FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Act of 1934 for the quarterly period ended ~~December~~June 24, ~~2006.~~2007.

o	Transition report pursuant to Section 13 or 15(d) of the Securities Act of 1934 for the transition period from ~~__________~~______________ to ~~__________.~~______________.

Commission File Number 0-3189

NATHAN'S FAMOUS, INC.

(Exact name of registrant as specified in its charter)

Delaware	11-3166443
(State or other jurisdiction of	(IRS employer
incorporation or organization)	identification number)

1400 Old Country Road, Westbury, New York 11590

(Address of principal executive offices including zip code)

(516) 338-8500

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

At ~~February 2~~, August 7, 2007, an aggregate of ~~5,903,783~~6,173,083 shares of the registrant's common stock, par value of $.01, were outstanding.

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

INDEX

				Page Number
PART I.		FINANCIAL INFORMATION

Item 1.		Consolidated Financial Statements (Unaudited)		3

	~~Consolidated Balance Sheets - December 24, 2006 and March 26, 2006~~	3

	~~Consolidated Statements of Earnings - Thirteen Weeks Ended December 24, 2006 and December 25, 2005~~	4

	~~Consolidated Statements of Earnings - Thirty-nine Weeks Ended December 24, 2006 and December 25, 2005~~	5

	~~Consolidated Statement of Stockholders' Equity - Thirty-nine weeks Ended December 24, 2006~~	6

	~~Consolidated Statements of Cash Flows -Thirty-nine Weeks Ended December 24, 2006 and December 25, 2005~~	7

	~~Notes to Consolidated Financial Statements~~	8

~~Item 2.~~	~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~	17

~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	25

~~Item 4.~~	~~Controls and Procedures~~	25

		Consolidated Balance Sheets - June 24, 2007 and
		March 25, 2007		3

		Consolidated Statements of Earnings - Thirteen Weeks
		Ended June 24, 2007 and June 25, 2006		4

		Consolidated Statement of Stockholders' Equity -
		Thirteen Weeks Ended June 24, 2007		5

		Consolidated Statements of Cash Flows -Thirteen Weeks
		Ended June 24, 2007 and June 25, 2006		6

		Notes to Consolidated Financial Statements		7

Item 2.		Management's Discussion and Analysis of Financial
		Condition and Results of Operations		13

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		17

Item 4.		Controls and Procedures		17

PART II.		OTHER INFORMATION

Item 1.		Legal Proceedings	27	19

Item 1A		Risk Factors	27	19

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	27	20

~~Item 5.~~	~~Other Information~~	28

Item 6.		Exhibits	28	20

SIGNATURES	29			21

-2-

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	December 24, 2006			March 26, 2006			June 24, 2007			March 25, 2007
	(Unaudited)						(Unaudited)			(Note D)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	5,538		$	3,009		$	7,786		$	6,278
Marketable securities		21,336			16,882			23,601			22,785
Notes and accounts receivable, net		4,631			3,908
Note and accounts receivable, net								4,962			3,261
Inventories		528			817			812			790
Assets held for sale		48			-
Prepaid expenses and other current assets		681			1,019			894			994
Deferred income taxes		1,312			1,364			1,240			1,174

Current assets held for sale								-			1,539
Total current assets		34,074			26,999			39,295			36,821

Notes receivable, net		110			137
Note receivable								1,764			-
Property and equipment, net		4,285			4,568			4,378			4,222
Goodwill		95			95			95			95
Intangible assets, net		3,694			3,884			1,773			1,781
Deferred income taxes		1,318			1,484			1,103			990
Other assets, net		226			256			294			178

Non-current assets held for sale								-			2,488
	$	43,802		$	37,423		$	48,702		$	46,575

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Current maturities of capital lease obligation	$	-		$	8
Accounts payable		2,235			2,091		$	2,790		$	2,298
Accrued expenses and other current liabilities		5,832			5,606			4,953			4,767
Deferred franchise fees		399			219			313			375

Current liabilities held for sale								-			2,006
Total current liabilities		8,466			7,924			8,056			9,446

Capital lease obligation, less current maturities		-			31
Other liabilities		1,473			1,420			1,791			873

Non-current liabilities held for sale								-			377
Total liabilities		9,939			9,375			9,847			10,696

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES (Note I)

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value; 30,000,000 shares authorized;
7,794,883 and 7,600,399 shares issued; 5,903,783 and 5,709,299
shares outstanding at December 24, 2006 and March 26, 2006, respectively		78			76
7,909,183 and 7,909,183 shares issued; and 6,018,083 and 6,018,083
shares outstanding at June 24, 2007 and March 25, 2007, respectively								79			79
Additional paid-in capital		45,046			43,699			45,872			45,792
Deferred compensation		(154	)		( 208	)		(118	)		(136	)
Accumulated deficit		(3,896	)		(8,197	)
Retained earnings / (accumulated deficit)								343			(2,654	)
Accumulated other comprehensive loss		( 53	)		( 164	)		(163	)		(44	)
								46,013			43,037
		41,021			35,206
Treasury stock, at cost, 1,891,100 shares at December 24, 2006 and March 26, 2006.		(7,158	)		(7,158	)

Treasury stock, at cost, 1,891,100 shares at June 24, 2007 and March 25, 2007.								(7,158	)		(7,158	)
Total stockholders’ equity		33,863			28,048			38,855			35,879
							$	48,702		$	46,575
	$	43,802		$	37,423

The accompanying notes are an integral part of these statements.

-3-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

Thirteen weeks ended ~~December~~June 24, ~~2006~~2007 and ~~December~~June 25, ~~2005~~2006

(in thousands, except share and per share amounts)

(Unaudited)

December 24, 2006 December 25, 2005
REVENUES
Sales
$ 7,695 $ 6,886
Franchise fees and royalties
1,781 1,636
License royalties
844 673
Interest income
180 131
Other income
54 153
Total revenues 10,554 9,479

COSTS AND EXPENSES
Cost of sales
5,689 5,132
Restaurant operating expenses
715 780
Depreciation and amortization
194 192
Amortization of intangible assets
66 66
General and administrative expenses
2,294 2,094
Interest expense
- 10
Total costs and expenses 8,958 8,274

Income from continuing operations before provision
for income taxes
1,596 1,205
Provision for income taxes 557 450
Income from continuing operations 1,039 755

Income from discontinued operations before income taxes
36

24

Income tax expense 14 9
Income from discontinued operations 22 15
Net income $ 1,061 $ 770

PER SHARE INFORMATION
Basic income per share:
Income from continuing operations $ .18 $ .14
Income from discontinued operations .00 .00
Net income $ .18 $ .14

Diluted income per share:
Income from continuing operations $ .17 $ .12
Income from discontinued operations .00 .00
Net income $ .17 $ .12

Weighted average shares used in computing income per share

Basic 5,892,000 5,594,000
Diluted 6,401,000 6,565,000

~~The accompanying notes are an integral part of these statements.~~

~~-4-~~

~~Nathan’s Famous, Inc. and Subsidiaries~~

~~CONSOLIDATED STATEMENTS OF EARNINGS~~

~~Thirty-nine weeks ended December 24, 2006 and December 25, 2005~~

~~(in thousands, except share and per share amounts)~~

~~(Unaudited)~~


	December 24, 2006		December 25, 2005		June 24, 2007		June 25, 2006
REVENUES
Sales	$	27,086	$	23,888	$	9,821	$	9,162
Franchise fees and royalties		5,200		5,112		1,270		1,120
License royalties		2,927		2,663		1,427		1,176
Interest income		462		327		235		130
Other income		187		466		26		10
Total revenues	$	35,862		32,456		12,779		11,598

COSTS AND EXPENSES
Cost of sales		19,212		17,583		7,428		6,619
Restaurant operating expenses		2,418		2,414		838		844
Depreciation and amortization		585		579		182		185
Amortization of intangible assets		197		197		8		8
General and administrative expenses		6,984		6,320		2,078		1,971
Interest expense		1		30
Other expense, net		35		-
Total costs and expenses		29,432		27,123		10,534		9,627

Income from continuing operations before provision
for income taxes		6,430		5,333		2,245		1,971
Provision for income taxes		2,448		2,033		821		749
Income from continuing operations		3,982		3,300		1,424		1,222

Income from discontinued operations, including gains on disposal of discontinued operations of $400 in 2006 and $2,819 in 2005, before income taxes		532		2,856
Income tax expense		213		1,109
Income from discontinued operations, including gains on disposal of discontinued operations of $2,489 in 2007.						2,711		298
Provision for income taxes						983		124
Income from discontinued operations		319		1,747		1,728		174

Net income	$	4,301	$	5,047	$	3,152	$	1,396

PER SHARE INFORMATION
Basic income per share:
Income from continuing operations	$	.69	$	.59	$	.24	$	.21
Income from discontinued operations		.05		.32		.28		.03
Net income	$	.74	$	.91	$	.52	$	.24

Diluted income per share:
Income from continuing operations	$	.63	$	.50	$	.22	$	.19
Income from discontinued operations		.05		.27		.26		.03
Net income	$	.68	$	.77	$	.48	$	.22

Weighted average shares used in computing income per share

Basic		5,799,000		5,571,000		6,018,000		5,733,000
Diluted		6,311,000		6,522,000		6,499,000		6,316,000

The accompanying notes are an integral part of these statements.

~~-5-~~-4-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

~~Thirty-nine~~Thirteen weeks ended ~~December~~June 24, ~~2006~~2007

(in thousands, except share amounts)

(Unaudited)

Common Stock

Additional Paid-in

Deferred

Accumulated

Accumulated Other Comprehensive

Treasury Stock, at Cost

Total Stockholders’

Shares

Amount

Capital

Compensation

Deficit

Loss

Shares

Amount

Equity
Balance, March 26, 2006 7,600,399 $ 76 $ 43,699 $ (208 ) $ (8,197 ) $ (164 ) 1,891,100 $ (7,158 ) $ 28,048

Shares issued in connection with exercise of employee stock options
194,484

2

282

-

-
-
-

-

284

Income tax benefit on stock option exercises
-

-

857

-

-

-

-
-
857

Share-based compensation
-
-
208

-

-

-

-

-

208

Amortization of deferred compensation relating to restricted stock
-

-

-

54

-

-

-
-
54

Unrealized gains on marketable securities, net of deferred income tax provision of $74
-

-

-

-

-

111

-

-

111

Net income - - - - 4,301 - - - 4,301
Balance, December 24, 2006 7,794,883 $ 78 $ 45,046 $ (154 ) $ (3,896 ) $ (53 ) 1,891,100 $ (7,158 ) $ 33,863

	Common Shares		Common Stock		Additional Paid-in Capital		Deferred Compensation			Retained Earnings / (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Treasury Stock, at Cost					Total Stockholders’ Equity
	Common Shares		Common Stock		Additional Paid-in Capital		Deferred Compensation			Retained Earnings / (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Shares		Amount			Total Stockholders’ Equity
Balance, March 25, 2007		7,909,183	$	79	$	45,792	$	(136	)	$	(2,654	)	$	(44	)		1,891,100	$	(7,158	)	$	35,879

Share-based compensation		-		-		80		-			-			-			-		-			80

Amortization of deferred compensation relating to restricted stock		-		-		-		18			-			-			-		-			18
Unrealized losses on marketable securities, net of deferred income tax benefit of $81		-		-		-		-			-			(119	)		-		-			(119	)
Net income		-		-		-		-			3,152			-			-		_ -			3,152

Cummulative effect of the adoption of FIN No. 48 as of March 26, 2007 (Note C)		-		-		-		-			(155	)		-			-		-			(155	)
Balance, June 24, 2007		7,909,183	$	79	$	45,872	$	(118	)	$	343		$	(163	)		1,891,100	$	(7,158	)	$	38,855

The accompanying notes are an integral part of these ~~statements~~statements.

~~-6-~~-5-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

~~Thirty-nine~~Thirteen weeks ended ~~December~~June 24, ~~2006~~2007 and ~~December~~June 25, ~~2005~~2006

(in thousands)

(Unaudited)

December 24, 2006 December 25, 2005
Cash flows from operating activities:
Net income
$ 4,301 $ 5,047
Adjustments to reconcile net income to net cash

provided by operating activities

Depreciation and amortization
591 585
Amortization of intangible assets
197 197
Amortization of bond premium 198 168
Amortization of deferred compensation 54 54
Share-based compensation expense 208 -
Provision for doubtful accounts 8 8
Income tax benefit on stock option exercises - 61
Gain on disposal of leasehold interest and property and equipment (419 ) (2,882 )
Deferred income taxes
144 23
Changes in operating assets and liabilities:

Notes and accounts receivable
(763 ) (980 )
Inventories
289 26
Prepaid expenses and other current assets
338 447
Other assets
30 (9 )
Accounts payable, accrued expenses and other current liabilities
370 723
Deferred franchise fees
180 (138 )
Other liabilities
72 (79 )

Net cash provided by operating activities
5,798 3,251

Cash flows from investing activities:
Proceeds from sale of available for sale securities
- 1,934
Purchase of available for sale securities
(4,467 ) (7,877 )
Purchase of intellectual property (7 ) -
Purchases of property and equipment
(356 ) (420 )
Payments received on notes receivable
59 339
Proceeds from sale of leasehold interest and property and equipment 400 3,521

Net cash used in investing activities
(4,371 ) (2,503 )

Cash flows from financing activities:
Principal repayments of note payable and capitalized lease obligation
(39 ) (131 )
Income tax benefit on stock option exercises 857 -
Proceeds from the exercise of stock options and warrants 284 _259

Net cash provided by financing activities
1,102 128

Net change in cash and cash equivalents 2,529 876

Cash and cash equivalents, beginning of period 3,009 2,935

Cash and cash equivalents, end of period $ 5,538 $ 3,811

Cash paid during the period for:
Interest
$ 1 $ 30
Income taxes
$ 1,150 $ 2,015

	June 24, 2007			June 25, 2006
Cash flows from operating activities:
Net income	$	3,152		$	1,396
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization		185			197
Amortization of intangible assets		52			65
Amortization of bond premium		73			62
Amortization of deferred compensation		18			18
Share-based compensation expense		80			35
Provision for doubtful accounts		-			3
Gain on sale of fixed assets		-			(6	)
Gain on sale of subsidiary and leasehold interest		(2,489	)		-
Deferred income taxes		(33	)		407
Changes in operating assets and liabilities:
Notes and accounts receivable		(1,105	)		(1,778	)
Inventories		(22	)		(433	)
Prepaid expenses and other current assets		7			503
Other assets		(116	)		-
Accounts payable, accrued expenses and other current liabilities		72			(97	)
Deferred franchise fees		(62	)		174
Other liabilities		781			(28	)

Net cash provided by operating activities		593			518

Cash flows from investing activities:
Proceeds from sale of subsidiary and leasehold interest		1,691			-
Purchase of available-for-sale securities		(1,089	)		-
Purchase of intellectual property		-			(3	)
Purchases of property and equipment		(341	)		(147	)
Payments received on notes receivable		-			18

Net cash provided by (used in) investing activities		261			(132	)

Cash flows from financing activities:
Principal repayments of capitalized lease obligation		-			(2	)
Income tax benefit on stock option exercises		-			74
Proceeds from the exercise of stock options and warrants		-			181

Net cash provided by financing activities		-			253

Net change in cash and cash equivalents		854			639

Cash and cash equivalents, beginning of period		6,932			3,009

Cash and cash equivalents, end of period	$	7,786		$	3,648

Cash paid during the period for:
Interest	$	-		$	1
Income taxes	$	989		$	73

Noncash Financing Activities:
Loan made in connection with the sale of subsidiary	$	2,150		$	-

The accompanying notes are an integral part of these ~~statements~~statements..

