20, 2007.
Documents Incorporated by Reference: NoneNone.
2
NOBLE ROMAN'S, INC.
FORM 10-K
Year Ended December 31, 20052006
Table of Contents
Item #
in Form 10-K Page
PART I
1. Business 4
1A. Risk Factors 7
1B. Unresolved Staff Comments 10
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 10
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
7A. Quantitative and Qualitative Disclosures About Market Risk 18
8. Financial Statements and Supplementary Data 19
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 30
9A. Controls and Procedures 30
9B. Other Information 30
PART III
10. Directors and Executive Officers of the Registrant 304
11. Executive Compensation 326
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 3312
13. Certain Relationships and Related Transactions 36
PART IV15
14. Principal Accounting Fees and Services 3616
PART IV
15. Exhibits, Financial Statements Schedules 3716
3
PARTEXPLANATORY NOTE
This Amendment No. 1 ITEM 1. BUSINESS
General Information
- -------------------on Form 10-K/A (this "Amendment") amends Noble
Roman's, Inc., an Indiana corporation incorporated in 1972's (the "Company""Company's"), sells Annual Report on Form 10-K for the year ended
December 31, 2006, originally filed with the Securities and services franchises for non-traditionalExchange Commission
on March 14, 2007 (the "Original Filing"). We are refiling Part III to include
information required by Items 10, 11, 12, 13 and co-branded
foodservice operations under14 because we will not file a
definitive proxy statement within 120 days after 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. In 2005 the Company began selling franchises for its dual-branded
concept in traditional locations. The Company plansend of our year ended
December 31, 2006. Accordingly, reference to sell development
territories to Area Developers in an attempt to accelerate growth in the
dual-branded traditional concept. 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. The initial investment, including franchise fee, for a
Noble Roman's franchise ranges from approximately $26,700 to $197,500, for a
Tuscano's franchise from approximately $30,600 to $167,900, and for both
franchises in the same facility from approximately $56,000 to $261,700,
dependingour Proxy Statement on the type of facility. Royalties and fees from franchise operations
accounted for 86.1%, 85.8% and 86.2% of total revenue for 2003, 2004 and 2005,
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 processcover
page has been designed with a viewdeleted. In addition, pursuant to produce superior results. Here are a fewthe rules of the differences thatSecurities and
Exchange Commission, we believe make
our product unique:
o Crust madeare including 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.
4
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.
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. 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.
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. Yet Tuscano's 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.
Franchise Development
- ---------------------
Noble Roman's has sold franchises in 44 states from coast-to-coast within the
United States. In addition, it has sold franchises for military bases in Puerto
Rico, Guam and Italy, and for entertainment facilities and convenience stores in
Canada.
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 which it has been doing the past several years. In
addition, the Company recently began offering the dual-branded concept of Noble
Roman's/Tuscano's for stand-alone traditional locations.
In order to seek more rapid growth, the Company has initiated a strategy to sell
development territories, by television areas of dominant influence, to Area
Developers for the growth of its traditional dual-branded concept. Area
Developers will have the exclusive right to develop the dual-branded traditional
concept in their area. The Area Development Agents will 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 locations
developed pursuant to those 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 territory, each Development Agent
has to meet the minimum development schedule stipulated in the Area Development
Agreement. Currently, the Company is in discussions with several potential Area
Developers.
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 bethis Amendment 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.
Within the competitive environment of the traditional franchise segment of the
restaurant industry, management has defined what it believes to be certain
competitive advantages for the Company. One of these advantages is that due to
the Company's recently developed fully-prepared crust, pizzas can be prepared
and baked in less than five minutes, which the Company believes is a significant
advantage especially in the delivery segment of the business.
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 quarter 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.
6
Employees
- ---------
As of February 28, 2006, the Company employed approximately 29 persons full-time
and 47 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), 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 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 additional
federal regulation of the franchisor-franchisee relationship in certain
respects. 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 1A. RISK FACTORS
All phases of the Company's operations are subject to a number of uncertainties,
risks and other influences, many of which are outside of the Company's control
and any one of which, or a combination of which, could materially affect the
Company's results of operations. Important factors that could cause actual
results to differ materially from the Company's expectations are discussed
below. Prospective investors should carefully consider these factors before
investing in the Company's securities. These risks and uncertainties include,
without limitation:
7
Competition from larger companies.
The Company competes for franchise sales with large national companies and
numerous regional and local companies. Many of the Company's competitors have
greater financial and other resources than the Company. The restaurant industry
in general is intensely 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.
As a result of these factors, we may have difficulty competing effectively from
time to time or in certain markets.
Dependence on growth strategy.
A significant component of the Company's growth strategy is selling new
franchises and assisting franchisees in opening new restaurants. The opening and
success of new restaurants will depend upon various factors, including the
franchisee's ability to find suitable sites, the ability to negotiate leases for
the new restaurants on acceptable terms, the ability to comply with applicable
regulatory requirements, the ability to meet construction schedules, the ability
of the franchisees to manage their anticipated expansion and to hire and train
personnel, the ability of the franchisees to obtain acceptable financing and the
effect of competition and general economic and business conditions including,
but not limited to, food and labor costs. Many of the foregoing factors are not
within the control of the Company. There can be no assurance that the Company
will be able to achieve its plans with respect to the opening of new franchise
units.
Dependence on success of franchisees.
A significant portion of the Company's earnings comes from royalties generated
by its franchises. Franchisees are independent operators, and their employees
are not the Company's employees. The Company provides training and support to
franchisees, but the quality of franchise store operations may be diminished by
any number of factors beyond the Company's control. Consequently, franchisees
may not successfully operate stores in a manner consistent with the Company's
standards and requirements, or may not hire and train qualified managers and
other store personnel. If they do not, the Company's image and reputation may
suffer, and its revenues and stock price could decline. While the Company
attempts to ensure that its franchisees maintain the quality of its brand and
branded products, franchisees may take actions that adversely affect the value
of the Company's intellectual property or reputation.
Dependence on consumer preferences and perceptions.
The restaurant industry is often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing restaurants. The Company
can be substantially adversely affected by publicity resulting from food
quality, illness, injury, or other health concerns or operating issues stemming
from one restaurant or a limited number of restaurants.
8
Interruptions in supply or delivery of fresh food products.
Dependence on frequent deliveries of fresh product also subjects the Company to
the risks that shortages or interruptions in the supply caused by inclement
weather or other conditions could adversely affect the availability, quality and
cost of ingredients. In addition, factors such as inflation, market conditions
for cheese, food, paper and labor may also adversely affect the franchisees and,
as a result, adversely affect the Company's ability to add new restaurants.
Dependence on a few individuals.
The Company's business has been and will continue to be dependent upon the
efforts and abilities of certain members of its management, particularly Paul
Mobley, the Company's Chairman, Chief Executive Officer and Chief Financial
Officer, and A. Scott Mobley, the Company's President and Chief Operating
Officer. The loss of either of their services could have a material adverse
effect on the Company.
Company subject to Indiana law with regard to purchase of the Company's stock.
Certain provisions of Indiana law applicable to the Company could have the
affect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could also limit the price that certain investors might be
willing to pay in the future for shares in the Company. These provisions include
prohibitions against certain business combinations with persons that become
"interested shareholders" (persons owning or controlling shares with voting
power equal to 10% or more) unless the Company's Board of Directors approves
either the business combination or the acquisition of stock before the person
becomes an "interested shareholder."
Company and its franchisees subject to various federal, state and local laws
with regard to the operation of the businesses.
The Company is subject to regulation by the 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 the Company 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
franchise units.
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.
9
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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.
The Company also leases space for the Company-owned dual-branded restaurant in
Indianapolis, Indiana which is used as a demonstration and test restaurant. The
lease for this property expires December 31, 2010. The Company has the option to
extend the term of this lease for two additional five-year periods.
The Company leases space for operating a dual-branded restaurant in
Indianapolis, Indiana which it intends to sell when an appropriate franchisee
can be identified. The lease for this property expires December 5, 2010. The
Company has the option to extend the term of this lease for two additional
five-year periods. This lease also provides for the Company to assign the lease
to a franchisee when it is franchised.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is involved in various litigation relating to
claims arising out of its normal business operations.
The Company is not involved in any litigation currently
nor is any litigation
currently threatened, which would have any material effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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."
10
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.
2004 2005
Quarter Ended: High Low High Low
---- ----- ---- ---
March 31 $1.55 $1.01 $.95 $.70
June 30 1.50 1.15 $.85 $.63
September 30 1.35 1.00 $1.15 $.71
December 31 1.15 .73 $1.01 $.77
Holders of Record
- -----------------
As of March 1, 2006, there were approximately 351 holders of record of the
Company's 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.
