Forward-Looking Statements

Statements in this Form 10-Q quarterly report may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties, many of which are not within our control, include but are not limited to: the adverse effect that increasing commodity costs has on our profitability and operating results; the pending litigation with the primary supplier of hot dogs to our Branded Product Program may result in a disruption in that supply or increased costs, which would adversely effect our operating results; current economic conditions could result in decreased consumer spending on discretionary products, such as fast food; as well as those risks discussed from time to time in the Company's Form 10-K annual report for the year ended March 29, 2009, and in other documents which we file with the Securities and Exchange Commission. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements. We generally identify forward-looking statements with the words "believe," "intend," "plan," "expect," "anticipate," "estimate," "will," "should" and similar expressions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q.

Introduction

As used in this Report, the terms "we", "us", "our", "Nathan's" or "the Company" mean Nathan's Famous, Inc. and its subsidiaries (unless the context indicates a different meaning).

We are engaged primarily in the marketing of the "Nathan's Famous" brand and the sale of products bearing the "Nathan's Famous" trademarks through several different channels of distribution. Historically, our business has been the operation and franchising of quick-service restaurants featuring Nathan's World Famous Beef Hot Dogs, crinkle-cut French-fried potatoes, and a variety of other menu offerings. Our Company-owned and franchised units operate under the name "Nathan's Famous," the name first used at our original Coney Island restaurant opened in 1916. Nathan's licensing program began in 1978 by selling packaged hot dogs and other meat products to retail customers through supermarkets or grocery-type retailers for off-site consumption. During fiscal 1998, we introduced our Branded Product Program, which enables foodservice retailers to sell some of Nathan's proprietary products outside of the realm of a traditional franchise relationship. In conjunction with this program, foodservice operators are granted a limited use of the Nathan's Famous trademark with respect to the sale of Nathan's World Famous Beef Hot Dogs and certain other proprietary food items and paper goods. During fiscal 2008, we launched our Branded Menu Program, under which foodservice operators may sell a greater variety of Nathan's Famous menu items than under the Branded Product Program.

Our revenues are generated primarily from selling products under Nathan's Branded Product Program, operating Company-owned restaurants, franchising the Nathan's restaurant concept (including under the Branded Menu Program) and licensing agreements for the sale of Nathan's products within supermarkets and club stores, the manufacture of certain proprietary spices and the sale of Nathan's products directly to other foodservice operators.

In addition to plans for expansion through franchising, licensing and our Branded Product Program, Nathan's continues to co-brand within its restaurant system. Nathan's is also the owner of the Arthur Treachers brand. At June 28, 2009, the Arthur Treacher's brand was being sold within 58 Nathan's restaurants.

Today, our restaurant system consists of 289 Nathan's franchised or licensed units, including 102 Branded Menu units and five Company-owned units (including one seasonal unit), located in 24 states, the Cayman Islands and four foreign countries. Included in the number of Branded Menu units are 42 Miami Subs locations. Previously, Miami Subs locations were not included in the number of units operating. At June 29, 2008, our restaurant system consisted of 230 Nathan's franchised or licensed units, including 40 limited-menu Branded Menu locations and six Company-owned units (including one seasonal unit), located in 20 states and four foreign countries.

Critical Accounting Policies and Estimates

As discussed in our Form 10-K for the fiscal year ended March 29, 2009, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; impairment of goodwill and other intangible assets; impairment of long-lived assets; impairment of notes receivable; share-based compensation and income taxes (including uncertain tax positions). Since March 29, 2009, there have been no changes in our critical accounting policies or significant changes to the assumptions and estimates related to them.

Adoption of Accounting Pronouncements

See Note C to the Consolidated Financial Statements contained in Item 1, for a complete discussion of the impact of adopting new accounting pronouncements during the fiscal quarter ended June 28, 2009 on the Company's financial position and results of operations.

Recently Issued Accounting Standards Not Yet Adopted

See Note B, to the Consolidated Financial Statements contained in Item 1, for a discussion of recently issued accounting standards not yet adopted.

