Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[ Reserved ]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
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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 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, RH Roanoke, Inc. and Pizzaco, Inc., unless the context requires otherwise. RH Roanoke, Inc. operates a Company-owned non-traditional location. Pizzaco, Inc. currently is dormant.
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. The Company is currently experiencing significant growth in the number of non-traditional franchised locations. See “Noble Roman’s Pizza for Non-Traditional Locations” below for additional information.
The Company’s first Craft Pizza & Pub location opened in 2017 as a Company-operated restaurant in a northern suburb of Indianapolis, Indiana. Since then, the Company opened eight more Company-operated locations between 2017 and 2021. The Company may open additional locations in the future but it has no plans to open any more Company-operated locations at this time. The Company-operated locations serve as the base for what it sees as a significant potential future growth driver, including franchising its full-service restaurant format to experienced, multi-unit restaurant operators with a track record of success.
As discussed below under “Impact of COVID-19 Pandemic” the COVID-19 pandemic materially affected the Company’s franchising operations, beginning when the pandemic emerged during the first quarter of 2020.
Noble Roman’s Craft Pizza & Pub
The Noble Roman’s Craft Pizza & Pub format incorporates many of the basic elements first introduced in 1972 but in a modern atmosphere with up-to-date baking technology and equipment to maximize speed, enhance quality and continue the taste customers love and expect from a Noble Roman’s.
The Noble Roman’s Craft Pizza & Pub provides for a selection of approximately 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 set at approximately 3 minutes for traditional pizzas and 5.75 minutes for Sicilian pizzas. Popular pizza favorites such as pepperoni are options on the menu and these locations also offer 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 boneless wings and a selection of desserts, as well as Noble Roman’s famous Breadsticks with Delicious Cheese Sauce, most of which has been offered in its locations since 1972. In 2022, new salad bars were rolled out over time across all Company-operated restaurants.
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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. 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 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. 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 host business or activity with 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 Company refocused its development plans toward selling more non-traditional franchises to convenience store operators as a result of the Covid pandemic coming to an end and the owners of such locations becoming more willing to look at expansion options and to invest in their growth and profitability. The focus on selling more non-traditional franchise locations, including several locations with higher-than-average potential volumes, is proceeding, and the Company has a significant backlog of prospects to expand the franchise locations.
For example, in October 2023, the Company entered into a development agreement with Majors Management LLC (“Majors Management”), a convenience store owner with a significant number of convenience stores predominantly located in the southern part of the United States, for 100 franchise locations to be developed prior to September 30, 2026. Majors Management owns many more locations than the initial locations covered by this development agreement and has indicated that it may expand the Company’s development of new locations with many other locations. The Company is also expanding with various mid-size chains of convenience stores.
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 and vine-ripened tomatoes in all venues.
100% real cheese blended from mozzarella, Muenster, and oregano, with no additives or extenders.
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100% real meat toppings, with no soy additives or extenders, a distinction compared to many pizza concepts.
Vegetables (like onions and green peppers) and mushrooms for pizzas 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.
Business Strategy
The Company refocused its development plans toward selling more non-traditional franchises after identify growth opportunities created by the Covid pandemic coming to an end and the owners of potential non-traditional locations becoming more willing to look at expansion options and to invest in their growth. In doing so the Company is maintaining its focus on expansion of revenue while carefully managing corporate-level overhead expenses.
The initial fees for a Noble Roman’s Pizza non-traditional location or a Craft Pizza & Pub location are as follows:
Non-Traditional
Except Hospitals
Non-Traditional
Hospitals
Traditional
Stand-Alone
Either a Noble Roman’s Pizza or Craft Pizza & Pub
(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 each.
The 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.
The Company’s proprietary ingredients used by both Craft Pizza & Pub locations and non-traditional locations 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 in areas across the United States where Company-owned and franchise operations are located. The distributor agreements require the distributors to maintain adequate inventories of all ingredients necessary to meet the needs of the Company’s franchisees in their distribution areas for weekly deliveries.
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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, maintain and renew existing franchises, or sell its products. Many of the Company’s competitors are very large, internationally established companies.
Within the environment in which the Company competes, 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 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 unit operations which may be of material benefit to franchisees.
