Note 7 – Note Receivable Held For Sale

3 Months Ended

Jun. 26, 2011

NOTE G – NOTE RECEIVABLE HELD FOR SALE

Nathan’s determines that a note is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the note agreement. When evaluating a note for impairment, the factors considered include: (a) indications that the borrower is experiencing business problems such as late payments, operating losses, marginal working capital, inadequate cash flow or business interruptions, or (b) notes that are susceptible to deterioration in realizable value.

On May 4, 2011, Nathan’s entered into a Note Purchase and Sale Agreement with Y & Y Capital Co, LLC (“Note Purchaser” and such agreement, the “Purchase Agreement”) pursuant to which Nathan’s agreed to sell to the Note Purchaser for $900,000 in cash the note received by the Company in connection with the sale of its Miami Subs Corporation subsidiary, as amended to date (the “Amended MSC Note”). Simultaneously with the execution of the Purchase Agreement, the Note Purchaser paid to Nathan’s $450,000 to be applied to the purchase price payable under the Purchase Agreement, such deposit has been reflected as a component of accrued expenses and other current liabilities in the accompanying balance sheet as of June 26, 2011. Pursuant to the Purchase Agreement, the closing of the sale of the Amended MSC Note was required to occur on or before June 30, 2011. In connection with the sale of the Amended MSC Note, simultaneously with the closing of such sale, Nathan’s was required to assign to the Note Purchaser all of its rights under certain related agreements which secure the obligation of the payor under the Amended MSC Note, including a security agreement dated as of June 7, 2007, two personal Guaranties and an irrevocable direction for the payment of funds under certain circumstances. Management evaluated the Amended MSC Note for impairment by comparing the present value of the expected future cash flows on the Amended MSC Note to the current carrying value and recorded an impairment charge of $263,000 in the fiscal year ended March 27, 2011. As a result of the pending sale of the Amended MSC Note, the Company classified the Amended MSC Note as a note receivable held for sale in the accompanying Consolidated Balance Sheets as of June 26, 2011 and March 27, 2011. On June 29, 2011, the sale of the Amended MSC Note was completed.

Following (in thousands) is a summary of the impaired note receivable:

	June 26,			March 27,
	2011			2011

Total recorded investment in impaired note receivable	$	1,413		$	1,434
Allowance for impaired note receivable		(513	)		(513	)
		900			921
Less: current portion		(900	)		(921	)
Note receivable	$	-		$	-

The Company has recognized approximately $30 and $18 of interest income on the Amended MSC Note for the thirteen weeks ended June 26, 2011 and June 27, 2010, respectively. The average recorded investment in impaired notes receivable was $911 and $1,179 at June 26, 2011 and March 27, 2011, respectively.