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 September 30, 2000
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 Identification No.)
of organization)
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 October 18, 2000, there were 13,033,701 shares of Common Stock, no par
value, outstanding.
<PAGE>
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, 1999 and September 30, 2000 Page 4
Condensed consolidated statements of operations for the three
months and nine months ended September 30, 1999 and 2000 Page 5
Condensed consolidated statements of cash flows for the three
months and nine months ended September 30, 1999 and 2000 Page 6
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.
Recent Events
-------------
In the period February 2000 through July 2000, the Company entered into a series
of transactions resulting in its obtaining approximately $9.9 million in
additional capital. The additional capital came from investors associated with
The Geometry Group in New York and certain local investors in Indianapolis
purchasing approximately $2.5 million of common stock in exchange for cash, The
Provident Bank exchanging $6.5 million senior secured debt and $583 thousand PIK
notes for $2.2 million of common stock and $4.9 million in no-yield preferred
stock which may later be converted to common stock at $3.00 per share at the
Bank's option and an officer converted $306 thousand of notes for common stock.
All of these transactions were at $1.00 per share.
Based on the Company's trends and the results of its operations thus far in
2000, its business plan, the number of franchise units now open, the backlog of
units sold to be opened and the backlog of franchise prospects now in ongoing
discussions and negotiations, 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. There can be no assurance that the franchising growth
will continue in the future. 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 in the future.
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 in the Company's operations and business
environment including, but not limited to: competitive factors and pricing
pressures, shifts in market demand, general
<PAGE>
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.
<PAGE>
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Audited) (Unaudited)
December 31, September 30,
Assets 1999 2000
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash $ 29,913 $ 76,923
Accounts receivable 718,623 938,232
Short term notes receivable -- 400,000
Inventories 437,120 175,315
Prepaid expenses 109,006 116,819
Deferred tax asset - current portion 472,286 989,009
Assets held for sale 1,500,000 --
------------ ------------
Total current assets 3,266,948 2,696,297
Property and equipment, less accumulated depreciation
of $327,039 and $348,871 570,496 551,079
Deferred tax asset 9,489,437 8,651,049
Other assets 721,982 1,432,534
------------ ------------
Total assets $ 14,048,862 $ 13,330,959
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 3,163,200 $ 1,225,107
Current portion of long-term debt 17,661 --
Note payable to officer 65,840 65,840
Deferred franchise fees 227,125 293,401
Other current liabilities 2,872,515 556,714
------------ ------------
Total current liabilities 6,346,341 2,141,062
Long-term obligations:
Notes payable to Provident Bank net of warrant value
of $520,377 and $231,503 14,051,989 7,768,497
Notes payable to various funds affiliated with
Geometry Group net of warrant valuation of
$177,004 in 2000 2,006,433 2,195,196
PIK notes payable to Provident Bank 583,070 --
Notes payable to officer 250,000 --
PIK notes payable to officer 32,242 --
Other long-term debt 13,432 --
------------ ------------
Total long-term liabilities 16,937,166 9,963,693
Stockholders' equity
Common stock (25,000,000 shares authorized,
5,552,390 outstanding in 1999 and 13,033,701 in
2000) 12,272,637 17,301,755
Preferred Stock (5,000,000 shares authorized,
4,929,274 outstanding in 2000) 4,929,274
Accumulated deficit (21,507,281) (21,004,825)
------------ ------------
Total stockholder's equity (deficit) (9,234,645) 1,226,204
------------ ------------
Total liabilities and stockholder's equity $ 14,048,862 $ 13,330,959
============ ============
</TABLE>
See accompanying note to condensed consolidated financial statements.
