PART I

Forward-Looking Statements

This Form 10-K 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-K are based upon information available to us on the date of this Form 10-K.

Item 1.Business.

As used herein, unless we otherwise specify, the terms “we,“we,” “us,“us,” “our,“our,” “Nathan’s,“Nathan’s,” “Nathan’s Famous”“Nathan’s Famous” and the “Company”“Company” mean Nathan’sNathan’s Famous, Inc. and its subsidiaries, including NF Treacher’sTreacher’s Corp. References to the fiscal 20182021 period mean the fiscal year ended March 25, 201828, 2021 and references to the fiscal 20172020 period mean the fiscal year ended March 26, 2017.29, 2020. In addition, references to the “Notes”, “2025 Notes” or the “2025 Senior Secured Notes” refer to the $150,000,000 6.625% Senior Secured Notes due 2025 and references to the “2020 Notes” or the “2020 Senior Secured Notes” refer to the $135,000,000 10.000% Senior Secured Notes which were repaid in fullredeemed on November 15,16, 2017.

We are a leading branded licensor, wholesaler and retailer of products marketed under our Nathan’s Famous brand, including our popular Nathan’s World Famous Beef Hot Dogs. What began as a nickel hot dog stand on Coney Island in 1916 has evolved into a highly recognized brand throughout the United States and the world. Our innovative business model seeks to maximize the points of distribution for and the consumption of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and our other products across a wide-range of grocery retail and foodservice formats. Our products are currently marketed for sale in approximately 58,00079,000 locations, including supermarkets, mass merchandisers and club stores, selected foodservice locations and our Company-owned and franchised restaurants throughout the United States and in sixteenforeign territories and countries. The Company considers itself to be in the foodservice industry, and has pursued co-branding initiatives within other foodservice environments. Our major channels of distribution are as follows:

We also own, through our subsidiary NF Treacher’s Corp., the Arthur Treacher’s brand and trademarks. We use the Arthur Treacher’s brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan’s Famous restaurants. Currently, we operate seven Arthur Treacher’s BMP locations.

Our brand is widely recognized by virtue of our long history and broad geographic footprint, which allows us to enjoy high consumer awareness in the United States and abroad and the ability to grow in markets and channels where the brand is known but has not yet achieved optimal market penetration. We believe that our highly visible brand and reputation for high quality products have allowed us to expand our food offerings beyond our signature hot dogs and command a price premium across our portfolio of products. Over time, we have expanded menu options so that our Company-owned restaurants and franchisees can supplement their core menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages with a variety of other quality menu choices. We have also developed a portfolio of licensed products for sale at retail and grocery locations. During the fiscal 2021 period, we expanded our brand presence by opening Nathan’s Famous virtual kitchens, or “ghost kitchens.” We have partnered with existing branded restaurants and utilizing their existing equipment allow them to sell Nathan’s Famous branded products through third party delivery platforms such as UberEats, DoorDash and GrubHub. We have also developed a virtual chicken wing concept called the Wings of New York, with a menu made up of chicken wings, chicken tenderloins and waffles.

We seek to maintain the same quality standard with each of our supplemental menu items and licensed products as we do with our core hot dog and French fries menu. We intend to continue to leverage our highly recognized global brand and iconic products to introduce new products into our existing distribution network, open new points of distribution and grow our overall sales. We believe that there is great potential to increase our sales by converting existing sales of non-branded products to Nathan’s Famous branded products throughout the foodservice industry.

In recent years, our primary focus has been to expand the market penetration of the Nathan’s Famous brand. Specifically, we have sought to increase the number of points of brand representation and grow product sales throughout our various channels of distribution. In this regard, we have concentrated our efforts on:

As a result of our efforts to expand the Nathan’s Famous brand, as of March 25, 2018:28, 2021:

Our revenues are generated primarily from sales of products sold through our Branded Product Program and within our Company-owned restaurants, as well as royalties from our retail licensing activities and the royalties, fees and other sums we earn from our restaurant franchising activities.

We plan to expand the scope and market penetration of our Branded Product Program, further develop the restaurant operations of existing Nathan’s Famous franchised and Company-owned outlets, open new Nathan’s Famous franchised outlets in traditional or captive market environments, open new virtual kitchens, domestically and internationally, and expand the Nathan’s Famous retail licensing programs. We also plan to further expand our international presence through our franchise, and retail licensing programs. We may also selectively consider opening new Company-owned restaurants.

