Note 1 - The accompanying unaudited interim condensed consolidated financial statements, included herein, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated statements have been prepared in accordance with the Company’s accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by this Form 10-Q for the three months ended June 30, 2020 and should be read in conjunction with the audited consolidated financial statements and the notes thereto included in that report. Unless the context indicates otherwise, references to the “Company” mean Noble Roman’s, Inc. and its subsidiaries.

Significant Accounting Policies

There have been no other significant changes in the Company's accounting policies from those disclosed in its Annual Report on Form 10-K.

In the opinion of the management of the Company, the information contained herein reflects all adjustments necessary for a fair presentation of the results of operations and cash flows for the interim periods presented and the financial condition as of the dates indicated, which adjustments are of a normal recurring nature. The results for the three-month periodand six-month periods ended March 31,June 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020, especially in light of recent volatility and uncertainty resulting from the coronavirus (“COVID-19) pandemic and the governmental response.response and the government assistance in the form of a PPP grant in the amount of $715,000 affecting the three and six months ended June 30, 2020.

Several other states and municipalities in the United States have also temporarily restricted travel and suspended the operation of dine-in restaurants in light of COVID-19, which has negatively affected our franchised operations. Host facilities for our non-traditional franchises have also been adversely impacted by these developments. The uncertainty and disruption in the U.S. economy caused by the pandemic are likely to continue to adversely impact the volume and resources of potential franchisees for both our Craft Pizza & Pub and non-traditional venues.

On April 25, 2020, the Company borrowedreceived a loan of $715,000 under the Payroll Protection Program. The Company anticipates this note will be forgiven. The funds, according toPPP and, in accordance with the provisionaccounting policy adopted, is being accounted for as a government grant and is presented in the Coronavirus Aid, Relief, and Economic Security Act (“CARES”), may beCondensed Consolidated Statement of Operations as a reduction of those qualifying expenses since the amount was entirely used for payroll costs including payroll benefits, interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in force before February 15, 2020 and utilities for which service began before February 15,during the three-month period ended June 30, 2020.

Noble Roman’s, Inc., an Indiana corporation incorporated in 1972, sells and services pizza-focused foodservice franchises and licenses under the trade name “Noble Roman’s Craft Pizza & Pub,” “Noble Roman’s Pizza,” “Noble Roman’s Take-N-Bake,” and “Tuscano’s Italian Style Subs”. It also currently operates one Company-owned non-traditional Noble Roman's Pizza and Tuscano’s Italian Style Subs location in a hospital and five Company-owned Craft Pizza & Pub restaurants.restaurants with a sixth location under development. The Company's concepts’ feature high quality fresh pizza, pasta and salads along with other related menu items, simple operating systems, fast service times, attractive food costs and overall affordability.

To facilitate growth, the Company began adding Company-owned Craft Pizza & Pub locations to its business plan in 2017 and has now begun franchising Craft Pizza & Pub on a limited basis to qualified multi-unit operators. The Company opened two Craft Pizza & Pub locations in 2017, added two additional locations in 2018 and opened one thus far in 2020 andwith another one under development expected to open near the end of the third quarter. The Company has plans for additional company-owned locations to open later this year and next year. The first franchised Craft Pizza & Pub opened in May 2019 in Lafayette, Indiana and the second franchised Craft Pizza & Pub opened in November 2019 in Evansville, Indiana. The franchisee of the first franchised location has a second location now under development in Kokomo, Indiana with plans to open in thelate summer of 2020. In addition to growth in the Craft Pizza & Pub venue, since 1997 the Company had concentrated its efforts and resources primarily on franchising and licensing non-traditional locations and has awarded franchise and/or license agreements in all 50 states. That focus on franchising and licensing non-traditional locations is continuing and currently has a significant backlog of franchises sold but not yet opened, combined with an active base of qualified prospects for additional locations.locations, however the current pandemic has slowed that development.

RH Roanoke, Inc. operates a Company-owned non-traditional location in a hospital and Noble Roman’s, Inc. owns and operates five Craft Pizza & Pub locations with another one under development and with plans to add more. The Company intends to use its Craft Pizza & Pub locations as a base to support the franchising and continued future growth of that concept.

