UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended December ~~26, 2021.~~25, 2022.

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT of 1934

For the transition period from ___________ to . ____________.

Commission File No. 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 – Wing A, Jericho, New York 11753

(Address and Zip Code of principal executive offices)

(516) 338-8500

(Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $.01 per share		NATH		The NASDAQ Global Market

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 ☒ ~~No☐~~No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an 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.

Large accelerated filer ☐	☐	Accelerated filer	☒
Non-accelerated filer ☐	☐	Smaller reporting company	☒
		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 ☒

At February ~~4, 2022,~~2, 2023, an aggregate of ~~4,115,154~~4,079,720 shares of the registrant's common stock, par value of $.01, were outstanding.

1-1-

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

INDEX

		Page
~~Page~~		Number

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

	Consolidated Financial Statements
	Consolidated Balance Sheets – December ~~26, 2021~~25, 2022 (Unaudited) and March ~~28, 2021~~27, 2022	3

	Consolidated Statements of Earnings (Unaudited) – Thirteen and Thirty-nine Weeks Ended December ~~26, 2021~~25, 2022 and December ~~27, 2020~~26, 2021	4

	Consolidated Statements of Stockholders’ Deficit (Unaudited) – Thirteen Weeks Ended December ~~26, 2021~~25, 2022 and December ~~27, 2020~~26, 2021	5

	Consolidated Statements of Stockholders’ Deficit (Unaudited) – Thirty-nine Weeks Ended December ~~26, 2021~~25, 2022 and December ~~27, 2020~~26, 2021	6

	Consolidated Statements of Cash Flows (Unaudited) – Thirty-nine Weeks Ended December ~~26, 2021~~25, 2022 and December ~~27, 2020~~26, 2021	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	2120

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	31 30

Item 4.	Controls and Procedures.	32 31

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings.	33 32

Item 1A.	Risk Factors.	33 32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	33 32

Item 3.	Defaults Upon Senior Securities.	33 32

Item 4.	Mine Safety Disclosures.	33 32

Item 5.	Other Information.	33 32

Item 6.	Exhibits.	34 33

SIGNATURES	35	34

-2-

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

December ~~26, 2021~~25, 2022 and March ~~28, 2021~~27, 2022

(in thousands, except share and per share amounts)

	December 26, 2021			March 28, 2021			December 25, 2022			March 27, 2022
	(Unaudited)						(Unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents (Note F)	$	86,168		$	81,064
Accounts and other receivables, net (Note H)		14,175			11,652
Cash and cash equivalents (Note E)							$	55,454		$	50,063
Accounts and other receivables, net (Note G)								13,042			13,374
Inventories		371			624			336			522
Prepaid expenses and other current assets (Note I)		821			1,325
Prepaid expenses and other current assets (Note H)								1,109			1,441
Total current assets		101,535			94,665			69,941			65,400

Property and equipment, net of accumulated depreciation of $10,493 and $9,779, respectively		3,833			4,090
Operating lease assets (Note R)		7,573			8,337
Property and equipment, net of accumulated depreciation of $10,824 and $10,344, respectively								3,513			3,785
Operating lease assets (Note Q)								6,604			7,416
Goodwill		95			95			95			95
Intangible asset, net		1,071			1,156			913			1,043
Deferred income taxes		148			138			584			582
Other assets		200			328			175			195

Total assets	$	114,455		$	108,809		$	81,825		$	78,516

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Current maturities of long-term debt (Note Q)	$	40,000		$	0
Accounts payable		5,714			4,041		$	3,847		$	6,381
Accrued expenses and other current liabilities (Note L)		5,410			8,478
Current portion of operating lease liabilities (Note R)		1,848			1,837
Accrued expenses and other current liabilities (Note K)								5,511			7,833
Current portion of operating lease liabilities (Note Q)								1,827			1,849
Deferred franchise fees		359			237			343			349
Total current liabilities		53,331			14,593			11,528			16,412

Long-term debt, net of unamortized debt issuance costs of $2,651 and $3,169, respectively (Note Q)		107,349			146,831
Operating lease liabilities (Note R)		6,680			7,553
Other liabilities (Note L)		733			774
Long-term debt, net of unamortized debt issuance costs of $1,436 and $1,817, respectively (Note P)								108,564			108,183
Operating lease liabilities (Note Q)								5,583			6,487
Other liabilities								737			674
Deferred franchise fees		1,663			1,536			1,378			1,748

Total liabilities		169,756			171,287			127,790			133,504

COMMITMENTS AND CONTINGENCIES (Note S)
COMMITMENTS AND CONTINGENCIES (Note R)

STOCKHOLDERS’ DEFICIT
Common stock, $.01 par value; 30,000,000 shares authorized; 9,369,235 and 9,369,015 shares issued; and 4,115,154 and 4,114,934 shares outstanding at December 26, 2021 and March 28, 2021, respectively		94			94
Common stock, $.01 par value; 30,000,000 shares authorized; 9,369,235 shares issued; and 4,079,720 and 4,115,154 shares outstanding at December 25, 2022 and March 27, 2022, respectively								94			94
Additional paid-in capital		62,299			62,240			62,388			62,307
Accumulated deficit		(32,924	)		(40,042	)		(21,785	)		(32,619	)
Stockholders’ equity before treasury stock		29,469			22,292			40,697			29,782

Treasury stock, at cost, 5,254,081 shares at December 26, 2021 and March 28, 2021		(84,770	)		(84,770	)
Treasury stock, at cost, 5,289,515 and 5,254,081 shares at December 25, 2022 and March 27, 2022, respectively								(86,662	)		(84,770	)
Total stockholders’ deficit		(55,301	)		(62,478	)		(45,965	)		(54,988	)

Total liabilities and stockholders’ deficit	$	114,455		$	108,809		$	81,825		$	78,516

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

3-3-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

Thirteen and Thirty-nine weeks ended December ~~26, 2021~~25, 2022 and December ~~27, 2020~~26, 2021

(in thousands, except per share amounts)

(Unaudited)

	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended						Thirty-nine weeks ended
	December 26, 2021			December 27, 2020			December 26, 2021			December 27, 2020			December 25, 2022			December 26, 2021			December 25, 2022			December 26, 2021

REVENUES
Sales	$	18,637		$	11,322		$	61,462		$	30,697		$	18,340		$	18,637		$	72,535		$	61,462
License royalties		5,878			5,898			24,218			24,689			6,337			5,878			26,064			24,218
Franchise fees and royalties		919			420			2,993			1,087			976			919			3,268			2,993
Advertising fund revenue		479			390			1,437			1,082			501			479			1,504			1,437
Total revenues		25,913			18,030			90,110			57,555			26,154			25,913			103,371			90,110

COSTS AND EXPENSES
Cost of sales		16,040			8,937			51,536			24,161			14,925			16,040			59,490			51,536
Restaurant operating expenses		547			759			2,874			2,622			932			547			3,217			2,874
Depreciation and amortization		259			288			807			900			303			259			837			807
General and administrative expenses		2,975			3,253			9,702			8,709			3,161			2,975			10,122			9,702
Advertising fund expense		479			390			1,437			1,082			501			479			1,679			1,437
Total costs and expenses		20,300			13,627			66,356			37,474			19,822			20,300			75,345			66,356

Income from operations		5,613			4,403			23,754			20,081			6,332			5,613			28,026			23,754

Interest expense		(2,650	)		(2,650	)		(7,951	)		(7,951	)		(1,944	)		(2,650	)		(5,831	)		(7,951	)
Interest income		24			89			88			309			158			24			260			88
Other income, net		3			9			24			31
Other (expense) income, net														(60	)		3			(4	)		24

Income before provision for income taxes		2,990			1,851			15,915			12,470			4,486			2,990			22,451			15,915
Provision for income taxes		860			492			4,477			3,456			1,223			860			6,093			4,477
Net income	$	2,130		$	1,359		$	11,438		$	9,014		$	3,263		$	2,130		$	16,358		$	11,438

PER SHARE INFORMATION
Weighted average shares used in computing income per share:
Basic		4,115			4,115			4,115			4,117			4,080			4,115			4,092			4,115
Diluted		4,115			4,115			4,115			4,117			4,116			4,115			4,104			4,115

Income per share:
Basic	$	.52		$	.33		$	2.78		$	2.19		$	.80		$	.52		$	4.00		$	2.78
Diluted	$	.52		$	.33		$	2.78		$	2.19		$	.79		$	.52		$	3.99		$	2.78

Dividends declared per share	$	.35		$	.35		$	1.05		$	1.05		$	.45		$	.35		$	1.35		$	1.05

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

-4-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Thirteen weeks ended December ~~26, 2021~~25, 2022 and December ~~27, 2020~~26, 2021

(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, September 26, 2021		9,369,235	$	94	$	62,291	$	(33,614	)		5,254,081	$	(84,770	)	$	(55,999	)
Balance, September 25, 2022																			9,369,235	$	94	$	62,323	$	(23,212	)		5,289,515	$	(86,662	)	$	(47,457	)

Dividends on common stock		-		0		0		(1,440	)		-		0			(1,440	)		-		-		-		(1,836	)		-		-			(1,836	)
Share-based compensation		-		0		8		0			-		0			8			-		-		65		-			-		-			65
Net income		-		0		0		2,130			-		0			2,130			-		-		-		3,263			-		-			3,263
Balance, December 26, 2021		9,369,235	$	94	$	62,299	$	(32,924	)		5,254,081	$	(84,770	)	$	(55,301	)
Balance, December 25, 2022																			9,369,235	$	94	$	62,388	$	(21,785	)		5,289,515	$	(86,662	)	$	(45,965	)

					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, September 27, 2020		9,369,015	$	94	$	62,182	$	(40,581	)		5,254,081	$	(84,770	)	$	(63,075	)
Balance, September 26, 2021																			9,369,235	$	94	$	62,291	$	(33,614	)		5,254,081	$	(84,770	)	$	(55,999	)

Dividends on common stock		-		0		0		(1,440	)		-		0			(1,440	)		-		-		-		(1,440	)		-		-			(1,440	)
Share-based compensation		-		0		29		0			-		0			29			-		-		8		-			-		-			8
Net income		-		0		0		1,359			-		0			1,359			-		-		-		2,130			-		-			2,130
Balance, December 27, 2020		9,369,015	$	94	$	62,211	$	(40,662	)		5,254,081	$	(84,770	)	$	(63,127	)
Balance, December 26, 2021																			9,369,235	$	94	$	62,299	$	(32,924	)		5,254,081	$	(84,770	)	$	(55,301	)

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

-5-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Thirty-nine weeks ended December ~~26, 2021~~25, 2022 and December ~~27, 2020~~26, 2021

(in thousands, except share amounts)

(Unaudited)

Additional

Total

Common

Common

Paid-in

Accumulated

Treasury Stock, at Cost

Stockholders’

Shares

Stock

Capital

Deficit

Shares

Amount

Deficit

Balance, March 28, 2021
9,369,015 $ 94 $ 62,240 $ (40,042 ) 5,254,081 $ (84,770 ) $ (62,478 )

Shares issued in connection with share-based compensation plans
220 0 0 0 0 0 0
Withholding tax on net share settlement of share-based compensation plans
- 0 (7 ) 0 - 0 (7 )
Dividends on common stock
- 0 0 (4,320 ) - 0 (4,320 )
Share-based compensation
- 0 66 0 - 0 66
Net income
- 0 0 11,438 - 0 11,438
Balance, December 26, 2021
9,369,235 $ 94 $ 62,299 $ (32,924 ) 5,254,081 $ (84,770 ) $ (55,301 )

Additional

Total

Common

Common

Paid-in

Accumulated

Treasury Stock, at Cost

Stockholders’

Shares

Stock

Capital

Deficit

Shares

Amount

Deficit

Balance, March 27, 2022
9,369,235 $ 94 $ 62,307 $ (32,619 ) 5,254,081 $ (84,770 ) $ (54,988 )

Repurchase of common stock
- - - - 35,434 (1,892 ) (1,892 )
Dividends on common stock
- - - (5,524 ) - - (5,524 )
Share-based compensation
- - 81 - - - 81
Net income
- - - 16,358 - - 16,358
Balance, December 25, 2022
9,369,235 $ 94 $ 62,388 $ (21,785 ) 5,289,515 $ (86,662 ) $ (45,965 )

					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 29, 2020		9,368,792	$	94	$	62,130		$	(45,356	)		5,227,405	$	(83,269	)	$	(66,401	)
Balance, March 28, 2021																				9,369,015	$	94	$	62,240		$	(40,042	)		5,254,081	$	(84,770	)	$	(62,478	)

Shares issued in connection with share-based compensation plans		223		0		0			0			0		0			0			220		-		-			-			-		-			-
Withholding tax on net share settlement of share-based compensation plans		-		0		(6	)		0			-		0			(6	)		-		-		(7	)		-			-		-			(7	)
Repurchase of common stock		0		0		0			0			26,676		(1,501	)		(1,501	)
Dividends on common stock		-		0		0			(4,320	)		-		0			(4,320	)		-		-		-			(4,320	)		-		-			(4,320	)
Share-based compensation		-		0		87			0			-		0			87			-		-		66			-			-		-			66
Net income		-		0		0			9,014			-		0			9,014			-		-		-			11,438			-		-			11,438
Balance, December 27, 2020		9,369,015	$	94	$	62,211		$	(40,662	)		5,254,081	$	(84,770	)	$	(63,127	)
Balance, December 26, 2021																				9,369,235	$	94	$	62,299		$	(32,924	)		5,254,081	$	(84,770	)	$	(55,301	)

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

6-6-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Thirty-nine weeks ended December ~~26, 2021~~25, 2022 and December ~~27, 2020~~26, 2021

(in thousands)

(Unaudited)

	December 26, 2021			December 27, 2020			December 25, 2022			December 26, 2021
Cash flows from operating activities:
Net income	$	11,438		$	9,014		$	16,358		$	11,438
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		807			900			837			807
Loss on disposal of property and equipment								87			-
Amortization of debt issuance costs		518			518			381			518
Share-based compensation expense		66			87			81			66
Provision for doubtful accounts		112			70			114			112
Deferred income taxes		(10	)		(14	)		(2	)		(10	)
Other non-cash items		(98	)		150			(114	)		(98	)
Changes in operating assets and liabilities:
Accounts and other receivables, net		(2,635	)		(1,300	)		218			(2,635	)
Inventories		253			(37	)		186			253
Prepaid expenses and other current assets		504			250			332			504
Other assets		128			14			20			128
Accounts payable, accrued expenses and other current liabilities		(1,395	)		(3,852	)		(4,856	)		(1,395	)
Deferred franchise fees		249			(137	)		(376	)		249
Other liabilities		(41	)		47			63			(41	)

Net cash provided by operating activities		9,896			5,710			13,329			9,896

Cash flows from investing activities:
Insurance proceeds for property and equipment								42			-
Purchase of property and equipment		(465	)		(398	)		(564	)		(465	)

Net cash used in investing activities		(465	)		(398	)		(522	)		(465	)

Cash flows from financing activities:
Dividends paid to stockholders		(4,320	)		(4,320	)		(5,524	)		(4,320	)
Payments of withholding tax on net share settlement of share-based compensation plans		(7	)		(6	)		-			(7	)
Repurchase of treasury stock		0			(1,501	)		(1,892	)		-

Net cash used in financing activities		(4,327	)		(5,827	)		(7,416	)		(4,327	)

Net increase (decrease) in cash and cash equivalents		5,104			(515	)
Net increase in cash and cash equivalents								5,391			5,104

Cash and cash equivalents, beginning of period		81,064			77,117			50,063			81,064

Cash and cash equivalents, end of period	$	86,168		$	76,602		$	55,454		$	86,168

Cash paid during the period for:
Interest	$	9,938		$	9,938		$	7,288		$	9,938
Income taxes paid	$	3,558		$	3,643		$	5,041		$	3,558

Non-cash financing activity:
Dividends declared per share	$	1.05		$	1.05		$	1.35		$	1.05

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

-7-

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December ~~26, 2021~~25, 2022

(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 December 25, 2022 and December 26, 2021 ~~and~~ ~~December 27, 2020~~ 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 prepared 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-K10-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 ~~fund revenue.~~funds revenue, and the recognition of income taxes using an estimated annual effective tax rate.