COVID-19 Pandemic

In March 2020, the World Health Organization (“WHO”) declared a global pandemic related to the outbreak of a novel strain of coronavirus, designated “COVID-19.” Initially, federal, state, and local governments reacted to the COVID-19 pandemic by encouraging or requiring social distancing, instituting shelter-in-place orders, and requiring, in varying degrees, reduced operating hours, restaurant dine-in and/or indoor dining limitations, capacity limitations or other restrictions that largely limited our Company-owned restaurants, franchised restaurants and BMP franchises to off-premise sales (take-out and delivery) in the early stages of the pandemic. Additionally, it negatively impacted our Branded Product Program as many of our customers operate in venues that are closed or venues that are operating at reduced capacity, such as professional sports arenas, amusement parks, and shopping malls.

During the course of the fiscal 2021 period, certain of these restrictions were relaxed as incidents of infection from the initial outbreak declined. The Company has instituted operational procedures to protect the health and foster the confidence of employees and guests at the Company-owned and franchised units. The Company continues to monitor developing and changing health authority recommendations and regulatory requirements.

The business environment remains fluid into fiscal 2022 (“the fiscal year ending March 27, 2022”) and is subject to change as governmental authorities modify existing restrictions or implement new restrictions in response to changes in the number of COVID-19 infections and the availability and acceptance of vaccines around the United States and internationally.

The impact of the COVID-19 pandemic on our results of operations and liquidity is discussed in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K.

Corporate History

We were incorporated in Delaware on July 10, 1992 under the name “Nathan’s Famous Holding Corporation” to act as the parent of a Delaware corporation then-known as Nathan’s Famous, Inc. On December 15, 1992, we changed our name to Nathan’s Famous, Inc., and our Delaware subsidiary changed its name to Nathan’s Famous Operating Corp. The Delaware subsidiary was organized in October 1989 in connection with its re-incorporation in Delaware from that of a New York corporation named “Nathan’s Famous, Inc.” The New York Nathan’s was incorporated on July 10, 1925, as a successor to the sole-proprietorship that opened the first Nathan’s restaurant in Coney Island in 1916. On July 23, 1987, Equicor Group, Ltd. merged with and into the New York Nathan’s in a “going private” transaction. The New York Nathan’s, the Delaware subsidiary and Equicor may all be deemed to be our predecessors.

Restaurant Operations

The COVID-19 pandemic has disrupted operations at our Company-owned restaurants, franchised restaurants and BMP locations. Three out of four of our Company-owned restaurants remained open throughout the fiscal 2021 period and continued to offer food primarily through take-out and delivery. Our seasonal location on the Coney Island Boardwalk operated for an abbreviated time in the fiscal 2021 period. It was open from May 15, 2020 to September 13, 2020. This seasonal location re-opened with reduced operating hours for the fiscal 2022 summer season on April 2, 2021.

A majority of our franchised locations closed temporarily during the fiscal 2021 period due to their locations being in venues that were closed (such as movie theaters) or venues operating at reduced traffic levels (such as airports, highway travel plazas and shopping malls). Currently, approximately 77% of the Company’s franchise system is open.

Such closures and disruptions have impacted revenues and income from operations as compared to the fiscal 2020 period.

We remain principally focused on the well-being and safety of our guests, restaurant operations are comprisedemployees, franchisees, and all other Corporate employees.

The health and well-being of 281 Nathan’s Famous restaurants, which haveour employees and guests has always been co-brandedand continue to be our top priority. Since the situation around the COVID-19 pandemic is constantly changing we may implement additional safety measures in line with Arthur Treacher’shealth authority recommendations and Kenny Rogers Roasters menu items in 35 and 16 units, respectively.regulatory requirements.

Nathan’sNathan’s Famous Concept and Menus

Our Nathan’s Famous concept is scalable, offering a wide range of facility designs and sizes, suitable to a vast variety of locations, featuring a core menu consisting of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages. Nathan’s menu is designed to take advantage of site-specific market opportunities by adding complementary food items to the core menu. The Nathan’s concept is suitable to stand-alone or can be co-branded with other nationally recognized brands.

Nathan’s World Famous Beef Hot Dogs are flavored with itsour secret blend of spices provided by Ida Handwerker in 1916, which historically have distinguished Nathan’s World Famous Beef Hot Dogs. Our hot dogs are prepared and served in accordance with procedures which have not varied significantly since our inception over 100 years ago in our Company-owned and franchised restaurants. Our signature crinkle-cut French fries, cooked in 100% trans-fat-free oil, are featured at each Nathan’s restaurant. We believe the majority of sales in our Company-owned unitsrestaurants consist of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages.

