August 24, 2011
VIA OVERNIGHT COURIER AND EDGAR
Ms. Linda Cvrkel
Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Noble Roman's, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2010
File No. 0-11104
Dear Ms. Cvrkel:
We are in receipt of the Staff's comment letter, dated August 10, 2011, pursuant
to which the Staff commented on the Form 10-K for the year ended December 31,
2010 (the "Form 10-K") of Noble Roman's, Inc., an Indiana corporation (the
"Company"). We have set forth below each Staff comment in the comment letter
followed by our response to each comment.
We also expressly note that, by responding to the Staff's comment or revising or
agreeing to revise any disclosure in response to the Staff's comment, the
Company is not hereby admitting or acknowledging any deficiency in its prior
disclosures.
Form 10-K for the year ended December 31, 2010
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Note 9- Loss from Discontinued Operations, page 37
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1. We note from the disclosure included in Note 9 that the Company recognized a
loss on discontinued operations of $3.8 million in 2008 that was primarily the
result of operating traditional restaurants which had been acquired from
struggling franchisees and later sold to new franchisees. We also note that in
December 2008, the Company made the decision to discontinue that business and
charged off or dramatically lowered the carrying value of all assets related to
the traditional restaurants and accrued estimated future expenses including an
estimate for legal expenses related to Heyser lawsuit. We further note that the
right to receive passive income in the form of royalties is not a part of the
discontinued segment. With regards to the loss on discontinued operations
recognized in 2008, please tell us the nature and amounts of the various costs
that comprised the $3.8 million loss that was recognized during this period. As
part of your response, you should also explain in detail how each component of
the loss such as write-downs of receivables or accruals for loss contingencies
were calculated or determined.
Response: As noted on the Company's Consolidated Statements of Operations for
the year ended December 31, 2008 the loss on discontinued operations was
$3,824,397, net of a tax benefit of $2,508,433, or a gross loss before tax
benefit of $6,332,830.
The components of the loss can be broken down into five principal categories:
discontinuance of selling area development agreements ("ADA's") and the
termination of all existing ADA's in the amount of $1,751,980; taking over and
operating troubled franchises, investing the necessary resources to maintain and
operate them until a new franchisee could be located in the amount of
$2,618,013; the write-down of long-term receivables in the amount of $1,154,871
resulting from the sale of certain full-service restaurants which the Company
had discontinued operating in 1999; the accrual of estimated legal fees in the
amount of $721,698 associated with defending against a lawsuit brought by a
group of franchisees of the traditional locations which necessitated the
discontinuance of selling of ADA's; and the settlement of a claim in the amount
of $86,267 resulting from the financing of full-service operations discontinued
in 1999.
Discontinuance of selling ADA's and the termination of all ADA's - From 2005
through 2007 the Company was pursuing the sale of ADA's and, in fact, sold the
rights to 22 territories throughout the United States requiring the development
of approximately 735 new dual branded restaurants over the following five to six
years. These ADA's required the area developer to pay an upfront development fee
in the amount of $.05 per capita of the population in its development area. By
the terms of each ADA the upfront fee was fully earned and non-refundable at the
time the agreement was signed. The filing of the Heyser lawsuit by a group of
franchisees, the resulting negative publicity, derogatory postings on the
Internet and the collapse of the financial markets in late 2008 made it very
difficult, if not impossible, to continue that business. As a result the Company
made the decision to discontinue the ADA business and to terminate all existing
agreements in view of the fact that no developer achieved the required number of
locations. As a result we: were unable to collect approximately $482,217 of
receivables from the sale of the ADA's; were unable to collect equipment
commissions due the Company because of cancelled orders or unpaid for orders in
the amount of $339,667; were unable to collect product usage fees of $235,999
because orders were either cancelled or not paid for; we had to write-off
prepaid trade show fees of $149,046 to terminate contracts for shows to promote
development of the territories; and were unable to collect advertising costs in
the amount of $261,147 which the Company paid but were to be reimbursed by the
developers. In addition, we incurred various other costs associated with
discontinuing these activities in the amount of $283,949.
