Forward-Looking Statements

Statements in this Form 10-Q quarterly report may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties, many of which are not within our control, include but are not limited to: the adverse effect that increasing commodity costs has on our profitability and operating results; the pending litigation with the primary supplier of hot dogs to our branded product program may result in a disruption in that supply or increased costs, which would adversely effect our operating results; current economic conditions could result in decreased consumer spending on discretionary products, such as fast food; as well as those risks discussed from time to time in the Company's Form 10-K annual report for the year ended March 30, 2008, and in other documents which we file with the Securities and Exchange Commission. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements. We generally identify forward-looking statements with the words "believe," "intend," "plan," "expect," "anticipate," "estimate," "will," "should" and similar expressions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q.

Introduction

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

Our revenues are generated primarily from selling products under Nathan's Branded Product Program, operating Company-owned restaurants, franchising the Nathan's restaurant concept, including the Arthur Treacher's brand, and 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.

During the fiscal year ended March 25, 2007, we established a new program of licensing limited menu "Nathan's Famous" ("Limited Menu Frank and Fry Franchise Operations") to be included into new or existing food service establishments. We began to market Limited Menu Frank and Fry Franchise Operations during the fiscal year ended March 30, 2008. Pursuant to this program, operators will be permitted to make limited use of the "Nathan's Famous" trade dress, trademarks and design for the purpose of adding "Nathan's Famous" hot dogs, crinkle-cut French fries and a limited number of other approved "Nathan's Famous" menu items to the menu of a new or existing food service establishment. The location of the new or existing food service establishment, the specific manner in which the Limited Menu Frank and Fry Franchise Operation is incorporated into the operation of the food service establishment and the specific use of our trade dress, trademarks and design will all be subject to our prior written approval and must meet our specifications. The initial license fee under a Limited Menu Frank and Fry Franchise Operation is $7,500. Additionally, operators participating in this program will not be required to pay any royalties on the sale of "Nathan's Famous" products, or make any contributions to the "Nathan's Famous" advertising fund; however, all products offered through the Limited Menu Frank and Fry Franchise Operation must be purchased from us or a distributor approved by us, and we will make a profit on all such sales. In certain instances, Nathan's may pay a fee to the sponsoring organization in exchange for their operational assistance and ongoing support of their restaurant system.

On April 23, 2008, Nathan's completed the sale of its subsidiary, NF Roasters Corp. ("Roasters"). Nathan's previously concluded the sale of its subsidiary, Miami Subs Corporation ("Miami Subs") on June 7, 2007. The following discussion of continuing operations excludes all of the Miami Subs and Roasters operations not retained by Nathan's. See Note D to the Consolidated Financial Statements contained in Item 1 for a description of the terms of such sales.

In order to help the reader better understand Nathan's continuing operations, certain non-financial information, which was previously reported on a combined basis has also been included in this Management Discussion and Analysis. At June 29, 2008, our restaurant system consisted of 230 Nathan's franchised or licensed units, including 40 limited-menu licensed units described above, and six Company-owned units (including one seasonal unit), located in 25 states and five foreign countries. At June 24, 2007, our restaurant system consisted of 200 Nathan's franchised or licensed units, six Company-owned units (including one seasonal unit), located in 20 states and four foreign countries, and the Roasters restaurant system which included approximately 97 units operating in eight foreign countries and one unit operating in the United States.

The following summary reflects the franchise openings and closings, excluding the Roasters franchise system which was sold on April 23, 2008, for the fiscal years ended March 30, 2008, March 25, 2007, March 26, 2006, March 27, 2005 and March 28, 2004.

                                      March 30,     March 25,       March 26,     March 27,     March 28,
                                        2008          2007            2006          2005          2004
Franchised restaurants operating
at the beginning of the period               196           192             174           147           140
New franchised restaurants opened
during the period                             46            21 (A)          27            36            21
Franchised restaurants closed
during the period                            (18 )         (17 )           ( 9 )         ( 9 )         (14 )
Franchised restaurants operating
at the end of the period                     224           196             192           174           147

(A) Reflects opening of two test Limited Menu Frank and Fry Operations.