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
Inclement or unusually cold winter weather conditions tend to adversely affect sales, especially those of the Craft Pizza & Pubs which are primarily designed for in-store dining and carry-out, which in turn affects Company revenue. Spring weather may also adversely affect sales in Craft Pizza & Pub locations as people first start to spend time outside. Sales of non-traditional franchises may be affected by weather and holiday periods. Non-traditional venue sales may be slower around major holidays such as Thanksgiving and Christmas, and during the first quarter of the year. Product sales by the non-traditional franchises are generally slower during the first quarter of the year.
Human Capital
As of March 1, 2025, the Company employed approximately 38 persons full-time and 128 persons on a part-time, hourly basis, of which 12 of the full-time employees are employed in sales and service of the franchise units and 26 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®,” “Pizza Valet” 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.
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Government Regulation
The Company and its franchisees 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 third parties that produce and distribute products the Company and its franchisees sell are also licensed and subject to regulation by state and local health and fire codes, and the U. S. Department of Transportation. The Company, its franchisees 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. The Company is 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 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. 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 and the Government Response
In the first quarter of 2020, a novel strain of coronavirus (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 did, among other things, impose 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 resulted in significant economic volatility, uncertainty and disruption, reduced commercial activity and weakened economic conditions in the regions in which the Company and its franchisees operate.
Host facilities for the Company’s non-traditional franchises were affected by labor shortages which adversely impacted those developments and in turn slowed the sales of franchises. The largest impact on the Company’s non-traditional franchising segment was that essentially all facilities located inside entertainment centers, including bowling centers, were ordered to close as they were deemed to be high risk of spread of the disease. Though varied by state, generally speaking those locations were required to be closed for up to two years by government order. Often being small businesses and not highly capitalized, most could not withstand that period of being closed and were not able to reopen. However, with the current strategy of focusing the Company’s efforts on well capitalized non-traditional locations, especially in convenience stores, it has successfully replaced those locations with other non-traditional franchise locations and continues to add more.
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The employee retention credit (“ERC”) is a refundable tax credit that businesses may claim on qualified wages paid to employees. The program was introduced in March 2020 in the CARES Act to incentivize employees to keep their employees on their payroll during the pandemic and economic shutdown. The credit applies to all qualified wages, including certain health plan expenses, paid during the period in which the operations were fully or partially suspended due to a government shutdown order or where there was significant cost increases or decline in gross receipts.
When first established under the CARES Act, the tax credit was equal to 50% of the qualified wages an eligible employer paid to employees after March 12, 2020 and before January 1, 2021. The credit was also limited to a maximum annual per employee credit of $5,000. The credit was then extended through June 30, 2021 by the Tax Payer Certainty and Disaster Relief Act (“Relief Act”) (Division EE of the Consolidated Appropriations Act). The Relief Act modified the credit to be 70% of up to $10,000 of qualified wages per quarter in 2021 through June 30, 2021. The program was further extended through December 31, 2021 by the American Rescue Plan Act of 2021 (“ARPA”) but was retroactively cut short by the Infrastructure Investment and Jobs Act, ending effective September 30, 2021.
During the first quarter of 2023 the Company determined that it was entitled to an ERC of $1.718 million and submitted amended federal Form 941 returns claiming that refund. The ERC refund is treated as a government grant and reduced appropriate expenses for the $1.718 million less expenses for applying for the refund of $258,000 or a net of $1.460 million. This refund applied both to Noble Roman’s, Inc. and its subsidiary, RH Roanoke, Inc. To date, the Company has received all five quarterly refunds for RH Roanoke, Inc. and three refunds for 2020 and one of the two quarterly refunds for 2021 for Noble Roman’s, Inc. In recent communications with the Internal Revenue Service (“IRS”), that was initiated by the Company, the IRS indicated the final refund claim had been received and was still in process but that all ERC refund payments had been delayed due to administrative backlog in processing refunds generally.
Available Information
The Company makes available, free of charge through its Investor Relations website (http://www.nrom.info), access to the 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 electronically filing these reports with, or furnishing them to, the Securities and Exchange Commission. The information on the Company’s investor website is not incorporated into this Annual Report on Form 10-K.
