Small Cap Updates & New Recommendations – March 15, 2014

This week we have updates on the medical device company Verisante Technology (VRS) and on the Indianapolis based franchisor and licensor of pizzas and subs Noble Roman’s (NROM).

The Chinese Patent Office granted Verisante Technology (VRS – $0.20) a patent which allows the Company to use its Core devices for endoscopic applications in cancer detection. Furthermore, this patent enhances Verisante’s intellectual property position, as the data analysis techniques can be adapted to many medical applications.

With many global patents already issued, and with various additional international patents pending, this new Chinese patent expands Verisante’s already impressive intellectual property estate.

Verisante is a medical device company committed to commercializing innovative systems for the early detection of cancer. Following an extensive limited market release and testing year in 2013, Verisante is gearing up for a full product launch for Aura in Canada and Europe while concurrently pursuing FDA approval for the product in the United States.

To guide Verisante’s world-wide sales and marketing strategy for the Aura, the Company recently hired Jason Mangler as Director of Sales. Jason joins Verisante after more than 15 years of sales and sales management experience, ten of those in progressive roles with General Electric. As Director of Sales, Jason will be responsible for developing and executing Verisante’s market development and sales plans. He will supervise the Company’s sales and marketing team to identify market opportunities and fulfill market needs, ensure delivery of quality solutions, and meet both short and long term business goals.

Joining Jason on the Sales team is Kim Ellis, who has extensive experience with technical sales and training, and who, as a melanoma survivor, also has a depth of knowledge of skin cancer.

“I’m passionate about this technology because I know it works. After all else was said and done, it was an Aurascan that helped identify one of my skin lesions as cancerous,” said Kim Ellis. “I’m excited to help bring this technology to medical professionals across Canada.”

In addition, Verisante is completing its Core device for the detection of lung cancer to be submitted for regulatory approvals. The Core, which utilizes the same proprietary cancer detection platform as the Aura, has the potential to be used for the detection of other internal cancers including colorectal and cervical.

The cancer detection platform was developed by the BC Cancer Agency and tested and refined at the Skin Care Centre at Vancouver General Hospital. This exclusive platform technology allows Verisante to develop and offer a range of compact, non-invasive cancer detection devices that offer physicians immediate results for many of the most common cancers. Aura has been approved for sale in Canada, Europe and Australia. Core has not yet been approved for sale. Profile Page

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Noble Roman’s (NROM – $1.45), the franchisor and licensor of Noble Roman’s Pizza and Tuscano’s Italian Style Subs, announced results for the fourth quarter and full year ended December 31, 2013.

Total revenue for the fourth quarter of 2013 were $1.72 million, about even compared with the same period a year ago. Net income from continuing operations in the fourth quarter of 2013 was $300,000, or $0.02 per share, compared to $342,000, or $0.02 per share in 2012. According to management sales were somewhat sluggish due to the severe winter weather. A trend that it continues to see into March.

For fiscal year 2013, total revenues reached $7.5 million, up 9.1% compared to $6.9 million in fiscal year 2012. Net income however, declined from $524,872 in 2012 to a loss of $7,903 in 2013.

Although these results may seem weak at first sight, there are two very important items to take into account.

  • The Company made the decision in 1999 to discontinue operations of its full-service restaurants and made the decision in late 2008 to discontinue the business of operating traditional quick service restaurants, which had been acquired from struggling franchisees and later sold to new franchisees. As a result, the Company charged off, or dramatically lowered, the carrying value of all receivables related to the traditional restaurants and accrued future estimated expenses related to the estimated cost to prosecute a lawsuit related to those discontinued operations.

    As a result, in the fourth quarter of 2013, the company recorded a loss on discontinued operations of $780,000 compared to $525,000 in the fourth quarter and year 2012. The loss on discontinued operations for 2013 consisted of $178,000 in legal and settlement costs relating to a restaurant that was closed in conjunction with the business activity discontinued in 1999 and later damaged by a tornado, $147,000 for legal and other costs related to the Heyser case, plus $257,000 in receivables and $199,000 in obsolete support materials, all relating to the operations discontinued in 2008. Management believes that the company is at or very near the end of any further losses related to the discontinued operations, as all assets related to those operations have now been charged off.

  • What the Heyser lawsuit in concerned, in 2012, the Company dismissed its counterclaims against certain plaintiffs in the lawsuit related to the operations discontinued in 2008 and reduced the net realizable value by $500,000 related to the Company’s counterclaims against the plaintiffs. In 2013, based on a judgment that was entered on February 13, 2014 in the lawsuit, the Company reduced the carrying value of the receivables subject to the counterclaims by $1.1 million. Since the right to receive passive income in the form of royalties is not a part of the discontinued operations, the adjustments to reflect these two charges was made to continuing operations.

So all in all, Noble Roman’s net income in 2013 was reduced by almost $2 million one-time costs and fees!

Mr. Paul Mobley, Noble Roman’s Chairman and CEO commented, “Interest remains high in our take-n-bake concept, though the severe weather has had a short-term impact on our results. The company has entered into agreements for 55 stand-alone take-n-bake locations and is currently in discussions with many other prospects. The first stand-alone take-n-bake pizza location opened in October 2012 and, to date, a total of 22 have been opened with 33 under development.”

Mr. Mobley continued, “Our marketing initiatives to attract potential take-n-bake franchisees continue to be successful in generating a significant number of leads. Our initial goal was to sign 30 locations in 2013, which we exceeded. Take-n-bake continues to be one of the fastest growing segments of the pizza industry, and Noble Roman’s is leveraging this growth opportunity with our economical concept, our reputation for fine quality products, and our proven ability to support our franchisee base.”

Additionally, since the beginning of 2013, the company has signed 56 additional new franchise/license agreements for non-traditional locations and is in discussion with numerous other convenience store chains and entertainment facilities for additional non-traditional locations.

So even if the Company is only able to keep its sales even in 2014, we should see a significant improvement to its bottom line. Profile Page

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