NOBLE ROMANS INC - Quarter Report: 2014 March (Form 10-Q)

nrom_10q.htm

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2014

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 of organization)		(I.R.S. Employer Identification No.)

One Virginia Avenue, Suite 300
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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	o	Accelerated Filer	o
Non-Accelerated Filer	o	Smaller Reporting Company	þ
(do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of May 1, 2014, there were 19,801,087 shares of Common Stock, no par value, outstanding.

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

The following unaudited condensed consolidated financial statements are included herein:

		Page

Condensed consolidated balance sheets as of December 31, 2013 and March 31, 2014 (unaudited)		3

Condensed consolidated statements of operations for the three months ended March 31, 2013 and 2014 (unaudited)		4

Condensed consolidated statements of changes in stockholders' equity for the three months ended March 31, 2014 (unaudited)		5

Condensed consolidated statements of cash flows for the three months ended March 31, 2013 and 2014 (unaudited)		6

Notes to condensed consolidated financial statements (unaudited)		7

Noble Roman's, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

Assets	December 31, 2013			March 31, 2014
Current assets:
Cash	$	157,787		$	400,491
Accounts receivable - net		1,268,788			1,352,853
Inventories		337,822			331,351
Prepaid expenses		472,065			513,142
Deferred tax asset - current portion		1,250,000			1,250,000
Total current assets		3,486,462			3,847,837

Property and equipment:
Equipment		1,361,205			1,364,179
Leasehold improvements		88,718			88,719
		1,449,923			1,452,898
Less accumulated depreciation and amortization		962,502			981,367
Net property and equipment		487,421			471,531
Deferred tax asset (net of current portion)		9,332,024			9,044,243
Other assets including long-term portion of receivables - net		3,067,754			3,079,987
Total assets	$	16,373,661		$	16,443,598

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term notes payable to bank	$	1,216,250		$	1,216,250
Accounts payable and accrued expenses		818,803			743,088
Total current liabilities		2,035,053			1,959,338

Long-term obligations:
Notes payable to bank – net of current portion		2,635,208			2,331,146
Total long-term liabilities		2,635,208			2,331,146

Stockholders' equity:
Common stock – no par value (25,000,000 shares authorized, 19,585,089 issued and outstanding as of December 31, 2013 and 19,801,087 issued and outstanding as of March 31, 2014)		23,498,401			23,509,360
Accumulated deficit		(11,795,001	)		(11,356,246	)
Total stockholders' equity		11,703,400			12,153,114
Total liabilities and stockholders’ equity	$	16,373,661		$	16,443,598

See accompanying notes to condensed consolidated financial statements (unaudited).

Noble Roman's, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended March 31,
Revenue:	2013		2014
Royalties and fees	$	1,782,306	$	1,814,066
Administrative fees and other		1,276		20,686
Restaurant revenue		107,156		76,952
Total revenue		1,890,738		1,911,704

Operating expenses:
Salaries and wages		249,203		259,894
Trade show expense		129,549		126,261
Travel expense		44,315		47,118
Other operating expenses		181,363		188,586
Restaurant expenses		105,107		91,428
Depreciation and amortization		28,346		27,821
General and administrative		406,984		394,007
Total expenses		1,144,867		1,135,115
Operating income		745,871		776,589

Interest and other expense		53,157		50,053
Income before income taxes		692,714		726,536

Income tax expense		274,384		287,781
Net income		418,330		438,755

Cumulative preferred dividends		24,953		-

Net income available to common stockholders	$	393,377	$	438,755


Earnings per share – basic:
Net income	$	.02	$	.02
Net income available to common stockholders	$	.02	$	.02
Weighted average number of common shares outstanding		19,516,589		19,771,765


Diluted earnings per share:
Net income	$	.02	$	.02
Net income available to common stockholders	$	.02	$	.02
Weighted average number of common shares outstanding		20,244,804		21,253,507

See accompanying notes to condensed consolidated financial statements (unaudited).

