FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

	[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended ~~June 24, 2018.~~Dec
		ORember23, 2018.

	[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
		For the transition period from to .

Commission ~~File~~ File No. ~~001-35962~~001-35962

NATHAN'S FAMOUS, INC.

(Exact name of registrant as specified in its charter)

Delaware

~~Delaware~~

11-3166443

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One Jericho Plaza, Second ~~Floor~~Floor – Wing A, Jericho, New York 11753

(Address of principal executive offices)

(Zip Code)

(516) 338-8500

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No __

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes X No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated ~~filer, a non-accelerated~~ filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer			Accelerated filer X
X	Non-accelerated filer
~~Non-accelerated filer~~		~~(do not check if a smaller reporting company)~~
Smaller reporting company X				Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X

At ~~August 3, 2018,~~February 1, 2019, an aggregate of ~~4,187,539~~4,177,179 shares of the registrant's common stock, par value of $.01, were outstanding.

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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

INDEX

		Page Number

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

	Consolidated Financial Statements
	Consolidated Balance Sheets – ~~June 24,~~December 23, 2018 (Unaudited) and March 25, 2018	3

	Consolidated Statements of Earnings (Unaudited) – Thirteen and Thirty-nine Weeks Ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017	4

	Consolidated Statement of Stockholders’ (Deficit) (Unaudited) ~~–Thirteen~~– Thirty-nine Weeks Ended ~~June 24,~~December 23, 2018	5

	Consolidated Statements of Cash Flows (Unaudited) – ~~Thirteen~~Thirty-nine Weeks Ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	20 22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	28 33

Item 4.	Controls and Procedures.	28 34

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings.	30 35

Item 1A.	Risk Factors.	30 35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	30 35

Item 3.	Defaults Upon Senior Securities.	30 35

Item 4.	Mine Safety Disclosures.	30 35

Item 5.	Other Information.	30 35

Item 6.	Exhibits.	31 36

SIGNATURES		32 37

Exhibit Index		33 38

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Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

~~June 24,~~December 23, 2018 and March 25, 2018

(in thousands, except share and per share amounts)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

	June 24, 2018			March 25, 2018			December 23, 2018			March 25, 2018
	(Unaudited)						(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	53,018		$	57,339
Cash and cash equivalents							$	72,832		$	57,339
Accounts and other receivables, net (Note F)		15,619			10,502			9,589			10,502
Inventories		607			384			482			384
Prepaid expenses and other current assets (Note G)		888			2,873			603			2,873
Assets held for sale (Note H)		1,610			610			-			610
Total current assets		71,742			71,708			83,506			71,708

Property and equipment, net of accumulated depreciation of $7,967 and $8,264, respectively		5,435			6,642
Property and equipment, net of accumulated depreciation of $8,963 and $8,264, respectively								5,018			6,642
Goodwill		95			95			95			95
Intangible asset		1,353			1,353			1,353			1,353
Deferred income taxes		450			-			456			-
Long term contractual accounts receivable								400			-
Other assets		345			293			341			293

Total assets	$	79,420		$	80,091		$	91,169		$	80,091

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	6,066		$	6,565		$	3,839		$	6,565
Accrued expenses and other current liabilities (Note I)		6,786			11,248			8,675			11,248
Deferred franchise fees		568			193			319			193
Total current liabilities		13,420			18,006			12,833			18,006

Long-term debt, net of unamortized debt issuance costs of $5,069 and $5,242, respectively (Note O)		144,931			144,758
Long-term debt, net of unamortized debt issuance costs of $4,724 and $5,242, respectively (Note O)								145,276			144,758
Other liabilities (Note I)		1,352			1,355			1,377			1,355
Deferred franchise fees		2,634			238			3,300			238
Deferred income taxes		-			302			-			302

Total liabilities		162,337			164,659			162,786			164,659

COMMITMENTS AND CONTINGENCIES (Note P)

STOCKHOLDERS’ (DEFICIT)
Common stock, $.01 par value; 30,000,000 shares authorized; 9,314,912 and 9,311,922 shares issued; and 4,187,539 and 4,184,549 shares outstanding at June 24, 2018 and March 25, 2018, respectively		93			93
Common stock, $.01 par value; 30,000,000 shares authorized; 9,318,942 and 9,311,922 shares issued; and 4,177,179 and 4,184,549 shares outstanding at December 23, 2018 and March 25, 2018, respectively								93			93
Additional paid-in capital		60,730			60,823			60,916			60,823
(Accumulated deficit)		(66,437	)		(68,181	)		(54,323	)		(68,181	)
Stockholders’ deficit before treasury stock		(5,614	)		(7,265	)
Stockholders’ equity (deficit) before treasury stock								6,686			(7,265	)

Treasury stock, at cost, 5,127,373 shares at June 24, 2018 and March 25, 2018		(77,303	)		(77,303	)
Treasury stock, at cost, 5,141,763 and 5,127,373 shares at December 23, 2018 and March 25, 2018								(78,303	)		(77,303	)
Total stockholders’ (deficit)		(82,917	)		(84,568	)		(71,617	)		(84,568	)

Total liabilities and stockholders’ (deficit)	$	79,420		$	80,091		$	91,169		$	80,091

The accompanying notes are an integral part of these consolidated financial statements.

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Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

Thirteen and Thirty-nine weeks ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017

(in thousands, except share and per share amounts)

(Unaudited)

							Thirteen weeks ended						Thirty-nine weeks ended
	June 24, 2018			June 25, 2017			December 23, 2018			December 24, 2017			December 23, 2018			December 24, 2017

REVENUES
Sales	$	20,471		$	22,230		$	14,404		$	16,705		$	56,448		$	63,327
License royalties		8,098			7,401			4,316			4,228			18,160			17,393
Franchise fees and royalties		1,104			1,172			911			1,088			3,254			3,575
Advertising fund revenue (Note B)		495			-			591			-			1,858			-
Total revenues		30,168			30,803			20,222			22,021			79,720			84,295

COSTS AND EXPENSES
Cost of sales		15,446			17,410			10,660			12,537			41,266			47,853
Restaurant operating expenses		910			904			766			760			2,817			2,769
Depreciation and amortization		345			368			278			320			962			1,055
General and administrative expenses		3,885			3,671			3,031			3,034			10,354			10,064
Advertising fund expense (Note B)		495			-			591			-			1,858			-
Total costs and expenses		21,081			22,353			15,326			16,651			57,257			61,741

Income from operations		9,087			8,450			4,896			5,370			22,463			22,554

Gain on sale of property and equipment								10,821			-			11,177			-
Loss on debt extinguishment								-			(8,872	)		-			(8,872	)
Interest expense		(2,650	)		(3,663	)		(2,650	)		(3,650	)		(7,951	)		(10,976	)
Interest income		61			35			277			44			453			114
Other income, net		21			21			5			22			189			64

Income before provision for income taxes		6,519			4,843
Provision for income taxes		1,724			1,921
Net income	$	4,795		$	2,922
Income (loss) before provision (benefit) for income taxes								13,349			(7,086	)		26,331			2,884
Provision (benefit) for income taxes								3,627			(3,307	)		7,330			621
Net income (loss)							$	9,722		$	(3,779	)	$	19,001		$	2,263

PER SHARE INFORMATION
Weighted average shares used in computing income per share:
Basic		4,185			4,177			4,187,000			4,185,000			4,187,000			4,180,000
Diluted		4,226			4,215			4,221,000			4,185,000			4,226,000			4,219,000

Income per share:
Income (loss) per share:
Basic	$	1.15		$	.70		$	2.32		$	( 0.90	)	$	4.54		$	0.54
Diluted	$	1.13		$	.69		$	2.30		$	( 0.90	)	$	4.50		$	0.54

Dividends declared per share	$	.25		$	-		$	0.25		$	5.00		$	0.75		$	5.00

The accompanying notes are an integral part of theseconsolidated financial statements.

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Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ ~~(DEFICIT)~~(DEFICIT)

~~Thirteen~~Thirty-nine weeks ended ~~June 24,~~December 23, 2018

(in thousands, except share amounts)

(Unaudited)

					Additional											Total							Additional											Total
	Common		Common		Paid-in			(Accumulated			Treasury Stock, at Cost					Stockholders’			Common		Common		Paid-in			(Accumulated			Treasury Stock, at Cost					Stockholders’
	Shares		Stock		Capital			Deficit)			Shares		Amount			(Deficit)			Shares		Stock		Capital			Deficit)			Shares		Amount			(Deficit)

Balance, March 25, 2018		9,311,922	$	93	$	60,823		$	(68,181	)		5,127,373	$	(77,303	)	$	(84,568	)		9,311,922	$	93	$	60,823		$	(68,181	)		5,127,373	$	(77,303	)	$	(84,568	)

Cumulative effect of the adoption of ASC 606		-		-		-			(2,004	)		-		-			(2,004	)		-		-		-			(2,004	)		-		-			(2,004	)

Shares issued in connection with share-based compensation plans		2,990		-		-			-			-		-			-			7,020		-		134			-			-		-			134

Withholding tax on net share settlement of share-based compensation plans		-		-		(174	)		-			-		-			(174	)		-		-		(174	)		-			-		-			(174	)

Repurchase of common stock																				-		-		-			-			14,390		(1,000	)		(1,000	)

Dividends on common stock		-		-		-			(1,047	)		-		-			(1,047	)		-		-		-			(3,139	)		-		-			(3,139	)

Share-based compensation		-		-		81			-			-		-			81			-		-		133			-			-		-			133

Net income		-		-		-			4,795			-		-			4,795			-		-		-			19,001			-		-			19,001
Balance, June 24, 2018		9,314,912	$	93	$	60,730		$	(66,437	)		5,127,373	$	(77,303	)	$	(82,917	)
Balance, December 23, 2018																				9,318,942	$	93	$	60,916		$	(54,323	)		5,141,763	$	(78,303	)	$	(71,617	)

The accompanying notes are an integral part of ~~these~~these consolidated financial ~~statements~~statements.

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Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

~~Thirteen~~Thirty-nine weeks ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017

(in thousands)

(Unaudited)

	June 24, 2018			June 25, 2017			December 23, 2018			December 24, 2017
Cash flows from operating activities:
Net income	$	4,795		$	2,922		$	19,001		$	2,263
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Adjustments to reconcile net income to net cash provided by operating activities
Loss on debt extinguishment								-			8,872
Depreciation and amortization		345			368			962			1,055
Gain on sale of property and equipment								(11,177	)		-
Amortization of debt issuance costs		173			300			518			932
Share-based compensation expense		81			99			133			298
Income tax benefit on stock option exercises		63			78			47			194
Provision for doubtful accounts		14			16			48			42
Deferred income taxes		(21	)		52			(27	)		(63	)
Changes in operating assets and liabilities:
Accounts and other receivables, net		(5,131	)		(4,929	)		865			(2,967	)
Inventories		(223	)		(146	)		(98	)		173
Prepaid expenses and other current assets		1,985			311			2,270			(2,259	)
Long term contractual accounts receivable								(400	)		-
Other assets		(52	)		5			(48	)		5
Accounts payable, accrued expenses and other current liabilities		(4,874	)		5,280			(5,196	)		(779	)
Deferred franchise fees		36			121			453			100
Other liabilities		(3	)		(89	)		22			(71	)

Net cash (used in) provided by operating activities		(2,812	)		4,388
Net cash provided by operating activities								7,373			7,795

Cash flows from investing activities:
Proceeds from disposal of property and equipment								12,775			-
Purchase of property and equipment		(138	)		(204	)		(326	)		(488	)

Net cash (used in) investing activities		(138	)		(204	)
Net cash provided by (used in) investing activities								12,449			(488	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt								-			150,000
Cash payments for extinguishment of debt								-			(135,000	)
Premium paid on extinguishment of debt								-			(6,750	)
Debt issuance costs								-			(4,902	)
Proceeds from exercise of stock options								134			-
Dividends paid to stockholders		(1,197	)		(125	)		(3,289	)		(125	)
Payments of withholding tax on net share settlement of share-based compensation plans		(174	)		(157	)		(174	)		(157	)
Repurchase of treasury stock								(1,000	)		-

Net cash (used in) financing activities		(1,371	)		(282	)
Net cash (used in) provided by financing activities								(4,329	)		3,066

Net (decrease) increase in cash		(4,321	)		3,902
Net increase in cash and cash equivalents								15,493			10,373

Cash, beginning of period		57,339			56,915
Cash and cash equivalents beginning of period								57,339			56,915

Cash, end of period	$	53,018		$	60,817
Cash and cash equivalents, end of period							$	72,832		$	67,288

Cash paid during the period for:
Interest	$	4,968		$	-		$	9,936		$	9,038
Income taxes paid	$	60		$	208		$	2,658		$	3,447

Noncash financing activity:
Dividends declared							$	-		$	20,948

The accompanying notes are an integral part of these consolidated financial statements.

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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~June 24,~~December 23, 2018

(Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying consolidated financial statements of Nathan's Famous, Inc. and subsidiaries (collectively “Nathan’s,” the “Company,” “we,” “us” or “our”) as of and for the thirteen and thirty-nine week periods ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of financial condition, results of operations and cash flows for the periods presented. However, our results of operations are seasonal in nature, and the results of any interim period are not necessarily indicative of results for any other interim period or the full fiscal year.

Certain information and footnote disclosures normally included in financial statements in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the requirements of the Securities and Exchange Commission. We have reclassified certain prior period items in the Consolidated Balance Sheet as of March 25, 2018 and the Statement of Earnings for the thirteen and thirty-nine week ~~period~~periods ended ~~June 25,~~December 24, 2017 to be comparable with the classifications as of and for the thirteen and thirty-nine week ~~period~~periods ended ~~June 24,~~December 23, 2018. These reclassifications had no effect on previously reported total assets, total liabilities, stockholders’ deficit or net ~~income.~~income (loss). Management believes that the disclosures included in the accompanying consolidated interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the consolidated financial statements and notes thereto included in Nathan’s Annual Report on Form 10-K for the fiscal year ended March 25, 2018.

A summary of the Company’s significant accounting policies is identified in Note B of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 25, 2018.

~~During the first quarter ended June 24,~~Effective March 26, 2018, the Company adopted Accounting Standards Codification 606, “Revenue Recognition – Revenue from Contracts with Customers” (“ASC 606”). There have been no other significant changes to the Company’s significant accounting policies subsequent to March 25, 2018.

NOTE B – ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

Revenue recognition

In May 2014, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued guidance codified in ASC 606 which amends the guidance in former ASC 605, “Revenue Recognition.” The core principle of the standard is to recognize revenue when control of the promised goods or services is transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. The standard also requires additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

This adoption of the new standard did not impact the Company’s recognition of sales from Company-operated restaurants as those sales are recognized on a cash basis at the time of the underlying sale and are presented net of sales tax. The standard also did not impact the recognition of sales from its Branded Product Program or its recognition of royalty income earned from its franchised restaurants or retail licenses, which are based on a percent of sales and recognized at the time the underlying sales occur.

The details of the significant changes in revenue recognition and quantitative impact of the changes are discussed below.

Franchise fees and international development fees

Under previous revenue recognition guidance, franchise fees were recognized as income when substantially all services to be performed by Nathan’s and conditions relating to the sale of the franchise had been performed or satisfied, which generally occurred when the franchised restaurant commenced operations.

Under previous revenue recognition guidance, international development fees were recognized as income, net of direct expenses, upon the opening of the first restaurant within the territory.

