PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

SeptemberJune 25, 20222023 and March 27, 202226, 2023

(in thousands, except share and per share amounts)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

Thirteen and Twenty-six weeks ended SeptemberJune 25, 20222023 and SeptemberJune 26, 20212022

(in thousands, except per share amounts)

(Unaudited)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Thirteen weeks ended SeptemberJune 25, 20222023 and SeptemberJune 26, 20212022

(in thousands, except share amounts)

(Unaudited)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Twenty-six weeks ended September 25, 2022 and September 26, 2021

(in thousands, exceptper share amounts)

(Unaudited)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Twenty-sixThirteen weeks ended SeptemberJune 25, 20222023 and SeptemberJune 26, 20212022

(in thousands)thousands, except per share amounts)

(Unaudited)

See Note S for supplemental cash flow information.

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

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SeptemberJune 25, 20222023

(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 twenty-six week periods ended SeptemberJune 25, 2023 and June 26, 2022 and September 26, 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America.America (“GAAP”). 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.

The Company uses a 52-53 week fiscal year ending on the Sunday closest to March 31. The 2024 fiscal year will end on March 31, 2024 and will contain 53 weeks.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of AmericaGAAP have been omitted pursuant to the requirements of the U.S. Securities and Exchange 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 27, 2022 26, 2023 as filed with the SEC on June 10, 2022.8, 2023.

Our significant interim accounting policies include the recognition of advertising fund expense in proportion to advertising fundsfund 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 27, 2022.

COVID-19 Pandemic and Inflation

In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19), a global pandemic. The COVID-19 pandemic has had and may continue to have a significant impact on our business and results of 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 2023. Our average cost of hot dogs for the twenty-six week period ended September 25, 2022 was approximately 8% higher than during the twenty-six week period ended September 26, 2021.2023.

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

There is continued uncertainty due to the COVID-19 pandemic and supply chain disruptions and their impacts on the Company’s business. We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain.

The extent to which COVID-19 will continue to impact the Company will depend on future developments, which cannot be predicted, including the duration and severity of the COVID-19 pandemic, which may be impacted by new and evolving variants, the adoption rates of vaccines in the jurisdictions in which the Company operates, and further actions that may be taken to limit the public health and economic impact.

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

NOTE B – ADOPTION OF NEW ACCOUNTING STANDARDNOT YET ADOPTED

��

In June 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2016-13,2016-13, “Financial Instruments – Credit Losses (Topic 326)326): Measurement of Credit Losses on Financial Instruments,” (“CECL”) which significantly changes the impairment model for most financial instruments. Current guidance requires themeasurement and recognition of creditexpected versus incurred losses based on an incurred loss impairment methodology that reflects losses oncefor financial assets held. The Company adopted ASU 2016-13 as of March 27, 2023 (the first day of fiscal 2024) under 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 ofmodified retrospective method. Accordingly, the consolidated financial instruments that are instatements have not been adjusted prior to the scopedate of this update, including trade receivables. The CECL model usesadoption.

Upon adoption, the Company recorded an increase to the allowance for credit losses of $252 and a broader rangecumulative effect adjustment to retained earnings of reasonable and supportable information in the development$187, net of credit loss estimates. In November 2019, the FASB deferred the effective date for smaller reporting companies for annual reporting periods beginning after December 15, 2022. This standard is required to take effect in Nathan’s first quarter ( June 2023) $65 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.income taxes.

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 C – REVENUES

The Company’s disaggregated revenues for the thirteen and twenty-six weeks ended SeptemberJune 25, 2023 and June 26, 2022 and September 26, 2021 are as follows (in thousands):

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

Contract balances

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

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

Significant changes in deferred revenues are as follows (in thousands):

Anticipated future recognition of deferred franchise fees

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

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 D – INCOME PER SHARE

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

The following chart provides a reconciliation of information used in calculating the per-share amounts for the thirteen and twenty-six week periods ended SeptemberJune 25, 2023 and June 26, 2022, and September 26, 2021, respectively.

Options to purchase 20,00010,000 shares of common stock in the thirteen and twenty-six week periodsperiod ended SeptemberJune 25, 2022 and September 26, 2021 2023 were not includedexcluded in the computation of diluted EPSearnings per share because the exercise price exceeded the average market price of common shares during the period.

Options to purchase 20,000 shares of common stock in the thirteen week period ended June 26, 2022 were excluded in the computation of diluted earnings per share because the exercise price exceeded the average market price of common shares during the period.

NOTE E – 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 SeptemberJune 25, 2022 2023 and March 27, 2022. 26, 2023. The Company’s cash balances principally consist of cash in bank and money market accounts.

At SeptemberJune 25, 2022 2023 and March 27, 2022, 26, 2023, substantially all of the Company’s cash balances are in excess of Federal government insurance limits. The Company has not experienced any losses in such accounts.

NOTE F – FAIR VALUE MEASUREMENTS

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

The face value and fair value of long-term debt as of SeptemberJune 25, 2022 2023 and March 27, 2022 26, 2023 were as follows (in thousands):

The Company estimates the fair value of its long-term debt based upon review of observable pricing in secondary markets as of the last trading day of the fiscal period. Accordingly, the Company classifies its long-term debt as Level 2.