Revenues from Continuing Operations

Total sales were $11,015,000 for the thirteen weeks ended June 28, 2009 ("fiscal 2010 period") as compared to $11,016,000 for the thirteen weeks ended June 29, 2008 ("fiscal 2009 period"). Foodservice sales from the Branded Product and Branded Menu Programs increased by 3.4% to $6,843,000 for the fiscal 2010 period as compared to sales of $6,618,000 in the fiscal 2009 period. This increase was primarily attributable to price increases of 11.7%, which was partly offset by lower sales volume of approximately 8.4%. Total Company-owned restaurant sales (representing four comparable Nathan's restaurants and one seasonal restaurant during both periods and one restaurant that was transferred to a franchisee on January 26, 2009) were $3,496,000 for the fiscal 2010 period as compared to $3,859,000 during the fiscal 2009 period. Sales at the four comparable Company-owned restaurants (excluding one seasonal restaurant and the restaurant that was transferred to a franchisee in January 2009) were $3,282,000 during the fiscal 2010 period, as compared to $3,387,000 during the fiscal 2009 period. The sales decline at our four comparable Company-owned restaurants occurred during June 2009, which we believe was primarily attributable to weather conditions. The rain during June 2009 severely reduced the number of people that went to the beach and consequently our Coney Island restaurant. Sales during April and May 2009 had increased by approximately 5.1% over the same period last year. During the fiscal 2010 period, sales to our television retailer were approximately $137,000 higher than the fiscal 2009 period. Nathan's products were on air 38 times during the fiscal 2010 period as compared to 18 times during the fiscal 2009 period. This year's airings included 10 "Try Me" special promotions, seven "Today's Special Value" promotions and two, half-hour food shows.

Franchise fees and royalties were $1,154,000 in the fiscal 2010 period as compared to $1,152,000 in the fiscal 2009 period. Total royalties were $1,037,000 in the fiscal 2010 period as compared to $1,035,000 in the fiscal 2009 period. During the fiscal 2010 period, we did not recognize revenue of $105,000 for royalties deemed to be uncollectible as compared to the fiscal 2009 period, when we did not recognize $27,000 of royalty income. Total royalties, excluding the adjustments for royalties deemed uncollectible as described above, were $1,142,000 in the fiscal 2010 period as compared to $1,062,000 in the fiscal 2009 period. During the fiscal 2010 period, Nathan's earned $30,000 of higher royalties from sales by our manufacturers and primary distributor under our Branded Menu Program primarily due to the increase in the number of Branded Menu locations. Franchise restaurant sales were $23,998,000 in the fiscal 2010 period as compared to $23,756,000 in the fiscal 2009 period. Comparable domestic franchise sales (consisting of 128 Nathan's outlets, excluding sales under the Branded Menu Program) were $16,887,000 in the fiscal 2010 period as compared to $18,303,000 in the fiscal 2009 period, a decrease of 7.7%. Franchise sales continued to be negatively affected by the economic recession, particularly at our travel, retail and entertainment venues, where sales are lower by approximately 10% compared to the fiscal 2009 period. At June 28, 2009, 289 domestic and international franchised or Branded Menu Program franchise outlets were determined to be operating as compared to 230 domestic and international franchised or Branded Menu Program franchise outlets at June 29, 2008. (Included in the number of Branded Menu units are 42 Miami Subs locations at June 28, 2009. Previously, Miami Subs locations were not included in the number of units operating.) Royalty income from 13 domestic franchised outlets was deemed unrealizable during the thirteen weeks ended March 29, 2009, as compared to 10 franchised outlets during the thirteen weeks ended June 29, 2008. Domestic franchise fee income was $68,000 in the fiscal 2010 period as compared to $47,000 in the fiscal 2009 period due to the opening of more conventional locations during the fiscal 2010 period. International franchise fee income was $49,000 in the fiscal 2010 period, as compared to $70,000 during the fiscal 2009 period primarily due to fewer openings of international franchised restaurants. During the fiscal 2010 period, seven new franchised outlets opened, including four Branded Menu Program outlets, one unit in Kuwait and one unit in the Dominican Republic. During the fiscal 2009 period, 14 new franchised outlets were opened, including nine Branded Menu Program outlets, two units in Kuwait and one unit in Dubai.