Individual Nathan’s restaurants supplement their core menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages with a variety of other quality menu choices including: char-grilled hamburgers, crispythe Nathan’s Famous NY Cheesesteak by Pat LaFreida, our fresh angus hamburger program and our hand-dipped chicken tenders, crispy chicken and char-grilled chicken sandwiches, Philly cheese steaks, selected seafood items, a breakfast menu and assorted desserts and snacks.program. We usehave historically used the Arthur Treacher’s brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan’s Famous restaurants. While

We also partner with major third-party delivery service providers, such as DoorDash, UberEats and GrubHub, providing multiple options for our guests to continue to enjoy Nathan’s Famous products at home during the number of supplemental menu items carried varies with the size of the unit, the specific supplemental menus chosen are tailored to local food preferences and market conditions. Each supplemental menu option consists of a number of variations; for example, the hamburger menu may include char-grilled bacon cheeseburgers, double-burgers and super cheeseburgers. We seek to maintain the same quality standard with each of Nathan’s supplemental menus as we do with Nathans’ core hot dog and French fries menu. Thus, for example, hamburgers and sandwiches are prepared to order and not pre-wrapped or kept warm under lights.COVID-19 pandemic. Nathan’s also has a “Kids Meal” programopened our first virtual kitchens (existing kitchens with no Nathan’s Famous branded store-front presence, used to fill online orders) during the fiscal 2021 period to further expand our delivery options and to reach even more of our customers. At March 28, 2021, there were 130 virtual kitchens operating in which various menu alternatives are combined with toys designed to appeal to the children’s market. Soft drinks, iced tea, coffee10 states and old fashioned lemonade and orangeade are also offered. The Company continually evaluates new products. In the course of its evaluations, the Company seeks to respond to changing consumer trends, including a trend toward perceived “healthier” products. In addition to its well-established, signature products, the Company offers for sale in many of its restaurants up to seven chicken products, six fish products, and five salad and soup products.four foreign countries.

Nathan’s restaurant designs are available in a range of sizes from 300 to 4,000 square feet. We have also developed various Nathan’s carts, kiosks, mobile food carts, trucks and modular units. Our smaller units may not have customer seating areas, although they may often share seating areas with other fast food or quick service outlets in food court settings. Other units generally provide seating for 45 to 125 customers. Carts, trucks, kiosks and modular units generally carry only the core menu. This menu is supplemented by a number of other menu selections in our other restaurant types.Our food trucks may carry the full Nathan’s Famous menu.

We believe that Nathan’s carts, kiosks, modular units and food court designs are particularly well-suited for placement in non-traditional sites, such as airports, travel plazas, stadiums, schools, convenience stores, entertainment facilities, military facilities, business and industry foodservice, within larger retail operations and other captive markets. Many of these settings may also be appropriate for our expanding Branded Menu Program or Branded Product Program. All of these units feature the Nathan’s logo and utilize a contemporary design.

Franchise Operations

At March 25, 2018,28, 2021, our Nathan’s franchise system, including our Branded Menu Program, consisted of 276213 units operating in 2019 states and 12eight foreign countries.

Our franchise system includes among its 142 franchisees such well-known companies as HMS Host, Compass Group USA, Inc., Gourmet Dining Services, Inc., CulinArt, Inc., National Amusements, Inc., Hershey Entertainment & Resorts Company, and Bruster’s Real Ice Cream. We continue to market our franchising programs to larger, experienced and successful operators with the financial and business capability to develop multiple franchise units, as well as to individual owner-operators with evidence of restaurant management experience, net worth and sufficient capital.

During the fiscal 20182021 period, no single franchisee accounted for over 10% of our consolidated revenue. At March 25, 2018,28, 2021, HMS Host operated 1312 franchised outlets, including twothree units at airports, 10eight units within highway travel plazas and one unit within a mall. Additionally, at March 25, 2018, (i) HMS Host operated 48locations featuring Nathan’s products pursuant to our Branded Product Program, (ii) 3523 mobile carts were operatingregistered to operate in New York, NY, and (iii) 1615 Bruster’s Real Ice Cream shops and four Kmart locations were selling Nathan’s products under our Branded Menu Program.

Growth Strategies

Even amidst the various challenges of fiscal 2021, the Company embarked on a number of new initiatives to promote the Nathan’s Famous brand and to position itself for future growth.

Virtual Kitchens – The Company has partnered with Franklin Junction, which connects host restaurants with digital brands, and has also collaborated with REEF, and Ghost Kitchen Brands to expand across the United States and Canada.

Wings of New York – The Company launched the Wings of New York, a virtual concept offering New York style chicken wings, hand-dipped chicken tenders, as well as Harlem-style chicken and waffles through third party delivery services. The concept offers over a dozen different wing sauces ranging from Classic Buffalo and Creamy Mild Buffalo to Carolina Reaper and Ghost Pepper, as well as a signature Buffalo sauce created by culinary consultant and James Beard Award Winner Mark Miller. The Nathan’s Famous crinkle-cut French fries can be served alongside the wings or loaded with an assortment of toppings including the NY Cheesesteak fries by Pat LaFrieda, while the waffles, which can be served a la carte, are topped with real maple syrup and butter. The menu also features two waffle dessert options – a waffle sundae and a waffle shake.