Under the new guidance, the standard requires that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. The services that we provide related to upfront fees we receive from franchisees do not contain separate and distinct performance obligations from the franchise right and as of March 26, 2018, initial restaurant franchise fees, renewal fees, transfer fees, and international development fees shall be recognized over the term of the respective agreement.

-7-

National advertising fund

The Company maintains a national advertising fund (the “Advertising Fund”) established to collect and administer funds contributed for use in advertising and promotional programs for Company-operated and franchised restaurants. Previously, the revenue, expenses and cash flows of the Advertising Fund were reported on the Company’s Consolidated Balance Sheets and not included in the Company’s Consolidated Statements of Earnings and Statements of Cash Flows because the contributions to the Advertising Fund were designated for specific purposes and the Company acted as an agent, in substance, with regard to these contributions as a result of industry-specific guidance.

Under the new guidance, which ~~superseded~~supersedes the previous industry-specific guidance, the revenue, expenses and cash flows of the Advertising Fund are fully consolidated into the Company’s Consolidated Statements of Earnings and Statements of Cash Flows.

While this treatment will impact the gross amount of reported advertising fund revenue and related expenses, the impact is expected to be an offsetting increase to both revenue and expense with no impact to income from operations or net income because the Company attempts to manage the Advertising Fund to breakeven over the course of the fiscal year. However, any surplus or deficit in the Advertising Fund will impact income from operations and net income.

The Company applied the new guidance using the modified retrospective method, whereby the cumulative effect of initially adopting the guidance was recognized as an adjustment to the opening balance of accumulated deficit at March 26, 2018 in the amount of $2,004,000, net of tax. Therefore, the results of operations from the comparative period have not been adjusted and continue to be reported under the previous revenue recognition guidance.

Impacts on Consolidated Financial ~~Statements~~Statements

The following tables summarize the ~~impacts~~impact of adopting ASC 606 on the Company’s condensed consolidated financial statements as of and for the thirteen and thirty-nine weeks ended ~~June 24,~~December 23, 2018 (in thousands):

Adjustments

As
Reported

Franchise
Fees

Balance
Sheet
Reclassifications

Balances
Without
Adoption

Condensed Consolidated Balance Sheet

Deferred income taxes
450 (731 ) 281 -
Total assets
79,420 (731 ) 281 78,970
Accrued expenses and other current liabilities
6,786 6 - 6,792
Deferred franchise fees
568 (360 ) - 208
Total current liabilities
13,420 (354 ) - 13,066
Other liabilities
1,352 (96 ) - 1,256
Deferred income taxes
- - 281 281
Deferred franchise fees 2,634 (2,303 ) - 331
Total liabilities
162,337 (2,753 ) 281 159,865
(Accumulated deficit)
(66,437 ) 2,022 - (64,415 )
Stockholders’ deficit before treasury stock
(5,614 ) 2,022 - (3,592 )
Total stockholders’ (deficit)
(82,917 ) 2,022 - (80,895 )
Total liabilities and stockholders’ (deficit)
79,420 (731 ) 281 78,970

Condensed Consolidated Statement of Earnings

Franchise fees and royalties
1,104 (72 ) - 1,032
Advertising fund revenue
495 - (495 ) -
Total revenues
30,168 (72 ) (495 ) 29,601
General and administrative expenses 3,885 (96 ) - 3,789
Advertising fund expense
495 - (495 ) -
Total costs and expenses
21,081 (96 ) (495 ) 20,490
Income from operations
9,087 24 - 9,111
Income before provision for income taxes
6,519 24 - 6,543
Provision for income taxes
1,724 6 - 1,730
Net income
4,795 18 - 4,813

				Adjustments
	As Reported			Franchise Fees			Balance Sheet Reclassi- fications			Balances Without Adoption
Condensed Consolidated Balance Sheet
December 23, 2018
Deferred income taxes		456			(731	)		275			-
Total assets		91,169			(731	)		275			90,713
Accrued expenses and other current liabilities		8,675			(150	)		-			8,525
Deferred franchise fees		319			(378	)		376			317
Total current liabilities		12,833			(528	)		376			12,681
Deferred income taxes		-			-	��		275			275
Deferred franchise fees		3,300			(2,112	)		(376	)		812
Total liabilities		162,786			(2,640	)		275			160,421
(Accumulated deficit)		(54,323	)		1,909			-			(52,414	)
Stockholders’ equity before treasury stock		6,686			1,909			-			8,595
Total stockholders’ (deficit)		(71,617	)		1,909			-			(69,708	)
Total liabilities and stockholders’ (deficit)		91,169			(731	)		275			90,713

-8-

Adjustments

As
Reported

Franchise
Fees

Advertising
Fund

Balances
Without
Adoption

Condensed Consolidated Statement of Cash Flows

Cash flows from operating activities:

Net income
4,795 18 - 4,813
Changes in operating assets and liabilities:

Accounts payable, accrued expenses and other current liabilities
(4,874 ) 6 - (4,868 )
Deferred franchise fees
36 72 - 108
Other liabilities
(3 ) (96 ) - (99 )
Net cash (used in) operating activities
(2,812 ) - - (2,812 )
Net cash (used in) investing activities
(138 ) - - (138 )
Net cash (used in) financing activities
(1,371 ) - - (1,371 )
Net (decrease) in cash
(4,321 ) - - (4,321 )

			Adjustments
	As Reported		Franchise Fees			Balance Sheet Reclassi- fications			Balances Without Adoption
Condensed Consolidated Statement of Earnings
Thirteen weeks ended December 23, 2018
Franchise fees and royalties		911		(107	)		-			804
Advertising fund revenue		591		-			(591	)		-
Total revenues		20,222		(107	)		(591	)		19,524
General and administrative expenses		3,031		(12	)		-			3,019
Advertising fund expense		591		-			(591	)		-
Total costs and expenses		15,326		(12	)		(591	)		14,723
Income from operations		4,896		(95	)		-			4,801
Income before provision for income taxes		13,349		(95	)		-			13,254
Provision for income taxes		3,627		(26	)		-			3,601
Net income		9,722		(69	)		-			9,653

Condensed Consolidated Statement of Earnings
Thirty-nine weeks ended December 23, 2018
Franchise fees and royalties		3,254		(245	)		-			3,009
Advertising fund revenue		1,858		-			(1,858	)		-
Total revenues		79,720		(245	)		(1,858	)		77,617
General and administrative expenses		10,354		(110	)		-			10,244
Advertising fund expense		1,858		-			(1,858	)		-
Total costs and expenses		57,257		(110	)		(1,858	)		55,289
Income from operations		22,463		(135	)		-			22,328
Income before provision for income taxes		26,331		(135	)		-			26,196
Provision for income taxes		7,330		(40	)		-			7,290
Net income		19,001		(95	)		-			18,906

				Adjustments
	As Reported			Franchise Fees			Advertising Fund		Balances Without Adoption
Condensed Consolidated Statement of Cash Flows
Thirty-nine weeks ended December 23, 2018
Cash flows from operating activities:
Net income		19,001			(95	)		-		18,906
Changes in operating assets and liabilities:
Accounts payable, accrued expenses and other current liabilities		(5,196	)		(150	)		-		(5,346	)
Deferred franchise fees		453			245			-		698
Net cash provided by operating activities		7,373			-			-		7,373
Net cash provided by investing activities		12,449			-			-		12,449
Net cash (used in) financing activities		(4,329	)		-			-		(4,329	)
Net increase in cash and cash equivalents		15,493			-			-		15,493

Contract balances

The following table provides information about receivables and contract liabilities (Deferred franchise fees) from contracts with customers (in thousands):

	June 24, 2018		December 23, 2018
Receivables, which are included in “Accounts and other receivable, net” (a)	$	250
Receivables (a)			$	480
Deferred franchise fees (b)	$	2,769	$	3,076

(a)

~~Represent contract~~Receivables of $80 and $400 are included in Accounts and other receivables, net and Long term contractual accounts receivable, ~~related to a funding commitment to the Advertising Fund.~~respectively.

(b)

Deferred franchise fees of ~~$360~~ $319and ~~$2,409~~$2,757 are included in Deferred franchise fees ~~- Current~~– current and ~~Long Term,~~long term, respectively.

-9-

Significant changes in Deferred franchise fees are as follows (in thousands):

	Thirteen Weeks Ended			Thirty-nine Weeks Ended
	June 24, 2018			December 23, 2018
Deferred franchise fees at beginning of period (a)	$	3,139		$	3,139
Additions to deferred revenue					830
Revenue recognized during the period		(107	)		(350	)
New deferrals due to cash received and other		170
Deferred franchise fees at end of period	$	3,202		$	3,619

(a)

Includes the cumulative effect of adopting ASC 606 of $2,735.

Anticipated Future Recognition of Deferred Franchise Fees

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the ~~period:~~period (in thousands):

	Estimate for fiscal year		Estimate for fiscal year
2019 (a)	$	271	$	80
2020		356		318
2021		347		309
2022		336		299
2023		300		259
Thereafter		1,592		2,354
Total	$	3,202	$	3,619

(a) Represents franchise fees expected to be recognized for the remainder of the 2019 fiscal year, which includes international development fees expected to be recognized over the duration of one year or less. Amount does not include $107~~of franchise fee revenue recognized for the thirteen weeks ended June 24,~~
(a)
Represents franchise fees expected to be recognized for the remainder of the 2019 fiscal year, which includes international development fees expected to be recognized over the duration of one year or less. Amount does not include $350of franchise fee revenue recognized for the thirty-nine weeks ended December 23, 2018.

We have applied the optional exemption, as provided for under ASC 606, which allows us not to disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

~~-9-~~

NOTE C – NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In June 2016, the FASB issued new guidance on the measurement of credit losses, which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under the new standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. This guidance is effective for public business entities for annual reporting periods beginning after December 15, 2019. This standard is required to take effect in Nathan’s first quarter (June 2020) of our fiscal year ending March 28, 2021. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued a new ~~accounting standard~~guidance on ~~leases. The new standard, among other changes, will require lessees~~leases, which outlines principles for the recognition, measurement, presentation and disclosure of leases applicable to ~~recognize a right-of-use asset~~both lessors and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present value of the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions).lessees. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. ~~This~~The standard is required to take effect in Nathan’s first quarter (June 2019) of our fiscal year ending March 29, 2020. The ~~adoption currently~~new guidance requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by finance and operating leases with lease terms of more than 12 months. The guidance requires either a modified retrospective transition approach ~~for leases~~with application in all comparative periods presented, or an alternative transition method, which permits a company to use its effective date as the date of initial application without restating comparative period financial statements and recognizing a cumulative effect adjustment to the opening balance sheet of accumulated deficit at April 1, 2019. The new guidance also provides several practical expedients and policies that ~~exist or are entered into after the beginning of the earliest period presented. In July 2018, the FASB issued ASU 2018-11 making~~companies may elect under either transition ~~requirements less burdensome. The standard provides an option~~method. We currently expect to apply the alternative transition ~~provisions~~method and elect the package of practical expedients under which we will not reassess the classification of our existing leases, reevaluate whether any expired or existing contracts are or contain leases or reassess initial direct costs under the new guidance. We do not expect to elect the practical expedient that permits a reassessment of lease terms for existing leases and are continuing to evaluate other practical expedients and elections specified in the new guidance. Progress implementing the new standard ~~at its adoption~~to date ~~instead~~includes completing an initial scoping analysis and data gathering process for our current lease portfolio. We are finalizing the review of ~~at the earliest comparative period presented in the Company’s financial statements. The Company is beginning its evaluation~~information for completeness of the ~~transition methods~~lease portfolio, analyzing the financial statement impact of adopting the ~~standard to determine~~standards, and evaluating the impact of adoption on our existing accounting policies and disclosures. As of December 23, 2018, there were $10,043,000 in future minimum rental payments for operating leases that are not currently recorded on our balance sheet; therefore, we expect this new guidance will have a material impact on our consolidated balance sheets and related disclosures. We do not expect the adoption of this guidance to have a material impact on ~~its~~our consolidated ~~financial~~ statements ~~but expects that the standard will result in a significant increase to its other assets~~of earnings and ~~other liabilities.~~statement of cash flows.

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In January 2017, the FASB issued an update to the accounting guidance to simplify the testing for goodwill impairment. The update removes the requirement to determine the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. A company will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The guidance is effective prospectively for public business entities for annual reporting periods beginning after December 15, 2019. This standard is required to take effect in Nathan’s first quarter (June 2020) of our fiscal year ending March 28, 2021. Nathan’s does not expect the adoption of this new guidance to have a material impact on its results of operations or financial position.

The Company does not believe that any other recently issued, but not yet effective accounting standards, when adopted, will have a material effect on the accompanying consolidated financial statements.

NOTE D – INCOME PER SHARE

Basic income per common share is calculated by dividing income by the weighted-average number of common shares outstanding and excludes any dilutive effect of stock options. Diluted income per common share gives effect to all potentially dilutive common shares that were outstanding during the period. Dilutive common shares used in the computation of diluted income per common share result from the assumed exercise of stock options and warrants, as determined using the treasury stock method.

The following chart provides a reconciliation of information used in calculating the per-share amounts for the ~~thirteen-week~~thirteen and thirty-nine week periods ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017, respectively.

Thirteen weeks
									Net Income															Net Income (Loss)
	Net Income				Number of Shares				Per Share						Net Income (Loss)					Number of Shares				Per Share
	2018		2017		2018		2017		2018			2017			2018		2017			2018		2017		2018			2017
	(in thousands)				(in thousands)										(in thousands)					(in thousands)
Basic EPS
Basic calculation	$	4,795	$	2,922		4,185		4,177	$	1.15		$	0.70		$	9,722	$	(3,779	)		4,187		4,185	$	2.32		$	( 0.90	)
Effect of dilutive employee stock options		-		-		41		38		(0.02	)		(0.01	)		-		-			34		-		(0.02	)		-
Diluted EPS
Diluted calculation	$	4,795	$	2,922		4,226		4,215	$	1.13		$	0.69		$	9,722	$	(3,779	)		4,221		4,185	$	2.30		$	( 0.90	)

Thirty-nine weeks
									Net Income
	Net Income				Number of Shares				Per Share
	2018		2017		2018		2017		2018			2017
	(in thousands)				(in thousands)
Basic EPS
Basic calculation	$	19,001	$	2,263		4,187		4,180	$	4.54		$	0.54
Effect of dilutive employee stock options		-		-		39		39		(0.04	)		-
Diluted EPS
Diluted calculation	$	19,001	$	2,263		4,226		4,219	$	4.50		$	0.54

~~There were no options~~Options to purchase 10,000 shares of common stock ~~for~~in the thirteen and thirty-nine week periods ended ~~June 24,~~December 23, 2018 ~~and June 25, 2017 excluded from~~were not included in the computation of diluted ~~earnings per share.~~EPS because the exercise price exceeded the average market price of common shares during the periods.

~~-10-~~

NOTE E – FAIR VALUE MEASUREMENTS

Nathan’s follows a three-level fair value hierarchy that prioritizes the inputs to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:

● Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market

-11-

● Level 2 - inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability

● Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability

The Company’s long-term debt had a face value of $150,000,000 as of ~~June 24,~~December 23, 2018 and a fair value of ~~$151,125,000~~$147,000,000 as of ~~June 24,~~December 23, 2018. The Company estimates the fair value of its long-term debt based upon review of observable pricing in secondary markets as of the last trading day of the fiscal period, which we classify as Level 2.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of the instruments.

