Noble Roman's Continues Growth; Enhances Stand-Alone and Grocery Take-N-Bake Concepts

2014-03-13
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  • Noble Roman's Noble Roman's, Inc. (OTC/BB: NROM), the Indianapolis based franchisor and licensor of Noble Roman's Pizza and Tuscano's Italian Style Subs, today announced results for the annual and quarterly periods ended December 31, 2013.

    Noble Roman's, Inc. (OTC/BB: NROM), the Indianapolis based franchisor and licensor of Noble Roman's Pizza and Tuscano's Italian Style Subs, today announced results for the annual and quarterly periods  ended December 31, 2013. 

    Financial and Operational Highlights for 2013 Compared to 2012

    For purposes of comparing current operating results, the 2012 amounts below were adjusted, where appropriate, for the $400,000 reduction in reserve for collectability of receivables from the Heyser plaintiffs, and the $500,000 adjustment to reduce the valuation of the Heyser case which resulted in a net decrease in the net income from continuing operations before taxes, all relating to units no longer operating.  In 2013, there was a $1.21 million adjustment to the valuation of the Heyser plaintiff  receivables which resulted in a decrease to net income from continuing operations before taxes relating to units no longer operating. Details regarding the adjustments for the reserve are provided in the company's Form 10-K filed with the Securities and Exchange Commission.

    • Net income before taxes from continuing operations was $2.65 million, or $0.14 per share, compared to $2.0 million, or $0.10 per share. The company will pay no income taxes on approximately the next $25 million in net income.
    • Net income from continuing operations was $1.6 million, or $0.08 per share, compared to $1.21 million, or $0.06 per share.
    • Operating margin was 38.0% of revenue compared to 35.0%.
    • Total revenue was $7.5 million, up 9.1% compared to $6.9 million.
    • Upfront franchisee fees and commissions were $883,000 compared to $374,000.
    • Royalties and fees less upfront fees were $6.2 million compared to $6.0 million.
    • Royalties and fees from non-traditional franchises other than grocery stores were $4.3 million compared to $4.4 million
    • Royalties and fees from grocery store take-n-bake locations were unchanged at $1.3 million.
    • Royalties and fees from traditional locations were $313,000 compared to $307,000.
    • Royalties and fees from stand-alone take-n-bake locations were $310,000 compare to $10,000.

    Fourth Quarter 2013 Financial and Operational Highlights Compared to Fourth Quarter 2012

    For purposes of comparing current operating results for the fourth quarter 2013 to the fourth quarter 2012, the 2012 amounts below were adjusted, where appropriate, for the $500,000 reduction in the receivables from the Heyser plaintiffs and the 2013 amounts were adjusted, where appropriate, for the $1.1 million reduction in the receivables from the Heyser plaintiffs. Details regarding the adjustment for the reduction of receivables from the Heyser plaintiffs are provided in the company's Form 10-K filed with the Securities and Exchange Commission.

    • Net income before taxes from continuing operations was $496,000, or $0.03 per share, compared to $566,000, or $0.03 per share. The company will pay no income taxes on approximately the next $25 million in net income.
    • Net income from continuing operations was $300,000, or $0.02 per share, compared to $342,000, or $0.02 per share.
    • Operating margin was 32% of revenue compared to 36%.
    • Total revenue was approximately the same for both the fourth quarter 2013 and 2012 at $1.72 million.
    • Upfront franchisee fees and commissions were $147,000 compared to $63,000.
    • Royalties and fees less upfront fees were $1.5 million compared to $1.6 million.
    • Royalties and fees from non-traditional franchises other than grocery stores were $1 million compared to $1.2 million.
    • Royalties and fees from grocery store take-n-bake locations were $257,000 compared to $313,000.
    • Royalties and fees from traditional locations were $74,000 compared to $67,000.
    • Royalties and fees from stand-alone take-n-bake locations were $146,000 compared to $10,000.

    In both the fourth quarter and the year 2013, the company recorded a loss on discontinued operations of $780,000 compared to $525,000 in the fourth quarter and year 2012. The loss on discontinued operations for 2013 consisted of $178,000 in legal and settlement costs relating to a restaurant that was closed in conjunction with the business activity discontinued in 1999 and later damaged by a tornado, $147,000 for legal and other costs related to the Heyser case, plus $257,000 in receivables and $199,000 in obsolete support materials, all relating to the operations discontinued in 2008. These are further discussed in the company's Form 10-K filed with the Securities and Exchange Commission. Management believes that the company is at or very near the end of any further losses related to the discontinued operations, as all assets related to those operations have now been charged off. Less than 50% of this loss was actual cash payments which was down considerably from prior years. The remainder was from the charge off of now obsolete assets related to the operations discontinued in 2008.