Discontinuance of taking over troubled franchises, investing the necessary
resources in them and operating them until a new franchisee could be located -
Because of the financial burden the Company experienced from discontinuing the
sale of ADA's, as discussed above, the Company did not have the capital
resources necessary to continue to finance the turnaround of these operations
and make them viable. In addition, because of the lawsuit and difficulties in
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selling franchises discussed above which occurred at that time, buyers could not
be quickly located. Therefore, most of the locations were closed and a few were
sold at a much discounted price. At this time the Company wrote down the book
value of these assets (equipment and leasehold improvements) to an estimated
resale value of the used equipment, including reducing the value of the few
locations that were sold to the sale price, for a total write-down of
$2,294,280. Also, the Company incurred expenses totaling $323,733 for closing
the locations, removing the equipment, removing signage and returning the
facilities to the landlords.
Write-down of long-term receivables resulting from the sale of certain
full-service restaurants which the Company had discontinued operating in 1999 -
Pursuant to the Company's decision in 1999 to refocus its business on its
non-traditional venue opportunities, the Company closed 16 of its full-service
restaurants and began franchising efforts for the remaining 31 full-service
restaurants. Accordingly, in 1999 all assets for the remaining 31 restaurants
were reduced to their estimated sales price and a provision was made for
estimated expenses to franchise them. All of those 31 full-service restaurants
were sold pursuant to franchise agreements. Much of the sales price was deferred
in the form of long-term notes receivable. The notes were serviced on schedule
until the financial crisis and recession began in 2008 when the franchisees
suffered serious sales declines and were no longer able to service their debt.
As a result, the Company reduced the amount of the notes and restructured the
payments so the locations could continue to operate and, accordingly, the
Company recorded a loss on the notes of $1,154,871.
Accrual of estimated legal fees associated with defending against a lawsuit
brought by a group of franchisees of the traditional locations - At the end of
2008, the Company had paid $101,698 in connection with the Heyser lawsuit, had
incurred additional fees of approximately $195,000 which had not been paid, and
the Company estimated that it would take another $425,000 to complete the
defense of the case in addition to the amounts the Directors' and Officers'
liability carrier would pay. The insurance carrier had agreed to pay 80% of the
defense cost of the suit above the $50,000 deductible, subject to the policy
limits. This was very early in the case and the Company had only limited
information on how the lawsuit would proceed. It nevertheless made its best
estimate of the future defense costs. As the case developed, the defense costs
were more than estimated because the Company had to file injunctions to secure
the return of trademarked material and other property, and motions to compel to
schedule depositions. Plaintiffs appealed various court rulings, rescheduling
depositions after the Plaintiffs did not appear for depositions after the
Company representative and its attorneys traveled across country for the
scheduled depositions. In addition, the Company obtained an order to have
Plaintiffs' original attorney disqualified from the case for filing fraudulent
affidavits and obtained sanctions against Plaintiffs' successor attorney for
filing unnecessary motions which the Company was required to contest.
The settlement of a claim resulting from the financing of those operations
discontinued in 1999 - The investment banker that assisted the Company in
obtaining financing in 2000, in conjunction with the discontinuance of the
full-service restaurants in 1999, claimed it was owed additional fees for that
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financing. In order to avoid a lawsuit, the Company made the decision to settle
that claim for a relatively small amount of $86,267.
The above decisions involved significant expense to the Company but were all
necessary to preserve shareholder value by protecting the Company's value in its
brand, facilitating successful operations with its non-traditional franchising
and preserving the remainder of the traditional franchises which are still
operating and contributing royalty income.
2. Additionally, we note your disclosure indicating that the costs initially
accrued for the Heyser lawsuit were determined to be insufficient and an
additional accrual was required. We also note your disclosure indicating that in
reviewing accounts receivables, various receivables which originated in 2007 and
2008 that related to operations that were discontinued were determined to be
doubtful of collection and therefore charged to loss on discontinued operations.