Certain non-financial assets and liabilities are measured at fair value on a non-recurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances, such as when evidence of impairment exists. At ~~June 24,~~December 23, 2018, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.

NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET

Accounts and other receivables, net, consist of the following (in thousands):

	June 24,		March 25,		December 23,		March 25,
	2018		2018		2018		2018

Branded product sales	$	9,981	$	7,604	$	6,641	$	7,604
Franchise and license royalties		4,475		2,767		2,367		2,767
Other		1,714		599		1,141		599
		16,170		10,970		10,149		10,970

Less: allowance for doubtful accounts		551		468		560		468
Accounts and other receivables, net	$	15,619	$	10,502	$	9,589	$	10,502

Accounts receivable are due within 30 days and are stated at amounts due from franchisees, retail licensees and Branded Product Program customers, net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are generally considered past due. The Company does not recognize franchise and license royalties that are not deemed to be realizable.

The Company individually reviews each past due account and determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current and expected future ability to pay its obligation to the Company, the condition of the general economy and the industry as a whole. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings. After the Company has used reasonable collection efforts, it writes off accounts receivable through a charge to the allowance for doubtful accounts.

~~-11-~~

Changes in the Company’s allowance for doubtful accounts for the ~~thirteen-week~~thirty-nine week period ended ~~June 24,~~December 23, 2018 and the fiscal year ended March 25, 2018 are as follows (in thousands):

	June 24, 2018			March 25, 2018			December 23, 2018			March 25, 2018

Beginning balance	$	468		$	457		$	468		$	457
Reclassification to conform with ASC 606		77			-			77			-
Bad debt expense		14			34			48			34
Accounts written off		(8	)		(23	)		(33	)		(23	)
Ending balance	$	551		$	468		$	560		$	468

-12-

NOTE G – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in thousands):

	June 24,		March 25,		December 23,		March 25,
	2018		2018		2018		2018

Income taxes	$	-	$	1,624	$	-	$	1,624
Insurance		249		266		213		266
Other		639		983		390		983
Total prepaid expenses and other current assets	$	888	$	2,873	$	603	$	2,873

NOTE H – ~~ASSETS HELD FOR~~ SALE OF PROPERTY AND EQUIPMENT

~~Prior to~~On October 23, 2018, the ~~end~~Company completed the sale of ~~fiscal 2018, we entered into an agreement to sell a~~its Company-owned restaurant located in Bay Ridge, Brooklyn, NYNew York for ~~$12,250,000. At June 24,~~proceeds of $11,445,000, net of direct expenses, and recorded a gain of $10,821,000, which represented the excess of the proceeds, less costs to sell of $33,000, over the carrying value on that date. The Company continued operating the restaurant under a Surrender Agreement with the purchaser until January 6, 2019 and surrendered the property to the purchaser on January 22, 2019.

On August 9, 2018, ~~we have received a $1,201,000 non-refundable deposit toward~~the Company completed the sale of this restaurant which was included in accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheet. The sale was expected to close during the second quarter of fiscal 2019. Effective July 15, 2018, we amended the Agreement of Sale to extend the closing date until October 2018 and received an additional down-payment of $1,000,000 and a $175,000 extension fee.~~Property and equipment of $601,000 and $610,000 related to this sale has been classified as Assets held for sale in our Consolidated Balance Sheets at June 24, 2018 and March 25, 2018, respectively.~~

~~Effective June 15, 2018, we entered into an agreement to sell the Company-owned~~its regional office building located in Fort Lauderdale, FLFlorida for ~~$1,450,000. Our escrow agent has received deposits~~proceeds of ~~$145,000~~$1,330,000, net of direct expenses, and ~~it is anticipated~~recorded a gain of $306,000, which represented the excess of the proceeds, less costs to sell of $17,000, over the carrying value on that the transaction will close during the second quarter of fiscal 2019. Property and equipment of $1,009,000 related to this sale has been classified as Assets held for sale in our Consolidated Balance Sheet at June 24, 2018.date.

NOTE I – ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):

June 24,

March 25,

2018

2018

Payroll and other benefits
$ 1,329 $ 2,733
Accrued rebates
1,352 1,541
Rent and occupancy costs
294 200
Deferred revenue
472 780
Construction costs
58 68
Interest
1,457 3,948
Professional fees
178 157
Sales, use and other taxes
263 80
Dividend payable
- 150
Deposit payable
1,201 1,201
Other
182 390
Total accrued expenses and other current liabilities
$ 6,786 $ 11,248

~~-12-~~

	December 23,		March 25,
	2018		2018
Payroll and other benefits	$	2,499	$	2,733
Accrued rebates		1,008		1,541
Rent and occupancy costs		143		200
Deferred revenue		12		780
Construction costs		60		68
Interest		1,443		3,948
Professional fees		173		157
Sales, use and other taxes		3,112		80
Dividend payable		-		150
Deposit payable		-		1,201
Other		225		390
Total accrued expenses and other current liabilities	$	8,675	$	11,248

Other liabilities consist of the following (in thousands):

	June 24,		March 25,		December 23,		March 25,
	2018		2018		2018		2018
Reserve for uncertain tax positions	$	491	$	467	$	491	$	467
Deferred rental liability		650		677		675		677
Other		211		211		211		211
Total other liabilities	$	1,352	$	1,355	$	1,377	$	1,355

-13-

NOTE J – REVENUES

The Company’s disaggregated revenues for the thirteen and thirty-nine weeks ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017 are as follows (in thousands):

	Thirteen weeks ended				Thirteen weeks ended				Thirty-nine weeks ended
	June 24, 2018		June 25, 2017 (1)		December 23, 2018		December 24, 2017 (1)		December 23, 2018		December 24, 2017 (1)

Branded Products	$	16,445	$	17,937	$	12,453	$	14,674	$	44,308	$	50,741
Company-operated restaurants		4,026		4,293		1,951		2,031		12,140		12,586
Total sales		20,471		22,230		14,404		16,705		56,448		63,327

License royalties		8,098		7,401		4,316		4,228		18,160		17,393

Royalties		997		1,112		805		963		2,906		3,293
Franchise fees		107		60		106		125		348		282
Total franchise fees and royalties		1,104		1,172		911		1,088		3,254		3,575

Advertising fund revenue		495		-		591		-		1,858		-

Total revenues	$	30,168	$	30,803	$	20,222	$	22,021	$	79,720	$	84,295

(1) As disclosed in Note B, prior period amounts have not been adjusted under the modified retrospective method of adoption of ASC 606.

The following table disaggregates revenues by primary geographical market (in thousands):

	Thirteen Weeks Ended				Thirteen weeks ended				Thirty-nine weeks ended
	June 24, 2018		June 25, 2017		December 23, 2018		December 24, 2017		December 23, 2018		December 24, 2017

United States	$	28,856	$	28,864	$	19,546	$	20,209	$	77,022	$	78,852
International		1,312		1,939		676		1,812		2,698		5,443
	$	30,168	$	30,803
Total revenues					$	20,222	$	22,021	$	79,720	$	84,295

NOTE K – INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted which among other provisions, ~~permanently reduces~~reduced the top corporate tax rate from 35 percent to a flat 21 percent beginning January 1, 2018 and ~~eliminates~~eliminated the corporate Alternative Minimum Tax. The Tax Act limits the deduction of business interest, net of interest income, to 30 percent of the adjusted taxable income of the taxpayer in any taxable year. Any amount disallowed under the limitation is treated as business interest paid or accrued in the following year. Disallowed interest will have an indefinite carryforward. The Tax Act also repeals the performance-based exception to the $1.0 million deduction limitation on executive compensation and modifies the definition of “covered employees”. Additionally, the ~~new law~~Tax Act intended to allow businesses to immediately expense the full cost of ~~new equipment.~~Qualified Improvement Property. However, the law as written does not ~~currently~~ permit restaurant companies to take advantage of the laws’ intention. Nathan’s determined that its blended federal tax rate was 31% for its fiscal year ending March 25, 2018, as a result of the Tax Act.

The income tax provisions for the ~~thirteen-week~~thirty-nine week periods ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017 reflect effective tax rates of ~~26.4%~~27.8% and ~~39.7%~~21.5%, respectively. The ~~majority of the decline in the~~ Company’s tax rate ~~is due to~~reflects the reduction in our Federal income tax rate from ~~34%~~31% to 21% pursuant to the Tax Act. During the quarter ended December 24, 2017, pursuant to Staff Accounting Bulletin #118, Nathan’s determined reasonable estimates to its deferred assets and liabilities and pursuant to ASC 740, Income Taxes, the Company recognized the effect(s) of the Tax Act on current and deferred income taxes in its financial statements. Nathan’s recorded the following discrete adjustment to its deferred tax liability and unrecognized tax benefits which reduced the provision for income taxes by $436,000 or 1,510 BPS during the thirty-nine weeks ended December 24, 2017, lowering its effective tax rate from 36.6% to 21.5%.

Nathan’s effective tax rates for the ~~thirteen-week~~thirty-nine week periods ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017 were also reduced by ~~1.0%~~20BPS and ~~1.6%,~~670 BPS, respectively, as a result of the tax benefits associated with stock compensation. For the ~~thirteen-week~~thirty-nine week periods ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017, excess tax benefits of ~~$63,000~~$47,000 and ~~$78,000,~~$194,000, respectively, were reflected in the Consolidated Statements of Earnings as a reduction in determining the provision for income taxes.

-14-

The amount of unrecognized tax benefits at ~~June 24,~~December 23, 2018 was ~~$281,000,~~$249,000 all of which would impact Nathan’s effective tax rate, if recognized. As of ~~June 24,~~December 23, 2018, Nathan’s had ~~$226,000~~$242,000 of accrued interest and penalties in connection with unrecognized tax benefits.

~~-13-~~

In January 2018, Nathan’s received notification from the State of Virginia that it was seeking to review Nathan’s tax returns for the period April 2014 through March 2017. The review has been ~~completed,~~completed; Nathan’s has accepted the findings and ~~expects to settle~~settled the matter in the second quarter fiscal 2019. The ~~ongoing~~ effects of the review, which were not significant, have been factored into the Company’s effective tax rate for fiscal 2019.

Nathan’s estimates that its annual tax rate for the fiscal year ending March 31, 2019 will be in the range of approximately 27.0% to ~~30.0%~~29.0% excluding the impact of any discrete items recorded and excess tax benefit associated with stock compensation. The final annual tax rate is subject to many variables, including the ultimate determination of revenue and income tax by state, among other factors, and ~~therefore~~ cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from our current ~~estimates.~~ estimates. In addition, the ultimate benefit of the Tax Act on Nathan’s is unclear as the lower annual tax rate could be outweighed by ~~the limitation of the~~ deduction ~~of interest expense~~limitations and other ~~provisions.~~provisions included in further guidance and regulations.

NOTE L – SEGMENT INFORMATION

Nathan’s considers itself to be a brand marketer of the Nathan’s Famous signature products to the foodservice industry pursuant to its various business structures. Nathan’s sells its products directly to consumers through its restaurant operations segment consisting of Company-operated and franchised restaurants, to distributors that resell our products to the foodservice industry through the Branded Product Program (“BPP”) and by third party manufacturers pursuant to license agreements that sell our products to club stores and grocery stores nationwide. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”) who evaluates performance and allocates resources for the Branded Product Program, Product Licensing and Restaurant Operations segments based upon a number of factors, the primary profit measure being income from operations. Certain administrative expenses are not allocated to the segments and are reported within Corporate.

Branded Product Program – This segment derives revenue principally from the sale of hot dog products either directly to foodservice operators or to various foodservice distributors who resell the products to foodservice operators.

Product licensing – This segment derives revenue, primarily in the form of royalties, from licensing a broad variety of Nathan’s Famous branded products, including our ~~hotdogs,~~hot dogs, sausage and corned beef products, frozen French fries and additional products through retail grocery channels and club stores throughout the United States.

Restaurant operations – This segment derives revenue from sale of our products at Company-owned restaurants and earns fees and royalties from its franchised restaurants.

Revenues from operating segments are from transactions with unaffiliated third parties and do not include any intersegment revenues.

Income from operations attributable to Corporate consists principally of administrative expenses not allocated to the operating segments such as executive management, finance, information technology, legal, insurance, corporate office costs, corporate incentive compensation and compliance costs.

Interest expense, interest income and other income, net are managed centrally at the corporate level, and, accordingly, such items are not presented by segment since they are excluded from the measure of profitability reviewed by the CODM.

-15-

Operating segment information is as follows (in thousands):

	Thirteen weeks ended						Thirteen weeks ended						Thirty-nine weeks ended
	June 24, 2018			June 25, 2017			December 23, 2018			December 24, 2017			December 23, 2018			December 24, 2017

Revenues
Branded Product Program	$	16,445		$	17,937		$	12,453		$	14,674		$	44,308		$	50,741
Product licensing		8,098			7,401			4,316			4,228			18,160			17,393
Restaurant operations		5,130			5,465			2,862			3,119			15,394			16,161
Corporate (1)		495			-			591			-			1,858			-
Total revenues	$	30,168		$	30,803		$	20,222		$	22,021		$	79,720		$	84,295

Income from operations
Branded Product Program	$	2,531		$	2,272		$	2,464		$	2,924		$	7,725		$	7,888
Product licensing		8,053			7,356			4,270			4,182			18,023			17,257
Restaurant operations		750			895			(112	)		(21	)		2,733			3,209
Corporate		(2,247	)		(2,073	)		(1,726	)		(1,715	)		(6,018	)		(5,800	)
Income from operations	$	9,087		$	8,450		$	4,896		$	5,370		$	22,463		$	22,554

Gain on sale of property and equipment								10,821			-			11,177			-
Loss on debt extinguishment								-			(8,872	)		-			(8,872	)
Interest expense		(2,650	)		(3,663	)		(2,650	)		(3,650	)		(7,951	)		(10,976	)
Interest income		61			35			277			44			453			114
Other income, net		21			21			5			22			189			64
Income before provision for income taxes	$	6,519		$	4,843
Income (loss) before provision (benefit) for income taxes							$	13,349		$	(7,086	)	$	26,331		$	2,884

(1)

Represents advertising fund revenue

~~-14-~~

NOTE M– SHARE-BASED COMPENSATION

Total share-based compensation during the thirteen-week periods ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017 was ~~$81,000~~$29,000 and $99,000, respectively. Total share-based compensation during the thirty-nine week periods ended December 23, 2018 and December 24, 2017 was $133,000 and $298,000, respectively.Total share-based compensation is included in general and administrative expenses in our accompanying Consolidated Statements of Earnings. As of ~~June 24,~~December 23, 2018, there was ~~$19,000~~$314,000 of unamortized compensation ~~expenses~~expense related to share-based incentive awards. We expect to recognize this expense over approximately ~~two~~thirty-three months, which represents the weighted average remaining requisite service periods for such awards.

The Company recognizes compensation cost for unvested stock-based incentive awards on a straight-line basis over the requisite service period. Compensation cost charged to expense under all stock-based incentive awards is as follows (in thousands):

	Thirteen weeks ended				Thirteen weeks ended				Thirty-nine weeks ended
	June 24, 2018		June 25, 2017		December 23, 2018		December 24, 2017		December 23, 2018		December 24, 2017

Stock options	$	38	$	38	$	21	$	38	$	81	$	114
Restricted stock		43		61		8		61		52		184
Total compensation cost	$	81	$	99	$	29	$	99	$	133	$	298

Stock options outstanding:

During the fiscal year ended March 29, 2015, the Company granted options to purchase 50,000 shares at an exercise price of $53.89 per share, all of which expire five years from the date of grant. All such stock options vest ratably over a four-year period which commenced August 6, 2015 and contained anti-dilution rights that were structured to equalize the award’s fair value before and after the modification.