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-K10-K for the fiscal year ended March ~~28, 2021.~~27, 2022.

~~Covid-~~19COVID-19 Pandemic and Inflation

In March 2020, the World Health Organization declared the novel strain of coronavirus ~~(COVID-~~19)(COVID-19), a global pandemic. The ~~COVID-~~19COVID-19 pandemic has had anand may continue to have a significant impact on ~~the Company’s~~our 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 impact customer traffic at our Company-owned restaurants and franchised restaurants, as well as sales to our Branded Product Program customers.~~operations.

During fiscal 2022, we experienced pandemic and inflationary 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 ~~2022~~2023. Our average cost of hot dogs for the thirty-nine week period ended December 25, 2022 was approximately 3% higher than during the ~~number~~thirty-nine week period ended December 26, 2021.

Inflation has an impact on food, paper, utility, labor and benefits and other general and administrative expenses which can impact our results of ~~COVID-~~19 ~~cases continued~~operations. In general, we have been able to ~~stabilize with approved vaccines being more widely distributed~~offset cost increases resulting from inflation by increasing prices. We may not be able to offset cost increases in the future.

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

There is continued ~~to loosen restrictions, adhering to state and local guidelines. Although the Company experienced higher revenues during the fiscal~~ ~~2022~~ ~~period as compared~~uncertainty due to the ~~fiscal~~ ~~2021~~ ~~period, the COVID-~~19COVID-19 pandemic ~~may~~ ~~have a material adverse impact~~and supply chain disruptions and their impacts on the Company’s ~~business, results of operations~~business. We remain in regular contact with our major suppliers and ~~financial condition. There continues to be uncertainty around the COVID-~~19 ~~pandemic as the Omicron variant of COVID-~~~~19,~~ ~~which appears to be the most transmissible variant~~ to date ~~has caused a recent increase~~we have not experienced significant disruptions in ~~COVID-~~19 ~~cases globally. We~~our supply chain.

The extent to which COVID-19 will continue to impact the Company will depend on future developments, which cannot ~~predict~~be predicted, including the ~~ultimate~~ duration ~~scope~~ and severity of the ~~COVID-~~19COVID-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 ~~other~~evolving 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 ~~areas~~jurisdictions 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.

-8-

NOTE B – ~~ADOPTION OF NEW ACCOUNTING STANDARD~~

In ~~December 2019,~~ ~~the FASB issued ASU~~ ~~2019~~-~~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 C –~~ NEW ACCOUNTING STANDARD NOT YET ADOPTED

In June 2016, the FASB issued ASU ~~2016~~-~~13,~~2016-13, “Financial Instruments – Credit Losses (Topic ~~326~~)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~~(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-nine weeks ended December 25, 2022 and December 26, 2021 ~~and~~ ~~December 27, 2020~~ are as follows (in thousands):

Thirteen weeks ended

Thirty-nine weeks ended

Thirteen weeks ended

Thirty-nine weeks ended

December 26,
2021

December 27,
2020

December 26,
2021

December 27,
2020

December 25,
2022

December 26,
2021

December 25,
2022

December 26,
2021

Branded Products
$ 16,901 $ 10,003 $ 51,960 $ 24,450 $ 16,661 $ 16,901 $ 61,862 $ 51,960
Company-operated restaurants
1,736 1,319 9,502 6,247
Company-owned restaurants
1,679 1,736 10,673 9,502
Total sales
18,637 11,322 61,462 30,697 18,340 18,637 72,535 61,462

License royalties
5,878 5,898 24,218 24,689 6,337 5,878 26,064 24,218

Franchise royalties
744 361 2,581 880 829 744 2,785 2,581
Franchise fees
175 59 412 207 147 175 483 412
Total franchise fees and royalties
919 420 2,993 1,087 976 919 3,268 2,993

Advertising fund revenue
479 390 1,437 1,082 501 479 1,504 1,437

Total revenues
$ 25,913 $ 18,030 $ 90,110 $ 57,555 $ 26,154 $ 25,913 $ 103,371 $ 90,110

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

Thirteen weeks ended

Thirty-nine weeks ended

Thirteen weeks ended

Thirty-nine weeks ended

December 26,
2021

December 27,
2020

December 26,
2021

December 27,
2020

December 25,
2022

December 26,
2021

December 25,
2022

December 26,
2021

United States
$ 25,066 $ 17,810 $ 87,545 $ 56,723 $ 24,824 $ 25,066 $ 98,836 $ 87,545
International
847 220 2,565 832 1,330 847 4,535 2,565
Total revenues
$ 25,913 $ 18,030 $ 90,110 $ 57,555 $ 26,154 $ 25,913 $ 103,371 $ 90,110
-9-

Contract balances

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

December 26,
2021

March 28,
2021

December 25,
2022

March 27,
2022

Receivables, which are included in “Accounts and other receivables, net” (a)
$ 250 $ 0 $ - $ 312
Deferred franchise fees (b)
$ 2,022 $ 1,773 $ 1,721 $ 2,097

(a)
Includes receivables related to “franchise fees and royalties”

(b)
Deferred franchise fees of ~~$359~~$343 and ~~$1,663~~$1,378 as of December ~~26, 2021~~ 25, 2022 and ~~$237~~$349 and ~~$1,536~~$1,748 as of March ~~28, 2021~~ 27, 2022 are included in Deferred franchise fees – current and long term, respectively.

9

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

Thirty-nine weeks ended

Thirty-nine weeks ended

December 26,
2021

December 27,
2020

December 25,
2022

December 26,
2021

Deferred franchise fees at beginning of period
$ 1,773 $ 1,917 $ 2,097 $ 1,773
New deferrals due to cash received and other
107 661
Revenue recognized during the period
(412 ) (207 ) (483 ) (412 )
New deferrals due to cash received and other
661 70
Deferred franchise fees at end of period
$ 2,022 $ 1,780 $ 1,721 $ 2,022

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):

Estimate for fiscal year

Estimate for fiscal year

2022 (a)
$ 95
2023
342
2023 (a)
$ 86
2024
303 339
2025
286 322
2026
260 287
2027
168
Thereafter
736 519
Total
$ 2,022 $ 1,721

(a)
Represents franchise fees expected to be recognized for the remainder of the ~~2022~~2023 fiscal year, which includes international development fees expected to be recognized over the duration of one year or less. Amount does not include ~~$412~~$483 of franchise fee revenue recognized for the thirty-nine weeks ended December ~~26, 2021.~~25, 2022.
We have applied the optional exemption, as provided for under ASC Topic 606, Revenues from Contracts with Customers, which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

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.