Noble Roman's, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in

Stockholders' Equity

(Unaudited)

	Common Stock				Accumulated
	Shares		Amount		Deficit			Total

Balance at December 31, 2013		19,585,089	$	23,498,401	$	(11,795,001	)	$	11,703,400

Cashless exercise of employee stock options		214,998

Net income for three months ended March 31, 2014						438,755			438,755

Exercise of employee stock options		1,000		830					830

Amortization of value of employee stock options				10,129					10,129

Balance at March 31, 2014		19,801,087	$	23,509,360	$	(11,356,246	)	$	12,153,114

See accompanying notes to condensed consolidated financial statements (unaudited).

Noble Roman's, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2013			2014
OPERATING ACTIVITIES
Net income	$	418,330		$	438,755
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		41,121			28,993
Deferred income taxes		274,384			287,781
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable		(152,395	)		(84,065	)
Inventories		(24,253	)		6,471
Prepaid expenses		(97,000	)		(41,076	)
Other assets		(74,039	)		(12,232	)
Increase in:
Accounts payable and accrued expenses		35,686			400
NET CASH PROVIDED BY OPERATING ACTIVITIES		421,834			625,027

INVESTING ACTIVITIES
Purchase of property and equipment		(2,975	)		(2,975	)
NET CASH USED IN INVESTING ACTIVITIES		(2,975	)		(2,975	)

FINANCING ACTIVITIES
Payment of cumulative preferred dividends		(24,953	)		-
Payment of principal on outstanding debt		(312,500	)		(304,063	)
Proceeds from the exercise of employee stock options		-			830
NET CASH USED IN FINANCING ACTIVITIES		(337,453	)		(303,233	)

DISCONTINUED OPERATIONS
Payment of obligations from discontinued operations		(61,537	)		(76,115	)

Increase in cash		19,869			242,704
Cash at beginning of period		144,354			157,787
Cash at end of period	$	164,223		$	400,491

Supplemental schedule of non-cash investing and financing activities

In 2013, an option to purchase 20,000 shares at $.83 per share was exercised pursuant to the cashless exercise provision on the option and the holder received 12,454 shares of common stock, options to purchase 215,000 shares at $.36 per share were exercised pursuant to the cashless exercise provision of the options and the holders received 179,817 shares, and an option to purchase 40,000 shares at $.95 per share was exercised pursuant to the cashless exercise provision of the option and the holder received 22,727 shares.

Cash paid for interest

43,880

43,000

See accompanying notes to condensed consolidated financial statements (unaudited).

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 - The accompanying unaudited interim condensed consolidated financial statements, included herein, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated statements have been prepared in accordance with the Company’s accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2013 and should be read in conjunction with the audited consolidated financial statements and the notes thereto included in that report. Unless the context indicates otherwise, references to the “Company” mean Noble Roman’s, Inc. and its subsidiaries.

In the opinion of the management of the Company, the information contained herein reflects all adjustments necessary for a fair presentation of the results of operations and cash flows for the interim periods presented and the financial condition as of the dates indicated, which adjustments are of a normal recurring nature. The results for the three-month period ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.

Note 2 – Royalties and fees include $110,000 and $38,000 for the three-month periods ended March 31, 2013 and 2014, respectively, of initial franchise fees. Royalties and fees included $13,327 and $11,926 for the three-month periods ended March 31, 2013 and 2014, respectively, of equipment commissions. Royalties and fees, less initial franchise fees and equipment commissions were $1,658,979 and $1,764,140 for the three-month periods ended March 31, 2013 and 2014, respectively. Most of the cost for the services required to be performed by the Company are incurred prior to the franchise fee income being recorded, which is based on a contractual liability for the franchisee. For the most part, the Company’s royalty income is paid by the Company initiating a draft on the franchisee’s account by electronic withdrawal.

There were 2,029 franchises/licenses in operation on December 31, 2013 and 2,045 franchises/licenses in operation on March 31, 2014. During the three-month period ended March 31, 2014, there were 19 new outlets opened and three outlets closed. In the ordinary course, grocery stores from time to time add our licensed products, remove them and subsequently re-offer them. Therefore, it is unknown how many licensed grocery store units have left the system.