Expansion of Partnership with Pat LaFrieda – In 2019, the Company launched the NY Cheesesteak by Pat LaFrieda. Due to the popularity of that hero sandwich, during the fiscal 2021 period the Company developed and introduced two new menu items, the NY Cheesesteak topped Hot Dog and NY Cheesesteak Fries.

Goldbelly DIY Kits – During the fiscal 2021 period, the Company partnered with Goldbelly to provide Nathan’s Famous favorite meals to consumers throughout the United States. The Company offers a number of meal kits through Goldbelly, including its Nathan’s World Famous Beef hot dog and crinkle-cut French fries. Other meal options include the NY Cheesesteak by Pat LaFrieda, and the Pastrami and Swiss Hero, both of which are shipped with Nathan’s Famous crinkle-cut French fries.

Digital Business – During fiscal 2021, the Company upgraded its capabilities by expanding our partnerships with third-party delivery services. Digital sales, which include delivery and customer pick-up, at three of our four Company-owned restaurants (excluding our seasonal location on the Coney Island Boardwalk) accounted for 11%of sales at these locations in fiscal 2021. Our ability to offer off-premises sales during the COVID-19 pandemic was important, as more guests preferred to eat their meals at home and in-restaurant dining was prohibited or restricted early in fiscal 2021.

Continued Focus on Technology

The Company continues to take strides to improve its technology resources to aid its Company-owned store operations. In fiscal 2021, the Company-owned restaurants migrated to the PAR Brink Point-of-Sale application. To further increase operational efficiency, the Company partnered with Restaurant Magic to install a back office software solution that focuses on inventory and food management, labor and scheduling, as well as reporting and analytics.

Nathan’s Standard Franchise Program

Franchisees are required to execute a standard franchise agreement prior to opening each Nathan’s Famous unit. Our current standard Nathan’s Famous franchise agreement provides for, among other things, a one-time $30,000 franchise fee payable upon execution of the agreement, a monthly royalty payment based on 5.5% of restaurant sales and the expenditure of up to 2.0% of restaurant sales on advertising. We may offer alternatives to the standard franchise agreement, having to do with franchise royalties, fees or advertising requirements. The initial term of the typical franchise agreement is 20 years, with a 15-year renewal option by the franchisee, subject to conditions contained in the franchise agreement.

Franchisees are approved on the basis of their business background, evidence of restaurant management experience, net worth and capital available for investment in relation to the proposed scope of the development agreement.

We provide numerous support services to our Nathan’s Famous franchisees. We assist in and approve all site selections. Thereafter, we provide architectural plans suitable for restaurants of varying sizes and configurations for use in food court, in-line and free standingfree-standing locations. We also assist in establishing building design specifications, reviewing construction compliance, equipping the restaurant and providing appropriate menus to coordinate with the restaurant design and location selected by the franchisee. We typically do not sell food, equipment or supplies to our standard franchisees.

We offer various management-training courses for management personnel of Company-owned and franchised Nathan’s Famous restaurants. A restaurant manager from each restaurant must successfully complete our mandated management-training program. We also offer additional operations and general management training courses for all restaurant managers and other managers with supervisory responsibilities. We provide standard manuals to each franchisee covering training and operations, products and equipment and local marketing programs. We also provide ongoing advice and assistance to franchisees. We meet with our franchisees to discuss upcoming marketing events, menu development and other topics, each of which is designed to provide individual restaurant and system-wide benefits.

Franchised restaurants are required to be operated in accordance with uniform operating standards and specifications relating to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and cleanliness of premises and customer service. All standards and specifications are developed by us to be applied on a system-wide basis. We regularly monitor franchisee operations and inspect restaurants. Franchisees are required to furnish us with monthly sales or operating reports which assist us in monitoring the franchisee’s compliance with its franchise agreement. We make both announced and unannounced inspections of restaurants to ensure that our practices and procedures are followed. We have the right to terminate a franchise if a franchisee does not operate and maintain a restaurant in accordance with the requirements of its franchise agreement, including for non-payment of royalties, sale of unauthorized products, bankruptcy or conviction of a felony. During the fiscal 20182021 period, franchisees opened 40seven new Nathan’s Famous franchised units in the United States (including 19 twoBranded Menu Program units), and 16closed ten Nathan’s Famous franchised units, internationally.including one international unit.