    The company finally received a ruling on its long-standing counterclaims against former plaintiffs in the Heyser case.  On February 13, 2014, judgment was entered by the Hamilton Superior Court in favor of Noble Roman's and against two plaintiffs/counter-defendants in the 2008 lawsuit in the amount of $1.35 million plus court costs and interest at 8% per annum. The attorney for the plaintiffs/counter-defendants have indicated they intend to appeal the judgment.  On March 6, 2014, the company filed a motion to require plaintiffs/counter-defendants to post an appeals bond of $1.5 million each.

    Starting in December 2013 and continuing into March, the company's revenues have declined, which management believes to be a result of the very severe winter weather in most  of the country.

    Paul Mobley, Noble Roman's Chairman and CEO commented, "Interest remains high in our take-n-bake concept, though the severe weather has had a short-term impact on our results. We are committed to continually improving consumer response to our offerings. For the grocery store take-n-bake locations, we have introduced new packaging and will now be displaying our pizzas in bakable, treated aluminum pans with a clear plastic top. Consumers use the pan to bake the pizzas in, and the anodized treatment on the bottom is designed to increase home baking performance, drawing in more heat to make the pizza crispy on the bottom but soft in the middle. The clear plastic top allows the entire pizza to be visible and appealing. In addition, we have added a gluten-free crust to appeal to a growing segment of the population. We also added three 14-inch mega-topped pizzas which are called the 'Mile High Extra Meat Pizza,' the 'Extra Cheese Four Cheese Pizza,' and the 'Double Topped Pepperoni Pizza.' The 14-inch mega-topped pizzas in the new packaging are very appealing in the display case and are offered at a recommended value price of $9.99. All of the new products and the new packaging were displayed recently at the National Grocers Association Show and drew lots of attention, including creating interest with some distributors much larger than any of our current distributors."

    Mr. Mobley added "To further enhance our stand-alone take-n-bake stores, next week we are initiating a 3-unit test of our new, in-store baking service, 'You Bake or We Bake!'.  In addition to broadening consumer appeal in general, it is anticipated that this service will expand our take-n-bake daypart earlier into the day, as we can now offer hot pizzas and other menu items for lunch in these three test stores." The new baking service requires no substantial change in unit layouts, square footage requirement or labor requirements, and can easily be incorporated into existing operations as well as new ones.

    The company has entered into agreements for 55 stand-alone take-n-bake locations and is currently in discussions with many other prospects. The first stand-alone take-n-bake pizza location opened in October 2012 and, to date, a total of 22 have been opened with 33 under development. The company's stand-alone take-n-bake program features the chain's popular traditional Hand-Tossed Style pizza, Deep-Dish Sicilian pizza, SuperThin pizza, all with a choice of three different types of sauce, all in a convenient cook-at-home format.  Additional menu items include Noble Roman's famous breadsticks with spicy cheese sauce, fresh salads, cookie dough, cinnamon rounds, bake-able pasta and more. 

    "Our marketing initiatives to attract potential take-n-bake franchisees continue to be successful in generating a significant number of leads," said Mr. Mobley. "Our initial goal was to sign 30 locations in 2013, which we exceeded. Late in the year 2013, we expanded our advertising efforts by increasing the use of web-based franchise referral systems, which we began using in late January 2013, from three portals to five portals. In addition, we initiated web-based advertising utilizing Google's pay-per-click and remarketing systems. Take-n-bake continues to be one of the fastest growing segments of the pizza industry, and Noble Roman's is leveraging this growth opportunity with our economical concept, our reputation for fine quality products, and our proven ability to support our franchisee base."

    Since the beginning of 2013, the company has signed 56 additional new franchise/license agreements for non-traditional locations and is in discussion with numerous other convenience store chains and entertainment facilities for additional non-traditional locations. The primary source of growth in this segment comes from existing franchisees and by exhibiting in various industry trade shows, including the National Association of Convenience Stores, Western Petroleum Marketers Association, International Association of Amusement Parks and Attractions, and selected state convenience store associations.

    Balance Sheet Summary

    Cash totaled approximately $158,000 as of December 31, 2013 compared to $144,000 as of December 31, 2012.  Total bank debt was $3.85 million as of December 31, 2013 compared to $4.3 million as of December 31, 2012.  Total stockholders' equity as of December 31, 2013 was approximately $11.7 million compared to $12.4 million as of December 31, 2012.  The company's bank debt was $4.3 million as of December 31, 2012 and made principal payments on that debt during 2013 of $1.24 million and borrowed $825,000 to repurchase all of the outstanding shares of its Series B Preferred stock which increased the bank debt and reduced the equity. The holders of the Preferred shares had been receiving a 12% dividend. Each Preferred share was convertible into the company's common stock at a conversion price of $2.25 per share. The repurchase of the Preferred shares therefore eliminated the otherwise future dilution of 366,666 shares to the common shareholders.