Note 3 - The following table sets forth the calculation of basic and diluted earnings per share for the three-month period ended March 31, 2013:

	Three Months Ended March 31, 2013
	Income (Numerator)			Shares (Denominator)		Per-Share Amount
Net income	$	418,330			19,516,589	$	.02
Less preferred stock dividends		(24,953	)

Earnings per share - basic
Income available to common stockholders		393,377					.02

Effect of dilutive securities
Options					361,549
Convertible preferred stock		24,953			366,666

Diluted earnings per share
Income available to common stockholders and assumed conversions	$	418,330			20,244,804	$	.02

The following table sets forth the calculation of basic and diluted earnings per share for the three-month period ended March 31, 2014:

	Three Months Ended March 31, 2014
	Income (Numerator)		Shares (Denominator)		Per-Share Amount
Net income	$	438,755		19,771,765	$	.02

Effect of dilutive securities
Options				1,481,742

Diluted earnings per share
Net income per share with assumed conversions	$	438,755		21,253,507	$	.02

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

General Information

Noble Roman’s, Inc., an Indiana corporation incorporated in 1972 with two wholly-owned subsidiaries, Pizzaco, Inc. and N.R. Realty, Inc., sells and services franchises and licenses for non-traditional foodservice operations under the trade names “Noble Roman’s Pizza”, “Noble Roman’s Take-N-Bake” and “Tuscano’s Italian Style Subs”. The concepts’ hallmarks include high quality pizza and sub sandwiches, along with other related menu items, simple operating systems, fast service times, labor-minimizing operations, attractive food costs and overall affordability. Since 1997, the Company has focused its efforts and resources primarily on franchising and licensing for non-traditional locations and has awarded franchise and/or license agreements in all 50 states plus Washington, D.C., Puerto Rico, the Bahamas, Italy, the Dominican Republic and Canada. Although from 2005 to 2007, the Company sold some franchises for its concepts in traditional restaurant locations, the Company currently focuses all of its sales efforts on (1) franchises for non-traditional locations primarily in convenience stores and entertainment facilities, (2) franchises for stand-alone Noble Roman’s Take-N-Bake Pizza retail outlets and (3) license agreements for grocery stores to sell the Noble Roman’s Take-N-Bake Pizza and related products. Pizzaco, Inc. owns and operates the two Company locations used for testing and demonstration purposes. The Company has no plans to operate any other locations. References in this report to the “Company” are to Noble Roman’s, Inc. and its subsidiaries, unless the context requires otherwise.

Products & Systems

The Company’s non-traditional franchises provide high-quality products, simple operating systems, labor minimizing operations and attractive food costs.

Noble Roman’s Pizza

The hallmark of Noble Roman’s Pizza is “Superior quality that our customers can taste.” Every ingredient and process has been designed with a view to produce superior results.

●	Crust made with only specially milled flour with above average protein and yeast.

●	Fresh packed, uncondensed sauce made with secret spices, parmesan cheese and vine-ripened tomatoes.

●	100% real cheese blended from mozzarella and muenster, with no soy additives or extenders.

●	100% real meat toppings, with no additives or extenders – a distinction compared to many pizza concepts.

●	Vegetable and mushroom toppings that are sliced and delivered fresh, never canned.

●	An extended product line that includes breadsticks and cheesy stix with dip, pasta, baked sandwiches, salads, wings and a line of breakfast products.

●	A fully-prepared pizza crust that captures the made-from-scratch pizzeria flavor which is delivered to the franchise location shelf-stable so that dough handling is no longer an impediment to a consistent product.

Noble Roman’s Take-N-Bake

The Company developed a take-n-bake version of its pizza as an addition to its menu offerings. The take-n-bake pizza is designed as an add-on component for new and existing convenience stores, as a stand-alone offering for grocery stores and as the centerpiece of the Company’s stand-alone take-n-bake retail outlet concept. The Company offers the take-n-bake program in grocery stores as a license agreement rather than a franchise agreement. The stand-alone take-n-bake pizza is offered under a franchise agreement. In convenience stores, take-n-bake is an available menu offering under the existing franchise/license agreement. The Company uses the same high quality pizza ingredients for its take-n-bake pizza as with its standard pizza, with slight modifications to portioning for enhanced home baking performance.

