Loss from Discontinued Operations

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Loss from Discontinued Operations

Note 9: Loss from Discontinued Operations

The Company had a loss on discontinued operations of $3.8 million in 2008. 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 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 espenses related to the Heyser lawsuit as explained in Note 10 related thereto. The ongoing right to receive passive income in the form of royalties is not a part of the discontinued segment. The Company had no loss from discontinued operations in 2009. In 2010 and 2011, the Company reported a loss from discontinued operations of $1,200,664 and $709,816, respectively. In 2008, the Company accrued for estimated costs to defend the Heyser lawsuit described in Note 10, however, that estimate was insufficient and an additional accrual was required in both 2010 and 2011. An additional accrual was necessary, primarily because, since the Company was granted summary judgment dismissing their fraud claims on December 23, 2010, the Plaintiffs filed numerous motions for consideration and an appeal, all of which created additional legal and other expenses. Additionally, in reviewing accounts receivable, various receivables which originated in 2007 and 2008 relating to the operations that were discontinued were determined to be doubtful of collection, therefore, charged to loss on discontinued operations in both 2010 and 2011.