~~There were no new share-based awards granted during the thirteen week period ended June 24, 2018.~~

-16-

In connection with the Company’s special cash dividend, paid on January 4, 2018, to stockholders of record as of December 22, 2017, the Company performed an analysis, pursuant to the anti-dilution provisions of the 2010 Stock Incentive Plan, as amended (the “2010 Plan”), and issued replacement options to purchase 68,498 shares at an exercise price of $33.438 for the unvested stock options outstanding as of the record date of December 22, 2017, canceling 64,384 shares at an exercise price of $35.58 per share. Nathan’s performed its evaluation based on the closing price of its common stock on December 20, 2017, the day before the stock went ex-dividend, of $83.20 per share, or $78.20 per share excluding the dividend of $5.00 per share. No other terms or conditions of the outstanding options were modified.

In connection with the Company’s special cash dividend, paid on March 27, 2015, to stockholders of record as of March 20, 2015, the Company performed an analysis, pursuant to the anti-dilution provisions of the 2010 Plan, and issued replacement options to purchase 75,745 shares at an exercise price of $35.58 for the unvested stock options outstanding as of March 29, 2015, canceling 50,000 shares at an exercise price of $53.89. Nathan’s performed its evaluation based on the closing price of its common stock on March 27, 2015 of $73.56 per share, or $48.56 per share excluding the dividend of $25.00 per share. No other terms or conditions of the outstanding options were modified.

During the thirty-nine week period ended December 23, 2018, the Company granted options to purchase 10,000 shares at an exercise price of $89.90 per share, all of which expire five years from the date of grant. All such stock options vest ratably over a three year period commencing September 12, 2019.

The weighted-average option fair values, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the thirty-nine weeks ended December 23, 2018, are as follows:

Weighted-average option fair values	$	25.6314
Expected life (years)		4.5
Interest rate		2.87	%
Volatility		32.57	%
Dividend yield		1.11	%

The expected dividend yield is based on historical and projected dividend yields. The Company expects volatility based primarily on historical monthly price changes of the Company’s stock equal to the expected life of the option. The risk free interest rate is based on the U.S. Treasury yield in effect at the time of the grant. The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on expected employment termination behavior.

Transactions with respect to stock options for the ~~thirteen~~thirty-nine weeks ended ~~June 24,~~December 23, 2018 are as follows:

			Weighted-		Weighted-		Aggregate					Weighted-		Weighted-		Aggregate
			Average		Average		Intrinsic					Average		Average		Intrinsic
			Exercise		Remaining		Value					Exercise		Remaining		Value
	Shares		Price		Contractual Life		(in thousands)		Shares			Price		Contractual Life		(in thousands)


Options outstanding at March 25, 2018 fiscal year (A)		68,498	$	33.438		1.36	$	2,648		68,498		$	33.438		1.36	$	2,648
Granted		-		-		-		-		10,000			89.900		4.72		-
Exercised		-		-		-		-		(4,030	)		33.438		-		224
Options outstanding at June 24, 2018		68,498	$	33.438		1.12	$	4,207
Options outstanding at December 23, 2018										74,468		$	41.020		1.17	$	1,912

Options exercisable at June 24, 2018		48,348	$	33.438		1.12	$	2,969
Options exercisable at December 23, 2018										64,468		$	33.438		0.62	$	1,912

A-

Represents outstanding options after giving effect to the replacement options issued in connection with the Company’s 2015 and 2017 special dividends.

~~-15-~~

Restricted stock:

Transactions with respect to restricted stock for the ~~thirteen~~thirty-nine weeks ended ~~June 24,~~December 23, 2018 are as follows:

				Weighted-					Weighted-
				Average					Average
				Grant-date Fair value					Grant-date Fair value
	Shares			Per share		Shares			Per share
Unvested restricted stock at March 25, 2018		5,000		$	49.80		5,000		$	49.80
Granted		-			-		1,000			89.90
Vested		(5,000	)	$	49.80		(5,000	)		(49.80	)
Unvested restricted stock at June 24, 2018		-		$	-
Unvested restricted stock at December 23, 2018							1,000		$	89.90

-17-

During the thirty-nine week period ended December 23, 2018, the Company granted 1,000 shares of restricted stock at a fair value of $89.90 per share representing the closing price on the date of the grant, which will be fully vested three years from the date of grant. The restrictions on the shares lapse ratably over a three-year period on the annual anniversary of the date of grant. The compensation expense related to this restricted stock award is expected to be $89,900 and will be recognized, commencing on the grant date, over three years.

NOTE N– STOCKHOLDERS’ EQUITY

1. ~~Dividends~~Dividends

On May 31, 2018, Nathan’s Board of Directors authorized the commencement of a regular dividend of $1.00 per share per annum, payable at the rate of $0.25 per quarter. ~~The initial~~Through December 23, 2018, the Company declared and paid three regular quarterly dividends of $0.25 per common share ~~dividend was declared on June 8, 2018 and paid on June 22, 2018 to shareholders of record at the close of business on June 18, 2018.~~aggregating $3,139,000.

Effective ~~August 3, 2018,~~February 1, 2019, the Board declared its fourth quarterly cash dividend of $0.25 per share which is payable on ~~September 21, 2018~~March 22, 2019 to ~~shareholders~~stockholders of record as of the close of business on September 10, 2018. Our ability to pay future dividends is limited by the terms of the Indenture, dated November 1, 2017, between the Company, certain of its wholly-owned subsidiaries, as guarantors and U.S. Bank National Association, as trustee and collateral trustee (the “Indenture”). In addition, the declaration and payment of any cash dividends in the future are subject to final determination of the Board and will be dependent upon our earnings and financial requirements.March 11, 2019.

On November 1, 2017, the Company’s Board of Directors declared a special cash dividend of $5.00 per share payable to stockholders of record as of December 22, 2017 of which approximately $20,923,000 was paid on January 4, 2018 to the stockholders. The Company also accrued $25,000 for the expected dividends payable on unvested restricted shares pursuant to the terms of the restricted stock agreement. As unvested restricted stock vests, the declared dividend is paid. The Company paid this $25,000 during the thirteen weeks ended June 24, 2018.

On March 10, 2015, the Company’s Board of Directors declared a special cash dividend of $25.00 per share payable to stockholders of record as of March 20, 2015 of which approximately $115,100,000 was paid on March 27, 2015 to the stockholders. The Company accrued $1,000,000 for the expected dividends payable on unvested shares pursuant to the terms of the restricted stock agreements. As unvested restricted stock vests, the declared dividend is paid. As of March 25, 2018 we had paid $875,000 of the accrued dividend and the remaining $125,000 was paid during the thirteen weeks ended June 24, 2018.

Our ability to pay future dividends is limited by the terms of the Indenture, dated November 1, 2017, between the Company, certain of its wholly-owned subsidiaries, as guarantors and U.S. Bank National Association, as trustee and collateral trustee (the “Indenture”). In addition, the declaration and payment of any cash dividends in the future are subject to final determination of the Board and will be dependent upon our earnings and financial requirements.

2.2. Common Stock Purchase Rights

On June 5, 2013, Nathan’s adopted a ~~new~~ stockholder rights plan (the “2013 Rights Plan”) under which all stockholders of record as of June 17, 2013 received rights to purchase shares of common ~~stock (the “2013 Rights”) and the previously existing Rights Plan was terminated.~~

~~The 2013 Rights were distributed as a dividend. Initially, the 2013 Rights will attach to, and trade with, the Company’s common~~ stock. Subject to the terms, conditions and limitations of the 2013 Rights Plan, the 2013 Rights will become exercisable if (among other things) a person or group acquires 15% or more of the Company’s common stock. Upon such an event and payment of the purchase price of $100.00 (the “2013 Right Purchase Price”), each 2013 Right (except those held by the acquiring person or group) will entitle the holder to acquire one share of the Company’s common stock (or the economic equivalent thereof) or, if the then-current market price is less than the then current 2013 Right Purchase Price, a number of shares of the Company’s common stock which at the time of the transaction has a market value equal to the then current 2013 Right Purchase Price at a purchase price per share equal to the then current market price of the Company’s Common Stock.

The Company’s Board of Directors may redeem the 2013 Rights prior to the time they are triggered. Upon adoption of the 2013 Rights Plan, the Company initially reserved 10,188,600 shares of common stock for issuance upon exercise of the 2013 Rights. The 2013 Rights were scheduled to expire on June 17, 2018 unless earlier redeemed or exchanged by the Company.

On June 14, 2018, the Company and American Stock Transfer and Trust Company, LLC, the Rights Agent, amended the 2013 Rights Plan. The Amendment ~~postpones~~postponed the expiration date to September 30, ~~2018.~~

~~-16-~~

~~At June 24,~~ 2018, ~~the Company has reserved 4,718,630 shares of common stock for issuance upon exercise of the Common Stock Purchase Rights approved by the Board of Directors on June 5, 2013.~~at which time it terminated.

3. Stock Repurchase Programs

During the thirty-nine week period ~~from October 2001 through June 24,~~ended December 23, 2018, Nathan’s ~~purchased 5,127,373~~repurchased 14,390 shares of its common stock at a cost of approximately ~~$77,303,000~~$1.0 million pursuant to ~~various~~its sixth stock repurchase ~~plans previously authorized by the Board of Directors. During the thirteen-week period ended June 24, 2018, we did not repurchase any shares of common stock.~~program.

In 2016, the Company’s Board of Directors authorized increases to the sixth stock repurchase plan for the purchase of up to 1,200,000 shares of its common stock on behalf of the Company. As of ~~June 24,~~December 23, 2018, Nathan’s had repurchased ~~939,742~~954,132 shares at a cost of ~~$29,641,000~~$30,641,000 under the sixth stock repurchase plan. At ~~June 24,~~December 23, 2018, there were ~~260,258~~245,868 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately-negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases.

During the period from October 2001 through December 23, 2018, Nathan’s purchased 5,141,763shares of common stock at a cost of approximately $78,303,000pursuant to various stock repurchase plans previously authorized by the Board of Directors.

-18-

NOTE O – LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

	June 24,			March 25,			December 23,			March 25,
	2018			2018			2018			2018

6.625% Senior Secured Notes due 2025	$	150,000		$	150,000		$	150,000		$	150,000
Less: unamortized debt issuance costs		(5,069	)		(5,242	)		(4,724	)		(5,242	)
Long-term debt, net	$	144,931		$	144,758		$	145,276		$	144,758

On November 1, 2017, the Company issued $150,000,000 of 6.625% Senior Secured Notes due 2025 (the "2025 Notes") in a private offering in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2025 Notes were issued pursuant to the Indenture. The Company used the net proceeds of the 2025 Notes offering to satisfy and discharge the Indenture relating to the 10.000% Senior Secured Notes due 2020 and redeem the 2020 Notes (the "Redemption"), paid a portion of a special $5.00 per share cash dividend to Nathan's stockholders of record, with the remaining net proceeds for general corporate purposes, including working capital. The Company also funded the majority of the special dividend of $5.00 per share through its existing cash. The Redemption occurred on November 16, 2017.

The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1^st and November 1^st of each year. The Company made its ~~initial~~required semi-annual interest ~~payment~~payments of $4,968,750 on May 1, 2018 and November 1, 2018.

The 2025 Notes ~~will~~ have no scheduled principal amortization payments prior to its final maturity on November 1, 2025.

The terms and conditions of the 2025 Notes are as follows:

There are no financial maintenance covenants associated with the 2025 Notes. As of ~~June 24,~~December 23, 2018, Nathan’s was in compliance with all covenants associated with the 2025 Notes.

The Indenture contains certain covenants limiting the Company’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to, subject to certain exceptions and qualifications: (i) incur additional indebtedness; (ii) pay dividends or make other distributions on, redeem or repurchase, capital stock; (iii) make investments or other restricted payments; (iv) create or incur certain liens; (v) incur restrictions on the payment of dividends or other distributions from its restricted subsidiaries; (vi) enter into certain transactions with affiliates; (vii) sell assets; or (viii) effect a consolidation or merger. Certain Restricted Payments which may be made or indebtedness incurred by Nathan’s or its Restricted Subsidiaries may require compliance with the following financial ratios:

Fixed Charge Coverage Ratio: the ratio of the Consolidated Cash Flow to the Fixed Charges for the relevant period, currently set at 2.0 to 1.0 in the Indenture. The Fixed Charge Coverage Ratio applies to determining whether additional Restricted Payments may be made, certain additional debt may be incurred and acquisitions may be made.

Priority Secured Leverage Ratio: the ratio of (a) Consolidated Net Debt outstanding as of such date that is secured by a Priority Lien to (b) Consolidated Cash Flow of Nathan’s for the Test Period then most recently ended, in each case with such pro forma adjustments as are appropriate; currently set at 0.40 to 1.00 in the Indenture.

Secured Leverage Ratio: the ratio of (a) Consolidated Net Debt outstanding as of such date that is secured by a Lien on any property of Nathan’s or any Guarantor to (b) Consolidated Cash Flow of Nathan’s for the Test Period then most recently ended, in each case with such pro forma adjustments as are appropriate. The Secured Leverage Ratio under the Indenture is 3.75 to 1.00 and applies if Nathan’s wants to incur additional debt on the same terms as the 2025 Notes.

~~-17-~~

The Indenture also contains customary events of default, including, among other things, failure to pay interest, failure to comply with agreements related to the ~~indenture,~~Indenture, failure to pay at maturity or acceleration of other indebtedness, failure to pay certain judgments, and certain events of insolvency or bankruptcy. Generally, if any event of default occurs, the Trustee or the holders of at least 25% in principal amount of the 2025 Notes may declare the 2025 Notes due and payable by providing notice to the Company. In case of default arising from certain events of bankruptcy or insolvency, the 2025 Notes will become immediately due and payable.

The 2025 Notes are general senior secured obligations, are fully and unconditionally guaranteed by substantially all of the Company’s wholly-owned subsidiaries and rank pari passu in right of payment with all of the Company’s existing and future indebtedness that is not subordinated, are senior in right of payment to any of the Company’s existing and future subordinated indebtedness, are structurally subordinated to any existing and future indebtedness and other liabilities of the Company’s subsidiaries that do not guarantee the 2025 Notes, and are effectively junior to all existing and future indebtedness that is secured by assets other than the collateral securing the 2025 Notes.

Pursuant to the terms of a collateral trust agreement, the liens securing the 2025 Notes and the guarantees will be contractually subordinated to the liens securing any future credit facility.

-19-

The 2025 Notes and the guarantees are the Company and the guarantors’ senior secured obligations and will rank:

	●	senior in right of payment to all of the Company and the guarantors’ future subordinated indebtedness;

	●	effectively senior to all unsecured senior indebtedness to the extent of the value of the collateral securing the 2025 Notes and the guarantees;

	●	pari passu with all of the Company and the guarantors’ other senior indebtedness;

	●	effectively junior to any future credit facility to the extent of the value of the collateral securing any future credit facility and the 2025 Notes and the guarantees and certain other assets;

	●	effectively junior to any of the Company and the guarantors’ existing and future indebtedness that is secured by assets other than the collateral securing the 2025 Notes and the guarantees to the extent of the value of any such assets; and

●

structurally subordinated to the indebtedness of any of the Company’s current and future subsidiaries that do not guarantee the 2025 Notes.