References in this report to the “Company” and to "Noble Roman's" are to Noble Roman’s, Inc. and its two wholly-owned subsidiaries, Pizzaco, Inc. and RH Roanoke, Inc., unless the context indicates otherwise.

Noble Roman's Craft Pizza & Pub is intended to provide a fun, pleasant atmosphere serving pizza and other related menu items, all made to order using fresh ingredients in the view of the customers. In January 2017, the Noble Roman’s Craft Pizza & Pub opened its first Company-owned restaurant in Westfield, Indiana, a prosperous and growing community on the northwest side of Indianapolis. Since that time four additional Craft Pizza & Pubs have been opened as Company-owned restaurants. Noble Roman’s Craft Pizza & Pub is designed to harken back to the Company’s early history when it was known simply as “Pizza Pub.” Like then, and like the new full-service pizza concepts today, ordering takes place at the counter and food runners deliver orders to the dining room for dine-in guests. The Company believes that Noble Roman’s Craft Pizza & Pub features many enhancements over the current competitive landscape. The restaurant features two styles of hand-crafted, made-from-scratch pizzas with a selection of 40 different toppings, cheeses and sauces from which to choose. Beer and wine also are featured, with 16 different beers on tap including both national and local craft selections. Wines include 16 high quality, affordably priced options by the bottle or glass in a range of varietals. Beer and wine service is provided at the bar and throughout the dining room.

The pizza offerings feature Noble Roman’s traditional hand-crafted thinner crust as well as its signature deep-dish Sicilian crust. After extensive research and development, the system has been designed to enable fast cook times, with oven speeds running approximately 2.5 minutes for traditional pies and 5.75 minutes for Sicilian pies. Traditional pizza favorites such as pepperoni are options on the menu, but also offered is a selection of Craft Pizza & Pub original creations like "Swims with the Fishes" and "Pizza Margherita". The menu also features a selection of contemporary and fresh, made-to-order salads and fresh-cooked pasta. In addition, the menu includes baked subs, hand-sauced wings and a selection of desserts, as well as Noble Roman’s famous Breadsticks with Spicy Cheese Sauce.

Additional enhancements include a glass enclosed “Dough Room” where Noble Roman’s Dough Masters hand make all pizza and breadstick dough from scratch in customer view. Also in the dining room is a “Dust & Drizzle Station” where guests can customize their pizzas after they are baked with a variety of condiments and drizzles, such as rosemary-infused olive oil, honey and Italian spices. Kids and adults enjoy Noble Roman’s self-serve root beer tap, which is also part of a special menu for customers 12 and younger. Throughout the dining room and the bar area there are a large number of giant screen television monitors for sports and the nostalgic black and white shorts featured in Noble Roman’s earlier days.

Noble Roman's franchised and licensed non-traditional locations are designed to bring high-quality, pizza-focused foodservice into underlying establishments that have a captive audience or high customer counts associated with their business. Examples of these venues include convenience stores, hospitals, entertainment facilities, military bases, bowling centers and other similar facilities. Noble Roman's, for non-traditional locations, range in scope from relatively small operations focused on quick meals and impulse food purchases to elaborate, full-scale restaurant operations depending on the facility and the goals of the individual franchisee or licensee.

The hallmark of Noble Roman’s Pizza for non-traditional locations is “Superior quality that our customers can taste.” Every ingredient and process has been designed with a view to produce superior results.

Tuscano’s Italian Style Subs is a separate non-traditional location concept that focuses on sub sandwich menu items but only in locations that also have a Noble Roman’s franchise. The ongoing royalty for a Tuscano’s franchise is identical to that charged for a Noble Roman’s Pizza franchise.

The Company’s proprietary ingredients are manufactured pursuant to the Company’s recipes and specifications by third-party manufacturers under contracts between the Company and its various manufacturers. These contracts require the manufacturers to produce ingredients meeting the Company’s specifications and to sell them to Company-approved third-party distributors at prices negotiated between the Company and the manufacturer.