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 the Company’s securities as well as the information set forth under “Forward-Looking Statements” in Item 7 of this report. These risks and uncertainties include:
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Risks Related to Economic Conditions and Events
Competition from larger companies.
The Company competes with large national companies and numerous regional and local companies for 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. With respect to its non-traditional franchising, the Company believes it has advantages in competing for franchise 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 though could have an adverse effect on the Company’s ability to sell additional franchises or licenses or maintain and renew existing franchises or the operating results of the Company’s system.
Dependence on growth strategy.
The Company’s growth strategy includes continuing to sell new franchises and continuing to open the backlog of sold but unopened non-traditional 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 continued viability of the Craft Pizza & Pub locations; (3) the ability of the franchisees 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 of non-traditional locations and/or Craft Pizza & Pub locations.
Risks Related to the Company’s Indebtedness
Ability to service outstanding indebtedness and the dilutive effect of the Company’s outstanding warrants.
As of May 30, 2025, the Company had approximately $7.1 million in principal amount debt obligations. Of that debt, $6.5 million is in the form of a senior secured promissory note (as amended, the “Senior Note”) and $575,000 is in the form of convertible, subordinated, unsecured promissory notes (the “Notes”), each as described below.
In February 2020, the Company entered into a Senior Secured Promissory Note and Warrant Purchase Agreement (as amended, the “Agreement”) with Corbel Capital Partners SBIC, L.P. (the “Purchaser”). Pursuant to the Agreement, the Company issued to the Purchaser the Senior Note in the initial principal amount of $8.0 million. The Company used the net proceeds of the Agreement as follows: (i) $4.2 million to repay the Company’s then-existing bank debt which was in the original amount of $6.1 million; (ii) $1.275 million to repay the portion of the Company’s outstanding subordinated convertible debt the maturity date of which most had not previously been extended; (iii) payment of debt issuance costs; and (iv) for working capital or other general corporate purposes, including development of new Company-owned Craft Pizza & Pub locations.
The Senior Note, as amended, bears cash interest of SOFR, as defined in the Agreement, plus 9.0% with no PIK interest. Interest is payable in arrears on the last calendar day of each month. The Senior Note, as amended, matures on June 30, 2026. Beginning February 28, 2023, the Senior Note required fixed principal payments in the amount of $33,333 per month during February 2023 and $83,333 per month thereafter until maturity but was amended to $91,667 per month effective May 31, 2025.
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In conjunction with the Senior Note, the Company issued to the Purchaser a warrant (as amended, the “Corbel Warrant”) to purchase up to 2,250,000 shares of Common Stock. The Corbel Warrant, as amended in September 2023 and further amended on April 14, 2025, 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 $0.10 per share (“Tranche 1”), (ii) 900,000 shares of Common Stock at an exercise price of $0.10 per share (“Tranche 2”), and (iii) 150,000 shares of Common Stock at an exercise price of $0.10 per share (“Tranche 3”). Tranche 3 for 150,000 shares of common stock is the only Tranche permitted to be exercised with a cashless exercise. 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 tenth anniversary of the date of its issuance.
In conjunction with the Fourth Amendment to the Senior Note the Company issued to the Purchaser an additional Warrant to purchase up to 750,000 shares of the Company’s Common Stock at an exercise price of $.10 per share with a maturity date of five years from date of issuance.
Additionally, the Company previously issued certain units (the “Units”) consisting of a Note 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. Following the refinancing described above, $575,000 in principal amount of Notes and the associated Warrants remain outstanding, however, per the terms of the agreement, the Warrants are re-priced to $0.10 per share. Notes with an outstanding principal balance of $200,000 matured and accompanying Warrants expired January 31, 2023, however a $50,000 of those matured note was repaid to Margaret Huffman with the approval of Corbel and the principal amount of $150,000 cannot be repaid until Corbel’s loan is paid because the Notes are subordinate to such loan. The maturity of the Notes with an outstanding principal balance of $425,000, and accompanying Warrants, have been extended to May 31, 2025 or the repayment of the Senior Secured Loan, whichever comes first.
