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 stand-alone restaurants and non-traditional foodservice operations under the trade names “Noble Roman’s Pizza,” “Noble Roman’s Craft Pizza & Pub,” “Noble Roman’s Take-N-Bake,”  and “Tuscano’s Italian Style Subs.”  Unless the context otherwise indicates, reference to the “Company” are to Noble Roman’s, Inc. and its wholly-owned subsidiaries.

Principles of Consolidation:  The consolidated financial statements include the accounts of Noble Roman’s, Inc. and its wholly-owned subsidiaries, RH Roanoke, Inc. and Pizzaco, Inc. (inactive). 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. 

Franchise Support Costs:  Certain direct costs of franchising operations and all upfront fees were charged to deferred costs and deferred income, respectively, which were approximately equal, and are both amortized over the life of each franchise agreement in 2024 and 2025. 

Leases:  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 direct lease 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.

Deferred Revenue and Deferred Cost: The upfront fees for new franchise locations are credited to deferred contract income and debited to deferred contract cost, respectively, and amortized over the life of the individual franchises.

Cash: Includes actual cash balance.  There are not any withdrawal restrictions.

Accounts Receivable and Allowance for Credit Losses

The Company accounts for expected credit losses in accordance with ASC Topic 326, Financial Instruments – Credit Losses.

The Company evaluates accounts receivable and other financial assets measured at amortized cost for expected credit losses on a periodic basis. In estimating expected credit losses, management considers historical collection experience, current economic conditions, aging of receivable balances, specific customer circumstances, subsequent collections, and reasonable and supportable forecasts.

The Company's receivables consist primarily of franchise royalties, manufacturer allowances, distributor allowances, equipment commissions, and other franchise-related receivables.

Management evaluates individual receivable balances when information becomes available indicating that collection may be uncertain. Receivables are written off when management determines that collection is no longer probable.

Based on management's evaluation of historical collection experience, current conditions, subsequent collections, aging of receivable balances, and the nature of the underlying receivables, management recorded an allowance for expected credit losses of approximately $231,000 as of December 31, 2025. No allowance for expected credit losses was recorded as of December 31, 2024.

The allowance reflects management's estimate of expected credit losses over the contractual life of the related receivables and does not represent a write-off of the underlying receivable balances. The Company continues to monitor collection trends and customer-specific developments and adjusts the allowance for expected credit losses when circumstances indicate such adjustment is necessary.

The Company considers both current conditions and reasonable and supportable forecasts of future conditions when evaluating expected credit losses for uncollectible receivable balances.  In management’s determination of the allowance for credit losses, the Company pools receivables by days outstanding and applies an expected credit loss percentage to each pool.  The expected credit loss percentage is determined using historical loss data adjusted for current conditions and forecasts of future economic conditions. Current conditions considered include predefined aging criteria, as well as specified events that indicate the balance due is not collectible.  Reasonable and supportable forecasts used in determining the probability of future collection consider publicly available macroeconomic data and whether future credit losses are expected to differ from historical losses.

The Company and its company-owned locations receive revenues from daily sales which are reported daily and included in income when received.  Revenue from franchise fees is recorded as deferred income and amortized into income over the term of the franchise agreements which have, for the most part, ten-year terms.  The Company receives revenue from ongoing royalty income which is based on sales by the franchisee reported to the Company weekly as they occur, and 7% of those reported sales are recorded as royalty income and collected from the franchisee that same day via ACH withdrawal from their bank account.  The Company receives equipment commissions from the equipment distributor on sales of equipment to the franchisee which is arranged for by the Company. That commission is recorded as earned and generally collected every 30 days from the equipment distributor.  The Company’s other regular source of revenue is from manufacturer allowances and distributor allowances.  In the case of distributors, the Company receives a distribution report from each distributor on a monthly basis which report indicates the amount of fees the distributor has collected from the franchisee on behalf of the Company and held in trust when billed by the distributor and remitted to the Company on a monthly basis.  Manufacturing allowances are generally negotiated price allowances from the manufacturer of the various Noble Roman’s ingredients for the benefit of using Noble Roman’s recipes and formulas for producing the ingredients.  That allowance is recognized as income when the distributor reports the sales of those ingredients to each of the locations.  In addition, both the cheese manufacturer and the cheese sauce manufacturer have an annual incentive plan for which the Company receives payment in January or February of each year based on the previous year’s usage.  Deferred contract income at the end of 2024 was $1.60 million and the deferred contract income at the end of 2025 was $1.70 million.  Deferred contract cost was approximately equal to deferred contract income at such dates.  In addition to the deferred income and deferred cost, the Company also had contract income consisting of franchise fees, royalties, and manufacturing allowances with a receivable balance of $741,539 on December 31, 2025.  Total revenue recognized as income in 2025 from this category was $6.2 million.  These receivables at both the beginning and end of 2025 all relate directly or indirectly to the revenue stream consisting of royalties, manufacturing allowances, distributor allowances and some legal costs related to enforcing franchising agreements which are to be reimbursed by the franchisee in accordance with the franchise agreements.