With regards to the losses related to discontinued operations recognized during
2010, please tell us and revise the notes to your financial statements in future
filings to explain the specific nature and timing of the events or circumstances
that resulted in your conclusion that additional accruals for loss would be
required with regard to the Heyser lawsuit and explain how such accruals were
calculated or determined. Also, with regard to the receivables for which losses
were recognized in 2010, please tell us the original payment terms that were
associated with these receivables and explain why no losses were recognized with
respect to the recorded receivables balances prior to 2010. We may have further
comment upon receipt of your response.
Response: As noted on the Company's Consolidated Statements of Operations for
the year ended December 31, 2010, the loss on discontinued operations was
$1,200,664, net a tax benefit of $787,520, or a gross loss before tax benefit of
$1,988,184.
The loss can be broken down into the following categories: additional accrual
for the Heyser case in the amount $272,330; a loss on a former full-service
restaurant (part of the 1999 discontinued restaurants) in the amount of
$187,826; expenses regarding the discontinuation of operating restaurants until
a franchisee could be located in the amount of $340,768; and write-off of
accounts receivable of $1,187,260 related to the discontinuance of selling ADA's
and the termination of all ADA's.
Heyser accrual - The original accrual for Heyser legal fees was $721,698. The
Company incurred fees of $101,698 in 2008, $433,565 in 2009 and $387,108 in
2010. The Company accrued additional fees in 2010 of $272,330, which left a
balance of $71,657 in accrued expense. The additional accrual necessary over and
above fees already incurred represented the Company's best estimate at the time
of additional legal fees required considering the fact the Company won summary
judgment dismissing the fraud claims on December 23, 2010 and the Court granted
permission to file the Company's counterclaims as summary judgment motions as
opposed to a trial. Since that time, Plaintiffs have filed numerous motions for
reconsideration and a notice of appeal, all of which took more legal time to
contest. However, the appeal has now been dismissed with prejudice.
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Loss on former full-service restaurant which was a part of the 1999 discontinued
restaurants - The Company is lessee of a restaurant facility located in
Newburgh, Indiana, which had been sub-leased. The sub-lessee was paying the rent
until the building was severely damaged in a tornado and the roof was blown off,
which made the building untenantable. According to the lease, when the building
becomes untenantable by an insurable loss it is the landlord's responsibility to
repair, at the landlord's expense, and rent is abated during the period of
repair. During this process the Company lost its sub-tenant. The landlord was
having difficulty recovering the amount of damage from the insurance company and
it filed suit against the Company. In the meantime, the landlord repaired the
building and made it tenantable so rent payments resumed. The Company incurred
attorneys' fees for defending against the lawsuit and had to begin paying rent.
The Company accrued expenses of $187,826 to cover the attorneys' fees and rent
until the expiration of the lease in 2014.
Expenses regarding the discontinuation of operating restaurants until a
franchisee could be located - The total expenses for these former operations
were $340,768 including the settlement of a lease obligation in the amount of
$60,887, payment of legal fees in the amount of $69,026 to defend against a
former group of employees employed in these operations (all claims against the
Company in this case were dismissed by summary judgment), and loss on the sale
of equipment taken into inventory from these locations in the amount of
$210,855.
Accounts receivable related to the discontinuation of selling ADA's and the
termination of existing ADA's - The Company wrote-off receivables in the amount
of $281,106 from a former distributor associated with the discontinued
operations. This amount originated from a judgment in the Company's favor
against the former distributor which was believed to be collectable until the
Company was in a meeting with a mediator in California during September 2010.
This distributor engaged in what the Company believes to be a fraudulent
transfer of assets to avoid creditors. The Company was pursuing collection
against the principal of the distributor and was assured by the California
attorney that the principal had properties worth approximately $9 million which
were free and clear of any liens. The Company had confirmation from the attorney
in each of the two previous years that the property remained free of any liens.
In September the Company learned that the California attorney had misrepresented
the facts and in fact the properties had numerous liens against them. With that
knowledge, the Company settled for $20,000 with the principal of the former
distributor, wrote off the balance and has filed a claim against the attorney
and it is currently in arbitration, as provided for in the engagement letter
between the Company and the attorney. The engagement letter also provides for
the prevailing party to be reimbursed for reasonable attorneys' fees in
arbitration (no recovery from the arbitration has yet been recognized).
