September 20, 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 September 2, 2011,
following-up on the letter submitted by Noble Roman's, Inc., an Indiana
corporation (the "Company"), on August 25, 2011 (corrected version of letter
originally submitted August 24, 2011). Our August 25th letter set forth our
responses to the Staff's original comment letter, dated August 10, 2011,
regarding the Company's Form 10-K for the year ended December 31, 2010 (the
"Form 10-K") of. We have set forth below each Staff comment in the follow-up
comment letter and 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 Company's response to our prior comment number 3 that the
Company recognized $3.6 million of revenues from the terminated contracts by the
Plaintiffs in the Heyser case that were earned in 2008. We also note that since
the Company could not determine that any of the revenues were realizable, it
established a valuation allowance for the entire $3.6. We further note from your
response that during 2009 and 2010, the Company reduced the valuation allowance
by $400,000 and $1.0 million, respectively and reported the amounts in the line
item royalties and fees in the consolidated statement of operations based on
developments in the Heyser litigation.
Please explain in further detail the nature and timing of the changes in facts
or circumstances that resulted in the Company's conclusion that $400,000 and
$1.0 million, respectively of revenues were realizable during 2009 and 2010
respectively.
Response: The $3.6 million revenue was fully earned in 2008 as noted in our
August 25th response letter. However, the Company established a valuation
allowance for the entire $3.6 million in 2008 as the Company lacked sufficient
information to determine what portion, if any, of that earned revenue was
realizable.
The Company filed its first request for production of documents on February 9,
2009 in the Heyser litigation. The Court's disqualification of the
Plaintiffs'original counsel from the lawsuit for filing fraudulent affidavits
resulted in significant delays in discovery. The successor counsel did not enter
his appearance in the case until late June 2009. Accordingly, the Plaintiffs did
not timely produce the requested documents as required under the applicable
rules. The production of documents started to occur during the first half of
July 2009. After receiving the documents that were produced, the Company was
able to begin assessing each Plaintiff's financial resources to pay obligations
under the applicable franchise agreement. The document production was not
complete, as to all requested documents, therefore hampered the Company's
ability to fully assess the amounts realizable which were payable by the
Plaintiffs.
The Company began deposing the Plaintiffs on August 11, 2009 and that process
continued through the first quarter of 2010. Since the production of documents
was incomplete, the Company could not meaningfully evaluate each Plaintiff's
financial ability until depositions were taken under oath, which occurred at
various times between August 11, 2009 and March 31, 2010. Also, the Plaintiffs'
original claim contended that the franchise agreements were invalid because of
alleged fraud. During the depositions, the Company and its counsel were also
able to evaluate the strength of the evidence underlying each Plaintiff's claim
of fraud. As the depositions progressed, it became increasingly evident that the
Plaintiffs were denying in depositions the existence of facts that they had
averred to support their individual claims in the complaint.
On May 19, 2009, the Company filed a motion for partial summary judgment
dismissing numerous fraud claims in the complaint based on the undisputed facts
in the record. On September 23, 2009, the Court issued an Order granting partial
summary judgment in favor of the Company on a number of the fraud claims. In the
partial summary judgment Order the Court also ruled that the complaint had not
pled constructive fraud and, therefore, the parties were estopped from now
asserting constructive fraud. The Plaintiffs appealed the decision of the Court
that constructive fraud did not apply and in a ruling on August 19, 2010, the
Indiana Court of Appeals upheld the decision of the lower Court.
During the period from November 6, 2009 through June 4, 2010, the Company filed
summary judgment motions against each of the Plaintiffs for dismissal of the
fraud claims. Those motions were filed over that seven-month period as research
could be completed and depositions could be analyzed for each Plaintiff. On
December 23, 2010, the Court issued an Order granting summary judgment in favor
of the Company dismissing all of the fraud claims asserted by the Plaintiffs. In
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January 2011, Plaintiffs filed a motion with the Court to reconsider the
dismissal of the fraud claims and, on March 24, 2011, the Court held a hearing
on the motion to reconsider. Since the Court had not ruled on the motion to
reconsider within 30 days after the hearing, pursuant to the applicable
procedural rules the motion was deemed denied on April 25, 2011.
The Company continues to evaluate the Plaintiffs' ability to pay and progress in
the litigation regarding the Company's claims on a quarterly basis. In future
periods, the Company will continue to assess its valuation allowance on a
quarterly basis and increase or decrease the allowance to reflect the amount the
Company determines is probable of being realized.
2. Also, as the contracts to which the $3.6 million of revenues described above
have been terminated and the related expenses are being reflected as
discontinued operations, we are unclear as to why the Company believes it is
appropriate to account for the revenues described above in continuing operations
for any of the periods presented in the Company's financial statements. Please
revise to explain in detail why the Company believes it is appropriate to
reflect such revenues as a component of income from continuing operations or
alternatively, revise your financial statements to reflect such revenues as a
component of discontinued operations.
Response: The Company is not recording royalties with respect to operations that
have been discontinued, although some of the locations generating the royalties
have been closed. As discussed in Note 9 to the Company's consolidated financial
statements included in the Form 10-K, the ongoing right to receive revenue in
the form of royalties is not a part of a discontinued unit. According to the
applicable franchise agreements, the Company's right to receive $3.6 million in
royalties was earned on the dates the respective locations closed. Even though
the $3.6 million in royalties was earned at the time the locations closed, the
Company does not recognize that revenue until it is determined to be realizable.
Therefore, at the end of 2008, a valuation allowance was established for the
entire amount of the$3.6 million royalties that had already been earned and then
payable to the Company.
The operations that were discontinued were the discontinuance of selling area
development agreements (ADA's) and the termination of all existing ADA's, plus
the discontinuance of the practice of taking over and operating troubled
franchises and investing the necessary resources to maintain and operate them
until a new franchisee could be located. The expenses charged to discontinued
operations relative to the 2008 discontinuance of those operations, is directly
the result of those discontinued operations. The expenses relative to the
lawsuit, which were included in loss on discontinued operations because the
discontinuance of selling ADA's and terminating existing ADA's, was caused by
the fraud claims filed against the Company, which now have been dismissed by the
summary judgment Order of December 23, 2010.
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;
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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.
We believe the foregoing should address the Staff's follow-up comments. We again
thank you for the Staff's customary courtesies. If the Staff has any questions
about 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
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Paul W. Mobley, Chairman, Chief Executive Officer,
Chief Financial Officer and Principal Accounting Officer
cc: Effie Simpson
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