~~-7-~~-6-

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~December~~June 24, ~~2006~~2007

(Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying consolidated financial statements of Nathan's Famous, Inc. and subsidiaries (collectively “Nathan’s”, the “Company” or “we”) for the thirteen ~~and thirty-nine~~ week periods ended ~~December~~June 24, ~~2006~~2007 and ~~December~~June 25, ~~2005~~2006 have been prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of financial condition, results of operations and cash flows for the periods presented. However, these results are not necessarily indicative of results for any other interim period or the full fiscal year.

Certain information and footnote disclosures normally included in financial statements in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the requirements of the Securities and Exchange Commission. Management believes that the disclosures included in the accompanying interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the consolidated financial statements and notes thereto included in Nathan’s Annual Report on Form 10-K for the fiscal year ended March ~~26, 2006.~~25, 2007.

A summary of the Company’s significant accounting policies is identified in Note B of the Notes to Consolidated Financial Statements included in the Company’s ~~2006~~2007 Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies subsequent to March ~~26, 2006,~~25, 2007, except as ~~disclosed~~described in Note E.C, “Adoption of Accounting Pronouncements”.

On June 7, 2007, Nathan’s completed the sale of its wholly owned subsidiary, Miami Subs Corporation (See Note D)

NOTE B - RECENTLY ISSUED ACCOUNTING STANDARDS ~~- NOT~~-NOT YET ADOPTED

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes,” ("FIN 48,") which clarifies the accounting and disclosures for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN 48 also provides guidance on the de-recognition of uncertain tax positions, financial statement classification, accounting for interest and penalties, accounting for interim periods and adds new disclosure requirements. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are evaluating the impact the adoption of FIN 48 will have on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS No. ~~157,”~~157”), to eliminate the diversity in practice that exists due to the different definitions of fair value. SFAS No. 157 retains the exchange price notion in earlier definitions of fair value, but clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or liability in the principal or most advantageous market for the asset or liability. SFAS No. 157 states that the transaction is hypothetical at the measurement date, considered from the perspective of the market participant who holds the asset or liability. As such, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price), as opposed to the price that would be paid to acquire the asset or received to assume the liability at the measurement date (an entry price).

SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition.

SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are evaluating the impact the adoption of SFAS No. 157 will have on our consolidated financial ~~statements~~statements.

In February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). This standard amends SFAS No.115, “Accounting for Certain Investment in Debt and Equity Securities”, with respect to accounting for a transfer to the trading category for all entities with available-for-sale and trading securities electing the fair value option. This standard allows companies to elect fair value accounting for many financial instruments and other items that currently are not required to be accounted for as such, allows different applications for electing the option for a single item or groups of items, and requires disclosures to facilitate comparisons of similar assets and liabilities that are accounted for differently in relation to the fair value option. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, ~~and interim periods within those~~which is our fiscal years, although earlier application is encouraged. Additionally, prospective application of the provisions of SFAS No. 157 is required as of the beginning of the fiscal year in which it is initially applied, except when certain circumstances require retrospective application. The Company is2009. We are currently evaluating the impact of SFAS ~~No. 157 on its consolidated financial statements.~~

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108,”) which was issued to provide consistency between how registrants quantify financial statement misstatements.

Historically, there have been two widely used methods for quantifying the effects of financial statement misstatements. These methods are referred to as the “roll-over” and “iron curtain” methods. The roll-over method quantifies the amount by which the current year income statement is misstated. Exclusive reliance on an income statement approach can result in the accumulation of errors on the balance sheet that may not have been material to any individual income statement, but which may misstate one or more balance sheet accounts. The iron curtain method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. Exclusive reliance on a balance sheet approach can result in disregarding the effects of errors in the current year income statement that results from the correction of an error existing in previously issued financial statements. We currently use the roll-over method for quantifying identified financial statement misstatements.

~~-8-~~

SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of the company’s financial statements and the related financial statement disclosures. This approach is commonly referred to as the “dual approach” because it requires quantification of errors under both the roll-over and iron curtain methods.

SAB 108 allows registrants to initially apply the dual approach either by (1) retroactively adjusting prior financial statements as if the dual approach had always been used or by (2) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of the beginning of our fiscal year with an offsetting adjustment recorded to the opening balance of retained earnings. Use of this “cumulative effect” transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose.

We will initially apply SAB 108 using the cumulative effect transition method in connection with the preparation of our annual financial statements for the year ending March 25, 2007 and are currently evaluating the impact the adoption of SAB 108 will haveNo.159 on our consolidated financial ~~statements.~~position and results of operations.

NOTE C - ADOPTION OF ACCOUNTING PRONOUNCEMENTS

In ~~November 2004,~~July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB ~~issued~~Interpretation No. 48, "Accounting for Uncertainty in Income Taxes” ("FIN No. 48"), which clarifies the accounting and disclosures for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. ~~151, “Inventory Costs--an amendment of ARB No.43” (“SFAS No.151”) which is the result of its efforts to converge U.S. accounting standards~~109, "Accounting for inventories with International Accounting Standards. SFAS No.151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be recognized as current-period charges. ItIncome Taxes." FIN No. 48 also ~~requires that allocation of fixed production overheads to the costs of conversion be based~~provides guidance on the ~~normal capacity~~de-recognition of ~~the production facilities. SFAS No.151 was~~uncertain tax positions, financial statement classification, accounting for interest and penalties, accounting for interim periods and adds new disclosure requirements. FIN No. 48, as amended and interpreted, is effective for ~~inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 has not had a material impact on the Company’s financial position or results of operations.~~

In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No.154”). Opinion 20 previously required that most voluntary changes in accounting principles be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 was effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, ~~2005.~~2006, which is our fiscal 2008.

In May 2007, the FASB issued FASB Staff Position (FSP) No. FIN 48-1,“Definition of Settlement in FASB Interpretation No. 48”, an amendment of FASB Interpretation FIN No. 48, “Accounting for Uncertainty in Income Taxes”, to clarify that a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits in accordance with paragraph 10(b) of that Interpretation if (a) the taxing authority has completed all of its required or expected examination procedures, (b) the enterprise does not intend to appeal or litigate any aspect of the tax position, and (c) it is considered remote that the taxing authority would reexamine the tax position. FSP No. FIN 48-1 also conforms the terminology used in FIN No. 48 to describe measurement and recognition to the conclusions reached in the FSP. FSP No. FIN 48-1 is effective as of the same dates as FIN No. 48, with retrospective application required for entities that have not applied FIN No. 48 in a manner consistent with the provisions of the proposed FSP.

-7-

Nathan’s adopted the provisions of FIN No. 48 and FIN No. 48-1 on March 26, 2007 which resulted in a $155,000 adjustment to decrease retained earnings in connection with a cumulative effect of a change in accounting principle. The ~~adoption~~amount of unrecognized tax benefits at June 24, 2007 was $779,000, all of which would impact Nathan’s effective tax rate, if recognized. Nathan’s recognizes accrued interest and penalties associated with unrecognized tax benefits as part of the income tax provision. As of June 24, 2007, Nathan’s had $262,000 of accrued interest and penalties in connection with unrecognized tax benefits.

There was no material change in the amount of uncertain tax benefits recognized during the three months ended June 24, 2007. It is possible that the amount of unrecognized tax benefits could change in the next 12 months, however, Nathan’s does not expect the change to have a significant impact on its results of operations or financial position.

NOTE D - DISCONTINUED OPERATIONS

The Company follows the provisions of SFAS No. ~~154 has not had~~144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.144"), related to the accounting and reporting for components of a ~~material impact on~~business to be disposed of. In accordance with SFAS No. 144, the ~~Company’s financial position~~definition of discontinued operations includes components of an entity whose cash flows are clearly identifiable. SFAS No. 144 requires the Company to classify as discontinued operations any restaurant property or ~~results~~business unit that Nathan’s sells, abandons or otherwise disposes of where the Company will have no further involvement in the operation of, or cash flows from, such restaurant's operations.

~~See~~1. Sale of Miami Subs

On June 7, 2007, Nathan’s completed the sale of its wholly owned subsidiary, Miami Subs Corporation (“Miami Subs”) to Miami Subs Capital Partners I, Inc. (“Purchaser”). Pursuant to the Stock Purchase Agreement (“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 Purchaser’s promissory note in the principal amount of $2,400,000 (the “Note”). The Note Ebears interest at 8% per annum, is payable over a four-year term and is secured by a lien on all of the assets of Miami Subs and by the personal guarantees of two principals of the Purchaser. The Purchaser may also prepay the Note at any time. In the event the Note is fully repaid within one year, Nathan’s will reduce the amount due by $250,000. Due to the ability to prepay the loan and reduce the amount due, the recognition of the additional $250,000 been deferred. In accordance with the Agreement, Nathan’s retained ownership of Miami Subs’ then corporate office in Ft Lauderdale, Florida (the “Corporate Office”).

The following is a summary of the assets and liabilities of Miami Subs, as of the date of sale, that were sold:

Cash	$	674,000	(A)
Accounts receivable, net		213,000
Notes receivable, net		153,000
Prepaid expenses and other current assets		119,000
Deferred income taxes, net		719,000
Property and equipment, net		48,000
Intangible assets, net		1,803,000
Other assets, net		46,000
Total assets sold		3,775,000

Accounts payable		27,000
Accrued expenses		1,373,000	(A)
Other liabilities		395,000
Total liabilities sold		1,795,000


Net assets sold	$	1,980,000

(A) - Includes unexpended marketing funds of $565,000.

In connection with the Agreement, Purchaser may continue to sell Nathan’s Famous and Arthur Treachers’ products within the existing restaurant system in exchange for a ~~discussion~~royalty payment of 35% of all royalties contractually due from Miami Subs franchisees on such sales.

-8-

Nathan’s has agreed to provide the Purchaser with office space within the Corporate Office for a one-year period, rent-free. Common area charges are expected to be reimbursed on a prorated basis. Nathan’s and Purchaser also agreed to share expenses related to the purchasing of food and paper products for both restaurant systems, previously provided by Miami Subs employees. Prior to the sale, this function was performed on a combined basis, which is expected to be separated over the upcoming year. Nathan’s has also agreed to provide Purchaser with certain back office support functions for a period of up to six months.

As a result of the ~~impact~~transaction, the employment agreement between Miami Subs and its President and Chief Operating Officer of ~~adopting SFAS No. 123R “Share-based Payments”.~~Miami Subs (who also serves as an officer of Nathan’s), which is guaranteed by Nathan’s, is expected to be cancelled and it is expected that he will enter into an employment agreement with Nathan’s on the same terms and conditions. Nathan’s is currently performing under the terms of its guarantee. A change of control agreement with another Senior Executive of Miami Subs has been cancelled and a new agreement was entered into with Nathan’s on the same terms and conditions. A severance agreement, previously entered into between Miami Subs and one executive of Miami Subs, remains in force along with the guaranty by Nathan’s. Nathan’s had previously guaranteed a severance agreement that was entered into between Miami Subs Corporation and an executive of Miami Subs. The guaranty provides for a salary payment of $115,000 payable in six (6) monthly installments and payment for COBRA coverage for the employee and dependants for the maximum period permitted under Federal Law. Nathan’s has the right to seek reimbursement from Miami Subs Corporation in the event that Nathan’s must make payments under the guarantee. Nathan’s has recorded a liability of $115,000 for this guarantee.

Nathan’s has realized a gain on the sale of $983,000, net of professional fees of $37,000 and recorded income taxes of $334,000 on the gain. Nathan’s has determined that it will not have any significant cash flows or continuing involvement in the ongoing operations of Miami Subs. Therefore, the results of operations for Miami Subs, including the gain on disposal, for the thirteen week periods ended June 24, 2007 and June 25, 2006 have been presented as discontinued operations. The accompanying balance sheet for the fiscal year ended March 25, 2007, has been revised to reflect the assets and liabilities of Miami Subs that were subsequently sold, as held for sale as of that date.

2. Other Dispositions

In October 2006, Nathan’s received the remaining $400,000 that it was owed pursuant to a sale of a leasehold interest in Brooklyn, New York that was outstanding as of March 26, 2006.

On January 26, 2006, two of Nathan’s wholly-owned subsidiaries entered into a Lease Termination Agreement with respect to three leased properties in Fort Lauderdale, Florida, with its landlord, and CVS 3285 FL, L.L.C., (“CVS”) to sell our leasehold interests to CVS for $2,000,000. As the properties were subject to certain sublease and management agreements between Nathan’s and the then-current occupants, Nathan’s made payments to, or forgave indebtedness of, the then-current occupants of the properties and paid brokerage commissions of $494,000 in the aggregate. Nathan’s made the property available to the buyer by May 29, 2007 and Nathan’s received the proceeds of the sale on June 5, 2007. Nathan’s recognized a gain of $1,506,000 and recorded income taxes of $557,000 during the thirteen week period ended June 24, 2007. The results of operations for these properties, including the gain on disposal, have been included as discontinued operations for the thirteen week periods ended June 24, 2007 and June 25, 2006.

The following is a summary of all discontinued operations for the thirteen week periods ended June 24, 2007 and June 25, 2006:

	June 24, 2007		June 25, 2006

Revenues (excluding gains from dispositions in 2007)	$	430	$	646

Gain from dispositions before income taxes	$	2,489	$	-

Income before income taxes for the thirteen weeks ended June 24, 2007 and June 25, 2006	$	2,711	$	298

NOTE DE - INCOME PER SHARE

Basic income per common share is calculated by dividing income by the weighted-average number of common shares outstanding and excludes any dilutive effect of stock options or warrants. Diluted income per common share gives effect to all potentially dilutive common shares that were outstanding during the period. Dilutive common shares used in the computation of diluted income per common share result from the assumed exercise of stock options and warrants, using the treasury stock method.

-9-

The following chart provides a reconciliation of information used in calculating the per share amounts for the ~~thirteen and thirty-nine week~~thirteen-week periods ended ~~December~~June 24, ~~2006~~2007 and ~~December~~June 25, ~~2005,~~2006, respectively.