Equity Compensation Plan Benefit Information
- --------------------------------------------
The following table provides information as of December 31, 2005 with respect to
the shares of our common stock that may be issued under our existing equity
compensation plans.
Number of securities
remaining available for
Number of Securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants (excluding securities
warrants and rights and rights reflected in column (a))
Plan Category (a) (b) (c)
Equity compensation plans approved by
stockholders -- $ -- --
Equity compensation plans not approved by
stockholders 303,750 $ 1.05 --
---------------- ----------------
Total 303,750 $ 1.05 --
---------------- ----------------
11
ITEM 6. SELECTED FINANCIAL DATA (In thousands except per share data)
Year Ended December 31,
--------------------------------------------------------
Statement of Operations Data: 2001 2002 2003 2004 2005
-------- -------- -------- -------- --------
Royalties and fees $ 5,162 $ 5,644 $ 6,701 $ 6,789 $ 7,270
Administrative fees and other 306 294 199 125 72
Restaurant revenue 279 711 882 998 1,089
-------- -------- -------- -------- --------
Total revenue 5,747 6,649 7,782 7,912 8,431
Operating expenses 2,051 2,152 2,328 2,522 2,627
Restaurant operating expenses 266 702 867 962 1,059
Depreciation and amortization 54 63 68 50 70
General and administrative 1,207 1,255 1,259 1,403 1,491
-------- -------- -------- -------- --------
Operating income 2,169 2,477 3,260 2,975 3,184
Interest and other 1,255 1,254 1,047 946 817
Other income
-- -- -- -- 2,801
-------- -------- -------- -------- --------
Income before income taxes from continuing
operations 914 1,223 2,213 2,029 5,168
Income taxes 311 416 752 690 1,757
-------- -------- -------- -------- --------
Net income from continuing operations 603 807 1,461 1,339 3,411
Loss from discontinued operations (1,671) (313) (167) (404) (560)
-------- -------- -------- -------- --------
Net income (loss) $ (1,068) $ 494 $ 1,294 $ 935 $ 2,851
Cumulative preferred dividends
-- -- -- -- 16
-------- -------- -------- -------- --------
Net income (loss) available to common
stockholders $ (1,068) $ 494 $ 1,294 $ 935 $ 2,835
======== ======== ======== ======== ========
Weighted average number of common shares 14,794 16,058 16,169 16,280 16,849
Net income per share from continuing
operations $ .04 $ .05 $ .09 $ .08 $ .20
Loss per share from discontinued operations (.11) (.02) (.01) (.02) (.03)
-------- -------- -------- -------- --------
Net income (loss) per share $ (.07) $ .03 $ .08 $ .06 $ .17
======== ======== ======== ======== ========
Balance Sheet Data (at year end):
Working capital (deficit) $ (83) $ 16 $ 2,220 $ 2,107 $ 2,793
Total assets 13,192 13,601 14,284 15,249 15,523
Long-term obligations, net of current portion 10,141 9,232 10,099 9,740 7,125
Stockholders' equity $ 675 $ 1,168 $ 2,462 $ 4,256 $ 6,513
ITEM 7. 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 name "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.
On August 25, 2005, the Company consummated a Settlement Agreement with
SummitBridge National Investments, LLC and related entities. As of a result of
the Settlement Agreement, Noble Roman's acquired all of SummitBridge's debt and
equity interests in Noble Roman's, except for 2,400,000 shares of common stock,
12
for a purchase price of $8,300,000. These interests consisted of a senior
secured promissory note in the principal amount of $7,700,000, interest accrued
on the note of $927,756, 3,214,748 shares of Noble Roman's common stock,
$4,929,274 stated amount of Noble Roman's no-yield preferred stock which was
convertible into 1,643,092 shares of common stock, and a warrant to purchase
385,000 shares of Noble Roman's common stock with an exercise price of $.01 per
share.
Simultaneous with the closing on the Settlement Agreement, Noble Roman's
obtained a new six- year term loan in the principal amount of $9,000,000. The
new note calls for monthly principal payments of $125,000 plus interest at the
rate of LIBOR plus 4% per annum adjusted on a monthly basis. The Company's
obligations under the loan are secured by the grant of a security interest in
its personal property. The Company elected to purchase a swap contract fixing
the rate on 50% of the principal balance for the first two years and then $3
million of the principal amount for the following two years at an annual
interest rate of 8.83% per annum.
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 evaluates the carrying values of its assets, including
property, equipment and related costs, accounts receivable and deferred tax
asset, periodically 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.
Contractual Obligations
- -----------------------
Total Less than 1 year 1-3 Years 3-5 Years More than 5 years
Long-term debt $8,625,000 $1,500,000 $3,000,000 $3,000,000 $1,125,000
Operating leases 725,567 200,806 373,377 151,384 --
---------- ---------- ---------- ---------- ----------
Total $9,350,567 $1,700,806 $3,373,377 $3,151,384 $1,125,000
========== ========== ========== ========== ==========
The following table sets forth the 2003, 2004 and 2005 operating results
included in the Company's consolidated statement of operations.
13
Condensed Consolidated Statement of Operations
Noble Roman's, Inc. and Subsidiaries
Years Ended December 31,
------------------------------------------------------------------------------------------
2003 2004 2005
---- ---- ----
Royalties and fees $ 6,700,457 86.1% $ 6,788,590 85.8% $ 7,269,868 86.2%
Administrative fees and other 199,231 2.6 124,893 1.6 72,177 .9
Restaurant revenue 882,305 11.3 998,037 12.6 1,088,783 12.9
------- ---- ------- ---- --------- ----
Total revenue 7,781,992 100.0 7,911,520 100.0 8,430,828 100.0
Express operating expenses:
Salaries and wages 1,083,168 13.9 1,169,701 14.8 1,139,502 13.5
Trade show expense 327,615 4.2 405,580 5.1 474,555 5.6
Travel expense 219,365 2.8 282,302 3.6 333,617 4.0
Other operating expense 698,120 9.0 664,001 8.4 678,231 8.0
Restaurant expenses 867,227 11.1 961,552 12.2 1,059,396 12.6
Depreciation 67,938 .9 50,493 .6 69,964 .8
General and administrative 1,259,035 16.2 1,403,338 17.7 1,491,243 17.7
--------- ---- --------- ---- --------- ----
Operating income 3,259,524 41.9 2,974,553 37.6 3,184,320 37.8
Interest expense 1,046,581 13.4 946,234 12.0 817,357 9.7
Other income - - - - 2,800,830 33.2
--------- ---- --------- ---- --------- ----
Income before income taxes 2,212,944 28.4 2,028,319 25.6 5,167,793 61.3
Income taxes 752,401 9.7 689,628 8.7 1,757,049 20.8
--------- ---- --------- ---- --------- ----
Net income from continuing
operations $1,460,543 18.8% $ 1,338,691 16.9% $ 3,410,744 40.5%
========== =========== ===========
2005 Compared with 2004
- -----------------------
Total revenue increased from $7.9 million in 2004 to $8.4 million in 2005. This
increase was primarily the result of an increase in royalties and fees from the
addition of new franchises. Royalties and fees increased from approximately $6.8
million in 2004 to approximately $7.3 million in 2005. Included in royalties and
fees were approximately $795,500 for 2004 and $699,500 for 2005 for initial
franchise fees. Because one of the Company's strategic directions is to grow its
business by franchising non-traditional locations, and because the number of
such locations that are available for targeted growth is large, the Company
believes that the initial franchise fee revenue for non-traditional locations
will continue. Additionally, the Company has recently targeted additional growth
by developing traditional dual-branded locations through the use of Area
Developers. Because of this addition, the Company believes that franchise fee
revenue has the potential to be greater in the future.
Restaurant revenues increased from $998,037 in 2004 to $1.089 million in 2005.
The Company only intends to operate one restaurant to be used for testing and
demonstration purposes but from time to time temporarily operates others until a
suitable franchisee is located.
Salaries and wages decreased from 14.8% of revenue in 2004 to 13.5% of revenue
in 2005. This decrease was primarily the result of actual salaries and wages
remaining constant while the revenue increased primarily as a result of an
increase in franchise locations.
Trade show expenses increased from 5.1% of revenue in 2004 to 5.6% of revenue in
2005. This increase was primarily the result of adding additional national trade
shows in different venues. The Company anticipates this actual dollar expense to
14
remain approximately the same in 2006 and, with anticipated growth in revenue,
the percentage expense is anticipated to decrease in 2006.
