Amended Press Release Noble Roman's Provides Detail on Accounting Change That Resulted In Non-Cash Adjustments to the Previously Announced Financial Information

INDIANAPOLIS, IN / ACCESSWIRE / May 17, 2024 / Noble Roman’s, Inc. (OTCQB:NROM), the Indianapolis based franchisor and licensor of Noble Roman’s Pizza and Noble Roman’s Craft Pizza & Pub (“CPP”), today announced that in connection with finalizing the audit of its financial statements as of December 31, 2023 and for the year then ended included in its recently filed Annual Report on Form 10-K, that the company concluded it was necessary to account for the value of the warrants issued to its lender in connection with entering into its credit facility, as a liability at the estimated fair value using the Black-Scholes pricing method.

Net cash provided by operations in 2023 of $1.6 million was unchanged by the accounting for the warrants. Recording the estimated fair value of the warrants resulted non-cash entries which reduced the previously reported net income by $324,534, due to an increase in interest expense of $89,621 and an increase in the estimated fair value of the warrant of $234,913. As a result of these non-cash items, the company reported net income of $1.5 million, or $.07 per share basic ($0.6 diluted), for 2023, which varied from previously reported net income of $1.8 million, or $. 08 per share basic ($0.07 fully diluted).

Recording the estimated value of the warrants also increased unamortized loan closing costs by $187,000 which reduces the carrying value of long-term loan payable on the balance sheet. In addition, the company recorded a short-term liability of $541,000, which will be adjusted in future financial statements to reflect changes in the market price of our stock and could increase the volatility of our earnings.

Set forth below are the balance sheet and statement of operations with the amounts as filed in our 2023 Annual Report on Form 10-K. These amounts supersede the corresponding amounts in the previous release.

Noble Roman’s Announces Year-End 2023 Financial Data

(As Amended Above)

Noble Roman’s, Inc. (OTCQB:NROM), the Indianapolis based franchisor and licensor of Noble Roman’s Pizza and Noble Roman’s Craft Pizza & Pub (“CPP”), today announced results for the year 2023 and other company highlights.

Financial highlights from the year 2023 include:

• Net Income of $1.5 million compared to a net loss of $1.3 million, as restated, in 2022
• Net Income in 2023 reflected $168,000 in legal costs to defend against a frivolous and unsuccessful lawsuit filed against the company and its directors by a shareholder group
• Operating Income of $3.4 million compared to $428 thousand in 2022
• Total Revenues of $14.4 million compared to $14.5 million in 2022
• Basic Earnings per Share were $.07 compared to $(.06) in 2022

Other highlights from the year 2023 include:

• Cash balance increased to $872 thousand at year-end 2023 from $786 thousand at year-end 2022
• Total general and administrative expenses decreased to $1.5 million for 2023 from $2.2 million in 2022, despite inflationary pressures. Certain staff received salary increases in 2023 and 2024, while the Chief Financial Officer and Executive Chairman voluntarily declined contractual increases in every year for the last 10 years (and voluntarily lowered his salary in three of those years); the Chief Executive Officer and President voluntarily declined contractual increases in 4 of those years, including 2023 and 2024.
• Interest expense decreased to $1.7 million in 2023 from $1.9 million, as restated, in 2022, largely due to the effects of reduced principal balance outpacing the effects of rising interest rates and the compounding of paid-in-kind note interest. in the company expects overall interest will reduce further in 2024 as the principal balance continues to decline, assuming steady or declining interest rates.
• During 2023, the company determined it qualified for a refund of certain costs and lost revenue as a result of government regulations, due to COVID, through the Employee Retention Tax Credit (“ERTC”) program and applied for ERTCs to net $1.45 million after expenses by filing 10 quarterly refund applications combining both RH (NYSE:) Roanoke, Inc. and Noble Roman’s, Inc. Payments of all but one of the refunds have been received to date.
• Revenues from the company’s non-traditional venue increased to $4.7 million in 2023 compared to $4.0 million in 2022.
• The company opened 61 new non-traditional units in 2023, nearly doubling the 31 it opened in 2022.
• The company entered into a 100-unit Development Agreement with Majors Management, LLC in October 2023 with a timetable for openings running through September 2026. As of May 10, 2024, 40 units have already opened.
• Revenues from company-owned restaurant locations were $9.7 million in 2023 compared to $10.4 million in 2022, with the difference primarily due to newer units exiting their grand opening windows, as well as the overall economy and the softness in consumer spending, especially in the latter half of 2023.
• Company-owned Craft Pizza & Pub prime variable costs improved year-over-year by .9% point for cost of sales and by .3% points for salaries and wages, despite commodity pricing pressures (especially in cheese) and significant inflationary pressures on restaurant salaries and wages.
• The company has not had a menu price increase at its company-owned CPP restaurants since a small increase in late summer 2022.
• In mid-November 2023, the company introduced its new, value-priced product promotion, the XL Pizza, into its CPP units, which had a significant positive impact during December 2023. During mid-March 2024, after a promotional hiatus, the company increased the introductory price of the XL Pizza from $9.99 to an every-day low price of $12, which is currently advertised on social media channels as well as local cable TV.