Thirteen weeks

Income from
Continuing Operations
Number of Shares Income from Continuing Operations Per Share
2006 2005 2006 2005 2006 2005
(in thousands) (in thousands)
Basic EPS

Basic calculation $ 1,039 $ 755 5,892 5,594 $ 0.18 $ 0.14
Effect of dilutive employee stock options and warrants
-
- 509 971 (0.01 ) (0.02 )
Diluted EPS

Diluted calculation $ 1,039 $ 755 6,401 6,565 $ 0.17 $ 0.12

	Income from Continuing Operations				Number of Shares				Income from Continuing Operations Per Share
	2007		2006		2007		2006		2007			2006
	(in thousands)				(in thousands)
Basic EPS
Basic calculation	$	1,424	$	1,222		6,018		5,733	$	0.24		$	0.21
Effect of dilutive employee stock
options and warrants		-		-		481		583		(0.02	)		(0.02	)
Diluted EPS
Diluted calculation	$	1,424	$	1,222		6,499		6,316	$	0.22		$	0.19

~~Thirty-nine weeks~~

Income from
Continuing Operations
Number of Shares Income from Continuing Operations Per Share
2006 2005 2006 2005 2006 2005
(in thousands) (in thousands)
Basic EPS

Basic calculation $ 3,982 $ 3,300 5,799 5,571 $ 0.69 $ 0.59
Effect of dilutive employee stock options and warrants
-
- 512 951 (0.06 ) (0.09 )
Diluted EPS

Diluted calculation $ 3,982 $ 3,300 6,311 6,522 $ 0.63 $ 0.50

~~Options~~All options and warrants to purchase ~~0 and 19,500~~ shares of common stock in the ~~thirteen week periods~~thirteen-week period ended ~~December~~June 24, ~~2006~~2007 were included in the computation of diluted EPS. Options and ~~December~~warrants to purchase 197,500 shares of common stock in the thirteen-week period ended June 25, ~~2005 respectively,~~2006 were not included in the computation of diluted EPS because the exercise prices exceeded the average market price of common shares during the ~~respective periods.~~

Options and warrants to purchase 131,667 and 19,500 shares of common stock in the thirty-nine week periods ended December 24, 2006 and December 25, 2005, respectively, were not included in the computation of diluted EPS because the exercise prices exceeded the average market price of common shares during the respective periods.period.

NOTE EF - ~~STOCK BASED~~SHARE-BASED COMPENSATION

As of the beginning of fiscal 2007, we adopted SFAS No. 123R, “Share-based Payments”, (“SFAS No. 123R”) using the modified prospective method. SFAS No. 123R replaces SFAS No. 123, “Accounting for Stock-Based Compensation," and supersedes Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees”(“APB No. 25”). SFAS No. 123R requires the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values measured at the grant date, or the date of later modification, over the requisite service period. In addition, under the modified prospective approach, SFAS No. 123R requires unrecognized cost (based on the amounts previously disclosed in pro forma footnote disclosures) related to awards vesting after the date of initial adoption to be recognized by the Company in the financial statements over the remaining requisite service period. Therefore, the amount of compensation costs to be recognized over the requisite service period on a prospective basis after March 26, 2006 includes: (i) previously unrecognized compensation cost for all share-based payments granted prior to, but not yet vested as of, March 26, 2006 based on their fair values measured at the grant date, (ii) compensation cost of all share-based payments granted subsequent to March 26, 2006 based on their respective grant date fair value, and (iii) the incremental fair value of awards modified subsequent to March 26, 2006 measured as of the date of such modification.

When recording compensation cost for equity awards, SFAS No. 123R requires companies to estimate at the date of grant the number of equity awards granted that are expected to be forfeited and to subsequently adjust the estimated forfeitures to reflect actual forfeitures.

For tax purposes, Nathan’s expects to be entitled to a tax deduction, subject to certain limitations, based on the fair value of the underlying equity award when the stock options vest or are exercised. SFAS No. 123R requires that compensation cost be recognized in the financial statements based on the fair value measured at the grant date, or the date of later modification, over the requisite service period. The cumulative compensation cost recognized for equity awards pursuant to SFAS No. 123R and amounts that ultimately will be deductible for tax purposes are temporary differences as prescribed by SFAS No. 109, “Accounting for Income Taxes”. The tax effect of compensation deductions for tax purposes in excess of compensation cost recognized in the financial statements, if any, will be recorded as an increase to additional paid-in capital when realized. A deferred tax asset recorded for compensation cost recognized in the financial statements that exceeds the amount that is ultimately realized on the tax return, if any, will be charged to income tax expense when the stock options vest or are exercised or expire unless we have an available additional paid-in capital pool, as defined pursuant to SFAS No. 123R (“APIC Pool”). Nathan’s is required to assess whether there is an available APIC Pool when the restrictions lapse or stock options are exercised or expire.

~~-10-~~

SFAS No. 123R also amends SFAS No. 95, “Statement of Cash Flows,” to require companies to change the classification in the statement of cash flows of any tax benefits realized upon the exercise of stock options or issuance of non-vested share unit awards in excess of that which is associated with the expense recognized for financial reporting purposes. These amounts are required to be reported as a financing cash inflow rather than as a reduction of income taxes paid in operating cash flows.

In October 2005, the FASB issued Staff Position No. FAS 123R-2, "Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123R.” As a practical accommodation, in determining the grant date of an award subject to Statement 123R, assuming all other criteria in the grant date definition have been met, a mutual understanding of the key terms and conditions of an award to an individual employee shall be presumed to exist at the date the award is approved in accordance with the relevant corporate governance requirements if both of the following conditions are met: (a) the award is a unilateral grant and, therefore, the recipient does not have the ability to negotiate the key terms and conditions of the award with the employer; and (b) the key terms and conditions of the award are expected to be communicated to an individual recipient within a relatively short time period from the date of approval.

In November 2005, the FASB issued Staff Position No. FAS 123R-3, "Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards." FAS 123R-3 provides that companies may elect to use a specified alternative method to calculate the historical APIC Pool of excess tax benefits available to absorb tax deficiencies recognized upon adoption of SFAS No. 123R. The option to use the alternative method is available regardless of whether SFAS No. 123R was adopted using the modified prospective or modified retrospective application transition method, and whether it is has the ability to calculate its pool of excess tax benefits in accordance with the guidance in paragraph 81 of SFAS No. 123R. This method only applies to awards that are fully vested and outstanding upon adoption of SFAS No. 123R.

~~The adoption of these staff positions has not had a material impact on our financial position or results of operations.~~

~~The incremental pre-tax~~Total share-based compensation ~~expense recognized pursuant to the adoption of SFAS No. 123R for~~during the thirteen weeks ended ~~December~~June 24, ~~2006~~2007 was ~~$86,000. The incremental~~$98,000. Total share-based compensation ~~expense caused income before income taxes to decrease by $86,000. Net income decreased by $51,000 and basic and diluted earnings per share decreased by $0.01 for~~during the thirteen weeks ended ~~December 24, 2006.~~June 25, 2006 was $53,000. Total share-based compensation ~~expense recognized under SFAS No. 123R, including the incremental pre-tax share-based compensation expense above, was $105,000, with an associated tax benefit of $42,000, and~~ was included in general and administrative expense in our accompanying Consolidated ~~Statement~~Statements of Earnings for the thirteen weeks ended ~~December~~June 24, ~~2006.~~

The incremental pre-tax share-based compensation expense recognized pursuant to the adoption of SFAS No. 123R for the thirty-nine weeks ended December 24, 2006 was $208,000. The incremental share-based compensation expense caused income before income taxes to decrease by $208,000. Net income decreased by $124,0002007 and ~~basic and diluted earnings per share decreased by $0.02 for the thirty-nine weeks ended December 24,~~June 25, 2006. Total share-based compensation expense recognized under SFAS No. 123R, including the incremental pre-tax share-based compensation expense above, was $262,000, with an associated tax benefit of $106,000, and was included in general and administrative expense in our accompanying Consolidated Statement of Earnings for the thirty-nine weeks ended December 24, 2006.

As of ~~December~~June 24, ~~2006,~~2007, there was ~~$1,132,000~~$965,000 of unamortized compensation expense related to stock options. We expect to recognize this expense over a period of ~~4.50~~4 years, which represents the requisite service period for such awards.

There were no share-based awards granted during the thirteen weeks ended June 24, 2007. During the ~~thirty-nine~~thirteen weeks ended ~~December 24,~~June 25, 2006, the Company granted 197,500 stock options having an exercise price of $13.08 per share. All of the options granted will be vested as follows: 20% on the first anniversary of the grant, 40% on the second anniversary of the grant, 60% on the third anniversary of the grant, 80% on the fourth anniversary of the grant and 100% on the fifth anniversary of the grant. All options have an expiration date of ten years from the date of grant. ~~No options were granted during the thirty-nine weeks ended December 25, 2005.~~

The weighted-average option fair values, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the ~~thirty-nine~~thirteen weeks ended ~~December 24,~~June 25, 2006 are as follows:

	2006
Weighted-average option fair values	$	6.1686
Expected life (years)		7.0
Interest rate		5.21	%
Volatility		34.33	%
Dividend yield		0	%

~~-11-~~

Prior to March 26, 2006, Nathan’s accounted for share-based compensation plans in accordance with the provisions of APB 25, as permitted by SFAS No. 123, and accordingly, did not recognize compensation expense for stock options with an exercise price equal to or greater than the market price of the underlying stock at the date of grant.

The following table illustrates the effect on net income and income per share had the fair value-based method prescribed by SFAS No. 123, been applied to stock-based employee compensation during the thirteen and thirty-nine weeks ended December 25, 2005. Additional compensation expense, net of tax, of $22,000 and $67,000 would have been recognized for the thirteen and thirty-nine weeks ended December 25, 2005, respectively, and the effect on net income and net income per share would have been as follows:

Thirteen
Weeks ended December 25,
2005

Thirty-nine
Weeks ended December 25,
2005

(in thousands except per share amounts)
Net income, as reported $ 770 $ 5,047
Add: Stock-based compensation included in net income 11 33

Deduct: Total stock-based employee compensation expense determined
under fair value-based method for all awards
(33 ) (100 )

Pro forma net income $ 748 $ 4,980

Earnings per Share
Basic - as reported $ 0.14 $ 0.91
Diluted - as reported $ 0.12 $ 0.77
Basic - pro forma $ 0.13 $ 0.89
Diluted - pro forma $ 0.11 $ 0.76

~~Stock Incentive Plans~~~~and Warrants~~

On December 15, 1992, the Company adopted the 1992 Stock Option Plan (the “1992 Plan”), which provides for the issuance of incentive stock options (“ISOs”) to officers and key employees and nonqualified stock options to directors, officers and key employees. Up to 525,000 shares of common stock have been reserved for issuance under the 1992 Plan. The terms of the options are generally ten years, except for ISOs granted to any employee who prior to the granting of the option owns stock representing more than 10% of the voting rights, for which the option term will be five years. The exercise price for nonqualified stock options outstanding under the 1992 Plan can be no less than the fair market value, as defined, of the Company’s common stock at the date of grant. For ISOs, the exercise price can generally be no less than the fair market value of the Company’s common stock at the date of grant, with the exception of any employee who prior to the granting of the option owns stock representing more than 10% of the voting rights, for which the exercise price can be no less than 110% of fair market value of the Company’s common stock at the date of grant. The 1992 Plan expired with respect to the granting of new options on December 2, 2002.

On May 24, 1994, the Company adopted the Outside Director Stock Option Plan (the “Directors’ Plan”), which provides for the issuance of nonqualified stock options to non-employee directors, as defined, of the Company. Under the Directors’ Plan, 200,000 shares of common stock have been authorized and issued. Options awarded to each non-employee director are fully vested, subject to forfeiture under certain conditions and shall be exercisable upon vesting. The Directors’ Plan expired with respect to the granting of new options on December 31, 2004. As of December 24, 2006, there are no options outstanding under this plan.

In April 1998, the Company adopted the Nathan’s Famous, Inc. 1998 Stock Option Plan (the “1998 Plan”), which provides for the issuance of nonqualified stock options to directors, officers and key employees. Up to 500,000 shares of common stock have been reserved for issuance upon the exercise of options granted under the 1998 Plan. ~~As of December 24, 2006, no shares are available to be issued in the future under this plan.~~

In June 2001, the Company adopted the Nathan’s Famous, Inc. 2001 Stock Option Plan (the “2001 Plan”), which provides for the issuance of nonqualified stock options to directors, officers and key employees. Up to 350,000 shares of common stock have been reserved for issuance upon the exercise of options granted and for future issuance in connection with awards under the 2001 Plan. As of ~~December~~June 24, ~~2006,~~2007, there are 3,500 shares available to be issued in the future under this plan.

~~In June 2002,~~ On July 13, 2007, Nathan’s Board of Directors approved certain modifications to the ~~Company adopted the Nathan’s Famous, Inc. 2002~~Registrant’s 2001 Stock ~~Incentive~~Option Plan (the ~~“2002 Plan”~~“Plan”), which ~~provides~~includes an increase in the number of options available for ~~the issuance of nonqualified stock options or restricted stock awards~~future grant by 275,000 shares, which is subject to ~~directors, officers and key employees. Up to 300,000 shares of common stock have been reserved for issuance in connection with awards under the 2002 Plan. As of December 24, 2006,~~shareholder approval. If approved, there ~~are 2,500~~would be 278,500 shares available to be issued in the future under this plan.

~~-12-~~-10-

The 1998 Plan, the 2001 Plan and the 2002 Plan expire on April 5, 2008, June 13, 2011 and June 17, 2012, respectively, unless terminated earlier by the Board of Directors under conditions specified in the respective Plan.

On October 1, 1999, the Company issued 478,584 stock options to employees of Miami Subs to replace 957,168 of previously issued Miami Subs options pursuant to the acquisition by Nathan’s and issued 47,006 new options. All options were fully vested upon consummation of the merger. Exercise prices range from a low of $3.1875 to a high of $18.6120 per share and expire at various times through September 30, 2009.

On July 17, 1997, the Company granted to its Chairman and Chief Executive Officer a warrant to purchase 150,000 shares of the Company’s common stock at an exercise price of $3.25 per share, representing the market price of the Company’s common stock on the date of grant. The shares vested at a rate of 25% per annum commencing July 17, 1998 and the warrant expires in July 2007.

In January 2005, Nathan’s issued 50,000 shares of restricted common stock to its Chairman and the Chief Executive Officer in connection with a new employment agreement. These shares vest ratably over 5 years. A charge of $362,500, representing the market price of the Company’s common stock on the date of grant, was recorded to deferred compensation and is being amortized to earnings ratably over the vesting period.

In general, our stock incentive plans have terms of ten years and vest over periods of between three and five years. We have historically issued new shares of common stock for options that have been exercised and determined the grant date fair value of options and warrants granted using the Black-Scholes option valuation model.