The Company has third-party distributors strategically located throughout the United States. The agreements require the distributors to maintain adequate inventories of all ingredients necessary to meet the needs of the Company’s franchisees and licensees in their distribution areas for weekly deliveries to the franchisee/licensee locations and to its grocery store distributors in their respective territories. Each of the primary distributors purchases the ingredients from the manufacturers at prices negotiated between the Company and the manufacturers, but under payment terms agreed upon by the manufacturers and the distributors, and distributes the ingredients to the franchisee/licensee at a price determined by the distributor agreement. Payment terms to the distributor are agreed upon between each franchisee/licensee and the respective distributor. In addition, the Company has agreements with various grocery store distributors located in parts of the country which agree to buy the Company’s ingredients from one of the Company’s primary distributors and to distribute those ingredients only to their grocery store customers who have signed license agreements with the Company.

The Company sells franchises for both non-traditional and traditional locations.

Noble Roman’s Take-n-Bake Pizza licenses for grocery stores are governed by a supply agreement. The supply agreement generally requires the licensee to: (1) purchase proprietary ingredients only from a Noble Roman’s-approved distributor; (2) assemble the products using only Noble Roman’s approved ingredients and recipes; and (3) display products in a manner approved by Noble Roman’s using Noble Roman’s point-of-sale marketing materials. Pursuant to the distributor agreements, the primary distributors place an additional mark-up, as determined by the Company, above their normal selling price on the key ingredients as a fee for the Company in lieu of royalty. The distributors agree to segregate this additional mark-up upon invoicing the licensee or grocery store distributor, to hold the fees in trust for the Company and to remit them to the Company within ten days after the end of each month.

The following table sets forth the revenue, expense and margin contribution of the Company's non-traditional franchising venue and the percent relationship to its revenue:

The following table sets forth the revenue, expense and margin contribution of the Company-owned non-traditional venue and the percent relationship to its revenue:

The revenue from this venue remained approximatelygrew from $1.33 million to $1.41 million and from $2.47 million to $2.50 million for the same at $1.1 million.respective three-month and six-month periods ended June 30, 2020 compared to the comparable periods in 2019. Revenue was increased by opening an additional Craft Pizza & Pub restaurant on March 25, 2020 but that increase was partially offset by the Governor of the State of Indiana issuing an order on March 16, 2020 in response to the COVID-19 pandemic closing all dining rooms for inside dining for an indefinite period of time but allowed carry-out and delivery. Most but not all, of the inside dining revenue that was lost from the closure of the dining rooms was made up through our Pizza Valet service and outside delivery service.

Cost of sales increasedimproved to 21.6%19.8% and 20.6% from 20.9% and 20.8% in, respectively, for the three-month and six-month periods ended June 30, 2020 compared to the comparable period last year.periods in 2019. This improvement was the result of efficiency gained as the restaurants matured and as the staff gained experience.

Salaries and wages improveddecreased to 29.1%2.6% and 14.2% from 28.6% and 30.2% for the respective three-month and six-month periods ended June 30, 2020 compared to 32.0%the comparable periods in 2019. The primary reason for the comparable period in 2019. Thisdecrease was the PPP grant was first used for reimbursing the Company for payroll costs for retaining employees. In addition, this improvement was primarily the result of efficiencies gainedimproved efficiency as the restaurants had been operating longer. Itmatured and as the staff gained experience and was also partially the result of all of the dining rooms being closed by order of the Governor on March 16, 2020, however2020. During the period of closure the restaurants continued to use Pizza Valet service for carry-out which decreased the labor requirements to a greater extent in percentage terms than the sales were reduced by the lack of dining room service.

Gross margin contribution decreasedincreased from 11.5%15.7% to 11.1%42.8% and from 13.8% to 28.9% for the quarterthree-month and six-month periods, respectfully, compared to the comparable periodperiods last year. This significant increase is largely the result of the PPP grant offsetting salaries and wages and, to a lesser extent, reduction in other costs. Overall expenses for this venue increaseddecreased from 88.5%84.3% to 88.9% with57.2% and from 86.2% to 71.1% for the costthree-month and six-month periods, respectfully, compared to the comparable periods last year. Cost of sales increasing 0.8%,decreased from 20.9% to 19.8% and from 20.8% to 20.6% plus facility cost increasing by 1.0%, delivery feesdecreased from 15.7% to 13.2% and bank charges by 2.4%, all being partially offset by labor efficiency improving withfrom 16.6% to 15.5% for the cost decreasing from 32.0%three-month and six-month periods, respectfully, compared to 29.1%. The non-cash expense for adopting to ASU 2016-02 accounting for operating leases, which became effective after January 1, 2019 for publicly reporting companies, decreased the margin from 12.0% to 11.1%.comparable periods last year.