A franchisee who desires to open multiple units in a specific territory within the United States may enter into an area development agreement under which we would expect to receive an area development fee based upon the number of proposed units which the franchisee is authorized to open. With respect to our international development, we generally grant exclusive territorial rights in foreign countries for the development of Nathan’s units based upon compliance with a predetermined development schedule. Additionally, we may further grant exclusive manufacturing and distribution rights in foreign countries, and we may require an exclusivity fee to be conveyed for such exclusive rights.

Nathan’sNathan’s Branded Menu Program

Our Nathan’s Famous Branded Menu Program enables qualified foodservice operators to offer a Nathan’s Famous menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, proprietary toppings, and a limited menu of other Nathan’s products. Under the Branded Menu Program, the operator may use the Nathan’s Famous trademarks on signage and as part of its menu boards. Additionally, the operator may use Nathan’s Famous paper goods and point of sale marketing materials. Nathan’s also provides architectural and design services, training and operation manuals in conjunction with this program. The operator provides Nathan’s with a fee and is required to sign a 10-year agreement. Nathan’s does not collect a royalty based on the operator’s sales and the operator is not required to report sales to Nathan’s as required by the standard franchise arrangements. Instead, the Branded Menu Program operator is required to purchase products from Nathan’s approved distributors;distributors and we earn our royalties from such purchases.

As of March 25, 2018, the Nathan’s Branded Menu Program was comprised of 122 outlets, which included 35 units operated by Move Systems, Inc. in New York, NY and 16 Nathan’s Famous Branded Products within Bruster’s Real Ice Cream shops, a premium ice cream franchisor headquartered in western Pennsylvania and four locations operating within K-Mart.

Arthur Treacher’sTreacher’s

Arthur Treacher’s Fish-n-Chips, Inc. was originally founded in 1969. Arthur Treacher’s main product is its “Original Fish-n-Chips,” consisting of fish fillets coated with a special batter prepared under a proprietary formula, deep-fried golden brown, and served with English-style chips and corn meal “hush puppies.” Full menu restaurants emphasize the preparation and sale of batter-dipped fried seafood and chicken dishes served in a quick-service environment.

We are the sole owner of all rights to the Arthur Treacher’s brand and the exclusive franchisor of the Arthur Treacher’s restaurant system (subject to a limited license granted to PAT Franchise Systems, Inc. (“PFSI”)) in Indiana, Michigan, Ohio, and Pennsylvania, (“the PFSI Markets”). Pursuant to the license, PFSI has no obligation to pay fees or royalties to us in connection with its use of the Arthur Treacher’s intellectual property within the PFSI Markets. As a result of PFSI’s failure to satisfy the Development Schedulesdevelopment schedules for each of the territories, all future development rights have reverted back to Nathan’s.

As of March 25, 2018,28, 2021, Arthur Treacher’s, as a co-brand, was included within 3527 Nathan’s Famous restaurants. Our primary intention was to continue including co-branded Arthur Treacher’s operations within our Nathan’s Famous restaurants and explore alternative distribution channels for Arthur Treacher’s products. We may seek to expand the opportunity for an Arthur Treacher’s Branded Menu Programin the future. CurrentlyAdditionally, we operate seven Arthur Treacher’s BMP locations.

Kenny Rogers Roasters

We have the right to use the Kenny Rogers Roasters trademarks for the continued sale of the Kenny Rogers Roasters products in the Nathan’s Famous restaurants existing at April 23, 2008, where the Kenny Rogers products had already been introduced. As of March 25, 2018, the Kenny Rogers brand was being sold within 16 Nathan’s restaurants.

Company-owned Nathan’sNathan’s Restaurant Operations

As of March 25, 2018,28, 2021, we operated fivefour Company-owned Nathan’s units,restaurants, including one seasonal location, in New York. Three of our four Company-owned restaurants have been open with limited operations resulting from restrictions due to the COVID-19 pandemic. Our seasonal location on the Coney Island Boardwalk re-opened with reduced operating hours for the fiscal 2022 summer season on April 2, 2021.

Since 2012, we have invested significantly in our Company-owned restaurants. In March 2012, we relocated our seasonal Coney Island Boardwalk restaurant to a more prominent location. Our Coney Island flagship location was rebuilt and re-opened on May 20, 2013 after suffering severe damage as a result of Superstorm Sandy on October 29, 2012. Our Yonkers location was down-sized, relocated and re-opened on November 18, 2013 pursuant to its new lease, and our Oceanside restaurant was also relocated and downsized and re-opened on March 25, 2015. Four Threeof our Company-owned restaurants range in size from approximately 2,650 square feet to 10,000 square feet and have seating to accommodate between 60 and 125 customers. These restaurants are open seven days a week on a year-round basis and are designed to appeal to consumers of all ages. We have established high standards for food quality, cleanliness, and service at our restaurants and regularly monitor the operations of our restaurants to ensure adherence to these standards. We have entered into an agreement to sell the Company-owned restaurant, including the real estate, in Bay Ridge, Brooklyn, NY in July 2018, which we expect to continue operating through September 2018, before it ceases operations.