The Company wrote-off a receivable related to one of the locations from the 1999
discontinued operations in the amount of $52,624. This location had been
successfully operating since 2000 and paying regular payments every month. The
location was operated by the franchisee and his wife who both became terminally
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ill in 2010 and had to close the operation and there were no assets that the
Company could identify which would pay the balance due.
The Company wrote off $191,369 due from a former area developer which was
previously considered collectable. The Company obtained a judgment against the
developer and was attempting to collect only to learn the developer had
disappeared. After he disappeared and could not be located, the Company believes
the developer returned to his former country.
A receivable in the amount of $142,377 from one of the terminated operations
located in southwestern Florida was charged off. The operation at this location
was formerly successful and the amount was believed to be collectable. However,
after the severe recession in southern Florida combined with the oil spill in
the Gulf in 2010, the operator lost its business and there were no assets
remaining to fund collection.
A receivable in the amount of $105,963 from another terminated operation located
in Kentucky was believed to be collectable until 2010. Upon the Company filing a
lawsuit to collect, it was discovered that in order to collect we were going to
have to file suit both in Kentucky against the corporation and in Illinois
against the individual, therefore, the Company agreed to settle the claim for
$28,000 which resulted in a write-off of $77,963.
A receivable in the amount of $131,000 from another terminated operation was
located in Ohio, which was thought to be collectable until 2010. Upon filing
lawsuit for collection and after discovery of facts, it was determined that the
assets were not as large as the Company understood them to be, therefore the
Company negotiated a settlement for $31,000 incurring a write-off of $100,000.
A receivable in the amount of $140,580 from another terminated operation located
in Georgia was previously thought to be collectable until 2010. After discovery
was complete in litigation the Company decided to settle for $33,000 and charge
off $107,580.
An area developer in northern California owed a balance of $62,059 which had
previously been considered collectable because he operated what appeared to be a
successful Avis rental car franchise in the area. After collections were turned
over to a collection agency, it was determined in 2010 that the rental car
agency had ceased operation and the developer could not be located, therefore
the Company charged off the amount of $62,059.
The remaining $192,182 of the charge-off receivables in the total amount of
$1,157,260 consisted of numerous small amounts which were determined to be
uncollectable in 2010 and which previously were considered collectable.
The Company will revise its footnotes to the financial statements in future
filings to explain the specific nature and timing of events or circumstances
that resulted in the Company's conclusion that additional accruals for loss
would be required.
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3. Furthermore, we note from your disclosure in Note 9 that the right to receive
passive income in the form of royalties is not a part of the discontinued
segment. Please tell us and revise future filings to explain the nature and
amount of any passive royalties that the Company is recognizing in its financial
statements with respect to the operations that have been classified as
discontinued operations. If such royalties are included in the Company's
statements of operations, please tell us the nature and amounts of such
royalties and explain where they have been reflected in the Company's financial
statements. As part of your response, you should also explain the period over
which the Company expects to continue to receive such royalty revenues and why
you do not believe such amounts should be included as part of discontinued
operations in your financial statements.
Response: The Company is not recording royalties with respect to operations that
have been discontinued. As explained in Note 9 to the Company's financial
statements, the ongoing right to receive passive income in the form of royalties
is not part of a discontinued unit.
The Company recognizes all franchise fees in accordance with FASB ASC
952-605-25-1, which states "revenue from an individual franchise sale shall be
recognized, with an appropriate provision for estimated uncollectible amounts,
when all material services or conditions relating to the sale have been
substantially performed or satisfied by the franchisor." Per FASB ASC
952-605-25-2, substantial performance means (a) no remaining obligation or
intent to refund any cash received or forgive any receivables, (b) substantially
all initial services required by the franchise agreement have been performed and
(c) no other material conditions or obligations exist.
The Company's obligations as defined within the Franchise Agreement are:
1) Franchisor's site selection guidelines and such site selection
assistance as Franchisor may deem advisable.
2) Such assistance to Franchisee in the layout and design of the Noble
Roman's Pizza as Franchisor may deem necessary.