Critical Accounting Policies and Estimates

As discussed in our Form 10-K for the fiscal year ended March 30, 2008, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; impairment of goodwill and other intangible assets; impairment of long-lived assets; impairment of notes receivable; share-based compensation and income taxes (including uncertain tax positions). Since March 30, 2008, there have been no changes in our critical accounting policies or significant changes to the assumptions and estimates related to them, except for the accounting for fair value measurements of financial assets and liabilities and related disclosures, which is discussed in Note C to our Consolidated Financial Statements.

Adoption of Accounting Pronouncements

See Note C to the Consolidated Financial Statements contained in Item I, for a complete discussion of the impact of SFAS No. 157, "Fair Value Measurements" (SFAS No. 157") and SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115", (SFAS No. 159") on the Company's financial position and results of operations.

Recently Issued Accounting Standards Not Yet Adopted

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

Results of Operations

Revenues from Continuing Operations

Total sales increased by $1,195,000 or 12.2% to $11,016,000 for the thirteen weeks ended June 29, 2008 ("fiscal 2009 period") as compared to $9,821,000 for the thirteen weeks ended June 24, 2007 ("fiscal 2008 period"). Sales from the Branded Product Program increased by 11.7% to $6,618,000 for the fiscal 2009 period as compared to sales of $5,925,000 in the fiscal 2008 period. This increase was primarily attributable to increased sales volume of 11.0%. Total Company-owned restaurant sales (representing five comparable Nathan's restaurants and one seasonal restaurant) increased by 6.2% to $3,859,000 as compared to $3,633,000 during the fiscal 2008 period. During the fiscal 2009 period, sales to our television retailer were approximately $276,000 higher than the fiscal 2008 period. Nathan's products were on air 18 times during the fiscal 2009 period as compared to 23 times during the fiscal 2008 period. Most of the airings in the fiscal 2008 period were "Try Me" specials. Under this format, most of the sales from these airings were shipped in our second quarter fiscal 2008.

Franchise fees and royalties decreased by $70,000 or 5.7% to $1,152,000 in the fiscal 2009 period compared to $1,222,000 in the fiscal 2008 period. Total royalties were $1,035,000 in the fiscal 2009 period as compared to $1,058,000 in the fiscal 2008 period. During the fiscal 2009 period, we did not recognize revenue of $27,000 for royalties deemed to be uncollectible as compared to the fiscal 2008 period, when we recognized $77,000 of royalty income that was previously deemed to be uncollectible. Total royalties, excluding the adjustments for royalties deemed uncollectible as described above, were $1,062,000 in the fiscal 2009 period as compared to $981,000 in the fiscal 2008 period. During the fiscal 2009 period, Nathan's earned $64,000 of higher royalties from our manufacturers and primary distributor on sales to our Limited Menu Frank and Fry franchisees. Franchise restaurant sales were $23,756,000 in the fiscal 2009 period as compared to $23,764,000 in the fiscal 2008 period. Comparable domestic franchise sales (consisting of 143 Nathan's restaurants) were $19,551,000 in the fiscal 2009 period as compared to $19,556,000 in the fiscal 2008 period. At June 29, 2008, 230 domestic and international franchised or limited-menu licensed units were operating as compared to 200 domestic and international franchised or licensed units at June 24, 2007. Royalty income from 10 domestic franchised locations was deemed unrealizable during the thirteen weeks ended June 29, 2008, as compared to three domestic franchised locations during the thirteen weeks ended June 24, 2007. Domestic franchise fee income was $47,000 in the fiscal 2009 period as compared to $113,000 in the fiscal 2008 period. International franchise fee income was $70,000 in the fiscal 2009 period, as compared to $51,000 during the fiscal 2008 period. During the fiscal 2009 period, 14 new franchised units opened, including nine limited-menu licensed units, two units in Kuwait and one unit in Dubai. During the fiscal 2008 period, nine new franchised units were opened including three test Limited Menu Frank and Fry units and two units in Kuwait.