Three

Two of our Company-owned restaurants have contemporary service areas, seating, signage, and general decor. Our Coney Island restaurant, which first opened in 1916, remains unique in its presentation and operations.

Our Company-owned restaurants typically carry a broader selection of menu items than our franchise restaurants and generally attain sales levels higher than the average of our newer franchise restaurants. The non-core menu items at the Company-owned restaurants, tend to have lower margins than the core menu.

International Development

As of March 25, 2018,28, 2021, Nathan’s Famous franchisees operated 5326 units in 12eight foreign countries.

During fiscal 2021, the Company entered into a licensing, manufacturing and distribution agreement with Mezzan Holding KSC, one of the largest manufacturers, and distributors of food and beverages in the Gulf region. We believe this partnership may position the Company with advantages and opportunities in and around the Gulf region.

Additionally, during fiscal 2018 period we opened 16new units internationally, including our first three units in Latvia pursuant2021, the Company licensed Damhus, a German manufacturer of quality meat-products, to a new development agreement. Additionally, we opened four units in Russia, three units each in Kazakhstanmanufacture and Australia, and one unit each in Malaysia, Philippines and Dominican Republic, pursuant to existing development agreements.distribute Nathan’s World Famous Beef Hot Dogs across Europe.

We willmay seek to continue granting exclusive territorial rights for franchising and for the manufacturing and distribution rights in foreign countries, and we expect to require that an exclusivity fee be conveyed for these rights. We plan to develop the restaurant franchising system internationally through the use of master franchising agreements based upon individual or combined use of our existing restaurant concepts and for the distribution of Nathan’s products.

Following is a summary of our international operations for the fiscal years ended March 25, 2018, March 26, 201728, 2021 and March 27, 2016:29, 2020: See Item 1A-“Risk Factors.”

(a) Gross profit represents the difference between revenue and cost of sales.

Location Summary

The following table shows the number of our Company-owned and franchised units in operation at March 25, 201828, 2021 and their geographical distribution:

Branded Product Program

The COVID-19 pandemic has disrupted operations within our Branded Product Program. Operations at many of our Branded Product Program accounts have been negatively impacted as many of our customers operate in venues that are currently closed (such as movie theatres) or venues operating at reduced traffic levels, such as professional sports arenas, amusement parks and shopping malls.

Through the Branded Product Program, Nathan’s provides qualified foodservice operators in a variety of venues the opportunity to capitalize on Nathan’s valued brand by marketing and selling primarily Nathan’s Famous hot dog products. We believe that the program is unique in its flexibility and broad appeal. Hot dogs are offered in a variety of sizes and additional specialty products are available to satisfy consumer needs. In conjunction with the program, the operators are granted a limited use of the Nathan’s Famous trademark, as well as Nathan’s point of purchase materials. We earn income by selling our products either directly to the end users or to various foodservice distributors who resell the products to specific operators.

As of March 25, 2018,28, 2021, the Branded Product Program distributed product in all 50 states, the District of Columbia, Puerto Rico, Canada, the U.S. Virgin Islands, Guam and Mexico. DuringPursuant to the fiscal 2018 period,we continued to open many new locations offering Nathan’s branded products. Today,Branded Product Program, Nathan’s World Famous Beef Hot Dogs are being offered in national restaurant chains such as Auntie Anne’s, Hot Dog On A Stick, and Johnny Rockets,Rockets; national movie theater chains such as Regal Entertainment, and National Amusements and Cinemex in Mexico; amusement parks such as Six Flags and Universal Studios; casino hotels such as Foxwoods Casino in Connecticut, the Grand Casino in MinnesotaConnecticut; and convenience store chains such as Race Trac, and Holiday Station stores, and the Cinemex movie chain in Mexico.stores. The Branded Products Program also distributes product in professional sports arenas with Nathan’s World Famous Beef Hot Dogs now being served in stadiums and arenas that host the New York Yankees, New York Mets, Brooklyn Nets, New York Islanders, Dallas Cowboys, Miami Marlins, Washington NationalsColorado Rockies and Colorado Rockies.Green Bay Packers.

Additionally, our products are offered in numerous other foodservice operations including cafeterias, snack bars and vending machines located in many different types of foodservice outlets and venues, including airports, highway travel plazas, colleges and universities, gas and convenience stores, military installations and Veteran’s Administration hospitals throughout the country.United States.

