U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
[Fee Required] for the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[No Fee Required] 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 5-1281154
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE VIRGINIA AVENUE, SUITE 800
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices)
Registrant's telephone number: (317) 634-3377
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within 60 days
prior to the date of filing.
$2,425,592 as of June 13, 1997
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
4,131,324 shares of common stock as of June 13, 1997
Documents Incorporated by Reference: None
<PAGE>
NOBLE ROMAN'S, INC.
FORM 10-K
Year Ended December 31, 1996
Table of Contents
Item #
in Form 10-K Page
PART I
1. Business 3
2. Properties 8
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 26
PART III
10. Directors and Executive Officers of the Registrant 26
11. Executive Compensation 27
12. Security Ownership of Certain Beneficial Owners and Management 29
13. Certain Relationships and Related Transactions 30
PART IV
14. Exhibits, Financial Statements Schedules and Reports on Form 8-K 31
Page 2
<PAGE>
PART I
ITEM l. BUSINESS
GENERAL INFORMATION
- -------------------
Noble Roman's, Inc. (the "Company") operates casual dining restaurants that
specialize in serving high quality pizza. The Company seeks to differentiate
itself from other pizza restaurants by offering a broader selection (four
crust styles and 31 toppings) of superior tasting pizza products at menu
prices comparable to "ordinary pizza". The Noble Roman's system currently
includes 60 restaurants and ten franchised convenience stores selling Noble
Roman's pizza and breadsticks in Indiana, Ohio and Kentucky. Fifty-two
restaurants are owned and operated by the Company and eight restaurants and
ten convenience stores are owned by franchisees. Noble Roman's reaches a
diverse customer base by offering a full-service casual dining atmosphere in
addition to a quick service menu at lunch, and carry-out, drive-thru and
delivery service all day. A majority of the Company's restaurants are in
free-standing Northern Italian style buildings.
In recent years the Company's focus has been on Company-owned instead of
franchised restaurants. Since 1989, the Company has purchased 51 restaurants
from franchisees (eleven in 1989, 27 in 1992, eight in 1993 and five in 1994).
In addition, the Company opened two new restaurants in 1993, eight in 1994,
six in 1995, and two in 1996. Also, the Company closed one restaurant in 1996
and closed nineteen restaurants in 1997.
On March 25, 1996, the Company signed a Letter of Intent whereby it would have
acquired Papa Gino's Holdings Corp. (a 180 unit pizza restaurant chain
operating in seven northeastern states) through a merger transaction whereby
the stockholders of Papa Gino's Holding Corp. would have received
approximately 2.25 million shares of a to-be-authorized non-voting class of
Company common stock. Among other things, this transaction was conditioned on
a public equity offering, implementation of a senior credit facility, a
definitive agreement and shareholder approval. Because of delays and
uncertainties in negotiating a definitive agreement the Company and Papa
Gino's mutually agreed to terminate the Letter of Intent on June 10, 1996.
In November, 1996 the Company completed development of a concept to franchise
its products to convenience store operators, whereby the Company receives a
franchise fee ranging from $2,000 to $3,500 and a weekly royalty equal to 7%
of gross sales of Noble Roman's products on an ongoing basis. To date ten
convenience store franchises have been opened and are operating and the
Company has entered into contracts for approximately 50 more to open in the
next 12 months.
On May 31, 1997, the Company closed 18 of its restaurants. This action was
taken because some of those restaurants were operating at a loss, some were only
marginally profitable, and others were closed because they were competing in
market areas where the Company has newer restaurants and where the delivery area
and some of the dine-in market can be serviced by the newer facility. This
action also allows the Company to consolidate management and supervision to have
better operations by the utilization of the Company's most effective supervision
staff directly supervising the remaining restaurants. The Company expects a
substantial charge-off of equipment, leasehold improvements and an accrual for
ongoing expenses to be reported in the quarter ending June 30, 1997. The net
book value of the assets relating to the closed restaurants is approximately
$2 million.
The Company was incorporated in 1972 under the laws of the state of Indiana.
Page 3
<PAGE>
STRATEGY
- --------
The key elements of the Company's strategy include:
* Increasing its equity through negotiations with its bank in an
attempt to decrease its highly leveraged capitalization and enhance
its equity base.
* Increasing same store sales by offering value priced menu items,
improving customer service and upgrading dining room appeal by
redecorating dining rooms and adding televisions to the dining room
with both volume and channel selections at each individual booth.
* Franchising convenience stores to sell a limited menu of the
Company's products. The Company's goal is to open 35 to 50 such
units in 1997 and 100 to 125 such units in 1998.
* Exploring the possibility of franchising full service restaurants to
successful multi-unit operators in minimum packages of approximately
10 restaurants each. Such franchises, if any, would be in the
Company's general region of operations but outside its existing
market area.
To accomplish this strategy the Company will continue to focus on maintaining
the Company's market niche as a pizza oriented casual dining restaurant
specializing in serving high-quality pizza with emphasis on superior taste and
greater product selection at menu prices comparable to "ordinary pizza" and
improving the operating results of existing restaurants through introduction
of new products consistent with the Company's market niche and to focus on
tight operating cost controls. There can be no assurance that the Company
will be successful in executing its strategies.
THE MENU
- --------
The Company specializes in high-quality pizza with the emphasis on taste,
crust and topping variety with menu prices targeted to be comparable to
"ordinary pizza". The menu features a choice of four crust styles: Cincinnati
style with a thin crispy crust; the Hand-Tossed Round, a round crust
hand-tossed to order using traditional tossing techniques; the Monster (R), an
extra-thick pan pizza made with 50% more topping and 50% more cheese; and the
Deep-Dish Sicilian, a thick but light and airy crust pizza baked with olive
oil in an old-fashioned, rectangular pan to produce crispy, caramelized edges.
Of total pizzas sold, Hand-Tossed Round represents approximately 55%,
Deep-Dish Sicilian approximately 15%, Monster approximately 25% and Cincinnati
style approximately 5%. The Company offers 31 toppings with choices ranging
from the standard, such as pepperoni and mushroom, to the unusual, including
Italian Proscuitto, yellow squash and barbecue chicken. The Company has its
own special blend of Mozzarella, Muenster and oregano as well as shredded
Cheddar, grated Romano and creamy Chevre, a mild goat cheese. Another
signature product for the Company is Breadsticks, hand-rolled and fresh-baked
throughout the day.
In 1996, pizza accounted for approximately 69% of restaurant revenue.
Breadsticks, the second most significant product sold by the Company, which
are hand-rolled and freshly baked, accounted for approximately 16% of
restaurant revenue for the same period. The average check at Noble Roman's
for lunch and dinner for 1996 was approximately $6.00 (serving approximately 1
to 2 patrons) and $13.00 (serving approximately 3 to 4 patrons). Lunch sales
accounted for approximately 25% of restaurant revenue and carry-out and
delivery accounted for approximately 45% of restaurant revenue for 1996.
Page 4
<PAGE>
A special menu section called "Gourmet Pizzas" contains combinations of
unusual toppings available on the crust selected by the customer. Examples
are: Italian Ham and Cheese, Bacon Double Cheese and Tomato, Garlic Chicken
Pizza and Italian Sub Pizza. For extra value, menu options include the
3-Topping Special and the Works at discounted prices. Other menu items
include salads, sandwiches and pasta for variety and add-on sales.
MARKETING STRATEGY AND TACTICS
- ------------------------------
"Noble Roman's ... The Better Pizza People (sm)"
Noble Roman's marketing strategy is niche oriented, leveraging the Company's
reputation for superior product quality. The marketing strategy stresses
taste, quality, choice, value and casual dining all at a price comparable to
"ordinary" pizza. The Company attempts to create value by offering superior
products and service at competitive prices. To communicate this message to
the public, the Company utilizes point-of-purchase material in addition to
electronic and print media.
Ten and thirty second television commercials are used to demonstrate appetite
appealing products and the occasional product special. Television advertising
is often supported through radio, outdoor advertising and print. Couponing is
conducted through oversized, glossy newspaper and direct mail inserts
featuring full-color product shots. All marketing materials are produced with
a focus on quality to maintain consistency with the primary objective.
Recognizing that families are an important element of the Company's target
market, the Company directs part of its marketing efforts towards children.
The Noble Roman's Pizza Monster (R), a big purple and blue hairy creature,
makes appearances in commercials, restaurants, local community functions and
parades. Nearly all restaurants have viewing windows with platforms where
customers can view the entire kitchen activity, including pizza makers who
toss the pizza dough by hand. The Company also markets special "Kid Parties"
which allow groups of youngsters to tour the restaurant and try their hand at
tossing pizzas.