Scott Mobley, the company’s President and CEO, commented saying, “I am very pleased with the progress the company made in 2023 and the combined efforts of our staff. A lot has been accomplished with the growth of our non-traditional segment as well as keeping our corporate and CPP controllable costs well under control. We had some weather-related issues to start off 2024, but we are now continuing to promote the new XL Pizza including, for the first time, some local cable TV advertising. In addition, we are making what looks like solid progress on the refinancing of the company’s debt that matures in 2025, and we have a good backlog of both sold non-traditional franchises as well as a pipeline of prospects for additional franchise sales. As it stands now, 2024 is shaping up to be an outstanding year for the company.”

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:

The revenue from this venue decreased from $9.7 million to $8.7 million for the 12 months ended December 31, 2023 compared to the corresponding period in 2022. The primary reason for the decrease in the 12-month period was same store sales reduction as a result of the general economy, high gas prices, extraordinarily high consumer credit card balances and a decrease in disposable income on the part of local consumers.

Despite inflationary pressures, cost of sales as a percentage of revenue decreased from 21.4% to 20.5% in 2023 compared to 2022. The decrease was the result of a small increase in menu prices in mid-2022 in addition to more stability in staffing, new efficiencies in production methodologies and declining commodity cheese prices late in 2023.

Salaries and wages as a percentage of revenue decreased from 29.4% to 29.1% for the 12-month period ended December 31, 2023 compared to 2022. The slight decrease in the 12-month period was the result of scheduling efficiencies and stabilized restaurant management, despite the significant increase in individual labor cost.

Facility costs, including rent, common area maintenance and utilities, as a percentage of revenue increased from 16.8% to 18.1% of revenue for the 12-month period ended December 31, 2023 compared 2022. The primary reasons for the increase were a slight decline in sales volumes and increases in other operating rent costs as well as utility costs.

All other operating costs and expenses as a percentage of revenue increased from 16.5% to 18.3% for the 12-month period ended December 31, 2023 compared to 2022. The increase was the result of general inflationary pressure on substantially all costs of operations.

CPP margin contribution decreased from 12.3% to 10.6% for the 12-month period ended December 31, 2023 compared to 2022. The decrease in margin was primarily the result of increase in wages and other costs due to inflationary pressures and slightly lower sales volumes only partially offset by tighter controls in both cost of sales and personnel cost. The Company had no menu price increases in 2023.

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

(1) All other expenses in franchising are shown as a large negative as the credits from the ERTC refunds for various expenses were not separated between other categories. In addition, certain cash outlays were treated as deferred expenses similar to original franchise fees recorded as deferred income.

Total revenue from this venue increased from $4.0 million to $4.7 million for the 12-month period ended December 31, 2023 compared to 2022. The increase in revenue from this venue was a result of opening more non-traditional locations as a result of the Company refocusing its efforts on that goal as COVID was receding and convenience stores and travel plazas became willing to invest to increase their margins and profitability. In addition, in October 2023 the Company entered into a development agreement with Majors Management, LLC for 100 franchise locations to be developed over the next three years. In addition, the Company believes that the development with Majors Management, LLC has spurred interest in the concept by many other owners of host facilities.

Gross margin in this venue increased from 45.4% to 95.0% for the 12-month period ended December 31, 2023 compared to 2022. A primary factor in this substantial growth in margin was the result of all of the additional sales and openings in this venue. However, it was aided by the refund of various expenses and reimbursement of lost revenue due to the ERTC which was created as a part of the CARES Act. The negative cost of other operating expenses in this category was a result of the ERTC program.

