The following table illustrates the effect on net income (loss) and net income (loss) per share had the Company applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation. Pro forma compensation expense may not be indicative of pro forma expense in future years. For purposes of estimating the fair value of each option on the date of grant, the Company utilized the Black-Scholes option-pricing model.  The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vest- ing restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assump- tions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable  single measure of the fair value of its employee stock options. The weighted-average option fair values and the assumptions used to estimate these values are as follows: Development fees are nonrefundable 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 agree- ments may be canceled by the Company. Revenue from develop- ment 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. At March 28, 2004 and March 30, 2003, $173 and $127, respectively, of deferred franchise fees are included in the accompanying consolidated balance sheets. For the fiscal years ended March 28, 2004, March 30, 2003 and March 31, 2002, the Company earned franchise fees from new unit openings, transfers and co-branding of $428, $418 and $693, respectively. During the fiscal year ended March 30, 2003, the Company recognized $207 in connection with the forfeiture of two Master Development Agreements.  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 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 per- formed or satisfied, which generally occurs when the franchised restaurant commences operations. The following services are typi- cally provided by the Company prior to the opening of a franchised restaurant: In connection with its franchising operations, the Company receives initial franchise fees, development fees, royalties, contributions to marketing funds, and in certain cases, revenue from sub-leasing restaurant properties to franchisees.  Sales by Company-owned restaurants, which are typically paid in cash by the customer, are recognized upon the performance of services. Preopening and similar costs are expensed as incurred.  15. Start-up Costs 16. Revenue Recognition—Company-owned Restaurants 17. Revenue Recognition—Franchising Operations • Approval of all site selections to be developed. • Provision of architectural plans suitable for restaurants to be developed. • Assistance in establishing building design specifications, review- ing construction compliance and equipping the restaurant. • Provision of appropriate menus to coordinate with the restau- rant design and location to be developed. • Provide management training for the new franchisee and selected staff. • Assistance with the initial operations of restaurants being developed. Fiscal Year Ended March 28, March 30, March 31, 2004 2003 2002 Net income (loss), as reported $ 1,894 $(13,968) $1,249 Deduct: Total stock-based  employee compensation  expense determined under  fair value-based method  for all awards (170) (165) (410) Pro forma net income (loss) $ 1,724 $(14,133) $ 839 Net income (loss) per share Basic—as reported $ .36 $ (2.34) $ .18 Diluted—as reported $ .33 $ (2.34) $ .18 Basic—pro forma $ .32 $ (2.36) $ .12 Diluted—pro forma $ .30 $ (2.36) $ .12 2004 2003 2002 Weighted-average option fair values $1.60 $2.19 $1.30 Expected life (years) 7.0 10.0 6.6 Interest rate 3.85% 5.30% 4.06% Volatility 30.6% 32.8% 32.3% Dividend yield 0% 0% 0% 2004 Annual Report  Nathan’s Famous, Inc. & Subsidiaries page twenty-one