SITE SELECTION
- --------------
The Company believes the site selection process is critical in determining the
potential success of a particular restaurant and, therefore, senior management
devotes significant time and resources to selecting and evaluating each
prospective site. A variety of factors are analyzed in the site selection
process, including local market demographics, site visibility and
accessibility and proximity to significant generators of potential customers,
such as major retailers, retail centers and office complexes, office and hotel
concentrations and entertainment centers (stadiums, arenas, theaters, etc.).
The Company also believes it should locate its restaurants in existing and
contiguous markets to take advantage of the benefits of name recognition and
the ability to leverage marketing expenditures, regional management and
development costs.
BUILDING DESIGN
- ---------------
The current design for new restaurants is a brick building with arched windows
and raised vestibule. The building includes approximately 3,300 square feet
of floor space with seating capacity for approximately 145 patrons, and a
drive-thru for lunch and evening carry-out orders. By channeling carry-out
orders through the drive-thru, customer service is enhanced through added
convenience and elimination of congestion in the counter area of the dining
room.
Page 5
<PAGE>
The interior maintains a Northern Italian appearance with white-washed walls
and burgundy laminate trim above the counter. Seating is arranged in
semi-private compartments separated by burgundy lattice work above green
laminate railings, creating a sense of privacy while maintaining an open
appearance to the restaurant. Booth seating is standard. Lighting is
provided by glass tiffanies, recessed lighting and a few strips of neon. New
buildings also feature two ceiling alcoves with molded trim outline with neon
and additional lighting access.
Two units have been tested with an interior redesign and others will be
scheduled for similar treatment. This interior redesign includes forest green
and marigold wall paint and sky blue coffered ceilings with mediterranean-style
giant sun art. Plaster castings of Romanesque pillars and busts with plants
and ivy adorne the walls. Six banks of two televisions have been added with
individual volume and channel selectors located at each booth.
PURCHASING, DISTRIBUTION, AND COST CONTROL
- ------------------------------------------
The Company strives to obtain consistent quality items at competitive prices
from reliable sources. The Company continually researches and tests various
products in an effort to maintain the highest quality products possible and to
be responsive to changing customer tastes. Substantially all of the Company's
purchasing needs are handled centrally in an attempt to maximize operating and
cost efficiencies. Although the Company currently uses one distributor for
substantially all of its food products other than produce which is purchased
locally, all food and beverage products necessary to operate the restaurants
are available on short notice from alternative qualified suppliers. The
Company has not experienced any significant delays in receiving its food and
beverage inventories, restaurant supplies or equipment.
The Company also emphasizes cost control at the individual restaurant level.
All food product ingredients, including pizza toppings, are specified by count
or dry weight. The Company believes this results in greater cost control as
well as a more consistent product. Further, each restaurant reports its costs
through physical count on a weekly basis. The results can be compared against
a theoretical cost generated from the restaurant's sales mix, its menu price
structure, and current supplier prices.
RESTAURANT MANAGEMENT AND SUPERVISION
- -------------------------------------
The Company believes that trained and motivated management is the key to its
success. The Company has created a formal hiring and training program with
heavy emphasis on participatory learning to generate an adequate supply of
competent management. Management candidates are screened through a series of
interviews conducted by a full-time professional through a minimum of three
personal interviews, at least one of which is conducted by the President or
Vice-President. Once selected as a trainee, the candidate spends a minimum of
four weeks at a training restaurant under the tutelage of a Director of
Training before being placed in the field as a First or Second Assistant.
Each restaurant is managed by a Unit Manager and either one or two Assistant
Managers. The unit level managers report to an Area Director of Operations.
Each Area Director supervises from six to ten restaurants in a district
established on the basis of supervisor experience and geography. The Area
Directors report to the President of the Company. All restaurant management and
supervisory personnel are compensated with a base salary, and each has an
opportunity to earn a monthly bonus. The Company believes that its base
salaries are competitive and that its incentive compensation package to be
greater than the competition, therefore, creating a strong incentive for
performance.
Page 6
<PAGE>
Area Directors of Operations are also compensated through both a base salary
and bonus program. However, the bonus system can account for a much higher
percentage of potential earnings at this level. The Company believes this
creates an incentive for supervisors to achieve stated financial objectives,
and, since the bonus is based on quarterly performance, to maintain high
levels of service and product quality. Each Area Director of Operations has a
monthly base operating profit target for the consolidated district which is
expected to be met as a minimum performance standard.
FRANCHISES
- ----------
The Company de-emphasized full-service restaurant franchising in recent years.
Since November, 1996 the Company has been aggressively pursuing franchising of
convenience stores to sell a limited menu of the Company's products. Since
that time the Company has opened 10 such units and has signed contracts to
open approximately 50 more within the next 12 months.
COMPETITION
- -----------
The restaurant industry is intensely competitive with respect to price and
levels of product promotions, service, location and food quality. The Company
competes with local, regional and national pizza chains, casual dining and
fast food restaurants. The Company also competes with all restaurants in its
markets for site locations, management and hourly employees. A significant
change in pricing or other business strategies by one or more of the Company's
competitors, including an increase in the number of restaurants in the
Company's territories, could have an adverse impact on the Company's results
of operations. The Company competes primarily on the basis of product
quality, service, and restaurant atmosphere.
SEASONALITY OF SALES
- --------------------
Sales at Noble Roman's restaurants are seasonal in nature reflecting changes
in weather, outdoor activities, and school semesters. Due to the location of
the majority of Company operations, sales in winter months, particularly
January through March, are very sensitive to sudden drops in temperature and
the occurrence of precipitation. In general, sales are strongest in the third
and fourth quarters of the calendar year and lower in the first and second
quarters.
EMPLOYEES
- ---------
As of December 31, 1996, the Company employed approximately 1,900 persons. Of
these, approximately 26 were engaged in various executive and administrative
functions, and the remaining employees were engaged in restaurant operations,
approximately 275 of which are full-time with the balance being part-time. No
employees are covered under collective bargaining agreements, and the Company
believes that relations with its employees are good.
TRADEMARKS AND SERVICE MARKS
- ----------------------------
The Company owns several trademarks and service marks. Many of these,
including the NOBLE ROMAN'S (R), the MONSTER (R) and PAN ONE (R) are
registered with the United States Patent and Trademark office. The Company
believes that its trademarks and service marks have significant value and are
important to its marketing efforts.
Page 7
<PAGE>
GOVERNMENT REGULATION
- ---------------------
The Company is subject to various federal, state and local laws affecting its
business. The Company's restaurants are subject to regulation by various
governmental agencies, including state and local licensing, zoning, land use,
construction and environmental regulations and various health, sanitation,
safety and fire standards. The Company is also subject to the Fair Labor
Standards Act and various state laws governing minimum wages, overtime and
working conditions.
The Company's restaurants are subject to federal and state environmental
regulations, but these have not had a material effect on their operations.
More stringent and varied requirements of local governmental bodies with
respect to zoning, land use or environmental factors could delay or prevent
development of new restaurants in particular locations.
The Company's restaurants have licenses from regulatory authorities allowing
them to serve beer and wine. The Company's licenses to sell alcoholic
beverages must be renewed annually and may be suspended or revoked at any time
for cause, including violation by the Company or its employees of any law or
regulation pertaining to alcoholic beverage control, such as those regulating
the minimum age of patrons or employees, advertising and inventory control.
The Company may be subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. The Company has never been named as a
defendant in a lawsuit involving "dram-shop" statutes.
A significant number of the Company's restaurant employees are paid at rates
related to the federal minimum wage, and accordingly increases in the minimum
wage could increase the related labor costs.
ITEM 2. PROPERTIES
The following table shows the location of the 52 Company owned restaurants.
Location Total
-------- -----
Bloomington, Indiana................................................ 4
Columbus, Indiana................................................... 2
Evansville, Indiana................................................. 6
Goshen, Indiana..................................................... 1
Indianapolis, Indiana (Metropolitan Area)........................... 25
Jasper, Indiana..................................................... 1
Lafayette, Indiana.................................................. 2
Marion, Indiana..................................................... 1
Martinsville, Indiana............................................... 1
Muncie, Indiana..................................................... 1
New Castle, Indiana................................................. 1
Noblesville, Indiana................................................ 1
Owensboro, Kentucky................................................. 1
Peru, Indiana....................................................... 1
South Bend, Indiana................................................. 3
Terre Haute, Indiana................................................ 1
Page 8
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These restaurants are all located on leased property. The restaurant leases
expire on dates ranging from 1999 to 2016, with the majority of the leases
providing for renewal options. All leases provide for specified periodic
rental payments, and some call for additional rental based on sales volumes.