    Consolidated Balance Sheets

    Noble Roman's, Inc. and Subsidiaries

    December 31,

    Assets

    2012

    2013

    Current assets:

       Cash

    $ 144,354

    $ 157,787

       Accounts receivable - net

    1,080,362

    1,268,788

       Inventories

    460,839

    337,822

       Assets held for resale

    259,579

    -

       Prepaid expenses

    379,669

    472,065

       Deferred tax asset - current portion

    1,400,000

    1,250,000

               Total current assets

    3,724,803

    3,486,462

    Property and equipment:

       Equipment

    1,166,103

    1,361,205

       Leasehold improvements

    12,283

    88,718

    1,178,386

    1,449,923

       Less accumulated depreciation and amortization

    905,376

    962,502

              Net property and equipment

    273,010

    487,421

    Deferred tax asset (net of current portion)

    9,238,536

    9,332,024

    Other assets including long-term portion of accounts receivable - net

    3,924,404

    3,067,754

                          Total assets       

    $ 17,160,753

    $ 16,373,661

    Liabilities and Stockholders' Equity

    Current liabilities:

       Current portion of long-term notes payable to bank

    $  1,250,000

    $  1,216,250

       Accounts payable and accrued expenses

    510,710

    818,803

                    Total current liabilities

    1,760,710

    2,035,053

    Long-term obligations:

       Notes payable to bank (net of current portion)

    3,020,833

    2,635,208

                    Total long-term liabilities

    3,020,833

    2,635,208

    Stockholders' equity:

       Common stock – no par value (25,000,000 shares authorized, 19,516,589

          issued and outstanding as of December 31, 2012 and 19,585,089  as of 

          December 31, 2013)

     

     

    23,366,058

     

     

    23,498,401

       Preferred stock (5,000,000 shares authorized, 20,625 issued and

          outstanding as of December 31, 2012 and none outstanding as of

          December 31, 2013)

     

    800,250

     

    -

       Accumulated deficit

    (11,787,098)

    (11,795,001)

                    Total stockholders' equity

    12,379,210

    11,703,400

                          Total liabilities and stockholders' equity

    $ 17,160,753

    $ 16,373,661

    See accompanying notes to consolidated financial statements.

     

     

     

    Consolidated Statements of Operations

    Noble Roman's, Inc. and Subsidiaries

    Year Ended December 31,

    2011

    2012

    2013

    Royalties and fees

    $ 6,813,946

    $ 6,823,811

    $ 7,082,548

    Administrative fees and other

    44,448

    19,872

    24,138

    Restaurant revenue

    517,679

    456,449

    420,753

                    Total revenue

    7,376,073

    7,300,132

    7,527,439

    Operating expenses:

         Salaries and wages

    970,966

    979,447

    1,056,790

         Trade show expense

    351,907

    498,951

    514,570

         Travel expense

    191,695

    183,316

    207,572

         Other operating expenses

    687,519

    685,836

    747,914

         Restaurant expenses

    507,838

    427,127

    390,507

    Depreciation and amortization

    124,009

    116,287

    113,607

    General and administrative

    1,619,778

    1,593,646

    1,646,993

                  Total expenses

    4,453,712

    4,484,610

    4,677,953

                  Operating income

    2,922,361

    2,815,522

    2,849,486

    Interest and other expense

    390,858

    413,334

    201,381

    Adjust valuation of receivables – Heyser case

    -

    500,000

    1,208,162

             Income before income taxes from

                       continuing operations

    2,531,503

    1,902,188

    1,439,943

    Income tax expense

    1,002,729

    753,457

    568,406

             Net income from continuing operations

    1,528,774

    1,148,731

    871,537

    Loss from discontinued operations net of tax benefit

       of $465,570 for 2011, $344,079 for  2012 and

       $511,893 for 2013

     

     

    (709,816)

     

     

    (524,588)

     

     

    (780,440)

              Net income

    818,958

    624,143

    91,097

    Cumulative preferred dividends

    99,000

    99,271

    99,000

              Net  income (Loss) available to common

                 stockholders

     

    $   719,958

     

    $  524,872

     

    $ (7,903)

    Earnings per share - basic:

        Net income from continuing operations

    $      .08

    $        .06

    $        .05

        Net loss from discontinued operations net of tax

           benefit

     

    $    (.04)

     

    $      (.03)

     

    $      (.04)

        Net income

    $      .04

    $        .03

    $        .01

        Net income available to common

           stockholders

     

    $      .04

     

    $        .03

     

    $            -

    Weighted average number of common shares

        outstanding

     

    19,457,810

     

    19,497,638

     

    19,533,201

    Diluted earnings per share:

        Net income from continuing operations

    $       .08

    $       .06

    $       .05

        Net loss from discontinued operations net of tax benefit    

    $     (.04)

    $     (.03)

    $     (.04)

        Net income

    $       .04

    $       .03

    $       .01

    Weighted average number of common shares

        outstanding

     

    20,112,278

     

    20,077,910

     

    20,0472,908



    Logos, product and company names mentioned are the property of their respective owners.

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