<PAGE>
Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Express royalties and fees $ 1,041,101 $ 1,249,944 $ 2,459,474 $ 3,386,536
Administrative fees and other (5,855) 222,952 130,033 644,129
Restaurant royalties - full service 19,538 75,621 62,345 116,552
------------ ------------ ------------ ------------
Total revenue 1,054,784 1,548,516 2,651,852 4,147,217
Express operating expenses:
Salaries and wages 199,255 237,017 569,744 720,998
Trade show expense 52,156 45,000 160,497 165,000
Travel expense 17,203 97,192 115,587 243,154
Other operating expenses 166,110 95,680 339,683 317,682
Depreciation 10,114 9,802 30,342 29,416
General and administrative expenses 171,208 313,918 535,472 950,292
------------ ------------ ------------ ------------
Operating income 438,738 749,905 900,527 1,720,674
Interest 520,471 331,382 1,345,462 959,378
------------ ------------ ------------ ------------
Income (loss) before income taxes (81,733) 418,523 (444,935) 761,296
Income taxes (benefit) (27,789) 142,297 (151,278) 258,840
------------ ------------ ------------ ------------
Net income (loss) before extraordinary item (53,944) 276,226 (239,657) 502,456
Loss on discontinued operations net of tax benefit of
$182,788 and $358,520 (473,247) -- (1,169,198) --
------------ ------------ ------------ ------------
Net income (loss) $ (527,191) $ 276,226 $ (1,462,855) $ 502,456
------------ ------------ ------------ ------------
Earnings per share:
Net income (loss) before extraordinary item (.01) .02 (.05) .05
Loss on discontinued operations (.08) -- (.21) --
Net income (loss) (.09) .02 (.26) .05
Weighted number of common shares outstanding 5,921,661 12,058,160 5,556,390 10,743,505
Earnings per share assuming full dilution:
Net income before extraordinary item .02 .04
Net income .02 .04
Weighted number of common shares outstanding
assuming full dilution 15,287,415 13,972,759
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Noble Roman's, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
OPERATING ACTIVITIES 1999 2000
-------------------- ---- ----
<S> <C> <C>
Net income (loss) $(1,462,855) $ 502,456
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation 983,482 29,416
Non-cash interest 456,239 150,337
Deferred federal income taxes (753,340) 258,840
Changes in operating assets and liabilities (increase) decrease in:
Accounts receivable (694,718) (219,609)
Short term notes receivable -- (400,000)
Inventories (69,282) 261,805
Prepaid expenses (105,472) (7,813)
Other assets (34,195) --
Increase (decrease) in:
Accounts payable 612,207 (1,938,093)
Other current liabilities (602,820) (2,333,462)
Deferred franchise fee 111,500 66,276
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,559,254) (3,629,847)
INVESTING ACTIVITIES
--------------------
Purchase of property and equipment (431,099) (10,001)
Sale of fixed assets 260,325 350,000
Issuance of capital stock net of issuance cost 139,129 3,238,403
Legal fees associated with conversion of debt to equity (9,582) --
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (41,227) 3,678,402
FINANCING ACTIVITIES
--------------------
Proceeds from long-term debt 1,966,703 --
Principal payments on long-term debt and capital lease obligations (4,098) (1,546)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,962,605 (1,546)
----------- -----------
INCREASE (DECREASE) IN CASH 362,123 47,009
Cash at beginning of period 28,176 29,913
----------- -----------
Cash at end of period $ 390,299 $ 76,922
----------- -----------
</TABLE>
Supplemental Schedule of non-cash investing and financing activities
The Company's loan agreements provide that interest on certain of its notes
payable is to be paid by the issuance of PIK notes. The amount of such non-cash
interest for the nine-month period ended September 30, 1999 and September 30,
2000 was $289,139 and $24,083.
The Company converted $6,572,366 of long-term debt to 4,929,274 shares of
no-yield preferred stock which are convertible to common stock at $3.00 per
share and 1,643,092 shares of common stock at $1.00 per share.
The Company converted $639,395 of PIK notes payable plus accrued interest and a
$250,000 note payable into 1,052,917 shares of common stock.
See accompanying note to condensed consolidated financial statements.
<PAGE>
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 and nine-month periods ended September 30,
1999 and 2000
Introduction
------------
Over the last several years, the Company made the strategic decision to refocus
its business on its non-traditional and co-branding franchising opportunities
and away from operating full-service, traditional restaurants. Given the
potential size of the opportunities in the non-traditional and co-branding
segments, and the actual rapid pace of the franchising growth within the
Company, during 1999 management determined that all financial and human
resources at the Company's disposal should be focused on franchise services to
maximize the potential for stakeholders. Accordingly, the Company has completed
franchising all of its previously owned full-service restaurants.
The following table sets forth the percentage relationship to total revenue of
the listed items included in Noble Roman's condensed consolidated statement of
operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Express royalties and fees 98.7% 80.7% 92.7% 81.7%
Administrative fees and other (.6) 14.4 4.9 15.5
Restaurant royalties 1.9 4.9 2.4 2.8
------ ------ ------ ------
Total revenue 100.0% 100.0% 100.0% 100.0%
Express operating expenses:
Salaries and wages 18.9% 15.3% 21.5% 17.4%
Trade show expenses 4.9 2.9 6.1 4.0
Travel expense 1.6 6.3 4.4 5.9
Other operating expenses 15.7 6.2 12.8 7.7
Depreciation 1.0 .6 1.1 .7
General and administrative 16.2 20.3 20.2 22.9
------ ------ ------ ------
Operating income 41.6% 48.4% 34.0% 41.5%
Interest 49.3 21.4 50.7 23.1
------ ------ ------ ------
Net income (loss) before income tax
and extraordinary item (7.7)% 27.0 % (16.8)% 18.4%
</TABLE>
2000 Compared with 1999
-----------------------
Total revenue increased from $1.05 million to $1.55 million and from $2.65
million to $4.15 million, respectively, or 46.8% and 56.4% increase,
respectively, for the three-month and nine-month periods ended September 30,
2000 compared to the same periods in 1999. This increase was primarily the
result of the growth in the number of franchise locations open.
Express royalties and fees were approximately $1.25 million and $3.39 million,
respectively, for the three-month and nine-month periods ended September 30,
2000 compared to $1.04 million and $2.46 million for the same periods in 1999.