The Company may redeem the 2025 Notes in whole or in part prior to November 1, 2020, at a redemption price of 100% of the principal amount of the 2025 Notes redeemed plus the Applicable Premium, plus accrued and unpaid interest. An Applicable Premium is the greater of 1% of the principal amount of the 2025 Notes; or the excess of the present value at such redemption date of (i) the redemption price of the 2025 Notes at November 1, 2020 plus (ii) all required interest payments due on the 2025 Notes through November 1, 2020 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over the then outstanding principal amount of the 2025 Notes.

Prior to November 1, 2020, if using the net cash proceeds of certain equity offerings, the Company has the option to redeem up to 35% of the aggregate principal amount of the 2025 Notes at a redemption price equal to 106.625% of the principal amount of the 2025 Notes redeemed, plus accrued and unpaid interest and any additional interest.

On or after November 1, 2020, the Company may redeem some or all of the 2025 Notes at a decreasing premium over time, plus accrued and unpaid interest as follows:

YEAR	PERCENTAGE
On or after November 1, 2020 and prior to November 1, 2021		103.313	%
On or after November 1, 2021 and prior to November 1, 2022		101.656	%
On or after November 1, 2022		100.000	%

In certain circumstances involving a change of control, the Company will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s 2025 Notes pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, the Company will be required to offer payment in cash equal to 101% of the aggregate principal amount of 2025 Notes repurchased plus accrued and unpaid interest, to the date of purchase.

~~-18-~~

If the Company sells certain collateralized assets and does not use the net proceeds as required, the Company will be required to use such net proceeds to repurchase the 2025 Notes at 100% of the principal amount thereof, plus accrued and unpaid interest and additional interest penalty, if any, to the date of repurchase.

The 2025 Notes may be traded between qualified institutional buyers pursuant to Rule 144A of the Securities Act. We have recorded the 2025 Notes at cost.

NOTE P – COMMITMENTS AND CONTINGENCIES

1. Commitments

On February 27, 2017, a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the “Brooklyn Guaranty”) in connection with its re-franchising of a restaurant located in Brooklyn, New York. The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. Nathan’s has recorded a liability of $204,000 as a component of Other liabilities on the accompanying Consolidated Balance Sheets, in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees.

-20-

2. Contingencies

The Company and its subsidiaries are from time to time involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include money damages and, in such event, could result in a material adverse impact on the Company’s results of operations for the period in which the ruling occurs.

NOTE Q - RELATED PARTY TRANSACTION

A subsidiary of a firm to which the Company's Executive Chairman of the Board is the President and Chief Executive Officer, received ordinary and customary real estate brokerage commissions aggregating approximately $72,000 in connection with the sale of the Florida regional office during the fiscal 2019 period.

~~-19-~~-21-

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 status of our licensing and supply agreements, including our licensing revenue and overall profitability being substantially dependent on our agreement with John Morrell & Co., economic, weather (including the ~~affects~~effects on the supply of cattle and the impact of weather on sales at our restaurants, particularly during Summer months), and ~~change~~changes in the price of beef trimmings; our ability to pass on the cost of any price increases in beef and beef trimmings, or labor costs; legislative, business conditions or tariffs; the collectibility of receivables; changes in consumer tastes; the ~~status of our licensing and supply agreements, including our licensing revenue and overall profitability being substantially dependant on our agreement with John Morrell & Co., the~~ impact of our debt service and repayment obligations under the 2025 Notes; the impact of the Tax Cuts and Jobs Act ~~(“the Tax~~(the “Tax Act”); the continued viability of Coney Island as a destination location for visitors; the ability to continue to attract franchisees; the impact of the new minimum wage legislation in New York State or other changes in labor laws, including court decisions which could render a franchisor as a “joint employee” or the impact of our new union contracts; our ability to attract competent restaurant and managerial personnel; the enforceability of international franchising agreements and the future effects of any food borne illness; such as bovine spongiform encephalopathy, BSE or e-coli; as well as those risks discussed from time to time in this Form 10-Q and our Form 10-K annual report for the year ended March 25, 2018, and in other documents 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).

We are engaged primarily in the marketing of the “Nathan’s Famous” brand and the sale of products bearing the “Nathan’s Famous” trademarks through several different channels of distribution. Historically, our business has been the operation and franchising of quick-service restaurants featuring Nathan’s World Famous Beef Hot Dogs, crinkle-cut French-fried potatoes, and a variety of other menu offerings. Our Company-owned and franchised units operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant opened in 1916. Nathan’s product licensing program sells packaged hot dogs and other meat products to retail customers through supermarkets or grocery-type retailers for off-site consumption. Our Branded Product Program enables foodservice retailers and others to sell some of Nathan’s proprietary products outside of the realm of a traditional franchise relationship. In conjunction with this program, purchasers of Nathan’s products are granted a limited use of the Nathan’s Famous trademark with respect to the sale of the purchased products, including Nathan’s World Famous Beef Hot Dogs, certain other proprietary food items and paper goods. Our Branded Menu Program is a limited franchise program, under which foodservice operators may sell a greater variety of Nathan’s Famous menu items than under the Branded Product Program.

Our revenues are generated primarily from selling products under Nathan’s Branded Product Program, operating Company-owned restaurants, licensing agreements for the sale of Nathan’s products within supermarkets and club stores, the sale of Nathan’s products directly to other foodservice operators and the manufacture of certain proprietary spices by third parties and franchising the Nathan’s restaurant concept (including the Branded Menu Program). See Note B of these Consolidated Financial Statements for information related to the Company’s adoption of ASC 606 effective March 26, 2018.

At ~~June 24,~~December 23, 2018, our restaurant system consisted of ~~271~~261 Nathan’s franchised units, including ~~122~~119 Branded Menu units, and five Company-owned units (including one seasonal unit), one of which was closed on January 6, 2019, located in 2022 states, and 1213 foreign countries. At ~~June 25,~~December 24, 2017, our restaurant system consisted of ~~279~~285 units comprised of 280 Nathan’s franchised units, including ~~118~~124 Branded Menu units, and five Company-owned units (including one seasonal unit), located in 19 states, and 12 foreign countries.

~~In addition to plans for expansion through our Branded Product Program, licensing~~Nathan’s is also the owner of the Arthur Treacher’s brand and ~~franchising, Nathan’s~~ continues to seek to co-brand within its restaurant system. ~~Nathan’s is the owner of the Arthur Treacher’s brand.~~ Currently there are alsoseven locations operating under our Arthur Treacher’s Branded Menu Program agreement.

-22-

As described in our Annual Report on Form 10-K for the year ended March 25, 2018, our future results could be materially impacted by many developments including our dependence on John Morrell & Co. as our principal supplier and the dependence of our licensing revenue and overall profitability on our agreement with John Morrell & Co. In addition, our future operating results could be impacted by supply constraints on beef or by increased costs of beef compared to earlier periods in addition to the potential impact that the recently imposed tariff’s may have on the business.

~~-20-~~

On November 1, 2017, the Company issued $150,000,000 of 6.625% Senior Secured Notes due 2025 (the “2025 Notes”) and used the majority of the proceeds of this offering to redeem ~~the 2020 Notes~~ (the “Redemption”) the Company’s 10.000% Senior Secured Notes due 2020 (the “2020 Notes”), paid a portion of the special $5.00 cash dividend and used any remaining proceeds for general corporate purposes, including working capital. Our future results could also be impacted by our obligations under the 2025 Notes. As a result of the issuance of the 2025 Notes, Nathan’s expects to incur interest expense of $9,937,500 per annum, reducing its cash interest expense by $3,562,500 per annum as compared to our annual interest requirements under the 2020 Notes. Nathan’s expects to incur annual amortization of debt issuance costs of approximately ~~$685,000~~$691,000 through ~~March 15, 2020.~~November 1, 2025. The impact of the reduced interest expense, resulting from the refinancing, and the loss on debt extinguishment on net income ~~has~~have been reflected in our results for the thirteen and thirty-nine week ~~period~~periods ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017.

As described below, we are also including information relating to EBITDA and Adjusted EBITDA in the Form 10-Q quarterly report.

Critical Accounting Policies and Estimates

As discussed in our Form 10-K for the fiscal year ended March 25, 2018, 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 requires us to make estimates and assumptions that affect the 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; share-based compensation and income taxes (including uncertain tax positions). As discussed in Note B, the Company adopted ASC 606, “Revenue Recognition – Revenue from Contracts with Customers.” There have been no other significant changes to the Company’s accounting policies subsequent to March 25, 2018.

Adoption of New Accounting Pronouncements

Please refer to Note B of the preceding consolidated financial statements for our discussion of the Adoption of the New Accounting Pronouncement.

New Accounting Pronouncements Not Yet Adopted

Please refer to Note C of the preceding consolidated financial statements for our discussion of New Accounting Pronouncements Not Yet Adopted.

EBITDA and Adjusted EBITDA

The Company believes that EBITDA and Adjusted EBITDA are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure.

Reconciliation of GAAP and Non-GAAP Measures

The following is provided to supplement certain Non-GAAP financial measures.

In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP"), the Company has provided EBITDA which excludes (i) interest expense; (ii) provision (benefit) for income taxes and (iii) depreciation and amortization expense. The Company has also provided Adjusted EBITDA excluding loss on debt extinguishment and stock-based compensation that the Company believes will impact the comparability of its results of operations.

EBITDA and Adjusted EBITDA are not recognized terms under US GAAP and should not be viewed as alternatives to net income ~~(loss)~~ or other measures of financial performance or liquidity in conformity with US GAAP. Additionally, our definitions of EBITDA and Adjusted EBITDA may differ from other companies. Analysis of results and outlook on a non-US GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with US GAAP.

~~-21-~~-23-

The following is a reconciliation of Net income (loss) to Adjusted EBITDA (in thousands):

	Thirteen weeks ended				Thirteen weeks ended					Thirty-nine weeks ended
	June 24, 2018		June 25, 2017		December 23, 2018		December 24, 2017			December 23, 2018		December 24, 2017
	(unaudited)				(unaudited)					(unaudited)

Net income	$	4,795	$	2,922
Net income (loss)					$	9,722	$	(3,779	)	$	19,001	$	2,263
Interest expense		2,650		3,663		2,650		3,650			7,951		10,976
Provision for income taxes		1,724		1,921
Provision (benefit) for income taxes						3,627		(3,307	)		7,330		621
Depreciation and amortization		345		368		278		320			962		1,055
EBITDA		9,514		8,874		16,277		(3,116	)		35,244		14,915

Loss on debt extinguishment						-		8,872			-		8,872
Stock-based compensation		81		99		29		99			133		298
Adjusted EBITDA	$	9,595	$	8,973	$	16,306	$	5,855		$	35,377	$	24,085

Results of Operations

Thirteen weeks ended ~~June 24,~~December 23, 2018 ~~compared~~ compared to thirteen weeks ended ~~June 25,~~ December 24, 2017

Revenues

Total sales decreased by ~~7.9%~~13.8% to ~~$20,471,000~~$14,404,000 for the thirteen weeks ended ~~June 24,~~December 23, 2018 (“third quarter fiscal ~~2019 period”~~2019”) as compared to ~~$22,230,000~~$16,705,000 for the thirteen weeks ended ~~June 25,~~December 24, 2017 (“third quarter fiscal ~~2018 period”~~2018”). Foodservice sales from the Branded Product Program decreased by ~~8.3%~~15.1% to ~~$16,445,000~~$12,453,000 for the third quarter fiscal 2019 ~~period~~ as compared to sales of ~~$17,937,000~~$14,674,000 in the third quarter fiscal ~~2018 period.~~2018. Our average selling prices decreased by approximately ~~5.0%~~4.3% as a result of our pricing strategy, which is more closely correlated to the cost of beef which decreased by approximately ~~8.5%~~5.5%, during the third quarter fiscal 2019 ~~period~~ as compared to the third quarter fiscal ~~2018 period.~~2018. During the third quarter fiscal 2019, ~~period,~~ the volume of business decreased by approximately ~~4.1%~~10.5%.

During the fiscal 2018 period, we added a new distributor to our distribution network that increased our sales during implementation of the new distributor. In addition to the additional business realized, beginning in the third quarter fiscal 2018, this distributor temporarily provided distribution to a number of significant contract accounts, further increasing their fiscal 2018 purchases. During the first quarter fiscal 2019, distribution reverted to our traditional methodology, which caused the re-distributor to reduce their inventory purchased from us. We estimate that excluding the effects of the re-distributors’ purchases in both years, we estimate that customer shipments increased by approximately 2.1% during the third quarter fiscal 2019. Total Company-owned restaurant sales were ~~$4,026,000~~$1,951,000 during the third quarter fiscal 2019 ~~period~~ compared to ~~$4,293,000~~$2,031,000 during the third quarter fiscal ~~2018 period due to lower sales at our Coney Island locations principally during April 2018 when the weather was exceptionally unfavorable in the Northeastern United States.~~2018.

License royalties were ~~$8,098,000~~$4,316,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$7,401,000~~$4,228,000 in the third quarter fiscal ~~2018 period.~~2018. Total royalties earned on sales of hot dogs from our license agreement with John Morrell & Co. at retail ~~increased 12.2% to $7,298,000~~were $3,741,000 for the ~~2019~~third quarter fiscal ~~period~~2019 as compared to ~~$6,502,000~~$3,680,000 in the third quarter fiscal ~~2018 period. The increase is due to an 8.5% increase in volume~~2018. We earned $44,000 from John Morrell & Co. from new products, other than hot dogs, during the third quarter fiscal 2019. Retail royalties increased volume by 5.4% during the third quarter fiscal 2019 ~~period~~ as compared to the third quarter fiscal 2018, ~~period, in addition to an increase~~which was offset by a decrease in average selling prices of approximately ~~4.0%~~5.4%, on which our royalties are calculated. Beginning in fiscal 2019, we agreed to reduce ~~royalties~~the royalty rate earned on the foodservice business with John Morrell & Co., ~~substantially~~ on sales of hot dogs to Sam’s Club, in an attempt to secure additional business. As a result of these actions, we secured additional business which ~~reduced~~increased royalties by ~~$143,000~~$35,000 as compared to the third quarter fiscal ~~2018 period.~~2018. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by ~~$44,000~~$27,000 during the third quarter fiscal 2019 ~~period~~ as compared to the third quarter fiscal ~~2018 period.~~2018.

Franchise fees and royalties were ~~$1,104,000~~$911,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$1,172,000~~$1,088,000 in the third quarter fiscal ~~2018 period.~~2018. Total royalties were ~~$997,000~~$805,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$1,112,000~~$963,000 in the third quarter fiscal ~~2018 period.~~2018. Royalties earned under the Branded Menu program were ~~$219,000~~$167,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$291,000~~$259,000 in the third quarter fiscal ~~2018 period.~~2018. Royalties earned under the Branded Menu Program are ~~not~~ based upon product purchases and not a percentage of restaurant ~~sales but are based upon product purchases.~~sales. Traditional franchise royalties were ~~$778,000~~$638,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$821,000~~$704,000 in the third quarter fiscal ~~2018 period.~~2018. Franchise restaurant sales decreased to ~~$17,372,000~~$14,158,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$18,846,000~~$15,596,000 in the third quarter fiscal 2018 ~~period~~ primarily due to the impact of units closed in the previous fiscal year ~~partially~~partly offset by a ~~1.4%~~2.8% increase in comparable domestic sales.

