Noble Roman’s, Inc. (OTC Bulletin Board: NROM), the Indianapolis based franchisor of Noble Roman’s Pizza and Tuscano’s Italian Style Subs, today announced results for the year 2009. Net income was $1.7 million, or $.09 per share basic and $.08 per share diluted, on weighted average number of common shares outstanding of 19.4 million and diluted weighted average shares of 20.0 million for the year ended December 31, 2009. This compares to a net income from continuing operations for the year ended December 31, 2008 of $1.4 million, or $.07 per share basic and diluted from weighted average number of shares outstanding of 19.2 million and diluted weighted average number of shares of 20.1 million. Says Noble Roman’s President, Scott Mobley, “Fortunately, we took decisive action throughout the second half of 2008 to significantly reduce overhead, target resilient growth opportunities and create new revenue sources. Capitalizing on this effort throughout 2009 lead to bettering our 2008 results despite the extremely challenging environment for franchising and the foodservice industry.”
For comparative purposes, the income numbers above used net income from continuing operations for 2008. After a charge for loss on discontinued operations in 2008, the company reported a net loss of $2.5 million for the year ended December 31, 2008, or a loss of $.13 per share basic and a loss of $.12 per share diluted, on weighted average number of common shares outstanding of 19.2 million and diluted weighted average shares of 20.1 million. There was no loss on discontinued operations in 2009.
Royalty and fee income, less initial franchise fees, area development fees and equipment commissions, was approximately $6.7 million in both 2008 and 2009, though total revenue decreased from $9.0 million in 2008 to $7.5 million in 2009. Royalties and fees decreased from approximately $7.6 million in 2008 to approximately $6.9 million in 2009. The decrease in royalties and fees was primarily a result of selling fewer franchises, earning less equipment commissions and selling fewer area development agreements, all of which were impacted by the recent recession and crisis in the financial markets.
The company has recently developed a take-n-bake version of its pizza as an addition to its menu offerings. The take-n-bake pizza is designed as an add-on component for new and existing convenience store franchisees, and as a stand-alone offering for grocery store chains. Since adding this component in late 2009, the company has signed agreements for 87 grocery store locations to operate the take-n-bake pizza program. Grocery store chains that have signed agreements for certain of their grocery store locations to operate the take-n-bake pizza program will total 255 if multi-unit chains enter into agreements for the remainder of their grocery stores, as they have indicated they will do. However, there can be no assurance that they will add those additional agreements. The company is also in discussions with several additional grocery store chains regarding adding the take-n-bake program to their stores. The company expects the number of grocery store locations for take-n-take to increase significantly over the next several months. The take-n-bake program has also been integrated into the operations of 29 existing convenience stores, generating significant add-on sales, and is now being offered to all convenience store franchisees.
The company has recently developed a grab-n-go service system for a limited portion of the Tuscano’s menu. The grab-n-go system is designed to add sales opportunities at existing non-traditional Noble Roman’s Pizza and/or Tuscano’s Subs locations. The grab-n-go system has already been integrated into the operations of several existing locations, generating significant add-on sales. The system is now being made available to other existing franchisees.
The company is now offering new, non-traditional franchisees the opportunity to open with both take-n-bake pizza and grab-n-go subs when they acquire a dual-branded franchise. Additionally, through changes in the menu, operating systems and equipment structure, the company is now able to offer dual Noble Roman’s Pizza and Tuscano’s Subs franchises at a significantly reduced investment cost. The company is now promoting these enhancements for non-traditional locations and has been demonstrating the dual-brand at a variety of trade shows in recent months.
The company’s strategy is to grow its business by focusing its efforts on franchising new non-traditional locations and by licensing additional locations to sell its take-n-bake pizza. The company increased its focus on selling additional franchises for non-traditional locations by creating the Noble Roman’s Bistro service system to help broaden the appeal to additional types of locations and operations and by developing a take-n-bake pizza and grab-n-go subs as additional menu offerings to accelerate non-traditional unit growth. In addition, the company, in late 2008, discontinued operating any restaurants except for the two locations the company operates for testing and demonstration purposes. This change allowed the company to reduce operating expenses and overhead and, at the same time, established a platform for what the company anticipates will be significant growth in the future.
