PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

DecemberJune 26, 20212022 and March 28, 202127, 2022

(in thousands, except share and per share amounts)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

Thirteen and Thirty-nine weeks ended DecemberJune 26, 20212022 and DecemberJune 27, 20202021

(in thousands, except per share amounts)

(Unaudited)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Thirteen weeks ended DecemberJune 26, 20212022 and DecemberJune 27, 20202021

(in thousands, except share amounts)

(Unaudited)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Thirty-nine weeks ended December 26, 2021 and December 27, 2020

(in thousands, exceptper share amounts)

(Unaudited)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Thirty-nineThirteen weeks ended DecemberJune 26, 20212022 and DecemberJune 27, 20202021

(in thousands)thousands, except per share amounts)

(Unaudited)

See Note R for information on Supplemental Cash Flow Information.

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

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DecemberJune 26, 20212022

(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-nineweek periods ended DecemberJune 26, 20212022 and DecemberJune 27, 20202021 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 U.S. Securities and Exchange Commission.Commission (“SEC”).

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 28, 2021.27, 2022 as filed with the SEC on June 10, 2022.

Our significant interim accounting policies include the recognition of advertising fund expense in proportion to advertising fundfunds revenue.

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 28, 2021.27, 2022.

Covid-COVID-19 Pandemic and Inflation

In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19), a global pandemic. The COVID-19 pandemic has had an impact on the Company’s business, financial condition, cash flows and results of operations for the thirteen and thirty-nine weeks ended December 26, 2021 (“fiscal 2022 period”) and continues into the fourth quarter of fiscal 2022. Governmental restrictions and public perceptions of the risks associated with COVID-19 have caused consumers to avoid or limit nonessential travel, gatherings in public places and other social interactions, which has adversely affected, and could continue to adversely affect, our business. The COVID-19 pandemic has and may continue to have a significant impact customer traffic aton our Company-owned restaurantsbusiness and franchised restaurants,results of operations.

During fiscal 2022, we experienced pandemic related pressures, most notably within our Restaurant Operations and Branded Products Program segments. We experienced macroeconomic impacts arising from the long-term duration of the pandemic, including rising labor costs, increasing commodity prices, higher packaging costs and fuel prices, which contributed to a decline in consumer confidence and spending. We expect this trend to continue for the remainder of fiscal 2023. Our average cost of hot dogs for the thirteen week period ended June 26, 2022 was approximately 21% higher than during the thirteen week period ended June 27, 2021.

The Company’s franchisees and Branded Menu Program operators also have experienced some disruptions and challenges as a result of the pandemic including workforce absences, as well as sales to our Branded Product Program customers.changes in the availability and cost of labor, including higher wages and overtime costs.

During the fiscal 2022 period, the number of COVID-19 casesThere is continued uncertainty due to stabilize with approved vaccines being more widely distributed and administered and, as a result, more regions continued to loosen restrictions, adhering to state and local guidelines. Although the Company experienced higher revenues during the fiscal 2022 period as compared to the fiscal 2021 period, the COVID-19 pandemic may have a material adverse impactand supply chain disruptions and their impacts on the Company’s business, results of operationsbusiness. We remain in regular contact with our major suppliers and financial condition. There continues to be uncertainty around thedate we have not experienced significant disruptions in our supply chain.

The extent to which COVID-19 pandemic aswill continue to impact the Omicron variant of COVID-19,Company will depend on future developments, which appears tocannot be predicted, including the most transmissible variant to date, has caused a recent increase in COVID-19 cases globally. We cannot predict the ultimate duration scope and severity of the COVID-19 pandemic, or its ultimate impact on our business in the short or long-term, which may be impacted by the Delta variant, Omicron variant,new and otherevolving variants, that may emerge; the efficacy of the COVID-19 vaccines against the Delta variant, Omicron variant, and other variants that may emerge; and the adoption rates of the COVID-19vaccines in the areasjurisdictions in which the Company operates.operates, and further actions that may be taken to limit the public health and economic impact.

Such impacts may include non-cash asset impairments and difficulty collecting trade receivables, among other things.

NOTE B – ADOPTION OF NEW ACCOUNTING STANDARD

In- December 2019, the FASB issued ASU 20197-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and, also clarifies and amends existing guidance to improve consistent application. The Company adopted this guidance on March 29, 2021. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

NOTE CB – NEW ACCOUNTING STANDARD NOT YET ADOPTED

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” 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 consolidated 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. In November 2019, the FASB deferred the effective date for smaller reporting companies for annual reporting periods beginning after December 15, 2022. This standard is required to take effect in Nathan’s first quarter ( June 2023) of our fiscal year ending March 31, 2024. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

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 DC – REVENUES

The Company’s disaggregated revenues for the thirteen and thirty-nineweeks ended DecemberJune 26, 20212022 and DecemberJune 27, 20202021 are as follows (in thousands):

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

Contract balances

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

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

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 (in thousands):

NOTE ED – 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 and thirty-nineweek periods ended DecemberJune 26, 20212022 and DecemberJune 27, 2020,2021, respectively.

Options to purchase 20,000 shares of common stock in the thirteen and thirty-nineweek periodsperiod ended DecemberJune 26, 2021,2022 were not included in the computation of diluted EPS because the exercise price exceeded the average market price of common shares during the period.

Options to purchase 10,000 shares of common stock in the thirteen and thirty-nineweek periodsperiod ended DecemberJune 27, 2020,2021 were not included in the computation of diluted EPS because the exercise price exceeded the average market price of common shares during the period.

NOTE FE – CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash and cash equivalents principally consist of cash in bank and money market accounts. The Company did not have any cash equivalents at DecemberJune 26, 20212022 and March 28, 2021.27, 2022.