Stock options and ~~warrants~~warrant outstanding:

Transactions ~~under all plans~~with respect to convertible securities for the ~~thirty-nine~~thirteen weeks ended ~~December~~June 24, ~~2006,~~2007, are as follows:

				Weighted-		Weighted-				Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
				Average		Average		Aggregate
				Exercise		Remaining		Intrinsic
	Shares			Price		Contractual Life		Value

Options outstanding at March 26, 2006		1,332,024		$	3.78		3.6
Options outstanding at March 25, 2007											1,172,308		$	5.21		4.3	$	10,839,000

Granted		197,500		$	13.08						-			-
Expired		(3,750	)	$	6.20						(8,500	)	$	6.20
Exercised		(238,916	)	$	3.62						-			-

Options outstanding at December 24, 2006		1,286,858		$	5.09		4.3	$	11,165,000
Options outstanding at June 24, 2007											1,163,808		$	5.21		4.1	$	11,223,000

Options exercisable at December 24, 2006		1,057,441		$	3.58		3.2	$	10,771,000
Options exercisable at June 24, 2007											1,005,808		$	3.97		3.3	$	10,943,000

Weighted-average fair value of options granted				$	6.1686								$	-

Warrants outstanding at March 26, 2006		150,000		$	3.25		1.3
Warrant outstanding at March 25, 2007											150,000		$	3.25		.3	$	1,682,000
Granted		-			-						-			-
Expired		-			-						-			-
Exercised		-			-						-			-

Warrants outstanding at December 24, 2006		150,000		$	3.25		0.6	$	1,578,000
Warrant outstanding at June 24, 2007											150,000		$	3.25		.1	$	1,441,000

Warrants exercisable at December 24, 2006		150,000		$	3.25		0.6	$	1,578,000
Weighted-average fair value of warrants granted				$	-
Warrant exercisable at June 24, 2007											150,000		$	3.25		.1	$	1,441,000

Weighted-average fair value of warrant granted													$	-

No stock options were exercised during the thirteen weeks ended June 24, 2007. The aggregate intrinsic value of the stock options exercised during the thirteen weeks ended ~~December 24,~~June 25, 2006 ~~and December 25, 2005~~ was $315,000 and $42,000, respectively. The aggregate intrinsic value of the stock options exercised during the thirty-nine weeks ended December 24, 2006 and December 25, 2005 was $2,109,000 and $157,000, respectively.

~~-13-~~

~~NOTE F - ACQUISITION~~$189,000.

On February 28, 2006, the Company acquired all trademarks and other intellectual property relating to the Arthur Treacher’s brand from PAT Franchise Systems, Inc. (“PFSI”) for $1,250,000 in cash plus related expenses of approximately $100,000 and terminated its Co-Branding Agreement with PFSI. Since fiscal 2000, the Company has successfully co-branded certain Arthur Treacher’s signature products in the Nathan’s franchise system. Based upon such co-branding success, the Company acquired these assets to continue its co-branding efforts and seek new means of distribution.

The Company simultaneously granted back to PFSI a limited license to use the Arthur Treacher’s intellectual property solely for the purposes of: (a) PFSI continuing to permit the operation of its existing Arthur Treacher’s franchised restaurant system (approximately 60 restaurants); and (b) PFSI granting rights to third parties who wish to develop new traditional Arthur Treacher’s quick service restaurants in Indiana, Maryland, Michigan, Ohio, Pennsylvania, Virginia, Washington D.C. and areas of Northern New York State (collectively, the “PFSI Markets”). The Company also retained certain rights to sell franchises for the operation of Arthur Treacher’s restaurants in certain circumstances within the geographic scope of the PFSI Markets. PFSI has no obligation to pay fees or royalties to the Company in connection with its use of any Arthur Treacher’s intellectual property within the PFSI Markets.

NF Treacher’s Corp., a wholly owned subsidiary, was created for the purpose of acquiring these assets. The acquired assets have been recorded at fair value as trademarks and trade names based upon the preliminary purchase price allocation, which is subject to adjustment based upon finalization of a valuation, and which will be subject to periodic impairment testing. No restaurants were acquired in this transaction.

NOTE G - ~~PROPERTY AND EQUIPMENT, NET~~

~~1. Sale of Restaurant~~

The Company observes the provisions of SFAS No. 66, “Accounting for Sales of Real Estate,” which establishes accounting standards for recognizing profit or loss on sales of real estate. SFAS No. 66 provides for profit recognition by the full accrual method, provided (a) the profit is determinable, that is, the collectibility of the sales price is reasonably assured or the amount that will not be collectible can be estimated, and (b) the earnings process is virtually complete, that is, the seller is not obligated to perform significant activities after the sale to earn the profit. Unless both conditions exist, recognition of all or part of the profit shall be postponed and other methods of profit recognition shall be followed. In accordance with SFAS No. 66, the Company recognizes profit on sales of restaurants under the full accrual method, the installment method and the deposit method, depending on the specific terms of each sale. The Company continues to record depreciation expense on the property subject to the sales contracts that are accounted for under the deposit method and records any principal payments received as a deposit until such time that the transaction meets the sales criteria of SFAS No. 66.

During the thirty-nine weeks ended December 25, 2005, the Company sold one Company-owned restaurant that it had previously leased to the operator pursuant to a management agreement for total cash consideration of $515,000 and entered into a franchise agreement with the buyer to continue operating the restaurant. As the Company expects to have a continuing stream of cash flows from this restaurant, the results of operations for this restaurant are included in “Income from continuing operations before income taxes” in the accompanying consolidated statements of earnings for the thirty-nine week period ended December 25, 2005 through the date of sale. There were no sales of Company-owned restaurants during the thirty-nine weeks ended December 24, 2006.

~~The results of operations for this restaurant for the thirteen and thirty-nine weeks ended December 25, 2005 are as follows:~~

Thirteen
Weeks
(in thousands)

Thirty-nine
Weeks
(in thousands)

Total revenue $ 11 $ 72
Income from continuing operations before income taxes $ 11 $ 70

~~2. Discontinued Operations~~

The Company follows the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.144"), related to the accounting and reporting for segments of a business to be disposed of. In accordance with SFAS No. 144, the definition of discontinued operations includes components of an entity whose cash flows are clearly identifiable. SFAS No. 144 requires the Company to classify as discontinued operations any restaurant or property that Nathan’s sells, abandons or otherwise disposes of where the Company will have no further involvement in the operation of, or cash flows from, such restaurant's operations.

On July 13, 2005, Nathan’s sold all of its right, title and interest in and to a vacant real estate parcel previously utilized as a parking lot, adjacent to a Company-owned restaurant, located in Brooklyn, New York, in exchange for a cash payment of $3,100,000. A gain of $2,819,000 was recognized into income during the thirty-nine weeks ended December 25, 2005. Nathan’s also entered into an agreement pursuant to which an affiliate of the buyer has assumed all of Nathan’s rights and obligations under a lease for an adjacent property and had agreed to pay $500,000 to Nathan’s for its leasehold interest on the earlier of (i) three years after closing or (ii) six months after the closing of the adjacent property, $100,000 of which was paid and recognized into income in the fiscal year ended March 26, 2006. On January 17, 2006, the adjacent property was sold and the remaining balance of $400,000 was received in October 2006 and is included as a gain from discontinued operations during fiscal 2007. Recovery of $39,000 of reimbursable expenses has been included in discontinued operations for the thirty-nine weeks ended December 24, 2006. The operating expenses for these properties have been included in discontinued operations for the thirty-nine week period ended December 25, 2005 as the Company has no continuing involvement in the operation of, or cash flows from, these properties.

~~-14-~~

On January 26, 2006, two of Nathan’s wholly-owned subsidiaries entered into a Lease Termination Agreement with respect to three (3) leased properties in Fort Lauderdale, Florida, with its landlord, and CVS 3285 FL, L.L.C., (“CVS”) to sell our leasehold interests to CVS for $2,000,000. Pursuant to the Lease Termination Agreement, within 180 days following delivery of notice from CVS to Nathan’s, we are required to deliver the vacated properties to CVS. As the properties are currently subject to certain sublease and management agreements between Nathan’s and the current occupants, Nathan’s expects to make payments to, or forgive indebtedness of, the current occupants of the properties and pay brokerage commissions of approximately $500,000 in the aggregate. On November 30, 2006, CVS provided Nathan’s with notice that all necessary permits and approvals have been obtained and that all contingencies have either been waiver or satisfied. We expect that this transaction will close no later than May 31, 2007.

~~Results of operations for all properties included in discontinued operations are as follows:~~

Thirteen Weeks Ended Thirty-nine Weeks Ended

December 24,
2006

December 25,
2005

December 24,
2006

December 25,
2005

(in thousands) (in thousands)
Total revenue $ 39 $ 26 $ 100 $ 84

Income from discontinued operations before income taxes (including gains on disposal of $400 and $2,819 for the thirty-nine week periods in 2006 and 2005)
$ 36 $ 24 $ 532 $ 2,856

~~NOTE H-~~ STOCK REPURCHASE PROGRAM

On September 14, 2001, Nathan’s was authorized to purchase up to one million shares of its common stock. Pursuant to its stock repurchase program, it repurchased one million shares of common stock in open market transactions and a private transaction at a total cost of $3,670,000 through the quarter ended September 29, 2002. On October 7, 2002, Nathan’s was authorized to purchase up to one million additional shares of its common stock. Through ~~December~~June 24, ~~2006, Nathan’s purchased 891,100 shares of common stock at a cost of approximately $3,488,000. To date,~~2007, Nathan’s has purchased a total of 1,891,100 shares of common stock at a cost of approximately ~~$7,158,000.~~$7,158,000 and has the ability to purchase up to 108,900 additional shares under the stock repurchase plan authorized by the Board of Directors. There were no repurchases of the Company’s common stock during the ~~thirty-nine~~thirteen weeks ended ~~December~~June 24, ~~2006.~~2007. Nathan’s ~~may~~expects to make additional purchases of stock from time to time, depending on market conditions, in open market or in privately negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the purchases. Nathan’s expects to fund ~~its~~these stock repurchases from its operating cash flow.

NOTE IH - COMPREHENSIVE INCOME

The components of comprehensive income are as follows:

												Thirteen Weeks Ended
	Thirteen Weeks Ended						Thirty-nine Weeks Ended					June 24,			June 25,
	December 24, 2006			December 25, 2005			December 24, 2006		December 25, 2005			2007			2006
	(in thousands)						(in thousands)					(in thousands)
Net income	$	1,061		$	770		$	4,301	$	5,047		$	3,152		$	1,396
Unrealized (loss) gain on available-for-sale securities, net of tax (benefit) provision of $(13), ($22), $74 and ($3), respectively	$	(20	)	$	(35	)	$	111	$	(8	)
Unrealized (loss) on available-for-sale securities, net
of tax (benefit) of $(81) and $(31), respectively													(119	)		(58	)
Comprehensive income	$	1,041		$	735		$	4,412	$	5,039		$	3,033		$	1,338

Accumulated other comprehensive loss ~~of $53 and $164~~ at ~~December~~June 24, ~~2006~~2007 and March ~~26, 2006, respectively,~~25, 2007 consists entirely of unrealized gains and losses on available-for-sale securities, net of deferred taxes.

~~-15-~~-11-

NOTE JI - COMMITMENTS AND CONTINGENCIES

1. Contingencies

We and our subsidiaries are from time to time involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include money damages and, in such event, could result in a material adverse impact on our ~~financial position or our~~ results of operations for the period in which the ruling occurs.

On March 20, 2007, a personal injury lawsuit was initiated seeking unspecified damages against the Company's subtenant and the Company's master landlord at a leased property in Huntington, New York. The claim relates to damages suffered by an individual as a result of an alleged "trip and fall" on the sidewalk in front of the leased property, maintenance of which is the subtenant's responsibility. Although the Company was not named as a defendant in the lawsuit, under its master lease agreement the Company may have an obligation to indemnify the master landlord in connection with this claim. The Company did not maintain its own insurance on the property concerned at the time of the incident; however, the Company is named as an additional insured under its subtenant's liability policy. Accordingly, if the master landlord is found liable for damages and seeks indemnity from the Company, the Company believes that it would be entitled to coverage under the subtenant's insurance policy. Additionally, under the terms of the sublease, the subtenant is required to indemnify the Company, regardless of insurance coverage.

After the end of the period covered by this report, on August 2, 2007, the Company commenced an action against SMG Inc. (“SMG”) in New York State court seeking a declaratory judgment that SMG has breached its obligation under the License Agreement between the Company and SMG dated as of February 28, 1994, as amended (the “License Agreement”) and that the Company has properly terminated the License Agreement. Prior to the commencement of the action, on July 31, 2007, the Company provided notice to SMG that the Company elected to terminate the License Agreement effective July 31, 2008 due to the breach of certain provisions of License Agreement.

2. Guarantees

The Company guaranteed certain equipment financing for certain franchisees with a third-party lender. As of December 24, 2006, all outstanding loans under this agreement were repaid, therefore, the Company’s obligation has been eliminated.

~~The Company also~~Nathan’s had previously guaranteed a franchisee’s note payable with a bank. The note payable matured in August 2006, and the franchisee refinanced this loan directly with the bank without any further guarantee by the Company or any of its subsidiaries.

~~The guarantees referred to above were~~severance agreement that was entered into ~~by the Company prior to December 31, 2002, which was the effective date for FIN 45 “Guarantors Accounting~~between Miami Subs Corporation and ~~Disclosure Requirements for Guarantees, Including Guarantees~~an executive of ~~Indebtedness of Others.”~~Miami Subs. The ~~terms of these guarantees were not modified during the period that they were in force.~~

~~NOTE K - RECLASSIFICATIONS~~

~~Certain reclassifications of prior period balances have been made to conform to the December 24, 2006 presentation.~~

~~NOTE L - SUBSEQUENT EVENT~~

Effective January 1, 2007, Howard M. Lorber, previously, Chairman of the Board and Chief Executive Officer, assumed the newly created position of Executive Chairman of the Board of Nathan’s and Eric Gatoff, previously, Vice President and Corporate Counsel, became Chief Executive Officer of Nathan’s.

In connection with the foregoing, the Company entered into an employment agreement with each of Messrs. Lorber (as amended, the “Lorber Employment Agreement”) and Gatoff (the “Gatoff Employment Agreement”). Under the terms of the Lorber Employment Agreement, Mr. Lorber will serve as Executive Chairman of the Board from January 1, 2007 until December 31, 2012, unless his employment is terminated in accordance with the terms of the Lorber Employment Agreement. Pursuant to the Lorber Employment Agreement, Mr. Lorber receives a base salary of $400,000, and will not receive a contractual bonus; provided that, for the fiscal year ending March 25, 2007, Mr. Lorber will be entitled to receive a pro rata portion of the bonus payable to him under his prior agreement. The Lorber Employment Agreementguarantee provides for a ~~three-year consulting~~salary payment of $115,000 and payment for post-employment health benefits for the employee and dependants for the maximum period after the termination of employment during which Mr. Lorber will receive a consulting fee of $200,000 per year in exchange for his agreement to provide no less than 15 days of consulting services per year, provided, Mr. Lorber is not required to provide more than 50 days of consulting services per year. The Lorber Employment Agreement provides Mr. Lorber withpermitted under Federal Law. Nathan’s has the right to participate in employment benefits offered to other Nathan’s executives. During and after the contract term, Mr. Lorber is subject to certain confidentiality, non-solicitation and non-competition provisions in favor of the Company.