Tuscano’s Italian Style Subs

Tuscano’s Italian Style Subs is a separate non-traditional location concept that focuses on sub sandwich menu items. Tuscano’s was designed to be comfortably familiar from a customer’s perspective but with many distinctive features that include an Italian-themed menu. The franchise fee and ongoing royalty for a Tuscano’s is identical to that charged for a Noble Roman’s Pizza franchise. The Company awards Tuscano’s franchises in the same facilities as Noble Roman’s Pizza franchises. Noble Roman’s has developed a grab-n-go service system for a selected portion of the Tuscano’s menu. The grab-n-go system is designed to add sales opportunities at existing non-traditional Noble Roman’s Pizza locations.

Business Strategy

The Company’s business strategy includes the following principal elements:

1. Focus on revenue expansion through three primary growth vehicles:

Sales of Non-Traditional Franchises and Licenses. The Company believes it has an opportunity for increasing unit growth and revenue within its non-traditional venues, particularly with convenience stores, travel plazas and entertainment facilities. The Company’s franchises/licenses in non-traditional locations are foodservice providers within a host business, and usually require a substantially lower investment compared to a stand-alone traditional location. Non-traditional franchises/licenses are most often sold into pre-existing facilities as a service and/or revenue enhancer for the underlying business.

As a result of the Company’s major focus on non-traditional franchising/licensing, franchising stand-alone take-n-bake retail outlets and licensing take-n-bake pizzas for grocery stores, its requirements for overhead and operating costs are significantly less than if it were focusing on traditional franchising. In addition, the Company does not operate restaurants except for two restaurants it uses for product testing, demonstration and training purposes. This allows for a more complete focus on selling and servicing franchises and licenses to pursue increased unit growth.

Licensing and Franchising the Company’s Take-N-Bake Program. The take-n-bake pizza is designed as a stand-alone offering for grocery stores, an add-on component for new or existing convenience store franchisees/licensees and stand-alone franchise locations. Since the Company started offering take-n-bake pizza to grocery store chains in late 2009 through May 5, 2014, the Company has signed agreements for nearly 1,800 grocery store locations to operate the take-n-bake pizza program and has opened the take-n-bake pizza program in more than 1,300 of those locations. The Company is currently in discussions with several grocery store operators for numerous locations for additional take-n-bake license agreements. Recently, the Company re-designed its packaging for the 12” take-n-bake pizza in grocery stores, which is a treated bottom aluminum baking pan with a clear plastic top, added new mega-topped 14” pizzas (designed as value appeal to the customers) presented in the same packaging design and added a new gluten-free pizza. The Company’s strategy with these new products is to secure more shelf space in existing locations, to add appeal of the program in order to attract new locations, and to generally increase sales of the Company’s products to new and existing customers.

Franchising the Company’s Take-N-Bake Program for Stand-Alone Locations. In 2012, the Company developed a stand-alone take-n-bake pizza prototype and has entered into agreements for 57 locations as of May 5, 2014. The first stand-alone take-n-bake pizza location opened in October 2012 and now there have been a total of 26 locations opened. 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, the new gluten-free pizza and Noble Roman’s famous breadsticks with spicy cheese sauce, all in a convenient cook-at-home format. Additional menu items include fresh salads, cookie dough, cinnamon rounds, bake-able pasta and more. The Company is currently in discussions with several prospects for its stand-alone program and is advertising for additional franchisees through various web-based franchise referral systems. In addition, the Company demonstrates the

Noble Roman’s stand-alone Take-N-Bake Pizza concept in select franchise shows.

2. Leverage the results of research and development advances.

The Company has invested significant time and effort to create what it considers to be competitive advantages in its products and systems for non-traditional and take-n-bake locations. The Company will continue to make these investments the focal point in its marketing process. The Company believes that the quality of its products, their cost-effectiveness, relatively simple production and service systems, and its diverse, modularized menu offerings all contribute to the Company’s strategic attributes and growth potential. Every ingredient and process was designed with a view to producing superior results. The menu items were developed to be delivered in a ready-to-use form requiring only on-site assembly and baking except for take-n-bake pizza, which is sold to bake at home, and certain other menu items which require no assembly. The Company believes this process results in products that are great tasting, quality consistent, easy to assemble, relatively low in food cost, and require very low amounts of labor, thus allowing for a significant competitive advantage due to the speed at which the products can be prepared, baked and served to customers.

