United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
- --- Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002
Or
Transition report pursuant to Section 13 or 15(d) of the
- --- Securities Exchange Act of 1934
For the transition period from ______ 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 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 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
--- ---
As of April 15, 2002, there were 16,051,158 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:
Note to condensed consolidated financial statements Page 2
Condensed consolidated balance sheets as of December 31, 2001
and March 31, 2002 Page 3
Condensed consolidated statements of operations for the three
months ended March 31, 2001 and 2002 Page 4
Condensed consolidated statements of cash flows for the three
months ended March 31, 2001 and 2002 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 of operations for the interim periods presented and the
balance sheets for the dates indicated, which adjustments are of a normal
recurring nature.
Notes
- -----
Based on the Company's 2000 and 2001 operating results, its business plan, the
number of franchise units now open, the backlog of units sold to be opened, the
backlog of franchise prospects now in ongoing discussions and negotiations, the
Company's trends and the results of its operations thus far in 2002, management
has determined that it is more likely than not that the Company's deferred tax
credits will be fully utilized before the tax credits expire, the majority of
which expire between 2012 and 2016. Therefore, no valuation allowance was
established for its deferred tax asset. If unanticipated events should occur in
the future, the realization of all or some portion of the Company's deferred tax
asset could be jeopardized. The Company will continue to evaluate the need for a
valuation allowance on a quarterly basis.
The statements contained 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 economic conditions and
other factors, including (but not limited to) 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. 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.
2
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, March 31,
2001 2002
Assets
Current assets:
Cash $ 25,203 $ 1,495
Accounts and notes receivable 621,679 678,732
Inventories 82,669 136,677
Prepaid expenses 215,588 269,168
Deferred tax asset - current portion 1,348,132 1,348,132
------------ ------------
Total current assets 2,293,270 2,434,203
------------ ------------
Property and equipment:
Equipment 793,690 856,838
Leasehold improvements 84,229 84,229
------------ ------------
877,919 941,067
Less accumulated depreciation and amortization 309,936 324,198
------------ ------------
Net property and equipment 567,982 616,869
------------ ------------
Deferred tax asset 8,827,298 8,726,608
Other assets 1,503,616 1,486,747
------------ ------------
Total assets $ 13,192,167 $ 13,264,427
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,059,014 $ 1,904,891
Note payable to officer 65,840 65,840
Deferred franchise fees 251,850 247,350
------------ ------------
Total current liabilities 2,376,704 2,218,081
------------ ------------
Long-term obligations:
Notes payable to Provident Bank net of warrant value of $140,318
at December 31, 2001 and $122,081 at March 31, 2002 7,859,682 7,877,919
Notes payable to various funds affiliated with Geometry Group
net of warrant valuation of $90,868 at December 31, 2001 and
$122,081 at March 31, 2002 2,281,133 2,298,321
------------ ------------
Total long-term liabilities 10,140,815 10,176,240
------------ ------------
Stockholders' equity:
Common stock (25,000,000 shares authorized, 13,593,701
outstanding at December 31, 2000 and 16,051,158 in 2001) 17,789,452 17,789,452
Preferred stock (5,000,000 shares authorized) 4,929,274 4,929,274
Accumulated deficit (20,044,079) (21,848,620)
------------ ------------
Total stockholders' equity 674,647 870,106
------------ ------------
Total liabilities and stockholders' equity $ 13,192,167 $ 13,264,427
============ ============
See accompanying note to condensed consolidated financial statements.
3
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2001 2002
----------- -----------
Revenue:
Royalties and fees $ 1,244,062 $ 1,319,014
Administrative fees and other 201,540 124,880
----------- -----------
Total revenue 1,445,602 1,443,895
Operating expenses:
Salaries and wages 261,310 261,754
Trade show expense 71,716 58,015
Travel expense 58,098 53,206
Other operating expenses 147,317 165,245
Depreciation 9,802 14,262
General and administrative 272,703 292,232
----------- -----------
Operating income 624,656 599,180
Interest and other expense 306,880 303,032
----------- -----------
Income before income tax 317,776 296,148
Income tax 109,097 100,600
----------- -----------
Net income $ 208,679 $ 195,458
=========== ===========
Earnings per share:
Net income $ .02 $ .01
=========== ===========
Weighted average number of common shares outstanding 13,674,545 16,051,158
Fully diluted earnings per share:
Net income $ .01 $ .01
=========== ===========
Weighted average number of common shares outstanding 16,527,808 17,032,308
See accompanying notes to condensed consolidated financial statements.
4
Noble Roman's, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31,
-----------------------
OPERATING ACTIVITIES 2001 2002
- -------------------- --------- ---------
Net income $ 208,679 $ 195,458
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 9,802 14,262
Non-cash interest 35,426 52,294
Deferred federal income taxes 109,097 100,690
Changes in operating assets and liabilities (increase) decrease in:
Accounts receivable 93,182 (57,053)
Inventory (106,336) (54,008)
Prepaid expenses (34,665) (53,580)
Other assets 131,750 --
Increase (decrease) in:
Accounts payable 96,999 157,750
Deferred franchise fee (111,000) (4,500)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 432,934 351,133
INVESTING ACTIVITIES
Purchase of property and equipment (35,000) (63,148)
Issuance of capital stock net of issuance cost 35,950 --
--------- ---------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 950 (63,148)
FINANCING ACTIVITIES
Proceeds from long-term debt -- --
Principal payments on long-term debt and capital lease obligations -- --
Payment of obligations for discontinued operations (441,141) (311,693)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (441,141) (311,693)
--------- ---------
INCREASE (DECREASE) IN CASH (7,257) (23,708)
Cash at beginning of period 9,406 25,203
--------- ---------
Cash at end of period $ 2,149 $ 1,495
--------- ---------
Supplemental schedule of non-cash investing and financing activities
None.