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

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 SeptemberJune 25, 2022, 2023, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.

NOTE G – ACCOUNTS AND OTHER RECEIVABLES, NET

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

AccountsThe recently adopted CECL guidance requires companies to use a current expected credit loss model that immediately recognizes an estimate of credit losses expected to occur over the life of the consolidated financial instruments, including trade receivables. The Company is exposed to credit losses through its trade accounts receivable. Trade accounts receivable are generally due within 30 days and are stated at amounts due from franchisees, including virtual kitchens, retail licensees and Branded Product Program customers, net of an allowance for doubtful accounts.credit losses. 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.

Under the CECL guidance, the Company applied the credit loss methodology by pooling financial assets based on similar risk characteristics and delinquency status under an aging method at the measurement date. The risk characteristics the Company individuallygenerally reviews each past due accountwhen analyzing its trade accounts receivable pools include the type of receivable (for example, franchise receivable versus license receivable), payment terms, the Company’s previous loss history, current and determines its allowance for doubtful accounts by considering a number of factors, includingfuture economic conditions and the length of time accounts receivablereceivables are past due,due. For those trade accounts receivable that no longer share similar risk characteristics with its pool and potential loss is evident, a specific reserve will be recorded.

For pooled trade account receivables, the Company develops its allowance for credit losses by applying a historical loss rate to each pool based on historical account write-off trends. The Company believes that the past five years provide a reasonable representation of the Company’s previous loss history,operations and performance through various business cycles, both favorable and unfavorable. The allowance for credit losses is then adjusted for current macroeconomic factors, including the customer’s currenteffects of COVID-19 and expectedinflation and reasonable and supportable forecasts of 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, theeconomic conditions. The Company provides for estimated uncollectible amountsexpected credit losses 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.credit losses.

Changes in the Company’s allowance for doubtful accountscredit losses for the twenty-sixthirteen week period ended SeptemberJune 25, 2022 2023 and the fiscal year ended March 27, 2022 26, 2023 are as follows (in thousands):

NOTE H – PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

NOTE I - INTANGIBLE ASSET

The Company’s definite-lived intangible asset consists of trademarks, 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 sixfive years concluding in fiscal year 2028, and the intangible asset is subject to annual amortization. The Company performs an annual impairment test, or more frequently if events or changes in circumstances indicate that the intangible asset may be impaired. The Company tests for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements. Cash flow projections require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record an impairment charge in future periods and such impairment could be material.

There have been no significant events or changes in circumstances during the thirteen and twenty-six week periods weeks ended SeptemberJune 25, 2022 2023 that would indicate that the carrying amount of the Company’s intangible asset may be impaired as of SeptemberJune 25, 2022.2023.

NOTE J - 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 useright-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.

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 impairment charges in future periods and such impairments could be material.

There have been no significant events or changes in circumstances during the thirteen and twenty-six week periods weeks ended SeptemberJune 25, 2022 2023 that would indicate that the carrying amount of the Company’s long-lived assets may be impaired as of SeptemberJune 25, 2022.2023.

NOTE K – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

NOTE L – INCOME TAXES

The effective income tax ratesprovisions for the thirteen weeks week periods ended SeptemberJune 25, 2023 and June 26, 2022 reflect effective tax rates of 27.1% and September 26, 2021 were 26.3% and 26.5%27.8%, respectively. The effective income tax rate for the thirteen weeks ended SeptemberJune 25, 2022 2023 reflected $2,127$2,744 of income tax expense recorded on $8,085$10,132 of pre-tax income. The effective income tax rate for the thirteen weeks ended SeptemberJune 26, 2021 2022 reflected $1,276$2,743 of income tax expense recorded on $4,821 of pre-tax income.

The effective income tax rates for the twenty-six weeks ended September 25, 2022 and September 26, 2021 were 27.1% and 28.0%, respectively. The effective income tax rate for the twenty-six weeks ended September 25, 2022 reflected $4,870 of income tax expense recorded on $17,965$9,880 of pre-tax income. The effective income tax rate for the twenty-six weeks ended September 26, 2021 reflected $3,617 of income tax expense recorded on $12,925 of pre-tax income.

The effective income tax rates for the thirteen and twenty-six weeks ended September 25, 2022 and September 26, 2021 wereare higher than the United States Federal statutory income tax raterates primarily due to state and local taxes.

The amount of unrecognized tax benefits included in Other Liabilitiesliabilities at SeptemberJune 25, 2022 2023 and March 27, 2022 26, 2023 was $430$446 and $422,$432, respectively, all of which would impact the Company’s effective tax rate, if recognized. As of SeptemberJune 25, 2022 2023 and March 27, 2022, 26, 2023, the Company had approximately $305$321 and $271,$305, respectively, accrued for the payment of interest and penalties in connection with unrecognized tax benefits.

NOTE M – 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-owned and franchised restaurants, including virtual kitchens, to distributors that resell our products to the foodservice industry through the Branded Product Program and by third party manufacturers pursuant to license agreements that sell our products to supermarkets, club stores and grocery storeschannels 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,sausages, frozen crinkle-cut French fries and additional products through retail supermarkets, grocery channels and club stores throughout the United States.

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

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

Operating segment information is as follows (in thousands):