Advertising Costs: The Company records advertising costs consistent with ASC Topic 720, “Other Expense” topic and Subtopic 720-35, “Advertising Costs”. 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 ASC Topic 820 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. In 2020, in light of the additional uncertainty created as a result of the COVID-19 pandemic, the Company decided to create a reserve for collectability on all long-term franchisee receivables. The Company will continue to pursue collection where circumstances are appropriate and all collections of these receivables in the future will result in additional income at the time received or otherwise secured. 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 and Warrant Issuance Costs: Debt and warrant issuance cost is presented on the balance sheet as a direct reduction from the carrying amount of the associated liability. Those issuance costs are amortized to interest expense ratably over the term of the applicable debt or warrant. The unamortized issuance cost at December 31, 2025  and 2024 were $382,000. and $143,349.

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 analysis, 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, 2025 exceeded the carrying or book value, including goodwill, and therefore recorded goodwill was not subject to impairment.

Long Lived Assets: The Company reviews long-lived assets on an annual basis to determine if there has been any impairment in value. The Company has determined there has been no impairment of value in the recorded fixed assets.

Revenue Recognition

The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. Revenue is recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services.

The Company generates revenue from the following primary sources:

Restaurant Revenue

Restaurant revenue consists primarily of food and beverage sales from Company-owned Craft Pizza & Pub locations and Company-operated non-traditional locations. Revenue is recognized at the point in time when food and beverage products are provided to customers. Payment is generally received at the time of sale through cash, credit card, or other electronic payment methods.

Franchise Royalties

The Company enters into franchise agreements that generally provide for ongoing royalty fees based on a percentage of franchisee sales. Royalty revenue is recognized as the underlying franchise sales occur because the nature of the Company's performance obligation is to provide ongoing access to the Company's intellectual property and franchise system. Royalty revenue is generally billed and collected weekly through automated clearing house (ACH) withdrawals.

Initial Franchise Fees

Initial franchise fees are received upon execution of franchise agreements. Because the initial franchise fee does not represent a separate performance obligation, the fee is deferred and recognized over the term of the related franchise agreement, which is generally ten years, as the Company satisfies its ongoing performance obligations to the franchisee.

Equipment Commissions

The Company assists franchisees in arranging equipment purchases from third-party vendors and earns commissions on certain equipment sales. Revenue is recognized when the underlying equipment transaction is completed and the Company's performance obligation has been satisfied.

Manufacturer and Distributor Allowances

The Company receives consideration from approved manufacturers and distributors related to the use of the Company's proprietary recipes, formulas, specifications, and approved product programs. Revenue from these arrangements is recognized as the underlying product sales occur based on sales reports received from distributors and manufacturers.

Administrative Fees and Other Revenue

Administrative fees and other revenue primarily consist of various franchise-related charges and other miscellaneous revenue streams and are recognized when the related services are performed or when the Company's performance obligations have been satisfied.

Disaggregation of Revenue

The following table disaggregates revenue by major revenue source for the years ended December 31:

Contract Balances

Deferred contract income primarily consists of initial franchise fees received from franchisees for which revenue recognition has not yet occurred. Deferred contract costs primarily consist direct incremental costs associated with obtaining franchise agreements. Deferred contract income and deferred contract costs are generally recognized over the related franchise term.

Deferred contract income was approximately $1.70 million and $1.60 million as of December 31, 2025 and 2024, respectively. Deferred contract costs were approximately $1.70 million and $1.60 million as of December 31, 2025 and 2024, respectively.