See accompanying note to condensed consolidated financial statements.
5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Noble Roman's, Inc. and Subsidiaries
Results of Operations - Three-month periods ended March 31, 2001 and 2002
Introduction
- ------------
Over the last several years, given the potential size of the opportunities in
the non-traditional and co-branding segments, the Company made the strategic
decision to refocus its business on franchising to non-traditional and
co-branding locations and away from operating full-service, traditional
restaurant operations. During 2000, the Company completed that transition and
all of its full-service, traditional restaurants are now franchised. The Company
continues to offer franchise services to the full-service franchises in much the
same fashion as it has been doing with its non-traditional and co-branded
franchises.
The franchising concept is designed to capitalize on the rapid growth of
non-traditional locations for quick service restaurants and is simple to
operate, requires a modest investment and has minimal staffing requirements
while serving great tasting pizza and related products. The concept is designed
to be convenient and quick for its customers. The Company believes that
franchising these type facilities offers opportunities for substantial growth
for the foreseeable future.
Based on the Company's 2000 and 2001 operating results, its business plan, the
number of franchise units now open, the backlog of units sold to be opened, the
backlog of franchise prospects now in ongoing discussions and negotiations, the
Company's trends and the results of its operations thus far in 2002, management
has determined that it is more likely than not that the Company's deferred tax
credits will be fully utilized before the tax credits expire. Therefore, no
valuation allowance was established for its deferred tax asset. If unanticipated
events should occur in the future, the realization of all or some portion of the
Company's deferred tax asset could be jeopardized. The Company will continue to
evaluate the need for a valuation allowance on a quarterly basis.
The following table sets forth the percentage relationship to total revenue of
the listed items included in Noble Roman's condensed consolidated statements of
operations for the three-month periods ended March 31, 2001 and for March 31,
2002, respectively.
6
Three Months Ended
March 31,
-------------------
2001 2002
------- -------
Revenue:
Royalties and fees 86.1% 91.4%
Administrative fees and other 13.9 8.6
-------
Total revenue 100.0 100.0
Operating expenses:
Salaries and wages 18.1 18.1
Trade show expenses 5.0 4.0
Travel expense 4.0 3.7
Other operating expenses 10.2 11.5
Depreciation .7 1.0
General and administrative 18.9 20.2
------- -------
Operating income 43.2 41.5
Interest 21.2 21.0
------- -------
Net income before income tax 22.0% 20.5%
2002 Compared wth 2001
- ----------------------
Total revenue was approximately the same for the three-month period ended March
31, 2002 and 2001. Income from royalties and fees increased from approximately
$1.2 million for the three-month period ended March 31, 2001 to approximately
$1.3 million for the same period ended March 31, 2002. This increase was the
result of growth in the number of franchise locations.
Salaries and wages remained approximately the same at 18.1% of revenue for the
three-month periods ended March 31, 2001 and 2002.
Trade show expense decreased from approximately 5.0% for the three-month period
ended March 31, 2001 compared to approximately 4.0% for the same period in 2002.
The reason for this decrease is that, abased on past experience, the Company has
been more selective in attending trade shows by not attending some of the shows
attended in the past that were not as productive.
Travel expense decreased from approximately 4.0% for the three-month period
ended March 31, 2001 compared to approximately 3.7% for the same period in 2002.
This decrease is the result of locating personnel in the East coast area,
Western part of the United States and the Southeastern part of the United States
to reduce travel.
Other operating expenses increased from approximately 10.2% for the three-month
period ended March 31, 2001 compared to approximately 11.5% for the same period
in 2002. This increase is primarily the result of additional mailer cost and
other promotional cost to more rapidly develop new growth opportunities for the
future.
7
General and administrative expenses increased from approximately 18.9% for the
three-month period ended March 31, 2001 compared to approximately 20.2% for the
same period in 2002. This increase was primarily the result of adding additional
administrative personnel in preparation of additional new unit growth later in
the year.
Net income before income tax decreased from approximately 22.0% for the
three-month period ended March 31, 2001 compared to approximately 20.5% for the
same period in 2002. As explained in the two preceding paragraphs, this decrease
was primarily the result of preparing for additional growth in the number of
units later in the year.
Liquidity and Capital Resources
- -------------------------------
Over the last several years, given the potential size of the opportunities in
the non-traditional and co-branding market segments, the Company made the
strategic decision to refocus its business on franchising to non-traditional and
co-branding locations and away from operating full-service, traditional
restaurant locations. During 2000, the Company completed that transition and all
of its full-service, traditional restaurants are now franchised. The Company
continues to provide franchise services to the full-service franchises in much
the same fashion as it does with its non-traditional and co-branded franchises.
As a result of the Company's strategy since 1999, cash flow generated from
operations, the Company's current rate of growth by franchising plus the
anticipated growth, the Company believes it will have sufficient cash flow to
meet its obligations and to carry out its current business plan.
The statements contained 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 economic conditions and
other factors, including (but not limited to) 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. 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.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is involved in various litigation relating to claims
arising out of its normal business operations and relating to
restaurant facilities closed in 1997 and 2000. The Company believes
that none of its current proceedings, individually or in the aggregate,
will have a material adverse effect upon the Company beyond the amount
reserved in its financial statements.
8
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
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: April 19, 2002 /s/ Paul W. Mobley
-------------- -------------------------------------
Paul W. Mobley, Chairman of the Board
9