Noble Romans (NROM) 10-Q 15 May 19 2019 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 13, 2019
Document And Entity Information
Entity Registrant Name	NOBLE ROMANS INC
Entity Central Index Key	0000709005
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding		21,683,032
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2019

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash	$ 145,791	$ 76,194
Accounts receivable - net	1,560,958	1,573,600
Inventories	929,698	962,783
Prepaid expenses	720,515	688,259
Total current assets	3,356,962	3,300,836
Property and equipment:
Equipment	2,878,293	2,872,494
Leasehold improvements	1,180,637	1,180,050
Construction and equipment in progress	109,815	119,340
Total	4,168,745	4,171,844
Less accumulated depreciation and amortization	1,474,003	1,399,435
Net property and equipment	2,694,742	2,772,449
Deferred tax asset	4,666,910	4,817,309
Deferred contract cost	698,935	698,935
Goodwill	278,466	278,466
Operating lease right of use assets	4,475,106	0
Other assets including long-term portion of receivables-net	4,050,439	3,808,957
Total assets	20,221,560	15,676,952
Current liabilities:
Current portion of term loan payable to bank	871,429	871,429
Accounts payable and accrued expenses	253,271	523,315
Current portion of operating lease liability	312,739	0
Total current liabilities	1,437,439	1,394,744
Long-term obligations:
Term loans payable to bank (net of current portion)	3,705,579	3,898,733
Convertible notes payable	1,496,906	1,539,204
Operating lease liabilities - net of short-term portion	4,263,420	0
Deferred contract income	698,935	698,935
Total long-term liabilities	10,164,840	6,136,872
Stockholders' equity:
Common stock - no par value (40,000,000 shares authorized, 21,583,032 issued and outstanding as of December 31, 2018 and 21,683,032 as of March 31, 2019)	24,789,482	24,739,482
Accumulated deficit	(16,170,201)	(16,594,146)
Total stockholders' equity	8,619,281	8,145,336
Total liabilities and stockholders' equity	$ 20,221,560	$ 15,676,952

Condensed Consolidated Balanc_2

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Stockholders' equity:
Common stock, par value	$ .00	$ .00
Common stock, authorized shares	40,000,000	40,000,000
Common stock, issued shares	21,683,032	21,583,032
Common stock, outstanding shares	21,683,032	21,583,032

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenue:
Total revenue	$ 2,922,749	$ 2,952,663
Operating expenses:
Total operating expenses	1,659,340	1,798,451
Depreciation and amortization	93,600	72,503
General and administrative expenses	416,248	382,280
Total expenses	2,169,188	2,253,234
Operating income	753,561	699,429
Interest expense	126,903	160,288
Income before income taxes	626,658	539,141
Income tax expense	150,398	136,592
Net income	$ 476,260	$ 402,549
Earnings per share - basic:
Net income	$ 0.02	$ 0.02
Weighted average number of common shares outstanding	21,671,921	20,869,689
Diluted earnings per share:
Net income	$ 0.02	$ 0.02
Weighted average number of common shares outstanding	25,584,889	26,389,740
Company-Owned Craft Pizza & Pub
Revenue:
Total revenue	$ 1,142,614	$ 1,108,423
Operating expenses:
Total operating expenses	1,010,919	865,499
Company-Owned Non-traditional
Revenue:
Total revenue	170,502	288,116
Operating expenses:
Total operating expenses	153,709	283,856
Franchising Revenue Non-traditional
Revenue:
Total revenue	1,593,014	1,541,879
Operating expenses:
Total operating expenses	494,712	649,096
Administrative Fees and Other
Revenue:
Total revenue	$ 16,619	$ 14,245