With the anticipated roll-out, availability and acceptance of vaccines to combat the COVID-19 pandemic, Nathan’s expects to continue to seek out and evaluate a variety of alternative environments designed to maximize the value ofand grow our Branded Product Program.

Expansion Program

We expect that our retail licensing program willmay continue to grow, centered around our licensing program with John Morrell & Co. John Morrell & Co. brings superior sales and marketing resources to our brand through its national scale, broad distribution platform, strong retail relationships and research and development infrastructure capable of developing and introducing attractive new products. As a result of our partnership with John Morrell & Co., we expect Nathan’s Famous products to further penetratecontinue penetrating the grocery, mass merchandising and club channels by expanding points of distribution in targeted, underpenetrated regions and through the development of new products. We believe John Morrell & Co. expects to continue to leverage this relationship with continued full-scale marketing efforts, both inside and outside of stores, highlighted by exciting customer events and brand representation and support at numerousof our Nathan’s Famous Hot Dog Eating Contest Qualifying Events. Nathan’s through its relationship with John Morrell & Co. has been named the official hot dog of Major League Baseball for the 2017 and 2018 seasons. Additionally, John Morrell & Co. will continue its mobile marketing tour throughout 2018, whereby merchandising trucks will visit numerous supermarkets and community events throughout the country, and select Hot Dog Eating Contests to bring the Nathan’s / Coney Island experience to new markets, emphasizing our relationship with Major League Baseball.Contests.

We expect to continueresume the growth of our Branded Product Program once the COVID-19 pandemic subsides, through the addition of new points of sale. We believe that the flexible design of the Branded Product Program makes it well-suited for sales to all segments of the broad foodservice industry. We intend to keep targeting sales to a broad line of food distributors, which we believe complements our continuing focus on sales to various foodservice retailers. We continue to believe that as consumers look to assure confidence in the quality of the food that they purchase, there is great potential to increase our sales by converting existing sales of non-branded products to Nathan’s branded products throughout the foodservice industry.

We will seek to market our franchise restaurant program to large, experienced and successful operators with the financial and business capability to develop multiple franchise units, as well as to individual owner-operators with evidence of restaurant management experience, net worth and sufficient capital.

We also expect to continue opening Nathan’s Famous franchised units individuallyas the COVID-19 pandemic subsides and on a co-branded basis, expanding product distribution through various means such as branded products and retail licensing arrangements, developing master franchising programs in foreign countries and including our Arthur Treacher’s signature products both within our restaurant system and as a separate Branded Menu Program.countries. We may selectively consider opening new Company-owned Nathan’s unitsrestaurants on an opportunistic basis. WeIn addition, we may consider new opportunities in both traditional and captive market settings.

We expect to continue to expand the number of virtual kitchens domestically and internationally through our partnerships with Franklin Junction, REEF and Ghost Kitchen Brands to bring the Nathan’s Famous brand and Wings of New York concept to consumers across the United States and internationally.

We believe that our international development efforts will continue to garner a variety of interest as a result of the unique product distribution opportunities that we offer. Because of the scalability of our concept and menu offerings, we believe that there are also opportunities to co-brand our restaurant concept and/or menu items with other restaurant concepts internationally. We believe that in addition to restaurant franchising, we could further increase revenues by continuing to offer master development agreements to qualified persons or entities allowing for the operation of franchised restaurants, sub-franchising of restaurants to others, licensing the manufacture of our signature products, selling our signature products through supermarkets or other retail venues and further developing our Branded Product Program. Qualified persons or entities must have satisfactory foodservice experience managing multiple units, the appropriate infrastructure and the necessary financial resources to support the anticipated development of the business.

Co-branding

We believe that there is a continuing opportunity for co-branding of our restaurant concept and/or menu items with other restaurant concepts, as well as within our restaurant system as new franchise opportunities are developed. Franchisees that have co-branded a Nathan’s Famous restaurant with our other brands received a then-current Uniform Franchise Offering Circular (“UFOC”) or Franchise Disclosure Document (“FDD”) and executed a participation agreement as a rider to their franchise agreement. We initially implemented our co-branding strategy within the Nathan’s Famous restaurant system by adding the Arthur Treacher’s and Kenny Rogers Roasters brands into Nathan’s Famous restaurants. Upon the sale of Kenny Rogers Roasters in April 2008, we discontinued co-branding that brand within new restaurants in the Nathan’s Famous system. We have continuedcontinue to support our co-branding effort with theco-branded Arthur Treacher’s brand with new and existing Nathan’s Famous franchisees and expect to do so in the future. We may seek to further explore opportunities to co-brand the Arthur Treacher’s brand to other multi-unit foodservice operators in the future.franchisees.