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:

Gross revenue from this venue increased from $713,000 to $935,000 for the 12-month period ended December 31, 2023 compared to 2022. This venue consists of one location in a hospital. Access to the hospital had been very limited and movement within the hospital was prohibited because of the potential spread of COVID-19, and revenue increased as those restrictions within the hospital were relaxed. The Company does not intend to operate any more Company-owned non-traditional locations except for the one location that is currently being operated.

Total expenses increased from $705,000 to $793,000 for the 12-month period ended December 31, 2023 compared to 2022. The primary reason for the increase was increased revenue as the hospital relieved many of their restrictions on access to the hospital and on movement within the hospital, as discussed in the previous paragraph, resulting from the COVID-19 pandemic.

Detail on Corporate Expenses:

Depreciation and amortization decreased from $451,000 to $380,000 for the 12-month periods ended December 31, 2023 compared to 2022. These decreases were the result of the Company not opening any more Company locations during 2023.

General and administrative expenses decreased from $2.17 million to $1.55 million for the 12-month period ended December 31, 2023 compared to 2022. The decrease was the result of maintaining tight controls on expenditures despite the inflationary pressures on substantially all costs. In addition, $280,000 of the cost was deferred relating directly to costs attributable to new franchise locations to be amortized over the term of the contracts.

Interest expense decreased from $1.9 million, as restated, to $1.7 million for the 12-month period ended December 31, 2023 compared to 2022. The primary reason for the decrease was the result of principal payments on the Senior Note partially offset by compounding of the PIK interest on the Senior Note and an increase in interest rate due to the variable loan terms. This is also the correcting entry moving $257,926 into interest expense in 2022 from 2023. In 2024, the company expects that interest cost should decline gradually as a result of the required principal payment on the note assuming steady or falling interest rates.

Direct expenses to defend against an activist shareholder was $168,000 for the twelve-month period ended December 31, 2023 compared to none in 2022. Shortly before the 2023 annual meeting, BT (LON:) Brands, Inc. filed a lawsuit against Noble Roman’s, Inc. and its Directors seeking to reverse the disqualification of its purported nomination of a candidate to be elected as a Director at that meeting. Additionally, BT Brands filed motions for a temporary restraining and for a preliminary injunction. The Federal court denied both of BT Brands’ motions, in part because the Judge ruled that the underlying claims in the lawsuit would not be successful on the merits. As a result, BT Brands voluntarily dismissed their lawsuit against Noble Roman’s, Inc. and its Directors on September 7, 2023.

Restatement of Certain 2022 Financial Information:

Recently, management of the company and Assurance Dimensions, its registered independent accounting firm, determined the company’s previously issued financial statements in its Annual Report on Form 10-K for the year ended December 31, 2022 should be restated to correct an error with regard to accounts payable and accumulated deficit from previous periods that was reflected in the opening balance sheet for that year. The error related to years sometime prior to 2020 and was carried forward to 2022. As a result, the company has undertaken to restate such financial statements to correct the error, which is already incorporated in the results above. The correction also restates a fraction of the interest expense incurred in 2022 which the company had recorded in 2023.

The statements contained in this press release 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 continuing after-effects of the COVID-19 pandemic, the ability of franchisees to timely prepare their units for scheduled openings, the company’s ability to maintain adequate staff for new openings, competitive factors and pricing and cost pressures, non-renewal of franchise agreements or the openings contemplated by the development agreement not occurring, shifts in market demand, the success of franchise programs, including the Noble Roman’s Craft Pizza & Pub format, the company’s ability to successfully remediate a meterial weakness in its controls over financial reporting on a timely basis, 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 inflation, other changes in prices or supplies of food ingredients and labor and, as well as the factors discussed under “Risk Factors” contained in this company’s Annual Report on Form 10-K for the year ended December 31, 2022. 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. If activist stockholder activities ensue, the company’s business could be adversely impacted.

Consolidated Balance Sheets
Noble Roman’s, Inc. and Subsidiaries

Consolidated Statements of Operations
Noble Roman’s, Inc. and Subsidiaries

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

FOR ADDITIONAL INFORMATION, CONTACT:

For Media Information: Scott Mobley, President & CEO (smobley@nobleromans.com)
For Investor Relations: Paul Mobley, Executive Chairman (pmobley@nobleromans.com)
Mike Cole, Investor Relations: 949-444-1341 (mike.cole@armaadvisoryservices.com)

SOURCE: Noble Romans, Inc.