License royalties increased by $192,000 or 11.9% to $1,807,000 in the fiscal 2010 period as compared to $1,615,000 in the fiscal 2009 period. Total royalties earned on sales of hot dogs from our retail and foodservice license agreements of $1,516,000 increased 11.6% from $1,358,000 as a result of higher licensee sales during the fiscal 2010 period. Royalties earned from SFG, primarily from the retail sale of hot dogs, were $1,125,000 during the fiscal 2010 period as compared to $1,052,000 during the fiscal 2009 period. Royalties earned from another licensee, substantially from sales of hot dogs to Sam's Club, were $391,000 during the fiscal 2010 period as compared to $306,000 during the fiscal 2009 period. Beginning March 2008, Nathan's World Famous Beef Hot Dogs were introduced into over 500 of the foodservice cafes operating in Sam's Clubs throughout the United States. The Sam's Club introduction was substantially completed by June 2008. Accordingly, we anticipate earning similar royalties under this agreement during the balance of this fiscal year as compared to the last three fiscal quarters of last year. We earned higher revenues of $37,000 from our agreement for the manufacture of Nathan's proprietary ingredients. Interest income was $240,000 in the fiscal 2010 period as compared to $247,000 in the fiscal 2009 period, primarily due to lower interest income on our MSC Note (as defined) receivable, received in connection with the sale of Miami Subs on June 7, 2007.

Other income was $16,000 in the fiscal 2010 period as compared to $12,000 in the fiscal 2009 period.

Costs and Expenses from Continuing Operations

Overall, our cost of sales decreased by $223,000 to $8,109,000 in the fiscal 2010 period as compared to $8,332,000 in the fiscal 2009 period. Our gross profit (representing the difference between sales and cost of sales) was $2,906,000 or 26.4% of sales during the fiscal 2010 period as compared to $2,684,000 or 24.4% of sales during the fiscal 2009 period.

In the Branded Product Program, our cost of sales decreased by approximately $93,000 during the fiscal 2010 period when compared to the fiscal 2009 period, primarily as a result of the sales volume decline, which was partly offset by an approximate 5.7% increase in the cost of our hot dogs. During the fiscal 2010 period, the market price of hot dogs was approximately 0.5% higher than during the fiscal 2009 period. This disparity is due to the varying effects that the Company's purchase commitments had on the fiscal 2010 period and fiscal 2009 period results. In January 2009, we entered into a purchase commitment, as amended, to acquire 2,592,000 pounds of hot dogs at $1.685 per pound from April 2009 through September 2009. In January 2008, we entered into a purchase commitment to acquire approximately 1,785,000 pounds of hot dogs at $1.535 per pound from April 2008 through August 2008. These purchase commitments lowered our hot dog costs during the fiscal 2010 and fiscal 2009 periods by $41,000 and $304,000, respectively, as compared to purchasing all of our products at the then-prevailing market price. These savings offset some of the effects of the higher commodity costs for beef and beef trimmings. Beginning in July 2008, we initiated price increases in our Branded Product Program, in an effort to offset the increased cost of our hot dogs, which has improved margins. If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases, our margins will be adversely impacted.

With respect to our Company-owned restaurants, our cost of sales during the fiscal 2010 period was $1,997,000 or 57.1% of restaurant sales, as compared to $2,237,000 or 58.0% of restaurant sales in the fiscal 2009 period. During the fiscal 2010 period, our Company-owned stores experienced lower food and labor-related costs as a percentage of sales. The lower food cost as a percentage of sales was due primarily to the slightly lower commodity cost of our products and the effect of the sales price increases for select menu items. Cost of sales to our television retailer increased by $110,000 in the fiscal 2010 period, primarily due to higher sales volume and the higher cost of hot dogs.

Restaurant operating expenses decreased by $89,000 to $823,000 in the fiscal 2010 period as compared to $912,000 in the fiscal 2009 period. The decrease during the fiscal 2010 period when compared to the fiscal 2009 period results from operating one less restaurant during the fiscal 2010 period of $61,000 and from lower utility costs of $14,000, lower occupancy costs of $20,000 and reductions in various other costs of $34,000, which were partly offset by higher marketing costs of $33,000 in connection with three monthly Free Standing Insert campaigns. During the fiscal 2010 period our utility costs were approximately 8.3% lower than the fiscal 2009 period which was due to lower commodity costs and lower consumption. We continue to be concerned about the uncertain market conditions for oil and natural gas.

Depreciation and amortization was $199,000 in the fiscal 2010 period as compared to $198,000 in the fiscal 2009 period.

General and administrative expenses increased by $183,000 or 7.5% to $2,628,000 in the fiscal 2010 period as compared to $2,445,000 in the fiscal 2009 period. The difference in general and administrative expenses was due primarily to an increase in bad debts of $121,000 and un-reimbursed property costs of $48,000. We also incurred higher tax and audit fees of approximately $83,000, which were partly offset by lower occupancy costs of $32,000, stock compensation of $18,000 and other reduced costs.