License royalties increased by $167,000 or 11.5% to $1,615,000 in the fiscal 2009 period as compared to $1,448,000 in the fiscal 2008 period. Total royalties earned on sales of hot dogs from our retail and foodservice license agreements of $1,358,000 increased by $261,000 or 23.8% as a result of higher licensee sales during the fiscal 2009 period. Royalties earned from SFG, primarily from the retail sale of hot dogs, were $1,052,000 during the fiscal 2009 period as compared to $975,000 during the fiscal 2008 period. Royalties earned from John Morrell, primarily from sales to Sam's Club, were $306,000 during the fiscal 2009 period as compared to $122,000 during the fiscal 2008 period. Beginning March 2008, Nathan's hot dogs were introduced into all of the foodservice cafes operating in Sam's Clubs throughout the United States. We earned lower royalties of $101,000 from our agreement for the sale of Nathan's pet treats. Last year, there was a sales promotion supporting the introduction of our pet treats into Wal-Mart. Net royalties from all other license agreements in the fiscal 2009 period were $5,000 more than the fiscal 2008 period.

Interest income was $247,000 in the fiscal 2009 period versus $235,000 in the fiscal 2008 period primarily due to higher interest earned on our MSC Note (as defined) receivable received in connection with the sale of Miami Subs on June 7, 2007. Interest income on the MSC Note was $43,000 as compared to $12,000 during the fiscal 2008 period. Interest income on our invested cash and marketable securities was approximately $20,000 less than the fiscal 2008 period due primarily to the reduced interest rate environment and the liquidity crisis which caused Nathan's to shift its short term investments into secure, but low yielding, Treasury Bills.

Other income was $12,000 in the fiscal 2009 period versus $13,000 in the fiscal 2008 period.

Costs and Expenses from Continuing Operations

Overall, our cost of sales increased by $904,000 to $8,332,000 in the fiscal 2009 period from $7,428,000 in the fiscal 2008 period. Our gross profit (representing the difference between sales and cost of sales) was $2,684,000 or 24.4% of sales during the fiscal 2009 period as compared to $2,393,000 or 24.4% of sales during the fiscal 2008 period. In the Branded Products Program, our costs of sales increased by approximately $511,000 during the fiscal 2009 period when compared to the fiscal 2008 period, primarily as a result of increased sales volume. However, that increase in costs would have been significantly larger but for the purchase commitment we entered into in January, which locked in a fixed cost on approximately 1.8 million pounds of hot dogs and resulted in a savings of approximately $304,000 during the quarter. This savings more than counteracted the effects of substantially higher commodity costs for beef and beef trimmings such that our average cost (and average margin) per pound in the Branded Products Program was slightly improved during the fiscal 2009 period as compared to the fiscal 2008 period. While some inventory remained available under the purchase commitment at the commencement of the second quarter of fiscal 2009, we expect to deplete it during July and August. Accordingly, although we expect the purchase commitment to continue to provide some benefit to the Branded Products Program during the second quarter, we do not believe that the benefit will be as extensive as the benefit achieved during the first quarter. Furthermore, the underlying beef and beef trimmings markets have continued to advance and now are at all time highs. In response, we have initiated price increases in our Branded Product Program during the second quarter. However, if the beef and beef trimmings markets do not recede and we are unable to pass on these higher costs through price increases, our margins may be significantly impaired. With respect to our six Company-owned restaurant units, our cost of sales during the fiscal 2009 period was $2,237,000 or 58.0% of restaurant sales, as compared to $2,076,000 or 57.1% of restaurant sales in the fiscal 2008 period. During the fiscal 2009 period, we experienced higher labor costs, which were partly offset by slightly lower food costs as a percentage of sales. The slightly lower food cost as a percentage of sales was achieved partly as a result of price increases for select menu items of between 3.0% and 7.3%. Cost of sales also increased by $232,000 in the fiscal 2009 period primarily due to higher sales volume to our television retailer.