Comparable domestic franchise sales (consisting of 9584 Nathan’s ~~outlets,~~outlets), excluding sales under the Branded Menu ~~Program)~~Program were ~~$14,496,000~~$11,413,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$14,302,000~~$11,098,000 in the third quarter fiscal ~~2018 period.~~2018.

-24-

At the beginning of ~~the~~ fiscal 2019 ~~period~~ we adopted ASC 606. Footnote B in the accompanying Consolidated Financial Statements provides a full explanation of this new accounting standard. ~~Beginning in fiscal 2019, the~~The most significant component of this new standard ~~will affect~~affects the timing that Nathan’s ~~will recognize~~recognizes franchise fees. Franchise fee income ~~will~~is now be recorded into income on a prorated basis over the term of the franchise agreement as compared to previously recording the full franchise fee into income upon the opening of a new restaurant.

At ~~June 24,~~December 23, 2018, ~~271~~261 domestic and international franchised or Branded Menu Program franchise outlets were operating compared to ~~279~~280 domestic and international franchised or Branded Menu Program franchise outlets at ~~June 25,~~December 24, 2017. Total franchise fee income, including cancellations, was ~~$107,000~~$106,000 in the third quarter fiscal 2019 ~~period~~ compared to ~~$60,000~~$125,000 in the third quarter fiscal ~~2018 period.~~2018. Domestic franchise fee income was ~~$40,000~~$38,000 in the third quarter fiscal 2019 ~~period~~ compared to ~~$31,000~~$33,000 in the third quarter fiscal ~~2018 period.~~2018. Cancellations of $26,000 were recorded in the third quarter fiscal 2019. International franchise fee income ~~including cancellation fees,~~ was ~~$67,000~~$42,000 in the third quarter fiscal 2019 ~~period~~ compared to ~~$29,000~~$92,000 during the third quarter fiscal 2018 period. During the fiscal 2019 period, domestic and international franchise fees would have been $5,000 and $31,000, respectively, under the previous revenue recognition guidance. During the fiscal 2019 period, four new franchised outlets opened including two international locations and one new Branded Menu Program outlet opened. During the fiscal 2018 period, ten new franchised outlets opened including two international locations and seven new Branded Menu Program outlets opened.2018.

~~-22-~~

Advertising fund revenue, after eliminating Company contributions, was ~~$495,000~~$591,000 during the third quarter fiscal ~~2019 period.~~2019. Pursuant to the adoption of ASC 606, ~~income~~revenue and expenses of the Advertising Fund are required to be included as components of the Company’s Statements of Earnings and Cash Flows. Nathan’s manages its Advertising Fund with the expectation that inflows and outflows will be offsetting and has also recorded a separate Advertising fund expense. Prior to the adoption of ASC 606, the activities of the Advertising Fund were reported within the Consolidated Balance Sheet.

Costs and Expenses

Overall, our cost of sales decreased by ~~11.3%~~15.0% to ~~$15,446,000~~$10,660,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$17,410,000~~$12,537,000 in the third quarter fiscal ~~2018 period.~~2018. Our gross profit (representing the difference between sales and cost of sales) ~~increased~~decreased to ~~$5,025,000~~$3,744,000 or ~~24.5%~~26.0% of sales during the third quarter fiscal 2019 ~~period~~ as compared to ~~$4,820,000~~$4,168,000 or ~~21.6%~~24.9% of sales during the third quarter fiscal ~~2018 period.~~2018. The margin improvement was primarily due to the lower cost of beef in the Branded Product Program and in the Company-operated restaurants partly offset ~~due to the~~by higher other commodity costs and higher labor costs at the Company-owned restaurants due to the annual increases in the New York minimum wages and other labor regulations.

Cost of sales in the Branded Product Program decreased by approximately ~~$1,798,000~~$1,813,000 during the third quarter fiscal 2019 period as compared to the third quarter fiscal 2018 period, primarily due to the ~~8.5%~~5.5% decrease in the average cost per pound of our hot dogs and the ~~4.1%~~10.5% decrease in the volume of product sold discussed above. We did not make any purchase commitments of beef during the fiscal 2019 and 2018 periods. If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases or otherwise reduce any increase in our costs through the use of purchase commitments, our margins will be adversely impacted.

With respect to Company-owned restaurants, our cost of sales during the third quarter fiscal 2019 ~~period~~ was ~~$2,304,000~~$1,308,000 or ~~57.2%~~67.0% of restaurant sales, as compared to ~~$2,470,000~~$1,372,000 or ~~57.5%~~67.5% of restaurant sales in the third quarter fiscal 2018 ~~period as a decrease in~~primarily due to lower beef costs ~~was partially~~ offset by the impact of higher labor costs principally associated with the effects of the New York State minimum wage increase. Lower beef costs were also offset by higher seafood and other food costs during the third quarter fiscal 2019. We expect that our labor costs going forward will continue to be impacted by the multi-year new increase in minimum wage requirements in New York State, other labor regulations and any increase in food costs from higher commodity costs.

Restaurant operating expenses were ~~$910,000~~$766,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$904,000~~$760,000 in the third quarter fiscal ~~2018 period.~~2018. The increase in restaurant operating costs results primarily from higher ~~occupancy~~home delivery costs, insurance and ~~utilities.~~ occupancy costs.

Depreciation and amortization was ~~$345,000~~$278,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$368,000~~$320,000 in the third quarter fiscal ~~2018 period.~~2018.

General and administrative expenses ~~increased by $214,000 or 5.8% to $3,885,000~~were $3,031,000 in the third quarter fiscal 2019 ~~period~~ as compared to ~~$3,671,000~~$3,034,000 in the third quarter fiscal ~~2018 period.~~2018. The ~~increase~~decrease in general and administrative expenses was primarily attributable to ~~higher professional fees. In addition to incurring~~lower professional fees ~~of approximately $38,000 to implement ASC 606, we were also required to expense approximately $96,000 of legal fees as a result of~~and lower occupancy costs after selling the ~~adoption of ASC 606, which would have previously been~~Florida office, partly offset ~~against franchise fee revenue. We also incurred~~by higher ~~legal fees in connection with the potential sales of two Company-owned properties.~~compensation and marketing costs.

Advertising fund expense was ~~$495,000~~$591,000 during the third quarter fiscal ~~2019 period.~~2019. Pursuant to the adoption of ASC 606, revenue and expenses of the Advertising Fund are required to be included as components of the Company’s Statements of Earnings and Cash Flows. Nathan’s manages its Advertising Fund with the expectation that inflows and outflows will be offsetting. Prior to the adoption of ASC 606, the activities of the Advertising Fund were reported within the Consolidated Balance Sheet.

Other Items

Gain on sale of property and equipment of $10,821,000 reflects the gain on the sale of its Company-owned restaurant located in Bay Ridge, Brooklyn, NY.

Interest expense of $2,650,000 in the third quarter fiscal 2019 ~~period~~ represented accrued interest of ~~$2,477,000~~$2,478,000 on the 2025 Notes at 6.625% per annum and amortization of debt issuance costs of ~~$173,000.~~$172,000. Interest expense of ~~$3,663,000~~$3,650,000 in the third quarter fiscal 2018 ~~period~~ represented ~~accrued~~ interest of ~~$3,363,000~~$1,847,000 on the 2020 Notes at 10.000% per annum, $1,470,000 accrued interest on the 2025 Notes and total amortization of debt issuance costs of ~~$300,000.~~$333,000.

-25-

Interest income was ~~$61,000~~$277,000 for the third quarter fiscal 2019 ~~period~~ as compared to $~~35,000~~44,000 in the third quarter fiscal ~~2018 period.~~2018.

Other income ~~which~~ primarily relates to a sublease ofincome from a franchised restaurant which was ~~$21,000~~$22,000 in the third quarter fiscal 2019 and $22,000 in the third quarter fiscal 2018.

In connection with the third quarter fiscal 2018 ~~periods.~~refinancing of the 2020 Notes, the Company recorded a loss on early extinguishment of debt of $8,872,000 that primarily reflects a portion of the premium paid to redeem the 2020 Notes and the write-off of certain debt issuance costs.

Provision for Income Taxes

On December 22, 2017, the ~~Enactment Date, President Donald Trump signed the~~ Tax ~~Cuts and Jobs~~ Act ~~(“Tax Act”) into law~~was enacted which among other provisions, ~~permanently reduces~~reduced the top corporate tax rate from 35 percent to a flat 21 percent beginning January 1, 2018 and ~~eliminates~~eliminated the corporate Alternative Minimum Tax. The Tax Act limits the deduction of business interest, net of interest income, to 30 percent of the adjusted taxable income of the taxpayer in any taxable year. Any amount disallowed under the limitation is treated as business interest paid or accrued in the following year. Disallowed interest will have an indefinite carryforward. The Tax Act also repeals the performance-based exception to the $1.0 million deduction limitation on executive compensation and modifies the definition of “covered employees”. Additionally, the Tax Act is intended to allow businesses to immediately expense the full cost of ~~new equipment.~~Qualified Improvement Property. However, the law as written does not ~~currently~~ permit restaurant companies to take advantage of the laws’ intention.

~~-23-~~

The income tax provision for the thirteen week period ended December 23, 2018 was $3,627,000 or 27.2% of earnings before income taxes as compared to the income tax benefit of $(3,307,000) or 46.7% of loss before income taxes for the thirteen week period ended December 24, 2017.

The Company’s Federal tax rate was reduced to 21% during the thirteen weeks ended December 23, 2018 as compared to its blended rate of 31% during the thirteen weeks ended December 24, 2017, pursuant to the Tax Act.

During the quarter ended December 24, 2017, pursuant to Staff Accounting Bulletin #118, Nathan’s determined reasonable estimates to its deferred assets and liabilities and pursuant to ASC 740, Income Taxes, the Company recognized the effect(s) of the Tax Act on current and deferred income taxes in its financial statements. Nathan’s recorded the following discrete adjustment to its deferred tax liability and unrecognized tax benefits which increased the income tax benefit by $436,000 during the thirteen weeks ended December 24, 2017.

Results of Operations

Thirty-nine weeks ended December 23, 2018 compared to thirty-nine weeks ended December 24, 2017

Revenues

Total sales decreased by 10.9% to $56,448,000 for the thirty-nine weeks ended December 23, 2018 (“fiscal 2019 period”) as compared to $63,327,000 for the thirty-nine weeks ended December 24, 2017 (“fiscal 2018 period”). Foodservice sales from the Branded Product Program decreased by 12.7% to $44,308,000 for the fiscal 2019 period as compared to sales of $50,741,000 in the fiscal 2018 period. Our average selling prices decreased by approximately 5.5% as a result of our pricing strategy, which is more closely correlated to the cost of beef which decreased by approximately 8.7%, during the fiscal 2019 period as compared to the fiscal 2018 period. During the fiscal 2019 period, the volume of business decreased by approximately 7.6%.

During the fiscal 2018 period, we added a new distributor to our distribution network that increased our sales during implementation of the new distributor. In addition to the additional business realized, beginning in the third quarter fiscal 2018, this distributor temporarily provided distribution to a number of significant contract accounts, further increasing their fiscal 2018 purchases. During the first quarter of fiscal 2019, distribution reverted to our traditional methodology, which caused the re-distributor to reduce their inventory purchased from us. We estimate that excluding the effects of the re-distributors’ purchases in both years, we estimate that customer shipments increased by approximately 1.5% during the fiscal 2019 period. Total Company-owned restaurant sales were $12,140,000 during the fiscal 2019 period compared to $12,586,000 during the fiscal 2018 period due to lower sales at our Coney Island locations principally during April 2018 and the summer of 2018 when the weather was exceptionally unfavorable in the Northeastern United States.

License royalties were $18,160,000 in the fiscal 2019 period as compared to $17,393,000 in the fiscal 2018 period. Total royalties earned on sales of hot dogs from our license agreement with John Morrell & Co. at retailincreased4.3% to $16,536,000 for the 2019 fiscal period as compared to $15,853,000 in the fiscal 2018 period.The increase is due to a 3.8% increase in volume during the fiscal 2019 period as compared to the fiscal 2018 period. Beginning in fiscal 2019, we agreed to reduce the royalty rate earned on the foodservice business with John Morrell & Co., substantially on sales of hot dogs to Sam’s Club, in an attempt to secure additional business. Overall, we earned higher royalties of $12,000 as compared to the fiscal 2018 period. We also earned $142,000 from John Morrell & Co. from new products, other than hot dogs, during the fiscal 2019 period.Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $84,000 during the fiscal 2019 period as compared to the fiscal 2018 period.

-26-

Franchise fees and royalties were $3,254,000 in the fiscal 2019 period as compared to $3,575,000 in the fiscal 2018 period. Total royalties were $2,906,000 in the fiscal 2019 period as compared to $3,293,000 in the fiscal 2018 period. Royalties earned under the Branded Menu program were $649,000 in the fiscal 2019 period as compared to $873,000 in the fiscal 2018 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases. Traditional franchise royalties were $2,257,000 in the fiscal 2019 period as compared to $2,420,000 in the fiscal 2018 period. Franchise restaurant sales decreased to $50,090,000 in the fiscal 2019 period as compared to $54,737,000 in the fiscal 2018period primarily due to the impact of units closed between the fiscal years and a 0.5% decrease in comparable domestic sales. Comparable domestic franchise sales (consisting of 84 Nathan’s outlets), excluding sales under the Branded Menu Program were $39,561,000 in the fiscal 2019 period as compared to $39,760,000 in the fiscal 2018 period.

At the beginning of the fiscal 2019 period we adopted ASC 606. Footnote B in the accompanying Consolidated Financial Statements provides a full explanation of this new accounting standard. The most significant component of this new standard affects the timing that Nathan’s recognizes franchise fees. Franchise fee income is now recorded into income on a prorated basis over the term of the franchise agreement as compared to previously recording the full franchise fee into income upon the opening of a new restaurant.

At December 23, 2018, 261 domestic and international franchised or Branded Menu Program franchise outlets were operating compared to 280 domestic and international franchised or Branded Menu Program franchise outlets at December 24, 2017. Total franchise fee income, including cancellations, was $348,000 in the fiscal 2019 period compared to $282,000 in the fiscal 2018 period. Domestic franchise fee income was $117,000 in the fiscal 2019 period compared to $140,000 in the fiscal 2018 period. International franchise fee income was $127,000 in the fiscal 2019 period compared to $132,000 during the fiscal 2018 period. Cancellation fees, were $104,000 in the fiscal 2019 period compared to $10,000 during the fiscal 2018 period.During the fiscal 2019 period, total franchise fees would have been $104,000, under the previous revenue recognition guidance. During the fiscal 2019 period, 12 new franchised outlets opened including five international locations and four new Branded Menu Program outlets opened. During the fiscal 2018 period, 35 new franchised outlets opened, including 13 international locations, and 17 Branded Menu Program outlets.

Advertising fund revenue, after eliminating Company contributions, was $1,858,000 during the fiscal 2019 period. Pursuant to the adoption of ASC 606, revenue and expenses of the Advertising Fund are required to be included as components of the Company’s Statements of Earnings and Cash Flows. Nathan’s manages its Advertising Fund with the expectation that inflows and outflows will be offsetting and has also recorded a separate Advertising fund expense. Prior to the adoption of ASC 606, the activities of the Advertising Fund were reported within the Consolidated Balance Sheet.