-10-
The following chart provides a reconciliation of information used in calculating the per-share amounts for the thirteen and thirty-nine week periods ended December 25, 2022 and December 26, 2021, ~~and~~ ~~December 27, 2020,~~ respectively.

~~~~~~Thirteen weeks~~
Thirteen weeks

Net Income

Net Income

Number of Shares

Per Share

2022

2021

2022

2021

2022

2021

(in thousands)

(in thousands)

Basic EPS
Basic calculation
$ 3,263 $ 2,130 4,080 4,115 $ 0.80 $ 0.52
Effect of dilutive employee stock options
- - 36 - (0.01 ) -
Diluted EPS
Diluted calculation
$ 3,263 $ 2,130 4,116 4,115 $ 0.79 $ 0.52

Net Income

Net Income

Number of Shares

Per Share

2021

2020

2021

2020

2021

2020

(in thousands)

(in thousands)

Basic EPS

Basic calculation
$ 2,130 $ 1,359 4,115 4,115 $ 0.52 $ 0.33
Effect of dilutive employee stock options
- - 0 0 0 0
Diluted EPS

Diluted calculation
$ 2,130 $ 1,359 4,115 4,115 $ 0.52 $ 0.33
10

~~Thirty-~~~~nine~~ ~~weeks~~
Thirty-nine weeks

Net Income

Net Income

Net Income

Number of Shares

Per Share

Net Income

Number of Shares

Per Share

2021

2020

2021

2020

2021

2020

2022

2021

2022

2021

2022

2021

(in thousands)

(in thousands)

(in thousands)

(in thousands)

Basic EPS

Basic calculation
$ 11,438 $ 9,014 4,115 4,117 $ 2.78 $ 2.19 $ 16,358 $ 11,438 4,092 4,115 $ 4.00 $ 2.78
Effect of dilutive employee stock options
- - - - - - - - 12 - (0.01 ) -
Diluted EPS

Diluted calculation
$ 11,438 $ 9,014 4,115 4,117 $ 2.78 $ 2.19 $ 16,358 $ 11,438 4,104 4,115 $ 3.99 $ 2.78

Options to purchase 20,000 shares of common stock in the thirteen and thirty-nine week periods ended December 25, 2022 and December 26, 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.

~~Options to purchase 10,000 shares of common stock in the~~ ~~thirteen~~ ~~and~~ ~~thirty-nine~~ ~~week periods ended~~ ~~December 27, 2020,~~ ~~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 did not have any cash equivalents at December ~~26, 2021~~ 25, 2022 and March ~~28, 2021.~~27, 2022. The Company’s cash balances principally consist of cash in bank and money market accounts.

At December ~~26, 2021~~ 25, 2022 and March ~~28, 2021,~~ 27, 2022, substantially all of the Company’s cash balances are in excess of Federal government insurance limits. The Company ~~does~~ has not ~~believe that it is exposed to~~ experienced any ~~significant risk on these balances.~~losses in such accounts.

NOTE GF – FAIR VALUE MEASUREMENTS

Nathan’s follows a ~~three~~~~-level~~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

● 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

-11-
The face value and fair value of long-term debt ~~including the current portion,~~ as of December ~~26, 2021~~ 25, 2022 and March ~~28, 2021~~ 27, 2022 were as follows (in thousands):

December 26, 2021

March 28, 2021

Face value

Fair value

Face Value

Fair value

Long-term debt
$ 150,000 $ 152,961 $ 150,000 $ 154,420

December 25, 2022

March 27, 2022

Face value

Fair value

Face value

Fair value

Long-term debt
$ 110,000 $ 107,497 $ 110,000 $ 111,346

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.

11

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 December ~~26, 2021,~~ 25, 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):

December 26,

March 28,

December 25,

March 27,

2021

2021

2022

2022

Branded product sales
$ 10,185 $ 6,480 $ 9,301 $ 9,318
Franchise and license royalties
2,992 5,224 3,276 3,923
Other
1,183 293 753 391
14,360 11,997 13,330 13,632

Less: allowance for doubtful accounts
185 345 288 258
Accounts and other receivables, net
$ 14,175 $ 11,652 $ 13,042 $ 13,374

Accounts receivable are generally 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-nine week period ended December ~~26, 2021~~ 25, 2022 and the fiscal year ended March ~~28, 2021~~ 27, 2022 are as follows (in thousands):

December 26,
2021

March 28, 2021

December 25,
2022

March 27,
2022

Beginning balance
$ 345 $ 237 $ 258 $ 345
Bad debt expense
112 101 114 186
Write-offs and other
(272 ) 7
Write offs and other
(84 ) (273 )
Ending balance
$ 185 $ 345 $ 288 $ 258
-12-

NOTE IH – PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

December 26,

March 28,

December 25,

March 27,

2021

2021

2022

2022

Income taxes
$ 0 $ 280
Real estate taxes
140 87 $ 151 $ 71
Insurance
257 388 306 327
Marketing
181 196 372 653
Other
243 374 280 390
Total prepaid expenses and other current assets
$ 821 $ 1,325 $ 1,109 $ 1,441

12

NOTE JI – ~~GOODWILL AND~~ 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 the trade name 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 six years concluding in fiscal year 2028, and the intangible asset is subject to annual amortization. The Company ~~reviews its definite-lived intangible asset for~~performs an annual impairment ~~whenever~~test, or more frequently if events or changes in circumstances indicate that the ~~carrying value~~ intangible asset may ~~not~~be ~~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 tested~~tests 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 upon~~agreements. 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 0~~may be required to record an impairment charge ~~was recorded for~~in 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 periods ended December ~~26, 2021~~ ~~and~~ 25, 2022 that would indicate that the carrying amount of the Company’s intangible asset may be impaired as of December ~~27, 2020.~~25, 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~~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 ~~impairments~~impairment 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 and thirty-nine week periods ended December 25, 2022 that would indicate that the carrying amount of the Company’s ~~analysis,~~ nolong-lived assets ~~were deemed to~~may be 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.~~25, 2022.
-13-

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

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

December 26,

March 28,

2021

2021

Payroll and other benefits
$ 2,207 $ 2,793
Accrued rebates
288 132
Rent and occupancy costs
91 73
Deferred revenue
0 841
Construction costs
58 60
Interest
1,552 4,057
Professional fees
150 200
Sales, use and other taxes
71 60
Corporate income taxes
571 0
Other
422 262
Total accrued expenses and other current liabilities
$ 5,410 $ 8,478
13

~~Other liabilities consist of the following (in thousands):~~

December 26,

March 28,

2021

2021

Reserve for uncertain tax positions
$ 733 $ 653
Other
0 121
Total other liabilities
$ 733 $ 774

December 25,

March 27,

2022

2022

Payroll and other benefits
$ 2,590 $ 3,109
Accrued rebates
156 166
Rent and occupancy costs
118 90
Deferred revenue
- 876
Construction costs
- 58
Interest
1,131 2,968
Professional fees
71 129
Sales, use and other taxes
55 39
Corporate income taxes
1,094 103
Other
296 295
Total accrued expenses and other current liabilities
$ 5,511 $ 7,833

NOTE ML – INCOME TAXES

On ~~March 27, 2020,~~ The effective income tax rates for the ~~Coronavirus Aid, Relief~~thirteen weeks ended December 25, 2022 and ~~Economic Security Act (the “CARES Act”) was enacted into law which among other provisions increases~~December 26, 2021 were 27.3% and 28.8%, respectively. The effective income tax rate for the ~~limitation~~thirteen weeks ended December 25, 2022 reflected $1,223 of income tax expense recorded on $4,486 of pre-tax income. The effective income tax rate for the ~~allowed business interest~~thirteen weeks ended December 26, 2021 reflected $860 of income tax expense ~~deduction from~~ 30 ~~percent to~~ 50 ~~percent~~recorded on $2,990 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.~~pre-tax income.

The effective income tax ~~provisions~~rates for the thirty-nine ~~week periods~~ weeks ended December 25, 2022 and December 26, 2021 were 27.1% and 28.1%, respectively. The effective income tax rate for the thirty-nine weeks ended December ~~27, 2020~~ ~~reflect~~25, 2022 reflected $6,093 of income tax expense recorded on $22,451 of pre-tax income. The effective income tax rate for the thirty-nine weeks ended December 26, 2021 reflected $4,477 of income tax expense recorded on $15,915 of pre-tax income.
The effective income tax rates ~~of 28.1%~~for the thirteen and ~~27.7%, respectively.~~thirty-nine weeks ended December 25, 2022 and December 26, 2021 were higher than the United States statutory income tax rate primarily due to state and local taxes.

The amount of unrecognized tax benefits included in Other Liabilities at December ~~26, 2021~~ 25, 2022 and March 27, 2022 was ~~$445,000~~$437 and $403, respectively, all of which would impact ~~Nathan’s~~the Company’s effective tax rate, if recognized. As of December ~~26, 2021,~~ ~~Nathan’s~~25, 2022 and March 27, 2022, the Company had ~~$307,000~~approximately $315 and $271, respectively, accrued for the payment of ~~accrued~~ interest and penalties in connection with unrecognized tax benefits.

On August 16, 2022, the United States enacted the Inflation Reduction Act. Among other provisions, this new law imposes a 1% excise tax on stock buybacks made after December 31, 2022, with certain exceptions including stock repurchases of less than $1,000 within a tax year. We are not expecting this new law to have a material effect on our consolidated financial statements.

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-operated~~Company-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 ~~french~~French fries and additional products through retail grocery channels and club stores throughout the United States.

-14-
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.

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 and expenses of the ~~advertising fund.~~Advertising Fund.

Interest expense, interest income, and other (expense) 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.

14

Operating segment information is as follows (in thousands):

Thirteen weeks ended
Thirty-nine weeks ended

December 26,
2021

December 27,
2020

December 26,
2021

December 27,
2020

Revenues

Branded Product Program
$ 16,901 $ 10,003 $ 51,960 $ 24,450
Product licensing
5,878 5,898 24,218 24,689
Restaurant operations
2,655 1,739 12,495 7,334
Corporate (1)
479 390 1,437 1,082
Total revenues
$ 25,913 $ 18,030 $ 90,110 $ 57,555

Income from operations

Branded Product Program
$ 1,681 $ 1,550 $ 5,096 $ 3,074
Product licensing
5,832 5,852 24,081 24,552
Restaurant operations
(69 ) (1,162 ) 623 (2,193 )
Corporate
(1,831 ) (1,837 ) (6,046 ) (5,352 )
Income from operations
$ 5,613 $ 4,403 $ 23,754 $ 20,081

Interest expense
(2,650 ) (2,650 ) (7,951 ) (7,951 )
Interest income
24 89 88 309
Other income, net
3 9 24 31
Income before provision for income taxes
$ 2,990 $ 1,851 $ 15,915 $ 12,470

Thirteen weeks ended
Thirty-nine weeks ended

December 25,
2022

December 26,
2021

December 25,
2022

December 26,
2021

Revenues
Branded Product Program
$ 16,661 $ 16,901 $ 61,862 $ 51,960
Product licensing
6,337 5,878 26,064 24,218
Restaurant operations
2,655 2,655 13,941 12,495
Corporate (1)
501 479 1,504 1,437
Total revenues
$ 26,154 $ 25,913 $ 103,371 $ 90,110

Income from operations
Branded Product Program
$ 2,451 $ 1,681 $ 7,003 $ 5,096
Product licensing
6,292 5,832 25,928 24,081
Restaurant operations
(238 ) (69 ) 1,879 623
Corporate
(2,173 ) (1,831 ) (6,784 ) (6,046 )
Income from operations
$ 6,332 $ 5,613 $ 28,026 $ 23,754

Interest expense
(1,944 ) (2,650 ) (5,831 ) (7,951 )
Interest income
158 24 260 88
Other (expense) income, net
(60 ) 3 (4 ) 24
Income before provision for income taxes
$ 4,486 $ 2,990 $ 22,451 $ 15,915

(1)
(1)
Represents advertising fund ~~revenue~~revenue.

NOTE ON – SHARE-BASED COMPENSATION

Total share-based compensation during each of the thirteen~~-week~~ and thirty-nine week periods ended December 25, 2022 and December 26, 2021 was $65 and ~~December 27, 2020~~ ~~was $8,000~~$8, and ~~$29,000, respectively. Total share-based compensation during each of the~~ ~~thirty-nine~~ ~~week periods ended~~ ~~December 26, 2021~~ $81 and ~~December 27, 2020~~ ~~was $66,000 and $87,000,~~$66, respectively. As of December ~~26, 2021,~~ 25, 2022, there was ~~$122,000~~$3,409 of unamortized compensation expense related to share-based incentive awards. We expect to recognize this expense over approximately ~~twenty-two~~fifty-five months, which represents the weighted average remaining requisite service periods for such awards.
During the thirty-nine week period ended December 25, 2022, the Company granted 50,000 restricted stock units at a fair value of $67.59 per unit representing the closing price on the date of grant, which will be fully vested five years from the date of grant. The restricted stock units vest ratably over a five-year period as follows: 10,000 restricted stock units on December 8, 2023; 10,000 restricted stock units on December 8, 2024; 10,000 restricted stock units on December 8, 2025; 10,000 restricted stock units on December 8, 2026; and 10,000 restricted stock units on December 8, 2027.

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 Thirty-nine weeks ended

December 25,
2022

December 26,
2021

December 25,
2022

December 26,
2021

Stock options
$ 8 $ 8 $ 24 $ 52
Restricted stock units
57 - 57 14
Total compensation cost
$ 65 $ 8 $ 81 $ 66

Thirteen weeks ended Thirty-nine weeks ended

December 26,
2021

December 27,
2020

December 26,
2021

December 27,
2020

Stock options
$ 8 $ 21 $ 52 $ 64
Restricted stock
0 8 14 23
Total compensation cost
$ 8 $ 29 $ 66 $ 87
-15-

Stock options:

~~During~~There were no new share-based awards granted during the thirty-nine week period ended December ~~26, 2021,~~ ~~the Company granted options to purchase 10,000 shares at an exercise price of $68.50 per share, all of which expire~~ ~~five~~ ~~years from the date of grant. All such options vest ratably over a~~ ~~four-year period commencing~~ ~~August 10, 2021.~~
~~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~~ ~~week period ended~~ ~~December 26, 2021~~ ~~are as follows:~~
Weighted-average option fair values
$ 13.04
Expected life (years)
4.4
Interest rate
0.82 %
Volatility
27.69 %
Dividend yield
2.04 %
15

The expected dividend yield is based on historical and projected dividend yields. The Company estimates 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 grant. The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on expected historical exercise patterns and employment termination behavior.25, 2022.

Transactions with respect to stock options for the thirty-nine weeks ended December ~~26, 2021~~ 25, 2022 are as follows:

Weighted-

Weighted-

Aggregate

Average

Average

Intrinsic

Exercise

Remaining

Value

Shares

Price

Contractual Life

(in thousands)

Options outstanding at March 28, 2021
10,000 $ 89.90 2.46 -
Granted
10,000 $ 68.50 4.62 -
Exercised
- 0 - 0
Options outstanding at December 26, 2021
20,000 $ 79.20 3.17 0

Options exercisable at December 26, 2021
10,000 $ 89.90 1.71 0

Weighted-

Weighted-

Aggregate

Average

Average

Intrinsic

Exercise

Remaining

Value

Shares

Price

Contractual Life

(in thousands)

Options outstanding at March 27, 2022
20,000 $ 79.20 2.92 -
Granted
- - - -
Exercised
- - - -
Options outstanding at December 25, 2022
20,000 $ 79.20 2.17 -

Options exercisable at December 25, 2022
12,500 $ 85.62 1.29 -

Restricted ~~stock:~~stock units:

Transactions with respect to restricted stock units for the thirty-nine weeks ended December ~~26, 2021~~ 25, 2022 are as follows:

Weighted-
Average
Grant-date
Fair value

Weighted-

Shares

Per share

Average

Unvested restricted stock at March 28, 2021
333 $ 89.90

Grant-date
Fair value

Shares

Per share

Unvested restricted stock units at March 27, 2022
-- $ --
Granted
0 0 50,000 $ 67.59
Vested
(333 ) $ 89.90 -- $ -
Unvested restricted stock at December 26, 2021
0 0
Unvested restricted stock units at December 25, 2022
50,000 $ 67.59

NOTE ~~P –~~O– STOCKHOLDERS’ EQUITY

1. Dividends

Effective June ~~11, 2021,~~ 10, 2022, the Company’s Board of Directors (the “Board”) declared its first quarterly cash dividend of ~~$0.35~~$0.45 per share for fiscal ~~year~~ ~~2022,~~ ~~aggregating $1,440,000,~~2023, which was paid on June ~~25, 2021~~ 24, 2022 to stockholders of record as of the close of business on June ~~21, 2021.~~20, 2022.

