NOBLE ROMAN'S, INC. General Information
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
As discussed above under "Impact of COVID-19 Pandemic" the COVID-19 pandemic materially affected the Company's business in the past year and the first two months of the first quarter of 2022.
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 systems and
equipment to maximize speed, enhance quality and perpetuate the taste customers
love and expect from a
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.
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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 specialty
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 boneless wings and a selection of desserts, as well
as
Additional enhancements include a glass enclosed "
The Company designed its 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
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.
· 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.
· Fresh packed, uncondensed and never cooked sauce made with secret spices,
parmesan cheese and vine-ripened tomatoes in all venues.
· 100% real cheese blended from mozzarella and Muenster, with no soy
additives or extenders.
· 100% real meat toppings, with no additives or extenders, a distinction
compared to many pizza concepts.
· Vegetable and mushroom toppings are sliced and delivered fresh, never
canned.
· An extended product line that includes breadsticks and cheesy stix with
dip, pasta, baked sandwiches, salads, wings and a line of breakfast
products.
· 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 licenses.
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Business Strategy
The Company is focused on revenue expansion while continuing to minimize corporate-level overhead. To accomplish this the Company will continue developing, owning and operating Craft Pizza & Pub locations and franchising to qualified 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 Non-Traditional Traditional
Except Hospitals Hospitals 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
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 specifications, recipes or 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
Business Operations Distribution
The Company's proprietary ingredients are manufactured pursuant to the Company's specifications or recipes 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 third-party distributors at prices negotiated between the Company and the manufacturer.
The Company has third-party distributors strategically located throughout
13 Financial Summary
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates. The Company periodically evaluates the carrying value of its assets, including property, equipment and related costs, accounts receivable and deferred tax assets, to assess whether any impairment indications are present due to (among other factors) recurring operating losses, significant adverse legal developments, competition, changes in demand for the Company's products or changes in the business climate which affect the recovery of recorded value. If any impairment of an individual asset is evident, a charge will be provided to reduce the carrying value to its estimated fair value.
The following table sets forth the revenue, expense and margin contribution of
the Company's Craft Pizza & Pub venue and the percent relationship to its
revenue:
Three Months ended March 31,
Description 2021 2022
Revenue $ 2,108,697 100.0 $ 2,283,596 100.0
Cost of sales 438,012 20.8 470,273 20.6
Salaries and wages 228,949 10.9 722,958 31.7
Facility cost including rent, common
area and utilities 114,384 5.4 393,697 17.2
Packaging 56,696 2.7 80,738 3.5
Delivery fees 94,245 4.5 36,924 1.6
All other operating expenses 296,608 14.0 353,939 15.5
Total expenses 1,228,894 58.3 2,058,529 90.1
Margin contribution $ 879,803 41.7 % $ 225,067 9.9 %
Note: The application of the
Margin contribution from this venue was decreased by
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The following table sets forth the revenue, expense and margin contribution of the Company's franchising venue and the percent relationship to its revenue:
Three Months ended March 31,
Description 2021 2022
Royalties and fees from franchising
88,246 8.4 193,596 18.7
Trade show expense 105,000 10.0 90,000 8.7
Insurance 62,398 5.9 95,851 9.3
Travel and auto 16,370 1.5 18,808 1.8
All other operating expenses 67,351 6.4 63,100 6.1
Total expenses 339,365 32.2 461,355 44.6
Margin contribution $ 714,595 67.8 % $ 572,889 55.4 %
Note: The application of the
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:
Three Months ended March 31,
Description 2021 2022
Revenue $ 116,104 100.0 % $ 133,129 100.0 %
Total expenses 89,154 76.8 132,877 99.8
Margin contribution $ 26,950 23.2 % $ 252 .2 %
Note: The application of the
Results of Operations
Company-Owned Craft Pizza & Pub
The revenue from this venue was
Cost of sales decreased to 20.6% from 20.8% in the corresponding period last year. This increase was the result of inflationary pressures with all products partially offset by menu price increase.
Salaries and wages increased to 31.7% from 10.9% for the comparable period in
2021. The
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Gross margin contribution decreased to 9.9% from 41.7% for the quarter compared to the comparable period last year. The reduction in certain qualified expenses due to the Company's PPP loan in the first quarter of 2021 material affects the comparison with the prior quarter. In addition, the spread of the Omicron variant in January and February of 2022 had a significant negative impact which has now significantly dissipated.
Franchising
The revenue from this venue decreased from
Salaries and wages for this venue increased to 18.7% of revenue from 8.4% of revenue. The reduction in certain qualified expenses, including salaries and wages, due to the Company's PPP loan in the first quarter of 2021 materially affects the comparison with the prior quarter.
Trade show expense, insurance and other operating costs increased to
Gross margin contribution from this venue declined to 55.4% from 67.8% in the
three-month period ended
Company-Owned Non-Traditional Locations
Gross revenue from this venue increased to
Total expenses increased to
Other Expenses
Depreciation and amortization decreased to
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General and administrative expenses increased to
Interest expense increased to
Net income decreased to a net loss of
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 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, March, October and December of 2020, and October and December of 2021. The Company intends to open two more Company-owned Craft Pizza & Pub locations in 2022.
The Company is operating one non-traditional location in a hospital and has no plans for operating any additional Company-owned non-traditional locations.
The Company's current ratio was 2.5-to-1 as of
In
On
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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
is being 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
On
On
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 a franchising program for Craft Pizza & Pub restaurants.
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.
18 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, the availability and cost of hourly and management labor to
adequately staff Company-operated and franchise operations, competitive factors
and pricing pressures, accelerating inflation and the cost of labor, food items
and supplies, 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 " contained in the Company's
Annual Report on Form 10-K for the year ended
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