Most of the leases require the Company to maintain the property and pay the
cost of insurance and taxes. The Company leases two of its restaurant
properties from related parties. The Company believes that both such leases
are on terms no less favorable to the Company than from the unaffiliated
persons.
The Company's headquarters is located in 8,000 square feet of leased office
space in Indianapolis, Indiana. The lease for this property expires in
December, 1997.
ITEM 3. 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 upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Page 9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is included for quotation in the Nasdaq SmallCap
Market (sm) and trades under the symbol "NROM".
The following table sets forth for the periods indicated, the high and low bid
prices per share of common stock as reported by Nasdaq. The quotations
reflect inter-dealer prices without retail mark-up, mark-down or commissions
and may not represent actual transactions.
<TABLE>
<CAPTION>
1995 1996
Quarter Ended: High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
March 31 $ 5 3/4 4 7/8 5 1/8 2 1/2
June 30 5 3/8 4 3/4 5 1/8 4 1/2
September 30 6 4 1/2 3 1/4 1 7/8
December 31 4 7/8 3 3/8 2 1/4 1 3/8
</TABLE>
As of June 16, 1997, the Company believes there were approximately 408
holders of record of common stock. This excludes persons whose shares are held
of record by a bank, brokerage house or clearing agency.
The Company has never declared or paid dividends on its common stock. The
Company intends to retain earnings to fund the development and growth of its
business and does not expect to pay any dividends within the foreseeable
future.
The Company's current credit facility prohibits dividends or shareholder
distributions from being paid by the Company.
Page 10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share data and
number of restaurants)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Restaurant revenue $ 7,370 $ 24,008 $ 29,825 $ 33,325 $ 33,854
Royalties 1,044 392 233 212 189
Other 891 169 403 358 196
------- -------- -------- -------- --------
Total revenue 9,305 24,569 30,461 33,895 34,239
Restaurant operating expenses:
Cost of revenue 1,471 4,610 5,648 6,065 6,421
Salaries and wages 2,122 7,061 8,880 10,242 11,121
Rent 510 2,062 2,390 2,735 3,040
Advertising 426 1,121 1,570 2,200 2,362
Other 1670 5,364 6,683 7,907 8,146
Depreciation and amortization 472 844 1,092 1,334 1,488
General and administrative 1544 1,666 1,785 1,951 2,834
Financing and acquisition costs - - 65 112 881
Loss associated with restaurants closed
in 1987 - - - - 673
------- -------- -------- -------- --------
Operating income 1090 1,841 2,348 1,350 (2,727)
Interest 599 1,035 1,088 1,287 1,794
------- -------- -------- -------- --------
Income (loss) before income taxes and
cumulative effect of change in accounting
principle and extraordinary item 491 806 1,260 64 (4,521)
Income taxes (benefit) - 89 489 39 (640)
------- -------- -------- -------- --------
Income (loss)before cumulative effect
of change in accounting principle and
extraordinary item $ 491 $ 717 $ 771 $ 24 $ (3,881)
------- -------- -------- -------- --------
Cumulative effect of change in accounting
principle net of tax benefit of $58,475 - - - (114) -
Extraordinary item net of tax benefit
of $64,838 - - - (110) -
------- -------- -------- -------- --------
Net income (loss) $ 491 $ 717 $ 771 $ (200) $ (3,881)
------- -------- -------- -------- --------
Weighted average number of
common shares 1,977 3,704 3,993 4,008 4,131
Income (loss) per share before cumulative
effect of change in accounting principle
and extraordinary item $ .25 $ .19 $ .19 $ .01 $ (.94)
------- -------- -------- -------- --------
Cumulative effect of change in accounting
principle per share - - - (.03) -
Extraordinary item per share - - - (.03) -
------- -------- -------- -------- --------
Net income (loss) per share $ .25 $ 19 $ .19 $ (.05) $ (.94)
------- -------- -------- -------- --------
RESTAURANT DATA:
Average sales per restaurant 586 603 635 647 630
Percentage change in comparable
sales from prior year 13% 4% 6% 2% -5%
Company-owned restaurants open
at end of year 42 52 64 70 71
BALANCE SHEET DATA:
Working capital $(4,154) $ 220 $ (40) $ (827) $(16,251)
Total assets 12,601 15,454 18,205 20,004 19,451
Long-term obligations 6,165 9,466 11,193 11,891 75
Stockholders' equity $ 353 $ 3,413 $ 4,155 $ 4,613 $ 791
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
- ------------
In recent years, prior to November, 1996, the Company's focus has been on
Company-owned instead of franchised restaurants. Since 1989, the Company has
purchased 51 restaurants from franchisees (11 in 1989, 27 in 1992, eight in
1993 and five in 1994). In addition, the Company opened two new restaurants
in 1993, eight in 1994, six in 1995 and two in 1996. The Company closed one
restaurant in 1996 and 19 in 1997.
On March 25, 1996, the Company signed a Letter of Intent whereby it would have
acquired Papa Gino's Holdings Corp. (a 180 unit pizza restaurant chain
operating in seven northeastern states) through a merger transaction whereby
the stockholders of Papa Gino's Holding Corp. would have received
approximately 2.25 million shares of a to-be-authorized class of non-voting
common stock of the Company. Among other things, this transaction was
conditioned on a public equity offering, implementation of a senior credit
facility, a definitive agreement and shareholder approval. Because of delays
and uncertainties in negotiating a definitive agreement, the Company and Papa
Gino's mutually agreed to terminate the Letter of Intent on June 10, 1996.
From March, 1995 through June, 1996 the Company's senior management had to
focus almost 100% of its time on arranging for financing and the unsuccessful
attempted acquisition of a 180 unit regional pizza restaurant chain operating
in seven northeastern states. As a result, the Company's current operations
severely deteriorated resulting in personnel turnover, poor service and
difficulties with operational standards and controls. The resulting financial
performance now has the Company in a severely over-leveraged financial
condition and in default of the terms of its bank credit facility. As a
result, approximately $14 million of bank debt was reclassified as a current
liability at December 31, 1996. The Company is currently negotiating with the
lender with a view to reducing substantially its bank debt in exchange for
issuing equity. There can be no assurance that the parties will reach an
agreement. Management has sought to improve operations with the ongoing
addition of new management and supervisory personnel, extensive training and
the implementation of better controls. The Company believes its strategies
are beginning to demonstrate improved results, and management believes it can
return its restaurants to their historical profitability levels. However,
failure to significantly improve its operating results and/or failure to
negotiate an agreement with its lender will jeopardize the Company's ability
to meet its obligations. The accompanying financial statements do not include
any adjustments that might arise from an adverse outcome of these
uncertainties.
On May 31, 1997, the Company closed 18 of its restaurants. This action was
taken because some of those restaurants were operating at a loss, some were only
marginally profitable, and others were closed because they were competing in
market areas where the Company has newer restaurants and where the delivery area
and some of the dine-in market can be serviced by the newer facility. This
action also allows the Company to consolidate management and supervision to have
better operations by the utilization of the Company's most effective supervision
staff directly supervising the remaining restaurants. The Company expects a
substantial charge-off of equipment, leasehold improvements and an accrual for
ongoing expenses to be reported in the quarter ending June 30, 1997. The net
book value of the assets relating to the closed restaurants is approximately
$2 million.
Page 12
<PAGE>
In 1987, the Company initiated a portioning and purchasing system and began
efforts to improve management stability. As a result of these efforts, the
Company's cost of revenue as a percentage of revenue steadily declined through
1993 and has remained steady since that time. For 1989, 1990, 1991, 1992,
1993, 1994, 1995 and 1996, the cost of revenue was approximately 26%, 24%,
22%, 20%, 19%, 19%, 18% and 19%, respectively.
The following table sets forth the percentage relationship to total revenue of
the listed items included in the Company's consolidated statement of
operations. Certain items are shown as a percentage of restaurant revenue.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Restaurant revenue 97.9% 98.3% 98.9%
Royalties .8 .6 .5
Administrative fees and other 1.3 1.1 .6
------ ------ ------
100.0% 100.0% 100.0%
Restaurant operating expenses (1):
Cost of revenue 18.9 18.2 19.0
Salaries and wages 29.8 30.7 32.9
Rent 8.0 8.2 9.0
Advertising 5.3 6.6 7.0
Other 22.4 23.7 24.1
Depreciation and amortization 3.6 3.9 4.4
General and administrative 5.9 5.8 8.3
Financing and acquisition costs .2 .3 2.6
Loss associated with closed restaurants - - 2.0
------ ------ ------
Operating income (loss) 7.8 4.0 (8.0)
Interest 3.6 3.8 5.2
------ ------ ------
Income (loss) before income taxes and cumulative
effect of change in accounting principle
and extraordinary item 4.2% .2% (13.2)%
------ ------ ------
</TABLE>
(1) Shown as a percentage of restaurant revenue
1996 COMPARED WITH 1995
- -----------------------
Comparable restaurant sales decreased approximately 5% for 1996 compared to
1995. This decrease for the year was in contrast to increases every year in
the past five years. The reason for the decrease was the senior management's
focus on an unsuccessful acquisition which was abandoned in June, 1996.