~~Under the terms of the Gatoff Employment Agreement, Mr. Gatoff will serve as Chief Executive Officer~~seek reimbursement from January 1, 2007 until December 31, 2008, which period shall extend for additional one-year periods unless either party delivers notice of non-renewal no less than 180 days prior to the end of the term then in effect. Pursuant to the agreement, Mr. Gatoff will receive a base salary of $225,000 and an annual bonus equal in an amount of up to 100% of his base salary, depending upon the Company’s achievement of performance goals established and agreed to by the Compensation Committee and Mr. Gatoff for each fiscal year during the employment term, provided that the bonus payable to Mr. Gatoff for the fiscal year ending March 25, 2007 is to be determined by the Compensation Committee in its discretion, based on Mr. Gatoff’s status as Vice President and Corporate Counsel through December 31, 2006 and provided, further, that Mr. Gatoff will be entitled to a minimum bonus of 50% of his base salary for the first two years of the Gatoff Employment Agreement. The Gatoff agreement provides for an automobile allowanceMiami Subs Corporation in the ~~amount provided to other executive officers, currently $1,250 per month, and~~event that Nathan’s must make payments under the ~~right~~guarantee. Nathan’s has recorded a liability of ~~Mr. Gatoff to participate~~$115,000 in employment benefits offered to other Nathan’s executives. During and after the contract term, Mr. Gatoff is subject to certain confidentiality, non-solicitation and non-competition provisions in favor of the Company.connection with this guarantee.

~~-16-~~-12-

These contractual obligations have been included as a component of the Schedule of Cash Contractual Obligations in Item 2, Management Discussion and Analysis, as if they were in effect on December 24, 2006.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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).

Our revenues are generated primarily from selling products under Nathan’s Branded Product Program, operating Company-owned restaurants, franchising the Nathan’s, ~~Miami Subs,~~ Arthur Treacher’s and Kenny Rogers restaurant concepts and ~~brands, along with~~ licensing the sale of Nathan’s products within supermarkets and other retail venues. The Branded Product Program enables foodservice operators to offer Nathans’ hot dogs and other proprietary items for sale within their facilities. In conjunction with this program, foodservice operators are granted a limited use of the Nathans’ trademark with respect to the sale of hot dogs and certain other proprietary food items and paper goods.

~~In addition to plans for expansion~~On June 7, 2007, Nathan’s concluded the sale of ~~our Branded Product Program and through franchising, Nathan’s continues to co-brand within~~ its ~~restaurant system. Currently,~~subsidiary, Miami Subs. The following discussion of continuing operations excludes all of the ~~Arthur Treacher’s products are being sold within 111Nathan’s and~~ Miami Subs ~~restaurants,~~operations not retained by Nathan’s. In order to help the reader better understand Nathan’s ~~brand is~~continuing operations, certain non-financial information which was reported on a combined basis, has been also included ~~on the menu of 50 Miami Subs restaurants, while the Kenny Rogers Roasters products are being sold within 102 Nathan’s~~in this Management Discussion and ~~Miami Subs restaurants.~~Analysis.

At ~~December~~June 24, ~~2006,~~2007, our combined restaurant system consisted of ~~361~~298 franchised or licensed units and six Company-owned units (including one seasonal unit), located in 2220 states and 11 foreign countries. At June 25, 2006, our combined restaurant system consisted of 291 ~~foreign countries. At December 24, 2006,~~franchised or licensed units and ~~December 25, 2005, our~~six Company-owned ~~restaurant system included six Nathan’s~~ units (including one seasonal unit)., located in 21 states and 11 foreign countries.

The following summary reflects the franchise openings and closings, excluding the Miami Subs franchise system which was sold effective May 31, 2007, for the fiscal years ended March 25, 2007, March 26, 2006, March 27, 2005, March 28, 2004 and March 30, 2003:

	March 25, 2007			March 26, 2006			March 27, 2005			March 28, 2004			March 30, 2003
Franchised restaurants operating at the beginning of the period		290			271			247			237			235
New franchised restaurants opened during the period		19			30			37			36			22
Franchised restaurants closed during the period		(17	)		(11	)		(13	)		(26	)		(20	)
Franchised restaurants operating at the end of the period		292			290			271			247			237

Critical Accounting Policies and Estimates ~~and Recent Accounting Pronouncements~~

~~The company’s significant accounting policies are set forth~~ As disclosed in ~~Note B of Notes to Consolidated Financial Statements in the company’s annual report to shareholders~~our Form 10-K for the fiscal year ended March ~~26, 2006. A~~25, 2007, the discussion and analysis of ~~those policies that require management judgment and estimates and are most important in determining the company’s operating results and~~our financial condition and results of operations are ~~discussed~~based upon our consolidated financial statements, which have been prepared in ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations contained~~conformity with accounting principles generally accepted in the ~~2006 Annual Report.~~

United States of America. The Financial Accounting Standards Board has issued a number of financial accounting standards, staff positions and emerging issues task force consensus. See Notes C and E of Notes to Consolidated Financial Statements for a discussionpreparation of these ~~matters.~~

~~Impairment of Goodwill and Other Intangible Assets~~

Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (“SFAS No. 142") requires that goodwill and intangible assets with indefinite lives be reviewed annually (or more frequently if impairment indicators arise) for impairment. The most significant assumptions, which are used in this test, are estimates of future cash flows. We typically use the same assumptions for this test as we use in the development of our business plans. If these assumptions differ significantly from actual results, an impairment charge may be required. No goodwill or other intangible assets were determined to be impaired during the thirteen and thirty-nine weeks ended December 24, 2006.

~~Impairment of Long-Lived Assets~~

Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144") requires management judgments regarding the future operating and disposition plans for under-performing assets, and estimates of expected realizable values for assets to be sold. The application of SFAS No. 144 has affected the amounts and timing of charges to operating results in recent years. We evaluate possible impairment of each restaurant individually and record an impairment charge whenever we determine that impairment factors exist. We consider a history of restaurant operating losses to be the primary indicator of potential impairment of a restaurant’s carrying value. No restaurants were determined to be impaired during the thirteen and thirty-nine weeks ended December 24, 2006.

~~Impairment of Notes Receivable~~

Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan,” requires management judgments regarding the future collectibility of notes receivable and the underlying fair market value of collateral. We consider the following factors when evaluating a note for impairment: a) indications that the borrower is experiencing business problems, such as operating losses, marginal working capital, inadequate cash flow or business interruptions; b) whether the loan is secured by collateral that is not readily marketable; or c) whether the collateral is susceptible to deterioration in realizable value. When determining possible impairment, we also assess our future intention to extend certain leases beyond the minimum lease term and the debtor’s ability to meet its obligation over that extended term. No notes receivable were determined to be impaired during the thirteen and thirty-nine weeks ended December 24, 2006.

~~-17-~~

~~Revenue Recognition~~

~~Sales by Company-owned restaurants, which are typically paid in cash by the customer, are recognized upon the performance of services.~~

In connection with its franchising operations, the Company receives initial franchise fees, development fees, royalties, and in certain cases, revenue from sub-leasing restaurant properties to franchisees.

Franchise and area development fees, which are typically received prior to completion of the revenue recognition process, are recorded as deferred revenue. Initial franchise fees, which are non-refundable, are recognized as income when substantially all services to be performed by Nathan’s and conditions relating to the sale of the franchise have been performed or satisfied, which generally occurs when the franchised restaurant commences operations. The following services are typically provided by the Company prior to the opening of a franchised restaurant:

~~Approval of all site selections to be developed.~~

~~Provision of architectural plans suitable for restaurants to be developed.~~

~~Assistance in establishing building design specifications, reviewing construction compliance and equipping the restaurant.~~

~~Provision of appropriate menus to coordinate with the restaurant design and location to be developed.~~

~~Provide management training for the new franchisee and selected staff.~~

~~Assistance with initial operations and marketing of restaurants being developed.~~

Development fees are non-refundable and the related agreements require the franchisee to open a specified number of restaurants in the development area within a specified time period or the agreements may be canceled by the Company. Revenue from development agreements is deferred and recognized as restaurants in the development area commence operations on a pro rata basis to the minimum number of restaurants required to be open, or at the time the development agreement is effectively canceled.

Nathan’s recognizes franchise royalties when they are earned and deemed collectible. Franchise fees and royalties that are not deemed to be collectible are not recognized as revenue until paid by the franchisee, or until collectibility is deemed to be reasonably assured. The number of non-performing units is determined by analyzing the number of months that royalties have been paid during a period. When royalties have been paid for less than the majority of the time frame being reported, such location is deemed non-performing. Accordingly, the number of non-performing units may differ between the quarterly results and year to date results. Revenue from sub-leasing properties is recognized as income as the revenue is earned and becomes receivable and deemed collectible. Sub-lease rental income is presented net of associated lease costs in the consolidated statements of earnings.

~~Nathan’s recognizes revenue from the Branded Product Program when it is determined that the products have been delivered via third party common carrier to Nathans’ customers.~~

Nathan’s recognizes revenue from royalties on the licensing of the use of its name on certain products produced and sold by outside vendors. The use of Nathans’ name and symbols must be approved by Nathan’s prior to each specific application to ensure proper quality and project a consistent image. Revenue from license royalties is recognized when it is earned and deemed collectible.

In the normal course of business, we extend credit to trade customers of our Branded Product Program, franchisees for the payment of ongoing royalties and retail licensees. Notes and accounts receivable, net, as shown on our consolidated balance sheets are net of allowances for doubtful accounts. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements assessment of collectibility based upon historical trends and an evaluation of the impact of current and projected economic conditions. In the event that the collectibility of a receivable at the date of the transaction is not reasonably assured, the associated revenue is not recorded until the facts and circumstances change in accordance with Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.”

~~Share-based Compensation~~

~~We have various share-based compensation plans that provide stock options and restricted stock awards for certain employees and non-employee directors~~require us to purchase shares of our common stock. Prior to our adoption of SFAS No. 123R at the beginning of fiscal 2007, we accounted for share-based compensation in accordance with APBNo. 25, which utilized the intrinsic value method of accounting for share-based compensation, as compared to using the fair-value method prescribed in SFAS No. 123R. Nathan’s uses the Black-Scholes option valuation model in order to determine the fair value of options granted. The Black-Scholes option pricing model requires the input of highly subjective assumptions about the future, including the expected option life, expected option forfeitures and future stock price volatility. As such, changes in the Company’s assumptions could result in a different fair value. During the thirteen and thirty-nine weeks ended December 24, 2006, we recorded share-based compensation expense of $86,000 and $208,000, respectively in connection with the vesting of options. No share-based compensation expense attributable to stock option grants was recorded during the thirteen and thirty-nine weeks ended December 25, 2005. Nathan’s also expects to incur quarterly expenses of approximately $87,000 for the remainder of fiscal 2007, principally in connection with its June 2006 option grants.

~~-18-~~

~~Income Taxes~~

When necessary, we record a valuation allowance to reduce our net deferred tax assets to the amount that is more likely than not to be realized. In considering the need for a valuation allowance against some portion or all of our deferred tax assets, we must make ~~certain estimates and assumptions regarding future taxable income, the feasibility of tax planning strategies and other factors. Changes in facts and circumstances or in the~~ estimates and assumptions that ~~are involved~~affect the reported amounts of assets, liabilities, revenues and expenses reported in ~~establishing~~those financial statements. These judgments can be subjective and ~~maintaining a valuation allowance against deferred tax assets~~complex, and consequently, actual results could ~~result~~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. Since March 25, 2007, there have been no changes in ~~adjustments~~our critical accounting policies or significant changes to the ~~valuation allowance in future quarterly or annual periods.~~

~~As of March 26, 2006~~assumptions and ~~December 24, 2006, we maintained a valuation allowance of $346,000 for deferred tax assets~~estimates related to certain federal and certain state net operating loss carryforwards and AMT tax credit carryforwards. Even though we expect to generate taxable income, realization of the tax benefit of such deferred tax assets may remain uncertainthem, except for the ~~foreseeable future, since they are subject to various limitations and may only be used to offset income of certain entities or of a certain character.~~accounting for uncertain tax positions.

We use an estimate of our annual income tax rate to recognize a provision for income taxes in financial statements for interim periods. However, changes in facts and circumstances could result in adjustments to our effective tax rate in future quarterly or annual periods.

Adoption of Accounting Pronouncements

See Note C, on page 97 of this Form 10-Q for a complete discussion of the impact of ~~SFAS~~FIN No. ~~151~~48 on the Company’s financial position and results of operations.

~~See Note C, on page 9 of this Form 10-Q for a complete discussion of the impact of SFAS No. 154 on the Company’s financial position and results of operations.~~

~~See Note E, beginning on page 10 of this Form 10-Q for a complete discussion of the impact of SFAS No. 123R on the Company’s financial position and results of operations.~~

Recently Issued Accounting Standards Not Yet Adopted

~~The company’s significant accounting policies are set forth in~~See Note B, on page 7 of Notes to Consolidated Financial Statements in the company’s annual report to shareholders for the year ended March 26, 2006. A discussion of those policies that require management judgment and estimates and are most important in determining the company’s operating results and financial condition are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the 2006 Annual Report.

The Financial Accounting Standards Board has issued a number of financial accounting standards, staff positions and emerging issues task force consensus. See Notes C and E of Notes to Condensed Consolidated Financial Statementsthis Form 10-Q for a discussion of ~~these matters~~recently issued accounting standards not yet adopted.

-13-

Results of Operations

Thirteen weeks ended ~~December~~June 24, ~~2006~~2007 compared to thirteen weeks ended ~~December~~June 25, ~~2005~~2006

Revenues from Continuing Operations

Total sales increased by ~~$809,000~~$659,000 or ~~11.7%~~7.2% to ~~$7,695,000~~$9,821,000 for the thirteen weeks ended ~~December~~June 24, ~~2006~~2007 ("~~third quarter~~ fiscal ~~2007"~~2008 period") as compared to ~~$6,886,000~~$9,162,000 for the thirteen weeks ended ~~December~~June 25, ~~2005~~2006 ("~~third quarter~~ fiscal ~~2006"~~2007 period"). Sales from the Branded Product Program increased by ~~12.0%~~16.8% to ~~$4,783,000~~$5,925,000 for the ~~third quarter~~ fiscal ~~2007~~2008 period as compared to sales of ~~$4,269,000~~$5,073,000 in the ~~third quarter~~ fiscal ~~2006.~~ 2007 period. This increase was primarily attributable to increased sales volume of ~~approximately 15%, which was partly offset by higher rebates to various large customers in connection with the Branded Product Program.~~ 10.6%.Total Company-owned restaurant sales (representing six comparable Nathan’s restaurants) increased by ~~8.9%~~11.6% to ~~$2,228,000~~$3,633,000 as compared to ~~$2,045,000~~$3,254,000 during the ~~third quarter~~ fiscal ~~2006.~~2007 period. During the ~~third quarter~~ fiscal ~~2007, we experienced unseasonably mild weather in the northeastern United States, especially during December 2006 which we believe was a contributing factor to the~~2008 period, sales ~~increase at our Company-owned restaurants. Direct sales, predominantly~~ to our television retailer were approximately ~~$112,000 higher~~$572,000 lower than the fiscal 2007 period. During the fiscal 2008 period, the television retailer reduced its number special food airings. As a result, Nathan’s did not run a “Today’s Special Value” which ran during the ~~third~~first quarter fiscal 2007 ~~than~~and there was a change in the ~~third~~timing of the “Try Me” specials. This year, shipments from the “Try Me” specials are expected to occur in the second quarter fiscal ~~2006 primarily resulting from~~2008 as compared to the ~~introduction of new products offered and one more airing.~~first quarter fiscal 2007.

