UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
___TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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Commission file number: 0-11104
NOBLE ROMAN'S, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1281154
(State or other (I.R.S. Employer
jurisdiction of organization) Identification No.)
One Virginia Avenue, Suite 800
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
(317) 634-3377
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or l5(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
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As of August 15, 1996, there were 4,131,324 shares of Common Stock, no par
value, outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following condensed consolidated financial statements are included herein:
Condensed consolidated balance sheets as of December 31, 1995
and June 30, 1996 Page 3
Condensed consolidated statements of operations for the six and three
months ended June 30, 1995 and 1996 Page 4
Condensed consolidated statements of cash flows for the six
months ended June 30, 1995 and 1996 Page 5
The interim condensed consolidated financial statements included herein
reflect all adjustments which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented, which
adjustments are of a normal recurring nature.
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. At December 31, 1995 the Company determined that
it needed to revise its financial reporting for deferred income tax liability
and, therefore, increased its accrual for income tax expense. The change
effected the entire 1995 year and when spread over the year had the effect
of lowering previously reported first quarter 1995 earnings by $17,331 and
second quarter 1995 by $7,948. This change is reflected on the
Condensed Consolidated Statement of Operations for the six and three months
ended June 30, 1995 included herein.
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
December 31 June 30
1995 1996
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Assets
Current assets:
Cash $ 229,462 $ 256,559
Accounts receivable 950,622 946,854
Inventories 980,534 1,003,520
Prepaid expenses 512,949 767,689
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Total current assets 2,673,567 2,974,622
Property and equipment, less
accumulated depreciation and
amortization of $3,737,594
and $4,090,022 9,135,949 9,177,257
Costs in excess of assets
acquired, net 6,722,812 6,592,322
Other assets 1,476,426 1,576,463
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$ 20,008,754 $20,320,664
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 946,033 $ 1,981,526
Notes payable - current 761,128 1,011,128
Other current liabilities 1,019,247 677,437
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Total current liabilities 2,726,408 3,670,091
Long-term liabilities:
Revolving line of credit 2,914,919 4,000,000
Notes payable-less current portion 8,150,793 7,672,892
Capital leases 258,037 117,050
Deferred tax liability 696,041 169,129
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Total long-term liabilities 12,019,790 11,959,071
Stockholders' equity
Common stock, no par value,
authorized 9,000,000 shares,
issued 4,131,324 and 4,131,324 5,458,431 5,458,431
Retained earnings (195,875) (766,929)
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Total stockholder's equity 5,262,556 4,691,502
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$ 20,008,754 $20,320,664
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Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Six Months Ended Three Months Ended
June 30 June 30
1995 1996 1995 1996
------- ------- ------- -------
Restaurant revenue $15,823,691 $16,860,810 $ 7,779,443 $ 8,145,365
Royalties 116,217 98,419 58,964 39,700
Administrative fees and other 194,672 142,501 85,305 30,475
----------- -------- ---------- ----------
Total revenue 16,134,580 17,101,730 7,923,712 8,215,540
Restaurant operating expenses:
Cost of revenue 2,861,257 3,308,766 1,422,836 1,683,557
Salaries and wages 4,946,390 5,476,232 2,466,216 2,755,105
Rent 1,333,004 1,489,877 666,597 774,017
Advertising 723,676 808,754 358,070 407,469
Other 3,695,409 4,169,871 1,851,198 2,134,542
Depreciation and amortization 566,705 595,744 282,875 298,622
General and administrative 956,102 1,103,804 457,725 678,000
Cost of attempted acquisition and
equity offering 768,389 768,389
----------- -------- ---------- ----------
Operating income 1,052,037 (619,707) 418,195 (1,284,161)
Interest and other expense 583,432 707,642 298,758 374,125
----------- -------- ---------- ----------
Income before income taxes 468,605 (1,327,349) 119,437 (1,658,286)
Income taxes 165,886 (468,437) 48,948 (585,375)
----------- ------- ---------- ----------
Net income $302,719 $ (858,912) $ 70,489 $(1,072,911)
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Net income per share $ .08 $ (.21) $ .02 $ (.26)
Weighted average number of
common shares outstanding 3,995,495 4,131,324 3,997,574 4,131,324
Noble Roman's and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
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1995 1996
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OPERATING ACTIVITIES
Net income $ 309,605 $ (858,912)
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and amortization 658,538 654,637
Changes in operating assets
and liabilities (increase) decrease in:
Accounts receivable (62,413) 3,768
Inventory (159,429) (22,986)
Prepaid expenses (348,409) (254,740)
Other assets 10,000 (100,037)
Increase (decrease) in:
Accounts payable 729,466 1,031,936
Accrued expenses (386,071) (868,722)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 751,287 (415,056)
INVESTING ACTIVITIES
Purchase of fixed assets (1,111,839) (387,367)
Payments received on
notes receivable 1,023 --
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NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (1,110,816) (387,367)
FINANCING ACTIVITIES
Proceeds from long-term debt -- 1,085,081
Proceeds from sale of common stock 17,510 --
Principal payments on long-term debt
and capital lease obligations (152,521) (255,561)
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (135,011) 829,520
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INCREASE (DECREASE) IN CASH (494,540) 27,097
Cash at beginning of period 621,726 229,462
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Cash at end of period $ 127,186 $ 256,559
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Noble Roman's, Inc. and Subsidiaries
Results of Operations - Six month and three month periods ended June 30, 1995
and 1996
The following table sets forth the percentage relationship to total revenue
of the listed items included in Noble Roman's consolidated statement of
operations. Certain items are shown as a percentage of restaurant revenue.