This increase was the result of rapid growth in the number of
<PAGE>
franchises. Franchising of Noble Roman's foodservice began in 1997. At September
30, 2000 approximately 500 franchised locations were open compared to
approximately 260 at September 30, 1999. Since 1977 the Company has awarded over
675 franchises in 40 states. In addition to approximately 200 franchises sold
and not yet open, it is the Company's plan to aggressively pursue the sale of
additional locations across the country and Canada. The Company is currently
involved in ongoing discussions and negotiations involving many additional
franchise locations.
Salaries and wages decreased from 18.9% and 21.5% of revenue for the three-month
and nine-month periods ended September 30, 1999 to 15.3% and 17.4% of revenue
for the three-month and nine-month periods ended September 30, 2000. This
decrease was the result of the growth in number of franchised units within the
infrastructure established earlier in anticipation of that growth.
Trade show expense decreased from 4.9% and 6.1% of revenue for the three-month
and nine-month periods ended September 30, 1999 to 2.9% and 4.0%, respectively,
of revenue for the three-month and nine-month periods ended September 30, 2000.
This decrease was the result of the increased revenue as a result of unit growth
partially offset by more national trade shows.
Travel expenses increased from 1.6% and 4.4% of revenue for the three-month and
nine-month periods ended September 30, 1999 to 6.3% and 5.9%, respectively, of
revenue for the three-month and nine-month periods ended September 30, 2000.
This increase was the result of increased travel cost related to units opening
further away from the home office, now in 40 states.
Other operating expenses decreased from 15.7% and 12.8% of revenue for the
three-month and nine-month periods ended September 30, 1999 to 6.2% and 7.7%,
respectively, of revenue for the three-month and nine-month periods ended
September 30, 2000. This decrease was the result of the increased revenue as a
result of the growth in number of franchised units within the infrastructure
established earlier in anticipation of that growth.
Depreciation decreased from 1.0% and 1.1% of revenue for the three-month and
nine-month periods ended September 30, 1999 to .6% and .7%, respectively, of
revenue for the three-month and nine-month periods ended September 30, 2000.
This decrease was the result of the increased revenue as a result of the growth
in number of franchised units with minimal capital requirements.
General and administrative expenses increased from 16.2% and 20.2% of revenue
for the three-month and nine-month periods ended September 30, 1999 to 20.3% and
22.9%, respectively, of revenue for the three-month and nine-month periods ended
September 30, 2000. This increase was the result of creating additional
administrative infrastructure in order to be prepared for expected accelerated
growth in the future.
Interest expense decreased from $520 thousand and $1.35 million for the
three-month and nine-month periods ended September 30, 1999 to $331 thousand and
$959 thousand, respectively, for the three-month and nine-month periods ended
September 30, 2000. This decrease was the result of the conversion of $6.5
million in debt to equity on February 9, 2000 partially offset by increased
borrowings of $2.2 million on April 30, 1999.
Net income (loss) before extraordinary item improved from a net loss of $54
thousand and $294 thousand for the three-month and nine-month periods ended
September 30, 1999 to a net income of $276 and $502 thousand for the three-month
and nine-month periods ended September 30, 2000. This improvement was the result
of the increased revenue as a result of the growth in the number of franchised
<PAGE>
units within the infrastructure established earlier in anticipation of that
growth. Net income growth continues as a positive trend: $84 thousand first
quarter, $142 thousand second quarter and $276 thousand third quarter.
Liquidity and Capital Resources
-------------------------------
Over the last several years, the Company made the strategic decision to refocus
its business on its non-traditional and co-branding franchising opportunities
and away from operating full-service, traditional restaurants. Given the
potential size of the opportunities in the non-traditional and co-branding
segments, and the actual rapid pace of their growth within the Company, during
1999 management determined that all financial and human resources at the
Company's disposal should be focused on franchise services to maximize the
potential for stakeholders. Accordingly, the Company has completed franchising
all of its previously owned full-service restaurants.
In the period February 2000 through July 2000, the Company entered into a series
of transactions resulting in its obtaining approximately $9.9 million in
additional capital. The additional capital came from investors associated with
The Geometry Group in New York and certain local investors in Indianapolis
purchasing approximately $2.5 million of common stock in exchange for cash, The
Provident Bank exchanging $6.5 million senior secured debt and $583 thousand PIK
notes for $2.2 million of common stock and $4.9 million in no-yield preferred
stock which may later be converted to common stock at $3.00 per share at the
Bank's option and an officer converted $306 thousand of notes for common stock.
As a result of the additional capital raised by the Company, its decision to
focus on growth by franchising and the Company's results of operations, the
Company believes it will have sufficient cash flow to meet its obligations and
to carry out its business plan.
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.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
<PAGE>
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
<PAGE>
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: /s/ Paul W. Mobley
---------------- ----------------------
Paul W. Mobley, Chairman of the Board
Date: /s/ Dan P. Hutchison
---------------- ------------------------
Dan P. Hutchison, Chief Financial Officer