Salaries and wages, trade show expense, insurance and other operating costs decreased from $495,00033.6% to $490,00024.6% and from 32.4% to 29.7% for the three-month period ended March 31, 2020and six-month periods, respectively, compared to the comparable periodperiods in 2019. These reductions significantly relate to the grant through the PPP partially reimbursing the Company for its payroll costs during that period. In January 2019, the Company reviewed this venue in depth to find ways to minimize costs and accomplish its objectives with fewer people and lower costs in general. These efforts are reflected in the 66.6%gross margin during the three-month period ended March 31, 2020 and are expected to benefit results in future quarters.increases.

Gross margin contributionincreased to 66.4% to 75.4% and from this venue decreased67.6% to 66.6% from 69.0% in70.3% for the three-month period ended March 31, 2020and six-month periods, respectively, compared to the comparable periodperiods in 2019. The reason forAs indicated in the margin decrease wasprevious paragraph, these increased margins reflect the partial reimbursement of the Company’s payroll costs through the PPP and partially as a result of the decrease in total revenue resulting from a decline in grocery store take-n-bake sales while maintaining the same reduced expense level.

Gross revenue from this venue decreased from $171,000$160,000 to $155,000 in$111,000 and from $331,000 to $266,000 for the respective three-month periodand six-month periods ended March 31,June 30, 2020 compared to the comparable periodperiods in 2019. The primary reason for this decreasethese decreases was the restriction placed on hospital locations as a result of the COVID-19 pandemic whereby hospitals were restricted from having outside visitors and staff inside the hospital was restricted from going from one area of the hospital to another. The Company does not intend to operate any more Company-owned non-traditional locations except the one location that it is currently operating.

Total expenses were $152,000decreased from $153,000 and $77,000 and $307,000 to $229,000 for the three-month periodand six-month periods ended March 31,June 30, 2020 compared to $154,000 for the comparable periodperiods in 2019. The primary reason for this decreasethese decreases was caused by lower volume due to restrictions on hospitals resulting from the COVID-19 pandemic.

Net income (loss) before income taxestax increased to $696,000 from $580,000 and decreased to ($337,000)$359,000 from $627,000$1.21 million for the respective three-month periodand six-month periods ended March 31,June 30, 2020 compared to the corresponding periodperiods in 2019. ThisThe three-month results were aided by the grant through the PPP partially reimbursing the Company for its payroll costs partially offset by the lowering of income from non-traditional locations because of temporary closing some of those locations because of COVID-19. The six-month period decrease was primarily the resultsubstantially because of the one-time non-cash write-off of unamortized loan costs of the Company’s previous debts and the non-cash expense from the PIK interest as explained in the previous paragraph.cost.

NetDue to the factors discussed above, net income (loss)increased to $696,000 from $441,000 and decreased to ($255,000)$441,000 from $476,000$917,000 for the respective three-month periodand six-month periods ended March 31,June 30, 2020 compared to the corresponding periodperiods in 2019. Net income decreased becauseIncome tax expense is not significant in the second quarter as the benefit from the reimbursement of certain expenses in the one-time non-cash expense associated with financingPPP is non-taxable as designated in the Company’s debt and to a lesser extent the decrease in total revenue, but with approximately the same expenses, primarily caused by the COVID-19 pandemic.

The Company’s strategy is to grow its business by concentrating on franchising/licensing non-traditional locations, franchising its updated stand-alone concept, Craft Pizza & Pub and operating a limited number of Company-owned Craft Pizza & Pub restaurants. The Company added new Company-operated Craft Pizza & Pub locations in January and November of 2017, January and June of 2018 and March of 2020.

During 2018, the Company invested resources (approximately $300,000) to commence franchising of the Craft Pizza & Pub franchise. As of December 31, 2019, the Company had two Craft Pizza & Pub locations under franchise agreements which were open and an additional franchise location under development and expected to open in thelate summer of 2020.

The Company is operating one non-traditional location in a hospital and has no plans for operating any additional non-traditional locations.