Effective August ~~6, 2021,~~ 5, 2022, the Board declared its second quarterly cash dividend of ~~$0.35~~$0.45 per share for fiscal ~~year~~ ~~2022,~~ ~~aggregating $1,440,000,~~2023, which was paid on September ~~3, 2021~~ 2, 2022 to stockholders of record as of the close of business on August ~~23, 2021.~~22, 2022.

Effective November ~~5, 2021,~~ 3, 2022, the Board declared its third quarterly cash dividend of ~~$0.35~~$0.45 per share for fiscal ~~year~~ ~~2022,~~ ~~aggregating $1,440,000,~~2023 which was paid on December ~~3, 2021~~ 2, 2022 to stockholders of record as of the close of business on November ~~22, 2021.~~21, 2022.

Effective February ~~4, 2022,~~ 2, 2023, the Board authorized the increase of its regular dividend from ~~$0.35~~$0.45 to ~~$0.45~~$0.50 per quarter and declared its fourth quarterly cash dividend of ~~$0.45~~$0.50 per share payable on March ~~4, 2022~~ 3, 2023 to stockholders of record as of the close of business on February 21, ~~2022.~~2023.

Our ability to pay future dividends is limited by the terms of the Indenture with U.S. Bank National Association, as trustee and collateral ~~trustee (see Note Q).~~trustee. In addition to the terms of the Indenture, 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. ~~Stock Incentive Plans~~
On ~~September 18, 2019,~~ ~~the Company’s shareholders approved the Nathan’s Famous, Inc.~~ ~~2019~~ ~~Stock Incentive Plan (the~~ ~~“2019~~ ~~Plan”). The~~ ~~2019~~ ~~Plan became effective as of~~ ~~July 1, 2020 (~~~~the "Effective Date"). Following the Effective Date, (i)~~ no ~~additional stock awards were granted under the~~ ~~2010~~ ~~Plan and (ii) all outstanding stock awards previously granted under the~~ ~~2010~~ ~~Plan remained subject to the terms of the~~ ~~2010~~ ~~Plan. All awards granted on or after the Effective Date are subject to the terms of the~~ ~~2019~~ ~~Plan.~~
16

~~As of the Effective Date, we were able to issue up to: (a) 369,584 shares of common stock under the~~ ~~2019~~ ~~Plan which includes: (i) shares that had been authorized but~~ ~~not~~ ~~issued pursuant to the~~ ~~2010~~ Plan as of the Effective Date up to a maximum of an additional 208,584 shares and (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of the Effective Date and that subsequently expired unexercised, or were otherwise forfeited, up to a maximum of an additional 11,000 shares. As of ~~December 26, 2021,~~ ~~there were up to 198,584 shares available to be issued for future option grants or up to 181,683 shares of restricted stock to be granted under the~~ ~~2019~~ ~~Plan.~~
3. Stock Repurchase Program

~~During the period from~~ ~~October 2001~~ ~~through~~ ~~December 26, 2021,~~ ~~Nathan’s purchased 5,254,081 shares of common stock at a cost of $84,770,000 pursuant to various stock repurchase plans previously authorized by the Board. During the~~ ~~thirty-nine~~ ~~week period ended~~ ~~December 26, 2021,~~ ~~we did~~ ~~not~~ ~~repurchase any shares of common stock.~~
In 2016, the Board 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 December ~~26, 2021,~~ 25, 2022, Nathan’s had repurchased ~~1,066,450~~1,101,884 shares at a cost of ~~$37,108,000~~ $39,000under the sixth stock repurchase plan. At December ~~26, 2021~~ 25, 2022 there were ~~133,550~~98,116 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~~privately-negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases.

-16-
On ~~March 13, 2020,~~ June 14, 2022, the Board approved a ~~10b5~~-1 ~~stock plan~~10b5-1 Plan (the ~~“10b5~~-1“10b5-1 Plan”) which expired on ~~August 12, 2020.~~ September 13, 2022.
During the ~~fiscal~~ ~~2021~~thirty-nine week period ended December 25, 2022, the Company repurchased in open market transactions ~~26,676~~35,434 shares of the Company’s common stock at an average share price of ~~$56.26~~$53.39 for a total cost of ~~$1,501,000~~$1,892 under the ~~10b5~~-110b5-1 Plan.

NOTE QP – LONG-TERM DEBT

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

December 26,

March 28,

2021

2021

6.625% Senior Secured Notes due 2025
$ 150,000 $ 150,000
Less: unamortized debt issuance costs
(2,651 ) (3,169 )
$ 147,349 $ 146,831

Less: Current maturities of long-term debt
(40,000 ) 0
Long-term debt, net
$ 107,349 $ 146,831
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 an indenture dated as of~~ ~~November 1, 2017~~ ~~by and among the Company, certain of its wholly-owned subsidiaries and U.S. Bank National Association (the “Indenture”). The Company used the net proceeds of the~~ ~~2025~~ ~~Notes offering to satisfy and discharge the Indenture relating to the $135,000,000 of~~ ~~10.000%~~ ~~Senior Secured Notes due~~ ~~2020~~ and redeemed such notes (the "Redemption"), paid a portion of a special $5.00 per share cash dividend to Nathan's stockholders of record, and used 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 required semi-annual interest payments of $4,968,750 on~~ ~~May 1, 2021~~ ~~and~~ ~~November 1, 2021.~~
~~The~~ ~~2025~~ ~~Notes 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 (terms~~ ~~not~~ ~~defined shall have the meanings set forth in the Indenture):~~
~~There are~~ no ~~financial maintenance covenants associated with the~~ ~~2025~~ ~~Notes. As of~~ ~~December 26, 2021,~~ ~~Nathan’s was in compliance with all covenants associated with the~~ ~~2025~~ ~~Notes.~~
17

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.~~
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, 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.~~
~~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.~~
~~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~~ %
18

On ~~December 15, 2021,~~ ~~the Company announced its intent to complete the partial redemption, in the principal amount of $40,000,000, of the~~ ~~2025~~ Notes, in accordance with the terms and conditions of the Indenture. The redemption price of the redeemed notes was 101.656% of the principal amount, plus accrued and unpaid interest from, and including ~~November 1, 2021~~ ~~to, but excluding, the redemption date of~~ ~~January 26, 2022.~~ On ~~January 26, 2022,~~ ~~the Company redeemed $40,000,000 of the~~ ~~2025~~ Notes by paying cash of $41,288,094, inclusive of the redemption premium and accrued interest, and recognized a loss on early extinguishment of approximately $1,400,000 that primarily reflected the redemption premium and the write-off of a portion of previously recorded debt issuance costs.
~~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.~~
~~If the Company sells certain 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.~~

December 25,

March 27,

2022

2022

6.625% Senior Secured Notes due 2025
$ 110,000 $ 110,000
Less: unamortized debt issuance costs
(1,436 ) (1,817 )
Long-term debt, net
$ 108,564 $ 108,183

NOTE RQ – LEASES

The Company is party as lessee to various leases for its ~~Company-operated~~Company-owned restaurants and lessee/sublessor to one franchised location property, including land and buildings, as well as leases for its corporate office and certain office equipment.

Company as lessee

The components of the net lease cost for the thirteen and thirty-nine week periods ended December 25, 2022 and December 26, 2021 ~~and~~ ~~December 27, 2020~~ were as follows (in thousands):

Thirteen weeks ended

Thirty-nine weeks ended

Thirteen weeks ended

Thirty-nine weeks ended

December 26,
2021

December 27,
2020

December 26,
2021

December 27,
2020

December 25,
2022

December 26,
2021

December 25,
2022

December 26,
2021

Statement of Earnings

Operating lease cost
$ 378 $ 370 $ 1,223 $ 1,181 $ 378 $ 378 $ 1,214 $ 1,223
Variable lease cost
57 292 1,023 1,007 396 57 1,246 1,023
Less: Sublease income, net
(41 ) (9 ) (62 ) (31 ) (22 ) (41 ) (64 ) (62 )

Total net lease cost ~~(a)~~
$ 394 $ 653 $ 2,184 $ 2,157 $ 752 $ 394 $ 2,396 $ 2,184

~~(a)~~
The following table presents the components of the net lease cost on the Consolidated Statement of Earnings for the thirteen and thirty-nine week periods ended December 25, 2022 and December 26, 2021 (in thousands):
~~Includes $243, net and $502, net for the~~ ~~thirteen~~ ~~week periods ended~~ ~~December 26, 2021~~ ~~and~~ ~~December 27, 2020,~~ ~~respectively, and $1,713, net and $1,696, net for the~~ ~~thirty-nine~~ ~~week periods ended~~ ~~December 26, 2021~~ ~~and~~ ~~December 27, 2020,~~ ~~respectively, recorded to “Restaurant Operating Expenses” for leases for Company-owned restaurants.~~

~~Includes $192 and $160 for the~~ ~~thirteen~~ ~~week periods ended~~ ~~December 26, 2021~~ ~~and~~ ~~December 27, 2020,~~ ~~respectively, and $533 and $492 for the~~ ~~thirty-nine~~ ~~week periods ended~~ ~~December 26, 2021~~ ~~and~~ ~~December 27, 2020,~~ ~~respectively, recorded to “General and administrative expenses” for leases for corporate offices and equipment.~~
~~Also includes $41 and $9 for the~~ ~~thirteen~~ ~~week periods ended~~ ~~December 26, 2021~~ ~~and~~ ~~December 27, 2020,~~ ~~respectively, and $62 and $31 for the~~ ~~thirty-nine~~ ~~week periods ended~~ ~~December 26, 2021~~ ~~and~~ ~~December 27, 2020,~~ ~~respectively, recorded to “Other income, net” for leased properties that are leased to franchisees.~~

Thirteen weeks ended

Thirty-nine weeks ended

December 25,
2022

December 26,
2021

December 25,
2022

December 26,
2021

Restaurant operating expenses
$ 589 $ 243 $ 1,908 $ 1,713
General and administrative expenses
185 192 552 533
Less: Other income, net
(22 ) (41 ) (64 ) (62 )

Total net lease cost
$ 752 $ 394 $ 2,396 $ 2,184

Cash paid for amounts included in the measurement of lease liabilities were as follows (in thousands):

Thirteen weeks ended

Thirty-nine weeks ended

December 26,
2021

December 27,
2020

December 26,
2021

December 27,
2020

Operating cash flows from operating leases
$ 187 $ 153 $ 544 $ 560

Thirteen weeks ended

Thirty-nine weeks ended

December 25,
2022

December 26,
2021

December 25,
2022

December 26,
2021

Operating cash flows from operating leases
$ 216 $ 187 $ 950 $ 544

19
-17-

The weighted average remaining lease term and weighted average discount rate for operating leases as of December ~~26, 2021~~ 25, 2022 were as follows:

Weighted average remaining lease term (years):

~~Operating leases~~
~~6.5~~5.6

Weighted average discount rate:

~~Operating leases~~
~~8.875~~8.868 %

Future lease commitments to be paid and received by the Company as of December ~~26, 2021~~ 25, 2022 were as follows (in thousands):

Payments

Receipts

Payments

Receipts

Operating Leases

Subleases

Net Leases

Operating Leases

Subleases

Net Leases

Fiscal year:

2022 (a)
$ 381 $ 38 $ 343
2023
1,849 168 1,681
2023 (a)
$ 383 $ 42 $ 341
2024
1,774 169 1,605 1,782 271 1,511
2025
1,678 169 1,509 1,687 274 1,413
2026
1,712 169 1,543 1,717 278 1,439
2027
1,726 281 1,445
Thereafter
3,762 183 3,579 2,036 624 1,412
Total lease commitments
$ 11,156 $ 896 $ 10,260 $ 9,331 $ 1,770 $ 7,561
Less: Amount representing interest
2,628 1,921
Present value of lease liabilities (b)
$ 8,528 $ 7,410

(a)
Represents future lease commitments to be paid and received by the Company for the remainder of the ~~2022~~2023 fiscal year. Amount does not include ~~$1,222~~$1,216 of lease commitments paid and received by the Company for the thirty-nine week period ended December ~~26, 2021.~~25, 2022.

(b)
The present value of minimum operating lease payments of ~~$1,848~~$1,827 and ~~$6,680~~$5,583 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively on the Consolidated Balance Sheet.

Company as lessor

The components of lease income for the thirteen and thirty-nine week periods ended December 25, 2022 and December 26, 2021 ~~and~~ ~~December 27, 2020~~ were as follows (in thousands):

Thirteen weeks ended

Thirty-nine weeks ended

December 26, 2021

December 27, 2020

December 26, 2021

December 27, 2020

Operating lease income, net
$ 41 $ 9 $ 62 $ 31

Thirteen weeks ended

Thirty-nine weeks ended

December 25,
2022

December 26,
2021

December 25,
2022

December 26,
2021

Operating lease income, net
$ 22 $ 41 $ 64 $ 62

NOTE SR – COMMITMENTS AND CONTINGENCIES

1.
1.Commitments

On ~~February 27, 2017,~~ ~~a wholly-owned subsidiary~~December 8, 2022, the Company amended its employment agreement with its Executive Chairman 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 was obligated to make payments under~~Board, Howard M. Lorber. Under the ~~Brooklyn Guaranty in~~amendment, the ~~event of a default by the tenant/franchisee. The Brooklyn Guaranty had an initial~~ term of 10 ~~years~~the employment agreement was extended from December 31, 2022 to December 31, 2027. In addition, Mr. Lorber received a grant of 50,000 restricted stock units subject to vesting as provided in a Restricted Stock Unit Award Agreement between Mr. Lorber and ~~one~~5~~-year option and was limited to~~ 24 ~~months of rent for~~ the ~~first~~~~three~~ ~~years of the term. For the remainder of the term, the Brooklyn Guaranty was limited to~~ 12 ~~months of rent plus reasonable costs of collection and attorney’s fees.~~Company.

2.
~~The Company entered into a termination of lease agreement effective~~ ~~January 15, 2022 (~~the “Termination Date”). As consideration for all outstanding amounts due and payable under the Brooklyn Guaranty, the Company agreed to pay a termination fee in the amount of $75,000, of which the Company agreed to pay 50% or $37,500 and the tenant/franchisee agreed to pay 50% or $37,500. The Company paid its share of the termination fee in ~~January 2022.~~
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.

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NOTE TS – SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date the ~~consolidated interim financial statements~~Consolidated Financial Statements were issued and filed with the ~~U.S. Securities and Exchange Commission.~~SEC. There were no ~~other~~ subsequent events that require recognition or disclosure.

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

Forward-Looking Statements

This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1933, as amended, that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes”, “expects”, “projects”, “may”, “would”, “should”, “seeks”, “intends”, “plans”, “estimates”, “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements contained in this Form 10-Q are based upon information available to us on the date of this Form 10-Q.

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 impact of the COVID-19 pandemic; 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., a wholly-owned subsidiary of Smithfield Foods, Inc., the impact of our debt service and repayment obligations under the 2025 Notes, including the effect on our ability to fund working capital, operations and make new investments; economic (including inflationary pressures like those currently being experienced), weather (including the ~~affects~~impact on the supply of cattle and the impact ~~of weather~~ on sales at our restaurants, particularly during the summer months), and change 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 and business ~~conditions or tariffs;~~conditions; the collectibility of receivables; changes in consumer tastes; the continued viability of Coney Island as a destination location for visitors; the ability to continue to attract franchisees; the impact of the minimum wage legislation on labor costs in New York State or other changes in labor laws, including ~~court decisions~~regulations which could render a franchisor as a “joint employee” or the impact of our union contracts; our ability to attract competent restaurant and managerial personnel; the enforceability of international franchising ~~agreements and~~agreements; the future effects of any food borne ~~illness;~~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 ~~28, 2021,~~27, 2022, and in other documents we file with the U.S. 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.

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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 the royalties, fees and other sums we can earn from franchising the Nathan’s restaurant concept (including the Branded Menu Program and virtual ~~or “ghost”~~ kitchens).
At December 25, 2022, our restaurant system, excluding virtual kitchens, consisted of 233 Nathan’s franchised units, including 120 Branded Menu Program units, and four Company-owned units (including one seasonal unit), located in 17 states, and 12 foreign countries (including 2 Branded Menu units in Ukraine which are temporarily closed as a result of the Russia-Ukraine conflict). Our virtual kitchens in operation consisted of 226 units located in 19 states and four foreign countries.