During the period of the acquisition attempt the Company's operations
deteriorated. The primary focus since July 1, 1996 has been to correct this
problem by an aggressive recruiting and training program for managers and
supervisors and enhancement of operating standards and controls.
Restaurant cost of revenue for 1996 was approximately 19.0% of restaurant
revenue compared to 18.2% in 1995. During the fourth quarter the cost of
revenue was approximately 18.7% compared to 19.8% for the same period in 1995.
The increase for the year was the result of record high cheese prices during
the second, third and part of the fourth quarter of 1996. The improvement
during the fourth quarter was the result of more normal cheese costs and
improved controls.
Restaurant salaries and wages for 1996 were approximately 32.9% of restaurant
revenue compared to 30.7% in 1995. For the fourth quarter of 1996, salaries
and wages were 33.0% in 1996 compared to 31.7% for the same period in 1995.
This increase was the result of loosened controls due to senior management's
focus on unsuccessful acquisition efforts, a more competitive environment for
employees and intentional overstaffing in 1996 to overcome service problems
during the later part of 1995 and the first half of 1996.
Page 13
<PAGE>
Advertising expenses were approximately 7.0% of restaurant revenue in 1996
compared to 6.6% in 1995. This increase was the result of the loosened
controls during the first half of 1996 and the last half of 1995 while senior
management's focus was on unsuccessful acquisition efforts.
Other restaurant operating expenses were 24.1% of restaurant revenue in 1996
compared to 23.7% in 1995. This is the result of same store sales decrease,
deterioration of operating controls and higher discount cost to attract more
customers.
General and administrative expenses were $2,883,910 in 1996 compared to
$1,950,969 in 1995. This increase was primarily the result of an increase in
salaries and wages due to an increase in supervision staff and additional
accounting staff, an increase in training expenses due to the significant
turnover in management during the second quarter of 1996, an increase in
general insurance due to increased rates and an increase in miscellaneous
expense due to bank charges.
Cost of attempted acquisition and equity offering of $880,862 in 1996 is the
direct cost associated with the attempt to acquire Papa Gino's Holding Corp.
(a 180 unit pizza restaurant chain operating in seven northeastern states) and
the planned equity offering to finance that acquisition.
Loss associated with restaurants closed in 1987 in 1996 was $673,157. This
reflects the costs associated with a lease dispute in Dayton, Ohio in the
amount of $133,637 and a charge-off of receivables built up over time from the
former Dayton, Ohio franchisees in the amount of $539,520.
Interest expense was $1,794,632 in 1996 compared to $1,286,754 in 1995. This
was the result of approximately two percent per annum higher rate of interest
as a result of the Company refinancing outstanding debt in December, 1995 and
the additional debt outstanding in 1995.
1995 COMPARED WITH 1994
- -----------------------
Comparable restaurant sales increased approximately 2% for 1995 compared to
1994. This increase continued a trend which the Company had been experiencing
as a result of focusing on its market niche of offering a broad selection of
superior tasting pizza products in a casual dining atmosphere plus drive-thru,
carry-out and delivery service.
Restaurant cost of revenue for 1995 was approximately 18.2% of restaurant
revenue compared to 18.9% in 1994. This improvement is a continuation of the
cost controls the Company began in 1987. The Company's cost of restaurant
revenue was 23.6%, 21.9%, 19.9%, 19.2%, 18.9% and 18.2% during the years 1990,
1991, 1992, 1993, 1994 and 1995, respectively.
Restaurant salaries and wages for 1995 were approximately 30.7% of restaurant
revenue compared to 29.8% in 1994. This increase is the result of a higher
average rate of pay for its hourly employees due to significant increased
competition for hourly employees.
Other restaurant operating expenses were 23.7% of restaurant revenue in 1995
compared to 22.4% in 1994. This increase is primarily attributable to
increased packaging costs due to higher paper prices and to increased payroll
tax expense due to higher wages.
General and administrative expenses were 5.8% of total revenue for 1995
compared to 5.9% in 1994 despite increases in management personnel necessary
to facilitate integration of new and acquired restaurants and to support
future growth.
Page 14
<PAGE>
Interest expense was 3.8% of total revenue in 1995 compared to 3.6% in 1994.
This increase came in the fourth quarter primarily as a result of the Company
obtaining a new credit facility which included refinancing all of its prior
existing debt. As a result of this refinancing, the Company had duplicate
interest costs, partially offset by investment earnings, because of the 30-day
call provision on its Series 1993 Notes.
IMPACT OF INFLATION
- -------------------
The primary inflation factors affecting the Company's operations are food and
labor costs. To date, the Company has been able to offset the effects of
inflation in food costs without significantly increasing prices through
effective cost control methods, however, the competition for labor has
resulted in higher salaries and wages as a percent of its revenues.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Historically, the Company has expanded by leasing restaurant land and
buildings from third parties. Accordingly, the capital requirement for new
restaurants is approximately $150,000 per restaurant. In 1996, the Company
opened two new restaurants. Capital expenditure requirements in 1997 for
existing restaurants are estimated to be approximately $450,000.
On December 4, 1995, the Company obtained a new credit facility consisting of
a $9,000,000 term loan and a $4,000,000 revolving line of credit with stated
maturity in 2001. This credit facility was used to refinance substantially
all prior outstanding indebtedness of the Company.
On March 25, 1996, the Company signed a Letter of Intent whereby it would have
acquired Papa Gino's Holdings Corp. (a 180 unit pizza restaurant chain in
seven northeastern states) through a merger transaction whereby the
stockholders of Papa Gino's Holding Corp. would have received approximately
2.25 million shares of a to-be-authorized class of non-voting common stock of
the Company. Among other things, this transaction was conditioned on a public
equity offering, implementation of a senior credit facility, a definitive
agreement and shareholder approval. Because of delays and uncertainties in
negotiating a definitive agreement, the Company and Papa Gino's mutually
agreed to terminate the Letter of Intent on June 10, 1996. The expenses
incurred with regard to the proposed acquisition and offering aggregated
approximately $880,862. In addition, deterioration in operating controls
during this effort as a result of senior management's focus on that activity
created a severe shortage of working capital.
On December 24, 1996, the Company entered into an Amended Credit Agreement
with its bank. This amended agreement added $1.7 million to the term loan and
maintained the $4.0 million revolving line of credit and amended the financial
covenants contained in the agreement consistent with the Company's then
current and anticipated financial condition.
From March, 1995 through June, 1996 the Company's senior management had to
focus almost 100% of its time on arranging for financing and the unsuccessful
attempted acquisition of a 180 unit regional pizza restaurant chain operating
in seven northeastern states. As a result, the Company's current operations
severely deteriorated resulting in personnel turnover, poor service and
difficulties with operational standards and controls. The resulting financial
performance now has the Company in a severely over-leveraged financial
condition and in default of the terms of its bank credit facility. As a
result, approximately $14 million of bank debt was reclassified as a current
liability at December 31, 1996. The Company is currently negotiating with the
lender with a view to reducing substantially its bank debt in exchange for
issuing equity. There can be no assurance that the parties will reach an
agreement.
Page 15
<PAGE>
Management has sought to improve operations with the ongoing addition of new
management and supervisory personnel, extensive training and the implementation
of better controls.
On May 31, 1997, the Company closed 18 of its restaurants. This action was
taken because some of those restaurants were operating at a loss, some were only
marginally profitable, and others were closed because they were competing in
market areas where the Company has newer restaurants and where the delivery area
and some of the dine-in market can be serviced by the newer facility. This
action also allows the Company to consolidate management and supervision to have
better operations by the utilization of the Company's most effective supervision
staff directly supervising the remaining restaurants. The Company expects a
substantial charge-off of equipment, leasehold improvements and an accrual for
ongoing expenses to be reported in the quarter ending June 30, 1997. The net
book value of the assets relating to the closed restaurants is approximately
$2 million.
The Company believes its improvement plans are beginning to demonstrate improved
results, and management believes it can return its restaurants to their
historical profitability levels. However, failure to significantly improve its
operating results and/or failure to negotiate an agreement with its lender will
jeopardize the Company's ability to meet its obligations. The accompanying
financial statements do not include any adjustments that might arise from an
adverse outcome of these uncertainties.
