NOBLE ROMANS INC - Annual Report: 2019 (Form 10-K)

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

for the fiscal year ended December 31, 2019.

___ 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 of incorporation or organization)	(I.R.S. Employer Identification No.)

6612 E. 75th Street, Suite 450

Indianapolis, Indiana 46250

(Address of principal executive offices)

Registrant’s telephone number, including area code: (317) 634-3377

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes No X

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No X

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 whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes _X_ No _____

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

Large Accelerated Filer___ Accelerated Filer___

Non-Accelerated Filer Smaller Reporting Company X

Emerging Growth Company ___

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

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

The aggregate market value of the common stock held by non-affiliates of the registrant as of

June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price of the registrant’s common shares on such date was approximately $11.2 million.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 22,215,413 shares of common stock as of April 15, 2020.

Documents Incorporated by Reference:

NOBLE ROMAN’S, INC.

FORM 10-K

Year Ended December 31, 2019

Table of Contents

Item		Page
	PART I
1.	Business	4
1A.	Risk Factors	7
1B.	Unresolved Staff Comments	10
2.	Properties	10
3.	Legal Proceedings	10
4.	Mine Safety Disclosures	10

	PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
6.	Selected Financial Data	12
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
7A.	Quantitative and Qualitative Disclosures About Market Risk	20
8.	Financial Statements and Supplementary Data	21
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
9A.	Controls and Procedures	35
9B.	Other Information	35

	PART III
10.	Directors, Executive Officers and Corporate Governance	36
11.	Executive Compensation	37
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
13.	Certain Relationships and Related Transactions, and Director Independence	41
14.	Principal Accountant Fees and Services	41
	PART IV
15.	Exhibits and Financial Statement Schedules	42
16.	Form 10-K Summary	44

PART 1

ITEM 1. BUSINESS

General Information

Noble Roman’s, Inc., an Indiana corporation incorporated in 1972, sells and services franchises and licenses and operates Company-owned foodservice locations for stand-alone restaurants and non-traditional foodservice operations under the trade names “Noble Roman’s Craft Pizza & Pub,” “Noble Roman’s Pizza,” “Noble Roman’s Take-N-Bake,” and “Tuscano’s Italian Style Subs.” References in this report to the “Company” are to Noble Roman’s, Inc. and its two wholly-owned subsidiaries, Pizzaco, Inc. and RH Roanoke, Inc., unless the context requires otherwise. Pizzaco, Inc. currently does not own any locations and has no income or expense. RH Roanoke, Inc. operates a Company-owned non-traditional location.

The Company has been operating, franchising and licensing Noble Roman’s Pizza operations in a variety of stand-alone and non-traditional locations across the country since 1972. Its first Craft Pizza & Pub location opened in January 2017 as a Company-operated restaurant in a northern suburb of Indianapolis, Indiana. Since then, four more Company-operated locations were opened in 2017, 2018 and March 2020 with additional locations under consideration. The Company-operated locations serve as the base for what it sees as the potential future growth driver franchising to experienced, multi-unit restaurant operators with a track record of success. The Company executed an agreement with the first such operator, Indiana’s largest Dairy Queen franchisee with 19 franchised Dairy Queen locations in 2019. The franchisee opened the first franchised Craft Pizza & Pub location in May 2019 and now has a second location under development, which is expected to open in early summer 2020. In November 2019, another franchisee, with an operations background in McDonald's, opened a Craft Pizza & Pub in Evansville, Indiana.

Noble Roman’s Craft Pizza & Pub

The Noble Roman’s Craft Pizza & Pub utilizes many of the basic elements first introduced in 1972 but in a modern atmosphere with up-to-date technology and equipment to maximize speed, enhance quality and perpetuate the taste customers love and expect from a Noble Roman’s.

The Noble Roman’s Craft Pizza & Pub provides for a selection of over 40 different toppings, cheeses and sauces from which to choose. Beer and wine also are featured, with 16 different beers on tap including both national and local craft selections. Wines include 16 affordably priced options by the bottle or glass in a range of varietals. Beer and wine service is provided at the bar and throughout the dining room.

The Company designed the system to enable fast cook times, with oven speeds running approximately 2.5 minutes for traditional pizzas and 5.75 minutes for Sicilian pizzas. Traditional pizza favorites such as pepperoni are options on the menu, but also offered is a selection of Craft Pizza & Pub original pizza creations. The menu also features a selection of contemporary and fresh, made-to-order salads and fresh-cooked pasta. The menu also incorporates baked sub sandwiches, hand-sauced wings and a selection of desserts, as well as Noble Roman’s famous Breadsticks with Spicy Cheese Sauce most of which has been offered in all its locations since 1972.

Additional enhancements include a glass enclosed “Dough Room” where Noble Roman’s Dough Masters hand make all pizza and breadstick dough from scratch in customer view. Also in the dining room is a “Dusting & Drizzle Station” where guests can customize their pizzas after they are baked with a variety of toppings and drizzles, such as rosemary-infused olive oil, honey and Italian spices. Kids and adults enjoy Noble Roman’s self-serve root beer tap, which is also part of a special menu for customers 12 and younger. Throughout the dining room and the bar area there are many giant screen television monitors for sports and the nostalgic black and white shorts featured in Noble Roman’s since 1972.

The Company designed its new curbside service for carry-out customers, called “Pizza Valet Service,” to create added value and convenience. With Pizza Valet Service, customers place orders ahead, drive into the restaurant’s reserved valet parking spaces and have their pizza run to their vehicle by specially uniformed pizza valets. Customers who pay when they place their orders are able to drive up and leave with their order very quickly without stepping out of their vehicle. For those who choose to pay after they arrive, pizza valets can take credit card payments on their mobile payment devices right at the customer's vehicle. With the fast baking times, the entire experience, from order to pick-up can take as little as 12 minutes.

Noble Roman’s Pizza For Non-Traditional Locations

In 1997, the Company started franchising non-traditional locations (a Noble Roman’s pizza operation within some other business or activity that had existing traffic) such as entertainment facilities, hospitals, convenience stores and other types of facilities. These locations utilize the two pizza styles the Company started with in 1972, along with its great tasting, high quality ingredients and menu extensions.

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

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A fully-prepared pizza crust that captures the made-from-scratch pizzeria flavor which gets delivered to non-traditional locations in a shelf-stable condition so that dough handling is no longer an impediment to a consistent product, which otherwise is a challenge in non-traditional locations.

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Fresh packed, uncondensed and never cooked sauce made with secret spices, parmesan cheese and vine-ripened tomatoes in all venues.

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

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

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

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

●

The fully-prepared crust also forms the basis for the Company’s Take-N-Bake pizza for use as an add-on component for its non-traditional franchise base as well as an offering for its grocery store license venue.

Business Strategy

The Company is focused on revenue expansion while continuing to minimize corporate-level overhead. To accomplish this the Company will continue owning and operating a core of Craft Pizza & Pub locations in order to develop what it believes to be a large growth opportunity by franchising to qualified multi-unit franchisees. At the same time, the Company will continue to focus on franchising/licensing for non-traditional locations by franchising primarily to convenience stores and entertainment centers.

The initial franchise fees are as follows:

	Non-Traditional Except Hospitals	Non-Traditional Hospitals	Traditional Stand-Alone
Noble Roman’s Pizza or Craft Pizza & Pub	$7,500	$10,000	$30,000(1)

(1) With the sale of multiple traditional stand-alone franchises to a single franchisee, the franchise fee for the first unit is $30,000, the franchise fee for the second unit is $25,000 and the franchise fee for the third unit and any additional unit is $20,000.

The franchise fees are paid upon signing the franchise agreement and, when paid, are 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.

The Company’s proprietary ingredients are manufactured pursuant to the Company’s recipes and formulas by third-party manufacturers under contracts between the Company and its various manufacturers. These contracts require the manufacturers to produce ingredients meeting the Company’s specifications and to sell them to Company-approved distributors at prices negotiated between the Company and the manufacturer.

The Company utilizes distributors it has strategically identified across the United States. The distributor agreements require the distributors to maintain adequate inventories of all ingredients necessary to meet the needs of the Company’s franchisees and licensees in their distribution areas for weekly deliveries.

Competition

The restaurant industry and the retail food industry in general are very competitive with respect to convenience, price, product quality and service. In addition, the Company competes for franchise and license sales on the basis of product engineering and quality, investment cost, cost of sales, distribution, simplicity of operation and labor requirements. Actions by one or more of the Company’s competitors could have an adverse effect on the Company’s ability to sell additional franchises or licenses, maintain and renew existing franchises or licenses, or sell its products. Many of the Company’s competitors are very large, internationally established companies.

Within the environment in which we compete management has identified what it believes to be certain competitive advantages for the Company. Many of the Company’s competitors in the non-traditional venue were established with little or no organizational history operating traditional foodservice locations. This lack of operating experience may limit their ability to attract and maintain non-traditional franchisees or licensees who, by the nature of the venue, often have little exposure to foodservice operations themselves. The Company’s background in traditional restaurant operations has provided it experience in structuring, planning, marketing, and controlling costs of franchise or license unit operations which may be of material benefit to franchisees or licensees.

The Company’s Noble Roman’s Craft Pizza & Pub format competes with similar restaurants in its service area. Some of the competitors are company-owned, some are franchised locations of large chains and others are independently owned. Some of the competitors are larger and have greater financial resources than the Company.

Seasonality of Sales

Bad winter weather conditions tend to adversely affect sales, especially those of the Craft Pizza & Pubs which are designed for in-store dining and carry-out, which in turn affects Company revenue. Sales of non-traditional franchises or licenses may be affected by seasonalities and holiday periods. Sales to certain non-traditional venues may be slower around major holidays such as Thanksgiving and Christmas, and during the first quarter of the year. Product sales of the non-traditional franchises/licenses may be slower during the first quarter of the year and certain venues such as grocery stores are typically slower during the summer months.

Employees

As of April 21, 2020, the Company employed approximately 29 persons full-time and 98 persons on a part-time, hourly basis, of which 17 of the full-time employees are employed in sales and service of the franchise/license units and 12 in restaurant locations. No employees are covered under a collective bargaining agreement. The Company believes that relations with its employees are good.

Trademarks and Service Marks

The Company owns and protects several trademarks and service marks. Many of these, including NOBLE ROMAN’S®, Noble Roman’s Pizza®, THE BETTER PIZZA PEOPLE®, “Noble Roman’s Take-N-Bake Pizza,”“Noble Roman’s Craft Pizza & Pub®,” and “Tuscano’s Italian Style Subs®,” are registered with the U.S. Patent and Trademark Office as well as with the corresponding agencies of certain other foreign governments. The Company believes that its trademarks and service marks have significant value and are important to its sales and marketing efforts.

Government Regulation

The Company and its franchisees and licensees are subject to various federal, state and local laws affecting the operation of the respective businesses. Each location, including the Company’s Craft Pizza & Pub locations, are subject to licensing and regulation by a number of governmental authorities, which include health, safety, sanitation, building, employment, alcohol and other agencies and ordinances in the state or municipality in which the facility is located. The process of obtaining and maintaining required licenses or approvals can delay or prevent the opening of a location. Vendors, such as our third-party production and distribution services, are also licensed and subject to regulation by state and local health and fire codes, and U. S. Department of Transportation regulations. The Company, its franchisees, licensees and vendors are also subject to federal and state environmental regulations, as well as laws and regulations relating to minimum wage and other employment-related matters. In certain circumstances, the Company is, or soon may be, subject to various local, state and/or federal laws requiring disclosure of nutritional and/or ingredient information concerning the Company’s products, its packaging, menu boards and/or other literature. Changes in the laws and rules applicable to the Company or its franchisees or licensees, or their interpretation, could have a material adverse effect on the Company’s business.

The Company is subject to regulation by the Federal Trade Commission (“FTC”) and various state agencies pursuant to federal and state laws regulating the offer and sale of franchises. Several states also regulate aspects of the franchisor-franchisee relationship. The FTC requires the Company to furnish to prospective franchisees a disclosure document containing specified information. Several states also regulate the sale of franchises and require registration of a franchise disclosure document with state authorities. Substantive state laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states and bills have been introduced in Congress from time to time that would provide for additional federal regulation of the franchisor-franchisee relationship in certain respects. State laws often limit, among other things, the duration and scope of non-competition provisions and the ability of a franchisor to terminate or refuse to renew a franchise. Some foreign countries also have disclosure requirements and other laws regulating franchising and the franchisor-franchisee relationship, and the Company is subject to applicable laws in each jurisdiction where it seeks to market additional franchised units.

Impact of COVID-19 Pandemic

In the first quarter of 2020, a novel strain of corona virus (COVID-19) emerged and spread throughout the United States. The World Health Organization recognized COVID-19 as a pandemic in March 2020. In response to the pandemic, the U.S. federal government and various state and local governments have, among other things, imposed travel and business restrictions, including stay-at-home orders and other guidelines that required restaurants and bars to close or restrict inside dining. The pandemic has resulted in significant, economic volatility, uncertainty and disruption, reduced commercial activity and weakened economic conditions in the regions in which we and our franchisees operate.

The pandemic and the governmental response is having a significant adverse impact on the Company, due to, among other things, governmental restrictions, reduced customer traffic, staffing challenges and supply difficulties. All Company-owned Craft Pizza & Pub restaurants are located in the State of Indiana. On March 16, 2020, by order of the Governor of the State of Indiana (the “Governor”), all restaurants within Indiana were ordered to close for inside dining. Due to the order, all Craft Pizza & Pub restaurants have been open for carry-out only, primarily through the Company’s Pizza Valet system and third-party delivery providers. On May 1, 2020, the Governor issued another order allowing restaurants to be open for inside dining for up to 50% of capacity as of May 11, 2020, and on June 14, 2020 up to 75% of capacity, plus bars may open up to 50% of capacity, and on July 4, 2020 restaurants and bars may resume at 100% capacity. As the duration and scope of the pandemic is uncertain, these orders are subject to further modification, which could adversely affect the Company. Further, the Company can provide no assurance the phase-out of restrictions will have a positive effect on the Company’s business.