3) Such site evaluation and assistance as Franchisor may deem necessary
on its own initiative or in response to Franchisee's reasonable
request for site evaluation; provided, however, that if services are
provided at Franchisee's request, Franchisor reserves the right to
charge a reasonable fee for providing such services representing the
reasonable expenses incurred by Franchisor (or its designee) in
connection with such on-site evaluation, including, without
limitation, the cost of travel, lodging, meals and wages.
4) The loan of one set of the Confidential Manual and such other manuals
and written materials as Franchisor shall have developed for use in
the Franchised Business.
5) Upon the opening of the Franchised Business, Franchisor shall provide
Franchisee with an initial on-the-job training program on the
operation of a Noble Roman's Pizza, furnished at such times and places
as Franchisor reasonably deems necessary.
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6) The services of one representative of Franchisor for reasonable
supervisory assistance and guidance in connection with the opening and
initial operation of the Noble Roman's Pizza. Franchisor shall have
the right to determine the time or times at which such representative
shall be available to Franchisee.
7) During the operation of the Franchised Business, such additional
assistance as is reasonably necessary, in the sole discretion of
Franchisor, to assist Franchisee in meeting Franchisor's quality
control standards.
Revenues include a non-refundable (fixed) franchise fee due upon execution of
the Franchise Agreement (persuasive evidence of an arrangement exits) by the
Company and franchisee, and a weekly (determinable, based upon historical
franchised location sales which tend not to vary significantly) royalty fee
through the contract's maturity date.
At the time a store opens for business or shortly thereafter, all obligations by
the Company have been substantially completed (opening of store provides
evidence the obligations described in 1-6 above have been performed and delivery
or performance has occurred). Additionally, the Company is not obligated to
offer any refunds, nor has demonstrated a habit of forgiving franchisee
receivables. As with any business, collection efforts of receivables sometimes
subsequently resort to legal proceedings.
FASB ASC 605-10-25-1 provides further guidance regarding recognition of and
difference between revenues and gains. FASB ASC 605-10-25-1b specifically states
"revenue-earning activities involve delivering or producing goods, rendering
services, or other activities that constitute its ongoing major or central
operations and revenues are considered to have been earned when the entity has
substantially accomplished what it must do to be entitled to the benefits
represented by the revenues." Each franchise agreement affirms an event or
transaction that is central to the Company's operations. At the point a contract
is terminated, the Company has performed all obligations specified in the
contract. Further the franchise agreement specifically states "Franchisee shall
continue to be obligated to pay to Franchisor any and all amounts that it shall
have duly become obligated to pay in accordance with the terms of this Agreement
prior to the occurrence of any Force Majeure event." Thus, the Company is
entitled to and has earned all royalties that would have been due through the
contract's maturity date. The franchise contract and performance of all required
of the franchisor, regardless if the contract is continuing or terminated, are
evidence that the earnings process has been completed and revenues can be
recognized, provided they are realizable.
With respect to recording income from the former franchisees involved in the
Heyser case, we note that they have never disputed the royalty fees payable
under their respective franchise agreements. In the lawsuit they claimed the
franchise agreements were invalid because the Plaintiffs were fraudulently
induced by the Company to execute them. On September 23, 2009, the Judge in the
case issued an Order granting partial summary judgment denying many of their
fraud claims. In that same Order the Judge ruled that constructive fraud did not
apply in this case. The Plaintiffs appealed that decision to the Indiana Court
of Appeals and the Appeals Court upheld the trial court's decision on August 19,
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2010. Plaintiffs further appealed to the Indiana Supreme Court and the Supreme
Court declined to hear the appeal. Subsequently the trial court Judge issued an
Order, on December 23, 2010, granting summary judgment in favor of the Company
and dismissing the Plaintiffs' claims of fraud. Therefore, based on that ruling,
the franchise agreements are valid and binding and enforceable in accordance
with their terms. The calculation of royalties has not been disputed at any
point during the litigation.
Under the rules of civil procedure Plaintiffs may not seek to re-litigate claims
that the trial court has already resolved against them in their defense against
the Company's counterclaims. The Plaintiffs' affirmative defenses asserted in
their responses to the Company's counterclaims have all been rejected by the
court in its specific holdings in its orders.