Page 16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
NOBLE ROMAN'S, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1995 1996
---- ----
<S> <C> <C>
ASSETS
------
Current assets:
Cash $ 229,462 $ 74,502
Accounts receivable 950,622 947,924
Inventories 980,534 947,644
Prepaid expenses 512,949 363,074
------------ ------------
Total current assets 2,673,567 2,333,144
------------ ------------
Property and equipment:
Equipment 9,063,295 9,952,795
Leasehold improvements 3,214,872 3,524,524
Capitalized leases 595,376 371,455
------------ ------------
12,873,543 13,848,774
Less accumulated depreciation and amortization 3,737,594 4,372,980
------------ ------------
Net property and equipment 9,135,949 9,475,794
Cost in excess of assets acquired, net 6,722,812 6,464,678
Other assets 1,471,387 1,177,069
------------ ------------
$ 20,003,715 $ 19,450,685
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 1,959,188 $ 3,484,743
Current portion of long-term debt (net of warrant valuation of
$176,667 in 1996) 761,128 14,251,373
Other current liabilities 779,828 848,098
------------ ------------
Total current liabilities 3,500,144 18,584,214
------------ ------------
Long-term obligations:
Revolving line of credit 2,914,919 -
Notes payable (net of warrant valuation of $140,000 in 1995) 8,150,793 41,540
Capital leases 258,037 33,646
Deferred tax liability 567,100 -
------------ ------------
Total long-term obligations 11,890,849 75,186
------------ ------------
Stockholders' equity:
Common stock, no par value, authorized 9,000,000 shares,
issued 4,131,324 and 4,131,324 shares 5,458,431 5,518,431
Accumulated deficit (845,709) (4,727,146)
------------ ------------
Total stockholders' equity 4,612,722 791,285
------------ ------------
$ 20,003,715 $ 19,450,685
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 17
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
NOBLE ROMAN'S, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION> Year ended December 31,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Restaurant revenue $29,825,180 $33,324,926 $33,854,485
Royalties 233,388 212,145 188,843
Administrative fees and other 402,367 358,420 195,862
----------- ----------- -----------
Total revenue 30,460,935 33,895,491 34,239,190
Restaurant operating expenses:
Cost of revenue 5,647,568 6,065,392 6,421,293
Salaries and wages 8,880,105 10,242,385 11,121,349
Rent 2,389,830 2,734,919 3,039,690
Advertising 1,570,074 2,199,615 2,361,733
Other 6,683,441 7,906,419 8,145,681
Depreciation and amortization 1,091,834 1,333,614 1,488,110
General and administrative 1,785,019 1,950,969 2,833,910
Cost of attempted acquisition and equity offering 65,000 111,833 880,862
Loss associated with restaurants closed in 1987 - - 673,157
----------- ----------- -----------
Operating income (loss) 2,348,064 1,350,345 (2,726,595)
Interest 1,088,153 1,286,754 1,794,632
----------- ----------- -----------
Income (loss) before income taxes and
cumulative effect of change in accounting
principle and extraordinary item 1,259,911 63,591 (4,521,227)
Income taxes (benefit) 488,878 39,301 (639,790)
----------- ----------- -----------
Income (loss) before cumulative effect of change
in accounting principle and extraordinary item 771,033 24,290 (3,881,437)
Cumulative effect of change in accounting principle net of
tax benefit of $58,475 - (113,510) -
Extraordinary item net of tax benefit of $64,838 - (110,400) -
----------- ----------- -----------
Net income (loss) $ 771,033 $ (199,620) $(3,881,437)
----------- ----------- -----------
Income (loss) per share:
Before cumulative effect of change in accounting principle
and extraordinary item $ .19 $ .01 $ (.94)
Cumulative effect of change in accounting principle - (.03) -
Extraordinary item - (.03) -
----------- ----------- -----------
Net income (loss) $ .19 $ (.05) (.94)
=========== =========== ===========
Weighted average number of common shares outstanding 3,992,860 4,008,520 4,131,324
</TABLE>
See accompanying notes to consolidated financial statements.
Page 18
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
NOBLE ROMAN'S, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock Accumulated
Shares Amount Deficit Total
------ ------ ------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1993 3,999,492 $ 4,830,085 $ (1,417,122) $ 3,412,963
Acquisition of common stock (7,000) (30,979) - (30,979)
Exercise of options 500 1,815 - 1,815
1994 net income - - 771,033 771,033
---------- ------------ ------------- ------------
Balance at December 31, 1994 3,992,992 4,800,921 (646,089) 4,154,832
Exercise of options 5,000 17,510 - 17,510
Issuance of warrants to purchase stock - 140,000 - 140,000
Issuance of common stock 133,332 500,000 - 500,000
1995 net loss - - (199,620) (199,620)
---------- ------------ ------------- ------------
Balance at December 31, 1995 4,131,324 5,458,431 (845,709) 4,612,722
Issuance of warrants to purchase stock - 60,000 - 60,000
1996 net loss - - (3,881,437) (3,881,437)
---------- ------------ ------------- ------------
Balance at December 31, 1996 4,131,324 $ 5,518,431 $ (4,727,146) $ 791,285
========== ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOBLE ROMAN'S, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 771,033 $ (199,620) $(3,881,437)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 1,257,373 1,505,149 1,621,005
Deferred federal income taxes 439,078 38,572 (639,790)
Cumulative effect of change in accounting principle - 113,510 -
Extraordinary item - 110,400 -
Excess of insurance proceeds over net book value of
assets written off due to fire (100,214) - -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (220,866) (111,560) 2,698
Inventories (80,208) (187,107) 32,890
Prepaid expenses 2,225 (122,586) 149,875
Other assets (55,102) (492,163) 294,318
Increase (decrease) in:
Accounts payable (361,101) 561,706 1,525,555
Other current liabilities 376,640 (357,582) 68,270
----------- ------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 2,028,858 858,719 (826,616)
----------- ------------ ------------
INVESTING ACTIVITIES
Proceeds from insurance due to fire loss 130,221 - -
Purchase of property and equipment (3,744,716) (2,283,113) (1,272,823)
Payments received on notes receivable 556,113 - -
----------- ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (3,058,382) (2,283,113) (1,272,823)
----------- ------------ ------------
FINANCING ACTIVITIES
Cash paid to acquire common stock (30,979) - -
Proceeds from sale of common stock, net 1,815 17,510 -
Principal payments on long-term obligations (252,762) (10,239,744) (278,842)
Proceeds from long-term debt, net of debt issue costs 1,772,130 11,254,364 2,223,321
----------- ------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,490,204 1,032,130 1,944,479
----------- ------------ ------------
INCREASE (DECREASE) IN CASH 460,680 (392,264) (154,960)
Cash at beginning of year 161,046 621,726 229,462
----------- ------------ ------------
CASH AT END OF YEAR $ 621,726 $ 229,462 $ 74,502
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOBLE ROMAN'S, INC. AND SUBSIDIARIES
NOTE L: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Organization: As of December 31, 1996, Noble Roman's, Inc. operates
and/or franchises 78 Noble Roman's Pizza restaurants primarily in Indiana plus
six franchised convenience stores. The Company owns 70 restaurants, manages
one franchise restaurant, and franchises the remaining locations to
independent operators.
Principles of Consolidation: The consolidated financial statements include
the accounts of Noble Roman's, Inc., Pizzaco, Inc., GNR, Inc., LPS, Inc., N.R.
East, Inc. and Oak Grove Corporation (the Company). Intercompany balances and
transactions have been eliminated in consolidation.
Acquisitions: All acquisitions have been accounted for using the purchase
method of accounting. The accompanying financial statements include the
operating results of all acquisitions subsequent to the purchase dates.
Inventories: Inventories consist of food, beverage and restaurant supplies
and are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment: Equipment and leasehold improvements are stated at
cost including property under capital leases. Depreciation and amortization
are computed on the straight-line method over the estimated useful lives.
Leasehold improvements are amortized over the shorter of estimated useful life
or the term of the lease.
Advertising Costs: Effective January 1, 1995, the Company adopted Statement
of Position 93-7 "Reporting on Advertising Costs." This statement requires
the Company to expense advertising production costs the first time the
production material is used. The previous practice was to amortize the
production costs over the expected useful life.
Fair Value of Financial Instruments: The carrying amount of long-term debt
net of the estimated value of the warrant approximates its fair value because
the interest rates are currently at market. Because of the very limited
trading in the Company's common stock, traditional methods of valuing the
warrant do not apply, therefore, the Company used its best estimate to value
the warrant. The carrying amount of all other financial instruments
approximate fair value due to the short-term maturity of these items.