Several other states and municipalities in the United States have also temporarily restricted travel and suspended the operation of dine-in restaurants in light of COVID-19, which has negatively affected our franchised operations. Host facilities for our non-traditional franchises may also be adversely impacted by these developments. The uncertainty and disruption in the U.S. economy caused by the pandemic are likely to adversely impact the volume and resources of potential franchisees for both our Craft Pizza & Pub and non-traditional venues. For additional information regarding the risks of the COVID-19 pandemic, see Part I, Item 1A “Risk Factors.”

Available Information

We make available, free of charge through our Internet website (http://www.nobleromans.com), our latest Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file these reports with, or furnish them to, the Securities and Exchange Commission. The information on our website is not incorporated into this annual report.

ITEM 1A. RISK FACTORS

All phases of the Company’s operations are subject to a number of uncertainties, risks and other influences, many of which are outside of its control, and any one or a combination of which could materially affect its results of operations. Important factors that could cause actual results to differ materially from the Company’s expectations are discussed below. Prospective investors should carefully consider these factors before investing in our securities as well as the information set forth under “Forward-Looking Statements” in Item 7 of this report. These risks and uncertainties include:

Current COVID-19 pandemic.

The current COVID-19 pandemic, including the governmental response to it, is having a significant adverse impact on the Company’s business, including reduced customer traffic and staffing challenges and could lead to supply difficulties, some of which the Company has already experienced. All of the Company’s Craft Pizza & Pub restaurants are located in the State of Indiana, the Governor of which has implemented significant restrictions on the operation of restaurants in response to the pandemic. The Company has been addressing these restrictions by (among other things) promoting the Company’s Pizza Valet service, for carry-out, in order to replace a portion of the lost revenue from the dining room, but those efforts may not be fully successful. Several other states and municipalities in the United States have also temporarily suspended the operation of dine-in restaurants in light of COVID-19, which has impacted our franchised operations. Moreover, host facilities for our non-traditional franchises may be adversely impacted by these developments. Additionally, viruses may be transmitted through human contact, and the risk and perceived risk of contracting viruses could cause potential customers to avoid gathering in public places (including restaurants and non-traditional venues), which could further have adverse effects on our non-traditional business or the franchisee’s ability to adequately staff the locations. If any of the Company’s employees are suspected of having been exposed to COVID-19 or other similar illnesses, we could be required to quarantine some or all such employees or close and disinfect our facilities. The COVID-19 pandemic has resulted in the temporary closure of a number of meat processors throughout the country. The Company has already experienced one minor delay in supply, and could face additional supply disruptions to a minor or major degree which could impact the Company’s ability to serve product with the impacted ingredients. The potential of such disruptions has prompted the Company-operated units to take on a larger than normal supply of certain key ingredients. Depending on the duration of the COVID-19 pandemic, the Company’s ability to execute its growth plans could be adversely affected. These risks and any additional risks associated with COVID-19 or a similar outbreak may materially adversely affect the Company’s business or results of operations, and may impact the Company’s liquidity or financial condition, particularly if these risks persist for a significant amount of time.

Competition from larger companies.

The Company competes with large national companies and numerous regional and local companies for franchise and license sales and with respect to its Company-owned locations. Many of its competitors have greater financial and other resources than the Company. The restaurant industry in general is intensely competitive with respect to convenience, price, product quality and service. In addition, the Company competes for franchise and license sales on the basis of several factors, including product engineering and quality, investment cost, cost of sales, distribution, simplicity of operation and labor requirements. Activities of the Company’s competitors could have an adverse effect on the Company’s ability to sell additional franchises or licenses or maintain and renew existing franchises and licenses or the operating results of the Company’s system.

Dependence on growth strategy.

The Company’s growth strategies include selling new franchises or licenses for non-traditional locations and to expand Craft Pizza & Pub locations by franchising to qualified franchisees and gradually increasing the number of Company-owned Craft Pizza & Pub locations. The opening and success of new locations will depend upon various factors, which include: (1) the traffic generated by and viability of the underlying activity or business in non-traditional locations; (2) the viability of the Craft Pizza & Pub locations; (3) the ability of the franchisees and licensees of either venue to operate their locations effectively; (4) the franchisee's ability to comply with applicable regulatory requirements; and (5) the effect of competition and general economic and business conditions including food and labor costs. Many of the foregoing factors are not within the Company’s control. There can be no assurance that the Company will be able to achieve its plans with respect to the opening and/or operation of new franchises/licenses for Craft Pizza & Pub or non-traditional locations.

Dependence on success of franchisees and licensees.

While an increasing portion of its revenues are being generated by Company-owned operations, a significant portion of the Company’s revenues continues to come from royalties and other fees generated by its franchisees and licensees which are independent operators, and their employees are not the Company’s employees. The Company is dependent on the franchisees to accurately report their weekly sales and, consequently, the calculation of royalties. If the franchisees do not accurately report their sales, the Company’s revenue could decline. The Company provides training and support to franchisees and licensees but the quality of the store operations and collectability of the receivables may be diminished by a number of factors beyond the Company’s control. Consequently, franchisees and licensees may not operate locations in a manner consistent with the Company’s standards and requirements, or may not hire and train qualified managers and other store personnel. If they do not, the Company’s image and reputation may suffer, and its revenues and stock price could decline. While the Company attempts to ensure that its franchisees and licensees maintain the quality of its brand and branded products, franchisees and licensees may take actions that adversely affect the value of the Company’s intellectual property or reputation. Initiatives to increase the Federal minimum wage and/or shortage of available labor could have an adverse financial effect on our franchisees/licensees or the Company by increasing the labor cost.

Dependence on distributors.

The success of the Company’s license and franchise offerings depends upon the Company’s ability to engage and retain unrelated, third-party distributors. The Company’s distributors collect and remit certain of the Company’s royalties and must reliably stock and deliver products to the Company’s licensees and franchisees. The Company’s inability to engage and retain quality distributors, or a failure by distributors to perform in accordance with the Company’s standards, could have a material adverse effect on the Company.

Dependence on consumer preferences and perceptions.

The restaurant industry and the retail food industry is often affected by changes in consumer tastes, national, regional and local economic conditions, demographic trends, traffic patterns and the type, number and location of competing restaurants. The Company could be substantially adversely affected by publicity resulting from food quality, illness, an infection pandemic, injury, other health concerns or operating issues stemming from one restaurant or retail outlet or a limited number of restaurants and retail outlets.

Ability to service our outstanding indebtedness and the dilutive effect of our outstanding warrants.

As of March 20, 2020, the Company has approximately $8.6 million in principal amount debt obligations. Of that debt, $8.0 million is in the form of a senior secured promissory note and $625,000 is in the form of convertible subordinated notes.

On February 7, 2020, the Company entered into a Senior Secured Promissory Note and Warrant Purchase Agreement (the “Agreement”) with Corbel Capital Partners SBIC, L.P. (the “Purchaser”). Pursuant to the Agreement, the Company issued to the Purchaser a senior secured promissory note (the “Senior Note”) in the initial principal amount of $8.0 million. The Company has used or will use the net proceeds of the Agreement as follows: (i) $4.2 million was used to repay the Company’s then-existing bank debt which was in the original amount of $6.1 million; (ii) $1.275 million was used to repay the portion of the Company’s outstanding subordinated convertible debt the maturity date of which most had not previously been extended; (iii) debt issuance costs; and (iv) the remaining net proceeds will be used for working capital or other general corporate purposes, including development of new Company-owned Craft Pizza & Pub locations.

The Senior Note bears cash interest of LIBOR, as defined in the Agreement, plus 7.75%. In addition, the Note requires payment-in-kind interest (“PIK Interest”) of 3% per annum, which will be added to the principal amount of the Senior Note. Interest is payable in arrears on the last calendar day of each month. The Senior Note matures on February 7, 2025. The Senior Note does not require any fixed principal payments until February 28, 2023, at which time required monthly payments of principal in the amount of $33,333 begin and continue until maturity. The Senior Note requires the Company to make additional payments on the principal balance of the Senior Note based on its consolidated excess cash flow, as defined in the Agreement.

In conjunction with the Senior Note, the Company issued to the Purchaser a warrant (the “Corbel Warrant”) to purchase up to 2,250,000 shares of Common Stock. The Corbel Warrant entitles the Purchaser to purchase from the Company, at any time or from time to time: (i) 1,200,000 shares of Common Stock at an exercise price of $0.57 per share (“Tranche 1”), (ii) 900,000 shares of Common Stock at an exercise price of $0.72 per share (“Tranche 2”), and (iii) 150,000 shares of Common Stock at an exercise price of $0.97 per share (“Tranche 3”). The Purchaser is required to exercise the Corbel Warrant with respect to Tranche 1 if the Common Stock is trading at $1.40 per share or higher for a specified period, and is further required to exercise the Corbel Warrant with respect to Tranche 2 if the Common Stock is trading at $1.50 per share or higher for a specified period. Cashless exercise of the Corbel Warrant is only permitted with respect to Tranche 3. The Purchaser has the right, within six months after the issuance of any shares under the Corbel Warrant, to require the Company to repurchase such shares for cash or for put notes, at the Company's discretion. The Corbel Warrant expires on the sixth anniversary of the date of its issuance.

Additionally, the Company previously issued certain units (the “Units”) consisting of a convertible, subordinated, unsecured promissory note (the “Notes”) in an aggregate principal amount of $50,000 and warrants (the “Warrants”) to purchase up to 50,000 shares of the Company’s common stock at a price of $1.00 per share, no par value per share. Following the refinancing described above, $625,000 in principal amount of Notes and the associated Warrants remain outstanding. These Notes mature, and the associated Warrants expire, in January 2023.

Interruptions in supply or delivery of food products.

Dependence on frequent deliveries of product from unrelated third-party manufacturers through unrelated third-party distributors also subjects the Company to the risk that shortages or interruptions in supply caused by contractual interruptions, market conditions, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients. In addition, factors such as inflation, market conditions for cheese, wheat, meats, paper, labor and other items may also adversely affect the franchisees and licensees and, as a result, can adversely affect the Company’s ability to add new franchised or licensed locations.

Dependence on key executives.

The Company’s business has been and will continue to be dependent upon the efforts and abilities of its executive staff generally, and particularly Paul W. Mobley, its Executive Chairman and Chief Financial Officer, and A. Scott Mobley, its President and Chief Executive Officer. The loss of either of their services could have a material adverse effect on the Company.

Federal, state and local laws with regard to the operation of the businesses.

The Company is subject to regulation by the FTC and various state agencies pursuant to federal and state laws regulating the offer and sale of franchises. Several states also regulate aspects of the franchisor-franchisee relationship. The FTC requires the Company to furnish to prospective franchisees a disclosure document containing specified information. Several states also regulate the sale of franchises and require registration of a franchise disclosure document with state authorities. Substantive state laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states, and bills have been introduced in Congress from time to time that would provide for federal regulation of the franchisor-franchisee relationship in certain respects. The state laws often limit, among other things, the duration and scope of non-competition provisions and the ability of a franchisor to terminate or refuse to renew a franchise. Some foreign countries also have disclosure requirements and other laws regulating franchising and the franchisor-franchisee relationship, and the Company would be subject to applicable laws in each jurisdiction where it seeks to market additional franchise units.

Each franchise and Company-owned location is subject to licensing and regulation by a number of governmental authorities, which include health, safety, sanitation, building, alcohol, employment and other agencies and ordinances in the state or municipality in which the facility is located. The process of obtaining and maintaining required licenses or approvals can delay or prevent the opening of a franchise location. Vendors, such as the Company’s third-party production and distribution services, are also licensed and subject to regulation by state and local health and fire codes, and U. S. Department of Transportation regulations. The Company, its franchisees and its vendors are also subject to federal and state environmental regulations.

Indiana law with regard to purchases of the Company’s stock.

Certain provisions of Indiana law applicable to the Company could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could also limit the price that certain investors might be willing to pay in the future for shares of its common stock. These provisions include prohibitions against certain business combinations with persons or groups of persons that become “interested shareholders” (persons or groups of persons who are beneficial owners of shares with voting power equal to 10% or more) unless the board of directors approves either the business combination or the acquisition of stock before the person becomes an “interested shareholder.”

Inapplicability of corporate governance standards that apply to companies listed on a national exchange.

The Company’s stock is quoted on the OTCQB, a Nasdaq-sponsored and operated inter-dealer automated quotation system for equity securities not included on the Nasdaq Stock Market. The Company is not subject to the same corporate governance requirements that apply to exchange-listed companies. These requirements include: (1) a majority of independent directors; (2) an audit committee of independent directors; and (3) shareholder approval of certain equity compensation plans or equity issuances. As a result, quotation of the Company’s stock on the OTCQB limits the liquidity and price of its stock more than if its stock was quoted or listed on a national exchange. There is no assurance that the Company’s stock will continue to be authorized for quotation by the OTCQB or any other market in the future.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company owns no real property. It’s headquarters are located in 8,088 square feet of leased office space in Indianapolis, Indiana. The lease for this property expires in April 2029.

The Company also leases space for its Company-owned restaurants in Westfield, Indiana which expires in January 2027, in Whitestown, Indiana which expires in November 2027, in Fishers, Indiana which expires in January 2028, in Carmel, Indiana which expires in June 2028 and in Brownsburg, Indiana, which expires February 2030.

ITEM 3. LEGAL PROCEEDINGS

The Company, from time to time, is or may become involved in litigation or regulatory proceedings arising out of its normal business operations.

Currently, there are no such pending proceedings which the Company considers to be material.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock is included on the Nasdaq OTCQB and trades under the symbol “NROM.” The over-the-counter market quotations on the Nasdaq OTCQB reflect inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.

Holders of Record

As of April 15, 2020, there were approximately 260 holders of record of the Company’s common stock. This excludes persons whose shares are held of record by a bank, brokerage house or clearing agency.

Dividends

The Company has never declared or paid dividends on its common stock. The Company’s current loan agreement, as described in Note 3 of the notes to the Company’s consolidated financial statements included in Item 8 of this report, prohibits the payment of dividends on common stock.

Sale of Unregistered Securities

None.

Repurchases of Equity Securities

None.