Provision for Income Taxes from Continuing Operations

In the fiscal 2010 period, the income tax provision was $910,000 or 36.8% of income from continuing operations before income taxes as compared to $800,000 or 37.1% of income from continuing operations before income taxes in the fiscal 2009 period. For the fiscal periods ended June 28, 2009 and June 29, 2008, Nathan's tax provision, excluding the effects of tax-exempt interest income, was 40.1% and 40.6%, respectively.

Discontinued Operations

On April 23, 2008, Nathan's completed the sale of its wholly-owned subsidiary, NF Roasters Corp. ("NF Roasters"), to Roasters Asia Pacific (Cayman) Limited. Pursuant to the Stock Purchase Agreement, Nathan's sold all of the stock of NF Roasters for $4,000,000 in cash. The results of operations for NF Roasters, including the gains on disposal, have been presented as discontinued operations for the fiscal 2009 period.

Nathan's realized a gain on the sale of NF Roasters of $3,656,000 net of professional fees of $39,000, and recorded income taxes of $1,289,000 on the gain during the thirteen weeks ended June 29, 2008. Nathan's has determined that it will not have any significant cash flows or continuing involvement in the ongoing operations of NF Roasters.

On June 7, 2007, Nathan's completed the sale of Miami Subs to Miami Subs Capital Partners I, Inc. ("Purchaser"). Pursuant to the Stock Purchase Agreement ("MSC Agreement"), Nathan's sold all of the stock of Miami Subs in exchange for $3,250,000, consisting of $850,000 in cash and the Purchasers Promissory Note in the amount of $2,400,000 (the "MSC Note"). In the event the MSC Note were fully repaid within one year of the sale, Nathan's had agreed to reduce the amount due by $250,000. Due to the ability to prepay the loan and reduce the amount due, the recognition of $250,000 was initially deferred. The MSC Note was not prepaid within the requisite timeframe and Nathan's recognized $250,000 as additional gain and initially recorded estimated income taxes of $92,000 during the fiscal 2009 period, resulting from the contingent consideration which was deferred at the time of sale.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, other than the remaining purchase commitment to acquire approximately 1,336,000 pounds of hot dogs between July and September 2009. See Note K to the Consolidated Financial Statements.

Liquidity and Capital Resources

Cash and cash equivalents at June 28, 2009 aggregated $9,011,000, increasing by $332,000 during the fiscal 2010 period. At June 28, 2009, marketable securities were $25,265,000 compared to $25,670,000 at March 29, 2009 and net working capital increased to $37,083,000 from $35,303,000 at March 29, 2009.

Cash provided by operations of $15,000 in the fiscal 2010 period is primarily attributable to net income of $1,563,000, and other non-cash items of $455,000, net. Changes in Nathan's operating assets and liabilities decreased cash by $2,003,000, resulting primarily from increased accounts and other receivables of $2,193,000, and increased inventories of $328,000, which were partly offset by decreases in prepaid expenses of $626,000. The increase in accounts and other receivables relates primarily to normal seasonal fluctuations from licensees of $1,064,000, increased sales under the Branded Product Program and to our television retailer of $516,000, advances to Nathan's advertising fund of $356,000 and higher franchise royalties of $206,000. Inventories increased in anticipation of higher sales to our television retailer and in our Company-operated restaurants. The decrease in prepaid expenses is due primarily to the reduction of prepaid corporate income taxes of $282,000 which have been applied against the fiscal 2010 period income, usage of prepaid expenses for insurance and rent of $151,000 and various other reductions.

Cash provided by investing activities was $317,000 in the fiscal 2010 period, primarily related to cash proceeds of $435,000 from the redemption of maturing available-for-sale securities and $71,000 from the receipt of all scheduled payments on the MSC Note receivable. We also incurred capital expenditures of $189,000.

Through June 28, 2009, Nathan's purchased a total of 2,693,806 shares of common stock at a cost of approximately $18,798,000 pursuant to its stock repurchase plans previously authorized by the Board of Directors. None of these shares were repurchased during the thirteen-week period ended June 28, 2009. On November 13, 2008, Nathan's Board of Directors authorized a fourth stock repurchase plan for the purchase of up to 500,000 shares of the Company's common stock, under which 193,806 shares were repurchased at a cost of $2,400,000 as of June 28, 2009.