Costs and Expenses

Overall, our cost of sales decreased by 13.8% to $41,266,000 in the fiscal 2019 period as compared to $47,853,000 in the fiscal 2018 period. Our gross profit (representing the difference between sales and cost of sales) decreased to $15,182,000 or 26.9% of sales during the fiscal 2019 period as compared to $15,474,000 or 24.4% of sales during the fiscal 2018 period. The margin improvement was primarily due to the lower cost of beef in the Branded Product Program and in the Company-operated restaurants partly offset by higher other commodity costs and higher labor costs at the Company-owned restaurants due to the annual increases in the New York minimum wages and other labor regulations.

Cost of sales in the Branded Product Program decreased by approximately $6,443,000 during the fiscal 2019 period as compared to the fiscal 2018 period, primarily due to the 8.7% decrease in the average cost per pound of our hot dogs and the 7.6% decrease in the volume of product sold discussed above. We did not make any purchase commitments of beef during the fiscal 2019 and 2018 periods. If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases or otherwise reduce any increase in our costs through the use of purchase commitments, our margins will be adversely impacted.

With respect to Company-owned restaurants, our cost of sales during the fiscal 2019 period was $6,743,000 or 55.5% of restaurant sales, as compared to $6,887,000 or 54.7% of restaurant sales in the fiscal 2018 period primarily due to lower beef costs offset by the impact of higher labor costs principally associated with the effects of the New York State minimum wage increase. Lower beef costs were also offset by higher seafood and other food costs during the fiscal 2019 period. We expect that our labor costs going forward will continue to be impacted by the multi-year new increase in minimum wage requirements in New York State, other labor regulations and any increase in food costs from higher commodity costs.

Restaurant operating expenses were $2,817,000 in the fiscal 2019 period as compared to $2,769,000 in the fiscal 2018 period. The increase in restaurant operating costs results primarily from higher home delivery costs, occupancy costs and insurance.

Depreciation and amortization was $962,000 in the fiscal 2019 period as compared to $1,055,000 in the fiscal 2018 period as a result of lower capital spending and the sales of the Florida office and the Company-owned restaurant located in Bay Ridge, Brooklyn, NY.

-27-

General and administrative expensesincreased by $290,000 or 2.9% to $10,354,000 in the fiscal 2019 period as compared to $10,064,000 in the fiscal 2018 period. The increase in general and administrative expenses was primarily attributable to higher marketing expenses, compensation expense of $73,000 and professional fees.We incurred professional fees of approximately $38,000 to implement ASC 606 and we were also required to expense approximately $110,000 of legal fees as a result of the adoption of ASC 606, which would have previously been offset against franchise fee revenue. We also incurred higher legal fees in connection with the sale of two Company-owned properties.

Advertising fund expense was $1,858,000 during the fiscal 2019 period. Pursuant to the adoption of ASC 606, revenue and expenses of the Advertising Fund are required to be included as components of the Company’s Statements of Earnings and Cash Flows. Nathan’s manages its Advertising Fund with the expectation that inflows and outflows will be offsetting. Prior to the adoption of ASC 606, the activities of the Advertising Fund were reported within the Consolidated Balance Sheet.

Other Items

Gain on sale of property and equipment of $11,177,000 relates to (i) the gain on the sale of its Company-owned restaurant located in Bay Ridge, Brooklyn, NY and (ii) the gain on the sale of our Florida office.

In connection with the fiscal 2018 refinancing of the 2020 Notes, the Company recorded a loss on early extinguishment of debt of $8,872,000, that primarily reflects a portion of the premium paid to redeem the 2020 Notes and the write-off of certain debt issuance costs.

Interest expense of $7,951,000 in the fiscal 2019 period represented accrued interest of $7,433,000 on the 2025 Notes at 6.625% per annum and amortization of debt issuance costs of $518,000. Interest expense of $10,976,000 in the fiscal 2018 period represents interest of $8,574,000 on the 2020 Notes at 10.000% per annum, $1,470,000 accrued interest on the 2025 Notes and total amortization of debt issuance costs of $932,000.

Interest income was $453,000 for the fiscal 2019 period as compared to $114,000 in the fiscal 2018 period.

Other income primarily relates to (i) a fee of $175,000 to extend the closing date of the sale of our restaurant located in Bay Ridge, Brooklyn, NY by three months and (ii) sublease income from a franchised restaurant which was $64,000 in the fiscal 2019 period and $64,000 in the fiscal 2018 period.

Provision for Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted which among other provisions, reduced the top corporate tax rate from 35 percent to a flat 21 percent beginning January 1, 2018 and eliminated the corporate Alternative Minimum Tax. The Tax Act limits the deduction of business interest, net of interest income, to 30 percent of the adjusted taxable income of the taxpayer in any taxable year. Any amount disallowed under the limitation is treated as business interest paid or accrued in the following year. Disallowed interest will have an indefinite carryforward. The Tax Act also repeals the performance-based exception to the $1.0 million deduction limitation on executive compensation and modifies the definition of “covered employees”. Additionally, the Tax Act intended to allow businesses to immediately expense the full cost of Qualified Improvement Property. However, the law as written does not permit restaurant companies to take advantage of the laws’ intention. Nathan’s determined that its blended federal tax rate was 31% for its fiscal year ending March 25, 2018, as a result of the Tax Act.

The income tax provisions for the thirty-nine week periods ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017 reflect effective tax rates of ~~26.4%~~27.8% and ~~39.7%~~21.5%, respectively. The ~~majority of the decline in the~~ Company’s tax rate ~~is due to~~reflects the reduction in our Federal income tax rate from ~~34%~~31% to 21% pursuant to the Tax Act. During the quarter ended December 24, 2017, Pursuant to Staff Accounting Bulletin #118, Nathan’s determined reasonable estimates to its deferred assets and liabilities and pursuant to ASC 740, Income Taxes, the Company recognized the effect(s) of the Tax Act on current and deferred income taxes in its financial statements. Nathan’s recorded the following discrete adjustment to its deferred tax liability and unrecognized tax benefits which reduced the provision for income taxes by $436,000 or 1,510 BPS during the thirty-nine weeks ended December 24, 2017, lowering its effective tax rate from 36.6% to 21.5%.

Nathan’s effective tax ~~rate~~rates for the ~~thirteen~~thirty-nine week periods ended ~~June 24,~~December 23, 2018 and ~~June 25,~~December 24, 2017 were also reduced by ~~1.0%~~20BPS and ~~1.6%,~~670 BPS, respectively, as a result of the tax benefits associated with stock compensation. For the ~~thirteen weeks~~thirty-nine week periods ended ~~June~~December 23, 2018 and December 24, ~~2018,~~2017, excess tax benefits of ~~$63,000~~$47,000and $194,000, respectively, were reflected in the Consolidated Statements of Earnings as a reduction toin determining the provision for income taxes.

The amount of unrecognized tax benefits at December 23, 2018 was $249,000 all of which would impact Nathan’s effective tax ~~rates without these adjustments would~~rate, if recognized. As of December 23, 2018, Nathan’s had $242,000 of accrued interest and penalties in connection with unrecognized tax benefits.

In January 2018, Nathan’s received notification from the State of Virginia that it was seeking to review Nathan’s tax returns for the period April 2014 through March 2017. The review has been completed; Nathan’s has accepted the findings and settled the matter in the second quarter fiscal 2019. The effects of the review, which were not significant, have been ~~27.4%~~factored into the Company’s effective tax rate for ~~the~~ fiscal ~~2019 period and 41.3% for the fiscal 2018 period. As described under Note K to the Consolidated Financial Statements,~~ 2019.

-28-

Nathan’s estimates that its annual tax rate for the fiscal year ending March 31, 2019 will be in the range of approximately 27.0%to ~~30.0%~~29.0% excluding the impact of ~~the~~any discrete items recorded and excess tax ~~benefits~~benefit associated with stock ~~compensation~~compensation. The final annual tax rate is subject to many variables, including the ultimate determination of revenue and income tax by state, among other factors, and cannot be determined until the ~~potential impact~~end of ~~any reduction to~~ the ~~Company’s unrecognized~~fiscal year; therefore, the actual tax ~~benefits.~~rate could differ from our current estimates. In addition, the ultimate benefit of the Tax Act on Nathan’s is unclear as the lower annual tax rate could be outweighed by deduction limitations and other provisions included in further guidance and regulations.

Off-Balance Sheet Arrangements

Nathan’s did not have any open purchase commitments for hot dogs outstanding as of ~~June 24,~~December 23, 2018. Nathan’s may enter into purchase commitments in the future as favorable market conditions become available.

Liquidity and Capital Resources

Cash and cash equivalents at ~~June 24,~~December 23, 2018 aggregated ~~$53,018,000, a $4,321,000 decrease~~$72,832,000, increasing by $15,493,000 during the fiscal 2019 period as compared to cash of $57,339,000 at March 25, 2018. ~~This decrease is primarily attributable to our first interest payment of $4,968,750 on the 2025 Notes on May 1, 2018 and the payment of $1,047,000 pursuant to a quarterly dividend as described below.~~ Net working capital increased to ~~$58,322,000~~$70,673,000 from $53,702,000 at March 25, 2018. On November 1, 2018, we paid our second semi-annual interest payment of $4,968,750 for fiscal 2019. We paid our third quarter dividend of $1,045,000 on December 14, 2018.

In November 2017, the Company refinanced its then-outstanding 2020 Notes totaling $135.0 million at 10.000% per annum by issuing $150.0 million 2025 Notes at 6.625% per annum. Please refer to Note O – Long Term Debt in the accompanying Consolidated Financial Statements, for ~~the effects~~a summary of the Company’s ~~refinancing from the preceding consolidated financial statements.~~refinancing.

The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1^st and November 1^st of each year, beginning on May 1, 2018. Semi-annual interest payments are ~~expected to be~~ $4,968,750. During the ~~thirteen~~thirty-nine week period ended ~~June 24,~~December 23, 2018, we paid interest of $4,968,750 each on May 1, 2018 and November 1, 2018 for the 2025 Notes. The 2025 Notes have no scheduled principal amortization payments prior to ~~its~~their final maturity on November 1, 2025.

The Indenture for the 2025 Notes contains certain covenants limiting the Company’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to, subject to certain exceptions and qualifications: (i) incur additional indebtedness; (ii) pay dividends or make other distributions on, redeem or repurchase, capital stock; (iii) make investments or other restricted payments; (iv) create or incur certain liens; (v) incur restrictions on the payment of dividends or other distributions from its restricted subsidiaries; (vi) enter into certain transactions with affiliates; (vii) sell assets; or (viii) effect a consolidation or merger.

The Indenture for the 2025 Notes also contains customary events of default, including, among other things, failure to pay interest, failure to comply with agreements related to the Indenture, failure to pay at maturity or acceleration of other indebtedness, failure to pay certain judgments, and certain events of insolvency or bankruptcy. Generally, if any event of default occurs, the Trustee or the holders of at least 25% in principal amount of the 2025 Notes may declare the 2025 Notes due and payable by providing notice to the Company. In case of default arising from certain events of bankruptcy or insolvency, the 2025 Notes will become immediately due and payable.

As of ~~June 24,~~December 23, 2018, Nathan’s was in compliance with all covenants associated with the 2025 Notes.

~~-24-~~-29-

The 2025 Notes and the guarantees will be the Company and the guarantors’ senior secured obligations and will rank:

●

senior in right of payment to all of the Company and the guarantors’ future subordinated indebtedness;

●

effectively senior to all unsecured senior indebtedness to the extent of the value of the collateral securing the 2025 Notes and the guarantees;

●

pari passu with all of the Company and the guarantors’ other senior indebtedness;

●

effectively junior to any future credit facility to the extent of the value of the collateral securing any future credit facility and the 2025 Notes and the guarantees and certain other assets;

●

effectively junior to any of the Company and the guarantors’ existing and future indebtedness that is secured by assets other than the collateral securing the 2025 Notes and the guarantees to the extent of the value of any such assets; and

●

structurally subordinated to the indebtedness of any of the Company’s current and future subsidiaries that do not guarantee the 2025 Notes.

Cash ~~used in~~provided by operations of ~~$2,812,000~~$7,373,000 in the fiscal 2019 period is primarily attributable to net income of ~~$4,795,000~~$19,001,000 in addition to other non-cash operating ~~items~~expenses of ~~$655,000,~~$1,681,000, offset by gains from the sale of our Company-owned restaurant located in Bay Ridge, Brooklyn, NY and our Florida office of $11,177,000 and changes in other operating assets and liabilities of ~~$8,262,000.~~$2,132,000. Non-cash operating ~~items include $63,000~~ expenses consist principally of $962,000 depreciation and amortization, $518,000 amortization of debt issuance costs and $47,000of excess income tax benefits from stock-based compensation arrangements as a result of the accounting for certain aspects of ~~its~~ share-based payments to employees. In the fiscal 2019 period, accounts and other receivables ~~increased~~decreased by ~~$5,131,000 compared~~$865,000 primarily due to ~~the fiscal 2018 period due primarily to higher~~lower receivables from Branded Product Program sales of ~~$2,377,000, higher seasonal~~$963,000, lower license royalties of ~~$1,581,000 and~~$382,000, partly offset by increased seasonal advances to the Advertising Fund of ~~$795,000.~~$444,000. In the fiscal 2019 period, prepaid expenses and other current assets decreased by ~~$1,985,000~~$2,270,000 due principally to the reduction of prepaid income taxes of $1,624,000 which were deposited in fiscal 2018, prior to the successful debt refinancing that have been applied to current year ~~earnings.~~earnings and the utilization of various prepaid operating expenses of $646,000. The decrease in accounts payable, accrued expenses and other current liabilities of ~~$4,874,000~~$5,196,000 is primarily due the reduction in accounts payable of $2,726,000 due principally to seasonal fluctuations, reduced accrued interest of ~~$2,491,000 due to~~$2,505,000, application of deposits payable of $1,201,000 toward proceeds from the ~~May 1, 2018 payment~~sale of our Company-owned restaurant located in Bay Ridge, Brooklyn, NY, accrued ~~interest on the 2025 Notes, a reduction of accrued payroll and other~~ benefits of ~~$1,404,000~~$234,000 due primarily to the payment of prior year incentive compensation, and reductions in deferred revenue of ~~$308,000~~$768,000 and accrued rebates of ~~$700,000.~~$533,000 and higher taxes payable of $3,032,000.

Cash ~~used in~~provided by investing activities ~~was $138,000~~of $12,449,000 in the fiscal 2019 period primarily represents net proceeds received from the sale of our Company-owned restaurant located in ~~connection with~~Bay Ridge, Brooklyn, NY of $11,445,000, as well as the sale of our regional Florida office of $1,330,000, partially offset by capital expenditures incurred for our Branded Product Program and select restaurant ~~improvements.~~improvements of $326,000.

Cash used in financing activities of ~~$1,371,000~~$4,329,000 in the fiscal 2019 period relates primarily to the ~~payment~~payments of the Company’s regular $0.25 per share cash dividend of ~~$1,047,000.~~$3,139,000. During the fiscal 2019 period, Nathan’s repurchased 14,390 shares of common stock for $1,000,000. The Company also paid $174,000 for withholding taxes on the net share vesting of employee restricted stock and dividends of $150,000 relating to the previously declared special cash dividend in connection with the vesting of 5,000 shares of the Company’s restricted stock. The Company also received $134,000 of proceeds from the exercise of stock options.