Equity Compensation Plan Information

The following table provides information as of December 31, 2019 with respect to the shares of the Company’s common stock that may be issued under its existing equity compensation plan.

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by stockholders	-	$-	-
Equity compensation plans not approved by stockholders	3,978,167	$.65	(1)
Total	3,978,167	$.65	(1)

(1) The Company may grant additional options under the employee stock option plan. There is no maximum number of shares available

for issuance under the employee stock option plan.

The Company maintains an employee stock option plan for its employees, officers and directors. Any employee, officer and director of the Company is eligible to be awarded options under the plan. The employee stock option plan provides that any options issued pursuant to the plan will generally have a three-year vesting period and will expire ten years after the date of grant. Awards under the plan are periodically made at the recommendation of the Executive Chairman and the Chief Executive Officer and authorized by the Board of Directors. The employee stock option plan does not limit the number of shares that may be issued under the plan.

ITEM 6. SELECTED FINANCIAL DATA (In thousands except per share data)

	Year Ended December 31,
Statement of Operations Data:	2015	2016	2017	2018	2019
Royalties and fees	$7,465	$7,351	$6,798	$6,422	$6,163
Administrative fees and other	56	42	45	53	38
Restaurant revenue - Craft Pizza & Pub	-	-	1,821	4,816	4,830
Restaurant revenue - non-traditional	208	443	1,174	1,157	674
Total revenue	7,729	7,836	9,838	12,448	11,705
Franchising operating expenses	2,774	2,549	2,443	2,628	2,092
Restaurant expenses - Craft Pizza & Pub (3)	-	-	1,389	3,909	4,250
Restaurant expenses - non-traditional	248	443	1,155	1,145	626
Depreciation and amortization (1)	106	125	241	440	383
General and administrative (1) (3)	1,660	1,642	1,666	1,669	1,739
Operating income	2,941	3,077	2,944	2,657	2,614
Interest	187	615	1,474	655	775
Loss on restaurant discontinued	191	37	-	-	-
Change in fair value of derivatives	-	44	175	-	-
Adjust valuation of receivables	1,230	1,104	440	4,096	1,300
Income (loss) before income taxes from continuing operations	1,333	1,277	855	(2,094)	539
Income taxes (2)	512	488	4,147	930	917
Net income (loss) from continuing operations	821	789	(3,292)	(3,024)	(378)
Loss from discontinued operations	(35)	(1,660)	(93)	(38)	-
Net income (loss)	$786	$(871)	$(3,385)	$(3,062)	$(378)
Weighted average number of common shares	20,518	20,782	20,783	21,250	22,053
Net income (loss) per share from continuing operation	$.04	$.04	$(.16)	$(.14)	$(.02)
Net income (loss) per share	.04	(.04)	(.16)	(.14)	(.02)

Balance Sheet Data:	2015	2016	2017	2018	2019
Working capital	$2,805	$2,429	$2,289	$1,906	$926
Total assets	18,465	19,899	18,885	15,677	19,105
Long-term obligations, net of current portion	2,141	3,755	6,808	6,137	9,335
Stockholders’ equity	$14,875	$14,018	$10,648	$8,145	$7,834

(1)

In 2018, the Company incurred $300,000 in various expenses related to initiating a franchising program for Craft Pizza & Pub, $166,000 in pre-opening costs for the Company’s Craft Pizza & Pub locations and $39,000 for abandoned leasehold improvements. The Company does not expect to incur any of these expenses in the future.

(2)

The significant increase in income tax expense for 2017 was a result of decreasing the carrying value of the Company’s deferred tax assets as a result of the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) lowering the highest corporate income tax rate from 34% to 21%. The increase in tax expense for 2018 was the result of the Company evaluating its deferred tax assets and determining that $1.4 million of the deferred tax credits may expire in 2019 and 2020 before they are fully utilized, partially offset by the tax benefit of $503,000 from the loss before income from continuing operations which was primarily the result of the adjustment made to the valuation of receivables. In 2019, after again evaluating its deferred tax assets, it was determined that $1.7 million of the net operating loss carry-forward may expire before it is used, therefore the Company increased the tax expense in 2019 and reduced the deferred tax asset by $400 thousand.

(3)

In 2019, the Company incurred $134,545 in rent expense in addition to rent paid as a non-cash expense for the new lease accounting rules.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The Company currently owns and operates five Craft Pizza & Pub locations and one non-traditional location in a hospital. The Company uses the Company-operated Craft Pizza & Pub locations as a base to support the franchising of that concept. Craft Pizza & Pub is designed to have a fun, pleasant atmosphere serving pizza and other related menu items, all made fresh using fresh ingredients in the view of the customers for inside dining and offers Pizza Valet service for a quick, easy and fun way to provide carry-out for those customers who want to dine elsewhere. These units operate under the trade name “Noble Roman’s Craft Pizza & Pub”.

The Company also sells and services franchises and licenses for non-traditional foodservice operations under the trade names “Noble Roman’s Pizza" and “Noble Roman’s Take-N-Bake.” The non-traditional concepts’ hallmarks include high quality pizza along with other related menu items, simple operating systems, fast service times, labor-minimizing operations, attractive food costs and overall affordability.

There were 3,064 franchised/licensed or Company-owned outlets in operation on December 31, 2019 and

3,041 on December 31, 2018. During 2019, 35 new franchised/licensed were opened and 12 franchised outlets left the system. Grocery stores are accustomed to adding products for a period of time, removing them for a period of time and possibly re-offering them. Therefore, it is unknown how many grocery store licenses, out of the total count of 2,402, have left the system.

As discussed in Note 1 to the Company’s consolidated financial statements, the Company uses significant estimates in evaluating its assets including such items as accounts receivable from franchisees to reflect the actual amount that may be collected from those receivables. To arrive at these estimates the Company utilized multiple means of analysis, including management’s own analysis and informed assessment of individual accounts. Based on this approach, in 2018 the Company permanently wrote off $1.3 million and created an additional reserve for possible non-collections of $2.8 million. Also, based on this approach and with particular consideration of the potential impact of the COVID-19 pandemic, as discussed under Risk Factors, may have on the economic stability of the former franchisees it was decided to take an additional reserve for possible non-collections of $1.3 million. The actual amount the Company eventually collects, however, could differ from that estimation. At December 31, 2018 and 2019, the Company reported net accounts receivable from franchisees of $4.4 million and $4.0 million, respectively, each of which were net of allowances, to reflect the amount the Company expects to realize for the franchisee receivables. The allowance as of December 31, 2018 was $4.3 million and as of December 31, 2019 was $5.6 million. Approximately $972,000 was transferred from short-term to long-term during 2019. The franchisee receivables, for which the valuation allowance is carried, are related to former franchisees and a significant portion relates back to 2014 and 2015, which arose out of a variety of breaches by former non-traditional franchisees.

The Company, at December 31, 2018 and December 31, 2019, had deferred tax assets on its balance sheet totaling $4.8 million and $3.9 million, respectively, after reducing the carrying value in 2018 by $1.4 million, and in 2019 by $400,000, respectively, based on the Company’s review of its anticipated results in the current business plan. The Company believes it is more likely than not that the remaining deferred tax assets will be utilized prior to their expiration, between 2020 and 2036.

Financial Summary

The preparation of the consolidated financial statements in conformity with United States 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 evaluates the carrying values of its assets, including property, equipment and related costs, accounts receivable and deferred tax assets, periodically 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 that affect the recovery of recorded values. If any impairment of an individual asset is evident, a charge will be provided to reduce the carrying value to its estimated fair value.

Condensed Consolidated Statement of Operations Data

Noble Roman’s, Inc. and Subsidiaries

	Years Ended December 31,
	2017	2018	2019
Revenue:
Restaurant revenue - company-owned restaurants	$1,820,737	$4,815,842	$4,830,199
Restaurant revenue - company-owned non-traditional	1,173,729	1,156,347	673,647
Franchising revenue	6,798,213	6,422,315	6,162,576
Administrative fees and other	45,730	53,443	38,202
Total revenue	9,838,409	12,447,947	11,704,624

Operating expenses:
Restaurant expenses - company-owned restaurants	1,389,410	3,909,142	4,250,406
Restaurant expenses - company-owned non-traditional	1,155,074	1,145,106	626,453
Franchising expenses	2,443,359	2,627,745	2,092,001
Total operating expenses	4,987,843	7,681,993	6,968,860

Depreciation and amortization	240,854	440,240	382,793
General and administrative expenses	1,665,980	1,668,718	1,739,383
Total expenses	6,894,677	9,790,951	9,091,036
Operating income	2,943,732	2,656,996	2,613,588

Interest expense	1,474,027	655,203	774,565
Adjust valuation of receivables	440,000	4,095,805	1,300,000
Change in fair value of derivatives	174,737	-	-
Income (loss) before income taxes	854,968	(2,094,012)	539,023
Income tax expense	4,146,459	930,397	917,088
Net loss	$(3,291,491)	$(3,024,409)	$(378,065)

	Quarter Ended December 31,
	2018	2019
Revenue:
Restaurant revenue – company-owned restaurants	$1,152,587	$1,136,277
Restaurant revenue - company-owned non-traditional	293,570	173,703
Franchising revenue	1,591,010	1,267,403
Administrative fees and other	6,267	4,413
Total revenue	3,043,434	2,581,796

Operating expenses:
Restaurant expenses - company-owned restaurants	1,031,185	1,040,697
Restaurant expenses - company-owned non-traditional	293,340	161,983
Franchising expenses	620,039	543,446
Total operating expenses	1,944,564	1,746,126

Depreciation and amortization	142,085	145,875
General and administrative expenses	415,930	465,423
Total expenses	2,502,579	2,357,424
Operating income	540,855	224,372

Interest expense	168,911	207,720
Adjust valuation of receivables	2,800,000	1,300,000
Loss before income taxes	(2,428,056)	(1,283,348)
Income tax expense	848,765	479,719
Net loss	$(3,276,821)	$(1,763,067)

(1)

(2)

The significant increase in income tax expense for 2017 was a result of decreasing the carrying value of the Company’s deferred tax assets as a result of the 2017 Tax Act lowering the highest corporate income tax rate from 34% to 21%. The increase in tax expense for 2018 was the result of the Company evaluating its deferred tax assets and determining that $1.4 million of the deferred tax credits may expire in 2019 and 2020 before they are fully utilized, partially offset by the tax benefit of $503,000 from the loss before income from continuing operations which was primarily the result of the adjustment made to the valuation of receivables.

(3)

In 2019, the Company incurred $134,545 in rent expense in addition to rent paid as a non-cash expense for the new lease accounting rules. The Company reviewed its net operating loss carry-forward and concluded that $1.7 million of its net operating loss carry-forward may expire before it is all used and therefore increased its income tax expense by $400,000 to decrease its deferred tax assets for that amount. The Company believes the remaining deferred tax assets will be utilized completely.

The following table sets forth the revenue, expense and margin contribution of the Company's Craft Pizza & Pub locations and the percent relationship to its revenue:

Description					Year-Ended December 31,
	2018		2019		2018		2019
Revenue	$1,152,587	100%	$1,136,276	100%	$4,815,842	100%	$4,830,199	100%
Cost of sales	255,084	22.1	253,858	22.3	1,061,737	22.0	1,031,504	21.4
Salaries and wages	382,755	33.2	341,431	30.0	1,509,879	31.4	1,448,246	30.0
Facility cost including rent, common area and utilities	181,293	15.7	184,623	16.2	655,188	13.6	832,123	17.2
Packaging	30,000	2.6	31,469	2.8	124,407	2.6	130,708	2.7
All other operating expenses	182,053	15.8	207,819	18.3	557,931	11.6	807,825	16.7
Total expenses	1,031,185	89.5	1,019,200	89.7	3,909,142	81.2	4,250,406	88.0
Margin contribution	$121,402	10.5%	$117,076	10.3%	$906,700	18.8%	$579,793	12.0%

Margin contribution from this venue for the year ended December 31, 2019 was decreased $134,545 for non-cash expense related to the adoption of ASU 2016-02 accounting for leases which became effective after January 1, 2019 for publicly reporting companies.

The following table sets forth the revenue, expense and margin contribution of the Company's franchising venue and the percent relationship to its revenue:

					Year Ended December 31,
Description	2018		2019		2018		2019
Royalties and fees franchising	$1,268,229	79.7%	$966,145	76.2%	$4,998,678	77.8%	$5,026,305	81.6%
Royalties and fees grocery	322,781	20.3	301,258	23.8	1,423,637	22.2	1,136,271	18.4
Total royalties and fees	1,591,010	100.0	1,267,403	100.0	6,422,315	100.0	6,162,576	100.0
Salaries and wages	222,614	14.0	199,839	15.8	997,011	15.5	751,961	12.2
Trade show expense	118,800	7.5	105,000	8.3	480,000	7.5	420,000	6.8
Travel and auto	65,747	4.1	25,745	2.0	194,117	3.0	108,375	1.8
All other op. expenses	361,720	22.7	212,862	16.8	956,617	14.9	811,665	13.2
Total expenses	768,881	48.3	543,446	42.9	2,627,745	40.9	2,092,001	33.9
Margin contribution	$822,129	51.7%	$723,957	57.1%	$3,794,570	59.1%	$4,070,575	66.1%

The following table sets forth the revenue, expense and margin contribution of the Company-owned non-traditional venue and the percent relationship to its revenue:

					Year Ended December 31,
Description	2018		2019		2018		2019
Revenue	$293,570	100%	$173,703	100%	$1,156,347	100%	$673,647	100%
Total expenses	293,340	99.9	161,982	93.3	1,145,106	99.0	626,453	93.0
Margin contribution	$230	.1%	$11,721	6.7%	$11,241	1.0%	$47,194	7.0%

Results of Operations

Company-Owned Craft Pizza & Pub

The revenue from this venue declined from $1.2 million to $1.1 million for the fourth quarter and grew from $4.82 million to $4.83 million for the 12 months ended compared to the comparable periods in 2018. The primary reason for the decrease in the three-month period were same store sales decline relative to the grand opening weeks from the latest two store openings in 2018. The increase in the year was the result of one additional restaurant, which opened in June 2018, partially offset by the unusually extreme winter weather conditions in Indiana during the months of January and February 2019.

