Noble Romans (NROM) 10-Q 14 Nov 19 2019 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 10, 2019
Document And Entity Information
Entity Registrant Name	NOBLE ROMANS INC
Entity Central Index Key	0000709005
Document Type	10-Q
Document Period End Date	Sep. 30, 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 Shell Company	false
Entity Common Stock, Shares Outstanding		22,015,413
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2019

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash	$ 274,404	$ 76,194
Accounts receivable - net	841,034	1,573,600
Inventories	990,059	962,783
Prepaid expenses	726,459	688,259
Total current assets	2,831,956	3,300,836
Property and equipment:
Equipment	2,886,246	2,872,494
Leasehold improvements	1,180,637	1,180,050
Construction and equipment in progress	292,203	119,340
Total	4,359,086	4,171,884
Less accumulated depreciation and amortization	1,607,689	1,399,435
Net property and equipment	2,751,397	2,772,449
Deferred tax asset	4,481,550	4,817,309
Deferred contract cost	843,000	698,935
Goodwill	278,466	278,466
Operating lease right of use assets	4,291,625	0
Other assets including long-term portion of receivables-net	5,383,019	3,808,957
Total assets	20,861,013	15,676,952
Current liabilities:
Current portion of term loan payable to bank	871,429	871,429
Accounts payable and accrued expenses	368,351	523,315
Current portion of operating lease liability	333,763	0
Total current liabilities	1,573,543	1,394,744
Long-term obligations:
Term loans payable to bank (net of current portion)	3,285,100	3,898,733
Convertible notes payable	1,468,918	1,539,204
Operating lease liabilities - net of short-term portion	4,098,912	0
Deferred contract income	843,000	698,935
Total long-term liabilities	9,695,930	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 21,915,413 as of September 30, 2019)	24,852,998	24,739,482
Accumulated deficit	(15,261,458)	(16,594,146)
Total stockholders' equity	9,591,540	8,145,336
Total liabilities and stockholders' equity	$ 20,861,013	$ 15,676,952

Condensed Consolidated Balanc_2

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 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	21,915,413	21,583,032
Common stock, outstanding shares	21,915,413	21,583,032

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue:
Total revenue	$ 3,079,275	$ 3,274,647	$ 9,122,828	$ 9,404,514
Operating expenses:
Total operating expenses	1,744,537	2,001,113	5,222,734	5,737,429
Depreciation and amortization	66,872	125,399	236,918	298,155
General and administrative expenses	432,920	434,457	1,273,960	1,252,781
Total expenses	2,244,329	2,560,970	6,733,612	7,288,365
Operating income	834,946	713,676	2,389,217	2,116,149
Interest expense	219,674	172,639	566,845	486,292
Adjust valuation of receivables	0	1,295,805	0	1,295,805
Income (loss) before income taxes	615,272	(754,768)	1,822,369	334,052
Income tax expense	147,665	(192,491)	437,369	81,632
Net income (loss)	$ 467,607	$ (562,277)	$ 1,385,003	$ 252,420
Earnings per share - basic:
Net income (loss) before income tax - basic	$ 0.03	$ (.04)	$ 0.08	$ 0.02
Net income (loss)	$ 0.02	$ (.03)	$ 0.06	$ 0.01
Weighted average number of common shares outstanding	21,976,283	21,428,684	21,797,946	21,153,728
Diluted earnings per share:
Net income (loss) before income tax - diluted	$ 0.03	$ (.03)	$ 0.08	$ 0.01
Net income (loss)	$ 0.02	$ (.02)	$ 0.06	$ 0.01
Weighted average number of common shares outstanding	23,547,037	26,294,754	23,368,701	26,294,274
Company-Owned Craft Pizza & Pub
Revenue:
Total revenue	$ 1,221,843	$ 1,308,890	$ 3,693,922	$ 3,663,255
Operating expenses:
Total operating expenses	1,077,856	1,048,566	3,209,709	2,877,957
Company-Owned Non-traditional
Revenue:
Total revenue	169,422	283,135	499,944	862,777
Operating expenses:
Total operating expenses	157,652	279,079	464,470	851,766
Franchising Revenue Non-traditional
Revenue:
Total revenue	1,681,951	1,656,074	4,895,173	4,831,305
Operating expenses:
Total operating expenses	509,029	673,468	1,548,555	2,007,706
Administrative Fees and Other
Revenue:
Total revenue	6,059	26,548	33,789	47,177
Operating expenses:
Total operating expenses	$ 0	$ 0	$ 0	$ 0