Use of Estimates: The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. The Company evaluates its property and
equipment and related costs in excess of assets acquired periodically to
assess whether any impairment indications are present, including recurring
operating losses and significant adverse changes in legal factors or business
climate that affect the recovery of recorded value. If any impairment is
evident, a loss would be provided to reduce the carrying value to its
estimated fair value.
Intangible Assets: Costs in excess of assets acquired is amortized on the
straight-line method over 30 years. Debt issue costs are amortized to
interest expense ratably over the term of the applicable debt. Costs
associated with the opening of new restaurants are amortized over a one-year
period.
Page 21
<PAGE>
Royalties and Administrative and Franchise Fees: Royalties are recognized as
income monthly and are based on a percentage of monthly sales of franchised
restaurants. Administrative fees are recognized as income monthly as earned.
Initial franchise fees are recognized as income when the franchised restaurant
is opened.
Income Taxes: 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.
Net Income Per Share: Net income (loss) per share is based on the weighted
average number of common shares outstanding during the respective year. When
dilutive, stock options and warrants are included as share equivalents using
the treasury stock method.
As previously reported, the 1994 and 1995 financial statements have been
adjusted to increase amortization expense, as a result of changing the
amortization period of pre-opening costs from five years to one year, to
expense financing and acquisition costs previously recorded as other assets
and to record additional advertising expenses. As a result of those
adjustments, net income and net income per share decreased by $726,579 and
$.19, respectively, in 1994, and $751,331 and $.19, respectively, in 1995.
From March, 1995 through June, 1996 the Company's senior management focused a
majority of its time on arranging for financing and the unsuccessful attempted
acquisition of a 180 unit regional pizza restaurant chain operating in seven
northeastern states. During this period, the Company's current operations
severely deteriorated resulting in personnel turnover, poor service and
difficulties with operational standards and controls. The resulting financial
performance now has the Company in a severely over-leveraged financial
condition and in default of the terms of its bank credit facility. As a
result, approximately $14 million of bank debt was reclassified as a current
liability at December 31, 1996. The Company is currently negotiating with the
lender with a view to reducing substantially its bank debt in exchange for
issuing equity. There can be no assurance that the parties will reach an
agreement. Management has sought to improve operations with the ongoing
addition of new management and supervisory personnel, extensive training and
the implementation of better controls.
On May 31, 1997, the Company closed 18 of its restaurants. This action was
taken because some of those restaurants were operating at a loss, some were only
marginally profitable, and others were closed because they were competing in
market areas where the Company has newer restaurants and where the delivery area
and some of the dine-in market can be serviced by the newer facility. This
action also allows the Company to consolidate management and supervision to have
better operations by the utilization of the Company's most effective supervision
staff directly supervising the remaining restaurants. The Company expects a
substantial charge-off of equipment, leasehold improvements and an accrual for
ongoing expenses to be reported in the quarter ending June 30, 1997. The net
book value of the assets relating to the closed restaurants is approximately
$2 million.
The Company believes its improvement plans are beginning to demonstrate improved
results, and management believes it can return its restaurants to their
historical profitability levels. However, failure to significantly improve its
operating results and/or failure to negotiate an agreement with its lender will
jeopardize the Company's ability to meet its obligations. The accompanying
financial statements do not include any adjustments that might arise from an
adverse outcome of these uncertainties.
Page 22
<PAGE>
NOTE 2: NOTES PAYABLE
On December 4, 1995, the Company obtained a Credit Agreement consisting of a
$9,000,000 term loan and a $4,000,000 revolving credit facility. The term
loan required quarterly payments of $250,000 per quarter beginning June 1,
1996, $375,000 per quarter beginning March 1, 1997, and $562,000 per quarter
beginning March 1, 2001, plus 50% of excess cash flow, as defined, and by
proceeds of an equity offering. Interest for the term loan and revolving
credit facility was payable monthly at the prime rate plus 2% with final
maturity by December 1, 2001. A prepayment penalty of up to 3% was required
if the Credit Agreement is prepaid in full before December 4, 1998 except if
the prepayments are from excess cash flow, proceeds from an equity offering or
proceeds from officer life insurance.
In connection with obtaining the Credit Agreement, the Company issued warrants
to the lender for the purchase of 400,000 shares of common stock at any time
through December 4, 2001 at an exercise price of $3.725 per share. The
recorded amount of the Credit Agreement has been adjusted to reflect the
estimated market value of the warrant which is being amortized over the term
of the Credit Agreement.
On December 24, 1996, the Company entered into an Amended Credit Agreement
which increased the term loan by $1.7 million, delayed the due date of each
quarterly payment due after June 1, 1996 by six months, modified the financial
covenants and maintained other provisions of the original agreement.
In connection with this Amended Credit Agreement, the Company replaced the
existing warrant held by the lender to purchase 400,000 shares of common stock
at any time through December 4, 2001 at an exercise price of $3.725 per share
with a warrant to the lender to purchase 465,000 shares of common stock at any
time through December 4, 2001, at an exercise price of $2.00 per share. Based
on the estimated value of the warrant, $60,000 was added to its carrying cost.
Proceeds from the original Credit Agreement were used in part to repay a term
loan which had a maturity date of May 1, 1996 and required interest at the
rate of prime plus two percent, and $2,022,582 of notes payable to the
Company's President, who is also a director and a shareholder, and to another
significant shareholder which were to mature October 30, 1996 and had an
interest rate of 8.5%. The remaining $500,000 of the notes payable were
satisfied with the issuance of 133,332 shares of common stock.
Proceeds were also used to defease the Series 1993 Notes which were to mature
on October 15, 1996 with an interest rate of 8.5%. The Company purchased U.S.
government securities to mature on January 3, 1996 in the amount of $6,620,000
to satisfy the principal and accrued interest on the notes.
Cash payments for interest on all of the Company's debt totaled $889,753,
$1,088,353 and $1,661,737 in 1994, 1995 and 1996, respectively.
NOTE 3: LEASED ASSETS AND LEASE COMMITMENTS
The Company leases restaurant facilities under noncancelable lease agreements
which generally have initial terms ranging from five to twenty years with
extended renewal terms. The leases generally require the Company to pay all
real estate taxes, insurance and maintenance costs. The leases provide for a
specified annual rental, and some leases call for additional rental based on
sales volume over specified levels at that particular location. At December
31, 1996, obligations under noncancelable operating and capitalized leases for
1997, 1998, 1999, 2000, 2001 and after 2001 were $3.2 million, $2.6 million,
$2.3 million, $2.0 million, $1.9 million and $15.1 million, respectively.
Page 23
<PAGE>
Rent expense for operating leases was $2,389,830, $2,734,919 and $3,039,690 in
1994, 1995 and 1996, respectively.
The Company currently leases two properties from related-parties with rental
payments in 1994, 1995 and 1996 of $145,641, $112,880 and $112,981,
respectively.
NOTE 4: ACQUISITION OF RESTAURANTS
On April 25, 1994, the Company acquired five formerly franchised restaurants
from independent franchisees for cash of $1,850,000.
NOTE 5: INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current expense (benefit) $ 380,807 $ (140,265) $ -
Deferred expense (benefit) 108,071 179,566 (639,790)
---------- ----------- ------------
Income tax expense (benefit) $ 488,878 $ 39,301 $ (639,790)
---------- ----------- ------------
</TABLE>
Income tax expense differs from the amount computed by applying the federal
income tax rate of 34% to income before taxes as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 428,370 $ 21,621 $(1,532,238)
Alternative minimum tax 13,000 - -
Amortization of costs in excess of assets acquired 47,508 17,680 17,680
Valuation allowance - - 874,768
---------- ----------- ------------
Income tax expense (benefit) $ 488,878 $ 39,301 $ (639,790)
========== =========== ============
</TABLE>
The deferred tax asset (liability) at December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 206,000 $ 206,000
Net operating loss carryforward 150,000 1,549,609
Franchise value for tax purposes of companies acquired 137,900 41,328
----------- -----------
Total gross deferred tax assets 493,900 1,796,937
Deferred tax liabilities:
Property and equipment 913,000 850,000
Cost in excess of asset acquired 79,000 61,320
Other assets 69,000 10,849
----------- -----------
Total gross deferred tax liabilities 1,061,000 922,169
----------- -----------
Net deferred tax (liability) asset (567,100) 874,768
Less valuation allowance - 874,768
----------- -----------
$ (567,100) $ -
=========== ===========
</TABLE>
Page 24
<PAGE>
NOTE 6: COMMON STOCK
The Company has an incentive stock option plan for key employees and officers
excluding the President. The options are generally exercisable three years
after the date of grant and expire ten years after the date of grant. The
option prices are the fair market value of the stock at the date of grant. In
1996 options to acquire 62,000 shares were granted. No options were granted
in 1995. Options granted and remaining outstanding at December 31, 1996 are
for 6,800 common shares at $4.25 per share, 7,000 common shares at $3.63 per
share, 9,750 common shares at $3.25 per share, 21,500 common shares at $3.68
per share, 16,550 common shares at $6.44 per share and 62,000 common shares at
$1.75 per share. As of December 31, 1996, options on 45,050 shares are
exercisable.