Cost of sales increased slightly from 22.1% to 22.3% in the fourth quarter but improved from 22.0% to 21.4% for the year compared to the comparable periods in 2018. This improvement was the result of efficiency gain as the restaurants matured and as the staff gained experience.

Salaries and wages improved to 30.0% from 33.2% and to 30.0% from 31.4% for the three-month and twelve-month periods ended December 31, 2019 compared to the comparable periods in 2018. This improvement was the results of improved efficiency as the restaurants matured and as the staff gained experience. These gains were partially offset in the first three months of 2019 by the unusually extreme winter weather conditions in Indiana during the months of January and February 2019.

Facility costs, including rent, common area maintenance and utilities, increased to 16.2% from 15.7% and to 17.2% from 13.6% of revenue for the respective three-month and twelve-month periods ended December 31, 2019 compared to the comparable periods in 2018. The primary reason for the significant increases was the increase in common area maintenance. In 2018, all four locations were operating in new strip centers based on the landlord’s estimate of common area maintenance costs. When the estimates were reconciled with the actual costs, the Company had to pay common area maintenance in 2019 based on the actual costs in 2018. In two cases, the actual common area maintenance costs were double the landlord’s estimate. In addition, the non-cash expense related to the adoption of ASU 2016-02 increased reported rent costs of $134,544 for the year 2019. The rent expense for existing locations will be less than the amount paid in some future years as the leases mature.

All other costs and expenses increased to 18.3% from 15.8% and to 16.7% from 11.6% of revenue for the respective three-month and twelve-month periods ended December 2019 compared to the comparable periods in 2018. The primary increases were insurance, advertising and delivery fees. The insurance increase was a combination of price increases and the effect of low sales in January and February due to the extreme winter weather conditions. The increase in advertising was a more normal level from the reduced level in 2018 during the period of new openings. The delivery fees were the result of adding delivery service by use of outside vendors which began during the harsh winter weather last year.

Gross margin contribution decreased to 10.3% from 10.5% and to 12.0% from 18.8% for the respective three-month and twelve-month periods ended December 31, 2019 compared to the comparable periods in 2018. A significant contributor of those margin decreases were the results of the impact of severe winter weather in 2019 on revenue, as noted above. In addition, the margin contribution was also impacted by the unanticipated effect of facility costs primarily due to an increase in common area maintenance fees, the addition of non-cash expense as a result of the new accounting rules regarding leases and the addition of delivery fees from adding delivery service by outside vendors that began during the harsh winter weather in January and February 2019.

Franchising Revenue and Expense

Total revenue from this venue declined to $1.3 million from $1.6 million and declined to $6.2 million from $6.4 million for the three-month and twelve-month periods ended December 31, 2019 compared to the comparable periods in 2018. Royalties and fees from franchising remained approximately the same at $5.0 million for the twelve-month period ended December 31, 2019 compared to the comparable period in 2018. Royalties and fees from grocery store take-n-bake decreased to $301,000 from $323,000 and to $1.1 million from $1.4 million for the three-month and twelve-month periods ended December 31, 2019 compared to the comparable periods in 2018. The increase in royalties and fees from franchising and the decrease in royalties and fees from grocery store take-n-bake reflected the change in emphasis on franchising over licensing grocery stores to sell take-n-bake pizza because of the general business conditions that existed in 2019.

Gross margin in this venue increased to 57.1% from 51.7% and to 66.1% from 59.1% for the three-month and twelve-month periods ended December 31, 2019 compared to the comparable periods in 2018. These increased margins were the direct result of the Company’s in-depth review of its operations to find ways to minimize costs but at the same time to support revenue. The Company expects these higher margins to continue in the future.

Company-Owned Non-Traditional Locations

Gross revenue from this venue decreased to $174,000 from $294,000 and to $674,000 from $1.16 million for the respective three-month and twelve-month periods ended December 31, 2019 compared to the comparable periods in 2018. The primary reason for this decrease was the Company operating three non-traditional locations in 2018 and only one in 2019. The two locations vacated in December 2018 were locations that the Company was only operating to the end of their contract terms. The Company does not intend to operate any more Company-owned non-traditional locations except for the one location that is currently operating.

Comparing the various expenses is not meaningful since they reflected different types of non-traditional venues. Total expenses were $162,000 and $626,000 for the three-month and twelve-month periods ended December 31, 2019 compared to $293,000 and $1.15 million for the comparable periods in 2018. The primary reason for this decrease was two fewer locations operated by the Company in 2019 compared to 2018.

Gross margin contribution from this venue increased to 6.7% and 7.0% from 0.1% and 1.0% for the three-month and twelve-month periods ended December 31, 2019 compared to the comparable periods in 2018. As discussed above, two of the locations being operated in 2018 were only being operated to the end of their contract terms.

Impact of Inflation

The primary inflation factors affecting both Company and franchised operations are food and labor costs. Cheese makes up the single largest topping cost on a pizza. Cheese prices have fluctuated substantially for the past several years. In 2015 through 2017, cheese prices averaged 3% below the 10-year average. In 2018, prices further decreased and averaged 6% below the 10-year average. On April 15, 2020, cheese price hit a record low, since the Company started tracking it in 1999.

Labor costs across the country generally, through 2019, have seen upward pressure on hourly rates as the unemployment rate decreased and competition for hourly employees increased. The same applies to salaried management. The Company’s Craft Pizza & Pub operations currently pay well above minimum wage rates to remain competitive, and has seen similar pressure on management salaries. Although the Company believes future labor cost increases for non-traditional franchisees and licensees will be somewhat mitigated due to the relatively low labor requirements of the Company’s franchise concepts and the high unemployment rate at the current time brought about as a result of the COVID-19 pandemic. Mounting pressures in the labor markets, with the return of an improved economy, could be a factor in both franchised and Company operations going forward. Should labor costs increase substantially, or if commodity prices for cheese or other ingredients rise significantly, or some combination thereof occurs, restaurants and foodservice concepts, including the Company and its franchisees, would face pressure to increase menu pricing, the feasibility of which could be subject to competitive concerns.

Liquidity and Capital Resources

The Company’s strategy is to grow its business by concentrating on franchising/licensing non-traditional locations, franchising its updated stand-alone concept, Craft Pizza & Pub and operating a limited number of Company-owned Craft Pizza & Pub restaurants. The Company added new Company-operated Craft Pizza & Pub locations in January and November of 2017, January and June of 2018 and March 2020.

During 2018, the Company invested resources (approximately $300,000) to commence franchising of the Craft Pizza & Pub franchise. As of December 31, 2019, the Company had two Craft Pizza & Pub locations under franchise agreements which were open and an additional franchise location under development and expected to open in the summer of 2020.

The Company is operating one non-traditional location in a hospital and has no plans for operating any additional non-traditional locations.

The Company’s current ratio was 1.5-to-1 as of December 31, 2019 compared to 2.4-to-1 as of December 31, 2018. The current ratio was improved significantly with the new financing in February 2020.

In January 2017, the Company completed the offering of $2.4 million principal amount of Notes convertible to common stock at $.50 per share and Warrants to purchase up to 2.4 million shares of the Company’s common stock at an exercise price of $1.00 per share, subject to adjustment. In 2018, $400,000 principal amount of Notes was converted into 800,000 shares of the Company’s common stock, in January 2019 another Note in the principal amount of $50,000 was converted into 100,000 shares of the Company’s common stock, and in August 2019 another Note in the principal amount of $50,000 was converted into 100,000 shares of the Company’s common stock, leaving principal amounts of Notes of $1.9 million outstanding as of December 31, 2019. Holders of Notes in the principal amount of $775,000 extended their maturity date to January 31, 2023. In February 2020, $1,275,000 of the Notes were repaid in conjunction with a new financing leaving a principal balance of $625,000 of subordinated convertible notes outstanding due January 31, 2023. These Notes bear interest at 10% per annum paid quarterly and are convertible to common stock any time prior to maturity at the option of the Holder at $.50 per share. Warrants to purchase 1,775,000 shares of common stock at $1.00 expired late in 2019.

In September 2017, the Company entered into a loan agreement (the “Bank Agreement”) with First Financial Bank (the “Bank”). The Bank Agreement provided for a senior credit facility (the “Credit Facility”) from the Bank consisting of: (1) a term loan in the amount of $4.5 million (the “Term Loan”); and (2) a development line of credit of up to $1.6 million (the “Development Line of Credit”) for the opening of three Craft Pizza & Pub restaurants. Borrowings under the Credit Facility bore interest at a variable annual rate up to the London Interbank Offer Rate (“LIBOR”) plus 7.25%. All outstanding amounts owed under the Bank Agreement matured in September 2022, however those Notes were all paid in full from the $8.0 million new financing in February 2020.

On February 7, 2020, the Company entered into the Agreement with the Purchaser pursuant to which the Company issued to the Purchaser the Senior Note in the initial principal amount of $8.0 million. The Company has used or will use the net proceeds of the Agreement as follows: (i) $4.2 million was used to repay the Company’s then-existing bank debt which were in the original amount of $6.1 million; (ii) $1,275,000 was used to repay the portion of the Company’s existing subordinated convertible debt the maturity date of which most had not previously been extended, (iii) debt issuance costs; and (iv) the remaining net proceeds will be used for working capital or other general corporate purposes, including development of new Company-owned Craft Pizza & Pub locations.

The Senior Note bears cash interest of LIBOR, as defined in the Agreement, plus 7.75%. In addition, the Senior Note requires PIK Interest of 3% per annum, which will be added to the principal amount of the Senior Note. Interest is payable in arrears on the last calendar day of each month. The Senior Note matures on February 7, 2025. The Senior Note does not require any fixed principal payments until February 28, 2023, at which time required monthly payments of principal in the amount of $33,333 begin and continue until maturity. The Senior Note requires the Company to make additional payments on the principal balance of the Senior Note based on its consolidated excess cash flow, as defined in the Agreement.

On April 25, 2020, the Company received a loan under the Payroll Protection Program in the amount of $715,000. It is anticipated this note will be forgiven. The funds, according to the provision in the CARES Act, may be used for payroll costs including payroll benefits, interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in force before February 15, 2020 and utilities for which service began before February 15, 2020.

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. The Company’s cash flow projections for the next two years are primarily based on the Company’s strategy of growing the non-traditional franchising/licensing venues, operating Craft Pizza & Pub locations and pursuing an aggressive franchising program for Craft Pizza & Pub restaurants. The Company intends to open additional Company-owned Craft Pizza & Pub restaurants in the future.

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

Contractual Obligations

The following table sets forth the future contractual obligations of the Company as of February 7, 2020:

	Total	Less than 1 Year	1-3 Years	3-5 Years	More than 5 Years
Long-term debt (1)	$8,625,000	$-	$991,667	$7,633,333	$-
Operating leases	7,033,594	771,330	2,415,812	1,675,635	2,170,817
Total	$15,658,594	$771,330	$3,407,479	$9,308,968	$2,170,817

(1) The amounts do not include interest.

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 indicated by the forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment, including, but not limited to the effects of the COVID-19 pandemic, competitive factors and pricing pressures, non-renewal of franchise agreements, shifts in market demand, the success of new franchise programs, including the Noble Roman’s Craft Pizza & Pub format, the Company’s ability to successfully operate an increased number of Company-owned restaurants, general economic conditions, changes in demand for the Company’s products or franchises, the Company’s ability to service its loans, the impact of franchise regulation, 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 "above in this annual report. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s exposure to interest rate risk relates primarily to its variable-rate debt. As of December 31, 2019, the Company had outstanding variable interest-bearing debt in the aggregate principal amount of $4.3 million. The Company’s current borrowings were at a variable rate tied to LIBOR plus 7.25 per annum 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 $39,000 over the succeeding 12-month period.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance Sheets

Noble Roman’s, Inc. and Subsidiaries

	December 31,
Assets	2018	2019
Current assets:
Cash	$76,194	$218,132
Accounts receivable - net	1,573,600	978,408
Inventories	962,783	880,660
Prepaid expenses	688,259	784,650
Total current assets	3,300,836	2,861,850

Property and equipment:
Equipment	2,872,494	2,899,611
Leasehold improvements	1,180,050	1,187,100
Construction and equipment in progress	119,340	374,525
	4,171,884	4,461,236
Less accumulated depreciation and amortization	1,399,435	1,689,520
Net property and equipment	2,772,449	2,771,716
Deferred tax asset	4,817,309	3,900,221
Deferred contract costs	698,935	817,763
Goodwill	278,466	278,466
Operating lease right of use assets	-	4,242,416
Other assets including long-term portion of accounts receivable - net	3,808,957	4,232,655
Total assets	$15,676,952	$19,105,087
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of term loan payable to bank	$871,429	$871,429
Accounts payable and accrued expenses	523,315	731,059
Current portion of operating lease liability	-	333,763
Total current liabilities	1,394,744	1,936,251

Long-term obligations:
Term loans payable to bank (net of current portion)	3,898,733	2,999,275
Convertible notes payable	1,539,204	1,501,282
Operating lease liabilities	-	4,016,728
Deferred contract income	698,935	817,763
Total long-term liabilities	6,136,872	9,335,048

Stockholders’ equity:
Common stock – no par value (40,000,000 shares authorized, 21,783,131 issued and outstanding as of December 31, 2018 and 22,215,512 issued and outstanding as of December 31, 2019)	24,739,482	24,858,311
Accumulated deficit	(16,594,146)	(17,024,523)
Total stockholders’ equity	8,145,336	7,833,788
Total liabilities and stockholders’ equity	$15,676,952	$19,105,087

See accompanying notes to consolidated financial statements.

