October 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 October 3, 2011, with an
additional comment in response to the letter submitted by Noble Roman's, Inc.,
an Indiana corporation (the "Company"), on September 20, 2011. That letter
responded to the Staff's comments in its letter dated September 2, 2011, to the
responses in our letter of 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"). We have set forth the additional Staff comment below in the
October 3, 2011 comment letter and our response to that 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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1. We note your response to previous comment number 2, and your disclosure
indicating your ongoing right to receive passive income in the form of royalties
is not part of the discontinued segment. However, as it appears that the
$400,000 and $1.0 million of royalty revenues that were recognized in 2009 and
2010, respectively, relate to operations that have been terminated, we are
unclear as to why the royalty revenues with respect to these terminated
operations have not been reflected as discontinued operations pursuant to the
guidance in ASC 205-20-45. Based on the facts and circumstances described in
your response, it appears that any revenue earned prior to the units being
closed and deemed realizable at the present time, should be reclassified into
discontinued operations, as they relate to units or operations that have been
closed or terminated. Please revise your financial statements to reflect such
revenues as a component of discontinued operations or explain why you do not
believe these royalty revenues qualify for treatment as discontinued operations
pursuant to ASC 205-20-45.
Response: As explained in our response letter dated August 25, 2011, the
components of our discontinued operations consisted of:
(1) The discontinuation of the Company's former business practice of taking
over troubled franchise locations, investing the necessary resources to
stabilize them and operate them until a new franchisee could be located.
(2) The write-down of long-term receivables generated from sales of certain
full-service restaurants formerly operated by the Company, which had ceased
operating in 1999.
(3) The settlement of a claim resulting from the financing of the
operations which were discontinued in 1999.
(4) The cessation of sales of Area Development Agreements which granted the
area developers rights to sell franchises for traditional locations in the
applicable territory, and the termination of all then existing Area
Development Agreements.
(5) The accrual of estimated legal fees and other costs associated with
defending against the lawsuit brought by a group of franchisees of the
traditional locations. The difficulties experienced by this group caused us
to reevaluate our Area Developer strategy and led to our decision to stop
selling Area Development Agreements and the terminate all existing Area
Development Agreements as noted above.
The components described in (1), (2) and (3) above relate exclusively to
locations operated by the Company. By definition, they do not include any
revenue from franchised locations recognized under Franchise Agreements.
Component (4) relates solely to territorial rights granted to Area Developers
not affiliated with the Company, to sell Franchise Agreements for traditional
locations. The Area Development Agreements did not grant to the Area Developer
any rights to operate traditional locations - they only granted rights to sell
franchises for the Company in the territory awarded to the Area Developer. In
addition, the Area Development Agreements did not prohibit the Company from
separately entering into Franchise Agreements for locations within an Area
Developer's territory. Component (5) relates to legal fees and other costs
associated with defending against a lawsuit brought by a group of franchisees of
the traditional locations and did not result in recognition of any revenue from
the Company's Franchise Agreements for the locations. We note that, despite the
difficulties experienced by the franchisees of locations sold by Area
Developers, we continue to have franchisees that operate traditional locations.
Based on our experience in offering and supporting Noble Roman's and Tuscano's
Subs franchises for several years, for various reasons certain of our agreements
with franchisees are terminated before the end of their stated terms. According
to our Franchise Agreements, when a franchise is terminated before the
expiration of its term the Company is contractually entitled to receive certain
compensation for the balance of the contract term. Even though that compensation
is received for a location that no longer is operating, the revenues are not
considered a component of discontinued operations. Since the compensation for
these early terminations is not a part of any of the components of the
discontinued operations, ASC 205-20-45 does not apply.
This is all consistent with the relevant disclosure in the Note 9, "Loss From
Discontinued Operations," of the Notes to Consolidated Financial Statements in
the Form 10-K which states:
The Company has elected to focus its efforts on non-traditional
franchises. The loss on discontinued operations was primarily the
result of operating traditional restaurants which had been acquired
from struggling franchisees and later sold to new franchisees. The
Company, in December 2008, made the decision to discontinue that
component of the business and charged off or dramatically lowered the
carrying value of all assets related to those traditional restaurants
and accrued estimated future expenses including an estimate for legal
expenses related to the Heyser lawsuit, as explained in Note 10 related
thereto. The ongoing right to receive passive income in the form of
royalties (from traditional franchised restaurants) is not a part of
the discontinued components.
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.
We believe the foregoing adequately address the Staff's remaining comment. We
again thank you for the Staff's courtesies in this matter. 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