Restaurant operating expenses increased by $74,000, to $912,000 in the fiscal 2009 period from $838,000 in the fiscal 2008 period. The increase during the fiscal 2009 period when compared to the fiscal 2008 period resulted primarily from higher utility costs of $18,000, occupancy costs of $17,000, marketing costs of $8,000, and various other costs of $38,000, which were partly offset by lower insurance costs of $8,000. During the fiscal 2009 period our utility costs were approximately 5.2% higher than the fiscal 2008 period. Based upon uncertain market conditions for oil and natural gas, we may continue to incur higher utility costs in the future.

Depreciation and amortization was $198,000 in the fiscal 2009 period as compared to $182,000 in the fiscal 2008 period.

General and administrative expenses increased by $373,000 to $2,445,000 in the fiscal 2009 period as compared to $2,072,000 in the fiscal 2008 period. The difference in general and administrative expenses was due to higher legal fees of $147,000 during the fiscal 2009 period primarily associated with Nathan's litigation against SFG (see Part II, Item 1), higher audit fees of $95,000 in the fiscal 2009 period related to Nathan's first audit under Section 404 of the Sarbanes-Oxley Act of 2002, requiring Nathan's auditor to audit Nathan's internal controls over financial reporting, a $27,000 increase in Nathan's stock-based compensation expense, higher compensation costs of $23,000, higher business development costs of $19,000 in connection with Franchising and the Branded Product Program and higher occupancy costs of $15,000. The actual amount of future SFG litigation costs is not presently determinable.

Provision for Income Taxes from Continuing Operations

In the fiscal 2009 period, the income tax provision was $800,000 or 37.1% of income from continuing operations before income taxes as compared to $811,000 or 36.5% of income from continuing operations before income taxes in the fiscal 2008 period. For each of the thirteen-week periods ended June 29, 2008 and June 24, 2007, Nathan's tax provision, excluding the effects of tax-exempt interest income, was 40.6%.

Discontinued Operations

On April 23, 2008, Nathan's completed the sale of Roasters to Roasters Asia Pacific (Cayman) Limited. Pursuant to the Stock Purchase Agreement ("NFR Agreement"), Nathan's sold all of the stock of Roasters for $4,000,000 in cash. In connection with the NFR Agreement, Nathan's and Miami Subs may continue to sell Kenny Rogers products within the existing restaurant systems without payment of royalties.

Nathan's has realized a gain on the sale of Roasters of $3,656,000 net of professional fees of $39,000 and recorded income taxes of $1,352,000 on the gain during the thirteen weeks ended June 29, 2008. Nathan's has determined that it will not have any significant cash flows or continuing involvement in the ongoing operations of Roasters. Therefore, the results of operations for Roasters, including the gain on disposal, have been presented as discontinued operations for all periods presented. The accompanying balance sheet for the fiscal year ended March 30, 2008, has been revised to reflect the assets and liabilities of Roasters that were subsequently sold, as held for sale as of that date.

On June 7, 2007, Nathan's completed the sale of Miami Subs to Miami Subs Capital Partners I, Inc. ("Purchaser"). Pursuant to the Stock Purchase Agreement ("MSC Agreement"), Nathan's sold all of the stock of Miami Subs in exchange for $3,250,000, consisting of $850,000 in cash and the Purchaser's promissory note in the principal amount of $2,400,000 (the "MSC Note"). The MSC Note bears 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 MSC Note at any time. In the event the MSC Note was fully repaid within one year, Nathan's had agreed to reduce the amount due by $250,000. Due to the ability to prepay the loan and reduce the amount due, the recognition of the additional $250,000 was initially deferred. The MSC Note was not prepaid within the requisite timeframe and Nathan's recognized the deferred revenue of $250,000 as additional gain and recorded income taxes of $92,000 during the first quarter ended June 29, 2008. In accordance with the MSC Agreement, Nathan's retained ownership of Miami Subs' then corporate office in Fort Lauderdale, Florida (the "Corporate Office").

Nathan's initially realized a gain on the sale of Miami Subs of $983,000, net of professional fees of $37,000 and recorded income taxes of $334,000 on the gain during the thirteen weeks ended June 24, 2007. Nathan's also recognized an additional gain of $250,000 or $158,000, net of tax during the thirteen weeks ended June 29, 2008, resulting from the contingent consideration which was deferred at the time of sale. 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 gains on disposal, have been presented as discontinued operations for all periods presented.