The company continues to vigorously defend itself in the lawsuit styled Kari Heyser, et al, vs. Noble Roman’s, Inc., et al. The Plaintiffs are former franchisees of the company’s traditional location venue. In addition to the company, the Defendants include certain of the company’s officers. Lenders to certain of the Plaintiffs were also named as Defendants, but the court dismissed the claims against them. Defendants filed the First Request for Production of Documents in February 2009 and certain Plaintiffs produced some documents requested by the company. However, certain of the Plaintiffs produced no documents and the company filed a Motion to Compel the production against the Plaintiffs. The Judge entered a Stipulated Order on the Motion to Compel stating that all Plaintiffs in this litigation were ordered to, without objection or evasion, file written responses and produce all documents and things that are responsive to the company’s Request. The company believes that the written responses submitted do not comply with the Order and many of the Plaintiffs have not submitted any documents and most of the others have not fully complied.
The company filed a Counter-Claim for Damages against all of the Plaintiffs and moved to obtain Preliminary and Permanent Injunctions against a majority of the Plaintiffs to remedy the Plaintiffs’ continuing breaches of the applicable franchise agreements. The company’s Motion for Preliminary Injunction was granted in October 2008. The company has asserted that none of the preliminarily enjoined Plaintiffs fully complied with the court’s Order and that several of them only minimally complied. Accordingly, the company filed a Motion to Require Full Compliance and To Show Cause why they should not be held in contempt and for attorney’s fees as sanctions.
The company filed a Motion to Revoke the Temporary Admission Pro Hac Vice of David M. Duree, Plaintiffs’ former counsel, for filing fraudulent affidavits with the court. The court granted this motion in March 2009 and also struck the fraudulent affidavits. New counsel for Plaintiffs entered his appearance in the case on behalf of the Plaintiffs in May 2009.
The company also filed a Motion for Partial Summary Judgment as to several claims in the Complaint, which the Judge granted on September 22, 2009. On October 8, 2009 Plaintiffs filed a Motion to Correct Error, Reconsider And Vacate Order; Request For Clarification; Alternatively, Motion For Certification Of Appeal Of Interlocutory Order And For Stay Of Proceeding Pending Appeal. On January 12, 2010, the court denied Plaintiffs’ Motion and in the same Order the court denied Plaintiffs’ Motion for Certification of Appeal of Interlocutory Order and for Stay of Proceedings Pending Appeal. Further, the court denied Plaintiffs’ request to amend their Complaint. On February 11, 2010, counsel for the Plaintiffs filed a Notice of Appeal with the Indiana Court of Appeals. Defendants’ Counsel is preparing a motion to dismiss the appeal based on lack of jurisdiction.
To date, 11 of the 14 Plaintiff groups have been deposed. Plaintiffs’ counsel withdrew representation of Plaintiffs Morris and Soltero, leaving one Plaintiff group to be deposed.
Certain Defendants were scheduled for depositions by Plaintiffs’ counsel during the week of November 9, 2009, however, Plaintiffs’ counsel canceled those depositions. Defendants had been rescheduled for depositions during the week of March 15, 2010, however, on March 12, 2010 Plaintiffs’ counsel again canceled those depositions.
Defendants have filed Motions for Summary Judgment as to some of the Plaintiffs as a result of their testimony at depositions and are in the process of preparing motions for Summary Judgment against all of the other Plaintiffs whose depositions have been taken. In the Judge’s Order of February 2, 2010, the Judge set a deadline of April 30, 2010 for filing of all remaining Motions for Summary Judgment, a deadline of June 4, 2010 for Plaintiffs’ Response to the Motions and a deadline of June 18, 2010 for Defendants’ Reply to Responses.
Although there can be no assurance regarding the outcome of litigation, the company believes that it has strong and meritorious legal and factual defenses to these claims and viable counter claims against the Plaintiffs and will vigorously defend its interests in this case.