amount of unrealizable royalties which were not previously recog- nized as revenues, primarily in the South Florida marketplace for the Miami Subs brand, as compared to fiscal 2003. Domestic franchise restaurant sales were virtually unchanged, decreasing by 0.3% to $161,332,000 in fiscal 2004 as compared to $161,740,000 in fiscal 2003. At March 28, 2004, 338 franchised or licensed restaurants were operating as compared to 343 franchised or licensed restaurants at March 30, 2003. At March 28, 2004, royalties from 35 domestic franchised locations have been deemed unrealizable as compared to 59 domestic franchised locations at March 30, 2003. The majority of this decline is attributable to the number of unsuccessful units that have closed. Franchise fee income derived from new openings and our co-branding activities was $428,000 in fiscal 2004 as compared to $418,000 in fiscal 2003. During fiscal 2004, 40 franchised units including the franchising of three Company-owned restaurants and the conversion of three Company-owned restaurants into manage- ment agreements were opened as compared to 24 franchise openings during fiscal 2003. During fiscal 2003, Nathan’s also earned $207,000 in connection with the termination of two Master Development Agreements due to breaches by the franchisees.  License royalties were $2,970,000 in fiscal 2004 as compared to $2,585,000 in fiscal 2003. The majority of this increase is attributable to revenues from new license agreements for the sale of Nathan’s products, primarily the Nathan’s “Griddle” which was marketed via “infomercial” throughout the year and by retailers during the Christmas 2003 season. Interest income was $199,000 in fiscal 2004 versus $292,000 in fiscal 2003 due primarily to lower interest income earned on notes receivable which have been impaired during the fiscal years ended March 28, 2004 and March 30, 2003.  Investment and other income increased by $303,000 to $459,000 in fiscal 2004 versus $156,000 in fiscal 2003. During fiscal 2004, Nathan’s recognized net gains of $206,000 primarily in connection with the sale of two Company-owned restaurants to franchisees and additional miscellaneous revenue of $31,000 which was partially off- set by an increased subleasing loss of $69,000. In fiscal 2003, Nathan’s realized a gain of $135,000 in connection with the early termination of a Branded Product Program sales agreement. During fiscal 2003, Nathan’s investment loss of approximately $244,000 was primarily attributable to our investment in limited partnership, which was  liquidated during fiscal 2003.  Cost of sales from continuing operations decreased by $1,817,000 to $14,775,000 in fiscal 2004 from $16,592,000 in fiscal 2003. During fiscal 2004, restaurant cost of sales were lower than fis- cal 2003 by approximately $3,605,000. Cost of sales were lower by approximately $3,520,000 as a result of operating fewer Company- owned restaurants during fiscal 2004. The cost of restaurant sales at our comparable units as a percentage of restaurant sales was 61.2%  in fiscal 2004 as compared to 60.2% in fiscal 2003 due primarily  to higher labor and related costs. Higher costs of approximately $1,480,000 were incurred primarily in connection with the growth Costs and Expenses from Continuing Operations Impairment charge on long-lived assets of $25,000 during fiscal 2004 represents the write-down of one restaurant scheduled to close in September 2004 due to its lease expiration and $1,367,000 during  Impairment charge on notes receivable of $208,000 during fiscal 2004 represents the write-down of two non-performing notes receiv- able and $1,425,000 during fiscal 2003 represents the write-down relating to nine notes receivable. Interest expense was $75,000 during fiscal 2004 as compared to $132,000 during fiscal 2003. The reduction in interest expense relates primarily to the repayment of outstanding loans between the two periods. General and administrative expenses decreased by $1,081,000 to $7,519,000 in fiscal 2004 as compared to $8,600,000 in fiscal 2003. The decrease in general and administrative expenses was due primarily to lower personnel and incentive compensation expense of approxi- mately $411,000 resulting from the implementation of an expense reduction plan (primarily in connection with the reduction in the number of Company-operated restaurants), lower professional fees of $247,000, lower bad debts expense of approximately $99,000, lower un-leased property expense of approximately $86,000 and the expense reversal from the settlement of a disputed claim of approxi- mately $50,000. Amortization of intangibles was $261,000 in fiscal 2004 as com- pared to $278,000 in fiscal 2003. Depreciation and amortization decreased by $343,000 to $971,000 in fiscal 2004 from $1,314,000 in fiscal 2003. Depreciation expense was lower by approximately $255,000 as a result of operating fewer Company-owned restaurants and the effect of the impairment charges on long-lived assets recorded during fiscal 2003.  Restaurant operating expenses decreased by $1,815,000 to $3,806,000 in fiscal 2004 from $5,621,000 in fiscal 2003. Restaurant operating costs were lower in fiscal 2004 by approximately $1,847,000, as compared to fiscal 2003 as a result of operating seven fewer restaurants. of our Branded Product Program and higher commodity costs dur- ing fiscal 2004. Commodity costs of our beef products were higher during fiscal 2004 than fiscal 2003. This increase has been caused by reductions in the supply of beef primarily due to: 1) the prohibition since May 2003 on importing of Canadian beef livestock into the U.S., 2) the decrease in imports of Australian beef due to local drought conditions and 3) the export of U.S. beef had increased through December 23, 2003 when the first case of bovine spongi- form encephalopathy, otherwise known as BSE in the United States was reported. Although the export of beef by the United States was significantly reduced as a result of this finding, Nathan’s had not real- ized a reduction in the cost of beef during the fourth quarter of fiscal 2004. In response to these higher costs, Nathan’s had increased menu prices in its Company-operated restaurants by approximately 2.0% and increased prices within its Branded Product Program to offset some of the margin pressure. Additionally, Nathan’s also incurred cost of sales of $327,000 in fiscal 2004 in connection with the QVC test marketing program. 2004 Annual Report  Nathan’s Famous, Inc. & Subsidiaries page seven