Travel expenses increased from 3.6% of revenue in 2004 to 4.0% of revenue in
2005. This increase was primarily the result of opening more locations farther
away from the home office. Even though the Company expects opening more
locations farther away from the home office will continue, the Company
anticipates that the expected additional growth in revenue for 2006 will offset
the expected increase in travel so that the travel expense, as a percentage of
revenue, would stabilize or slightly decrease over time.
Other operating expenses decreased from 8.4% of revenue in 2004 to 8.0% of
revenue in 2005. This decrease was primarily the result of maintaining operating
expenses at approximately the same dollar amount while the revenue increased
primarily from the growth in franchise locations. The Company anticipates that
other operating expenses, as a percentage of revenue, will continue to decline
as a result of anticipated additional growth in 2006 while maintaining operating
expenses at approximately the same dollar amount.
Restaurant expenses increased from 12.2% of revenue in 2004 to 12.6% of revenue
in 2005. This increase resulted primarily from the Company operating more
restaurants on a temporary basis in 2005. The Company only intends to operate
one restaurant 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 remained a constant 17.7% of revenue in 2004
and 2005. This was primarily the result of growth in administrative expense
being offset by growth in revenue. The increase in administrative expenses was
due in part to expenses associated with the now-settled SummitBridge litigation.
The Company expects to be able to maintain the current level of cost as a
percent of revenue and possibly lower it slightly over time with the expenses
from the SummitBridge litigation now over.
Operating income increased from $3.0 million in 2004 to $3.2 million in 2005.
This was primarily the result of additional revenue from growth in the number of
franchise locations while maintaining control of the operating expenses.
Interest expense decreased from 12.0% of revenue in 2004 to 9.7% of revenue in
2005. This was a result of a decrease in interest cost because of the reduction
in the amount of debt outstanding and, additionally, the result of an increase
in revenue.
Other income was $2.8 million in 2005 resulting from the Company consummating a
settlement agreement with SummitBridge National Investments, LLC and related
entities,dated certifications.
Except as described above, under "-Introduction."
Net income from continuing operations increased from $1.34 million in 2004 to
$3.41 million in 2005. This increase was primarily the result of theno other income described in the previous paragraph and, additionally, the increase in
income from continuing operations from $1.34 million in 2004 to $1.56 million in
2005 as a result of the increase in operating income.
The Company recognized a net loss from discontinued operations in 2005 of
$560,153 after a tax benefit of $387,603 and $403,753 after a tax benefit of
$243,175 in 2004. The loss from discontinued operations was primarily the result
of settling lease disputes on lease agreements related to restaurants closed in
15
1999 and 2000 and for legal fees relatedchanges have been made to the
discontinued operations. The
Company believes that any additional expenses resulting from the discontinued
operations, in the future, will not be material.
2004 Compared with 2003
- -----------------------
Total revenue increased from $7.8 million in 2003Original Filing. Except as expressly stated otherwise, this Amendment continues
to $7.9 million in 2004.
Continuing fees suchspeak 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
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.
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.
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.
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.
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.
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 the cost of
the litigation with SummitBridge.
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.
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 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.
16
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 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 strategy is to grow its business by continuing to franchise in
non-traditional locations and by franchising in traditional locations primarily
through the use of Area Development Agents. 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 and the anticipated
growth, the Company believes it will have sufficient cash flow to meet its
obligations and to carry out its current business plan.
On August 25, 2005, the Company finalized a Settlement Agreement with
SummitBridge National Investments, LLC and related entities. As of a result of
the Settlement Agreement, Noble Roman's acquired all of SummitBridge's debt and
equity interests in Noble Roman's, except for 2,400,000 shares of common stock,
for a purchase price of $8,300,000. These interests consisted of a senior
secured promissory note in the principal amount of $7,700,000, interest accrued
on the note of $927,756, 3,214,748 shares of Noble Roman's common stock,
$4,929,274 stated amount of Noble Roman's no-yield preferred stock which was
convertible into 1,643,092 shares of common stock, and a warrant to purchase
385,000 shares of Noble Roman's common stock with an exercise price of $.01 per
share.
Simultaneous with the closing on the Settlement Agreement, Noble Roman's
obtained a new six- year term loan in the principal amount of $9,000,000. The
new note calls for monthly principal payments of $125,000 plus interest at the
rate of LIBOR plus 4% per annum adjusted on a monthly basis. The Company's
obligations under the loan are secured by the grant of a security interest in
its personal property. The Company elected to purchase a swap contract fixing
the rate on 50% of the principal balance for the first two years and then $3
million of the principal amount for the following two years at an annual
interest rate of 8.83% per annum.
The Company does not anticipate that any of the recently issued Statement of
Financial Accounting Standards will have a material impact on the Company's
Statement of Operations or its Balance Sheet.
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
17
economic conditions, changes in demand for the Company's products or franchises,
the impact of competitors' actions and changes in prices or supplies of food
ingredients and labor as well as the factors discussed above under "Risk
Factors." 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's current borrowings are at a monthly variable rate tied to LIBOR.
However, the Company elected to purchase a swap contract fixing the rate on 50%
of the principal balance for the first two years and then $3 million of the
principal amount for the following two years at an annual interest rate of 8.83%
per annum.
The Company has concluded that there is no material market risk exposure and,
therefore, no quantitative tabular disclosures are required.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
Noble Roman's, Inc. and Subsidiaries
December 31,
------------
Assets 2004 2005
---- ----
Current assets:
Cash - non-restricted $ 260,025 $ 740,940
Cash - restricted 196,754 --
Accounts and notes receivable (net of allowances of $82,262 in 2004 and
$122,262 in 2005) 1,011,758 1,299,942
Inventories 207,856 221,712
Assets held for resale -- 461,709
Prepaid expenses 505,646 301,661
Current portion of long-term notes receivable 183,478 173,498
Deferred tax asset - current portion 994,148 1,478,175
------------ ------------
Total current assets 3,359,665 4,677,637
------------ ------------
Property and equipment:
Equipment 1,042,790 1,150,718
Leasehold improvements 94,017 105,503
------------ ------------
1,136,807 1,256,221
Less accumulated depreciation and amortization 484,068 565,102
------------ ------------
Net property and equipment 652,739 691,119
------------ ------------
Deferred tax asset (net of current portion) 9,135,834 7,782,360
Other assets including long-term portion of notes receivable 2,100,437 2,371,774
------------ ------------
Total assets $ 15,248,675 $ 15,522,890
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,252,852 $ 384,928
Current portion of long-term notes payable -- 1,500,000
------------ ------------
Total current liabilities 1,252,852 1,884,928
------------ ------------
Long-term obligations:
Note payable to bank (net of current portion) 7,700,000 7,125,000
Subordinated debentures 2,040,000 --
------------ ------------
Total long-term liabilities 9,740,000 7,125,000
------------ ------------
Stockholders' equity:
Common stock (25,000,000 shares authorized, 17,136,884 outstanding
at December 31, 2004 and 16,322,136 outstanding as of December 31, 2005) 18,648,512 21,021,632
Preferred stock (5,000,000 shares authorized) 4,929,274 1,978,800
Accumulated deficit (19,321,963) (16,487,470)
------------ ------------
Total stockholders' equity 4,255,823 6,512,962
------------ ------------
Total liabilities and stockholders' equity $ 15,248,675 $ 15,522,890
============ ============
See accompanying notes to consolidated financial statements.
19
Consolidated Statements of Operations
Noble Roman's, Inc. and Subsidiaries
Year Ended December 31,
--------------------------------------------
2003 2004 2005
------------ ------------ ------------
Royalties and fees $ 6,700,457 $ 6,788,590 $ 7,269,868
Administrative fees and other 199,230 124,893 72,177
Restaurant revenue 882,305 998,037 1,088,783
------------ ------------ ------------
Total revenue 7,781,992 7,911,520 8,430,828
Operating expenses:
Salaries and wages 1,083,168 1,169,701 1,139,502
Trade show expense 327,615 405,580 474,555
Travel expense 219,365 282,302 333,617
Other operating expenses 698,120 664,001 678,231
Restaurant expenses 867,228 961,552 1,059,396
Depreciation and amortization 67,938 50,493 69,964
General and administrative 1,259,034 1,403,338 1,491,243
------------ ------------ ------------
Operating income 3,259,524 2,974,553 3,184,320
Interest and other expense 1,046,581 946,234 817,357
Other income -- -- 2,800,830
------------ ------------ ------------
Income before income taxes from
continuing operations 2,212,944 2,028,319 5,167,793
Income tax expense 752,401 689,628 1,757,051
------------ ------------ ------------
Net income from continuing operations 1,460,543 1,338,691 3,410,742
Loss from discontinued operations net of tax benefit
of $86,071, $243,175 and $387,603, respectively (167,079) (403,753) (560,153)
------------ ------------ ------------
Net income 1,293,464 934,938 2,850,589
Cumulative preferred dividends -- -- 16,096
------------ ------------ ------------
Net income available to common stockholders $ 1,293,464 $ 934,938 $ 2,834,493
============ ============ ============
Earnings per share - basic:
Net income from continuing operations $ 09 $ .08 $ .20
Net income .08 .06 .17
Weighted average number of common shares
outstanding 16,168,911 16,280,171 16,848,932
Diluted earnings per share:
Net income from continuing operations $ .09 $ .08 $ .20
Net income .08 .06 .16
Weighted average number of common shares
outstanding 16,799,214 16,888,236 17,406,367
See accompanying notes to consolidated financial statements.