Condensed Consolidated Statem_2

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)	Common Stock	Accumulated Deficit	Total
Beginning balance, shares at Dec. 31, 2017	20,783,032
Beginning balance, amount at Dec. 31, 2017	$ 24,322,885	$ (13,674,794)	$ 10,648,091
Effects of new accounting standards	$ 303,751	(160,893)	142,858
Net income		402,549	402,549
Conversion of convertible note to common stock, shares	200,000
Conversion of convertible note to common stock, amount	$ 100,000		100,000
Ending balance, shares at Mar. 31, 2018	20,983,032
Ending balance, amount at Mar. 31, 2018	$ 24,726,636	(13,433,138)	11,293,498
Beginning balance, shares at Dec. 31, 2018	21,583,032
Beginning balance, amount at Dec. 31, 2018	$ 24,739,482	(16,594,146)	8,145,336
Effects of new accounting standards		(52,315)	(52,315)
Net income		476,260	476,260
Conversion of convertible note to common stock, shares	100,000
Conversion of convertible note to common stock, amount	$ 50,000	0	50,000
Ending balance, shares at Mar. 31, 2019	21,683,032
Ending balance, amount at Mar. 31, 2019	$ 24,789,482	$ (16,170,201)	$ 8,619,281

Condensed Consolidated Statem_3

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
OPERATING ACTIVITIES
Net income	$ 476,260	$ 402,549
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	126,005	106,781
Amortization of lease cost in excess of cash paid in accordance with ASU 2016-02	11,897	0
Deferred income taxes	150,398	136,592
(Increase) decrease in:
Accounts receivable	12,642	(6,067)
Inventories	13,085	(13,173)
Prepaid expenses	(32,526)	(7,249)
Other assets including long-term portion of receivables	(178,450)	34,755
Increase (decrease) in:
Accounts payable and accrued expenses	(275,967)	(119,926)
NET CASH PROVIDED BY OPERATING ACTIVITIES	303,344	534,262
INVESTING ACTIVITIES
Purchase of property and equipment	(15,890)	(605,705)
NET CASH USED IN INVESTING ACTIVITIES	(15,890)	(605,705)
FINANCING ACTIVITIES
Payment of principal on bank term loans	(217,857)	(160,714)
Payment of additional closing costs	0	(13,717)
NET CASH USED BY FINANCING ACTIVITIES	(217,857)	(174,431)
DISCONTINUED OPERATIONS
Payment of obligations from discontinued operations	0	(15,000)
Increase (decrease) in cash	69,597	(260,874)
Cash at beginning of period	76,194	461,068
Cash at end of period	145,791	200,194
Supplemental schedule of investing and financing activities
Cash paid for interest	$ 135,123	$ 136,420

1. Basis of Presentation

1. Basis of Presentation	3 Months Ended
	Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]
1. Basis of Presentation	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, 2018 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 significant changes in the Company's accounting policies form those disclosed in its Annual Report on Form 10-K except for those policies described below in relation to the adoption of Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets ("ROU"), and lease liability obligations are included in the Company's balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company's leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes in the lease payments made excludes lease incentives and lease direct costs. The Company's lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. 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 period ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.

2. Royalties and Fees

2. Royalties and Fees	3 Months Ended
	Mar. 31, 2019
Revenue Recognition [Abstract]
2. Royalties and Fees	Royalties and fees included initial franchise fees of $69,500 for the three-month period ended March 31, 2018, and $94,500 for the three-month period ended March 31, 2019. Royalties and fees included equipment commissions of $24,500 for the three-month period ended March 31, 2018, and $20,000 for the three-month period ended March 31, 2019. Royalties and fees, less amortized initial franchise fees and equipment commissions, were $1.4 million for the three-month period ended March 31, 2018, and $1.5 million for the three-month period ended March 31, 2019. 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 a contractual liability of the franchisee. In accordance with (ASU) 2014-09, the Company adopted revenue and expense recognition as described in ASU 2014-09 effective January 2018. Initial franchise fees and related contract costs are deferred and amortized on a straight-line basis over the term of the franchise agreement, generally five to 10 years. The effect to comparable periods within the financial statements is not material as the initial franchise fee for the non-traditional franchise is intended to defray the initial contract costs, and the franchisee fees and contract costs initially incurred and paid approximate the relative amortized franchise fees and contract costs for those same periods. The deferred contract income and costs both approximated $699,000 on March 31, 2019. At December 31, 2018 and March 31, 2019, the Company reported net accounts receivable from franchisees of $4.4 million and $4.6 million, respectively, which were both net of allowances of $4.3 million. There were 2,894 franchises/licenses in operation on December 31, 2018 and 2,899 franchises/licenses in operation on March 31, 2019. During the three-month period ended March 31, 2019, there were eight new outlets opened and three outlets closed. In the ordinary course, grocery stores from time to time add our licensed products, remove them and may subsequently re-offer them. Therefore, it is unknown how many of the 2,263 licensed grocery store units included in the counts above have left the system.