FASB ASC 605-10-25-1b further states "gains commonly result from transactions
and other events that involve no earning process." In situations where contracts
are terminated, the issuer has clearly completed the earnings process. The
franchisee has accepted the product, as evidenced by a signed contract. The
Company has performed its obligations as stated within the contract. Litigation
is simply the necessary means for collection of receivables originating from the
earnings process, and does not represent a potential recovery of lost assets. As
a result, consideration as a gain, the FASB definition and accounting treatment
for gain contingencies and SAB Topic 5Y, Miscellaneous Accounting, Accounting
and Disclosures Relating to Loss Contingencies are not applicable. Litigation is
on occasion a byproduct of the terminated contracts, but does not preclude
revenues from being recognized where the tests for recognition are met.
The Company only records the amount of revenues that are determined to be
realizable. In the specific case of the revenues from the terminated contracts
by the Plaintiffs in the Heyser case were approximately $3.6 million and were
earned in 2008. However, in 2008, the Company could not determine that any of
the revenues were realizable. In effect the Company recorded the $3.6 million as
earned revenue and established a valuation allowance for the entire $3.6
million. At the end of 2008, no discovery in the case had begun, therefore the
Company could not make a reasonable determination that the value was realizable.
The Company undertakes to evaluate its valuation allowances on a quarterly basis
as it prepares quarterly reports. Depositions of the Plaintiffs were scheduled
at various times from mid-2009 through early 2010. Also, the Plaintiffs were
required to produce all financial documents as part of the discovery in the
case. As the financial documents produced in discovery were reviewed and
testimony of each individual Plaintiff was evaluated, both in regard to the
merits of the claims as well as in regard to their financial abilities to pay
the counterclaims, that formed the basis for our starting to review the
valuation allowance. Another factor in that review was the granting of partial
summary judgment, as to many of the fraud claims, and the court's denial of
constructive fraud on September 23, 2009.
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Based on review of deposition testimony and documents produced by Plaintiffs in
discovery, the Company, in review of its valuation allowance at December 31,
2009, reduced the valuation allowance by approximately $400,000 and recorded
that amount in the line item for royalties and fees in the 2009 Consolidated
Statements of Operations. During subsequent quarterly reviews, as more
information became available about the Plaintiffs' ability to pay and in view of
the Appeals Court upholding the September 23, 2009 partial summary judgment
motion and denial of constructive fraud, the Company continued to reduce the
valuation allowance against the receivable of $3.6 million for royalties earned
on the Plaintiffs' franchises. In all, during 2010, the Company reduced the
valuation allowance by approximately $1 million and reported that amount in the
line item for royalties and fees in the 2010 Consolidated Statements of
Operations. In future periods, the Company will continue to review the valuation
allowance on a quarterly basis and increase or decrease the allowance to reflect
the amount the Company determines is probable of being realized at that time.
Note 10-Contingencies, page 38
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4. We note from the disclosure included in Note 10 that the Company was involved
in litigation with various former franchises which were claiming actual damages
against the Company in the amount of $5.1 million. We also note that one claim
under the Indiana Franchise Act remains pending. Please note that in accordance
with ASC 450-20-50-3 if no accrual is made for a loss contingency because one or
both of the conditions are not met, or an exposure to loss exists in excess of
the amount accrued pursuant to the provisions of ASC 450-20-30-1, disclosure of
the contingency shall be made when there is at least a reasonable possibility
that a loss or an additional loss may have been incurred. The disclosure shall
indicate the nature of the contingency and shall give an estimate of the
possible loss or range of loss or state that such an estimate cannot be made.
Supplementally advise us regarding the amount of any loss accruals that have
been established for this pending litigation. If no accruals for losses in
connection with this matter have been established, please explain why. Also,
please revise your disclosure in future filings to comply with the guidance in
ASC 450-20-50.
Response: The $5.1 million claimed by the various franchisees in the lawsuit was
for damages for the alleged fraud claims against the Company which were all
dismissed by the Order issued December 23, 2010 granting summary judgment in
favor of the Company. There is a single claim remaining by only one of the
Plaintiffs alleging violations by the Company under the Indiana Franchise Act.