During the thirteen weeks ended June 24, 2007, Nathan's completed 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 all periods presented.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, other than a guarantee of a severance agreement and the remaining purchase commitment to acquire approximately 385,000 lbs. of hot dogs during July and August 2008. Refer to Note J to the Consolidated Financial Statements for further information on these transactions.

Liquidity and Capital Resources

Cash and cash equivalents at June 29, 2008 aggregated $17,369,000, increasing by $2,988,000 during the fiscal 2009 period. At June 29, 2008, marketable securities were $20,150,000 and net working capital increased to $38,172,000 from $35,650,000 at March 30, 2008.

Cash used in operations of $1,000 in the fiscal 2009 period is primarily attributable to net income of $3,822,000 less gains of $3,906,000 from the sales of Roasters and Miami Subs, plus other non-cash items of $340,000. Changes in Nathan's operating assets and liabilities decreased cash by $257,000, resulting principally from increased accounts receivable of $1,698,000, and increased inventories of $168,000, which were partly offset by an increase in accounts payable of $880,000 and decreased prepaid expenses of $624,000. The net increase in accounts receivable is due primarily from sales from the Branded Product Program of approximately $800,000, higher royalties from Nathan's licensees from the growth of their business of approximately $721,000 and higher sales to our television retailer of approximately $67,000. The net increase in accounts payable, other current liabilities and other long term liabilities is primarily due to the increase in accrued income taxes payable resulting primarily from the gain on the sale of NF Roasters Corp.

Cash was provided from investing activities of $4,439,000 in the fiscal 2009 period, primarily from cash proceeds from the sale of Roasters in the amount of $3,961,000 and the redemption of $500,000 of maturing available-for-sale securities. We incurred capital expenditures of $169,000 and received all scheduled payments of $147,000 on the MSC Note receivable.

Cash was used in financing activities of $1,450,000 in the fiscal 2009 period, primarily for the purchase of 103,858 treasury shares at a cost of $1,460,000 pursuant to the stock repurchase plan as authorized by the Board of Directors on November 5, 2007. Cash was received from the proceeds of employee stock option exercises of $10,000.

From the commencement of its stock repurchase program in September 2001 through March 30, 2008, Nathan's purchased a total of 2,000,000 shares of common stock at a cost of approximately $9,086,000, concluding the second stock repurchase plan previously authorized by the Board of Directors.

On November 5, 2007, Nathan's Board of Directors authorized the purchase of up to an additional 500,000 shares of its common stock on behalf of the Company. On June 11, 2008, Nathan's and Mutual Securities, Inc. ("MSI") entered into an agreement (the "10b5-1 Agreement") pursuant to which MSI has been authorized to purchase shares of the Company's common stock, par value $.01 per share ("Common Stock") having a value of up to an aggregate $6 million. The 10b5-1 Agreement was adopted under the safe harbor provided by Rule 10b5-1 of the Securities Exchange Act of 1934 in order to assist the Company in implementing its previously announced stock purchase plan for the purchase of up to 500,000 shares. There is no set time limit on the repurchases. Future purchases may be made from time to time, depending on market conditions, in open market or privately negotiated transactions, at prices deemed appropriate by management. Through June 29, 2008, the Company had repurchased an additional 103,858 shares of its common stock at a total cost of $1,460,000 pursuant to the 10b5-1 Agreement. Subsequent to June 29, 2008, Nathan's has continued to repurchase its common stock in the open market pursuant to the 10b5-1 Agreement, repurchasing an additional 85,830 shares at a total cost of approximately $1,261,000 through July 31, 2008. For the period commencing March 31, 2008 and ending July 31, 2008, Nathan's repurchased 79,255 shares at a cost of approximately $1,102,000 before the adoption of the 10b5-1 Agreement and purchased 110,433 shares at a cost of approximately $1,619,000 pursuant to the 10b5-1 Agreement.

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