~~-19-~~

Franchise fees and royalties ~~were $1,781,000~~increased by $150,000 or 13.4% to $1,270,000 in the ~~third quarter~~fiscal 2008 period compared to $1,120,000 in the fiscal 2007 ~~compared to $1,636,000 in the third quarter fiscal 2006.~~period. Franchise royalties were ~~$1,589,000~~$1,072,000 in the ~~third quarter~~ fiscal ~~2007~~2008 period as compared to ~~$1,407,000~~$1,003,000 in the ~~third quarter~~ fiscal ~~2006. Domestic franchise~~2007 period. Franchise restaurant sales ~~were $38,718,000~~decreased by $6,000 to $23,946,000 in the ~~third quarter~~ fiscal ~~2007~~2008 period as compared to ~~$38,658,000~~$23,952,000 in the ~~third quarter~~ fiscal 2006. This increase is due to higher comparable restaurant sales which were partly offset by the net sales difference between new units that have opened and the units that have closed between the three periods.2007 period. Comparable domestic franchise sales (consisting of ~~196 restaurants) increased by $1,354,000 or 4.1% to $34,483,000 in the third quarter fiscal 2007 as compared to $33,129,000~~143 restaurants) increased by $394,000 or 2.0% to $20,499,000 in the ~~third quarter~~ fiscal ~~2006. On October 24, 2005, during~~2008 period as compared to $20,105,000 in the ~~third quarter~~ fiscal 2006, Hurricane Wilma hit southern Florida, where our franchisees operated 71 restaurants. Most of these restaurants were affected by the storm and were temporarily closed. One Miami Subs restaurant sustained significant damage and was permanently closed. We estimated that franchisee sales from the affected stores were reduced during the third quarter fiscal 2006 by approximately $885,000 due to the period that the restaurants were closed.2007 period. During the ~~third quarter~~ fiscal ~~2007,~~2008 period, we ~~realized $26,000~~received $77,000 of royalties that were previously deemed to be ~~uncollectable and recorded increased royalty income of approximately $36,000 as a result of our acquisition of the Arthur Treacher’s intellectual property.~~uncollectible. At ~~December~~June 24, ~~2006, 361~~2007, 298 domestic and international franchised or licensed units were operating as compared to ~~365~~291 domestic and international franchised or licensed units at ~~December~~June 25, ~~2005. During~~2006. After giving effect to the ~~thirteen weeks ended December 24, 2006,~~sale of Miami Subs, royalty income from 21one domestic franchised ~~locations has been~~location was deemed unrealizable during the thirteen weeks ended June 24, 2007, as compared to 25 twodomestic franchised locations during the thirteen weeks ended ~~December~~June 25, ~~2005.~~2006. Domestic franchise fee income was ~~$131,000~~$113,000 in the ~~third quarter~~ fiscal ~~2007~~2008 period as compared to ~~$149,000~~$66,000 in the ~~third quarter~~ fiscal ~~2006.~~2007 period. International franchise fee income was $~~61,000~~$85,000 in the ~~third quarter~~ fiscal ~~2007,~~2008 period, as compared to ~~$80,000~~$51,000 during the ~~third quarter~~ fiscal ~~2006.~~2007 period. During the ~~third quarter~~ fiscal ~~2007~~, ~~six~~2008 period, nine new franchised units opened, including ~~one unit~~two units in ~~Kuwait.~~Kuwait and three frank and fry units. During the ~~third quarter~~ fiscal ~~2006, ten~~2007 period, four new franchised units were opened including ~~four units~~one in ~~Kuwait.~~Japan.

License royalties ~~were $844,000~~increased by $251,000 to $1,427,000 in the ~~third quarter~~ fiscal ~~2007~~2008 period as compared to ~~$673,000~~$1,176,000 in the ~~third quarter~~ fiscal ~~2006. This increase was attributable to higher royalties for the sale~~2007 period. Royalties earned on sales of hot dogs ~~including~~from our agreements increased by $131,000 or 13.6% and we also earned $121,000 from the ~~newly introduced~~recent introduction of Nathan’s ~~Kosher Hot Dogs and new agreements to license~~pet treats sold by our ~~trademarks for use of hors d’oeuvres and other items.~~licensee.

Interest income was ~~$180,000~~$235,000 in the ~~third quarter~~fiscal 2008 period versus $130,000 in the fiscal 2007 ~~versus $131,000 in the third quarter fiscal 2006~~period due primarily ~~due~~ to higher interest earned on the increased amount of ~~cash and~~ marketable securities ~~that were invested at higher rates~~owned during the ~~third quarter~~ fiscal ~~2007~~2008 period as compared to the ~~third quarter~~ fiscal ~~2006.~~2007 period.

Other income was ~~$54,000~~$26,000 in the ~~third quarter~~fiscal 2008 period versus $10,000 in the fiscal 2007 ~~versus $153,000 in the third quarter fiscal 2006.~~period. This ~~reduction~~increase was due primarily ~~due~~ to ~~lower revenues under supplier contracts of $81,000 and lower income from subleasing activities of $19,000.~~increased amounts earned on our products sold by other restaurant companies.

Costs and Expenses from Continuing Operations

Cost of sales increased by ~~$557,000~~$809,000 to ~~$5,689,000~~$7,428,000 in the ~~third quarter~~fiscal 2008 period from $6,619,000 in the fiscal 2007 ~~from $5,132,000 in the third quarter fiscal 2006.~~period. Our gross profit (representing the difference between sales and cost of sales) was ~~$2,006,000~~$2,393,000 or ~~26.1%~~24.4% during the ~~third quarter~~ fiscal ~~2007~~2008 period as compared to ~~$1,754,000~~$2,543,000 or ~~25.5%~~27.8% during the ~~third quarter~~ fiscal ~~2006.~~2007 period. The primary reason for this ~~improved~~reduced margin has been due to the ~~impact that the lower~~higher cost of beef ~~has had on our Branded Product Program~~ during the ~~third quarter~~ fiscal ~~2007.~~2008 period. Commodity costs of our hot dogs ~~had continuously risen~~ during the ~~prior three consecutive years. Beginning in the summer of 2005,~~fiscal 2007 period had continued to decrease until January 2007, when prices began to ~~soften and that trend has~~increase. During the first quarter fiscal 2008, our costs of hot dogs continued to escalate, hitting a peak during May 2007. Since then, prices have been lower, but are still higher than the ~~past quarter.~~first quarter fiscal 2007. Our cost of hot dogs was approximately ~~6.1% lower~~12.3% higher during the ~~third quarter~~fiscal 2008 period than the fiscal 2007 ~~than~~period. We are uncertain about the ~~third quarter fiscal 2006; however, there is no assurance that the current pricing will continue. Subsequent to December 24, 2006, we have experienced higher costs for~~future cost of our ~~product.~~hot dogs. Overall, our Branded Product Program incurred higher ~~product~~ costs totaling approximately ~~$313,000.~~$1,072,000. This increase is the result of the increased cost of product and higher ~~sales~~ volume during the ~~third quarter~~fiscal 2008 period as compared to the fiscal 2007 ~~than in the third quarter fiscal 2006; however, that increasewas significantly offset by the lowercost of product during the third quarter fiscal 2007, as described above.~~period. During the ~~third quarter~~ fiscal ~~2007,~~2008 period, the cost of restaurant sales at our six comparable Company-owned units was ~~$1,476,000,~~$2,076,000 or ~~66.2%~~57.1% of restaurant sales as compared to ~~$1,317,000,~~$1,881,000 or ~~64.4%~~57.8% of restaurant sales in the ~~third quarter~~ fiscal ~~2006.~~2007 period. The ~~increase~~percentage decrease was primarily due to ~~higher~~lower labor ~~related~~ costs. During the first quarter fiscal 2008, we increased select menu prices between 5% and 10% in an attempt to offset some of the increased cost of product in our Company-owned restaurants. We have recently introduced price increases for our Branded Products, the effects of which we expect to fully realize beginning in the second quarter fiscal 2008. Cost of sales also ~~increased~~decreased by ~~$85,000~~$458,000 in the ~~third quarter~~ fiscal ~~2007~~2008 period due primarily to ~~higher~~lower sales volume to our television retailer.

-14-

Restaurant operating expenses ~~were $715,000~~decreased by $6,000 to $838,000 in the ~~third quarter~~fiscal 2008 period from $844,000 in the fiscal 2007 ~~as compared to $780,000 in the third quarter fiscal 2006. This reduction is primarily attributable to lower utility and self-insurance costs~~period. The decrease during the ~~third quarter~~ fiscal ~~2007, as~~2008 period when compared to the ~~third quarter~~ fiscal ~~2006.~~2007 period results from savings of $47,000 related to recruiting and maintenance for our Coney Island restaurant in preparation for last summer’s season which more than offset the higher cost of gas and electricity in the fiscal 2008 period. During the fiscal 2008 period our utility costs were approximately 23.1% higher than the fiscal 2007 period. Based upon uncertain market conditions for oil and natural gas, we may incur higher utility costs in the future.

Depreciation and amortization was ~~$194,000~~$182,000 in the ~~third quarter~~ fiscal ~~2007~~2008 period as compared to ~~$192,000~~$185,000 in the ~~third quarter~~ fiscal ~~2006.~~2007 period.

Amortization of intangible assets was ~~$66,000~~$8,000 in both the ~~third quarter~~fiscal 2008 and fiscal 2007 ~~and third quarter fiscal 2006.~~periods.

~~-20-~~

General and administrative expenses increased by ~~$200,000~~$107,000 to ~~$2,294,000~~$2,078,000 in the ~~third quarter~~ fiscal ~~2007~~2008 period as compared to ~~$2,094,000~~$1,971,000 in the ~~third quarter fiscal 2006. During the third quarter~~ fiscal 2007 ~~we incurred new~~period. The increase in general and administrative expenses was primarily due to higher estimates of ~~$80,000 for professional services in connection with our ongoing Sarbanes-Oxley Section 404 compliance efforts and an~~incentive compensation expense of $86,000 in connection with the adoption of SFAS No. 123R “Share Based Payment,” which now requires Nathan’s to record an expense for the fair value of options granted over the vesting period (See Note E). Additionally, we incurred$57,000, higherbusiness development ~~costs of $40,000 in connection with our Branded Product Program, higher professional fees~~expenses of $50,000 and higher ~~incentive~~stock-based compensation expense of $30,000 in connection with increased earnings by the Company, which were partly offset by lower salaries of $64,000 and lower self-insurance costs of $26,000 during the third quarter fiscal 2007, compared to the third quarter fiscal 2006.$45,000.

~~Interest expense~~Provision for Income Taxes from Continuing Operations

In the fiscal 2008 period, the income tax provision was ~~$0 during the third quarter fiscal 2007~~$821,000 or 36.6% of income from continuing operations before income taxes as compared to $749,000 or 38.0% of income from continuing operations before income taxes in the fiscal 2007 period. For the thirteen weeks, Nathan’s tax provision, excluding the effects of tax-exempt interest ~~expense of $10,000~~income, was 40.7% during the ~~third quarter~~ fiscal ~~2006. This was due to the reduction of interest expense from the early repayment of an outstanding bank loan in January 2006~~2008 period and ~~the early termination of a capital lease obligation in July 2006.~~fiscal 2007 period.

Discontinued Operations

On January 26, 2006, two of Nathan’s wholly-owned subsidiaries entered into a Lease Termination Agreement with respect to three ~~(3)~~ leased properties in Fort Lauderdale, Florida, with its landlord and CVS 3285 FL, L.L.C., (“CVS”) to sell our leasehold interests to CVS for ~~$2,000,000 before expenses. Pursuant~~$2,000,000. As the properties were subject to certain sublease and management agreements between Nathan’s and the then-current occupants, Nathan’s made payments to, or forgave indebtedness of, the then-current occupants of the properties and paid brokerage commissions of $494,000 in the aggregate. The property was made available to the Lease Termination Agreement, within 180 days following delivery of notice from CVS to Nathan’s, we are required to deliver the vacated properties to CVS. On November 30, 2006, CVS provided Nathan’s with notice that all necessary permits and approvals have been obtained and that all contingencies have either been waiver or satisfied. We expect that this transaction will close no later thanbuyer by May ~~31, 2007. During the third quarter fiscal~~29, 2007 we reclassified the results of operations based upon the November 30 notice. Total revenues from these three properties were $38,000 and $26,000 for the thirteen weeks ended December 24, 2006 and December 25, 2005, respectively. Income before taxes from these three properties were $36,000 and $24,000 for the thirteen weeks ended December 24, 2006 and December 25, 2005, respectively.

~~Provision for Income Taxes from Continuing Operations~~

In the third quarter fiscal 2007, the income tax provision was $557,000 or 34.9% of income from continuing operations before income taxes as compared to $450,000 or 37.3% of income from continuing operations before income taxes in the third quarter fiscal 2006. The lower tax provision in the third quarter fiscal 2007 is due primarily to the impact that tax-exempt interest income had on the tax provision for the third quarter fiscal 2007. For the thirty-nine weeks, Nathan’s tax provision, excluding the effects of tax-exempt interest income, was 40.9% during the fiscal period 2007 as compared to 40.5% for the fiscal 2006 period.

~~Results of Operations~~

~~Thirty-nine weeks ended December 24, 2006 compared to~~~~thirty-nine weeks ended December 25, 2005~~

~~Revenues from Continuing Operations~~

Total sales increased by $3,198,000 or 13.4% to $27,086,000 for the thirty-nine weeks ended December 24, 2006 ("fiscal 2007 period") as compared to $23,888,000 for the thirty-nine weeks ended December 25, 2005 (“fiscal 2006 period"). Sales from the Branded Product Program increased by 14.7% to $14,720,000 for the fiscal 2007 period as compared to sales of $12,832,000 in the fiscal 2006 period. This increase was primarily attributable to increased volume of approximately 16.4%, which was partly offset by higher rebates to various large customers in connection with the Branded Product Program. ~~During the fiscal 2007 period, approximately 1,800 new points of distribution were opened under our Branded Product Program, including approximately 750 units~~within K-Mart stores. Total Company-owned restaurant sales (representing six comparable Nathan’s restaurants) increased by 3.8% to $9,823,000 as compared to $9,466,000 during the fiscal 2006 period. During the third quarter fiscal 2007, we experienced unseasonably mild weather in the northeastern United States, especially during December 2006, which we believe was a contributing factor to the sales increase at our Company-owned restaurants. Direct sales, predominantly to our television retailer were approximately $953,000 higher during the fiscal 2007 period than the fiscal 2006 period resulting from the introduction of new products offered and 20 more airings.