20
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, 2002 $ 4,929,274 16,166,158 $ 17,789,452 $(21,550,365) $ 1,168,361
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
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
2005 net income 2,850,589 2,850,589
Cumulative preferred
dividends (16,096) (16,096)
Conversion of long-term
subordinated debentures to
preferred stock less issuance cost 1,978,800 1,978,800
Conversion of preferred
stock to common stock (4,929,274) 1,643,092 4,929,274 --
Purchase of
SummitBridge shares (2,457,840) (2,556,154) (2,556,154)
----------- ---------- ------------ ------------ -----------
-- --
Balance at December 31, 2005 $ 1,978,800 16,322,136 $21,021,632 $(16,487,470) $6,512,962
=========== ========== =========== ============= ==========
See accompanying notes to consolidated financial statements.
21
Consolidated Statements of Cash Flows
Noble Roman's, Inc. and Subsidiaries
Year ended December 31,
-----------------------------------------
OPERATING ACTIVITIES 2003 2004 2005
----------- ----------- -----------
Net income $ 1,293,464 $ 934,938 $ 2,850,589
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 235,013 137,172 134,403
Interest accrued not paid -- -- 354,533
Non-cash gain from purchase of SummitBridge's interest -- -- (2,800,830)
Deferred income taxes 666,330 446,453 1,449,303
Loss from discontinued segment 253,150 646,927 560,153
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable (561,940) (379,616) (308,559)
Inventories (21,964) 57,835 (34,868)
Assets held for resale -- -- (449,564)
Prepaid expenses (118,333) (65,745) 163,985
Other assets (30,905) (42,861) 21,397
Increase (decrease) in:
Accounts payable (738,645) 277,962 (253,187)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 976,170 2,013,065 1,687,355
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (65,946) (125,851) (98,402)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (65,946) (125,851) (98,402)
----------- ----------- -----------
FINANCING ACTIVITIES
Payment of obligations from discontinued operations (953,881) (1,771,718) (1,190,795)
Payment of cumulative preferred dividends -- -- (16,096)
Asset sold for note receivable -- (75,000) --
Payment of principal on outstanding debt (1,713,740) (165,840) (375,000)
Payment received on long-term notes receivable 46,744 147,923 235,201
Purchase of all of SummitBridge's interest in the company
except 2.4 million shares of common stock -- -- (8,300,000)
Issuance cost of the new preferred stock -- -- (61,200)
Proceeds from issuance of long-term debt, net of debt
issue costs 1,934,919 -- 8,599,852
----------- ----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (685,958) (1,864,635) (1,108,038)
----------- ----------- -----------
Increase in cash 224,266 22,579 480,915
Cash at beginning of year 13,180 237,446 260,025
----------- ----------- -----------
Cash at end of year $ 237,446 $ 260,025 $ 740,940
=========== =========== ===========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The holders of $2,040,000 aggregate principal amount of subordinated debentures
exchanged their subordinated debentures for preferred stock with an aggregate
liquidation value of $2,040,000.
See accompanying notes to consolidated financial statements.
22
Notes to Consolidated Financial Statements
Noble Roman's, Inc. and Subsidiaries
Note l: Summary of Significant Accounting Policies
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 Company's current borrowings are at a
monthly variable rate tied to LIBOR. However, the Company elected to purchase a
swap contract fixing the rate on 50% of the principal balance for the first two
years and then $3 million of the principal amount for the following two years at
an annual interest rate of 8.83% per annum.
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 records a valuation allowance in a
sufficient amount to adjust the total 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 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.
23
Initial franchise fees are recognized as income when the franchised restaurant
is opened.
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 its valuation
allowance was adequate at December 31, 2004 and 2005 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. The net operating loss carry-forward is approximately $25.7
million which expires between the years 2011 and 2016. Management made the
determination that the valuation allowance was adequate 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
On August 25, 2005, the Company consummated a Settlement Agreement with
SummitBridge National Investments, LLC and related entities. As of a result of
the Settlement Agreement, Noble Roman's acquired all of SummitBridge's debt and
equity interests in Noble Roman's, except for 2,400,000 shares of common stock,
for a purchase price of $8,300,000. These interests consisted of a senior
secured promissory note in the principal amount of $7,700,000, interest accrued
on the note of $927,756, 3,214,748 shares of Noble Roman's common stock,
$4,929,274 stated amount of Noble Roman's no-yield preferred stock which was
convertible into 1,643,092 shares of common stock, and a warrant to purchase
385,000 shares of Noble Roman's common stock with an exercise price of $.01 per
share.
Simultaneous with the closing on the Settlement Agreement, Noble Roman's
obtained a new six- year term loan in the principal amount of $9,000,000. The
new note calls for monthly principal payments of $125,000 plus interest at the
rate of LIBOR plus 4% per annum adjusted on a monthly basis. The Company's
obligations under the loan are secured by the grant of a security interest in
its personal property. The Company elected to purchase a swap contract fixing
the rate on 50% of the principal balance for the first two years and then $3
million of the principal amount for the following two years at an annual
interest rate of 8.83% per annum.
Simultaneous with the closing under the Settlement Agreement and the new term
loan, the previous holders of the Company's subordinated debentures, in the
principal amount of $2,040,000, which bore interest at the rate of 8% per annum
which was payable quarterly and which were to mature December 31, 2006, accepted
an offer from the Company to convert their subordinated debentures to
convertible preferred stock with an aggregate liquidation value of $2,040,000 .
The convertible preferred stock provides for cumulative dividends of 8% per
annum on the liquidation value of the convertible preferred stock. The preferred
stock is convertible after December 31, 2006 into Noble Roman's common stock at
a conversion price of $2.25 per share. At any time after December 31, 2008, the
Company shall have the right, but not the obligation, to redeem all preferred
shares for a purchase price equal to the liquidation value.
24
Note 3: Royalties and Fees
Approximately $483,500, $795,500 and $699,500 are included in the 2003, 2004 and
2005 royalties and fees in Consolidated Statement of Operations for initial
franchise fees. Because a primary strategy of the Company has been to grow its
business by franchising primarily in non-traditional locations and the number of
such locations that are available for targeted growth, the Company believes that
the initial franchise fee revenue for non-traditional locations will continue.
Additionally, the Company has recently targeted additional growth by developing
traditional dual-branded locations through the use of Area Developers. 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.
Note 4: 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, 2005, contingent obligations
under non-cancelable operating leases for 2006, 2007, 2008, 2009, 2010 and after
2010 were approximately $171,528, $171,528, $171,528, $107,688, $107,688 and
$460,318, respectively.
Note 5: Income Taxes:
The Company had a deferred tax asset, as a result of prior operating losses, of
$10,129,982 at December 31, 2004 and $8,760,535 at December 31, 2005, most of
which expires between the years 2012 and 2016. In 2003, 2004 and 2005, the
Company used deferred benefits to offset its tax expense of $752,401, $689,628
and $1,757,051, respectively, and tax benefits from loss on discontinued
operations of $86,071, $243,175 and $387,603 for 2003, 2004 and 2005,
respectively. After review, based on time period of the tax carryforward and
current operating results, the Company reduced its valuation allowance by
$500,000 to $1,655,000 against the deferred tax asset as of December 2005. The
valuation allowance reduction is reflected in the discontinued operations.
25
Note 6: Common Stock
During 2003, a 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 859,060 shares of common stock.
During 2005, the Company purchased all of the common stock owned by SummitBridge
National Investments, LLC except for 2,400,000 shares after the conversion of
its preferred stock with a stated value of $4,929,274 to common stock at the
conversion price of $3.00 per share.
At December 31, 2005, the Company had outstanding warrants to purchase common
stock as follows:
# Common Shares Represented Exercise Price Warrant Expiration Date
50,000 $ 1.50 6/30/2006
1,000,000 $ .40 12/31/2007
1,000,000 $ .93 12/31/2007
404,000 $ 1.25 1/15/2008
1,000,000 $ .93 1/7/2010
50,000 $ .95 9/26/2010
600,000 $ .93 1/24/2011
The Company has an incentive stock option plan for key employees and officers.