Consolidated Statements of Operations

Noble Roman’s, Inc. and Subsidiaries

	Year Ended December 31,
	2017	2018	2019
Restaurant revenue - company-owned restaurants	$1,820,737	$4,815,842	4,830,199
Restaurant revenue - company-owned non-traditional	1,173,728	1,156,347	673,647
Franchising revenue	6,798,213	6,422,315	6,162,576
Administrative fees and other	45,730	53,443	38,202
Total revenue	9,838,408	12,447,947	11,704,624

Operating expenses:
Restaurant expenses - company-owned restaurants	1,389,410	3,909,142	4,250,406
Restaurant expenses - company-owned non-traditional	1,155,074	1,145,106	626,453
Franchising expenses	2,443,359	2,627,745	2,092,001
Total operating expenses	4,987,843	7,681,993	6,968,860

Depreciation and amortization	240,854	440,240	382,793
General and administrative	1,665,980	1,668,718	1,739,383
Total expenses	6,894,677	9,790,951	9,091,036
Operating income	2,943,732	2,656,996	2,613,588

Interest expense	1,474,027	655,203	774,565
Adjust valuation of receivables	440,000	4,095,805	1,300,000
Change in fair value of derivatives	174,737	-	-
Net income (loss) before income taxes	854,968	(2,094,012)	539,023
Income tax expense	4,146,459	930,397	917,088
Net loss from continuing operations	(3,291,491)	$(3,024,409)	(378,065)
Income (loss) from discontinued operations net of tax benefit of $57,431 for 2017 and $12,200 for 2018	(93,436)	(37,800)	-
Net loss	$(3,384,927)	$(3,062,209)	$(378,065)

Earnings (loss) per share - basic:
Net income (loss) from continuing operations	$(.16)	$(.14)	$(.02)
Net loss from discontinued operations net of tax benefit	$.00	$.00	$.00
Net income (loss)	$(.16)	$(.14)	$(.02)
Weighted average number of common shares outstanding	20,783,032	21,249,607	22,052,859

Diluted earnings (loss) per share:
Net income (loss) from continuing operations (1)	$(.16)	$(.14)	$(.02)
Net loss from discontinued operations net of tax benefit	$.00	$.00	$.00
Net income (loss) (1)	$(.16)	$(.14)	$(.02)
Weighted average number of common shares outstanding	25,704,286	26,094,292	23,315,695

(1)

Net loss per share is shown the same as basic loss per share because the underlying dilutive securities have anti-dilutive effect.

See accompanying notes to consolidated financial statements.

Consolidated Statements of Changes in

Stockholders’ Equity

Noble Roman’s, Inc. and Subsidiaries

	Shares	Amount	Deficit	Total

Balance at December 31, 2016	20,983,131	$24,308,297	$(10,289,867)	$14,018,430
2017 net loss			(3,384,927)	(3,384,927)
Amortization of value of stock options	-	14,588	-	14,588
Balance at December 31, 2017	20,983,131	$24,322,885	$(13,674,794)	$10,648,091
2018 net loss	-	-	(3,062,209)	(3,062,209)
Remove derivatives in accordance with ASU 2017-11	-	-	142,857	142,857
Amortization of value of stock options	-	16,597	-	16,597
Conversion of convertible notes to common stock	800,000	400,000	-	400,000
Balance at December 31, 2018	21,783,131	$24,739,482	$(16,594,146)	$8,145,336
2019 net income	-	-	(378,065)	(378,065)
Adjustment for the adoption of ASU 2016-02 accounting for leases	-	-	(52,312)	(52,312)
Amortization of value of stock options	-	18,829	-	18,829
Cashless exercise of warrants	232,381	-	-	-
Conversion of convertible notes to common stock	200,000	100,000	-	100,000
Balance at December 31, 2019	22,215,512	$24,858,311	$(17,024,523)	$7,833,788

See accompanying notes to consolidated financial statements..

Consolidated Statements of Cash Flows

Noble Roman’s, Inc. and Subsidiaries

	Year ended December 31,
OPERATING ACTIVITIES	2017	2018	2019
Net loss	$(3,384,927)	$(3,062,209)	$(378,065)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization	604,481	558,277	469,804
Amortization of lease cost in excess of cash paid	-	-	134,545
Deferred income taxes	3,886,366	918,195	917,088
Change in fair value of derivatives	174,737	-	-
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable	(575,302)	223,157	(377,151)
Inventories	(25,572)	(106,539)	82,123
Prepaid expenses	112,028	(7,933)	(96,392)
Other assets including long-term portion of accounts receivable	(1,084,680)	3,059,197	548,648
Increase (decrease) in:
Accounts payable and accrued expenses	585,869	(101,286)	207,745
NET CASH PROVIDED BY OPERATING ACTIVITIES	293,000	1,480,859	1,508,345

INVESTING ACTIVITIES
Purchase of property and equipment	(1,372,674)	(1,161,168)	(289,351)
NET CASH USED BY INVESTING ACTIVITIES	(1,372,674)	(1,161,168)	(289,351)

FINANCING ACTIVITIES
Payment of principal outstanding on former bank loan	(1,366,454)	-	-
Payment of principal on Super G loan	(2,066,283)	-	-
Payment of principal on First Financial Bank loan	(160,714)	(812,292)	(998,271)
Payment of principal on Kingsway America loan	(600,000)	-	-
Net proceeds from new financings net of closing costs	5,792,132	157,727	-
Lease liabilities	-	-	(78,785)
Net proceeds (repayment of) from officers loans	(310,000)	-	-

NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES	1,288,681	(654,565)	(1,077,056)

DISCONTINUED OPERATIONS
Payment of obligations from discontinued operations	(225,867)	(50,000)	-

Increase (decrease) in cash	(16,860)	(384,874)	141,938
Cash at beginning of year	477,928	461,068	76,194
Cash at end of year	$461,068	$76,194	$218,132

Supplemental Schedule of Non-Cash Investing and Financing Activities:

During 2018, holders of $400,000 principal amount of Notes converted the Notes to 800,000 shares of common stock, in accordance with the terms of the Notes.

During 2019, holders of $100,000 principal amount of Notes converted the Notes to 200,000 shares of common stock, in accordance with the terms of the Notes.

During 2019, options to purchase 1,080,000 shares at $0.63 and at $0.70 per share were exercised and the holders received 232,381 shares of common stock, pursuant to the cashless exercise of the options .

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

Noble Roman’s, Inc. and Subsidiaries

Note l: Summary of Significant Accounting Policies

Organization: The Company, with two wholly-owned subsidiaries, sells and services franchises and licenses and operates Company-owned foodservice locations for one non-traditional location and five traditional restaurants called Craft Pizza & Pub under the trade names “Noble Roman’s Pizza”, “Noble Roman’s Craft Pizza & Pub” and “Tuscano’s Italian Style Subs". Unless the context otherwise indicates, reference to the “Company” are to Noble Roman’s, Inc. and its two wholly-owned subsidiaries.

Principles of Consolidation: The consolidated financial statements include the accounts of Noble Roman’s, Inc. and its wholly-owned subsidiaries, Pizzaco, Inc. and RH Roanoke, Inc. Inter-company balances and transactions have been eliminated in consolidation.

Inventories: Inventories consist of food, beverage, restaurant supplies, restaurant equipment and marketing materials and are stated at the lower of cost (first-in, first-out) or net realizable value.

Property and Equipment: Equipment and leasehold improvements are stated at cost. Depreciation and amortization are computed on the straight-line method over the estimated useful lives ranging from five years to 20 years. Leasehold improvements are amortized over the shorter of estimated useful life or the term of the lease including likely renewals. Construction and equipment in progress are stated at cost for leasehold improvements, equipment for a new restaurant being constructed and for pre-opening costs of any restaurant not yet open as of the date of the statements.

Significant Accounting Policies: There have been no significant changes in the Company's accounting policies from those disclosed in its Annual Report on Form 10-K except for those policies described below in relation to the adoption of Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842).

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets ("ROU"), and lease liability obligations are included in the Company's balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company's leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes in the lease payments made and excludes lease incentives and lease direct costs. The Company's lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

The Company adopted the new standard to all material leases existing on January 1, 2019 and recognized a cumulative effect adjustment to the opening balance of accumulated deficit on that date.

Cash and Cash Equivalents: Includes actual cash balance. The cash is not pledged nor are there any withdrawal restrictions.

Advertising Costs: The Company records advertising costs consistent with the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”)“Other Expense” topic and “Advertising Costs” subtopic. This statement requires the Company to expense advertising production costs the first time the production material is used.

Fair Value Measurements and Disclosures: The Fair Value Measurements and Disclosures topic of the FASB’s ASC requires companies to determine fair value based on the price that would be received to sell the assets or paid to transfer to liability to a market participant. The fair value measurements and disclosure topic emphasis that fair value is a market based measurement, not an entity specific measurement. The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

Level One: Quoted market prices in active markets for identical assets or liabilities.

Level Two: Observable market –based inputs or unobservable inputs that are corroborated by

market data.

Level Three: Unobservable inputs that are not corroborated by market data.

Use of Estimates: The preparation of the consolidated financial statements in conformity with United States 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. After a thorough review by management in 2018, the Company permanently wrote off $1.3 million and created an additional reserve for possible non-collection of $2.8 million. After a review in 2019 and also considering the impact of the COVID-19 pandemic, it was decided to add an additional reserve for possible non-collections of $1.3 million. The actual amount the Company eventually collects may differ from this estimation. The Company evaluates its property and equipment and related costs 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 of an individual asset is evident, a loss would be provided to reduce the carrying value to its estimated fair value.

Debt Issuance Costs: Debt issuance cost is presented on the balance sheet as a direct reduction from the carrying amount of the associated liability. Debt issuance costs are amortized to interest expense ratably over the term of the applicable debt. The unamortized debt issuance cost at December 31, 2019 was $800,000.

Intangible Assets: The Company recorded goodwill of $278,000 as a result of the acquisition of RH Roanoke, Inc. of certain assets of a former franchisee of the Company. Goodwill has an indeterminable life and is assessed for impairment at least annually and more frequently as triggering events may occur. In making this assessment, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and marketplace data. Any impairment losses determined to exist are recorded in the period the determination is made. There are inherent uncertainties related to these factors and management’s judgment is involved in performing goodwill and other intangible assets valuation analyses, thus there is risk that the carrying value of goodwill and other intangible assets may be overstated or understated. The Company has elected to perform the annual impairment assessment of recorded goodwill as of the end of the Company’s fiscal year. The results of this annual impairment assessment indicated that the fair value of the reporting unit as of December 31, 2019, exceeded the carrying or book value, including goodwill, and therefore recorded goodwill was not subject to impairment.

Royalties, Administrative and Franchise Fees: Royalties are generally recognized as income monthly based on a percentage of monthly sales of franchised or licensed restaurants and from audits and other inspections as they come due and payable by the franchisee. Fees from the retail products in grocery stores are recognized monthly based on the distributors’ sale of those retail products to the grocery stores or grocery store distributors. Administrative fees are recognized as income monthly as earned. The Company adopted Accounting Standards Update 2014-09 effective January 2018 which did not materially affect the Company's recognition of royalties, fees from the sale of retail products in grocery stores, administrative fees or sales from Company-owned restaurants. However, initial franchise fees and related contract costs are now deferred and amortized on a straight-line basis over the term of the franchise agreements, generally five to ten years. The effect to comparable periods within the financial statements is not material as the initial franchise fee for the non-traditional franchise is intended to defray the initial contract cost, and the franchise fees and contract costs initially incurred and paid approximate the relative amortized franchise fees and contract costs for those same periods.

Exit or Disposal Activities Related to Discontinued Operations: The Company records exit or disposal activity for discontinued operations when management commits to an exit or disposal plan and includes those charges under results of discontinued operations, as required by the ASC “Exit or Disposal Cost Obligations” topic.

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. The Company evaluated its deferred tax assets in 2018 and determined that $1,422,960 of the deferred tax credits may expire in 2019 and 2020 before they are fully utilized, which increased the Company’s tax expense for 2018 and reduced the deferred tax credit on the balance sheet. The Company again evaluated its deferred tax assets in 2019 and determined that $1.7 million of its net operating loss carry-forward may expire before they are used resulting in an additional $400 thousand in tax expense in 2019. As of December 31, 2019, the net operating loss carry-forward was approximately $11.8 million which expires between the years 2020 and 2036. As a result of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”), the Company reduced the carrying value of the tax impact of the net operating loss carry-forward to reflect the new highest corporate income tax rate of 21% versus the old rate of 34%.

U.S. generally accepted accounting principles require the Company to examine its tax positions for uncertain positions. Management is not aware of any tax positions that are more likely than not to change in the next 12 months, or that would not sustain an examination by applicable taxing authorities. The Company’s policy is to recognize penalties and interest as incurred in its Consolidated Statements of Operations. None were included for the years ended December 31, 2017, 2018 and 2019. The Company’s federal and various state income tax returns for 2016 through 2019 are subject to examination by the applicable tax authorities, generally for three years after the later of the original or extended due date.

Basic and Diluted Net Income Per Share: Net income 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.

The following table sets forth the calculation of basic and diluted loss per share for the year ended December 31, 2017:

	Income (Numerator)	Shares (Denominator)	Per Share Amount
Loss per share – basic Net loss	$(3,384,927)	20,783,032	$(.16)
Effect of dilutive securities Options	-	222,624
Convertible notes	345,208	4,698,630
Diluted loss per share (1) Net loss	$(3,039,719)	25,704,286	$(.16)

(1) Net loss per share is shown the same as basic loss per share because the underlying dilutive securities have an anti-dilutive effect.

The following table sets forth the calculation of basic and diluted loss per share for the year ended December 31, 2018:

	Income (Numerator)	Shares (Denominator)	Per Share Amount
Net loss per share – basic Net loss	$(3,062,209)	21,249,607	$(.14)
Effect of dilutive securities Options	-	511,260
Convertible notes	213,125	4,333,425
Diluted net income per share Net loss (1)	$(2,849,084)	26,094,292	$(.14)

(1) Net loss per share is shown the same as basic loss per share because the underlying dilutive securities have an anti-dilutive effect.

The following table sets forth the calculation of basic and diluted loss per share for the year ended December 31, 2019:

	Income (Numerator)	Shares (Denominator)	Per Share Amount
Net loss per share – basic Net loss	$(378,605)	22,052,859	$(.02)
Effect of dilutive securities Options	-	12,836
Convertible notes		62,500	1,250,000
Diluted net loss per share
Net loss	$(316,105)	23,315,695	$(.02)

(1) Net loss per share is shown the same as basic loss per share because the underlying dilutive securities have an anti-dilutive effect.