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		142,857	142,857
Net income (loss)		252,420	252,420
Amortization of value of employee stock options	$ 16,597		16,597
Conversion of convertible note to common stock, shares	800,000
Conversion of convertible note to common stock, amount	$ 400,000		400,000
Ending balance, shares at Sep. 30, 2018	21,583,032
Ending balance, amount at Sep. 30, 2018	$ 24,739,482	(13,279,517)	11,459,965
Beginning balance, shares at Jun. 30, 2018	21,183,032
Beginning balance, amount at Jun. 30, 2018	$ 24,537,043	(12,717,240)	11,819,803
Net income (loss)		(562,277)	(562,277)
Amortization of value of employee stock options	$ 2,439		2,439
Conversion of convertible note to common stock, shares	400,000
Conversion of convertible note to common stock, amount	$ 200,000		200,000
Ending balance, shares at Sep. 30, 2018	21,583,032
Ending balance, amount at Sep. 30, 2018	$ 24,739,482	(13,279,517)	11,459,965
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 (loss)		1,385,003	1,385,003
Amortization of value of employee stock options	$ 13,516		13,516
Cashless exercise of warrants, shares	232,381
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 Sep. 30, 2019	22,015,413
Ending balance, amount at Sep. 30, 2019	$ 24,852,998	(15,261,458)	9,591,540
Beginning balance, shares at Jun. 30, 2019	21,915,413
Beginning balance, amount at Jun. 30, 2019	$ 24,797,569	(15,729,065)	9,068,504
Net income (loss)		467,607	467,607
Amortization of value of employee stock options	$ 5,429		5,429
Conversion of convertible note to common stock, shares	100,000
Conversion of convertible note to common stock, amount	$ 50,000		50,000
Ending balance, shares at Sep. 30, 2019	22,015,413
Ending balance, amount at Sep. 30, 2019	$ 24,852,998	$ (15,261,458)	$ 9,591,540

Condensed Consolidated Statem_3

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
OPERATING ACTIVITIES
Net income	$ 1,385,003	$ 252,420
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	334,138	433,139
Amortization of lease cost in excess of cash paid in accordance with ASU 2016-02	85,668	0
Deferred income taxes	437,369	81,632
(Increase) decrease in:
Accounts receivable	(239,778)	(50,925)
Inventories	(27,276)	(56,479)
Prepaid expenses	(38,200)	(63,332)
Other assets including long-term portion of receivables	(512,981)	812,526
Increase (decrease) in:
Accounts payable and accrued expenses	(154,963)	(40,220)
NET CASH PROVIDED BY OPERATING ACTIVITIES	1,268,997	1,368,761
INVESTING ACTIVITIES
Purchase of property and equipment	(272,870)	(1,125,886)
NET CASH USED IN INVESTING ACTIVITIES	(272,870)	(1,125,886)
FINANCING ACTIVITIES
Net proceeds from First Financial term loans	0	500,000
Payment of principal - First Financial Bank	(797,897)	(594,434)
Additional loan closing cost	0	(332,110)
NET CASH USED BY FINANCING ACTIVITIES	(797,897)	(426,544)
DISCONTINUED OPERATIONS
Payment of obligations from discontinued operations	0	(45,000)
Increase (decrease) in cash	198,210	(228,669)
Cash at beginning of period	76,194	461,068
Cash at end of period	274,404	232,399
Supplemental schedule of investing and financing activities
Cash paid for interest	$ 460,931	$ 367,905