The options are generally exercisable three years after the date of grantthe Original Filing, and expire ten years afterwe have not updated the
disclosures contained therein to reflect any events that occurred subsequent to
the date of grant.the Original Filing. The option pricesfiling of this Form 10-K/A is not a
representation that any statements contained in items of Form 10-K other than
Part III, Items 10 through 14 are the fair market
valuetrue or complete as of the stock at theany date of grant. Options granted and remaining
outstanding at December 31, 2005 are: 33,000 common shares at $1.75 per share,
40,000 common shares 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 $.55 per share, 10,000 common shares at $.89
and 66,000 common shares at $.83. As of December 31, 2005, options for 237,750
shares are exercisable.
The Series B Preferred Stock with a liquidation value of $2,040,000 is
convertible, after December 31, 2006, at the option of the holder to common
stock at a conversion price of $2.25 per share. The Company, at its option, may
redeem the preferred stock after December 31, 2008 at the liquidation value.
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123R (revised 2004), "Share-Based Payments" (SFAS 123R). SFAS 123R requires
that the cost of all employee stock options, as well as other equity-based
compensation arrangements, be reflected in the financial statements based on the
estimated fair value of the awards. The Company adopted SFAS 123R effective for
periods beginning January 1, 2006. For periods prior to 2005, the Company
accounted for stock-based compensation using the intrinsic method prescribed in
APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations (APB 25). Accordingly, no compensation cost for stock options
has been recognized and none were issued in 2005.
26
Note 7: Statement of Financial Accounting Standards
The Company does not believe that the recently issued Statement of Financial
Accounting Standards will have any material impact on the Company's Statement of
Operations or its Balance Sheet.
Note 8: Loss from Discontinued Operations
Pursuantsubsequent 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 in a gross amount of $1,047,726
in 2003, an expense of $403,753 after a tax benefit of $243,175 in 2004, and an
expense of $560,153 after a tax benefit of $387,603 in 2005. The loss from
discontinued operations is primarily the result of settling lease disputes on
lease agreements related to restaurants closed in 1999 and 2000 and for legal
fees related to the discontinued operations.
Note 9: Contingencies
The Company, from time to time, is involved in various litigation relating to
claims arising out of its normal business operations.
The Company is not involved in any litigation currently, nor is any litigation
currently threatened, which would have any material effect upon the Company.
Note 10: 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 $55,000 in consulting fees and $2,480 in interest
on Participating Income Notes in 2003, $60,000 in consulting fees and $4,680 of
interest on Participating Income Notes in 2004, and $72,000 in consulting fees
and $2,800 of interest on Participating Income Notes in 2005.
Geovest Capital Partners, LP, whose managing partner is Douglas Coape-Arnold,
was paid $139,547 in interest in participating income notes in 2003, $150,728 in
2004 and $77,379 in 2005.
On August 25, 2005, the Company consummated a Settlement Agreement with
SummitBridge. As of a result of the Settlement Agreement, Noble Roman's acquired
all of SummitBridge's debt and equity interests in Noble Roman's, except for
2,400,000 shares of common stock, for a purchase price of $8,300,000. These
interests consisted of a senior secured promissory note in the principal amount
of $7,700,000, interest accrued on the note of $927,756, 3,214,748 shares of
Noble Roman's common stock, $4,929,274 stated amount of Noble Roman's no-yield
preferred stock which was convertible into 1,643,092 shares of common stock, and
a warrant to purchase 385,000 shares of Noble Roman's common stock with an
exercise price of $.01 per share.
27
Note 11: Unaudited Quarterly Financial Information
Quarter Ended
-------------
2005 December 31 September 30 June 30 March 31
---- ----------- ------------ ------- --------
(in thousands, except per share data)
Total revenue $ 2,114 $ 2,105 $ 2,161 $ 2,051
Operating income 781 796 831 776
Income before income taxes from
continuing operations 578 3,390 627 573
Net income from continuing
operations 382 2,237 414 378
Net income $ 450 $ 1,912 $ 111 $ 378
Net income per common share
from continuing operations
Basic $ .03 $ .13 $ .02 $ .02
Diluted .03 .13 .02 .02
Net income per share
Basic .02 .11 .01 .02
Diluted .01 .11 .01 .02
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 (loss) per share
Basic (.01) .02 .03 .02
Diluted (.01) .02 .02 .02
28
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, 2005 and 2004, and the related
consolidated statements of operations, cash flows and changes in stockholders'
equity(deficit) for the years ended December 31, 2005, 2004 and 2003. 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 the standards of the Public Company
Accounting Oversight Board (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, 2005 and 2004, and the results of their operations,
and their cash flows for the years ended December 31, 2005, 2004 and 2003 in
conformity with accounting principles generally accepted in United States.
/s/ Larry E. Nunn & Associates, LLC
Columbus, Indiana
March 22, 2006
29
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.Original Filing.
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 6566 Chairman of the Board, Chief Executive
Officer, Chief Financial Officer
and Director
A. Scott Mobley 4243 President, Secretary and Director
Douglas H. Coape-Arnold 6061 Director
Troy Branson 4243 Executive Vice President of Franchising
Mitchell Grunat 5354 Vice President of Franchise Services
Michael B. Novak 4849 Vice President of Product Development,
Purchasing and Distribution
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, Chief Executive Officer
and Chief Financial Officer since December 1991 and a Director since 1974. Mr.
Mobley was President 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.
304
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 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
W. 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 from 1992 to 1997, he was Director of Business
Development. Prior to joining the Company, Mr. Branson was an owner of
Branson-Yoder Marketing Group from 1987 to 1992, after graduating from Indiana
University where he received a B.S. in Business.
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 from 2001 to 2002, Business Development
Officer for Midwest Bankers from 2000 to 2001, and Chief Operating Officer for
Tavel Optical Group from 1987 to 2000. Mr. Grunat has B.A. degree in English and
Philosophy from Muskingum College.
Michael B. Novak has been Vice President of Product Development,
Purchasing and Distribution since March 2006. Prior to recently joining the Company, Mr.
Novak was employed by Delco Foods, a regional food distributor from 2001 to
2006. Prior to Mr. Novak being employed by Delco Foods, he was employed by the
Company from 1984 to 2001 as a restaurant General Manager, Area Director of
Operations and Director of Product Development and Distribution.
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 20052006 all filing requirements under Section 16(a) of the Securities
Exchange Act of 1934 were complied with.
* * *
Because no separate Audit Committee has been established, the Board of
Directors, as a whole, acts as the Audit Committee. Mr. Coape-Arnold is
qualified as an "Audit Committee Financial Expert."
5
The Company has adopted a code of ethics for its Senior Executivesenior executive and
Financial Officers.financial officers. The code of ethics can be obtained by contacting the
Company's executive office at the address set forth on the cover page of this
report.
31
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Objectives of the Company's Compensation Program:
The Company's compensation policies, goals and objectives are designed to
provide competitive levels of compensation to the executive officers and to
reward certain officers, who can more directly affect the net income of the
Company, with incentives to increase net income. It is also believed that total
executive compensation generally should be higher for individuals with greater
responsibility and greater ability to influence the Company's achievements.
The Company has long-term employment contracts with the Chairman/CEO and with
the President of the Company, which guides the compensation level for those
individuals. These contracts were established a number of years ago in
connection with negotiations for financing transactions and with certain
significant shareholders at the time. They were established in such a way that
the compensation level increases over time.
The Company's President receives an incentive compensation to reward him for the
increase in net income over the previous year. The Company's Executive Vice
President-Franchising receives incentive compensation that rewards him based on
the net income from franchising activities of the Company.
The Company uses employee stock options to align certain employees with the
interest of its shareholders. In addition, the employee stock options add
additional incentive for longevity.
Oversight of Compensation Program:
The compensation program is supervised by the Board of Directors. The
compensation of the Chairman/CEO and the President of the Company has been set
by long-term contracts with those individuals. The compensation of other
executive officers of the Company is determined by the Chairman/CEO and
President and approved by the Company's Board of Directors. Other than the
Chairman/CEO and President, no other executive officer participates in the
compensation process.
Elements of Compensation and How Those Elements Are Designed:
Base Salary - The base salary is the essential element of the Company's
executive compensation. It is established to match the individual's
responsibilities and their ability to influence the Company's achievements and
to be competitive. The Company establishes an executive's initial base salary
with based upon a general knowledge of the base salaries paid to officers in
similar positions at companies that we believe compete with us for executive
talent. There is no set group of companies that has consistently been considered
by us in setting initial base salaries nor are there any formal guidelines as to
the relationship that the initial base salary of a newly hired executive should
have to the base salaries of similar executives in any other company or group of
companies.