At DecemberJune 26, 20212022 and March 28, 2021,27, 2022, substantially all of the Company’s cash balances are in excess of Federal government insurance limits. The Company doeshas not believe that it is exposed toexperienced any significant risk on these balances.losses in such accounts.

NOTE GF – 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:

The face value and fair value of long-term debt including the current portion, as of DecemberJune 26, 20212022 and March 28, 202127, 2022 were as follows (in thousands):

The Company estimates the fair value of its long-term debt including the current portion, based upon review of observable pricing in secondary markets as of the last trading day of the fiscal period. Accordingly, the Company classifies its long-term debt including the current portion, 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 DecemberJune 26, 2021,2022, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.

NOTE HG – ACCOUNTS AND OTHER RECEIVABLES, NET                  

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

Accounts receivable are due within 30 days and are stated at amounts due from franchisees, including virtual or “ghost” kitchens, 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.

Changes in the Company’s allowance for doubtful accounts for the thirty-ninethirteen week period ended DecemberJune 26, 20212022 and the fiscal year ended March 28, 202127, 2022 are as follows (in thousands):         

NOTE IH – PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

NOTE J – GOODWILL ANDI - INTANGIBLE ASSETS

The Company has continued to monitor the economic uncertainty as a result of COVID-19 and has determined that the impact of COVID-19 was a triggering event that required the Company to perform a quantitative interim goodwill impairment test. Based on the quantitative test performed, management determined that the Company’s goodwill has not been impaired as of December 26, 2021 and December 27, 2020, and as a result, 0 impairment charge was recorded for the thirteen and thirty-nine week periods ended December 26, 2021 and December 27, 2020.ASSET

The Company’s definite-lived intangible asset consists of trademarks, tradenames and other intellectual property in connection with its Arthur Treacher’s co-branding agreements. Based upon review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is nine years, and the intangible asset is subject to annual amortization. The Company reviews its definite-lived intangible asset forperforms an annual impairment whenevertest, or more frequently if events or changes in circumstances indicate that the carrying valueintangible asset may notbe recoverable.impaired. The Company determined that the impact of COVID-19 on its business was a sufficient indicator that the carrying value may not be recoverable. The Company testedtests for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements, which has a remaining useful life based uponagreements. Cash flow projections require significant estimates and assumptions by management. Should the term of its agreements. Based on the quantitative test performed,estimates and assumptions prove to be incorrect, the Company determined that the definite-lived intangible asset was recoverable and 0may be required to record an impairment charge was recorded forin future periods and such impairment could be material.

There have been no significant events or changes in circumstances during the thirteen and thirty-nine week periodsweeks ended DecemberJune 26, 20212022 andthat would indicate that the carrying amount of the Company’s intangible asset December 27, 2020.may be impaired as of June 26, 2022.

NOTE KJ - LONG LIVED ASSETS

Long-lived assets on a restaurant-by-restaurant basis are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Long-lived assets include property, equipment and right of use assets for operating leases with finite useful lives. Assets are grouped at the individual restaurant level which represents the lowest level for which cash flows can be identified largely independent of the cash flows of other assets and liabilities. The Company generally considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. As a result of the impact of the COVID-19 pandemic on its business, the Company determined that sufficient indicators existed to trigger the performance of an interim impairment analysis as of December 26, 2021 and December 27, 2020.

The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such assets. If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will record on a restaurant-by-restaurant basis, an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the asset. The Company generally measures fair value by considering discounted estimated future cash flows from such assets. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairmentsimpairment charges in future periods and such impairments could be material. As a result

There have been no significant events or changes in circumstances during the thirteen weeks ended June 26, 2022 that would indicate that the carrying amount of the Company’s analysis, nolong-lived assets were deemed to may be impaired as of DecemberJune 26, 2021 and December 27, 2020, and, as a result, 0 impairment charge was recorded for the thirteen and thirty-nine week periods ended December 26, 2021 and December 27, 2020.2022.

NOTE LK – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES AND OTHER LIABILITIES

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

NOTE ML – INCOME TAXES

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted into law which among other provisions increases the limitation on the allowed business interest expense deduction from 30 percent to 50 percent of adjusted taxable income for tax years beginning January 1, 2019 and 2020. Additionally, the CARES Act allows businesses to immediately expense the full cost of Qualified Improvement Property, retroactive to tax years beginning on or after January 1, 2018.

The income tax provisions for the thirty-ninethirteen week periods ended DecemberJune 26, 20212022 and DecemberJune 27, 20202021 reflect effective tax rates of 28.1%27.8% and 27.7%28.9%, respectively. The effective tax rates are higher than the statutory rates primarily due to state and local taxes.

The amount of unrecognized tax benefits included in Other Liabilities at DecemberJune 26, 20212022 and March 27, 2022 was $445,000$418 and $422, respectively, all of which would impact Nathan’sthe Company’s effective tax rate, if recognized. As of DecemberJune 26, 2021,2022 Nathan’sand March 27, 2022, the Company had $307,000approximately $289 and $271, respectively, accrued for the payment of accrued interest and penalties in connection with unrecognized tax benefits.

NOTE NM – 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-operatedCompany-owned and franchised restaurants including virtual or “ghost” kitchens, 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 the Corporate segment.

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 hot dogs, sausage and corned beef products, frozen frenchFrench fries and additional products through retail grocery channels and club stores throughout the United States.

Restaurant operations –This segment derives revenue from the sale of our products at Company-owned restaurants and earns fees and royalties from its franchised restaurants, including its virtual or “ghost” kitchens.

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