Franchise fees and royalties were $5,200,000 in the fiscal 2007 period compared to $5,112,000 in the fiscal 2006 period. Franchise royalties were $4,764,000 in the fiscal 2007 period as compared to $4,483,000 in the fiscal 2006 period. Domestic franchise restaurant sales decreased by 1.3% to $119,933,000 in the fiscal 2007 period, as compared to $121,515,000 in the fiscal 2006 period. This decline of $1,582,000 represents the net sales difference between new units that have opened and the units that have closed between the periods, which were partly offset by higher sales from our comparable restaurants. Comparable domestic franchise sales (consisting of 196~~restaurants) increasedby $916,000 or 0.9% to $104,224,000 in the fiscal 2007 period as compared to $103,308,000~~in the fiscal 2006 period. On October 24, 2005, during fiscal 2006, Hurricane Wilma hit southern Florida, where our franchisees operated 71 restaurants. Most of these restaurants were affected by the storm and were temporarily closed. One Miami Subs restaurant sustained significant damage and was permanently closed. We estimated that franchisee sales from the affected stores were reduced during the third quarter fiscal 2006 by approximately $885,000 due to the period that the restaurants were closed. During the fiscal 2007 period, we realized $151,000 of royalties that were previously deemed to be uncollectable and recorded increasedroyalty income of approximately $94,000 as a result of our acquisition of the Arthur Treacher’s intellectual property. At December 24, 2006, 361 domestic and international franchised or licensed units were operating as compared to 365~~domestic and international franchised or licensed units at December 25, 2005. During the thirty-nine weeks ended December 24, 2006, royalty income from 19~~domestic franchised locations has been deemed unrealizable as compared to 23 domestic franchised locations during the thirty-nine weeks ended December 25, 2005. Domestic franchise fee income was $263,000 in the fiscal 2007 period as compared to $295,000 in the fiscal 2006 period. International franchise fee income was $173,000 in the fiscal 2007 period, as compared to $265,000 during the fiscal 2006 period. During the fiscal 2007 period, 13 new franchised units opened, including one unit in Japan and two units in Kuwait. During the fiscal 2006 period, 24 new franchised units were opened, including three units in Japan, five units in Kuwait, one unit in the Dominican Republic and two in the United Arab Emirates, and we ~~franchised one unit that previously operated pursuant to a management agreement. During the fiscal 2006 period, Nathan’s also recognized $69,000 in connection with three forfeited franchise fees.~~

~~-21-~~

~~License royalties were $2,927,000 in the fiscal 2007 period as compared to $2,663,000 in the fiscal 2006 period. This increase was attributable to higher royalties for~~received the sale ~~of hot dogs, including the newly introduced~~proceeds on June 5, 2007. Nathan’s ~~Kosher Hot Dogs and new agreements to license our trademarks for use with hors d’oeuvres and other items.~~

Interest income was $462,000 in the fiscal 2007 period versus $327,000 in the fiscal 2006 period, primarily due to higher interest earned on the increased amount of cash and marketable securities that were invested at higher rates during the fiscal 2007 period as compared to the fiscal 2006 period.

Other income was $187,000 in the fiscal 2007 period versus $466,000 in the fiscal 2006 period. This reduction was primarily due to lower revenues under supplier contracts of $175,000, and lower income from subleasing activities of $91,000.

~~Costs and Expenses from Continuing Operations~~

Cost of sales increased by $1,629,000 to $19,212,000 in the fiscal 2007 period from $17,583,000 in the fiscal 2006 period. Our gross profit (representing the difference between sales and cost of sales) was $7,874,000 or 29.1% during the fiscal 2007 period as compared to $6,305,000 or 26.4% during the fiscal 2006 period. The primary reason for this improved margin is the impact that the lower cost of beef has had on our Branded Product Program during the fiscal 2007 period. Commodity costs of our hot dogs had continuously risen during the prior three consecutive years. Beginning in the summer of 2005, prices began to soften and that trend has continued during the fiscal 2007 period. Our cost of hot dogs was approximately 11.3% lower during the fiscal 2007 period than the fiscal 2006 period; however, there is no assurance that the current pricing will continue. Subsequent to December 24, 2006, we have experienced higher costs for our product. Overall, our Branded Product Program incurred higher product costs totaling approximately $588,000. This increase is the result of the higher volume during the fiscal 2007 period than in the fiscal 2006 period; however, that increase was significantly reduced because of the lower cost of product during the fiscal 2007 period, as described above. During the fiscal 2007 period, the cost of restaurant sales at our six comparable Company-owned units was $5,722,000, or 58.3% of restaurant sales, as compared to $5,393,000, or 57.0% of restaurant sales in the fiscal 2006 period. The increase~~was primarily due to higher labor and related costs. Cost of sales also increased by $712,000 in the fiscal 2007 period primarily due to higher sales volume to our television retailer.~~

Restaurant operating expenses were $2,418,000 in the fiscal 2007 period as compared to $2,414,000 in the fiscal 2006 period. During the fiscal 2007 period, we incurred higher costs of $47,000 in connection with recruiting and maintenance at our Coney Island restaurant in preparation for the summer season, which were partly offset by lower utility and self-insurance costs.

~~Depreciation and amortization was $585,000 in the fiscal 2007 period as compared to $579,000 in the fiscal 2006 period.~~

~~Amortization of intangible assets was $197,000 in both the fiscal 2007 and fiscal 2006 periods.~~

~~General and administrative expenses increased by $664,000 to $6,984,000 in the fiscal 2007 period as compared to $6,320,000~~in the fiscal 2006 period. During the fiscal 2007 period we incurred a new expense of $208,000 in connection with the adoption of SFAS No. 123R “Share Based Payment,” which now requires Nathan’s to record an expense for the fair the value of options granted over the vesting period (See Note E). In June 2006, Nathan’s granted 197,500 options having a total fair value of $1,218,000. Pursuant to SFAS No. 123R, Nathan’s expects to incur quarterly expenses of approximately $87,000 for the remainder of fiscal 2007 primarily in connection with its June 2006 option grants. We also incurred a new expense of $172,000 for professional services in connection with our ongoing Sarbanes-Oxley Section 404 compliance efforts, severance costs of $73,000, higher incentive compensation of $100,000 in connection with increased earnings by the Company, higher professional fees of $81,000 and higher business development costs of $62,000 in connection with our Branded Product Program during the fiscal 2007 period than during the fiscal 2006 period.

~~-22-~~

Interest expense was $1,000 during the fiscal 2007 period as compared to interest expense of $30,000 during the fiscal 2006 period. This was due to the reduction of interest expense repayment of an outstanding bank loan in January 2006, and the early termination of a capital lease obligation in July 2006.

~~Provision for Income Taxes from Continuing Operations~~

In the fiscal 2007 period, the income tax provision was $2,448,000 or 38.1 % of income from continuing operations before income taxes as compared to $2,033,000 or 38.1% of income from continuing operations before income taxes in the fiscal 2006 period. For the thirty-nine weeks, Nathan’s tax provision, excluding the effects of tax-exempt interest income, was 40.9% during the fiscal period 2007 as compared to 40.5% for the fiscal 2006 period.

~~Discontinued Operations~~

~~On July 13, 2005, we sold a vacant piece of property in Brooklyn, New York, to a third party. During the fiscal 2006 period, we~~ recognized a gain of ~~$2,819,000, net~~$1,506,000 and recorded income taxes of ~~associated expenses in connection with~~$557,000 during the thirteen week period ended June 24, 2007. The results of operations for these properties, including the gain on disposal, have been included as discontinued operations for the thirteen week periods ended June 24, 2007 and June 25, 2006.

On June 7, 2007, Nathan’s completed the sale of ~~our vacant piece~~its wholly-owned subsidiary, Miami Subs Corporation to Miami Subs Capital Partners I, Inc. effective as of ~~property, which was partly offset by an operating loss~~May 31, 2007. Pursuant to the Stock Purchase Agreement, Nathan’s sold all of ~~$41,000~~the stock of Miami Subs in exchange for $3,250,000, consisting of $850,000 in cash and the Purchaser’s promissory note in the principal amount of $2,400,000 (the “Note”). Nathan’s has realized a gain on the sale of $983,000 net of professional fees of $37,000 and recorded income taxes of $334,000 on the gain during the fiscal 2006 period, in connection with this property. We also sold our leasehold interest in an adjacent property on January 17, 2006 to the same buyer. At March 26, 2006, the buyer owed Nathan’s $439,000 from the sale of our leasehold interest and certain reimbursable operating expenses, whose collectability was not then reasonably assured and therefore not included in income. In July 2006, we received $39,000 for the reimbursement of operating expenses from December 2005 and January 2006. In October 2006, we received $400,000 relating to the sale of our leasehold interest, which was due in July 2006. During the fiscal 2007 period, income of $39,000 and gain of $400,000 were recorded into income from discontinued operations.

On January 26, 2006, two of Nathan’s wholly-owned subsidiaries entered into a Lease Termination Agreement with respect to three (3) leased properties in Fort Lauderdale, Florida, with its landlord, and CVS 3285 FL, L.L.C., (“CVS”) to sell our leasehold interests to CVS for $2,000,000 before expenses. Pursuant to the Lease Termination Agreement, within 180 days following delivery of notice from CVS to Nathan’s, we are required to deliver the vacated properties to CVS. On November 30, 2006, CVS provided Nathan’s with notice that all necessary permits and approvals have been obtained and that all contingencies have either been waiver or satisfied. We expect that this transaction will close no later than May 31, 2007. During the third quarter fiscal 2007, we reclassified the results of operations based upon the November 30 notice. Total revenues from these three properties were $100,000 and $84,000 for the thirty-nine weeks ended December 24, 2006 and December 25, 2005, respectively. Income before taxes from these three properties were $93,000 and $78,000 for the thirty-nine weeks ended December 24, 2006 and December 25, 2005, respectively.2008 period.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, other than a guarantee of a severance agreement as discussed in Note I of the ~~loan guarantees discussed under the “Liquidity and Capital Resources” section of this Management Discussion and Analysis.~~Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

Cash and cash equivalents at ~~December~~June 24, ~~2006~~2007 aggregated ~~$5,538,000,~~$7,786,000, increasing by ~~$2,529,000~~$1,508,000 during the fiscal ~~2007~~2008 period. At ~~December 25, 2006,~~June 24, 2007, marketable securities were ~~$21,336,000~~$23,601,000 and net working capital increased to ~~$25,608,000~~$31,239,000 from ~~$19,075,000~~$27,375,000 at March ~~26, 2006.~~25, 2007.

Cash provided by operations of ~~$5,798,000~~$593,000 in the fiscal ~~2007~~2008 period is primarily attributable to net income of ~~$4,301,000,~~$3,152,000, less gains of $2,489,000 from the sale of our subsidiary, Miami Subs Corporation, and sale of our leasehold interests plus other non-cash items ~~and gains on sales~~ of ~~leasehold interest and fixed assets of $981,000.~~$375,000. Changes in Nathan’s operating assets and liabilities ~~increased~~which were not sold decreased cash by ~~$516,000~~$445,000 due principally ~~due to decreased prepaid~~from increased accounts payable and accrued expenses of $72,000 and increases in other liabilities of $781,000 which were offset by increased accounts receivable of $1,105,000, increased other assets of $116,000 and the recognition of deferred franchise fees of $62,000 from new unit openings. Accounts payable and accrued expenses and other ~~current assets of $338,000. Nathan’s reduced its current year tax installments by approximately $551,000 of prepaid~~liabilities increased due primarily to an increase in accrued income taxes ~~recorded as of March 26, 2006, which was partly offset by prepaid insurance of $240,000, reflecting~~arising from the ~~timing of our insurance renewals. Deferred franchise fees increased by $180,000 from cash received in connection with future restaurant openings. The~~gains on sale of ~~inventory on hand by our Branded Product Program~~subsidiary and ~~our television retailer generated cash of $289,000. Cash was reduced from increased~~leasehold interests. The accounts receivable ~~and notes receivable~~increase is primarily the result of ~~$763,000 primarily resulting from increased royalties from retail licensees and higher sales~~normal seasonal fluctuations of the Branded Product Program ~~which was partly offset~~along with increased royalties from higher sales by ~~the additional payables of $370,000 primarily for product purchased.~~

We used cash for investment purposes of $4,371,000 in the fiscal 2007 period, primarily to purchase “available for sale” securities of $4,467,000 and invested $363,000 in capital expenditures which were partly offset with proceeds received from the sale of leasehold interest of $400,000 and the receipt of payments of $59,000 from notes receivable.our retail licensees.

~~-23-~~-15-

~~We generated cash~~Cash was provided from ~~our financing~~investing activities of ~~$1,102,000~~$261,000 in the fiscal ~~2007 period.~~2008 period, primarily due to sales of a leasehold interest and of our subsidiary, Miami Subs Corporation. We ~~received net proceeds~~invested $1,089,000 in available-for-sale securities and incurred capital expenditures of $284,000 from the exercise of employee stock options, and expect to receive an income tax benefit from the exercise of stock options of $857,000, which were partly offset by our payments made to terminate our capitalized lease obligation of $39,000.$341,000.

~~On September 14, 2001, Nathan’s~~No cash was authorized to purchase up to one million shares of its common stock. Pursuant to its stock repurchase program, we repurchased one million shares of common stock in open market transactions and a private transaction at a total cost of $3,670,000 throughgenerated or used for financing activities during the ~~quarter~~thirteen weeks ended ~~September 29, 2002. On October 7, 2002, Nathan’s was authorized to purchase up to one million additional shares of its common stock.~~ June 24, 2007.

Through ~~December~~June 24, ~~2006, Nathan’s purchased 891,100 shares of common stock at a cost of approximately $3,488,000. To date,~~2007, Nathan’s has purchased a total of 1,891,100 shares of common stock at a cost of approximately ~~$7,158,000.~~$7,158,000 and has the ability to purchase up to 108,900 additional shares under the stock repurchase plan authorized by the Board of Directors. There were no repurchases of the Company’s common stock during the ~~thirty-nine~~thirteen weeks ended ~~December~~June 24, ~~2006.~~2007. Nathan’s ~~may~~expects to make additional purchases of stock from time to time, depending on market conditions, in open market or in privately negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the purchases. Nathan’s expects to fund ~~its~~these stock repurchases from its operating cash flow.