6
Incentive Compensation - The Company does not have a formal non-equity incentive
compensation program. However, the Company enters into individual incentive
compensation arrangements with key employees from time to time. These
arrangements are intended to incentivize these employees and can be based on a
variety of different performance factors. We currently have these types of
arrangements with our President and with our Executive Vice
President-Franchising. These arrangements are designed to give the President and
Executive Vice President-Franchising additional incentive to increase the net
income of the Company and to reward them for that increase.
Employee Stock Options - The Company maintains an employee stock option plan for
our employees and officers that is designed to motivate the executive officers
to increase shareholder value and to allow executive officers to benefit from
increased shareholder value. Any employees or officers of the company are
eligible to be awarded options under the plan. The employee stock option plan
provides that any options issued pursuant to the plan will have a three-year
vesting period and will expire ten years after the date of grant. The vesting
period for exercising is intended to provide additional incentive for longevity
with the Company. Awards under the plan are periodically made at the discretion
of the Chairman/CEO and President and approved by the Board of Directors. The
employee stock option plan does not have a limit on the number of shares that
may be issued under the plan.
How the Company Determines the Amount of Each Element of Compensation:
The base salary of the Chairman/CEO and President of the Company is determined
by long-term contracts which provide for a 6% annual increase. The base salary
of other executive officers is determined by the Chairman/CEO and President
based on recent performance of each of the other executive officers. For fiscal
2006, our Chairman/CEO received a pay increase of $14,000, to $404,000 from his
base salary of $390,000 for fiscal 2005. The Chairman/CEO elected not to take
the full amount of base salary increase that was provided for in his employment
contract. Our President received a pay increase of $21,522, to $269,330 from his
base salary of $247,808 for fiscal 2005. Neither Messrs. Branson or Grunat
received any base salary increase for fiscal 2006. Mr. Branson's base salary was
$100,000 in both 2005 and 2006. Mr. Grunat's base salary was $156,000 in both
2005 and 2006.
Employee stock options are granted to executive officers based on recent
performance of those executive officers as determined by the Chairman/CEO and
President, and approved by the Board of Directors. The amount of gain realized
from prior compensation awards is not considered in setting current compensation
awards. In fiscal 2006, we granted options to purchase 25,000 shares to Mr. A.
Scott Mobley and options to purchase 10,000 shares to each of Mr. Branson and
Mr. Grunat. All of these options were granted at an exercise price of $2.30 per
share and vest over a three-year period.
The Company currently has a non-equity incentive arrangement with our President
under which he may earn additional compensation if the Company's net income
increases for a given fiscal year as compared to the immediately prior fiscal
year. For the purposes of this calculation we exclude any one-time gains or
gains or losses from discontinued operations. For fiscal 2006 our net income
increased from $1,562,196 to $1,895,427 under this calculation and our President
earned $33,323 of additional compensation for fiscal 2006.
The Company also currently has a non-equity incentive arrangement with our
Executive Vice President of Franchising under which he may earn additional
compensation. His compensation is based on 2.5% of all royalty and fee revenue
associated with franchising less the direct expenses of those activities
excluding any administrative cost. The net revenue for this activity under this
calculation for fiscal 2006 was $4,304,225,
7
therefore, our Executive Vice President of Franchising earned $107,606 of
additional compensation for fiscal 2006.
How Does Each Element of the Company's Decisions Regarding Compensation Fits
Into the Company's Overall Compensation Objectives:
The Company is relatively small and, accordingly, has determined that it has not
yet been necessary to establish a formal policy for allocating compensation
between long-term and current, or to establish a policy for allocating total
compensation between cash and non-cash. The only long-term compensation plan
that the Company has is the employee stock option plan.
Company Policies and Decisions Regarding the Adjustment or Recovery of the
Awards or Payments If the Relevant Company Performance Measures Upon Which They
are Based are Re-Stated or Otherwise Adjusted in a Manner that Would Reduce the
Size of an Award or Payment:
The Company has no policy providing for any recovery of awards or payments based
on performance.
Summary Compensation Table for 2006
-----------------------------------
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 Chief Financial Officer and the three other highest paid
executive officers of the Company, the only executive officers whose salary and bonustotal
compensation exceeded $100,000 for 2005.
SUMMARY COMPENSATION TABLE
--------------------------2006.
Long-TermSummary Compensation Annual Compensation Securities UnderlyingTable
--------------------------
Non-Equity
Incentive Option Total
Name and Principal Position Year Salary (l) Bonus Options #
- --------------------------- ---- ---------- ----- ---------------------Compensation Awards(1) Compensation
Paul Mobley 2005 $390,0002006 $404,000 $ -- $ -- $404,000
Chairman of the Board
2004 $360,000 -- --
2003 $318,000 --
A. Scott Mobley 2005 $247,8082006 $269,330 $ 2,895 --33,323 $ 11,610 $314,263
President and Secretary
2004 $241,708 $ -- 20,000
2003 $209,135 $ -- -
Troy Branson 20052006 $100,000 $88,138 --$107,606 $ 4,644 $212,250
Executive Vice President of Franchising
2004 $103,846 $82,075 15,000
2003 $100,000 $83,722 --
Mitchell Grunat 2005 $155,8152006 $156,000 $ -- --$ 4,644 $160,644
Vice President of Franchise Services
2004 $155,769 -- 10,000
2003 $141,692 -- 10,000
- ---------------------------------
(1) All employee stock options grants were issued at a price equal to the
current market price of the shares on the date the options were granted. These
amounts represent the dollar amounts recognized for financial statement
reporting purposes in fiscal 2006 with respect to the option awards included in
the Company's consolidated financial statements for fiscal year 2006 per SFAS
123(R).
8
The Summary Compensation Table includes the grant date fair value for fiscal
2006 for stock options granted to the named executive officers under the
Company's employee stock option plan. 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 Yeardetermines the grant date fair
value of stock options based on the principles described in Statement of
Financial Accounting Standards No. 123 (revised 2004) "Share-Based Payment"
(SFAS 123(R)).
The Company didadopted SFAS 123(R) using the modified prospective method of
adoption, which does not grant anyrequire restatement of prior periods. Under the
modified prospective method, the Company is required to record compensation
expense for all awards granted after the date of adoption and for the unvested
portion of previously granted awards that remain outstanding at the date of
adoption, net of an estimate of expected forfeitures. Under SFAS 123(R),
compensation expense is based on the estimated fair values of stock options
duringdetermined on the year ended December
31, 2005, to any employee, officer or director.
Aggregate Option Exercises in Last
Fiscal Yeardate of grant and Fiscal Year-End Option Values
---------------------------------------------is recognized over the related vesting
period, net of an estimate of expected forfeitures. The following table sets forth information concerning the number of exercisable
and unexercisable stock options held at December 31, 2005 by the executive
officers namedamounts reported in the
Summary Compensation Table.
32Table disregard adjustments based on any estimate of
expected forfeitures.
The Company estimates the fair value of its option awards on the date of grant
using the Black-Scholes option pricing model. The risk-free interest rate is
based on external data while all other assumptions are determined based on the
Company's historical experience with stock options. The following assumptions
were used for grants in fiscal year 2006:
Expected volatility 50%
Expected dividend yield None
Expected term (in years) 5
Risk-free interest rate 4.66%
The Company expects all stock options outstanding at December 31, 2006, to vest.
Grants of Plan-Based Awards for 2006
------------------------------------
All Other Option
Estimated Future Payouts under Awards: Number of Exercise or Grant Date
Non-Equity Incentive Plan Awards Securities Base Price of Fair Value
Underlying Option Awards of Option
Name Grant Date Threshold Target Maximum Options (#) ($/Sh) Awards ($)
Paul W. Mobley -- -- --
A. Scott Mobley 8/28/06 -- $ 33,323 (1) -- 25,000 $ 2.30 $28,250
Troy Branson 8/28/06 -- $107,606 (2) -- 10,000 $ 2.30 $11,300
Mitchell Grunat 8/28/06 10,000 $ 2.30 $11,300
(1) Represents non-equity incentive compensation paid to Mr. Mobley based on the
increase in fiscal year 2006 in the Company's net income from fiscal year 2005.
9
Number(2) Represents non-equity incentive compensation paid to Mr. Branson based on
royalty and fee income generated from franchise activities less expenses
directly relating to the franchise activity not including administrative
expense.
(3) The Company had no threshold or maximum amounts for the non-equity incentive
compensation for either Mr. Mobley or Mr. Branson.