At December 26, 2021, our restaurant system, excluding virtual ~~or “ghost”~~ kitchens, consisted of 242 Nathan’s franchised units, including 120 Branded Menu Program units, and four Company-owned units (including one seasonal unit), located in 18 states, and 14 foreign countries. ~~At December 27, 2020, our restaurant system, excluding~~Our virtual ~~or “ghost”~~ kitchens in operation consisted of ~~215 Nathan’s franchised~~277 units ~~including 93 Branded Menu Program units, and four Company-owned units (including one seasonal unit),~~ located in 1920 states and 9six foreign countries.

Our ~~strategic emphasis~~primary focus is ~~focused on~~to expand the market penetration of the Nathan’s Famous brand by increasing the number of distribution points for our products across all of our business platforms, including our Licensing Program for distribution of Nathan’s Famous branded consumer packaged goods, our Branded Products Program for distribution of Nathan’s Famous branded bulk products to the foodservice industry, and our namesake restaurant system comprised of both Company-owned and franchised units, including virtual ~~or “ghost”~~ kitchens. The primary drivers of our recent growth have been our Licensing and Branded Product Programs which have been the largest contributors to the Company’s profits.

We continue to reinvigorate our restaurant system. The operating plan we have adopted in this regard is focused on surrounding our core items, Nathan’s World Famous Beef Hot Dogs and crinkle-cut French fried potatoes, with other much higher quality menu items, including fresh angus hamburgers and hand-dipped chicken sandwiches, developed to deliver best-in-class customer experience and greater customer frequency. Menu development activities have been combined with concept positioning efforts, operational improvements and more effective digital and social marketing campaigns. The goal is to improve the performance of the existing restaurant system and to grow it through franchising efforts, including virtual or “ghost” kitchens. While we do not expect to significantly increase the number of Company-owned ~~restaurants,~~units, we may opportunistically and strategically invest in a small number of new units as showcase locations for prospective franchisees and master developers as we seek to grow our franchise system. We continue to seek opportunities to drive sales in a variety of ways as we adapt to the ever-changing consumer and environment. ~~Our virtual or “ghost” kitchens should position us to further expand our delivery options and should allow us to reach even more of our customers.~~

As described in our Annual Report on Form 10-K for the year ended March ~~28, 2021,~~27, 2022, our future results could be materially impacted by many developments including the impact of the COVID-19 pandemic on our business, our dependence on ~~John Morrell & Co.~~Smithfield Foods, Inc. as our principal supplier and the dependence of our licensing revenue and overall profitability on our agreement with ~~John Morrell & Co.~~Smithfield Foods, Inc. In addition, our future operating results could be impacted by supply constraints on beef or by increased costs of beef, beef trimmings and other commodities due to inflationary pressures compared to earlier ~~periods in addition to the potential impact that any future tariffs may have on the business.~~periods.

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 Company’s 10.000% Senior Secured Notes due 2020, paid a portion of the special $5.00 cash dividend and used ~~any~~the remaining proceeds for general corporate purposes, including working capital.
On January 26, 2022, the Company redeemed $40,000,000 in aggregate principal amount of its 2025 Notes. As a result of the partial redemption, the Company expects to reduce its future cash interest ~~exposure~~expense by $2,650,000 per annum.

As described below, we are also including information relating to EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, in ~~the~~this Form 10-Q quarterly report. See “Reconciliation of GAAP and Non-GAAP Measures.”

Impact of COVID-19 ~~pandemic on our business~~Pandemic

In March 2020, the World Health Organization declared a global pandemic related to the outbreak of a novel strain of coronavirus, designated COVID-19.
COVID-19 related pressures have continued during the thirty-nine weeks ended December 25, 2022 (“~~COVID-19”~~fiscal 2023 period”), although to a ~~global pandemic. During~~lesser extent than during the ~~first half~~thirty-nine weeks ended December 26, 2021 (“fiscal 2022 period”). As approved vaccines continue to be distributed and administered, state and local restrictions continue to be lessened. Despite the fact that vaccines are now widely available across the country, there have been increases in diagnosed cases reported due to the spread of additional COVID-19 variants.
Customer traffic at our Company-owned restaurants, in particular at Coney Island, during the fiscal 2023 period increased by approximately 12% over the fiscal 2022 period. Additionally, we experienced increased customer traffic within our franchise system, including airport locations; highway travel plazas; shopping malls; movie theaters; and casino locations, primarily in Las Vegas, Nevada. The increase in customer traffic translated into higher Company-owned restaurant sales and higher franchise fees and royalties during the fiscal 2023 period than during the ~~number~~fiscal 2022 period.
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Additionally, as the level of ~~COVID-19 cases continued~~comfort of consumers gathering in social settings increases and travel continues to ~~stabilize with approved vaccines being more widely distributed~~increase, our Branded Product Program customers, including professional sports arenas, amusement parks, shopping malls and ~~administered and, as a result, more regions continued~~movie theaters have experienced stronger attendance contributing to ~~loosen restrictions, adhering to state and local guidelines.~~higher sales.

~~Although~~We continue to follow guidance from health officials in determining the ~~Company experienced higher revenue~~appropriate restrictions, if any, to place within our operations. Our Company-owned and franchised restaurants could be disrupted by COVID-19 related employee absences or due to changes in the ~~first nine months~~availability and cost of ~~fiscal 2022 compared to the first nine months of fiscal 2021, there~~labor.
There continues to be uncertainty around the COVID-19 pandemic as ~~the~~variants including Omicron ~~variant of COVID-19, which appears to be the most transmissible variant to date, has~~and others have caused a recent increase in COVID-19 cases globally and has also led to evolving recommendations and restrictions by federal, state and local government officials. Our ability to attract and retain employees at our Company-owned restaurants remains challenged, as the job market for these employees has become more competitive. The challengesincreases in the ~~labor market have also affected some suppliers, resulting in some intermittent product shortages. The Company~~number of reported COVID-19 cases. We cannot predict ~~if new variants of COVID-19, in addition to~~ the ~~Delta variant~~ultimate duration, scope and the Omicron variant, will be discovered or if there will be another surge, what additional restrictions may be enacted, to what extent it can maintain off-premises sales volumes, whether it can maintain sufficient staffing levels, or if individuals will be comfortable returning to its dining rooms or venues such as professional sports arenas, amusement parks, shopping malls or movie theaters during or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the Company as a whole.
22

~~The full impact~~severity of the COVID-19 pandemic ~~continues~~or its ultimate impact on our business in the short or long-term. The ongoing economic impacts and health concerns associated with the pandemic may continue to ~~evolve as~~affect consumer behavior, spending levels, and may result in reduced customer traffic and consumer spending trends that may adversely impact our financial condition and results of ~~the~~operations.
Inflation
We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, we have experienced rising transportation costs, rising costs of ~~this report. The duration of the disruption on global, national, and local economies cannot be reasonably estimated at this time~~hot dogs due to the higher costs for beef and beef trimmings, and other food costs and paper products, which could continue to increase as the impact of COVID-19 continues across the supply chain.
The ongoing effects of ~~this situation. Management is continually evaluating~~COVID-19 and its variants, along with other macroeconomic events could lead to further wage inflation, product cost inflation and supply chain challenges during the remainder of fiscal 2023 and may impact ~~of this global crisis on its financial condition, liquidity, operations, and workforce~~our operations.
In general, we have been able to offset cost increases resulting from inflation by increasing prices. We continue to monitor these inflationary pressures and will ~~take additional actions~~continue to implement mitigation plans as ~~necessary.~~needed. Delays in implementing price increases, competitive pressures, consumer spending levels and other factors may limit our ability to implement further price increases in the future.

Critical Accounting Policies and Estimates

As discussed in our Form 10-K for the fiscal year ended March ~~28, 2021,~~27, 2022, 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 consolidated financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those consolidated 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; ~~leases;~~ impairment of ~~goodwill and other~~ intangible assets; impairment of long-lived assets; ~~share-based compensation~~ and income taxes (including uncertain tax positions). ~~Except for the adoption in Note B – ASU 2019-12, “~~~~Income Taxes (Topic 740):~~~~Simplifying the Accounting for Income Taxes,~~”Since March 27, 2022, there have been no ~~other~~material changes in our critical accounting policies or significant changes to the ~~Company’s accounting policies subsequent~~assumptions and estimates related to ~~March 28, 2021.~~them.

~~Adoption of~~ New Accounting Standard Not Yet Adopted

Please refer to Note B of the preceding consolidated ~~interim~~ financial statements for our discussion of the ~~Adoption of the New Accounting Standard.~~
~~New Accounting Standards Not Yet Adopted~~
~~Please refer to Note C of the preceding consolidated interim financial statements for our discussion of~~ New Accounting Standard Not Yet Adopted.

EBITDA and Adjusted EBITDA

The Company believes that EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, 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.
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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, a non-GAAP financial measure, which is defined as net income excluding (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense. The Company has also provided Adjusted EBITDA, a non-GAAP financial measure, which is defined as EBITDA, excluding (i) the loss on disposal of property and equipment and (ii) share-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 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.

The following is a reconciliation of net income to EBITDA and Adjusted EBITDA (in thousands):

Thirteen weeks ended Thirty-nine weeks ended
Thirteen weeks ended

Thirty-nine weeks ended

December 26,
2021

December 27,
2020

December 26,
2021

December 27,
2020

December 25,
2022

December 26,
2021

December 25,
2022

December 26,
2021

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net income
$ 2,130 $ 1,359 $ 11,438 $ 9,014 $ 3,263 $ 2,130 $ 16,358 $ 11,438
Interest expense
2,650 2,650 7,951 7,951 1,944 2,650 5,831 7,951
Provision for income taxes
860 492 4,477 3,456 1,223 860 6,093 4,477
Depreciation and amortization
259 288 807 900 303 259 837 807
EBITDA
5,899 4,789 24,673 21,321 6,733 5,899 29,119 24,673

Loss on disposal of property and equipment
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Share-based compensation
8 29 66 87 65 8 81 66
Adjusted EBITDA
$ 5,907 $ 4,818 $ 24,739 $ 21,408 $ 6,899 $ 5,907 $ 29,287 $ 24,739
Seasonality
Our routine business pattern is affected by seasonal fluctuations, including the effects of weather and economic conditions. Historically, sales from our Company-owned locations, principally at Coney Island, and franchised restaurants from which franchised royalties are earned and the Company’s earnings have been highest during our first two fiscal quarters, with the fourth quarter representing the slowest period. Additionally, revenues from our Branded Product Program and retail licensing program generally follow similar seasonal fluctuations, although not to the same degree. Working capital requirements may vary throughout the year to support these seasonal patterns.
Due to the above seasonal factors, as well as the COVID-19 pandemic and inflationary pressures, our results of operations for the thirteen and thirty-nine weeks ended December 25, 2022 are not necessarily indicative of those for a full fiscal year.

Results of Operations

Thirteen weeks ended December ~~26, 2021~~25, 2022 compared to thirteen weeks ended December ~~27, 2020~~26, 2021

Revenues

Total revenues increased by ~~44%~~1% to $26,154,000 for the thirteen weeks ended December 25, 2022 (“third quarter fiscal 2023”) as compared to $25,913,000for the thirteen weeks ended December 26, 2021 (“third quarter fiscal 2022”) ~~as compared to $18,030,000for the thirteen weeks ended December 27, 2020 (“third quarter fiscal 2021”) as we continued to lap the significant impact of COVID-19 on our results beginning in March 2020.~~.

Total sales ~~increased~~decreased by ~~65%~~2% to $18,340,000 for the third quarter fiscal 2023 as compared to $18,637,000 for the third quarter fiscal 2022 ~~as compared to $11,322,000 for the third quarter fiscal 2021. Foodservice~~which included foodservice sales from the Branded Product Program ~~increased~~decreasing by ~~69%~~1% to $16,661,000 for the third quarter fiscal 2023 as compared to sales of $16,901,000 for the third quarter fiscal 2022 as compared to sales of $10,003,000 for the third quarter fiscal 2021. The sales from our Branded Product Program have increased as certain government mandated restrictions associated with the COVID-19 pandemic have eased with approved vaccines being more widely distributed and administered. Most of our Branded Product Program customers have reopened adhering to state and local guidelines, such as professional sports arenas, amusement parks, shopping malls and movie theaters.2022. During the third quarter fiscal ~~2022,~~2023, the ~~total pounds~~volume of hot dogs sold in the Branded Product Program increased by approximately ~~40%~~3% as compared to the third quarter fiscal ~~2021.~~2022. Our average selling prices ~~increased~~decreased by approximately ~~19%~~3% as compared to the third quarter fiscal ~~2021.~~2022.

Total Company-owned restaurant sales ~~increased~~decreased by ~~32%~~3% to $1,679,000 during the third quarter fiscal 2023 as compared to $1,736,000 during the third quarter fiscal ~~2022 as compared to $1,319,000 during the third quarter fiscal 2021.~~2022. The ~~increase~~decrease was primarily due to ~~an increase~~a decline in traffic at our ~~average check~~Yonkers, New York and Oceanside, New York locations which were partially offset by an increase in traffic at our Coney Island ~~locations due~~locations.
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License royalties increased by 8% to ~~the easing of certain government mandated restrictions as a result of the public health measures taken to reduce exposure to the COVID-19 virus compared to~~$6,337,000 in the third quarter fiscal ~~2021. The higher average check was driven by an increase in menu prices and the mix of items sold.~~