Subsequent Events: The Company evaluated subsequent events through the date the consolidated statements were issued and filed with the annual report on Form 10-K. On February 7, 2020, the Company entered into a Senior Secured Promissory Note and Warrant Purchase Agreement (the “Agreement”) with Corbel Capital Partners SBIC, L.P. (the “Purchaser”). Pursuant to the Agreement, the Company issued to the Purchaser a senior secured promissory note (the “Senior Note”) in the initial principal amount of $8.0 million. The Company has used or will use the net proceeds of the Agreement as follows: (i) $4.2 million was used to repay the Company’s then-existing bank debt which was in the original amount of $6.1 million; (ii) $1,275,000 was used to repay the portion of the Company’s existing subordinated convertible debt the maturity date of which most had not previously been extended; (iii) debt issuance costs; and (iv) the remaining net proceeds will be used for working capital or other general corporate purposes, including development of new Company-owned Craft Pizza & Pub locations.

The Senior Note bears cash interest of LIBOR, as defined in the Agreement, plus 7.75%. In addition, the Senior Note requires payment-in-kind interest (“PIK Interest”) of 3% per annum, which will be added to the principal amount of the Senior Note. Interest is payable in arrears on the last calendar day of each month. The Senior Note matures on February 7, 2025. The Senior Note does not require any fixed principal payments until February 28, 2023, at which time required monthly payments of principal in the amount of $33,333 begin and continue until maturity. The Senior Note requires the Company to make additional payments on the principal balance of the Senior Note based on its consolidated excess cash flow, as defined in the Agreement.

In conjunction with the borrowing under the Senior Note, the Company issued to the Purchaser a warrant (the “Corbel Warrant”) to purchase up to 2,250,000 shares of Common Stock. The Corbel Warrant entitles the Purchaser to purchase from the Company, at any time or from time to time: (i) 1,200,000 shares of Common Stock at an exercise price of $0.57 per share (“Tranche 1”), (ii) 900,000 shares of Common Stock at an exercise price of $0.72 per share (“Tranche 2”), and (iii) 150,000 shares of Common Stock at an exercise price of $0.97 per share (“Tranche 3”). The Purchaser is required to exercise the Corbel Warrant with respect to Tranche 1 if the Common Stock is trading at $1.40 per share or higher for a specified period, and is further required to exercise the Corbel Warrant with respect to Tranche 2 if the Common Stock is trading at $1.50 per share or higher for a specified period. Cashless exercise of the Corbel Warrant is only permitted with respect to Tranche 3. The Purchaser has the right, within six months after the issuance of any shares under the Corbel Warrant, to require the Company to repurchase such shares for cash or for Put Notes, at the Company's discretion. The Corbel Warrant expires on the sixth anniversary of the date of its issuance.

On March 16, 2020, by order of the Governor of the State of Indiana (the “Governor”), all restaurants within Indiana were ordered to close for inside dining. Due to the Order, all Craft Pizza & Pub restaurants have been open for carry-out only primarily through the Company’s Pizza Valet system and third-party delivery providers. On May 1, 2020, the Governor issued another order allowing restaurants to be open for inside dining for up to 50% of capacity as of May 11, 2020, and on June 14, 2020 up to 75% of capacity, plus bars may open up to 50% of capacity, and on July 4, 2020 restaurants and bars may resume at 100% capacity. As the duration and scope of the pandemic is uncertain, these Orders are subject to further modification which could adversely affect the Company.

On April 25, 2020, the Company borrowed under the Payroll Protection Program in the amount of $715,000. The Company anticipates this note will be. The funds, according to the provision in the CARES Act, may be used for payroll costs including payroll benefits, interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in force before February 15, 2020 and utilities for which service began before February 15, 2020.

In February 2020, as discussed in Item 2. Properties, a lease for the Brownsburg location became effective which expires in February 2030. The obligation under this lease is included in future obligations of $7 million under operating leases, as described in Note 5.

No subsequent event required recognition or disclosure except as discussed above.

Note 2: Accounts Receivable

At December 31, 2018 and 2019, the carrying value of the Company’s accounts receivable has been reduced to anticipated realizable value. As a result of this reduction of carrying value, the Company anticipates that substantially all of its net receivables reflected on the Consolidated Balance Sheets as of December 31, 2018 and 2019 will be collected. The allowance to reduce the receivables to anticipated net realizable value at December 31, 2018 was $4.3 million and at December 31, 2019 was $5.6 million.

Adjustments for the valuation of receivables has been $440,000 in 2017, $4.1 million in 2018 and $1.3 million in 2019.

Other assets, as of December 31, 2019, includes security deposit of $14,600, cash value of life insurance of $199,000 and long-term accounts receivables of $4.0 million, which is net of $5.6 million valuation allowance.

Long-term receivables from franchisees represent receivables from approximately 80 different non-traditional franchisees (Noble Romans franchises located within a host facility). These receivables originated from a variety of circumstances, including where audits of a number of the non-traditional franchises’ reporting of sales found them to be underreporting their sales and, therefore, underpaying their royalty obligations. In other instances, some franchisees were selling non-Noble Roman’s products under Noble Roman’s trademark. In addition, some receivables arose from the Company incurring legal fees to enforce the franchise agreements and other collection cost which adds to the receivables in accordance with the agreements. Some of the receivables were generated by early termination of the franchise agreements. These receivables have been classified as long-term since collections are expected to extend over more than a one-year cycle.

Note 3: Notes Payable

In September 2017, the Company entered into a loan agreement (the “Bank Agreement”) with First Financial Bank (the “Bank”). The Bank Agreement provided for a senior credit facility (the “Credit Facility”) to be provided by the Bank consisting of: (i) a term loan in the amount of $4.5 million (the “Term Loan”); and (ii) a development line of credit of up to $1.6 million (the “Development Line of Credit”). Borrowings under the Credit Facility bore interest at a variable annual rate equal to the London Interbank Offer Rate (“LIBOR”) plus 7.25%. The Term Loan and the Development Line of Credit were to be repaid monthly based on a seven-year term. All outstanding amounts owed under the Bank Agreement were to mature on September 13, 2022. In conjunction with a new credit facility entered into on February 7, 2020, all money still owed to the Bank was repaid in full.

At December 31, 2019, the balance of the Credit Facility was comprised of:

Principal Due	$4,272,023
Unamortized Loan Closing Cost	(401,320)
Carrying Value	$3,870,703

The Bank Agreement contained affirmative and negative covenants, including, among other things, covenants requiring the Company to maintain certain financial ratios. The Company’s obligations under the Bank Agreement were secured by first priority liens on all of the Company’s and its subsidiaries’ assets and a pledge of all of the Company’s equity interest in such subsidiaries. In addition, Paul W. Mobley, the Company’s Executive Chairman and Chief Financial Officer, executed a limited guarantee only of borrowings under the Development Line of Credit which was to be released upon achieving certain financial ratios by the Company’s Craft Pizza & Pub locations. These loans were repaid in full on February 7, 2020.

In the fourth quarter of 2016, the Company issued 32 Units, for a purchase price of $50,000 per Unit, or $1,600,000 in the aggregate and, in January 2017, the Company issued another 16 Units, or an additional $800,000 in the aggregate. Each $50,000 Unit consisted of a convertible, subordinated, unsecured promissory note (the “Notes”) in an aggregate principal amount of $50,000 and warrants (the “Warrants”) to purchase up to 50,000 shares of the Company’s common stock, no par value per share. The Company issued Units to investors including the following related parties: Paul W. Mobley, the Company’s Executive Chairman, Chief Financial Officer and a director of the Company ($150,000); and Herbst Capital Management, LLC, the principal of which is Marcel Herbst, a director of the Company ($200,000).

Interest on the Notes accrued at the annual rate of 10% and is payable quarterly in arrears. Initially, the Notes mature, and the Warrants expire, three years after issuance. However, in December 2018, the Company offered to extend the maturity of the Notes and the expiration date of the Warrants to January 2023. Certain of the holders of the Notes and Warrants accepted the Company’s offer. Accordingly, of the principal amount of the Notes, holders of $775,000 in principal amount extended their Notes until January 31, 2023. In 2018 and 2019, holders of $500,000 in principal amount of the Notes converted those Notes to 1,000,000 shares of the Company’s common stock in accordance with the terms of the Note. In February 2020, in conjunction with the Company’s refinancing of its debt, $1,275,000 in principal amount of those Notes was repaid leaving a balance of $625,000 which mature on January 31, 2023. The holders of the remaining $625,000 principal amount of Notes can elect, at their option any time prior to maturity, convert those Notes to common stock in accordance with the terms of the Notes.

The Warrants issued with the Notes provide for an exercise price of $1.00 per share of Common Stock (subject to anti-dilution adjustments). All warrants were canceled with the repayment of the Notes except Warrants issued with $625,000 principal amount of Notes that were extended to the new maturity of January 31, 2023. Subject to certain limitations, the Company may redeem the outstanding Warrants at a price of $0.001 per share of Common Stock subject to the Warrant upon 30 days’ notice if the daily average weighted trading price of the Common Stock equals or exceeds $2.00 per share for a period of 30 consecutive trading days.

Placement agent fees and other origination costs of the Notes are deducted from the carrying value of the Notes as original issue discount (“OID”). The OID is being amortized over the term of the Notes.

At December 31, 2019, the balance of the Notes is comprised of:

Face Value	$1,900,000
Unamortized OID	(398,718)
Carrying Value	$1,501,282

On February 7, 2020, the Company entered into Agreement with the Purchaser pursuant to which the Company issued to the Purchaser a senior Note in the initial principal amount of $8.0 million. The Company has used or will use the net proceeds of the Agreement as follows: (i) $4.2 million was used to repay the Company’s then-existing bank debt which was in the original amount of $6.1 million; (ii) $1,275,000 was used to repay the portion of the Company’s existing subordinated convertible debt the maturity date of which most had not previously been extended; (iii) debt issuance cost; and (iv) the remaining net proceeds will be used for working capital or other general corporate purposes, including development of new Company-owned Craft Pizza & Pub locations. See Note 1 under the heading “Subsequent Events” for the description of the terms of the Agreement and Senior Note.

Total cash and non-cash interest accrued on the Company’s indebtedness in 2019 was $775,000 and in 2018 was $655,000.

Note 4: Royalties and Fees

Approximately $242,000, $305,000 and $307,000 are included in 2017, 2018 and 2019, respectively, royalties and fees in the Consolidated Statements of Operations for amortized initial franchise fees. Also included in royalties and fees were approximately $44,000, $74,000 and $70,000 in 2017, 2018 and 2019, respectively, for equipment commissions. 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 contractual liability for the franchisee. Such incremental costs, include training, design and related travel cost to new franchisees. The deferred contract income and costs both approximated $699,000 on December 31, 2018 and $818,000 on December 31, 2019.

In conjunction with the development of Noble Roman’s Pizza and Tuscano’s Italian Style Subs, the Company has devised its own recipes for many of the ingredients that go into the making of its products (“Proprietary Products”). The Company contracts with various manufacturers to manufacture its Proprietary Products in accordance with the Company’s recipes and formulas and to sell those products to authorized distributors at a contract price which includes an allowance for use of the Company’s recipes. The manufacturing contracts also require the manufacturers to hold those allowances in trust and to remit those allowances to the Company on a periodic basis, usually monthly. The Company recognizes those allowances in revenue as earned based on sales reports from the distributors.

There were 3,064 franchised/licensed or Company-owned outlets in operation on December 31, 2019 and

Note 5: Liabilities for Leased Facilities

The Company has future obligations of $7.0 million under current operating leases as follows: due in less than one year $771,000, due in one to three years $2.4 million, due in three to five years $1.7 million and due in more than five years $2.2 million.

For implementing the new accounting policies for leases, the Company used a weighted average discount rate of 7% and the weighted average lease term of 7.3 years. The Company recorded $134,545 in lease expense more than cash actually paid in 2019 for the leases.

Note 6: Income Taxes

The Company had a deferred tax asset, as a result of prior operating losses, of $4.8 million at December 31, 2018 and $3.9 million at December 31, 2019, which expires between the years 2020 and 2036. The net operating loss carry-forward is approximately $11.8 million so the Company will have no obligation to pay income tax on the amount of that operating loss carry-forward, however the carrying value of that deferred tax asset was significantly reduced by the 2017 Tax Act which lowered the highest corporate income tax rate from 34% to 21%. In 2017, 2018 and 2019, the Company used deferred benefits to offset its tax expense of $442,000, recorded a tax benefit of $503,000, and recorded a tax benefit of $468,000 respectively, and tax benefits from loss on discontinued operations of $57,000 in 2017 and $12,000 in 2018, however, the Company recorded a tax expense of $4.1 million in 2017 to lower the carrying value of the deferred tax credit as a result of the corporate tax rate being reduced from 34% to 21%, as explained above. The Company also recorded $1.4 million in additional tax in 2018 after evaluating its deferred tax assets and determined that $1.4 million of the deferred tax credits may expire in 2019 and 2020 before they are fully utilized. The Company also reviewed its operating loss carry-forward in 2019 and determined that $1.7 million of that loss may expire before it is used and, as a result, recorded an additional $400,000 in tax expense for 2019. As a result of the loss carry-forwards, the Company did not pay any income taxes in 2017, 2018 and 2019. There are no other material differences between reported income tax expense or benefit and the income tax expense or benefit that would result from applying the Federal and state statutory tax rates.

Note 7: Common Stock

During 2016 and 2017, the Company issued Notes in the aggregate principal amount of $2.4 million convertible to common stock within three years at the rate of $.50 per share and Warrants to purchase up to 2.4 million shares of the Company’s common stock at $1.00 per share. During 2018, holders of $400,000 in principal amount of Notes converted into 800,000 shares of common stock. In 2019, holders of $100,000 in principal amount of Notes converted into 200,000 shares of common stock. In February 2020, in conjunction with the Company’s refinancing, $1,275,000 in principal amount of Notes were repaid terminating the holders’ right to convert and canceling their warrants. Now outstanding are $625,000 principal amount of Notes convertible to stock at $0.50 per share and warrants to purchase 625,000 shares of stock at $1.00 per share.