The number of Securities Valuesoptions granted to the President was determined by the
Chairman/CEO and approved by the Board of Unexercised
Underlying Unexercised In-The-Money
Options at 12/31/05 Options at 12/31/05 (1)
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
Paul W. Mobley 30,000 / 0 $ 9,300 / $ 0
A. Scott Mobley 70,000 / 20,000 9,300 / 3,600
Troy Branson 65,000 / 15,000 6,900 / 2,700
Mitchell Grunat 20,000 / 10,000 5,800 / 1,800
(1) Based on a per share priceDirectors. The number of $1.01,options
granted to the last reported transaction
priceother executive officers was determined by the Chairman/CEO and
President and approved by the Board of Directors. In considering whether or not
to issue options, many factors were taken into account such as individual
performance of the individuals receiving option grants, recent performance of
the Company, the progress of the Company relative to the Company's plans and the
overall performance of the Company's common stock on December 31, 2005.stock.
In determining the number of option grants, such factors as number of new
franchises awarded, overall profitability of the Company and achievement of the
Company's plans were all considered. There were no definitive benchmarks for the
award of options.
Employment Agreements
- ---------------------
Mr. Paul Mobley has an employment agreement with the Company which fixes his
base compensation at $ 390,000$425,000 per year for 2005,2007, 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 automatically
renews 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 $ 248,241$289,440 per year for 2005,2007, provides for reimbursement of
travel and other expenses incurred in connection with his employment, including
the furnishing of an automobile, health and accident insurance similar to that
provided other employees, and life insurance in an amount related to his base
salary. The initial term of the agreement is five years and automatically renews
each year for a five-year period unless the Board takes specific action to not
renew. The agreement is terminable by the Company for just cause as defined in
the agreement.
Outstanding Equity Awards at Fiscal Year-End
--------------------------------------------
The following table sets forth information concerning the number of outstanding
equity awards of the executive officers named in the Summary Compensation Table
as of December 31, 2006.
10
- ----------------------------------------------------------------------------------------------------------------------
Option Awards
- ----------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Number of Securities
Unexercised Options (#) Underlying Unexercised Option Exercise Option Expiration
Name Exercisable Options (#) Unexercisable Price ($) Date
- ----------------------------------------------------------------------------------------------------------------------
Paul W. Mobley 10,000 $ 1.00 6/11/07
- ----------------------------------------------------------------------------------------------------------------------
20,000 $ .55 8/7/12
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
A. Scott Mobley 10,000 $ 1.00 6/11/07
- ----------------------------------------------------------------------------------------------------------------------
20,000 $ 1.45 12/1/10
- ----------------------------------------------------------------------------------------------------------------------
20,000 $ .55 8/7/12
- ----------------------------------------------------------------------------------------------------------------------
20,000 $ .83 12/22/14
- ----------------------------------------------------------------------------------------------------------------------
25,000 $ 2.30 8/28/16
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Troy Branson 5,000 $ 1.385 9/22/08
- ----------------------------------------------------------------------------------------------------------------------
15,000 $ 1.46 2/10/10
- ----------------------------------------------------------------------------------------------------------------------
20,000 $ 1.45 12/1/10
- ----------------------------------------------------------------------------------------------------------------------
15,000 $ .55 8/7/12
- ----------------------------------------------------------------------------------------------------------------------
15,000 $ .83 12/22/14
- ----------------------------------------------------------------------------------------------------------------------
10,000 $ 2.30 8/28/16
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Mitchell Grunat 10,000 $ .89 7/1/13
- ----------------------------------------------------------------------------------------------------------------------
10,000 $ .83 12/22/14
- ----------------------------------------------------------------------------------------------------------------------
10,000 $ 2.30 8/28/16
- ----------------------------------------------------------------------------------------------------------------------
All options listed above vested or will vest three years after the date of the
grant, and expire ten years after the grant date.
Option Exercises and Stock Vested
---------------------------------
----------------------------------------------------------------------
Option Awards
----------------------------------------------------------------------
Number of Shares Value Realized on
Name Acquired on Exercise (#) Exercise ($)
----------------------------------------------------------------------
Paul W. Mobley - -
----------------------------------------------------------------------
A. Scott Mobley 20,000 $15,000
----------------------------------------------------------------------
Troy Branson 10,000 $14,500
----------------------------------------------------------------------
Mitchell Grunat 10,000 $27,900
----------------------------------------------------------------------
Director Compensation
---------------------
----------------------------------------------------------------------------
Fees Earned or Option
Paid in Cash Awards All Other
Name ($) ($) Compensation ($) Total ($)
----------------------------------------------------------------------------
Douglas H. Coape-Arnold -- -- $79,200 (1) $79,200
----------------------------------------------------------------------------
11
The Company has engaged Mr. Coape-Arnold as a consultant and does not separately
compensate him for his service as a director. Mr. Coape-Arnold was paid $60,000
in consulting fees in 2004, $72,000 in consulting fees in 2005, and $79,200 in
consulting fees in 2006.
The Company does not pay any separate compensation for Directors that are also
employees of the Company.
During 2005,Compensation Committee Interlocks and Insider Participation
Because no separate Compensation Committee has been established, the Company paid its non-employee
DirectorBoard of
Directors, as a feewhole, acts as the Compensation Committee. Paul W. Mobley, A.
Scott Mobley and Douglas H. Coape-Arnold participate in executive compensation
decisions.
Compensation Committee Report
The Board of $ 72,000.Directors has reviewed and discussed the Compensation Discussion
and Analysis with management. Based on the review and discussions, the Board of
Directors approved the inclusion of the Compensation Discussion and Analysis in
the Company's annual report on Form 10-K for the fiscal year ended December 31,
2006.
The Board of Directors of Noble Roman's, Inc.
Paul W. Mobley
A. Scott Mobley
Douglas H. Coape-Arnold
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of March 1, 2006,April 20, 2007, there were 16,322,13616,742,688 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 1, 2006April 20, 2007 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:
1312
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) 21.3%20.7%
A. Scott Mobley (1)
One Virginia Avenue, Suite 800
Indianapolis, IN 46204 1,417,3261,397,326 (4) 9.38.3
Geovest Capital Partners, L.P.
750 Lexington Avenue, 4th Floor
New York, N.Y. 10022 1,667,7411,170,000 (5) 11.97.0
James W. Lewis
335 Madison Ave., Suite 1702
New York, N.Y. 10017 1,709,580 (6) 12.210.2
Douglas H. Coape-Arnold
750 Lexington Avenue, 4th Floor
New York, N.Y. 10022 250,000 (7) 1.81.5
Troy Branson
65,100One Virginia Avenue, #800
Indianapolis, IN 46204 55,100 (8) --
Mitchell Grant
20,000Grunat
One Virginia Avenue, #800
Indianapolis, IN 46204 10,000 (9) --
Zyville E. Lewis
456 N. Maple Street
Greenwich, CT 06830 1,145,396 8.26.8
Special Situations Fund III QP, L.P.
527 Madison Avenue, Suite 2600
New York, NY 10023 1,288,750 (10) 7.7
Robert P. Stiller
33 Coffee Lane 1,000,000 (11) 6.0
Waterbury, VT 05676
All Executive Officers and
Directors as a Group (5 Persons) 5,223,444 29.35,183,444 31.0
- ----------------------------
(1) All shares owned directly with sole investment and voting power,
unless otherwise noted.
13
(2) The percentage calculations are based upon 14,052,38616,742,688 shares of the
Company's common stock, eligible to vote, issued and outstanding as of
March 1, 2006April 20, 2007 and, for each officer or director of the group, the
number of shares subject to options, warrants or conversion rights
exercisable currently or within 60 days of March 1, 2006.2007.
(3) The total includes a warrant to purchase 600,000 shares of common
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 of common stock at an exercise
price of $.93 per share which expires January 7, 2010, a warrant to
purchase 300,000 shares of common stock at an exercise price of $.93
which expires January 24, 2011, 10,000 shares of common stock subject
to options granted under an employee stock option plan which are
currently exercisable at $1.00 per share and 20,000 shares of common
stock subject to options granted under an employee stock option plan
which are currently exercisable at $.55 per share.
(4) The total includes 70,00050,000 shares of common stock 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,
34
$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.Based on a Form 4 filed April 23, 2007, by Geovest Capital Partners,
LP. 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 65,00055,000 shares of common stock 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 $1.38and $1.385 per share
for 5,000 common
shares and $1.75 per share for 10,000 common shares.
(9) This total includes 20,00010,000 shares of common stock subject to options
granted under an employee stock option plan which are currently
exercisable at $.89 per share for 10,000 common sharesshares.
