Note D – Asset Impairment Charges and Fair Value Measurements

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. In evaluating long-lived restaurant assets for impairment, the Company considers a number of factors including a current period operating or cash flow loss combined with a history of operating or cash flow losses and an undiscounted cash flow projection associated with the use of the underlying long-lived asset. In these situations, the undiscounted cash flow projections are evaluated in conjunction with qualitative factors and future operating plans. If the carrying amount of an asset exceeds the estimated

undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. It also establishes a three-level fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

Level 1

Level 2

Inputs based on quoted prices in active markets for identical assets.

Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.

Level 3

Inputs that are unobservable for the asset.

There were no assets and liabilities measured at fair value on a nonrecurring basis during fiscal 2011 or fiscal 2010. Assets and liabilities measured at fair value on a nonrecurring basis in fiscal 2009 are summarized in the table below:


		Fair Value Measurement at Reporting Date Using

	January 3,
	2010								Total
	Carrying								Impairment
	Amount	Level 1	Level 2				Level 3		Charges

Long-lived assets held and used $	228,000	$	0	$	0	$	228,000	$	( 3,889,000	)

In accordance with ASC Topic 360, "Property, Plant, and Equipment", and in connection with the Company's preparation of its financial statements for fiscal year 2009, long-lived assets held and used with a carrying amount of $4,117,000 were written down to their fair value of $228,000 during the fourth quarter of fiscal 2009, resulting in a non-cash impairment charge of $3,889,000, which was included in the net loss for the year ended January 3, 2010. Level 3 fair value is determined by projected future discounted cash flows for each restaurant location combined with the estimated salvage value of each restaurant's furnishings, fixtures and equipment. The discount rate is the Company's estimated weighted average cost of capital which the Company believes is commensurate with the required rate of return that a potential buyer would expect to receive when purchasing a similar restaurant and the related long-lived assets. The Company limits assumptions about important factors such as sales and margin changes to those that are supportable based upon its plans for the restaurant. Long-lived assets held and used in the table above are restaurants that were impaired as a result of the Company's quarterly impairment review. No impairment charges were recorded in either 2011 or 2010.