Management’s Discussion and Analysis of Financial Condition and Results of Operations Introduction Impairment of Goodwill and Other Intangible Assets Impairment of Long-Lived Assets Impairment of Notes Receivable Critical Accounting Policies and Estimates 2004 Annual Report  Nathan’s Famous, Inc. & Subsidiaries page five statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabili- ties and disclosures of contingent assets and liabilities. We believe the following critical accounting policies involve additional management judgement due to the sensitivity of the methods, assumptions and esti- mates necessary in determining the related asset and liability amounts. As used in this Report, the terms “we,” “us,” “our” and “Nathan’s” mean Nathan’s Famous, Inc. and its subsidiaries (unless the context indicates a different meaning). During the fiscal year ended March 26, 2000, we completed two acquisitions that provided us with two highly recognized brands. On April 1, 1999, we became the franchisor of the Kenny Rogers Roasters restaurant system by acquiring the intellectual property rights, including trademarks, recipes and franchise agreements of Roasters Corp. and Roasters Franchise Corp. On September 30, 1999, we acquired the remaining 70% of the outstanding common stock of Miami Subs Corporation we did not already own. Our rev- enues are generated primarily from operating Company-owned restaurants and franchising the Nathan’s, Miami Subs and Kenny Rogers restaurant concepts, selling products under Nathan’s Branded Product Program and licensing agreements for the sale of Nathan’s products within supermarkets. The Branded Product Program enables foodservice operators to offer Nathan’s 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 Nathan’s trademark with respect to the sale of hot dogs and certain other proprietary food items and paper goods.  Statement of Financial Accounting Standards No. 142, “Good- will and Other Intangible Assets,” (“SFAS No. 142”) requires that goodwill and intangible assets with indefinite lives will no longer  be amortized but will be tested 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 sig- nificantly from actual results, additional impairment expenses may be required. In the first quarter of fiscal 2003, Nathan’s adopted SFAS No. 142. In connection with the implementation of this new standard in fiscal 2003, Goodwill, Trademarks, Trade Names and Recipes were deemed to be impaired and their carrying value was written down by $13,192,000, or $12,338,000, net of income tax benefit of $854,000. In addition to plans for expansion through franchising and our Branded Product Program, Nathan’s continues to co-brand within its existing restaurant system. Currently, the Arthur Treacher’s brand is being sold within 118 Nathan’s, Kenny Rogers Roasters and Miami Subs restaurants, the Nathan’s brand is included on the menu of 71 Miami Subs and Kenny Rogers restaurants, while the Kenny Rogers Roasters brand is being sold within 93 Miami Subs and Nathan’s restaurants. Statement of Financial Accounting Standards No. 144, “Account- ing for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”) requires management judgements regarding the future operating and disposition plans for underperforming assets, and esti- mates of expected realizable values for assets to be sold. The applica- tion 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. During the fifty-two week period ended March 28, 2004, we identified one restaurant that had been impaired and recorded impairment charges of approximately $25,000. During the fifty-two weeks ended March 30, 2003, we identified seven restaurants that had been impaired and recorded impairment charges of approximately $1,367,000. At March 31, 2002, Nathan’s owned 22 Company-operated restaurants. During the fiscal year ended March 30, 2003, Nathan’s abandoned eight Company-operated restaurants pursuant to early lease terminations which are presented as discontinued operations pursuant to SFAS No. 144 in the accompanying financial statements. Nathan’s franchised two Company-operated restaurants during the fiscal year ended March 30, 2003. During the fiscal year ended March 28, 2004, Nathan’s has franchised three Company-operated restaurants and entered into two management agreements with fran- chisees to operate two Company-operated restaurants. These seven restaurants are presented as continuing operations in the accompany- ing financial statements. Statement of Financial Accounting Standards No. 114, “Account- ing by Creditors for Impairment of a Loan,” requires management judgements regarding the future collectibility of notes receivable and the underlying fair market value of collateral. We consider the fol- lowing 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; and/or c) whether the collateral is susceptible to deterioration in realizable value. When determining possible impair- ment, we also assess our future intention to extend certain leases  At March 28, 2004, our combined system consisted of 338 fran- chised or licensed units, seven Company-owned units and over 3,300 Nathan’s Branded Product points of sale that feature Nathan’s world famous all-beef hot dogs, located in 44 states, the District of Columbia and 12 foreign countries. At March 28, 2004, our Company-owned restaurant system included seven Nathan’s units, as compared to eight Nathan’s units and four Miami Subs units at March 30, 2003.  Our consolidated financial statements and the notes to our con- solidated financial statements contain information that is pertinent to management’s discussion and analysis. The preparation of financial