For example, in convenience stores and travel plazas, at competitive retail prices, gross margins on Noble Roman’s products, after cost of product and royalty, can range from approximately 60% to 68%. The Company believes it maintains a competitive advantage in product cost by using carefully selected, independent third-party manufacturers and independent third-party distributors. This allows the Company to contract for production of proprietary products and services with highly efficient suppliers that have the potential to keep costs low compared to many competing systems whereby the franchisor owns and operates production and distribution systems much less efficiently.

3. Aggressively communicate the Company’s competitive advantages to its target market of potential franchisees and licensees.

The Company utilizes the following methods of reaching potential franchisees and licensees and to communicate its product and system advantages: (1) calling from both acquired and in-house prospect lists; (2) frequent direct mail campaigns to targeted prospects; (3) web-based lead capturing; (4) live demonstrations at trade and food shows; and (5) in the case of prospects for the stand-alone take-n-bake outlets, requiring visits to the Company headquarters to meet management and to sample the products. In particular, the Company has found that conducting live demonstrations of its systems and products at selected trade and food shows across the country allows it to demonstrate advantages that can otherwise be difficult for a potential prospect to visualize. There is no substitute for actually tasting the difference in a product’s quality to demonstrate the advantages of the Company’s products. The Company carefully selects the national and regional trade and food shows where it either has an existing relationship or considerable previous experience to expect that such shows offer opportunities for fruitful lead generation.

The Company’s Chairman and CEO has assumed the lead position at all of the Company’s trade shows across the country, which is the primary means for demonstrating its product and system advantages to thousands of prospective non-traditional and grocery operators. This focus by the Company’s Chairman and CEO has underscored the Company’s current, overriding orientation towards new revenue generation.

Business Operations

Distribution

The substantial majority of the Company’s products are manufactured pursuant to the Company’s recipes and formulas by third-party manufacturers under contracts between the Company and such manufacturers. These contracts require the manufacturers to produce products meeting the Company’s specifications and to sell them to Company-approved distributors at a price negotiated between the Company and the manufacturer.

At present, the Company has distribution agreements with 11 primary distributors strategically located throughout the United States. The distribution agreements require the primary distributors to maintain adequate inventories of all products necessary to meet the needs of the Company’s franchisees and licensees in their distribution area for weekly deliveries to the franchisee/licensee locations plus the grocery store distributors in their respective territories. Each of the primary distributors purchases the products from the manufacturer, under payment terms agreed upon by the manufacturer and the distributor, and distributes the products to the franchisee/licensee at a price fixed by the distribution agreement, which is landed cost plus a contracted mark-up for distribution. Payment terms to the distributor are agreed upon between each franchisee/licensee and the respective distributor. In addition, the Company has agreements with several grocery store distributors located in various parts of the country which agree to buy their products from one of the primary distributors and to distribute take-n-bake products to their grocery store customers.

Franchising

The Company sells franchises into various non-traditional and traditional venues.

The initial franchise fees are as follows:

Franchise	Non-Traditional, except Hospitals		Hospitals		Traditional Stand-Alone
Noble Roman’s Pizza	$	6,000	$	10,000	$	15,000
Tuscano’s Subs	$	6,000	$	10,000	$	15,000
Noble Roman’s & Tuscano’s	$	10,000	$	18,000	$	18,000
Noble Roman’s Stand-Alone Take-N-Bake		-		-	$	15,000

The franchise fees are paid upon signing the franchise agreement and, when paid, are deemed fully earned and non-refundable in consideration of the administration and other expenses incurred by the Company in granting the franchises and for the lost and/or deferred opportunities to grant such franchises to any other party.