The Company’s current ratio was 4.1-to-15.2-to-1 as of March 31,June 30, 2020 compared to 1.5-to-1 as of December 31, 2019. The current ratio was improved significantly with the new financing in February 2020 and operations through June 30, 2020.

In January 2017, the Company completed the offering of $2.4 million principal amount of convertible, subordinated and unsecured promissory notes (the “Notes”) convertible to common stock at $0.50 per share and warrants (the “Warrants”) to purchase up to 2.4 million shares of the Company’s common stock at an exercise price of $1.00 per share, subject to adjustment. In 2018, $400,000 principal amount of Notes was converted into 800,000 shares of the Company’s common stock, in January 2019 another Note in the principal amount of $50,000 was converted into 100,000 shares of the Company’s common stock, and in August 2019 another Note in the principal amount of $50,000 was converted into 100,000 shares of the Company’s common stock, leaving principal amounts of Notes of $1.9 million outstanding as of December 31, 2019. Holders of Notes in the principal amount of $775,000 extended their maturity date to January 31, 2023. In February 2020, $1,275,000 of the Notes were repaid in conjunction with a new financing leaving a principal balance of $625,000 of subordinated convertible notes outstanding due January 31, 2023. These Notes bear interest at 10% per annum paid quarterly and are convertible to common stock any time prior to maturity at the option of the holder at $0.50 per share. Warrants to purchase 1,775,000 shares of common stock at $1.00 per share expired late in 2019.

In September 2017, the Company entered into a loan agreement (the “Bank Agreement”) with First Financial Bank (the “Bank”). The Bank Agreement provided for a senior credit facility (the “Credit Facility”) from the Bank consisting of: (1) a term loan in the amount of $4.5 million (the “Term Loan”); and (2) a development line of credit of up to $1.6 million (the “Development Line of Credit”) for the opening of three Craft Pizza & Pub restaurants. Borrowings under the Credit Facility bore interest at a variable annual rate up to the London Interbank Offer Rate (“LIBOR”) plus 7.25%. All outstanding amounts owed under the Bank Agreement were due to mature in September 2022, however these amounts were all paid in full from the $8.0 million new financing in February 2020.

On April 25, 2020, the Company received a loan of $715,000 under the Payroll Protection Program.PPP. It is anticipatedprobable this note will be forgiven.forgiven, therefore the Company has accounted for it as a grant. The funds, according to the provision in the CARES Act, may bewere used for payroll costs including payroll benefits interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in force before February 15, 2020 and utilities for which service began before February 15, 2020.other minor costs allowed by the act.

As a result of the financial arrangements described above and the Company’s cash flow projections, the Company believes it will have sufficient cash flow to meet its obligations and to carry out its current business plan. The Company’s cash flow projections for the next two years are primarily based on the Company’s strategy of growing the non-traditional franchising/licensing venues, operating Craft Pizza & Pub locations, to open additional Company-owned Craft Pizza & Pub restaurants and pursuing an aggressive franchising program for Craft Pizza & Pub restaurants. The Company intends to open additional Company-owned Craft Pizza & Pub restaurants in the future.

The Company does not anticipate that any of the recently issued pronouncements relating to the Statement of Financial Accounting Standards will have a material impact on its Consolidated Statement of Operations or its Consolidated Balance Sheet.

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 indicated by the forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment, including, but not limited to the effects of the COVID-19 pandemic, competitive factors and pricing pressures, non-renewal of franchise agreements, shifts in market demand, the success of new franchise programs, including the Noble Roman’s Craft Pizza & Pub format, the Company’s ability to successfully operate an increased number of Company-owned restaurants, general economic conditions, changes in demand for the Company’s products or franchises, the Company’s ability to service its loans, the impact of franchise regulation, the success or failure of individual franchisees and changes in prices or supplies of food ingredients and labor as well as the factors discussed under “Risk Factors " contained in the annual report on Form 10-K. 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.

Based on their evaluation as of the end of the period covered by this report, A. Scott Mobley, the Company’s President and Chief Executive Officer, and Paul W. Mobley, the Company’s Executive Chairman and Chief Financial Officer, have 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.

The Company is not involved in any material litigation against it.