~~License royalties decreased by 0.3%~~2023 as compared to $5,878,000 in the third quarter fiscal ~~2022 as compared to $5,898,000 in the third quarter fiscal 2021.~~2022. Total royalties earned on sales of hot dogs from our license agreement with ~~John Morrell & Co.~~Smithfield Foods, Inc. at retail and foodservice, ~~substantially from~~including sales of hot dogs to WalMart, ~~decreased 0.8%~~increased 5% to ~~$5,239,000~~$5,489,000 for the third quarter fiscal ~~2022~~2023 as compared to ~~$5,284,000~~$5,239,000 in the third quarter fiscal ~~2021.~~2022. The ~~decrease~~increase is primarily due to ~~an 11% decrease~~a 7% increase in retail volume ~~during the third quarter fiscal 2022 period which was offset by a 14% increasein average net selling price~~ as compared to the third quarter fiscal ~~2021.~~2022, which was offset by a 3% decline in average net selling price. The foodservice business earned ~~lower~~higher royalties of ~~$8,000~~$63,000 as compared to the third quarter fiscal ~~2021.~~2022. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by ~~$24,000~~$209,000 during the third quarter fiscal ~~2022~~2023 as compared to the third quarter fiscal ~~2021~~2022 primarily due to additional royalties earned on sales of ~~proprietary spices, cocktail franks~~French fries and ~~mozzarella sticks, offset in part, by lower royalties earned on french fries.~~seasonings.

Franchise fees and royalties were $976,000 in the third quarter fiscal 2023 as compared to $919,000 in the third quarter fiscal ~~2022 as compared to $420,000~~2022. Total royalties were $829,000 in the third quarter fiscal ~~2021. The increase was primarily due~~2023 as compared to ~~the continued momentum associated with the recovery from the COVID-19 pandemic. Total royalties were~~ $744,000 in the third quarter fiscal ~~2022 as compared to $361,000 in the third quarter fiscal 2021.~~2022. Royalties earned under the Branded Menu program were $151,000 in the third quarter fiscal 2023 as compared to $101,000 in the third quarter fiscal ~~2022 as compared to $65,000 in the third quarter fiscal 2021.~~2022. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases. ~~Ghost~~Virtual kitchen royalties were $30,000 in the third quarter fiscal 2023 as compared to $88,000 in the third quarter fiscal 2022. Traditional franchise royalties were $648,000 in the third quarter fiscal 2023 as compared to $555,000 in the third quarter fiscal ~~2022 as compared~~ 2022. Franchise restaurant sales increasedto ~~$296,000~~$14,761,000 in the third quarter fiscal ~~2021. Franchise restaurant sales increased~~2023 as compared to $12,280,000 in the third quarter fiscal 2022 ~~as compared to $6,178,000 in the third quarter fiscal 2021~~ primarily due to ~~the reopening of a majority of our franchised locations. Approximately 88% of our franchise system was open~~higher sales at ~~the end of the third quarter fiscal 2022 as compared to 62% at the end of the third quarter fiscal 2021.~~airport locations; highway travel plazas; shopping malls; movie theaters; and casino locations, primarily in Las Vegas, Nevada. Comparable domestic franchise sales (consisting of 4861 Nathan’s ~~outlets,~~units, excluding sales under the Branded Menu Program) were ~~$8,884,000~~$12,369,000 in the third quarter fiscal ~~2022~~2023 as compared to ~~$4,912,000~~$9,811,000 in the third quarter fiscal ~~2021.~~2022.
24

At December ~~26, 2021, 242~~25, 2022, 233 franchised ~~outlets,~~units, including domestic, international and Branded Menu Program ~~outlets~~units were operating as compared to ~~215~~242 franchised units, including domestic, ~~and~~ international franchised orand Branded Menu Program ~~franchise outlets~~units at December ~~27, 2020.~~26, 2021. Total franchise fee income was $147,000 in the third quarter fiscal 2023 as compared to $175,000 in the third quarter fiscal ~~2022 as compared to $59,000~~2022. Domestic franchise fee income was $27,000 in the third quarter fiscal ~~2021. Domestic franchise fee income was~~2023 as compared to $36,000 in the third quarter fiscal ~~2022 as compared to $34,000~~2022. International franchise fee income was $61,000 in the third quarter fiscal ~~2021. International franchise fee income was $63,000 in the third quarter fiscal 2022~~2023 as compared to ~~$25,000~~$63,000 during the third quarter fiscal ~~2021.~~2022.

We recognized $59,000 and $76,000 in forfeited fees in the third quarter fiscal ~~2022. We did not recognize any forfeited fees in~~2023 and the third quarter fiscal ~~2021.~~2022, respectively. During the third quarter fiscal 2023, two franchised units opened, as well as two Branded Menu Program units. Additionally, 9 virtual kitchens opened. During the third quarter fiscal 2022, twelve franchised ~~outlets~~units opened, as well as fourteen Branded Menu Program ~~outlets.~~units. Additionally, 39 ~~ghost~~virtual kitchens ~~opened. During the third quarter fiscal 2021, one franchised outlet~~ opened.

Advertising fund revenue, after eliminating Company contributions, was $501,000 during the third quarter fiscal 2023 as compared to $479,000 during the third quarter fiscal 2022 ~~and $390,000 during the third quarter fiscal 2021~~ period.

Costs and Expenses

Overall, our cost of sales ~~increased~~decreased by ~~79%~~7% to $14,925,000 in the third quarter fiscal 2023 as compared to $16,040,000 in the third quarter fiscal ~~2022 as compared to $8,937,000 in the third quarter fiscal 2021.~~2022. Our gross profit (representing the difference between sales and cost of sales) increased to $3,415,000 or 19% of sales during the third quarter fiscal 2023 as compared to $2,597,000 or 14% of sales during the third quarter fiscal ~~2022 as compared to $2,385,000 or 21% of sales during the third quarter fiscal 2021.~~2022.

Cost of sales in the Branded Product Program ~~increased~~decreased by ~~85%~~7% to $13,681,000 in the third quarter fiscal 2023 as compared to $14,724,000 in the third quarter fiscal 2022, ~~as compared to $7,948,000 in the third quarter fiscal 2021,~~ primarily due to the ~~40% increase in the volume of product sold as discussed above, as well as a 31% increase~~9% decrease in the average cost per pound of our hot ~~dogs. Beginning~~dogs, partially offset by the 3% increase in ~~July 2021,~~ the ~~cost~~volume of hot dogs ~~has increased~~sold as discussed above. Beef prices declined during the third quarter fiscal 2023 as compared to the significantly ~~due to~~ higher commodity costs ~~for beef and beef trimmings, labor, packaging and transportation, as well as supply chain challenges associated with increased consumer demand as a result of~~experienced during the ~~continued recovery from the COVID-19 pandemic.~~ third quarter fiscal 2022.
We did not make any purchase commitments of beef during the third quarter fiscal ~~2022~~2023 or the third quarter fiscal ~~2021.~~2022. 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 ~~2022~~2023 was ~~$1,316,000~~$1,244,000 or ~~76%~~74% of restaurant sales as compared to ~~$989,000~~$1,316,000 or ~~75%~~76% of restaurant sales in the third quarter fiscal ~~2021.~~2022. The ~~increase~~decrease in cost of sales during the third quarter of fiscal ~~2022~~2023 was primarily due to the ~~32% increase~~3% decrease in sales as discussed ~~above,~~above. Food and paper costs as a percentage of Company-owned restaurant sales were 31%, down from 32% in ~~addition to higher commodity costs~~the comparable period of the prior year. Labor and related expenses as a percentage of Company-owned restaurant ~~labor costs.~~sales were 43%, down from 44% in the comparable period in the prior year. The availability of labor remains a challenge at our Company-owned restaurants and it has required us to remain flexible as it relates to staffing levels and costs. Our labor costs were also impacted by the additional increase in minimum wage requirements in New York State which commenced on July 1, 2021. Our food costs may be impacted by increases in commodity costs, as well as the mix of products that we sell.

Restaurant operating expenses were $932,000 in the third quarter fiscal 2023 as compared to $547,000 in the third quarter fiscal ~~2022 as compared to $759,000 in the third quarter fiscal 2021.~~2022. We incurred ~~lower~~higher occupancy expenses of ~~$286,000, which were offset, in part, by~~$324,000, higher utility expenses of ~~$22,000,~~$18,000, and higher insurance ~~expenses~~costs of ~~$26,000 and higher delivery charges associated with offsite consumption.~~$22,000.
-24-

Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, was $303,000 in the third quarter fiscal 2023 as compared to $259,000 in the third quarter fiscal ~~2022 as compared to $288,000 in the third quarter fiscal 2021.~~2022.

General and administrative expenses ~~decreased~~increased by ~~$278,000~~$186,000 or 8%6% to $3,161,000 in the third quarter fiscal 2023 as compared to $2,975,000 in the third quarter fiscal ~~2022 as compared to $3,253,000 in the third quarter fiscal 2021.~~2022. The ~~decrease~~increase in general and administrative expenses was primarily attributable to ~~lower corporate payroll~~higher compensation expenses of ~~$428,000, which were~~$287,000 offset, in part, by ~~higher insurance costs of $76,000 and higher marketing and trade show related~~a decrease in travel expenses of ~~$108,000.~~$37,000 and a reduction in bad debt expense of $52,000.

Advertising fund expense, after eliminating Company contributions, was ~~$479,000~~$501,000 during the third quarter fiscal ~~2022,~~2023 as compared to ~~$390,000~~$479,000 in the third quarter fiscal ~~2021.~~2022.

Other Items

Interest expense of $1,944,000 in the third quarter fiscal 2023 represented interest expense of $1,817,000 on the 2025 Notes and amortization of debt issuance costs of $127,000.
Interest expense of $2,650,000 in ~~both~~ the third quarter fiscal 2022 ~~and the third quarter fiscal 2021~~ represented ~~accrued~~ interest expense of $2,477,000 on the 2025 Notes and amortization of debt issuance costs of $173,000.

Interest income was ~~$24,000~~$158,000 for the third quarter fiscal ~~2022~~2023 as compared to $~~89,000~~24,000 in the third quarter fiscal ~~2021.~~2022.

Other ~~income,~~expense, net was $60,000 in the third quarter fiscal 2023 which primarily relates to a loss on disposal of assets for capitalized software no longer in use of $101,000 offset by sublease ofincome from a franchised ~~restaurant offset, in part, by a termination fee associated with the Brooklyn Guaranty.~~restaurant.
25

Provision for Income Taxes

The effective income tax ~~provision~~rate for the third quarter fiscal 2023 was 27.3% compared to 28.8% in the third quarter fiscal 2022. The effective income tax rate for the third quarter fiscal 2023 reflected income tax expense of $1,223,000 recorded on $4,486,000 of pre-tax income. The effective income tax rate for the third quarter fiscal 2022 ~~and third quarter fiscal 2021 reflect~~reflected income tax expense of $860,000 recorded on $2,990,000 of pre-tax income. The effective tax rates ~~of 28.8% and 26.6%, respectively. During~~are higher than the ~~third quarter fiscal 2022, the Company’s effective tax rate was unfavorably affected by 0.2%~~statutory rates primarily due to its return to provision adjustment in connection with the filing of its March 2021 tax returns. During the third quarter fiscal 2021, the Company’s effective tax rate was favorably affected by 1.0% due to its return to provision adjustment in connection with the filing of its March 2020 tax returns.state and local taxes.

The amount of unrecognized tax benefits at December ~~26, 2021~~25, 2022 was ~~$445,000~~$437,000 all of which would impact ~~Nathan’s~~the Company’s effective tax rate, if recognized. As of December ~~26, 2021, Nathan’s~~25, 2022, the Company had ~~$307,000~~approximately $315,000 accrued for the payment of ~~accrued~~ interest and penalties in connection with unrecognized tax benefits.

Nathan’s estimates that its unrecognized tax ~~benefits~~benefit excluding accrued interest and penalties could be further reduced by up to ~~$19,000~~$16,000 during the fiscal year ending March ~~27, 2022.~~26, 2023.

Results of Operations

Thirty-nine weeks ended December ~~26, 2021~~25, 2022 compared to thirty-nine weeks ended December ~~27, 2020~~26, 2021

Revenues

Total revenues increased by ~~57%~~15% to $103,371,000 for the thirty-nine weeks ended December 25, 2022 (“fiscal 2023 period”) as compared to $90,110,000 for the thirty-nine weeks ended December 26, 2021 (“fiscal 2022 period”) as compared to $57,555,000 for the thirty-nine weeks ended December 27, 2020 (“fiscal 2021 period”) as we continued to lap the significant impact of COVID-19 on our results beginning in March 2020..

Total sales increased by ~~100%~~18% to $72,535,000 for the fiscal 2023 period as compared to $61,462,000 for the fiscal 2022 period ~~as compared to $30,697,000 for the fiscal 2021 period. Foodservice~~which included foodservice sales from the Branded Product Program ~~increased~~increasing by ~~113%~~19% to ~~$51,960,000~~$61,862,000 for the fiscal ~~2022~~2023 period as compared to sales of ~~$24,450,000~~$51,960,000 for the fiscal ~~2021~~2022 period. The sales from our Branded Product Program have increased as certain government mandated restrictions associated with the COVID-19 pandemic have eased with approved vaccines being more widely distributed and administered. Most of our Branded Product Program customers have reopened adhering to state and local guidelines, such as professional sports arenas, amusement parks, shopping malls and movie theaters. During the fiscal ~~2022~~2023 period, the ~~total pounds~~volume of hot dogs sold ~~in the Branded Product Program~~ increased by approximately ~~98%~~14% as compared to the fiscal ~~2021~~2022 period. Our average selling prices increased by approximately 7%5% as compared to the fiscal ~~2021~~2022 period.

Total Company-owned restaurant sales increased by ~~52%~~12% to $10,673,000 during the fiscal 2023 period as compared to $9,502,000 during the fiscal 2022 ~~period as compared to $6,247,000 during the fiscal 2021~~ period. The increase was primarily due to an increase in ~~our average check and an increase in~~ traffic at our Coney Island locations due to the easing of certain government mandated restrictions as a result of the public health measures taken to reduce exposure to the COVID-19 virus compared to the fiscal 2021 period. The higher average check was driven by an increase in menu prices and the mix of items sold.locations.
-25-

License royalties ~~decreased~~increased by 2%8% to $26,064,000 in the fiscal 2023 period as compared to $24,218,000 in the fiscal 2022 ~~period as compared to $24,689,000 in the fiscal 2021~~ period. Total royalties earned on sales of hot dogs from our license agreement with ~~John Morrell & Co.~~Smithfield Foods, Inc. at retail and foodservice, ~~substantially from~~including sales of hot dogs to WalMart, ~~decreased 3%~~increased 6% to ~~$22,161,000~~$23,594,000 for the ~~2022~~2023 fiscal period as compared to ~~$22,743,000~~$22,161,000 in the fiscal ~~2021~~2022 period. The ~~decrease~~increase is due to a ~~1.4% decrease in retail volume during the fiscal 2022 period and a 0.6% decrease~~9% increase in average net selling price as compared to the fiscal ~~2021 period.~~2022 period which was offset, in part, by a 3% decrease in retail volume. The foodservice business earned higher royalties of ~~$84,000~~$196,000 as compared to the fiscal ~~2021~~2022 period. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by ~~$111,000~~$413,000 during the fiscal ~~2022~~2023 period as compared to the fiscal ~~2021~~2022 period primarily due to additional royalties earned on sales of ~~proprietary spices,~~French fries, cocktail franks, ~~and~~ mozzarella sticks, ~~offset, in part, by lower royalties earned on french fries.~~pickles and seasonings.