Risks Related to the Company’s Operations
Dependence on success of franchisees and licensees.
While a portion of its revenues are being generated by Company-owned operations, a growing portion of the Company’s revenues comes from royalties and other fees generated by its franchisees which are independent operators. 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. The Company provides training and support to franchisees 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. For example, franchisees 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 could decline. While the Company attempts to ensure that its franchisees 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. Overall inflation, general economic conditions, initiatives to increase the Federal minimum wage and a shortage of available labor could have an adverse financial effect on the franchisees or the Company by increasing labor and other costs.
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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 franchisees as well as the Company-owned operations. 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. The COVID-19 pandemic had a materially adverse impact on many of the Company’s then current distributors as well as other potential distributors, especially those located in or servicing states that had or have significant and/or prolonged restrictions. Potential disruptions in distribution could result in distribution service under less favorable terms to the Company and its franchisees. This risk is largely mitigated by the number of distributors in the market from which to choose.
Dependence on consumer preferences and perceptions.
The restaurant industry and the retail food industry are 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.
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. The COVID-19 pandemic created supply chain shortages that adversely impacted the Company’s operations. In addition, factors such as inflation, which has intensified significantly since the beginning of 2021, market conditions for cheese, wheat, meats, paper, labor and other items may also adversely affect the franchisees and, as a result, can adversely affect the Company’s ability to add new franchised locations.
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.
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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. Failure of the Company or its franchisees to comply with these laws and regulations could have an adverse impact on the Company, its operations, financial results or reputation. Additionally, expenses related to compliance with these laws and regulations could have an adverse impact on the Company’s financial results.
Risks Related to Human Capital
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.
Risks Related to the Company’s Common Stock
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, although the company does have a majority of independent directors; (2) an audit committee of independent directors, instead the Board as a whole acts as the audit committee; and (3) shareholder approval of certain equity compensation plans or equity issuances. As a result, stockholders do not have the same governance protection as they would for a stock traded on a national exchange.
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Thinly traded stock.
The market for the Common Stock is limited, meaning that an investment in the Company’s stock is less liquid than in a stock listed on a national exchange with a higher average trading volume. Because of this, attempts by one or more stockholders of the Company to sell significant amounts of stock may result in an imbalance in the market that materially decreases the trading price of the stock which could continue for an indefinite period of time. Accordingly, the traded price of the stock may not reflect the Company’s equity value. Additionally, 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.
Activities of activist group of investors .
In 2023, BTB Brands, Inc. (“BT Brands”) and its CEO and principal shareholder, Gary Copperud (“Copperud”), launched a proxy contest to elect Copperud to the Company’s board of directors at its annual meeting that year. BT Brands, Copperud and Kenneth Brimmer, BT Brands CFO, last reported beneficial ownership as a group of 2.0 million Company shares.
BT Brands, (NASDAQ; BTBD), purports to operate 18 restaurants of various formats. For the fiscal year ended December 29, 2024, BT Brands reported a net loss of $2.3 million (or $.37 per share) on sales of $14.8 million following a year-ended December 31, 2023 net loss of $900,000 after tax benefit of $145,000. BTBD stock price has declined by over 52% over the past 52 weeks and its market capitalization currently is approximately $6.7 million.
Upon review, the Company determined that BT Brands had not complied with the express requirements for a shareholder nomination and had misrepresented its record ownership of the Company’s shares in their submission to the Company for the nomination required under the Company’s By-laws. Accordingly, Copperud was disqualified as a nominee. The Company’s Board determined that Mr. Copperud was not a suitable Board candidate given his background of unsuccessful business ventures and misconduct in pursuing the election contest. BT Brands and Mr. Copperud filed a lawsuit in Federal court and also filed for a temporary restraining order and preliminary injunction seeking to require the Company to permit Copperud to stand for election despite admitting that he had not met the requirements to do so. The court denied their request for a temporary restraining order and preliminary injunction in part because the court determined they did not have a meaningful likelihood of success on the merits of their underlying claims. The Company has to date incurred more than $200,000 of direct expenses in BT Brands and Copperud. The Company may incur additional expenses if BT Brands or Copperud again takes action the Board determines is not in the interest of all shareholders.