The Company has an incentive stock option plan for key employees, officers and directors. 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. At December 31, 2019, the Company had the following employee stock options outstanding:

# Common Shares Issuable	Exercise Price
46,500	$0.58
155,000	0.58
1,400,000	0.58
31,000	0.58
123,667	0.58
207,500	1.00
232,500	1.00
287,500	1.00
280,000	0.53
35,000	0.50
372,500	0.51
332,500	0.623
474,500	0.60

As of December 31, 2019, options for 3,488,834 shares were exercisable.

The Company adopted the modified prospective method to account for stock option grants, which does not require restatement of prior periods. Under the modified prospective method, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption, net of an estimate of expected forfeitures. Compensation expense is based on the estimated fair values of stock options determined on the date of grant and is recognized over the related vesting period, net of an estimate of expected forfeitures which is based on historical forfeitures.

The Company estimates the fair value of its option awards on the date of grant using the Black-Scholes option pricing model. The risk-free interest rate is based on external data while all other assumptions are determined based on the Company’s historical experience with stock options. The following assumptions were used for grants in 2017, 2018 and 2019:

Expected volatility30% to 20%

Expected dividend yield None

Expected term (in years) 3

Risk-free interest rate 1.68 to 2.82%

The following table sets forth the number of options outstanding as of December 31, 2016, 2017, 2018 and 2019 and the number of options granted, exercised or forfeited during the years ended December 31, 2017, 2018 and 2019:

Balance of employee stock options outstanding as of 12/31/16	2,957,667
Stock options granted during the year ended 12/31/17	410,500
Stock options exercised during the year ended 12/31/17	0
Stock options forfeited during the year ended 12/31/17	(34,000)
Balance of employee stock options outstanding as of 12/31/17	3,334,167
Stock options granted during the year ended 12/31/18	415,000
Stock options exercised during the year ended 12/31/18	0
Stock options forfeited during the year ended 12/31/18	(105,500)
Balance of employee stock options outstanding as of 12/31/18	3,643,667
Stock options granted during the year ended 12/31/19	529,500
Stock options exercised during the year ended 12/31/19	-
Stock options forfeited during the year ended 12/31/19	(195,000)
Balance of employee stock options outstanding as of 12/31/19	3,978,167

The following table sets forth the number of non-vested options outstanding as of December 31, 2016, 2017, 2018 and 2019, and the number of stock options granted, vested and forfeited during the years ended December 31, 2017, 2018 and 2019.

Balance of employee non-vested stock options outstanding as of 12/31/16	791,668
Stock options granted during the year ended 12/31/17	410,500
Stock options vested during the year ended 12/31/17	(418,333)
Stock options forfeited during the year ended 12/31/17	(34,000)
Balance of employee non-vested stock options outstanding as of 12/31/17	749,835
Stock options granted during the year ended 12/31/18	415,000
Stock options vested during the year ended 12/31/18	(337,499)
Stock options forfeited during the year ended 12/31/18	(105,500)
Balance of employee non-vested stock options outstanding as of 12/31/18	721,836
Stock options granted during the year ended 12/31/19	529,500
Stock options vested during the year ended 12/31/19	(325,000)
Stock options forfeited during the year ended 12/31/19	(195,000)
Balance of employee non-vested stock options outstanding as of 12/31/19	731,336

During 2019, employee stock options were granted for 529,500 shares and options for 195,000 shares were forfeited. At December 31, 2019, the weighted average grant date fair value of non-vested options was $0.576 per share and the weighted average grant date fair value of vested options was $0.683 per share.

The weighted average grant date fair value of employee stock options granted during 2017 was $0.51, during 2018 was $0.623 and during 2019 was $0.66. Total compensation cost recognized for share-based payment arrangements was $14,588 with a tax benefit of $5,808 in 2017, $16,597 with a tax benefit of $3,983 in 2018, and $18,829 in 2019 with a tax benefit of $4,995 in 2019. As of December 31, 2019, total unamortized compensation cost related to options was $48,477, which will be recognized as compensation cost over the next six to 36 months. No cash was used to settle equity instruments under share-based payment arrangements.

Note 8: Statements of Financial Accounting Standards

The Company does not believe that the recently issued Statements of Financial Accounting Standards will have any material impact on the Company’s Consolidated Statements of Operations or its Consolidated Balance Sheets.

On February 25, 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, its leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. The new standard took effect in 2019 for public business entities and, therefore, is included in the current financial statements. This had the effect of increasing the value of the assets and liabilities of the Company and incurred an additional expense for rent on the Consolidated Statement of Operations by $134,545 in 2019.

Note 9: Loss from Discontinued Operations

The Company made the decision in late 2008 to discontinue the business of operating traditional quick service restaurants. As a result, the Company charged off or dramatically lowered the carrying value of all receivables related to the traditional restaurants and accrued future estimated expenses related to the estimated cost to prosecute a lawsuit related to those discontinued operations. The ongoing right to receive passive income in the form of royalties is not a part of the discontinued segment.

The Company reported a net loss on discontinued operations of $93,000 in 2017. This consisted primarily of rent and other costs related to a location that was part of the operations discontinued in 2008.

The Company reported a net loss on discontinued operations of $37,800 in 2018. This consisted of rent related to a location that was a part of the operations discontinued in 2008. The obligation of rent on this location has been satisfied and no further loss is expected. There are no known contingencies with regard to the operations discontinued in 2008 that are expected to result in any loss.

Note 10: Contingencies

The Company, from time to time, is or may become involved in litigation or regulatory proceedings arising out of its normal business operations.

Currently, there are no such pending proceedings which the Company considers to be material.

Note 11: 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 or have a financial interest. 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 must be approved by 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.

Of the 48 Units sold in the private placement which began in October 2016, three Units were purchased by Paul W. Mobley, Executive Chairman, and four Units were purchased by Marcel Herbst, Director. Each Unit consists of a Note in the principal amount of $50,000 and a Warrant to purchase 50,000 shares of the Company’s common stock. These transactions were all done on the same terms and conditions as all of the independent investors who purchased the other 41 Units. The Notes, at the time of issue, were to mature three years after issue date. In late 2018, the Company sent an offer to each remaining Note holder offering to extend the maturity of the Notes to January 31, 2023. Holders of $775,000 in principal amount of the Notes accepted that offer of extension including the Notes held by Paul W. Mobley and Herbst Capital Management, LLC. In conjunction with the refinancing of the Company in February 2020, Notes held by Paul Mobley were included in the $1,275,000 in principal amount of Notes that were repaid out of the proceeds of the new financing.

Note 12: Unaudited Quarterly Financial Information

	Quarter Ended
	December 31	September 30	June 30	March 31
2019	(in thousands, except per share data)
Total revenue	$2,582	$3,079	$3,121	$2,923
Operating income	224	835	801	754
Net income (loss)before income taxes	(1,283)	615	580	627
Net income (loss)	(1,763)	467	441	476
Net income per common share
Basic	.08	.02	.02	.02
Diluted	.08	.02	.02	.02

	Quarter Ended
	December 31	September 30	June 30	March 31
2018	(in thousands, except per share data)
Total revenue	$3,043	$3,275	$3,177	$2,953
Operating income	541	714	703	699
Valuation allowance for receivables	(2,800)	(1,296)	-	-
Net income (loss) before income taxes from continuing operations	(2,428)	(755)	550	539
Net income (loss) from continuing operations	(3,277)	(562)	412	403
Loss from discontinued operations	(38)	-	-	-
Net income (loss)	(3,315)	(562)	412	403
Net income (loss) from continuing operations per common share
Basic	(.15)	(.03)	.02	..02
Diluted (1)	(.15)	(.02)	.02	.02
Net income (loss) per common share
Basic	(.15)	(.03)	.02	.02
Diluted (1)	(.15)	(.02)	.02	.02

(1) Net loss per share is shown the same as basic loss per share because the underlying dilutive securities have

an anti-dilutive effect.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

NOBLE ROMAN’S, INC.

Indianapolis, Indiana

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of NOBLE ROMAN’S, INC. (the “Company”) and subsidiaries as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Method Related to Leases

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of FASB Accounting Standards Codification Topic 842.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company's auditor since 2007.

/s/ Somerset CPA's, P.C

Indianapolis, Indiana

May 12, 2020

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles (“GAAP”) and includes those policies and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of applicable limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Public Company Accounting Oversight Board’s Auditing Standard No. 5 defines a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A deficiency in internal control over reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

Our management, including Paul W. Mobley, the Company’s Executive Chairman of the Board and Chief Financial Officer, and A. Scott Mobley, the Company’s President and Chief Executive Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has concluded that the Company’s 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.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Management’s Evaluation of Disclosure Controls and Procedures

Based on their evaluation, as of the end of the period covered by this report, Paul W. Mobley, the Company’s Executive Chairman of the Board and Chief Financial Officer, and A. Scott Mobley, the Company’s President and Chief Executive Officer, have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE

Set forth below is certain information regarding the executive officers and the directors of the Company:

Name	Age	Positions with the Company
Paul W. Mobley	79	Executive Chairman of the Board, Chief Financial Officer and Class II Director
A. Scott Mobley	56	Chief Executive Officer, President, Secretary and Class III Director
Douglas H. Coape-Arnold	74	Class I Director
Marcel Herbst	49	Class I Director
William Wildman	71	Class II Director
Troy Branson	56	Executive Vice President of Franchising

The officers of the Company serve at the discretion of the board of directors and are elected at the annual meeting of the board of directors. The board of directors has a classified structure in which the directors are divided into three classes with approximately one-third of the directors standing for election each year. Under this structure, directors serve staggered three-year terms or until their successors are duly elected and qualified.

The following is a brief description of the previous business background of our executive officers and directors:

Paul W. Mobley has been Executive Chairman of the Board and Chief Financial Officer since November 2014. Prior to November 2014, Mr. Mobley was Chairman of the Board, Chief Executive Officer and Chief Financial Officer since December 1991, and a director since 1974. Mr. Mobley was President of the Company from 1981 to 1997. 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 1978 to 1981 as its Senior Vice President. Mr. Mobley has a B.S. in Business Administration from Indiana University. He is the father of A. Scott Mobley.

A. Scott Mobley has been President and Chief Executive Officer since November 2014. Prior to November 2014, Mr. Mobley was President and Chief Operating Officer since 1997. He has served as a director since 1992, and Secretary since 1993. Mr. Mobley was Vice President from 1988 to 1997, and from 1987 until 1988 he also 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. Mr. Mobley has a B.S. in Business Administration from Georgetown University, and an MBA from Indiana University. He is the son of Paul W. Mobley.

Douglas H. Coape-Arnold has been a director of the Company since 1999. Mr. Coape-Arnold has been Managing General Partner of Geovest Capital Partners, L.P. since 1997, and was Managing Director of TradeCo Global Securities, Inc. from 1994 to 2002. Mr. Coape-Arnold is a Chartered Financial Analyst.

Marcel Herbst has been a director of the Company since July 2016. Mr. Herbst is the co-founder and portfolio manager of Herbst Capital Management, LLC and has over 15 years of investment experience in equities, fixed income and commodities. Mr. Herbst started his professional career in 1991 in Germany with a commercial diploma in banking. Prior to founding Herbst Capital Management, LLC, Mr. Herbst had more than 10 years’ experience in the management of hospitality services for large, upscale, branded properties in the US and Europe. Most recently he served as the Director of Food and Beverage at the 1544 room Hilton Chicago, overseeing $40 million in annual food and beverage revenue. Mr. Herbst has a Bachelor degree of Business Administration from Schiller International University in Heidelberg, Germany and a Master’s degree of Management in Hospitality concentrating in food and beverage from Cornell University.

William Wildman has been a director of the Company since June 2019. Mr. Wildman is the President and Chief Executive Officer of Pinnacle Commercial Capital (“Pinnacle”), a provider of growth funding to multi-unit franchisees and franchisors. Mr. Wildman has extensive working knowledge of restaurant concepts, their franchisors and their franchise groups, including both multi-unit and single-unit operators. Before founding Pinnacle, Mr. Wildman served as a Vice President with each of Provident Bank, a regional commercial bank, Atherton Capital, a San Francisco based capital markets lender, and Meridian Financial Corporation, an equipment leasing company in Indianapolis. Mr. Wildman studied business and law at the University of Evansville, and undertook additional financial management studies at the Indiana Banking School at Purdue.

Troy Branson has been Executive Vice President of Franchising for the Company since 1997, and from 1992 to 1997, he was Director of Business Development. Before joining the Company, Mr. Branson was an owner of Branson-Yoder Marketing Group from 1987 to 1992. Mr. Branson received a B.S. in Business from Indiana University.

CODE OF ETHICS

The Company has adopted a code of ethics for its senior executive and financial officers. The code of ethics can be obtained without charge by contacting the Company’s executive office at 6612 E. 75th Street, Suite 450, Indianapolis, Indiana 46250 and requesting a copy of the code of ethics.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table for 2018 and 2019

The following table sets forth the cash and non-cash compensation awarded to or earned by the Executive Chairman of the Board and Chief Financial Officer, the Chief Executive Officer, President and Secretary and the one other highest paid executive officer of the Company.

Name and Principal Position(s)	Year	Salary	Non-Equity Incentive Compensation	Option Awards(1)	Total Compensation
Paul W. Mobley	2019	$300,000	$-	$4,000	$304,000
Executive Chairman of the Board and Chief Financial Officer	2018	$225,000	$-	$3,850	$228,850

A. Scott Mobley	2019	$444,568	$-	$5,000	$449,568
Chief Executive Officer, President and Secretary	2018	$443,720	$-	$4,950	$448,670

Troy Branson	2019	$110,000	$85,967	$2,125	$198,092
Executive Vice President	2018	$109,615	$81,938	$2,338	$193,891

(1) These amounts represent the grant date fair value of the option awards. See “—Equity Incentive Awards” for information regarding valuation of stock option grants.