Franchise fees and royalties were $3,268,000 in the fiscal 2023 period as compared to $2,993,000 in the fiscal 2022 period. Total royalties were $2,785,000 in the fiscal 2023 period as compared to ~~$1,087,000 in the fiscal 2021 period. The increase was primarily due to the continued momentum associated with the recovery from the COVID-19 pandemic. Total royalties were~~ $2,581,000 in the fiscal 2022 ~~period as compared to $880,000 in the fiscal 2021~~ period. Royalties earned under the Branded Menu program were $468,000 in the fiscal 2023 period as compared to $430,000 in the fiscal 2022 ~~period as compared to $152,000 in the fiscal 2021~~ period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases. ~~Ghost~~Virtual kitchen royalties were $112,000 in the fiscal 2023 period as compared to $258,000 in the fiscal 2022 period. Traditional franchise royalties were $2,205,000 in the fiscal 2023 period as compared to $1,893,000 in the fiscal 2022 ~~period as compared to $728,000 in the fiscal 2021~~ period. Franchise restaurant sales increased to $49,302,000 in the fiscal 2023 period as compared to $40,910,000 in the fiscal 2022 period ~~as compared to $15,366,000 in the fiscal 2021 period~~ primarily due to ~~the reopening of a majority of our franchised locations.~~higher sales at airport locations; highway travel plazas; shopping malls; movie theaters; and casino locations, primarily in Las Vegas, Nevada. Comparable domestic franchise sales (consisting of 5263 Nathan’s ~~outlets,~~units, excluding sales under the Branded Menu Program) were ~~$30,780,000~~$40,192,000 in the fiscal 2023 period as compared to $31,434,000 in the fiscal 2022 ~~period as compared to $12,213,000 in the fiscal 2021~~ period.

At December ~~26, 2021, 242~~25, 2022, 233 franchised ~~outlets,~~units, including domestic, international and Branded Menu Program ~~outlets~~units were operating as compared to ~~215~~242 franchised units, including domestic, ~~and~~ international ~~franchised or~~and Branded Menu Program franchise ~~outlets~~units at December ~~27, 2020.~~26, 2021. Total franchise fee income was $483,000 in the fiscal 2023 period as compared to $412,000 in the fiscal 2022 ~~period as compared to $207,000 in the fiscal 2021~~ period. Domestic franchise fee income was $84,000 in the fiscal 2023 period as compared to $109,000 in the fiscal 2022 ~~period as compared to $98,000 in the fiscal 2021~~ period. International franchise fee income was ~~$173,000~~$191,000 in the fiscal ~~2022~~2023 period as compared to ~~$76,000~~$173,000 during the fiscal ~~2021~~2022 period.

We recognized ~~$130,000~~$208,000 and ~~$33,000 of~~$130,000 in forfeited fees in the fiscal ~~2022~~2023 period and fiscal ~~2021 periods,~~2022 period, respectively. During the fiscal 2023 period, six franchised units opened, as well as two Branded Menu Program units. Additionally, 67 virtual kitchens opened. During the fiscal 2022 period, fifteen franchised ~~outlets~~units opened, as well as thirty-two Branded Menu Program ~~outlets.~~units. Additionally, 164 ~~ghost~~virtual kitchens opened. ~~During the fiscal 2021 period, five franchised outlets opened, including one Branded Menu Program outlet. Additionally, 75ghost kitchens opened during the fiscal 2021 period.~~

Advertising fund revenue, after eliminating Company contributions, was ~~$1,437,000~~$1,504,000 in the fiscal ~~2022~~2023 period, as compared to ~~$1,082,000~~$1,437,000 during the fiscal ~~2021~~2022 period.

Costs and Expenses

Overall, our cost of sales increased by ~~113%~~15% to $59,490,000 in the fiscal 2023 period as compared to $51,536,000 in the fiscal 2022 ~~period as compared to $24,161,000 in the fiscal 2021~~ period. Our gross profit (representing the difference between sales and cost of sales) increased to $13,045,000 or 18% of sales during the fiscal 2023 period as compared to $9,926,000 or 16% of sales during the fiscal 2022 ~~period as compared to $6,536,000 or 21% of sales during the fiscal 2021~~ period.

Cost of sales in the Branded Product Program increased by ~~127%~~17% to $53,056,000 during the fiscal 2023 period as compared to $45,343,000 during the fiscal 2022 period, ~~as compared to $19,988,000 during the fiscal 2021 period,~~ primarily due to the ~~98%~~14% increase in the volume of ~~product~~hot dogs sold as discussed above, as well as a ~~14%~~3% increase in the average cost per pound of our hot dogs. ~~Beginning in July 2021, the cost of hot dogs has increased significantly due~~We continue to ~~higher costs for~~experience commodity inflation, including beef and beef ~~trimmings, labor, packaging and transportation, as well as supply chain challenges associated with increased consumer demand as a result of the continued recovery from the COVID-19 pandemic.~~ trimmings.
We did not make any purchase commitments ~~for~~of beef during the fiscal 2023 period or the fiscal 2022 ~~and 2021 periods.~~period. 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 ~~2022~~2023 period was $6,434,000 or 60% of restaurant sales as compared to $6,193,000 or 65% of restaurant sales ~~as compared to $4,173,000 or 67% of restaurant sales~~ in the fiscal ~~2021~~2022 period. The increase in cost of sales during the fiscal ~~2022~~2023 period was primarily due to the ~~52%~~12% increase in sales discussed ~~above,~~above. The decrease in ~~addition~~cost of sales, as a percent of total restaurant sales, was due to an increase in customer counts driving higher sales which were offset by higher commodity costs and restaurant labor costs. ~~The availability of labor remains a challenge at our Company-owned restaurants~~Food and it has required us to remain flexible as it relates to staffing levels and costs. Our labor costs were also impacted by the additional increase in minimum wage requirements in New York State which commenced on July 1, 2021. Our food costs may be impacted by increases in commoditypaper costs as ~~well~~a percentage of Company-owned restaurant sales were 29%, down from 30% in the comparable period of the prior year. Labor and related expenses as a percentage of Company-owned restaurant sales were 31%, down from 35% in the ~~mix~~comparable period in the prior year due to labor wage increases as a result of ~~products that we sell.~~competitive pressures, offset by higher sales.

Restaurant operating expenses were $3,217,000 in the fiscal 2023 period as compared to $2,874,000 in the fiscal 2022 ~~period as compared to $2,622,000 in the fiscal 2021~~ period. We incurred ~~lower~~higher occupancy expenses of ~~$74,000, which were offset by~~$118,000, higher utility expenses of ~~$52,000,~~$54,000, higher ~~repairs and maintenance~~marketing expenses of ~~$50,000,~~$51,000, and higher insurance ~~expenses~~costs of ~~$90,000 and higher delivery charges associated with offsite consumption.~~$77,000.
-26-

Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, were $837,000 in the fiscal 2023 period as compared to $807,000 in the fiscal 2022 ~~period as compared to $900,000 in the fiscal 2021~~ period.

General and administrative expenses increased by ~~$993,000~~$420,000 or ~~11%~~4% to $10,122,000 in the fiscal 2023 period as compared to $9,702,000 in the fiscal 2022 ~~period as compared to $8,709,000 in the fiscal 2021~~ period. The increase in general and administrative expenses was primarily attributable to a higher ~~incentive~~ compensation ~~accrual~~expenses of ~~$324,000, higher insurance costs of $159,000~~$232,000, and higher marketing and trade show ~~related~~ expenses of ~~$360,000.~~$295,000.

Advertising fund expense, after eliminating Company contributions, was $1,679,000 in the fiscal 2023 period, as compared to $1,437,000 in the fiscal 2022 period. The Company has determined that the Advertising Fund normal seasonal deficit is not to be fully recovered during the remainder of the fiscal 2023 period ~~as compared to $1,082,000~~and has reflected the projected deficit of $175,000 in the fiscal ~~2021~~2023 period.

Other Items

Interest expense of $5,831,000 in the fiscal 2023 period represented interest expense of $5,450,000 on the 2025 Notes and amortization of debt issuance costs of $381,000.
Interest expense of $7,951,000 in ~~both~~ the fiscal 2022 period ~~and the fiscal 2021 period~~ represented ~~accrued~~ interest expense of $7,433,000 on the 2025 Notes and amortization of debt issuance costs of $518,000.

Interest income was ~~$88,000~~$260,000 for the fiscal ~~2022~~2023 period as compared to ~~$309,000~~$88,000 in the fiscal ~~2021~~2022 period.

Other ~~income,~~expense, net was $4,000 in the fiscal 2023 period which primarily relates to a net loss on disposal of assets for capitalized software no longer in use of $87,000, offset by sublease ofincome from a franchised ~~restaurant offset, in part, by a termination fee associated with the Brooklyn Guaranty.~~restaurant.

Provision for Income Taxes

The effective income tax ~~provision~~rate for the fiscal 2023 period was 27.1% compared to 28.1% in the fiscal 2022 period. The effective income tax rate for the fiscal 2023 period reflected income tax expense of $6,093,000 recorded on $22,451,000 of pre-tax income. The effective income tax rate for the fiscal 2022 period ~~and fiscal 2021 period reflect~~reflected income tax expense of $4,477,000 recorded on $15,915,000 of pre-tax income. The effective tax rates ~~of 28.1%~~are higher than the statutory rates primarily due to state and ~~27.7%, respectively.~~local taxes.

The amount of unrecognized tax benefits at December ~~26, 2021~~25, 2022 was ~~$445,000~~$437,000 all of which would impact ~~Nathan’s~~the Company’s effective tax rate, if recognized. As of December ~~26, 2021, Nathan’s~~25, 2022, the Company had ~~$307,000~~approximately $315,000 accrued for the payment of ~~accrued~~ interest and penalties in connection with unrecognized tax benefits.

Nathan’s estimates that its unrecognized tax ~~benefits~~benefit excluding accrued interest and penalties could be further reduced by up to ~~$19,000~~$16,000 during the fiscal year ending March ~~27, 2022.~~26, 2023.

Off-Balance Sheet Arrangements

At December ~~26, 2021~~25, 2022 and December ~~27, 2020,~~26, 2021, Nathan’s did not have any open purchase commitments for hot dogs. 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 December ~~26, 2021~~25, 2022 aggregated ~~$86,168,000,~~$55,454,000, a ~~$5,104,000~~$5,391,000 increase during the fiscal ~~2022~~2023 period as compared to cash and cash equivalents of ~~$81,064,000~~$50,063,000 at March ~~28, 2021.~~27, 2022. Net working capital ~~decreased~~increased to ~~$48,204,000~~$58,413,000 from ~~$80,072,000~~$48,988,000 at March ~~28, 2021 due to the irrevocable notice of redemption of $40,000,000 of the Company’s 2025 Notes and the designation of such 2025 Notes to be redeemed as a current liability.~~
27, 2022. We paid our semi-annual interest payments for fiscal ~~2022~~2023 of ~~$4,968,750~~$3,643,750 on May 1, ~~2021~~2022 and November 1, ~~2021,~~2022, respectively. We paid our first, second and third quarter fiscal ~~2022~~2023 dividend payments of ~~$1,440,000~~$1,852,000, $1,836,000 and $1,836,000 on June ~~25, 2021,~~24, 2022, September ~~3, 2021~~2, 2022 and December ~~3, 2021,~~2, 2022, respectively. We expect to pay our fourth quarter dividend on March ~~4, 2022.~~
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. On December 15, 2021, the Company announced its intent to complete the partial redemption, in the principal amount of $40,000,000, of the 2025 Notes. On January 26, 2022, the Company completed the redemption by paying cash of $41,288,094, inclusive of the redemption premium and accrued interest, and recognized a loss on early extinguishment of approximately $1,400,000 that primarily reflected the redemption premium and the write-off of a portion of previously recorded debt issuance costs. Please refer to Note Q – Long-Term Debt in the accompanying consolidated interim financial statements for a further discussion regarding the Company’s indebtedness.3, 2023.

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

-27-
Cash provided by operations of ~~$9,896,000~~$13,329,000 in the fiscal ~~2022~~2023 period is primarily attributable to net income of ~~$11,438,000~~$16,358,000 in addition to other non-cash operating items of ~~$1,395,000,~~$1,384,000, offset by changes in other operating assets and liabilities of ~~$2,937,000.~~$4,413,000. Non-cash operating expenses consist principally of depreciation and amortization of ~~$807,000,~~$837,000, amortization of debt issuance costs of ~~$518,000,~~$381,000, share-based compensation expense of ~~$66,000, and~~$81,000, bad debts of ~~$112,000.~~$114,000, and a loss on disposal of assets of $87,000. In the fiscal ~~2022~~2023 period, accounts and other receivables ~~increased~~decreased by ~~$2,635,000~~$218,000 due primarily to ~~higher Branded Product Program receivables~~lower franchise and license royalties receivable of ~~$3,705,000,~~$647,000 which were offset, in part, by higher receivables due to the Advertising Fund of ~~$890,000 which were offset, in part, by lower franchise and license royalties receivable of $2,232,000.~~$329,000. Prepaid expenses and other current assets decreased by ~~$504,000~~$332,000 due primarily to the reduction of prepaid ~~income taxes~~insurance and ~~insurance~~marketing expenses of ~~$280,000~~$21,000 and ~~$131,000,~~$281,000, respectively. In the fiscal ~~2022~~2023 period, accounts payable, accrued expenses and other current liabilities decreased by ~~$1,395,000~~$4,856,000 due primarily to lower accrued interest expense of ~~$2,505,000~~$1,837,000 as a result of ~~timing~~the partial redemption of our ~~interest payments on our~~ 2025 ~~Notes, deferred revenue of $841,000 that was earned during the fiscal 2022 period and the reduction~~Notes; a decline in accrued payroll and other benefits of ~~$586,000~~$519,000 resulting primarily from the payment of year-end fiscal ~~2021~~2022 incentive ~~compensation. Rebates~~compensation; earned deferred revenue of $876,000; and a decline in accounts payable of $2,534,000 due ~~under~~to the timing of product purchases for our Branded Product Program and Company-owned restaurants. Offsetting these declines were increases in accrued corporate income taxes of $991,000 due to the timing of estimated tax payments and higher by $156,000 due primarily to increased sales as a result of the recovery from the COVID-19 pandemic. Accounts payable increased by $1,673,000 due principally to higher product purchases for the Branded Product Program.earnings.

Cash used in investing activities was ~~$465,000~~$522,000 in the fiscal ~~2022~~2023 period primarily in connection with capital expenditures incurred for our Branded Product Program, ~~and~~ our Coney Island ~~restaurants.~~restaurants and our general ledger and accounting system upgrade.

Cash used in financing activities of ~~$4,327,000~~$7,416,000 in the fiscal ~~2022~~2023 period relates primarily to the payments of the Company’s quarterly ~~$0.35~~$0.45 per share cash dividends on June ~~25, 2021,~~24, 2022, September ~~3, 2021~~2, 2022 and December ~~3, 2021~~2, 2022 totaling ~~$4,320,000.~~
During the period from October 2001 through December 26, 2021, Nathan’s purchased 5,254,081 shares of its common stock at a cost of approximately $84,770,000 pursuant to its stock repurchase plans previously authorized by the Board of Directors (the “Board”). During$5,524,000. Additionally, during the fiscal ~~2022~~2023 period, ~~we did not repurchase any~~the Company repurchased 35,434 shares of common ~~stock. Since March 26, 2007, we have repurchased 3,362,981 shares at a total cost of approximately $77,612,000, reducing~~stock for $1,892,000 under the ~~number of shares then-outstanding by 55.9%.~~10b5-1 Plan.
28

In 2016, the Board 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 December ~~26, 2021,~~25, 2022, Nathan’s has repurchased ~~1,066,450~~1,101,884 shares at a cost of ~~$37,108,000~~$39,000,000 under the sixth stock repurchase plan. At December ~~26, 2021,~~25, 2022, there were ~~133,550~~98,116 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.

On ~~March 13, 2020,~~June 14, 2022, the Board approved a 10b5-1 stock plan (the “10b5-1 Plan”) which expired on ~~August 12, 2020.~~ September 13, 2022.
During the fiscal ~~2021~~2023 period, the Company repurchased in open market transactions ~~26,676~~35,434 shares of the Company’s common stock at an average ~~share~~ price of ~~$56.26~~$53.39 for a total cost of ~~$1,501,000~~$1,892,000 under the 10b5-1 Plan. The Company did not repurchase any shares of its common stock during the thirteen weeks ended December 25, 2022.