The Company recognized approximately $325,305 and $264,847 of deferred franchise fee revenue during 2025 and 2024, respectively.

Franchising Revenue:  This includes royalty income, franchise fee income in accordance with ASC Topic 606, commissions on equipment, marketing allowances and other miscellaneous income.  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.  Administrative fees are recognized as income monthly as earned.  However, initial franchise fees and related contract costs, as defined in the franchise agreements, were both deferred and amortized on a straight-line basis over the term of the franchise agreements, generally five to ten years.  

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss carryforwards, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to reverse.

The Company evaluates the realizability of deferred tax assets on a periodic basis and records a valuation allowance when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In evaluating the need for a valuation allowance, management considers available positive and negative evidence, including historical operating results, projected future taxable income, reversal of existing temporary differences, and tax planning strategies.

The Company recognizes the financial statement effects of uncertain tax positions when it is more likely than not that the position will be sustained upon examination by the applicable taxing authority. Interest and penalties related to uncertain tax positions, if any, are recognized as a component of income tax expense.

Basic and Diluted Net (Loss) Income Per Share:  Net (loss) 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) income per share for the year ended December 31, 2024:

The following table sets forth the calculation of basic and diluted income per share for the year ended December 31, 2025:

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.  Under the Senior Note, extended in 2025, the maturity of the Corbel loan is now June 30, 2026, therefore the Company is working on a closing with one primary lender and three back-up lenders to obtain an approximate $7 million to $8 million senior loan to repay the current Senior Note, the subordinated convertible debentures and to purchase all outstanding warrants owned by Corbel.

Stock-based compensation – The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes valuation model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The fair value is determined through use of the quoted stock price, the exercise price and the use of the Black-Scholes calculation.

Employee Retention Credit:  The employee retention credit (“ERC”) is a refundable tax credit that businesses can claim on qualified wages paid to employees.  The credit was introduced in March 2020 in the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to incentivize employers 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 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”). 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 credit was further extended through December 31, 2021 by the American Rescue Plan Act of 2021 (“ARPA”) but was retroactively reduced 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 has submitted amended federal Form 941 returns claiming that refund.  The ERC refund is treated as a government grant reducing appropriate expenses for the $1.718 million less expenses of $258,000 for applying for the refund or a net of $1.460 million which primarily affected franchising venue as other operating expenses.  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.  In recent communications with the Internal Revenue Service (“IRS”) initiated by the Company, the IRS has indicated that they try to respond promptly but they often need a little more time.

Recently Adopted Accounting Standards

During the year ended December 31, 2025, the Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance requires enhanced income tax disclosures, including additional disaggregation in the rate reconciliation and income taxes paid by jurisdiction. The adoption did not impact the Company’s financial position, results of operations, cash flows, or income tax recognition and measurement, but resulted in expanded disclosures in the income tax footnote.

The Company also adopted ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements. The adoption did not have a material impact on the Company’s consolidated financial statements or related disclosures.

The Company previously adopted the annual disclosure requirements of ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, and adopted the interim disclosure requirements during 2025. The guidance requires enhanced disclosures about reportable segment expenses and other segment information. The adoption did not impact the Company’s financial position, results of operations, or cash flows, but resulted in expanded segment disclosures.

Reclassification

Certain amounts in the prior-year financial statements have been reclassified to confirm to the current-year presentation.  Such reclassification had no impact on previously reported results of operations, financial position or related cash flows.

Recently Issued Accounting Standards Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, as clarified by ASU 2025-01. The guidance requires public business entities to provide additional disclosures about certain expense categories included in income statement captions. The guidance is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027. The Company is currently evaluating the impact of this guidance on its consolidated financial statement disclosures and does not expect the adoption to impact recognition or measurement.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The effective date for each amendment will be the date on which the SEC removes the related disclosure requirement from Regulation S-X or Regulation S-K, with early adoption prohibited. The Company is currently evaluating the impact of this guidance and will continue to monitor related SEC rulemaking.

In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. The guidance clarifies the accounting for induced conversions of convertible debt instruments and is effective for annual reporting periods beginning after December 15, 2025. The Company has convertible debt instruments outstanding and is currently evaluating the impact of this guidance. The Company does not expect adoption to have a material impact unless it enters into induced conversion transactions after adoption.