Licensing

Noble Roman’s Take-n-Bake Pizza licenses for grocery stores are governed by a supply agreement. The supply agreement generally requires the licensee to: (1) purchase proprietary ingredients from a Noble Roman’s-approved distributor; (2) assemble the products using only Noble Roman’s approved ingredients and recipes; and (3) display products in a manner approved by Noble Roman’s using Noble Roman’s point-of-sale marketing materials. Pursuant to the distribution agreements, the distributors place an additional mark-up, as determined by the Company, above their normal selling price on the key ingredients as a fee to the Company in lieu of royalty. The distributors agree to segregate this additional mark-up upon invoicing the licensee, to hold the amount in trust for the Company and to remit such fees to the Company within ten days after the end of each month.

Financial Summary

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 may differ from those estimates. The Company periodically evaluates the carrying values of its assets, including property, equipment and related costs, accounts receivable and deferred tax assets, to assess whether any impairment indications are present due to (among other factors) recurring operating losses, significant adverse legal developments, competition, changes in demand for the Company’s products or changes in the business climate which affect the recovery of recorded value. If any impairment of an individual asset is evident, a charge will be provided to reduce the carrying value to its estimated fair value.

The following table sets forth the percentage relationship to total revenue of the listed items included in Noble Roman’s consolidated statements of operations for the three-month periods ended March 31, 2013 and 2014, respectively.

	Three Months Ended March 31,
	2013			2014
Royalties and fees		94.3	%		94.9	%
Administrative fees and other		0.1			1.1
Restaurant revenue		5.6			4.0
Total revenue		100.0	%		100.0	%
Operating expenses:
Salaries and wages		13.2			13.6
Trade show expense		6.9			6.6
Travel expense		2.3			2.5
Other operating expense		9.6			9.9
Restaurant expenses		5.6			4.7
Depreciation and amortization		1.5			1.4
General and administrative		21.5			20.6
Total expenses		60.6			59.3
Operating income		39.4			40.7
Interest and other expense		2.8			2.6
Income before income taxes		36.6			38.1
Income tax expense		14.5			15.1
Net income		22.1	%		23.0	%

Results of Operations

Total revenue increased from $1.89 million to $1.91 million for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. One-time fees, franchisee fees and equipment commissions (“upfront fees”) decreased from $123,000 to $50,000 in the first quarter 2014 compared to the first quarter 2013. Royalties and fees increased from $1.66 million to $1.76 million for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. The breakdown of royalties and fees, less upfront fees, for the three month periods ended March 31, 2013 and 2014, respectively, were as follows: royalties and fees from non-traditional franchises other than grocery stores were $1.16 million and $1.17 million; fees from the grocery stores were $397,000 and $344,000; royalties and fees from traditional locations were $77,000 and $71,000; and royalties and fees from stand-alone take-n-bake locations were $24,000 and $179,000, reflecting the increase in the number of stand-alone take-n-bake locations.

Restaurant revenue decreased from $107,000 to $77,000 for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. The Company only operates two restaurants which it uses for demonstration, training and testing purposes.

Salaries and wages increased from 13.2% to 13.6% of total revenue for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. Actual salaries and wages increased from $249,000 to $260,000 but were partially offset by an increase in total revenue.

Trade show expenses decreased from 6.9% of total revenue to 6.6% of total revenue for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. Actual trade show expense decreased from $130,000 to $126,000. The primary reason for this decrease was being more selective in attendance of trade shows.

Travel expenses increased from 2.3% of total revenue to 2.5% of total revenue for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. Actual travel expense increased from $44,000 to $47,000 for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. The primary reason for the increase was an increase in the number of Franchise Representatives traveling to locations.

Other operating expenses increased, as a percentage of total revenue, from 9.6% to 9.9% for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. Actual operating expenses increased from $181,000 to $189,000. The primary reason for the increase was an increase in group insurance cost, increase in payroll taxes and an increase in general insurance cost.

Restaurant expenses decreased as a percentage of total revenue from 5.6% to 4.7% for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. The primary reason for the decrease was a decrease in restaurant revenue. The Company only operates two restaurants which it is uses for demonstration, training and testing purposes.

General and administrative expenses as a percentage of total revenue decreased from 21.5% to 20.6% for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. Actual general and administrative expense decreased from $407,000 to $394,000 for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. This decrease was primarily the result of a reduction in amortization of the expense for stock options which were fully amortized.