3. Earnings per Share

3. Earnings per Share	3 Months Ended
	Mar. 31, 2019
Earnings Per Share [Abstract]
3. Earnings per Share	The following table sets forth the calculation of basic and diluted earnings per share for the three-month period ended March 31, 2018: Three Months Ended March 31, 2018 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 402,549 20,869,689 $ .02 Effect of dilutive securities Options and warrants — 920,051 Convertible notes 65,168 4,600,000 Diluted earnings per share Net income per share with assumed conversions $ 467,717 26,389,740 $ .02 The following table sets forth the calculation of basic and diluted earnings per share for the three-month period ended March 31, 2019: Three Months Ended March 31, 2019 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 476,260 21,671,921 $ .02 Effect of dilutive securities Options and warrants — 1,857 Convertible notes 48,750 3,911,111 Diluted earnings per share Net income per share with assumed conversions $ 525,010 25,584,889 $ .02

4. Other Assets

4. Other Assets	3 Months Ended
	Mar. 31, 2019
Other Assets [Abstract]
4. Other Assets	Other assets as of March 31, 2019, include security deposits of $13,600, cash surrender value of life insurance in the amount of $199,000, long-term franchisee receivables in the amount of $3.7 million which is net after a $4.0 million valuation allowance. Long-term receivable from franchisees represent receivables from approximately 80 different non-traditional franchisees (Noble Roman’s franchises located within a host facility). These receivables originated from a variety of circumstances, including where audits of a number of the non-traditional franchises’ reporting of sales found them to be underreporting their sales and, therefore, underpaying their royalty obligations. In other instances, some franchisees were selling non-Noble Roman’s products under the Noble Roman’s trademark. In addition, some receivables arose from the Company incurring legal fees to enforce the franchise agreements and other collection costs totaling approximately $2.4 million which adds to the receivables in accordance with the agreements and some of the receivables were generated by early termination of the franchise agreements. These receivables have been classified as long-term since collections are expected to extend over more than a one-year cycle.

5. Subsequent Events

5. Subsequent Events	3 Months Ended
	Mar. 31, 2019
Subsequent Events [Abstract]
5. Subsequent Events	The Company evaluated subsequent events through the date the financial statements were issued and filed with SEC. There were no subsequent events that required recognition or disclosure beyond what is disclosed in this report.

3. Earnings per Share (Tables)

3. Earnings per Share (Tables)	3 Months Ended
	Mar. 31, 2019
Earnings Per Share [Abstract]
Earnings per share	Three Months Ended March 31, 2018 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 402,549 20,869,689 $ .02 Effect of dilutive securities Options and warrants — 920,051 Convertible notes 65,168 4,600,000 Diluted earnings per share Net income per share with assumed conversions $ 467,717 26,389,740 $ .02 Three Months Ended March 31, 2019 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 476,260 21,671,921 $ .02 Effect of dilutive securities Options and warrants — 1,857 Convertible notes 48,750 3,911,111 Diluted earnings per share Net income per share with assumed conversions $ 525,010 25,584,889 $ .02

3. Earnings Per Share (Details)

3. Earnings Per Share (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net income	$ 476,260	$ 402,549
Net income per share with assumed conversions	$ 525,010	$ 467,717
Weighted average number of common shares outstanding, basic	21,671,921	20,869,689
Weighted average number of common shares outstanding, diluted	25,584,889	26,389,740
Earnings per share, basic	$ 0.02	$ 0.02
Earnings per share, diluted	$ 0.02	$ 0.02
Options and Warrants
Effect of dilutive securities	$ 0	$ 0
Effect of dilutive securities	1,857	920,051
Convertible Notes
Effect of dilutive securities	$ 48,750	$ 65,168
Effect of dilutive securities	3,911,111	4,600,000