14
(10) Based on a Schedule 13G filed February 14, 2007, by Austin W. Marxe
and $.55 per share for 10,000 common shares.
SummitBridge National Investments LLC, DrawbridgeDavid M. Greenhouse as Investment Managers of Special OpportunitiesSituations
Fund LP,
Drawbridge Special Opportunities Advisors LLC, Fortress Investment Group LLC,
Highbridge/Zwirn Special Opportunities Fund,III QP, L.P., Highbridge/Zwirn Capital
Management LLC, D.B. Zwirn & Co., LLC, and Daniel B. Zwirn (collectively
"SummitBridge")
(11) Based on a Schedule 13G filed an Amendment No. 3 to Schedule 13D with the Securities and
Exchange Commission on February 15,March 6, 2007, by Robert P. Stiller.
Equity Compensation Plan Benefit Information
- --------------------------------------------
The following table provides information as of December 31,
2006 in which it reported shared dispositive
power over 2,269,750 shares of common stock of the Company. However,
SummitBridge currently has no voting rights as to such shares due to the
applicability of the Indiana Control Share Acquisition Law. On August 25, 2005,
the Company consummated a Settlement Agreement with SummitBridge. Pursuant to
the Settlement Agreement, the Company agreed to use commercially reasonable
efforts to assist SummitBridge in finding one or more buyers for its stock over
a six- to nine-month period. That period has now expired, therefore,
SummitBridge has the right to require the Company and its executive officers to
use commercially reasonable efforts to cause the Company's shareholders to vote
to restore SummitBridge's voting rights on their remaining shares. In addition,
since the period has expired, SummitBridge has certain registration rights with respect to the resaleshares of our common stock that may be issued under our
existing equity compensation plans.
Number of securities
remaining available for
Number of Securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
- ---------------------------------- ----------------------- -------------------- -------------------------
Equity compensation plans approved
by stockholders -- $ -- --
Equity compensation plans not
approved by stockholders 351,500 $ 1.22 (1)
--------- ---------
Total 351,500 $ 1.22 --
--------- ---------
(1) The Company may grant additional options under the employee stock
option plan. There is no maximum number of shares available for
issuance under the employee stock option plan.
The Company maintains an employee stock option plan for our employees and
officers. Any employees or officers of the company are eligible to be awarded
options under the plan. The employee stock option plan provides that any options
issued pursuant to the plan will have a three year vesting period and will
expire ten years after the date of grant. Awards under the plan are periodically
made at the discretion of the Chairman/CEO and President and approved by the
Board of Directors. The employee stock option plan does not have a limit on the
number of shares it holds.
35
that may be issued under the plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary ofCompany has reviewed all 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, director, was paid $72,000 inThe Board of Directors has
determined that there were no transactions since January 1, 2006 that are
required to be disclosed under this item. In making this determination the Board
of Directors examined consulting fees and $2,800
of interest on Participating Income Notes
in 2005.
Geovest Capital Partners, LP, whose managing partnerpaid to directors and determined that these items were not required to be
disclosed due to the amount of the payments.
The Company's Board of Directors is currently comprised of Paul W. Mobley, our
Chairman and Chief Executive Officer, A. Scott Mobley, our President, and
Douglas Coape-Arnold,
was paid $77,379H. Coape-Arnold. For the purpose of interestdetermining director independence
for this Annual Report on Participating Income Notes in 2005.
On August 25, 2005,Form 10-K, the Company consummated a Settlement Agreement with
SummitBridge. Ashas adopted
15
the New York Stock Exchange definition of a resultindependence. The Board of the Settlement Agreement, Noble Roman's acquired
all of SummitBridge's debt and equity interests in Noble Roman's, except for
2,400,000 shares of common stock, for a purchase price of $8,300,000. These
interests consisted of a senior secured promissory note in the principal amount
of $7,700,000, interest accrued on the note of $927,756, 3,214,748 shares of
Noble Roman's common stock, $4,929,274 stated amount of Noble Roman's no-yield
preferred stock which was convertible into 1,643,092 shares of common stock, and
a warrant to purchase 385,000 shares of Noble Roman's common stock withDirectors
has determined that Mr. Coape-Arnold is an exercise price of $.01 per share. Additional information regarding the
Settlement Agreement is set forth in Item 12 above and is incorporated herein by
reference.independent director under that
definition.
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 during the fiscal years shown.
Fiscal Year Ended Fiscal Year Ended
December 31, 20052006 December 31, 20042005
----------------- -----------------
Audit Fees (1) ................... $35,550 $ 28,304
$ 21,097
- ------------------------------------
(1) Audit Fees consist of fees rendered for professional services rendered for
the audit of our financial statements included in our Forms 10-K for the
years ended December 31, 2005 and 2004, review of the unaudited financial
statements included in our quarterly reports during suchthe years 2006 and
2005, and services that are normally provided by Larry E. Nunn &
Associates, LLC in connection with statutory and regulatory filings or
engagement.
The engagement of Larry E. Nunn and Associates, LLCSomerset CPAs, P.C., Certified Public Accountants, for
conducting the audit of itsthe Company's financial statements and the review
of its financial statements for the year ended December 31, 2006 and for
its Form 10-Q's during the years ended December 31, 2005 and 2004,year 2007, was pre-approved by the Company's
Board of Directors. Larry E. Nunn and Associates, LLCSomerset CPAs, P.C. has not been engaged by the Company
to perform any services other than audits of the Company's financial
statements and reviews of its Form 10-Qs. The Board of Directors does not
have a pre-approval policy with respect to work performed by the Company's
independent auditor.
36
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, 20042005 and 2005 192006 20
Consolidated Statements of Operations - years ended December 31,
2003, 2004, 2005 and 2005 202006 21
Consolidated Statements of Changes in Stockholders' Equity - years
ended December 31, 2003, 2004, 2005 and 2005 212006 22
Consolidated Statements of Cash Flows - years ended December 31,
2003, 2004, 2005 and 2005 222006 23
Notes to Consolidated Financial Statements 2324
16
Report of Independent Registered Accounting Firm. -
Somerset CPAs, P.C. 30
Report of Independent Registered Accounting Firm -
Larry E. Nunn & Associates, LLC 2931
Exhibits
Exhibit
No.Number Description
------ -----------
3.1 Amended Articles of Incorporation of the Registrant, (1)
3.2 Amended and Restated By-Laws of the Registrant (1)
3.3 Articles of Amendment of the Articles of Incorporation
of the Registrant (2)
3.4 Articles of Amendment of the Articles of Incorporation
of the Registrant dated April 16, 2001
4.1 Specimen Common Stock Certificates (1)
4.2 Form of Warrant Agreement
10.1 Employment Agreement with Paul W. Mobley dated
January 2, 1999
10.2 Employment Agreement with A. Scott Mobley dated
January 2, 1999
10.3 1984 Stock Option Plan (3)
10.4 Form of Stock Option Agreement (3)
10.5 Settlement Agreement with SummitBridge dated
August 1, 2005 (4)
10.6 Loan Agreement with Wells Fargo Bank, N.A. dated
August 25, 2005 (2)
21.1 Subsidiaries of the Registrant (5)
31.1 CEO and CFO Certification under Rule 13a-14(a)/15d-14(a)
32.1 CEO and 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, fromas an exhibit to the Registrant's Amendment No. 1 to the
Post Effective Amendment No. 2 to Registration Statement on
Form S-1 onfiled July 1, 1985 (SEC File No.2-84150).
(2) Incorporated, is
incorporated herein by reference fromreference.
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.
(3) Incorporated2005, is incorporated herein by reference fromreference.
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 by the registrant on November 29, 1994 (SEC File No. 33-86804).
(4) Incorporated, is
incorporated herein by reference fromreference.
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.
(5) Incorporated2005, is incorporated
herein by referencereference.
17
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 Registration Rights Agreement dated August 1, 2005 between
the Company and SummitBridge National Investments filed as
an Exhibit to the Registrant's Form S-1 filed on 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.
371993, is incorporated
herein by reference.
31.1 C.E.O. and C.F.O. Certification under Rule
13a-14(a)/15d-14(a).
32.1 C.E.O. and C.F.O. Certification under Section 1350.
18
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 29, 2006April 30, 2007 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 29, 2006 /s/ Paul W. Mobley
----------------------------------
Paul W. Mobley
Chairman of the Board and Director
Date: March 29, 2006 /s/ A. Scott Mobley
----------------------------------
A. Scott Mobley
President and Director
Date: March 29, 2006 /s/ Douglas H. Coape-Arnold
----------------------------------
Douglas H. Coape-Arnold
Director
3819