On February 5, 2009, Nathan's and MSI entered into an agreement (the "10b5-1 Agreement") pursuant to which MSI has been authorized to purchase shares of the Company's common stock, having a value of up to an aggregate $3.6 million, which commenced on March 16, 2009. The 10b5-1 Agreement was adopted under the safe harbor provided by Rule 10b5-1 of the Securities Exchange Act of 1934 in order to assist the Company in implementing its previously-announced fourth stock repurchase plan, for the purchase of up to 500,000 shares. The 10b5-1 Agreement shall terminate no later than March 15, 2010.

On June 30, 2009, Nathan's Board of Directors authorized its fifth stock repurchase plan for the purchase of up to 500,000 shares of its common stock on behalf of the Company and the Company repurchased 238,129 shares of common stock at a cost of $3,015,000 in a privately- negotiated transaction with Prime Logic Capital, LLC.

After giving effect to the repurchase made on June 30, 2009, there are 306,194 and 261,871 shares remaining to be purchased pursuant to the fourth and fifth stock repurchase plans, respectively.

Purchases may be made from time to time, depending on market conditions, in open market or privately negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases to be made under the fourth and fifth stock repurchase plans.

Management believes that available cash, marketable securities and cash generated from operations should provide sufficient capital to finance our operations and stock repurchases for at least the next twelve months.

Nathan's philosophy with respect to maintaining a balance sheet with a significant amount of cash and marketable securities reflects our views of maintaining readily available capital to expand our existing business and pursue any new business opportunities which might present themselves to expand our business. Nathan's routinely assesses its investment management approach with respect to our current and potential capital requirements.

We expect that in the future we will continue the stock repurchase programs, make additional investments in certain existing restaurants and support the growth of the Branded Product Program and fund those investments from our operating cash flow. We may also incur capital expenditures in connection with opportunistic investments on a case-by-case basis.

At June 28, 2009, there were four properties that we lease from third parties which we sublease to franchisees and a non-franchisee. Two of the subleases are currently in default of the sublease agreements. We remain contingently liable for all costs associated with these properties including: rent, property taxes and insurance. We may incur future cash payments with respect to such properties, consisting primarily of future lease payments, including costs and expenses associated with terminating any of such leases.

The following schedule represents Nathan's cash contractual obligations and commitments by maturity (in thousands):

                                                                    Payments Due by Period
                                                    Less than                                     More than
Cash Contractual Obligations            Total        1 Year       1 - 3 Years     3-5 Years        5 Years

Employment Agreements (a)            $     3,202   $     1,236   $       1,166   $       400     $       400
Operating Leases                          10,925         1,576           1,347         1,082           6,920
Gross Cash Contractual Obligations        14,127         2,812           2,513         1,482           7,320

Sublease Income                            1,173           232             452           244             245
Net Cash Contractual Obligations     $    12,954   $     2,580   $       2,061   $     1,238     $     7,075

                                                    Amount of Commitment Expiration by Period
                                        Total
                                       Amounts      Less than                                     More than
Other Contractual Commitment          Committed      1 Year       1 - 3 Years     3-5 Years        5 Years

Commitment to purchase               $     2,251   $     2,251   $           -   $         -     $         -
Total Other Contractual Commitment   $     2,251   $     2,251   $           -   $         -     $         -

(a) Includes the extension of Messrs. Gatoff's and Norbitz' employment agreements for which no non-renewal notices were provided within the required 180 days of December 31, 2009.

Inflationary Impact

We do not believe that general inflation has materially impacted earnings since 2006. However, since then, we have experienced significant cost increases for certain food products, distribution costs and utilities. Our commodity costs for beef have been very volatile since fiscal 2004. During the fiscal 2010 period, the market price of hot dogs was approximately 0.5% higher than during the fiscal 2009 period. During that same period, our cost of beef has been approximately 5.7% higher than the fiscal 2009 period. This disparity is due to the varying affects that the purchase commitments had on the fiscal 2010 period and fiscal 2009 period results, which lowered our costs by 0.8% and 5.7%, respectively. To date, the cost of hot dogs has not increased as rapidly as we experienced during the period May through September 2008, when the cost of hot dogs reached the highest level since the inception of our Branded Product Program. Consequently, the resulting benefit of the purchase commitment was not as significant during the fiscal 2010 period. Since January 2009, the cost of beef and beef trimmings has been relatively stable. However, we are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2010. During the fiscal 2010 period we experienced lower costs for corn oil and cheese which were partly . . .