1. Basis of Presentation

1. Basis of Presentation	9 Months Ended
	Sep. 30, 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 from 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 and 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 nine-month period ended September 30, 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	9 Months Ended
	Sep. 30, 2019
Revenue Recognition [Abstract]
2. Royalties and Fees	Franchising revenue included initial franchise fee amortization of $67,500 for the three-month period ended September 30, 2019 and $278,000 for the nine-month period ended September 30, 2019 compared to $97,000 and $216,500 for the respective three-month and nine-month periods ended September 30, 2018. Franchising revenue included equipment commissions of $29,500 and $57,500 for the respective three-month and nine-month periods ended September 30, 2019, and $22,000 and $62,500 for the respective three-month and nine-month periods ended September 30, 2018. Franchising revenue, less amortized initial franchise fees and equipment commissions, was $1.6 million and $4.6 million for the respective three-month and nine-month periods ended September 30, 2019, and $1.5 million and $4.6 for the respective three-month and nine-month periods ended September 30, 2018. 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 on 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 franchise fees and contract costs initially incurred and paid approximate the relative amortized franchise fees and contract costs for those corresponding periods. The deferred contract income and costs both approximated $843,000 on September 30, 2019. At December 31, 2018 and September 30, 2019, the Company reported net accounts receivable from former franchisees of $4.4 million and $5.1 million, respectively, which were both net of allowances of $4.3 million and $4.0 million. Most of the accounts receivable from former franchisees in the net amount of $972,344 transferred from short-term to long-term as they are taking more than 12 months to collect. There were 2,894 franchises/licenses in operation on December 31, 2018 and 2,911 franchises/licenses in operation on September 30, 2019. During the nine-month period ended September 30, 2019, there were 26 new outlets opened and nine outlets closed. In the ordinary course, grocery stores from time to time add the Company's 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	9 Months Ended
	Sep. 30, 2019
Earnings Per Share [Abstract]
3. Earnings per Share	The following table sets forth the calculation of basic and diluted earnings (loss) per share for the three-month and nine-month periods ended September 30, 2018: Three Months Ended September 30, 2018 Loss (Numerator) Shares (Denominator) Per-Share Amount Net loss $ (562,279 ) 21,428,684 $ (.03 ) Effect of dilutive securities Options and warrants 711,722 Convertible notes 51,929 4,154,348 Diluted loss per share $ (510,350 ) 26,294,754 $ (.03 ) Net loss Nine Months Ended September 30, 2018 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 252,420 21,153,728 $ .01 Effect of dilutive securities Options and warrants 711,722 Convertible notes 166,099 4,429,304 Diluted earnings per share Net income $ 418,519 26,294,754 $ .02 The following table sets forth the calculation of basic and diluted earnings per share for the three-month and nine-month periods ended September 30, 2019: Three Months Ended September 30, 2019 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 467,607 21,976,283 $ .02 Effect of dilutive securities Options and warrants 20,775 Convertible notes 47,500 1,550,000 Diluted earnings per share $ 515,107 23,547,058 $ .02 Net loss Nine Months Ended September 30, 2019 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 1,385,000 21,797,946 $ .06 Effect of dilutive securities Options and warrants 20,755 Convertible notes 145,000 1,550,000 Diluted earnings per share Net income $ 1,530,000 23,368,701 $ .07

4. Other Assets

4. Other Assets	9 Months Ended
	Sep. 30, 2019
Other Assets [Abstract]
4. Other Assets	Other assets as of September 30, 2019, include security deposits of $11,000, cash surrender value of life insurance in the amount of $199,000 and long-term franchisee receivables in the amount of $5.1 million which is net of a $3.6 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 $1.9 million which adds to the receivables in accordance with the agreements. 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	9 Months Ended
	Sep. 30, 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)	9 Months Ended
	Sep. 30, 2019
Earnings Per Share [Abstract]
Earnings per share	Three Months Ended September 30, 2018 Loss (Numerator) Shares (Denominator) Per-Share Amount Net loss $ (562,279 ) 21,428,684 $ (.03 ) Effect of dilutive securities Options and warrants 711,722 Convertible notes 51,929 4,154,348 Diluted loss per share $ (510,350 ) 26,294,754 $ (.03 ) Net loss Nine Months Ended September 30, 2018 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 252,420 21,153,728 $ .01 Effect of dilutive securities Options and warrants 711,722 Convertible notes 166,099 4,429,304 Diluted earnings per share Net income $ 418,519 26,294,754 $ .02 Three Months Ended September 30, 2019 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 467,607 21,976,283 $ .02 Effect of dilutive securities Options and warrants 20,775 Convertible notes 47,500 1,550,000 Diluted earnings per share $ 515,107 23,547,058 $ .02 Net loss Nine Months Ended September 30, 2019 Income (Numerator) Shares (Denominator) Per-Share Amount Net income $ 1,385,000 21,797,946 $ .06 Effect of dilutive securities Options and warrants 20,755 Convertible notes 145,000 1,550,000 Diluted earnings per share Net income $ 1,530,000 23,368,701 $ .07

2. Royalties and Fees (Details

2. Royalties and Fees (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Initial Franchisee Fees
Royalties and Fees	$ 67,500	$ 97,000	$ 278,000	$ 216,500
Equipment Commission
Royalties and Fees	$ 29,500	$ 22,000	$ 57,500	$ 62,500

3. Earnings Per Share (Details)

3. Earnings Per Share (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net income	$ 467,607	$ (562,277)	$ 1,385,003	$ 252,420
Effect of dilutive securities	47,500	51,929	145,000	166,099
Net income per share with assumed conversions	$ 515,107	$ (510,350)	$ 1,530,000	$ 418,519
Weighted average number of common shares outstanding, basic	21,976,283	21,428,684	21,797,946	21,153,728
Weighted average number of common shares outstanding, diluted	23,547,037	26,294,754	23,368,701	26,294,274
Earnings per share, basic	$ 0.02	$ (.03)	$ 0.06	$ 0.01
Earnings per share, diluted	$ 0.02	$ (.02)	$ 0.06	$ 0.01
Options and Warrants
Effect of dilutive securities	20,775	711,722	20,755	711,722
Convertible Notes
Effect of dilutive securities	$ 47,500	$ 51,929		$ 166,099
Net income per share with assumed conversions			$ 145,000
Effect of dilutive securities	1,550,000	4,154,348	1,550,000	4,429,304