Total expenses decreased as a percentage of total revenue from 60.6% to 59.3% for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. Actual expenses decreased from $1.145 million to $1.135 million for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. This resulted from the Company’s commitment to continue to tightly control expenses while increasing total revenue.

Operating income increased as a percentage of total revenue from 39.4% to 40.7% for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. Actual operating income increased from $746,000 to $777,000 for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. This increase was a result of the Company’s strategy of seeking to increase revenue while controlling expenses.

Interest expense decreased as a percentage of total revenue from 2.8% to 2.6% for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. This decrease was primarily the result of continued monthly amortization of the Company’s outstanding debt partially offset by the additional borrowing in October 2013 in order to redeem all Series B Preferred Stock outstanding.

Net income increased from $418,000 to $439,000 for the three-month period ended March 31, 2014 compared to the corresponding period in 2013. This increase was primarily the result of the Company’s continuing efforts to increase revenue while controlling expenses and the Company continuing to reduce its outstanding debt. Earnings per share was $.02 in both periods.

Liquidity and Capital Resources

The Company’s current strategy is to grow its business by concentrating on franchising/licensing new non-traditional locations, licensing grocery stores to sell take-n-bake pizza and other retail products, and franchising stand-alone take-n-bake locations. This strategy is intended to not require any significant increase in expenses. The Company does not operate, and does not intend to operate in the future, any restaurants except for two locations for testing and demonstration purposes. This strategy requires limited overhead and operating expense and does not require significant capital investment.

The Company’s current ratio was 2.0-to-1 as of March 31, 2014 compared to 1.7-to-1 as of December 31, 2013.

On May 15, 2012, the Company entered into a Credit Agreement with BMO Harris Bank, N.A. (the “Bank”) for a term loan in the amount of $5.0 million which was repayable in 48 equal monthly principal installments of approximately $104,000 plus interest with a final payment due on May 15, 2016. Interest on the unpaid principal balance is payable at a rate per annum of LIBOR plus 4%. The proceeds from the term loan, net of certain fees and expenses associated with obtaining the term loan, were used to repay then-existing Bank indebtedness and borrowing from an officer of the Company. On October 31, 2013, the Company entered into a First Amendment to the Credit Agreement (“Amendment”) with the Bank. The Amendment maintains the terms of the term loan, as described above, except for reducing the monthly principal payments from $104,000 to approximately $80,700 and extending the loan’s maturity to February 15, 2017. All other terms and conditions of the term loan remain the same including interest on the unpaid principal at a rate per annum of LIBOR plus 4%. The Amendment also provided for a new term loan II in the original amount of $825,000 requiring monthly principal payments of approximately $20,600 per month commencing on November 15, 2013 and continuing thereafter until the final payment on February 15, 2017. The term loan II provides for interest on the unpaid principal balance to be paid monthly at a rate per annum of LIBOR plus 6.08%. Proceeds from term loan II were used to redeem the Series B Preferred Stock.

As a result of the financial arrangements described above and the Company’s cash flow projections, the Company believes it will have sufficient cash flow to meet its obligations and to carry out its current business plan for the foreseeable future. The Company’s cash flow projections are based on the Company’s strategy of focusing on growth in non-traditional venues, growth in the number of grocery store locations licensed to sell the take-n-bake pizza and the anticipated growth from franchising stand-alone take-n-bake locations.

The Company does not anticipate that any of the recently issued Statement of Financial Accounting Standards will have a material impact on its Statement of Operations or its Balance Sheet.

Forward Looking Statements

The statements contained above 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, non-renewal of franchise agreements, shifts in market demand, the success of new franchise programs with limited operating history including the stand-alone take-n-bake locations, general economic conditions, changes in demand for the Company's products or franchises, the success or failure of individual franchisees and changes in prices or supplies of food ingredients and labor as well as the factors discussed under “Risk Factors” as contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. 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.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s exposure to interest rate risk relates primarily to its variable-rate debt. As of March 31, 2014, the Company had outstanding variable interest-bearing debt in the aggregate principal amount of $3.5 million. The Company’s current borrowings are at a variable rate tied to the London Interbank Offered Rate (“LIBOR”) plus 4% per annum on $2.83 million and LIBOR plus 6.08% on $722,000 adjusted on a monthly basis. Based on its current debt structure, for each 1% increase in LIBOR the Company would incur increased interest expense of approximately $30,000 over the succeeding 12-month period.