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", effective with the 1996 financial statements, but elected to
continue to measure compensation cost using the intrinsic value method in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost for stock options has been
recognized. The value of the options granted in 1996 were estimated to be
$.88 per share. The value was determined using the Black-Scholes option
pricing model, assuming an average life of the options of 7 years, a discount
rate of 6%, no dividend payout and a volatility of 45%. If compensation cost
had been determined based on the estimated fair value of options granted in
1996, consistent with the methodology in SFAS 123, the pro forma effects on
the Company's net loss and loss per share would not have been material.
In conjunction with certain financial advisory and investment banking services
for possible acquisitions, the Company issued warrants to purchase 120,000
shares of common stock at any time through April 29, 2000 at $6.50 per share.
No value has been recorded in the Company financial statements related to
these warrants as the Company believes the effect would not be material.
In conjunction with certain financial and investor relations advisory services
the Company entered into a consulting agreement on October 1, 1996. This
agreement may be terminated for any reason by either party giving 90 day
notice of its intent to terminate. The Company will be issuing warrants to
purchase 150,000 shares of its stock at exercise prices ranging from $2.25 per
share to $2.75 per share. The warrants will have a term of five years.
NOTE 7: OTHER EXPENSES
Cost of attempted acquisition and equity offering of $880,862 in 1996 is the
direct cost associated with the attempt to acquire Papa Gino's Holding Corp.
(a 180 unit pizza restaurant chain operating in seven northeastern states) and
the planned equity offering to finance that acquisition.
Loss associated with restaurants closed in 1987 in 1996 was $673,157. This
reflects the costs associated with a lease dispute in Dayton, Ohio in the
amount of $133,637 and a charge-off of receivables built up over time from the
former Dayton, Ohio franchisees in the amount of $539,520.
NOTE 8: CONTINGENCIES
From time to time, the Company is involved in litigation relating to claims
arising out of its normal business operations. The Company is not now engaged
in any legal proceedings that are expected to have any material adverse effect
on the Company. See Note 2 regarding bank obligations.
Page 25
<PAGE>
NOTE 9: EVENTS SUBSEQUENT TO AUDITORS' REPORT (UNAUDITED)
On May 31, 1997, the Company closed 18 of its restaurants. This action was
taken because some of those restaurants were operating at a loss, some were only
marginally profitable, and others were closed because they were competing in
market areas where the Company has newer restaurants and where the delivery area
and some of the dine-in market can be serviced by the newer facility. This
action also allows the Company to consolidate management and supervision to have
better operations by the utilization of the Company's most effective supervision
staff directly supervising the remaining restaurants. The Company expects a
substantial charge-off of equipment, leasehold improvements and an accrual for
ongoing expenses to be reported in the quarter ending June 30, 1997. The net
book value of the assets relating to the closed restaurants is approximately
$2 million.
Page 26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NOBLE ROMAN'S, INC.
We have audited the accompanying consolidated balance sheets of Noble Roman's,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Noble
Roman's, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company's losses, accumulated deficit,
and default on its long-term debt raise substantial doubt about the Company's
ability to continue as a going concern. The Company's plans in regard to
these matters are also described in note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
Indianapolis, Indiana
April 29, 1997
Page 27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are:
Name Age Positions with the Company
---- --- --------------------------
Paul W. Mobley 56 Chairman of the Board, President, Chief
Executive Officer and Director
A. Scott Mobley 33 Executive Vice President, Chief Operating
Officer, Secretary and Director
Sam M. Huston 59 Director
Donald A. Morrison 54 Director
The executive officers of the Company serve at the discretion of the
Board of Directors and are elected at the annual meeting of the Board.
Directors are elected annually by the stockholders. The following is a brief
description of the previous business background of the executive officers and
directors:
PAUL W. MOBLEY has been Chairman of the Board since December, 1991,
President and Chief Executive Officer of the Company since 1981, and a
director since 1974. From 1975 to 1987 Mr. Mobley was a significant
shareholder and president of a company which owned and operated 17 Arby's
franchise restaurants. From 1974 to 1978 he also served as Vice President and
Chief Operating Officer of the Company and from l978 to 1981 as Senior Vice
President. He is the father of A. Scott Mobley.
A. SCOTT MOBLEY has been a director of the Company since January,
1992, Secretary since February, 1993, Vice President since November, 1988 and
from August, 1987 until November, 1988 served as Director of Marketing for the
Company. Prior to joining the Company Mr. Mobley was a strategic planning
analyst with a division of Lithonia Lighting Company. He is the son of Paul
Mobley.
SAM M. HUSTON has been a director of the Company since January, 1992.
Mr. Huston has received CLU and CAFC designations and is a general agent for
MassMutual Companies and has held that position since 1980. He is also a
registered representative with MML Investors Services, Inc., a registered
broker-dealer firm.
DONALD A. MORRISON, III has been a director of the Company since
December, 1993. Mr. Morrison has been affiliated since 1971 and is currently
President and director of Traub & Company, Inc., an investment banking firm
headquartered in Indianapolis, Indiana.
Page 28
<PAGE>
SECTION 16 REPORTS
------------------
Based solely on a review of the copies of reports furnished to the
Company, or written representations that no reports were required, the Company
believes that during 1996 all filing requirements under Section 16(a) of the
Securities Exchange Act were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation for
each of the Company's last three fiscal years awarded to or earned by the
Chief Executive Officer and only other executive officer of the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term
Annual Compensation Compensation
Name and Principal Position Year Salary (1) Bonus Options # (2)
- --------------------------- ---- ---------- ----- -------------
<S> <C> <C> <C> <C>
Paul Mobley 1996 $ 180,000 $ - -
Chairman, President and Chief 1995 180,000 - -
Executive Officer 1994 155,000 - -
A. Scott Mobley 1996 $ 90,000 $ 11,736 -
Vice President and Secretary 1995 90,000 15,528 -
1994 81,538 13,993 5,000
</TABLE>
(1) The Company did not have any bonus, retirement, or other arrangements or
plans respecting compensation except for an Incentive Stock Option Plan for
executive officers and other employees and a bonus plan initiated in 1994 for
certain officers and administrative employees based on profitability,
excluding the Chief Executive Officer. The Chief Executive Officer and other
full-time employees are covered by a health insurance plan the cost of which
does not equal the lesser of $50,000 or 10% of the named executive's annual
compensation.
(2) Stock Option Plan
-----------------
The Company had an incentive stock option plan which expired in May,
1994 and adopted a new Incentive Stock Option Plan (collectively the "Plan")
under which Incentive Stock Options ("Options") may be granted to officers and
other key management employees of the Company. Employees owning more than ten
percent of the Common Stock were not eligible. The Plan is administered by
the Board of Directors, or a Committee thereof and Options were granted at
their sole discretion. The per share exercise price of the stock subject to
each Option may not be less than the fair market value of the stock on the
date the Option was granted. Options become exercisable beginning three years
after the date of grant and must be exercised no later than ten years after
the date of grant. Options granted and remaining outstanding at December 31,
1996 are 6,800 shares of common stock at exercise price of $4.25 per share,
7,000 shares of common stock at exercise price of $3.63 per share, 9,750
shares of common stock at exercise price of $3.25 per share, 21,500 shares of
common stock at exercise price of $3.68 per share,
Page 29
<PAGE>
16,550 shares of common stock at exercise price of $6.44 per share and 62,000
shares of common stock at an exercise price of $1.75 per share. As of
December 31, 1996, 45,050 shares are exercisable.
The options may be exercised for a period of five years at a rate of
20% of the shares of common stock subject to the option per year. Under the
Plan, the option holder who exercises options will not recognize any taxable
income until the shares of common stock purchased upon exercise are ultimately
sold, except for possible alternative minimum tax. So long as the options
remain qualified, the Company will not be entitled to any deduction and will
not recognize any gain or loss upon issuance of the Common Stock under the
Plan.