As discussed above, we had cash and cash equivalents at December ~~26, 2021~~25, 2022 aggregating ~~$86,168,000.~~$55,454,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. In November 2017, we refinanced our 2020 Notes through the issuance of the 2025 Notes and, our Board 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, 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. On June 14, 2019, the Board authorized the increase of its regular quarterly dividend to $0.35 from $0.25. ~~Effective~~On February 4, 2022, the Board authorized the increase of its regular quarterly dividend to $0.45 from $0.35. On February 2, 2023, the Board authorized the increase of its regular quarterly dividend to $0.50 from $0.45. The Company paid its first quarter fiscal ~~2022~~2023 dividend of ~~$1,440,000~~$1,852,000 on June ~~25, 2021,~~24, 2022, its second quarter fiscal ~~2022~~2023 dividend of ~~$1,440,000~~$1,836,000 on September ~~3, 2021~~2, 2022 and its third quarter fiscal ~~2022~~2023 dividend of ~~$1,440,000~~$1,836,000 on December ~~3, 2021.~~2, 2022.

Effective February ~~4, 2022,~~2, 2023, the Company declared its fourth quarter dividend of ~~$0.45~~$0.50 per common share to stockholders of record as of the close of business on February 21, ~~2022,~~2023, which is payable on March ~~4, 2022.~~3, 2023.
The Company’s total cash requirement for dividends for all of fiscal 2023 would be approximately $7,564,000 based on the number of shares of common stock outstanding at February 2, 2023. The Company intends to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid or of the amount or timing of such dividends, if any.
Our ability to pay future dividends is limited by the terms of the Indenture 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 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, fund our dividend program and may 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. During the fiscal year ending March ~~27, 2022,~~26, 2023, we will be required to make interest payments of ~~$10,563,194~~$7,287,500, of which ~~include its required semi-annual interest payments~~all have been made as of ~~$4,968,750 on May 1, 2021 and~~ November 1, ~~2021, and $625,694 on January 25, 2022 in connection with the partial redemption discussed above.~~2022.
-28-

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

At December ~~26, 2021,~~25, 2022, 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.

Our contractual obligations primarily consist of the 2025 Notes and the related interest payments, operating leases, and employment ~~agreements~~agreement with certain executive officers. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations since March ~~28, 2021 other than as described in connection with the partial redemption of the 2025 Notes discussed above.~~
~~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 was obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty had an initial term of 10 years and one 5-year option and was limited to 24 months of rent for the first three years of the term. For the remainder of the term, the Brooklyn Guaranty was limited to 12 months of rent plus reasonable costs of collection and attorney’s fees. The Company entered into a termination of lease agreement effective January 15, 2022 (the “Termination Date”). As consideration for all outstanding amounts due and payable under the Brooklyn Guaranty, the Company agreed to pay a termination fee in the amount of $75,000, of which the Company agreed to pay 50% or $37,500 and the tenant/franchisee agreed to pay 50% or $37,500. The Company paid its share of the termination fee in January 2022.

Inflationary Impact

~~Historically, we do not believe that general inflation has materially impacted earnings. However,~~Beginning in fiscal 2022 and continuing into the fiscal 2023 period, we have experienced ~~significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities.~~inflationary pressures on commodity prices. We expect this trend to continue throughout the remainder of fiscal 2023. Our average cost of hot dogs ~~between April 2021 and December 2021~~during fiscal 2022 was approximately ~~14%~~19% higher than ~~between April 2020 and December 2020.~~
during fiscal 2021. Our average cost of hot dogs during fiscal 2023 was approximately 3% higher than during fiscal 2022. Beginning in July 2021, the cost of hot dogs has increased significantly due to higher costs for beef and beef trimmings, labor, packaging and transportation, as well as supply chain challenges associated with increased consumer demand as a result of the continued recovery from the COVID-19 pandemic. Inherent volatility experienced in certain commodity markets, such as those for beef and beef trimmings due to seasonal shifts, climate conditions, industry demand, inflationary pressures and other macroeconomic factors could have an adverse effect on our results of operations.

29

We have experienced competitive pressure on labor rates as a result of the increase in the minimum hourly wage for fast food workers which increased to $15.00 in New York state during fiscal 2022 where our Company-owned restaurants are located. Additionally, with the continued recovery from the COVID-19 pandemic, there has been an increased demand for labor at all levels which has resulted in greater challenges retaining adequate staffing levels at our Company-owned restaurants; our franchised restaurants and Branded Menu Program locations; as well as for certain vendors in our supply chain that we depend on for our commodities. We remain in contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain.

We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during the remainder of fiscal ~~2022.~~2023. 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. 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 passed legislation increasing~~We must comply with the Fair Labor Standards Act and various federal and state laws governing minimum ~~hourly wage for fast food workers of restaurant chains with 30 or more locations nationwide. The increase was phased~~wages. Increases in ~~differently between New York City and the rest of New York State. Effective December 31, 2019,~~ the minimum wage ~~was $15.00 in New York City~~ and labor regulations have increased ~~to $13.75 per hour for the remainder of New York State.~~our labor costs. The minimum ~~hourly rate of pay~~wage for ~~the remainder of~~ New York State increased to ~~$14.50~~$15.00 per hour on December 31, ~~2020 and increased to $15.00 on July 1,~~ 2021. All of ~~Nathan’s~~our Company-owned restaurants ~~are within~~operate in New York ~~State~~State. In addition, the federal government and ~~have been affected by this new legislation.~~
~~Continued increases in labor, food and~~a number of other ~~operating expenses, including health care, could adversely affect our operations and those of the restaurant industry and we might have~~states are evaluating various proposals to ~~further reconsider our pricing strategy as a means to offset reduced operating margins.~~increase their respective minimum wage.

We believe that these increases in the minimum wage and other changes in employment law have had 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.
Continued increases in labor costs, commodity prices and other operating expenses, including healthcare, could adversely affect our operations. We attempt to manage inflationary pressure, and rising commodity costs, at least in part, through raising prices. Delays in implementing price increases, competitive pressures, consumer spending levels and other factors may limit our ability to offset these rising costs. Volatility in commodity prices, including beef and beef trimmings could have a significant adverse effect on our results of operations.

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 ~~28, 2021.~~27, 2022.

-29-
Item 3. ~~Quantitative and Qualitative Disclosures About Market Risk.~~
Quantitative and Qualitative Disclosures About Market Risk.

Cash

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 December ~~26, 2021,~~25, 2022, Nathan’s cash and cash equivalents aggregated ~~$86,168,000.~~$55,454,000. Earnings on this cash would increase or decrease by approximately ~~$215,000~~$139,000 per annum for each 0.25% change in interest rates.

Borrowings

At December ~~26, 2021,~~25, 2022, we had ~~$150,000,000~~$110,000,000 of 6.625% 2025 Notes outstanding ~~including the current portion.~~which are due in November 2025. Interest expense on these borrowings would increase or decrease by approximately ~~$375,000~~$275,000 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

~~Historically, we do not believe that general inflation has materially impacted earnings. However,~~Beginning in fiscal 2022 and continuing into the fiscal 2023 period, we have experienced ~~significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities.~~inflationary pressures on commodity prices. We expect this trend to continue throughout the remainder of fiscal 2023. Our average cost of hot dogs ~~between April 2021 and December 2021~~during fiscal 2022 was approximately ~~14%~~19% higher than ~~between April 2020 and December 2020.~~
during fiscal 2021. Our average cost of hot dogs during fiscal 2023 was approximately 3% higher than during fiscal 2022. Beginning in July 2021, the cost of hot dogs has increased significantly due to higher costs for beef and beef trimmings, labor, packaging and transportation, as well as supply chain challenges associated with increased consumer demand as a result of the continued recovery from the COVID-19 pandemic. Inherent volatility experienced in certain commodity markets, such as those for beef and beef trimmings due to seasonal shifts, climate conditions, industry demand, inflationary pressures and other macroeconomic factors could have an adverse effect on our results of operations.

We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during the remainder of fiscal ~~2022.~~2023. 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. 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.

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 thirty-nine week period ended December ~~26, 2021~~25, 2022 would have increased or decreased our cost of sales by approximately ~~$4,714,000.~~$5,477,000.

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.

-30-
Item 4.
~~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(e) and Exchange Act Rule 15d-15(e). 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.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting that occurred during the quarter ended December ~~26, 2021~~25, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our administrative employees and employees of our other service providers started working remotely beginning in March 2020 in response to the COVID-19 pandemic. Although we have re-opened the Corporate office, our employees may continue to work remotely on a part-time basis. Despite the hybrid working environment, there were no material changes in our internal control over financial reporting during the quarter ended December 26, 2021. We are continually monitoring and assessing the impact of the COVID-19 pandemic on our internal controls and hybrid working environment to minimize the impact on its design and operating effectiveness.

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.

-31-

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

~~None~~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 ~~28, 2021,~~27, 2022, 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.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

Effective February ~~4, 2022,~~2, 2023, the Board declared its quarterly cash dividend of ~~$0.45~~$0.50 per share which is payable on March ~~4, 2022~~3, 2023 to shareholders of record as of the close of business on February 21, ~~2022.~~2023.

-32-

Item 6. ~~Exhibits~~
Exhibits.

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 Robert Steinberg, 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 December ~~26, 2021~~25, 2022 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Stockholders’ Deficit, (iv) the Consolidated Statements of Cash Flows and (v) related notes.

104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith.

**Indicates a management plan or amendment.
34-33-

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 ~~4, 2022~~2, 2023
By:
/s/ Eric Gatoff
Eric Gatoff
Chief Executive Officer
(Principal Executive Officer)

Date: February ~~4, 2022~~2, 2023
By:
/s/ Robert Steinberg
Robert Steinberg
Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)

35-34-

	Estimate for fiscal year		Estimate for fiscal year
2022 (a)	$	95
2023		342
2023 (a)			$	86
2024		303		339
2025		286		322
2026		260		287
2027				168
Thereafter		736		519
Total	$	2,022	$	1,721

Thirteen weeks
									Net Income
	Net Income				Number of Shares				Per Share
	2022		2021		2022		2021		2022			2021
	(in thousands)				(in thousands)
Basic EPS
Basic calculation	$	3,263	$	2,130		4,080		4,115	$	0.80		$	0.52
Effect of dilutive employee stock options		-		-		36		-		(0.01	)		-
Diluted EPS
Diluted calculation	$	3,263	$	2,130		4,116		4,115	$	0.79		$	0.52

Thirty-nine weeks
									Net Income												Net Income
	Net Income				Number of Shares				Per Share				Net Income				Number of Shares				Per Share
	2021		2020		2021		2020		2021		2020		2022		2021		2022		2021		2022			2021
	(in thousands)				(in thousands)								(in thousands)				(in thousands)
Basic EPS
Basic calculation	$	11,438	$	9,014		4,115		4,117	$	2.78	$	2.19	$	16,358	$	11,438		4,092		4,115	$	4.00		$	2.78
Effect of dilutive employee stock options		-		-		-		-		-		-		-		-		12		-		(0.01	)		-
Diluted EPS
Diluted calculation	$	11,438	$	9,014		4,115		4,117	$	2.78	$	2.19	$	16,358	$	11,438		4,104		4,115	$	3.99		$	2.78

	December 26, 2021				March 28, 2021
	Face value		Fair value		Face Value		Fair value

Long-term debt	$	150,000	$	152,961	$	150,000	$	154,420

	December 26,		March 28,		December 25,		March 27,
	2021		2021		2022		2022

Branded product sales	$	10,185	$	6,480	$	9,301	$	9,318
Franchise and license royalties		2,992		5,224		3,276		3,923
Other		1,183		293		753		391
		14,360		11,997		13,330		13,632

Less: allowance for doubtful accounts		185		345		288		258
Accounts and other receivables, net	$	14,175	$	11,652	$	13,042	$	13,374

Weighted-average option fair values	$	13.04
Expected life (years)		4.4
Interest rate		0.82	%
Volatility		27.69	%
Dividend yield		2.04	%

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


Options outstanding at March 28, 2021		10,000	$	89.90		2.46		-
Granted		10,000	$	68.50		4.62		-
Exercised		-		0		-		0
Options outstanding at December 26, 2021		20,000	$	79.20		3.17		0

Options exercisable at December 26, 2021		10,000	$	89.90		1.71		0

				Weighted- Average Grant-date Fair value				Weighted-
	Shares			Per share				Average
Unvested restricted stock at March 28, 2021		333		$	89.90
								Grant-date Fair value
						Shares		Per share
Unvested restricted stock units at March 27, 2022							--	$	--
Granted		0			0		50,000	$	67.59
Vested		(333	)	$	89.90		--	$	-
Unvested restricted stock at December 26, 2021		0			0
Unvested restricted stock units at December 25, 2022							50,000	$	67.59

	●	~~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.~~

~~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~~	%

Weighted average remaining lease term (years):
~~Operating leases~~	~~6.5~~5.6

Weighted average discount rate:
~~Operating leases~~	~~8.875~~8.868	%

	Payments		Receipts				Payments		Receipts
	Operating Leases		Subleases		Net Leases		Operating Leases		Subleases		Net Leases

Fiscal year:
2022 (a)	$	381	$	38	$	343
2023		1,849		168		1,681
2023 (a)							$	383	$	42	$	341
2024		1,774		169		1,605		1,782		271		1,511
2025		1,678		169		1,509		1,687		274		1,413
2026		1,712		169		1,543		1,717		278		1,439
2027								1,726		281		1,445
Thereafter		3,762		183		3,579		2,036		624		1,412
Total lease commitments	$	11,156	$	896	$	10,260	$	9,331	$	1,770	$	7,561
Less: Amount representing interest		2,628						1,921
Present value of lease liabilities (b)	$	8,528					$	7,410

	(a)	Represents future lease commitments to be paid and received by the Company for the remainder of the ~~2022~~2023 fiscal year. Amount does not include ~~$1,222~~$1,216 of lease commitments paid and received by the Company for the thirty-nine week period ended December ~~26, 2021.~~25, 2022.

	(b)	The present value of minimum operating lease payments of ~~$1,848~~$1,827 and ~~$6,680~~$5,583 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively on the Consolidated Balance Sheet.

	NATHAN'S FAMOUS, INC.


Date: February ~~4, 2022~~2, 2023	By:	/s/ Eric Gatoff
		Eric Gatoff
		Chief Executive Officer
		(Principal Executive Officer)

Date: February ~~4, 2022~~2, 2023	By:	/s/ Robert Steinberg
		Robert Steinberg
		Vice President - Finance
		and Chief Financial Officer
		(Principal Financial and Accounting Officer)