ITEM 4. Controls and Procedures

Based on his evaluation as of the end of the period covered by this report, Paul W. Mobley, the Company’s Chief Executive Officer and Chief Financial Officer, has concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) and internal controls over financial reporting are effective. There have been no changes in internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings.

The Company is not involved in material litigation against it.

ITEM 6. Exhibits.

(a) Exhibits: See Exhibit Index appearing on page 19.

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: May 5, 2014	By:	/s/ Paul W. Mobley
		Paul W. Mobley, Chairman, Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer (Authorized Officer and Principal Financial Officer)

Index to Exhibits

Exhibit Number		Description

3.1		Amended Articles of Incorporation of the Registrant, filed as an exhibit to the Registrant’s Amendment No. 1 to the Post Effective Amendment No. 2 to Registration Statement on Form S-1 filed July 1, 1985 (SEC File No.2-84150), is incorporated herein by reference.

3.2		Amended and Restated By-Laws of the Registrant, as currently in effect, filed as an exhibit to the Registrant’s Form 8-K filed December 23, 2009, is incorporated herein by reference.

3.3		Articles of Amendment of the Articles of Incorporation of the Registrant effective February 18, 1992 filed as an exhibit to the Registrant’s Registration Statement on Form SB-2 (SEC File No. 33-66850), ordered effective on October 26, 1993, is incorporated herein by reference.

3.4		Articles of Amendment of the Articles of Incorporation of the Registrant effective May 11, 2000, filed as Annex A and Annex B to the Registrant’s Proxy Statement on Schedule 14A filed March 28, 2000, is incorporated herein by reference.

3.5		Articles of Amendment of the Articles of Incorporation of the Registrant effective April 16, 2001 filed as Exhibit 3.4 to Registrant’s annual report on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.

3.6		Articles of Amendment of the Articles of Incorporation of the Registrant effective August 23, 2005, filed as Exhibit 3.1 to the Registrant's current report on Form 8-K filed August 29, 2005, is incorporated herein by reference.

4.1		Specimen Common Stock Certificates filed as an exhibit to the Registrant’s Registration Statement on Form S-18 filed October 22, 1982 and ordered effective on December 14, 1982 (SEC File No. 2-79963C), is incorporated herein by reference.

10.1		Employment Agreement with Paul W. Mobley dated January 2, 1999 filed as Exhibit 10.1 to Registrant’s annual report on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.

10.2		Employment Agreement with A. Scott Mobley dated January 2, 1999 filed as Exhibit 10.2 to Registrant’s annual report on Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.

10.3		Credit Agreement with BMO Harris Bank, N.A., dated May 25, 2012, filed as Exhibit 10.17 to the Registrant’s quarterly report on Form 10-Q filed on August 13, 2012, is incorporated herein by reference.

10.4		First Amendment to Credit Agreement with BMO Harris Bank, N.A. dated October 31, 2013, filed as Exhibit 10.4 to the Registrant’s annual report on Form 10-K filed on March 12, 2014, is incorporated herein by reference.

10.5		Promissory Note (Term Loan) with BMO Harris Bank, N.A. dated October 31, 2013, filed as Exhibit 10.5 to the Registrant’s annual report on Form 10-K filed on March 12, 2014, is incorporated herein by reference.

10.6		Promissory Note (Term Loan II) with BMO Harris Bank, N.A. dated October 31, 2013, filed as Exhibit 10.6 to the Registrant’s annual report on Form 10-K filed on March 12, 2014, is incorporated herein by reference.

21.1		Subsidiaries of the Registrant filed in the Registrant’s Registration Statement on Form SB-2 (SEC File No. 33-66850) ordered effective on October 26, 1993, is incorporated herein by reference.

31.1		C.E.O. and C.F.O. Certification under Rule 13a-14(a)/15d-14(a)

32.1		C.E.O. and C.F.O. Certification under Section 1350

101		Interactive Financial Data