AGGREGATE OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
---------------------------------------------
Values of Unexercised
Number of Unexercised In-The-Money
Options at 12/31/96 Options at 12/31/96
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
Paul W. Mobley None / None None / None
A. Scott Mobley 25,000 / 25,000 None / None
Employment Agreement
- --------------------
Mr. Paul Mobley has an employment agreement with the Company which fixes his
base compensation at $180,000 per year, provides for reimbursement of travel
and other expenses incurred in connection with his employment, including the
furnishing of an automobile, health and accident insurance similar to that
provided other employees, and life insurance in an amount related to his base
salary. The initial term of the agreement is five years and is renewable each
year for a five year period subject to approval by the Board. The agreement
is terminable by the Company for just cause as defined in the agreement.
Director Compensation
- ---------------------
The Company's outside directors receive standard directors' fees of $1,000 per
year and $300 per meeting plus reimbursement of out-of-pocket expenses.
Page 30
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 16, 1997, there were 4,131,324 shares of the Company's Common
Stock outstanding. The following table sets forth the amount and percent of
the Company's Common Stock beneficially owned on June 16, 1997 by (i) each
director and executive officer individually, (ii) each beneficial owner of
more than five percent of the Company's outstanding Common Stock and, (iii)
all executive officers and directors as a group:
<TABLE>
<CAPTION>
Amount and Nature Percent of
Nature of Outstanding
Name Beneficial Ownership (2) Shares
---- ------------------------ -----------
<S> <C> <C>
Paul W. Mobley (1)
One Virginia Avenue, Suite 800 929,013 22.5%
Indianapolis, IN 46204
Larry J. Hannah
P.O. Box 29176 547,963 13.3%
Indianapolis, IN 46229-0176
A. Scott Mobley (1) 178,326 (3) 4.3%
Donald A. Morrison, III 32,700 (4) *
Sam Huston 15,000 *
All Executive Officers and
Directors as a Group (4 Persons) 1,115,039 28.0%
</TABLE>
*Less than 1%
(1) Paul Mobley is the father of A. Scott Mobley.
(2) All shares owned directly unless otherwise noted.
(3) Includes 25,000 shares subject to options granted under an employee
stock option plan which are currently exercisable at $4.25 per
share for 6,500 common shares, $3.63 per share for 4,500 common
shares, $3.25 per share for 6,500 common shares and $3.68 per share
for 7,500 common shares.
(4) This total includes 30,000 shares owned by Traub and Company, Inc.
in its investment account, of which Mr. Morrison is shareholder,
director and President. Mr. Morrison disclaims beneficial
ownership of such shares beyond his interest in Traub.
Page 31
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of transactions to which the Company and certain
officers and directors of the Company are a party. The Board of Directors of
the Company has adopted a policy that all transactions between the Company and
its officers, directors, principal shareholders and other affiliates require
the approval of a majority of the Company's disinterested directors, and be
conducted on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
The Company had outstanding notes in 1994 and 1995 to Paul W. Mobley,
President, in the aggregate principal amount of $1,145,518 and to Larry J.
Hannah, a significant shareholder of the Company, in the aggregate principal
amount of $1,377,064. Interest thereon was paid to Mr. Mobley in the amount
of $97,000 in 1994 and $97,000 in 1995, and to Mr. Hannah in the amount of
$117,000 in 1994 and $117,000 in 1995. In December, 1995, Mr. Mobley
converted $227,050 of this indebtedness in exchange for 60,546 shares of
common stock and Mr. Hannah converted $272,950 in exchange for 72,786 shares
of common stock in each case at the per share price of $3.75 which represented
the closing bid price for the common stock on Nasdaq on the day immediately
preceding the conversion and the balance of $918,468 for Mr. Mobley and
$1,104,114 for Mr. Hannah was paid in full.
Paul W. Mobley leases a restaurant located in Indianapolis to GNR, Inc., a
wholly-owned subsidiary of the Company, which lease has a remaining term of
approximately one year and provides for rental payments of approximately
$40,880 per year.
H-M Ltd., a corporation owned by Paul W. Mobley and Larry J. Hannah, in
September, 1995, leased a restaurant in Indianapolis, Indiana to the Company.
This lease has a remaining term of 19 years and provides for rental payments
of $72,000 per year. During 1996, approximately $72,000 in rental payments
were made.
The Company believes that the terms of the above leases were substantially
equivalent to market terms at the time such leases were entered into.
Larry J. Hannah has a consulting agreement with the Company to provide
financial consulting services. The agreement was effective April 1, 1993, is
for a term of 60 months, and provides for payments of $5,000 per month.
Page 32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
The following consolidated financial statements of Noble
Roman's, Inc. and subsidiaries are included in Item 8:
Consolidated Balance Sheets - December 31, 1995 and 1996 16
Consolidated Statements of Operations - years ended
December 31, 1994, 1995 and 1996 17
Consolidated Statements of Changes in Stockholders' Equity -
years ended December 31, 1994, 1995 and 1996 18
Consolidated Statements of Cash Flows - years ended
December 31, 1994, 1995 and 1996 19
Notes to Consolidated Financial Statements 20
Report of Independent Auditors - KPMG Peat Marwick LLP 25
(a) Exhibits
Exhibit No.
-----------
3.1 Amended Articles of Incorporation of the Registrant (1)
3.2 Amended and Restated By-Laws of the Registrant
4.1 Specimen Common Stock Certificates (1)
10.1 Merger Agreements related to purchase of 27
restaurants on December 23, 1992 from N.R. East,
Inc., GNR, Inc. and LPS, Inc. and related fairness
opinion (3)
10.2 Purchase Agreements related to the purchase of
eight restaurants on May 1, 1993 (4)
10.3 Employment Agreement with Paul W. Mobley dated
November 15, 1994 (3)
10.4 Credit Agreement with The Provident Bank dated
December 1, 1995 (5)
10.5 Consulting Agreement with Larry J. Hannah dated
April 1, 1993 (3)
10.6 1984 Stock Option Plan (6)
10.7 Form of Stock Option Agreement (6)
11.1 Statement Re: Computation Per Share Earnings
21.1 Subsidiaries of the Registrant (2)
Page 33
<PAGE>
24.1 Not Applicable (unless going to sign as power of
attorney for directors)
(1) Incorporated by reference from Registration
Statement filed by the Registrant on Form S-18 on
October 22, 1982 and ordered effective on December
14, 1982. (SEC No. 2-79963C), and, for the Amended
Articles of Incorporation, from the Registrant's
Amendment No. 1 to the Post Effective Amendment No.
2 to Registration Statement on Form S-1 on July 1,
1985. (SEC No.2-84150).
(2) Incorporated by reference to the
Registrant's Registration Statement on Form SB-2
(SEC File No. 33-66850) ordered effective on
October 26, 1993.
(3) Incorporated by reference from the Form 8-K
filed by the registrant on February 17, 1993.
(4) Incorporated by reference from the Form 8-K
filed by the registrant on June 3, 1993.
(5) Incorporated by reference from the Form 8-K
filed by the registrant on December 5, 1995.
(6) Incorporated by reference from the Form S-8
filed by the registrant on November 29, 1994 (SEC
No. 33-86804).
(b) Reports on 8-K
None
Page 34
<PAGE>
SIGNATURES
----------
In accordance with of Section 13 or 15(d) 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: By:
----------------------- ---------------------------
Paul W. Mobley, President
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date:
----------------------- --------------------------------
Paul W. Mobley
President, Chairman of the Board and
Director (Principal Executive Officer
and Principal Financial Officer)
Date:
----------------------- --------------------------------
A. Scott Mobley
Executive Vice President and Director
Date:
----------------------- --------------------------------
Donald A. Morrison, III
Director
Date:
----------------------- --------------------------------
Sam M. Huston
Director
Page 35
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 74,502
<SECURITIES> 0
<RECEIVABLES> 947,924
<ALLOWANCES> 0
<INVENTORY> 947,644
<CURRENT-ASSETS> 2,333,144
<PP&E> 13,848,774
<DEPRECIATION> (4,372,980)
<TOTAL-ASSETS> 19,450,685
<CURRENT-LIABILITIES> 18,584,214
<BONDS> 75,186
0
0
<COMMON> 5,518,431
<OTHER-SE> (4,727,146)
<TOTAL-LIABILITY-AND-EQUITY> 19,450,685
<SALES> 33,854,485
<TOTAL-REVENUES> 34,239,190
<CGS> 6,421,293
<TOTAL-COSTS> 24,668,453
<OTHER-EXPENSES> 5,876,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,794,632
<INCOME-PRETAX> (4,521,227)
<INCOME-TAX> (639,790)
<INCOME-CONTINUING> (3,881,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,881,437)
<EPS-PRIMARY> (.94)
<EPS-DILUTED> (.94)
</TABLE>