Equity Incentive Awards

The Company maintains an employee stock option plan for our employees, officers and directors that is designed to motivate them to increase shareholder value. Any employee, officer or director of the Company is eligible to be awarded options under the plan. The employee stock option plan provides that any options issued pursuant to the plan for non-director employees will have a three-year vesting period and for director employees will vest one-third each year and both will expire ten years after the date of grant. The vesting period is intended to provide incentive for longevity with the Company. Awards under the plan are periodically made at the recommendation of the Executive Chairman/Chief Financial Officer and President/Chief Executive Officer, and then approved by the board of directors. The employee stock option plan does not have a limit on the number of shares that may be issued under the plan.

The Summary Compensation Table includes the grant date fair value for stock options granted in 2018 and 2019 to the named executive officers under the Company’s employee stock option plan. The Company determines the grant date fair value of stock options calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. See Note 7 to the Notes to the Company’s Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of the Company’s determination of the grant date fair value of stock options.

In 2018, the Company granted options to purchase 415,000 shares on July 6, 2018 at an exercise price equal to the then-current market price of $0.623 per share. There were no employee stock options exercised in 2018 and stock options for 105,500 were forfeited. In 2019, the Company granted options to purchase 529,500 shares on July 2, 2019 at an exercise price equal to the then-current market price of $.60 per share. There were no employee stock options exercised in 2019 and stock options for 195,000 were forfeited.

Employment Agreements

Paul W. Mobley has an employment agreement with the Company which: (A) fixes his base compensation at approximately $650,000 per year for 2019 (although Mr. Mobley voluntarily reduced his base compensation to $300,000 for 2019); (B) provides for reimbursement of travel and other expenses incurred in connection with his employment, including the furnishing of an automobile and health and accident insurance similar to that provided other employees; and (C) provides life insurance in an amount related to his base salary. The initial term of the agreement is seven years and the term automatically renews each year for a seven-year period unless the board of directors takes specific action to not renew. The agreement is terminable by the Company for cause as defined in the agreement. The agreement does not provide for any benefits payable as a result of a change of control of the Company.

A. Scott Mobley has an employment agreement with the Company which: (A) fixes his base compensation at approximately $551,000 per year for 2019 (although Mr. Mobley voluntarily reduced his base compensation to $444,568 for 2019); (B) provides for reimbursement of travel and other expenses incurred in connection with his employment, including the furnishing of an automobile and health and accident insurance similar to that provided other employees; and (C) provides life insurance in an amount related to his base salary. The initial term of the agreement is five years and the term automatically renews each year for a five-year period unless the board of directors takes specific action to not renew. The agreement is terminable by the Company for cause as defined in the agreement. The agreement does not provide for any benefits payable as a result of a change of control of the Company.

Non-Equity Incentive Arrangements

The Company currently has a non-equity incentive arrangement with our Executive Vice President under which he may earn additional compensation. For 2019 and 2018, his compensation was based on 2.5% of the Company’s adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”)1 for the first $2.5 million and 3.0% of EBITDA above $2.5 million. Under these plans, the Executive Vice President was paid incentive compensation of $81,938 and $85,967 in 2018 and 2019, respectively.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information concerning the number of outstanding equity awards of the executive officers named in the Summary Compensation Table as of December 31, 2019.

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expiration Date
Paul W. Mobley	100,000		0.58	4/28/20
	900,000		0.58	1/25/21
	33,333		0.58	6/27/22
	50,000		1.00	7/2/23
	60,000		1.00	7/2/24
	70,000		1.00	6/23/25
	60,000		0.53	7/7/26
	46,667	23,333	0.51	7/7/27
	23,333 0	46,667 80,000	0.623 0.60	7/6/28 7/2/29
A. Scott Mobley	25,000		0.58	8/28/20
	300,000		0.58	1/25/21
	33,334		0.58	6/27/22
	50,000		1.00	7/2/23
	60,000		1.00	7/2/24
	70,000		1.00	6/23/25
	70,000		0.53	7/7/26
	60,000	30,000	0.51	7/7/27
	26,667 0	53,333 100,000	0.623 0.60	7/6/28 7/2/29
Troy Branson	10,000		0.58	8/28/20
	40,000		1.00	7/2/23
	30,000		1.00	7/2/24
	40,000		1.00	6/23/25
	35,000		0.53	7/7/26
		42,500	0.51	7/7/27
		42,500 42,500	0.623 0.60	7/6/28 7/2/29

The employee stock option plan provides that any options issued pursuant to the plan for non-director employees will have a three-year vesting period and for director employees will vest one-third each year, so long as the optionee continues to be employed by the Company, and both will expire ten years after the date of grant.

DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Douglas H. Coape-Arnold	20,500	2,000	-	22,500
Marcel Herbst	20,500	2,000	-	22,500
William Wildman	9,500	3,750	-	13,250

Each non-employee director is compensated: $18,000 as an annual retainer fee paid quarterly; a $500 fee for each board of directors meeting attended. The directors are all eligible for stock option grants and are reimbursed for out-of-pocket expenses incurred in connection with their board service. The board of directors currently does not have any standing committees.

The Company does not pay any separate compensation for directors that are also employees of the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

As of April 15, 2020, there were 22,215,413 shares of the Company’s common stock outstanding. The following table sets forth the amount and percentage of the Company’s common stock beneficially owned on April 15, 2020, including shares that may be acquired by the exercise of options, by: (A) each director and named executive officer individually; (B) each beneficial owner of more than 5% of the Company’s outstanding common stock known to the Company; and (C) all executive officers and directors as a group.

Name of Beneficial Owner	Number of Shares Beneficially Owned (1)	Percent of Common Stock(2)
Corbel Capital Partners SBIC, L.P.	2,250,000(3)	10.1%
Paul W. Mobley	3,439,368(4)	14.6%
A. Scott Mobley	1,871,245(5)	8.2
Douglas H. Coape-Arnold	490,000(6)	2.2
Marcel Herbst	1,071,491(7)	4.7
Troy Branson	577,500(8)	2.6
William Wildman	75,000(9)	0.3
All executive officers and directors as a group (7) persons)	9,774,604	34.6%

(1)

All shares owned directly with sole investment and voting power, unless otherwise noted.

(2)

The percentage calculations are based upon 22,215,413 shares of the Company’s common stock issued and outstanding as of the most recent practicable date and, for each officer or director of the group, the number of shares subject to options, warrants or conversion rights exercisable within 60 days of April 15, 2020.

(3)

The total includes 2,250,000 warrants to purchase up to 2,250,000 shares.

(4)

The total includes 1,493,333 shares of common stock subject to options granted under a stock option plan. Mr. Mobley’s address is 6612 E. 75th Street, Suite 450, Indianapolis, Indiana 46250.

(5)

The total includes 878,334 shares of common stock subject to options granted under a stock option plan. Mr. Mobley’s address is 6612 E. 75th Street, Suite 450, Indianapolis, Indiana 46250.

(6)

The total includes 490,000 shares of common stock subject to options granted under a stock option plan.

(7)

The total includes 155,000 shares of common stock subject to options granted under a stock option plan, 400,000 shares issuable upon conversion of convertible notes and 200,000 shares issuable upon exercise of warrants.

(8)

The total includes 282,500 shares of common stock subject to options granted under a stock option plan.

(9)

The total includes 75,000 shares of common stock subject to options granted under a stock option plan.

The following table provides information as of December 31, 2019 with respect to the shares of the Company’s common stock that may be issued under its existing equity compensation plan.

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by stockholders	-	$-	-
Equity compensation plans not approved by stockholders	3,978,167	$.65	(1)
Total	3,978,167	$.65	(1)

(1) The Company may grant additional options under the employee stock option plan. There is no maximum number of shares available for issuance under the employee stock option plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The Company has reviewed all transactions to which the Company and officers and directors of the Company are a party or have a financial interest. 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 must be approved by 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.

Of the 48 Units sold in the private placement which began in October 2016, three Units were purchased by Paul W. Mobley, Executive Chairman, and four Units were purchased by Marcel Herbst, Director. Each Unit consists of a Note in the principal amount of $50,000 and a Warrant to purchase 50,000 shares of the Company’s common stock. These transactions were all on the same terms and conditions as all of the independent investors who purchased the other 41 Units. The Notes, at the time of issue, were to mature three years after issue date. In late 2018, the Company sent an offer to each remaining Note holder offering to extend the maturity of the Notes to January 31, 2023. Holders of $775,000 in principal amount of the Notes accepted that offer of extension including the Notes held by Paul W. Mobley and Herbst Capital Management, LLC. In conjunction with the refinancing of the Company in February 2020, Notes held by Paul Mobley were included in the $1,275,000 in principal amount of Notes that were repaid out of the proceeds of the new financing.

The Company’s board of directors is currently comprised of: Paul W. Mobley, our Executive Chairman and Chief Financial Officer; A. Scott Mobley, our President and Chief Executive Officer; Douglas H. Coape-Arnold; Marcel Herbst; and William Wildman. For the purpose of determining director independence, the Company has adopted the New York Stock Exchange definition of independence. The board of directors has determined that Messrs. Coape- Arnold, Herbst and Wildman are independent directors under that definition.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table presents fees for professional audit services rendered by Somerset CPAs for the audit of our annual financial statements and review of our quarterly financial statements, and fees billed for other services rendered by Somerset during 2019 and 2018.

	2019	2018
Audit fees and review fees (1)	$110,000	$110,000

(1)

Audit fees consist of fees rendered for professional services rendered by Somerset for the audit of our financial statements included in our annual reports on Form 10-K for the years ended December 31, 2019 and 2018, and the review of the unaudited financial statements included in our quarterly reports on Form 10-Q during 2019 and 2018.

The engagement of Somerset, for conducting the audit of the Company’s financial statements for the years ended December 31, 2019 and 2018, and for the review of its financial statements included in its Form 10-Q’s during 2019 and 2018, was pre-approved by the Company’s board of directors. Somerset has not been engaged by the Company to perform any services other than audits of the financial statements included in its Form 10-Ks and review of the financial statements in its Form 10-Qs. The board of directors does not have a pre-approval policy with respect to work performed by the Company’s independent auditor.

PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

	Page
Consolidated Balance Sheets - December 31, 2018 and 2019	20

Consolidated Statements of Operations - years ended December 31, 2017, 2018 and 2019	21

Consolidated Statements of Changes in Stockholders’ Equity - years ended December 31, 2017, 2018 and 2019	22

Consolidated Statements of Cash Flows - years ended December 31, 2017, 2018	23

Notes to Consolidated Financial Statements	24

Report of Independent Registered Accounting Firm. – Somerset CPAs, P.C.	33

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.

3.7	Articles of Amendment of the Articles of Incorporation of the Registrant effective February 7, 2017, filed as Exhibit 3.7 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 33-217442) filed April 25, 2017, 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.

4.2	Warrant to purchase common stock, dated July 1, 2015, filed as Exhibit 10.11 to the Registrant’s Form 10-Q filed on August 11, 2015, is incorporated herein by reference.

4.3	Form of Senior Secured Promissory Note issued by Registrant to Corbel Capital Partners SBIC, L.P. dated February 7, 2020 filed herewith.

4.4	Form of Warrant issued to Corbel Capital Partners SBIC, L.P. dated February 7, 2020 filed herewith.

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	Loan Agreement dated as of September 13, 2017 by and between the Registrant and First Financial, filed as Exhibit 10.1 to the Registrant's Form 8-K filed September 19, 2017, is incorporated herein by reference.

10.4	Term note dated September 13, 2017 to First Financial Bank filed as Exhibit 10.4 to the Registrant's Form 10-Q filed November 14, 2017, is incorporated herein by reference.

10.5	Development line note dated September 13, 2017 to First Financial Bank filed as Exhibit 10.5 to the Registrant's Form 10-Q filed November 14, 2017, is incorporated herein by reference.

10.6	Agreement dated April 8, 2015, by and among the Registrant and the shareholder parties, filed as Exhibit 10.1 to Registrant’s Form 8-K filed on April 8, 2015, is incorporated herein by reference.

10.7	Form of 10% Convertible Subordinated Unsecured note filed as Exhibit 10.16 to the Registrant's Form 10-K filed on March 27, 2017, is incorporated herein by reference.

10.8	Form of Redeemable Common Stock Purchase Class A Warrant filed as Exhibit 10.21 to the Registrant's Registration Statement on Form S-1 (SEC File No. 33-217442) on April 25, 2017, is incorporated herein by reference.

10.9	Registration Rights Agreement dated October 13, 2016, by and among the Registrant and the investors signatory thereto, filed as Exhibit 10.22 to the Registrant's Registration Statement on Form S-1 (SEC File No. 33-217442) on April 25, 2017, is incorporated herein by reference.

10.10	First Amendment to the Registration Rights Agreement dated February 13, 2017, by and among the Registrant and the investors signatory thereto, filed as Exhibit 10.23 to the Registrant's Registration Statement on Form S-1 (SEC File No. 33-217442) on April 25, 2017, is incorporated herein by reference.

10.11	Senior Secured Note and Warrant Purchase Agreement dated February 7, 2020 by and between the Registrant and Corbel Capital Partners SBIC, L.P. filed herewith.

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. Certification under Rule 13a-14(a)/15d-14(a)

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

32.1	C.E.O. Certification under 18 U.S.C. Section 1350

32.2	C.F.O. Certification under 18 U.S.C. Section 1350

101	Interactive Financial Data

* Management contract for compensation plan..

ITEM 16.

FORM 10-K SUMMARY

None.

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: May 12, 2020	By:	/s/ A. Scott Mobley
		A. Scott Mobley
		President and Chief Executive Officer

	NOBLE ROMAN’S, INC.

Date: May 12, 2020	By:	/s/ Paul W. Mobley
		Paul W. Mobley
		Executive Chairman, Chief Financial Officer and Principal Accounting Officer

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: May 12, 2020	By:	/s/Paul W. Mobley
		Paul W. Mobley
		Executive Chairman of the Board, Chief Financial Officer and Director

Date: May 12, 2020	By:	/s/ A. Scott Mobley
		A. Scott Mobley
		President, Chief Executive Officer and Director

Date: May 12, 2020	By:	/s/ Douglas H. Coape-Arnold
		Douglas H. Coape-Arnold
		Director

Date: May 12, 2020	By:	/s/ Marcel Herbst
		Marcel Herbst
		Director

Date: May 12, 2020	By:	/s/ William Wildman
		William Wildman
		Director