The Company believes that it has a meritorious defense against that claim. The
Company was unable to conclude at this time that an unfavorable result is either
probable or remote and is unable to estimate an amount of any possible loss.
The Company will revise its disclosure in future filings to comply with the
guidance in ASC 450-20-50.
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5. Supplementally advise us and revise future filings to disclose whether the
company has recognized any revenue associated with the franchisees engaged in
the lawsuits disclosed in Note 10. If so, please tell us and revise future
filings to disclose the amounts recognized during each period presented in the
Company's financial statements and explain how the amounts recognized were
calculated or determined given the existence of the pending lawsuits. Your
response and your revised disclosure should also explain why you believe the
amounts recognized will be collectible given the existence of the pending
litigation.
Response: See our response to comment no. 3 of above regarding amounts of
revenue recognized and when recognized.
The Company will disclose in future filings any revenues or losses recognized
relating to the franchises involved in the Heyser lawsuit.
6. In addition, we note that the Company filed counter-claims for damages for
breach of contract against all of the Plaintiffs in the aggregate approximate
amount of $3.6 million plus attorney's fees, cost of collection and punitive
damages in certain instances. Supplementally advise us and revise future filings
to indicate whether any portion of the $3.6 million of counter claims for
damages have been recognized in the Company's financial statements. If so, your
response should explain in detail how the Company determined the amounts
recognized and should also explain why it believes it is probable any amounts
recognized will be recoverable.
Response: See response to comment no. 3 above for the amount recognized and when
recognized. In general, the $3.6 million for royalties was recognized in 2008,
reduced by a valuation allowance for amount judged to be realizable. The full
amount was reserved via a valuation allowance in 2008 and has been adjusted
periodically as more facts have been learned regarding amounts expected to be
realized. No amounts have been recognized for possible recovery of attorneys'
fees, cost of collection or punitive damages.
Signatures
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7. The second half of your signature page must be signed by your principal
executive officer, principal financial officer, and either your controller or
principal accounting officer. If any person occupies more than one of the
positions specified in General Instruction D(2)(a) to Form 10-K you should
indicate each capacity in which that person signs the report. Please confirm
that future filings on Form 10-K will include this signature.
Response: In future filings on Form 10-K the Company, as applicable, will
indicate that Paul Mobley is signing in his capacity as Chief Executive Officer,
Chief Financial Officer and Principal Accounting Officer.
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Exhibit 31.1
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8. Your certifications under Item 601(b)(31) of Regulation S-K appear to include
modifications from the standard language. We note that you have removed the
phrase "of internal control over financial reporting" from the introductory
language to paragraph five. In future filings please revise these certifications
to include the introductory language of paragraph five of Item 601(b)(31) of
Regulation S-K.
Response: In future filings the Company will revise certifications to include
the introductory language of paragraph five of Item 601(b)(31) of Regulation
S-K.
Definitive Proxy Statement
--------------------------
General
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9. In future filings please disclose whether you consider diversity in
identifying nominees for director. Please refer to Item 407(c)(2)(vi) of
Regulation S-K.
Response: In future filings the Company will disclose whether or not it
considers diversity in identifying nominees for director.
Election of Directors, page 3
-----------------------------
10. Please confirm that in future filings, you will discuss the specific
experience, qualifications, attributes or skills that led to the conclusion that
each person should serve as a director. See Item 401(e) of Regulation S-K.
Response: In future filings the Company will discuss specific experience,
qualifications, attributes or skills that led to the conclusion that each person
should serve as a director.
Pursuant to the Staff's request, we acknowledge that:
o the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing; and
o the company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
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We believe the foregoing should address the Staff's comments. We thank you in
advance for the Staff's customary courtesies. If the Staff has any questions
about, or disagrees with the adequacy of, our response as set forth above, we
would be very pleased to discuss these matters further.
Sincerely,
Noble Roman's, Inc.
By /s/ Paul W. Mobley
--------------------------------------------------------
Paul W. Mobley, Chairman, Chief Executive Officer,
Chief Financial Officer and Principal Accounting Officer
cc: Effie Simpson
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