During the period from October 2001 through ~~June 24,~~December 23, 2018, Nathan’s purchased ~~5,127,373~~5,141,763 shares of its common stock at a cost of approximately ~~$77,303,000~~$78,303,000 pursuant to ~~its~~ stock repurchase plans previously authorized by the Board of Directors. Since March 26, 2007, we have repurchased ~~3,236,273~~ 3,250,663shares at a total cost of approximately ~~$70,145,000,~~$71,145,000, reducing the number of shares then-outstanding by ~~53.8%~~54.0%.

In 2016, the Company’s Board of Directors authorized increases to the sixth stock repurchase plan for the ~~purchase~~repurchase of up to 1,200,000 shares of ~~its~~the Company’s common stock on behalf of the Company. As of ~~June 24,~~December 23, 2018, Nathan’s has repurchased ~~939,742~~954,132 shares at a cost of ~~$29,641,000~~$30,641,000 under the sixth stock repurchase plan. At ~~June 24,~~December 23, 2018, there were ~~260,258~~245,868 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately-negotiated transactions, at prices deemed appropriate by management. ~~There is no set time limit on the repurchases.~~

Management believes that available cash, and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements and stock repurchases for at least the next 12 months.

-30-

As discussed above, we had cash and cash equivalents at ~~June 24,~~December 23, 2018 aggregating ~~$53,018,000~~. $72,832,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. In November 2017, we refinanced ~~$135,000,000 10.000%~~our 2020 Notes ~~due 2020 with $150,000,000 6.625%~~through the issuance of the 2025 Notes ~~due 2025~~ and, our Board of Directors announced the payment of a $5.00 per share special dividend to the shareholders of record as of the close of business on December 22, 2017. On May 31, 2018, Nathans’ Board of Directors ~~(the “Board”)~~ authorized the commencement of a regular dividend of $1.00 per share per annum, payable at the rate of $0.25 per share per quarter. ~~The initial $0.25 dividend was~~Through December 23, 2018, we have declared ~~on June 8, 2018~~ and paid ~~on June 22, 2018 to shareholders of record at the close of business on June 18, 2018.~~three quarterly dividend distributions totaling $3,139,000.

~~-25-~~

Effective ~~August 3, 2018,~~February 1, 2019, the Board declared its fourth quarterly cash dividend of $0.25 per share which is payable on ~~September 21, 2018~~March 22, 2019 to ~~shareholders~~stockholders of record as of the close of business on ~~September 10, 2018.~~March 11, 2019. Our ability to pay future dividends is limited by the terms of the Indenture ~~with US Bank National Association, as trustee and collateral trustee.~~for the 2025 Notes. In addition, the payment of any cash dividends in the future, are subject to final determination of the Board and will be dependent upon our earnings and financial requirements. We may also return capital to our ~~shareholders~~stockholders through stock repurchases, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock-repurchase plan.

We expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the outstanding debt and continue our stock repurchase programs, funding those investments from our operating cash flow. We may also incur capital and other expenditures or engage in investing activities in connection with opportunistic situations that may arise on a case-by-case basis. In the fiscal year ending March 31, 2019, we are required to make interest payments of $9,937,500, all of which have been made as of November 1, 2018. During the fiscal year ending March 29, 2020, we will be required to make interest payments of ~~$9,937,500, of which $4,968,750 has been made.~~ $9,937,500.

Management believes that available cash and cash equivalents, and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements and provide for our quarterly stock dividends and any stock repurchases for at least the next 12 months.

At ~~June 24,~~December 23, 2018, we sublet one property to a franchisee that we lease from a third party. We remain contingently liable for all costs associated with this property including: rent, property taxes and insurance. We may incur future cash payments with respect to such property, consisting primarily of future lease payments, including costs and expenses associated with terminating such lease.

The following schedule represents Nathan’s cash contractual obligations and commitments by maturity as of ~~June 24,~~December 23, 2018 (in thousands):

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Payments Due by Period
Cash Contractual Obligations											Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long term debt (a)	$	150,000	$	-	$	-	$	-	$	150,000	$	150,000	$	-	$	-	$	-	$	150,000
Employment Agreements		6,100		1,500		2,250		1,750		600		5,850		1,500		2,000		1,750		600
Operating Leases		10,943		1,658		2,471		2,198		4,616		10,043		1,602		2,172		2,189		4,080
Gross Cash Contractual Obligations		167,043		3,158		4,721		3,948		155,216		165,893		3,102		4,172		3,939		154,680
Sublease Income		1,835		287		498		403		647		1,684		267		490		364		563
Net Cash Contractual Obligations	$	165,208	$	2,871	$	4,223	$	3,545	$	154,569	$	164,209	$	2,835	$	3,682	$	3,575	$	154,117

Represents the ~~Notes due 2025.~~2025 Notes.

At ~~June 24,~~December 23, 2018, the Company had unrecognized tax benefits of ~~$281,000.~~$249,000.

On February 27, 2017, a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the “Brooklyn Guaranty”) in connection with its re-franchising of a restaurant located in Brooklyn, New York. The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. Nathan’s has recorded a liability of $204,015 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees.

-31-

Inflationary Impact

We do not believe that general inflation has materially impacted earnings since 2006. However, we have experienced significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities. From 2011 through 2014, we experienced unprecedented increases in the cost of beef. Beginning March 2015, the beef markets stabilized through June 2015 before subsequently declining by approximately 30%. As a result of the decline through March 2016, the market price of hot dogs during the fiscal year ended March 27, 2016 was approximately 7.1% lower than the fiscal year ended March 29, 2015. During the fiscal 2017 period, beef prices remained favorable, and as such, our market price for hot dogs was 17.1% lower than during the fiscal 2016 period. Despite the favorable pricing of fiscal 2017, prices began escalating in January 2017 and continued increasing through June 2017 before beginning to slightly decline until July which is when the costs stabilized through March 2018 at approximately 10% higher than the same period of the fiscal 2017 period. Since April 2018 our commodity cost for hot dogs ~~has~~had been ~~stable.~~stable before beginning to decline in September 2018 into December 2018. As such, our market price for hot dogs during our fiscal 2019 period was approximately ~~8.5%~~8.7% lower than the fiscal 2018 period.

~~-26-~~

We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2019. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. Our most recent purchase commitment was completed in 2016 for approximately 2,600,000 pounds of hot dogs at approximately $2.01 per ~~pound which we purchased between February and May 2016.~~pound. We may attempt to enter into similar purchase arrangements for hot dogs and other products in the future. Additionally, we expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from the uncertainty of the insurance markets.

New York State enacted legislation increasing the minimum hourly wage for fast food workers of restaurant chains with 30 or more locations nationwide. The increase will be phased in differently between New York City and the rest of New York State. Effective December 31, ~~2017,~~2018, the minimum wage increased to ~~$13.50 and $11.75~~$15.00 in New York ~~City and outside of New York City, respectively.~~

~~In New York City, the hourly rate of pay will increase to $15.00 on Dec. 31, 2018.~~City.

The minimum hourly rate of pay for the remainder of New York State ~~will increase~~increased to $12.75 on Dec. 31, 2018; and will increase to $13.75 on Dec. 31, 2019; $14.50 on Dec. 31, 2020; and $15.00 on July 1, 2021.

All of Nathan’s Company-operated restaurants are within New York State, three of which ~~operate~~have operated within New York City that have been affected by this new legislation.

The Company is further studying the impact on the Company’s operations and is developing strategies and tactics, including pricing and potential operating efficiencies, to minimize the effects of these increases and future increases. We have recently increased certain selling prices to pass on recent cost of sales increases. However, if we are unable to fully offset these and future increases through pricing and operating efficiencies, our margins and profits will be negatively affected.

Effective April 1, 2014, the City of New York, passed legislation requiring employers to offer paid sick leave to all employees, including part-time employees, who work more than 80 hours for the employer. Nathan’s ~~operates~~operated three restaurants that have been affected by this new legislation.

Effective November 27, 2017, the City of New York Fair Work Legislation package of bills took effect that the city estimates will cover some 65,000 fast food workers by giving them more predictable work schedules. A key component of the package is a requirement that fast food restaurants schedule their workers at least two weeks in advance or pay employees between $10 to $75 per change, depending on the situation. ~~Due to Nathan’s dependency on~~Sales at our Coney Island restaurants are significantly impacted by weather conditions, ~~at our two beach locations~~particularly during the summer ~~we are unable to determine the potential impact on our results of operations, which could be material.~~months. We have estimated that the daily penalty could amount to as much as $10,000 per day during the height of the summer season ~~for these~~at our two Coney Island restaurants.

Continued increases in labor, food and other operating expenses, including health care, could adversely affect our operations and those of the restaurant industry and we might have to further reconsider our pricing strategy as a means to offset reduced operating margins.

We believe that these increases in the minimum wage and other labor regulations could have a significant financial impact on our financial results and the results of our franchisees that operate in New York State. Our business could be negatively impacted if the decrease in margins for our franchisees results in the potential loss of new franchisees or the closing of a significant number of franchised restaurants.

The Company’s business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in “Forward-Looking Statements” and “Notes to Consolidated Financial Statements” in this Form 10-Q and “Risk Factors” in our Form 10-K for our fiscal year ended March 25, 2018.

~~-27-~~-32-

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Cash and Cash Equivalents

We have historically invested our cash and cash equivalents in money market funds or short-term, fixed rate, highly rated and highly liquid instruments which are generally reinvested when they mature. Although these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of ~~June 24,~~December 23, 2018, Nathan’s cash and cash equivalents aggregated ~~$53,018,000.~~$72,832,000. Earnings on this cash would increase or decrease by approximately ~~$133,000~~$182,000 per annum for each 0.25% change in interest rates.

Borrowings

At ~~June 24,~~December 23, 2018, we had $150,000,000 of 2025 Notes outstanding which are due in November 2025. Interest expense on these borrowings would increase or decrease by approximately $375,000 per annum for each 0.25% change in interest rates. We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings.

Commodity Costs

With the exception of purchase commitments, we have not attempted to hedge against fluctuations in the prices of the commodities we purchase using future, forward, option or other instruments. As a result, we expect that the majority of our future commodity purchases will be subject to market changes in the prices of such commodities. We have attempted to enter sales agreements with our customers that are correlated to our cost of beef, thus reducing our market volatility, or have passed through permanent increases in our commodity prices to our customers that are not on formula pricing, thereby reducing the impact of long-term increases on our financial results. A short-term increase or decrease of 10.0% in the cost of our food and paper products for the ~~thirteen~~thirty-nine weeks ended ~~June 24,~~December 23, 2018 would have increased or decreased our cost of sales by approximately ~~$1,376,000.~~$3,656,000.

Foreign Currencies

Foreign franchisees generally conduct business with us and make payments in United States dollars, reducing the risks inherent with changes in the values of foreign currencies. As a result, we have not purchased future contracts, options or other instruments to hedge against changes in values of foreign currencies and we do not believe fluctuations in the value of foreign currencies would have a material impact on our financial results.

-33-

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

~~-28-~~

Changes in Internal Controls

There were no changes in our internal controls over financial reporting that occurred during the quarter ended ~~June 24,~~December 23, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective at the reasonable assurance level.

~~-29-~~-34-

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended March 25, 2018, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing Nathan's. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~None.~~ISSUER PURCHASES OF EQUITY SECURITIES

Period (A)

Total Number of

Shares Purchased

(B)

Average Price Paid

per Share

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

Maximum Number

of Shares that May

Yet Be Purchased

Under the Plans or

Programs (C)

September 24, 2018

October 21, 2018

260,258

October 22, 2018

November 18, 2018

3,560

$69.95

3,560

256,698

November 19, 2018

December 23, 2018

10,830

$69.29

10,830

245,868

Total

14,390

$69.45

14,390

245,868

Represents the Company’s fiscal periods during the quarter ended December 23, 2018.

~~Item~~Item 3. Defaults ~~Upon~~Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

None.

Item 5. Other Information.

~~Effective August 3, 2018, the Board declared its quarterly cash dividend of $0.25 per share payable on September 21, 2018 to shareholders of record as of the close of business on September 10, 2018.~~None.

~~-30-~~-35-

Item 6. Exhibits.

3.1

Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 No. 33- 56976.)

3.2

Amendment to the Certificate of Incorporation, filed December 15, 1992. (Incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 No. 33-56976.)

3.3

By-Laws, as amended. (Incorporated by reference to Exhibit 3.1 to Form 8-K dated November 1, 2006.)

4.1

Specimen Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1 No. 33-56976.)

4.2

Rights Agreement, dated as of June 5, 2013, between Nathan’s Famous, Inc. and American Stock Transfer and Trust Company, LLC, as Rights Agent, which includes form of Rights Certificate as Exhibit A and the Summary of Rights to Purchase as Exhibit B. (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report filed on Form 8-K dated June 11, 2013.)

~~4.3~~

Amendment No. 1 to Rights Agreement dated as of June 14, 2018, between Nathan’s Famous, Inc. and American Stock Transfer and Trust Company, LLC (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report filed on Form 8-K dated June 14, 2018.)

~~4.4~~

Indenture, dated as of November 1, 2017, by and among Nathan’s Famous, Inc., certain of its wholly owned subsidiaries, as guarantors, and U.S. Bank National Association, a National Banking Association, as trustee and collateral trustee (including the form of Note) (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report filed on Form 8-K dated November 1, 2017.)

~~10.1~~

*2019 Management Incentive Plan for the fiscal year ending March 31, 2019. (1)

~~10.2~~

*Amendment to Agreement of Sale between Nathan’s Famous Operating Corp. and 660 86 LLC dated July 15, 2018.

31.1

*Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

*Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

*Certification by Eric Gatoff, CEO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

*Certification by Ronald G. DeVos, CFO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1

*The following materials from the Nathan’s Famous, Inc., Quarterly Report on Form 10-Q for the quarter ended ~~June 24,~~December 23, 2018 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statement of Stockholders’ (Deficit), (iv) the Consolidated Statements of Cash Flows and (v) related notes.

*Filed herewith.

~~(1) Indicates a management plan or arrangement.~~

~~-31-~~-36-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NATHAN'S FAMOUS, INC.

Date: February 1, 2019	By:	/s/ Eric Gatoff
		Eric Gatoff
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~August 3, 2018~~February 1, 2019	By:	/s/ ~~Eric Gatoff~~ ~~Eric Gatoff~~ ~~Chief Executive Officer~~ ~~(Principal Executive Officer)~~ Ronald G. DeVos

~~Date: August 3, 2018~~	~~By:~~ ~~/s/~~ Ronald G. DeVos ~~Ronald G. DeVos~~
		Vice President - Finance
		and Chief Financial Officer
		(Principal Financial and Accounting Officer)

~~-32-~~-37-

Exhibit Index.

3.1

Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 No. 33- 56976.)

3.2

Amendment to the Certificate of Incorporation, filed December 15, 1992. (Incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 No. 33-56976.)

3.3

By-Laws, as amended. (Incorporated by reference to Exhibit 3.1 to Form 8-K dated November 1, 2006.)

4.1

Specimen Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1 No. 33-56976.)

4.2

~~4.3~~

~~4.4~~

~~10.1~~

*2019 Management Incentive Plan for the fiscal year ending March 31, 2019. (1)

~~10.2~~

*Amendment to Agreement of Sale between Nathan’s Famous Operating Corp. and 660 86 LLC dated July 15, 2018.

31.1

*Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

*Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

*Certification by Eric Gatoff, CEO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

*Certification by Ronald G. DeVos, CFO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1

*Filed herewith.

~~(1) Indicates a management plan or arrangement.~~

~~-33-~~-38-