Six Months Ended Three Months Ended
June 30 June 30
1995 1996 1995 1996
-------- -------- -------- --------
Revenue:
Restaurant revenue 98.1% 98.6% 98.2% 99.1%
Royalties .7 .6 .7 .5
Administrative fees and other 1.2 .8 1.1 .4
-------- -------- -------- --------
100.0 100.0 100.0 100.0
Restaurant operating expenses (1):
Cost of revenue 18.1 19.6 18.3 20.7
Salaries and wages 31.3 32.5 31.7 33.8
Rent 8.4 8.8 8.6 9.5
Advertising 4.6 4.8 4.6 5.0
Other 23.4 24.7 23.8 26.2
Depreciation and amortization 3.5 3.5 3.6 3.6
General and administrative 5.9 6.5 5.8 8.3
Loss from withdrawn acquisition and offering -- 4.5 -- 9.4
-------- -------- -------- --------
Operating income 6.5 (3.6) 5.3 (15.6)
Interest 3.6 4.1 3.8 4.6
-------- -------- -------- --------
Income before federal income taxes 2.9% (7.8%) 1.5% (20.2%)
(1) As a percentage of restaurant revenue
Total revenue increased 6.0% and 3.7% in the six months and three months
ended June 30, 1996, respectively. The increase was primarily attributable
to revenue at the four new restaurants opened after the second quarter in
1995 and the one new restaurant opened during the first quarter of 1996.
Cost of revenue as percentage of restaurant revenue increased from 18.1% in
the first six months of 1995 to 19.6% in the same period in 1996 and from 18.3%
to 20.7% in the three month period ended June 30, 1995 and 1996, respectively.
The increase was primarily the result of increased cheese prices and a 25th
Anniversary price rollback promotion in April, 1996. Salaries and wages
increased as a percentage of restaurant revenue from 31.3% and 31.7% for the
six and three month periods ended June 30, 1995 compared to 32.5% and 33.8%
in the same periods in 1996. The increase was attributable to a higher
average hourly wage and to inefficient scheduling of hourly employees, both
of which were the result of senior management's focus on an acquisition during
those periods. Other expenses increased as a percentage of revenue from
23.4% and 23.8% in the six and three month periods ended in 1995 to 24.7% and
26.2% in the same periods in 1996. This increase was primarily attributable
to the lack of execution of the operating controls as a result of the
Company's senior management being focused on an acquisition which was
subsequently withdrawn.
General and administrative expenses as a percentage of total revenue
increased from 5.9% and 5.8% during the six and three month periods ended
June 30, 1995 to 6.5% and 8.3% in the same periods in l996. This increase as
a percentage of total revenue was primarily attributable to same store net
revenue decline, to hiring additional supervisory personnel because of senior
management's focus on an acquisition and to additional training and hiring
expense because of turnover of restaurant level management due to ineffective
supervision.
Operating income decreased from $1,052 thousand and $418 thousand in the six
and three month periods ended June 30, 1995 to ($620 thousand) and ($1,284
thousand) in the same periods in 1996. Operating income decreased because of
the poor operating controls discussed in the three previous paragraphs and
because of the $768 thousand cost incurred in the second quarter 1996 for an
acquisition and equity offering which was abandoned in June, 1996.
Interest expense increased from $583 thousand and $299 thousand for the six
and three month periods ended June 30, 1995 to $708 thousand and $374 thousand
in the same periods in 1996. This increase is the result of a higher interest
rate on the Company's debt as a result of the refinancing in December, 1995
in order to repay notes which had a short term maturity and because of an
increase in the amount of outstanding debt.
Income before federal income taxes decreased from $469 thousand and $119
thousand for the six and three month periods ended June 30, 1995 to ($1,327
thousand) and ($1,658 thousand) in the same periods in 1996. This decrease
was primarily attributable to the attempted acquisition of a 180 restaurant
pizza chain and the withdrawal of that attempt which both resulted in the
cost directly attributable to that effort and to the inefficiencies in the
Company's operations as a result of senior management's focus and time
involvement in that acquisition.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the $768 thousand spent on the attempted acquisition of 180
restaurants located in Boston, Massachusetts and surrounding areas and because
of the Company's inefficient operations as a result of that attempted
acquisition and of senior management's time and focus on that acquisition, the
Company is in technical default of the terms of its senior credit facility as
the Company is out of compliance with the various financial covenants and has
a shortage of working capital.
Management of the Company has had ongoing discussions with representatives of
the bank which provides the senior credit facility regarding restructuring the
credit facility to meet the current needs. The Company has requested the bank
to increase its credit facility by $2 million and to revise the various
financial covenants contained in the credit facility agreement. Representatives
of the bank have expressed a desire to work with the Company subject to further
review and analysis.
Management believes that cash generated from future operations will be
sufficient to meet its needs provided the existing credit facility is amended
as discussed in the previous paragraph.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is involved in litigation relating to claims
arising out of its normal business operations. The Company believes that
none of its current proceedings, individually or in the aggregate, will have
a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As a result of the $768 thousand spent on the attempted acquisition of 180
restaurants located in Boston, Massachusetts and surrounding areas and because
of the Company's inefficient operations as a result of that attempted
acquisition and of senior management's time and focus on that acquisition, the
Company is in technical default of the terms of its senior credit facility as
the Company is out of compliance with the various financial covenants and has
a shortage of working capital.
Management of the Company has had ongoing discussions with representatives of
the bank which provides the senior credit facility regarding restructuring the
credit facility to meet the current needs. The Company has requested the bank
to increase its credit facility by $2 million and to revise the various
financial covenants contained in the credit facility agreement. Representatives
of the bank have expressed a desire to work with the Company subject to further
review and analysis.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements 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: August 19, 1996 By: /s/ Paul W. Mobley
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Paul W. Mobley, President
(Principal Executive Officer
and Chief Financial Officer)