We expect that we will make additional investments in certain existing restaurants and support the growth of the Branded Product Program in the future 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 ~~December~~June 24, ~~2006,~~2007, after the sale of Miami Subs, there were 27three properties that we either own or lease from third parties which we lease or sublease to franchisees ~~operating managers~~ and non-franchisees. 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. ~~Additionally, we had previously guaranteed financing on behalf of certain franchisees with two third-party lenders. At December 24, 2006 our potential obligations for these loans have been eliminated.~~

The following schedules represent Nathan’s cash contractual obligations and the expiration of other contractual commitments by maturity ~~at December 24, 2006~~ (in thousands):

Payments Due by Period
Cash Contractual Obligations Total
Less than
1 Year
1 - 3 Years 4 - 5 Years After 5 Years

Employment Agreements (A) $ 4,121 $ 1,184 $ 1,137 $ 800 $ 1,000
Operating Leases 8,953 2,946 3,539 1,495 973
Gross Cash Contractual Obligations 13,074 4,130 4,676 2,295 1,973

Sublease Income 6,106 1,683 2,176 1,263 984
Net Cash Contractual Obligations $ 6,968 $ 2,447 $ 2,500 $ 1,032 $ 989

~~(A)~~

~~Includes employment agreements entered into effective January 1, 2007.~~

	Payments Due by Period
			Less than
Cash Contractual Obligations	Total		1 Year		1 - 3 Years		4-5 Years		After 5 Years

Employment Agreements	$	4,024	$	1,251	$	1,173	$	800	$	800
Operating Leases		3,082		1,234		1,621		227		-
Gross Cash Contractual Obligations		7,106		2,485		2,794		1,207		800

Sublease Income		772		253		433		86		-
Net Cash Contractual Obligations	$	6,334	$	2,232	$	2,631	$	941	$	800

Management believes that available cash, marketable securities, and cash generated from operations should provide sufficient capital to finance our operations for at least the next twelve months. We currently maintain a $7,500,000 uncommitted bank line of credit and have never borrowed any funds under this line of credit.

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 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.

~~-24-~~-16-

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Cash and cash equivalents

We have historically invested our cash and cash equivalents in short term, fixed rate, highly rated and highly liquid instruments which are reinvested when they mature throughout the year. Although our existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of ~~December~~June 24, ~~2006,~~2007, Nathans’ cash and cash equivalents aggregated ~~$5,538,000.~~$7,786,000. Earnings on these cash and cash equivalents would increase or decrease by approximately ~~$13,800~~$19,500 per annum for each 0.25% change in interest rates.

Marketable securities

We have invested our marketable securities in intermediate term, fixed rate, highly rated and highly liquid instruments. These investments are subject to fluctuations in interest rates. As of ~~December~~June 24, ~~2006,~~2007, the market value of Nathans’ marketable securities aggregated ~~$21,336,000.~~$23,601,000. Interest income on these marketable securities would increase or decrease by approximately ~~$53,300~~$59,000 per annum for each 0.25% change in interest rates. The following chart presents the hypothetical changes in the fair value of the marketable investment securities held at ~~December~~June 24, ~~2006~~2007 that are sensitive to interest rate fluctuations (in thousands):

Valuation of securities
Given an interest rate
Decrease of X Basis points

Valuation of securities
Given an interest rate
Increase of X Basis points

(150BPS) (100BPS) (50BPS)
Fair Value
+50BPS +100BPS +150BPS

Municipal notes and bonds $ 22,616 $ 22,179 $ 21,753 $ 21,336 $ 20,927 $ 20,523 $ 20,125

	Valuation of securities								Valuation of securities
	Given an interest rate								Given an interest rate
	Decrease of X Basis points						Fair		Increase of X Basis points
	(150BPS)		(100BPS)		(50BPS)		Value		+50BPS		+100BPS		+150BPS
Municipal notes and bonds	$	24,911	$	24,464	$	24,028	$	23,601	$	23,181	$	22,766	$	22,359

Borrowings

~~The~~At June 24, 2007, Nathan’s had no outstanding borrowings. In the event Nathan’s were to borrow money under its credit line, the interest rate payable on ~~our prior~~ borrowings ~~were generally determined based upon the prime rate and was~~would be subject to market fluctuation as the prime rate ~~changed, as determined within each specific agreement.~~changes. We dowould not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings. ~~At December 24, 2006, we had no outstanding indebtedness. If we were to borrow money in the future, such borrowings would be based upon the then prevailing interest rates.~~ We maintain a $7,500,000 credit line at the prime rate (8.25% as of ~~December~~June 24, ~~2006)~~2007). We have never borrowed any funds under this credit line. ~~Accordingly, we do not believe that~~Since no borrowings are outstanding presently, fluctuations in interest rates would not have a material impact on our financial results.

Commodity Costs

The cost of commodities is subject to market fluctuation. We have not attempted to hedge against fluctuations in the prices of the commodities we purchase using future, forward, option or other instruments. As a result, our future commodities purchases are subject to changes in the prices of such commodities. Generally, we attempt to pass through permanent increases in our commodity prices to our customers, thereby reducing the impact of long-term increases on our financial results. A short term increase or decrease of 10.0% in the cost of our food and paper products for the ~~thirty-nine~~thirteen weeks ended ~~December~~June 24, ~~2006~~2007 would have increased or decreased our cost of sales by approximately ~~$1,445,000.~~$584,000.

Foreign Currencies

Foreign franchisees generally conduct business with us and make payments in United States dollars, reducing the risks inherent with changes in the values of foreign currencies. As a result, we have not purchased future contracts, options or other instruments to hedge against changes in values of foreign currencies and we do not believe fluctuations in the value of foreign currencies would have a material impact on our financial results.

Item 4. Controls and Procedures

Evaluation and Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

~~-25-~~-17-

Changes in Internal Controls

There were no changes in our internal controls over financial reporting that occurred during the ~~thirteen weeks~~quarter ended ~~December~~June 24, ~~2006~~2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have concluded that such controls and procedures are effective at the reasonable assurance level.

Forward Looking Statements

Certain statements contained in this report are forward-looking statements. We generally identify forward-looking statements with the words “believe,” “intend,” “plan,” “expect,” “anticipate,” “estimate,” “will,” “should” and similar expressions. Forward-looking statements represent our current judgment regarding future events. Although we would not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of risks and uncertainties, many of which we are not aware and / or cannot control. These risks and uncertainties include, but are not limited to: the effect on sales over concerns relating to bovine spongiform ~~encephalopathy;~~encephalopathy, BSE, which was first identified in the United States on December 23, 2003; the effect on costs resulting from the availability and cost of gasoline and other petrochemicals; economic, weather, legislative and business conditions; the collectibility of receivables; the availability of suitable restaurant sites on reasonable rental terms; changes in consumer tastes; the ability to continue to attract franchisees; our ability to attract competent restaurant and managerial personnel, and the other risks described under “Risk Factors” under Item 1A of our Form 10-K and this Form 10-Q.

~~-26-~~-18-

PART II. OTHER INFORMATION

Item 1: Legal Proceedings

We and our subsidiaries are from time to time involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include money damages and, in such event, could result in a material adverse impact on our ~~financial position or~~ results of operations for the period in which the ruling occurs.

Item 1A: Risk Factors

~~Our~~In addition to the other information set forth in this report, you should carefully consider the factors described below, as well as those discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended March 25, 2007, which could materially affect our business, financial condition ~~operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth below, which could cause our actual results to vary materially from recent results~~ or ~~from our anticipated~~ future results. For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, see the discussions in “Risk Factors, “ “Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Consolidated Financial Statements”The risks described in our Annual Report on Form 10-K ~~for fiscal 2006 and in this Form 10-Q. There can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business operations or that~~are not the ~~publicly available and other information with respect to these matters is complete and correct.~~only risks facing Nathan's. Additional risks and uncertainties not ~~presently~~currently known to us or that we currently ~~believe~~deem to be immaterial also may materially adversely ~~impact the business. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on~~affect our business, financial condition and/or operating results.

Increases in the cost of food and ~~results~~paper products could harm our profitability and operating results.

The cost of ~~operations.~~the food and paper products we use depends on a variety of factors, many of which are beyond our control. We purchase large quantities of beef and our beef costs in the United States represent approximately 85% of our food costs. The market for beef is particularly volatile and is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand and other factors. For example, in the past, increased demand in beef resulted in shortages, which required us to pay significantly higher prices for the beef we purchased. We were unable to pass all of the price increases to our customers. As the price of beef or other food products that we use in our operations increase significantly, particularly in the Branded Product Program, and we choose not to pass, or cannot pass, these increases on to our customers, our operating margins would decrease. Food and paper products typically represent approximately 25% to 30% of our cost of restaurant sales.

Fluctuations in weather, supply and demand and economic conditions could adversely affect the cost, availability and quality of some of our critical products, including beef. Our inability to obtain requisite quantities of high-quality ingredients would adversely affect our ability to provide the menu items that are central to our business, and the highly competitive nature of our industry may limit our ability to pass through increased costs to our customers. Continuing increases in the cost of fuel would increase the distribution costs of our prime products thereby increasing the food and paper cost to us and to our franchisees, thus negatively affecting profitability.

~~Nathan’s earnings and business growth strategy depends in large part on the success of its franchisees and licensees, and Nathan’s~~The poor performance or ~~its brand’s reputation may be harmed by actions taken by franchises and licensees that are outside of Nathan’s control.~~

A portion of Nathan’s earnings comes from royalties and fees paid by Nathan’s franchisees and licensees. Franchisees and licensees are independent contractors, and their employees are not employees of Nathan’s. Although Nathan’s monitors many of the activities of its franchisees and licensees as they relate specifically to the manufacture, distribution, advertising and sale of products using a Nathan’s brand, there are many aspects of such franchisees and licensees’ businesses that are beyond Nathan’s control. Consequently, franchisees and licensees may not conduct their business in a manner consistent with Nathan’s high standards and requirements. Any shortcomings in the manner in which Nathan’s franchisees and licensees conduct their businesses may be attributed by consumers to an entire brand or Nathan’s system, thus damaging Nathan’s or a brand’s reputation and potentially adversely affecting Nathan’s business, results of operations and financial condition.

~~The~~ loss of aour key supplier could lead to increased costs and lower profit margins.

Beef costs represent approximately 85% of our food costs. We rely on one supplier of our hot dogs that provided us with the vast majority of hot dog supply for the ~~nine-month~~fiscal 2008 period ended ~~December~~June 24, ~~2006. To~~2007. This supplier is also our licensee for the ~~best~~sale of packaged hot dogs at supermarkets and other retail channels. On July 31, 2007, we notified this supplier/licensee that we have terminated our ~~knowledge, based on public filings made~~license agreement effective July 31, 2008 (the "Termination Date") due to the breach by ~~this supplier, it may be experiencing financial difficulties.~~the supplier/licensee of its obligation under our supply agreement to obtain our consent to a change in control. Although we expect the supplier/licensee to fulfill its obligations under the License Agreement to supply hot dogs until the Termination Date, there is no assurance the supplier/licensee will do so. The ~~loss~~failure of ~~this supplier~~the supplier/licensee to produce hot dogs for us in accordance with the license agreement, would force us to purchase hot dogs in the open market, which may be at higher prices, until we could secure another source of supply and such higher prices may not allow us to remain competitive. It may also disrupt the business of selling our packaged hot dogs at retail. If we are unable to obtain hot dogs that comply with our specifications in sufficient quantities and/or our packaged hot dog retail licensing business is disrupted, it will have an adverse effect on our results of operations. ~~Even if we were able~~We are seeking one or more alternative sources of supply to ~~replace our hot dog supplier through another supply arrangement,~~commence immediately following the Termination Date; however, there can be no assurance that the terms that we enter into with such alternate ~~supplier~~suppliers(s) will be as favorable as the supply ~~arrangements that we currently have.~~arrangement under the current license agreement.

~~Because the primary supplier of our hot dogs currently has only one manufacturing facility, a significant interruption in the operation of this facility could potentially disrupt our operations.~~

-19-

Our primary hot dog supplier currently has only one manufacturing facility, having closed their second facility in December 2006. A significant interruption in the operation of this facility, whether as a result of a natural disaster or other causes, could significantly impair our ability to operate our business on a day-to-day basis.

Item 2: Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds:

(c) We have not repurchased any equity securities during the quarter ended ~~December~~June 24, ~~2006~~2007

~~-27-~~

~~Item 5: Other Information.~~

On January 31, 2007, we entered into an amendment to Employment Agreement dated December 15, 2006 between Nathan’s and Howard M. Lorber (the “Employment Agreement”) to correct a scrivner’s error contained in the Employment Agreement with respect to the consulting period following the employment term. Pursuant to the amendment, Mr. Lorber agrees to make himself available to provide consulting services on no less than 15 days in any calendar year, provided, that performance of such consulting services shall not require more than 50 days in any calendar year.

Item 6: Exhibits

(a) Exhibits

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		~~Certification of the Chief Operating Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.3~~		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification by Eric Gatoff, CEO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by Ronald G. DeVos, CFO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~-28-~~-20-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NATHAN'S FAMOUS, INC.

Date: ~~February 5,~~August 8, 2007	By:	/s/ Eric Gatoff
		Eric Gatoff Chief Executive Officer (Principal Executive Officer)


Date: ~~February 5,~~August 8, 2007	By:	/s/ Ronald G. DeVos
		Ronald G. DeVos Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer)

~~-29-~~-21-

	Common Stock				Additional Paid-in		Deferred			Accumulated			Accumulated Other Comprehensive			Treasury Stock, at Cost					Total Stockholders’
	Shares		Amount		Capital		Compensation			Deficit			Loss			Shares		Amount			Equity
Balance, March 26, 2006		7,600,399	$	76	$	43,699	$	(208	)	$	(8,197	)	$	(164	)		1,891,100	$	(7,158	)	$	28,048

Shares issued in connection with exercise of employee stock options		194,484		2		282		-			-			-			-		-			284
Income tax benefit on stock option exercises		-		-		857		-			-			-			-		-			857
Share-based compensation		-		-		208		-			-			-			-		-			208
Amortization of deferred compensation relating to restricted stock		-		-		-		54			-			-			-		-			54
Unrealized gains on marketable securities, net of deferred income tax provision of $74		-		-		-		-			-			111			-		-			111
Net income		-		-		-		-			4,301			-			-		-			4,301
Balance, December 24, 2006		7,794,883	$	78	$	45,046	$	(154	)	$	(3,896	)	$	(53	)		1,891,100	$	(7,158	)	$	33,863

	Thirteen Weeks ended December 25, 2005			Thirty-nine Weeks ended December 25, 2005
	(in thousands except per share amounts)
Net income, as reported	$	770		$	5,047
Add: Stock-based compensation included in net income		11			33

Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards		(33	)		(100	)

Pro forma net income	$	748		$	4,980

Earnings per Share
Basic - as reported	$	0.14		$	0.91
Diluted - as reported	$	0.12		$	0.77
Basic - pro forma	$	0.13		$	0.89
Diluted - pro forma	$	0.11		$	0.76

	Thirteen Weeks (in thousands)		Thirty-nine Weeks (in thousands)
Total revenue	$	11	$	72
Income from continuing operations before income taxes	$	11	$	70