We believe that our diverse brand offerings complement each other, which has enabled us to market franchises of co-branded units and continue co-branding within our franchised units. We also believe that our various restaurants’ products provide us with strong lunch and dinner day-parts as well as snacking occasions.

We believe that a multi-branded restaurant concept offering strong lunch and dinner day-parts is appealing to both consumers and potential franchisees. Such restaurants are designed to allow the operator to increase sales and leverage the cost of real estate and other fixed costs to provide superior investment returns as compared to many restaurants that are single branded. We have successfully co-branded Nathan’s with numerous business partners that were not Nathan’s franchisees because of our adaptability of our menu, to be limited or extensive, and the uniqueness of our signature hot dog product.

Licensing Program

Pursuant to an Agreement expiring in March 2032, John Morrell & Co., a subsidiary of Smithfield Foods, Inc., has been granted, among other things, (i) the exclusive right and obligation to manufacture, distribute, market and sell “Nathan’s Famous” branded hot dog, sausage and corned beef products in refrigerated consumer packages to be resold through retail channels (e.g., supermarkets, groceries, mass merchandisers and club stores) within the United States, (ii) a right of first offer to license any other “Nathan’s Famous” branded refrigerated meat products in consumer packages to be resold through retail channels within the United States, on terms to be negotiated in good faith, (iii) the right and obligation to manufacture “Nathan’s Famous” branded hot dog and sausage products in bulk for use in the food service industry within the United States, and (iv) the non-exclusive right and obligation to supply “Nathan’s Famous” natural casing and skinless hot dogs in bulk for use in the “Nathan’s Famous” restaurant system within the United States. The Agreement provides for royalties on packaged products sold to supermarkets, club stores and grocery stores, payable on a monthly basis to the Company equal to 10.8% of net sales, subject to minimum annual guaranteed royalties of at least $10 million in the first year of the term and which minimum guaranteed royalties increase annually throughout the term. Nathan’s earned royalties of approximately $19,445,000$27,778,000 in fiscal 20182021 and $17,073,000$22,307,000 in fiscal 20172020 representing 18.7%36.6% and 17.7%21.6% of total revenues, respectively. We believe our future operating results will continue to be substantially impacted by the terms and conditions of the agreement with John Morrell & Co., but there can be no assurance thereof (See Item 1A - “Risk Factors”). Since 2002, John Morrell & Co. has licensed from us the right to manufacture and sell branded hot dogs and sausages to selected foodservice accounts.  Pursuant to this arrangement, we earned royalties of $1,388,000$916,000 and $1,351,000$1,373,000 during the fiscal 2018 period2021 and fiscal 20172020 period, respectively.  The majority of these royalties were earned from one account.company. As of March 25, 2018,28, 2021, packaged Nathan’s World Famous Beef Hot Dogs continued to be sold in approximately 43,000supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Walmart, Target, Sam’s Club, Costco and BJ’s Wholesale Club located in all 50 states. We believe that the overall exposure of the brand and opportunity for consumers to enjoy the Nathan’s World Famous Beef Hot Dog in their homes helps promote “Nathan’s Famous” restaurant patronage. Royalties earned from this agreement were approximately 90.5%91.5% of our fiscal 20182021 period license revenues.

We license the manufacture of the proprietary spices which are used to produce Nathan’s World Famous Beef Hot Dogs to Saratoga Specialties.Specialties, Inc., a wholly-owned subsidiary of John Morrell & Co. During fiscal 20182021 and fiscal 2017,2020, we earned $1,062,000$1,022,000 and $870,000,$1,102,000, respectively, from this license. Through this agreement, we control the manufacture of all Nathan’s hot dogs.

During fiscal 2018,2021, our licensee Lamb Weston, Inc., continued to produce and distribute Nathan’s Famous frozen French fries and onion rings for retail sale pursuant to a license agreement. These products were distributed within 37states, primarily on the East Coast and in the South-WestSouthwest and West Coast during fiscal 2018.2021. During fiscal 20182021 and 2017,2020, we earned royalties of $518,000$1,137,000 and $482,000,$719,000, respectively, under this agreement. For the contract year ended in July 2017,2020 we earned royalties of $128,000$455,000 in excess of the annual minimum. Lamb Weston, Inc. continues to seek to further expand its market penetration in the Eastern United States and in the Mid-West.Midwest. Lamb Weston, Inc. exercised its third option to extend the license agreement through July 2023, pursuant to which the minimum royalties will increase 4% annually.

During fiscal 2018,2020, we continued totransferred the license the right to manufacture and sell miniature bagel dogs, franks-in-a-blanket and other hors d’oeuvres through club stores, supermarkets and other retail food stores.stores to an existing licensee. Royalties earned under this agreement were approximately $227,000$211,000 during fiscal 20182021 and $231,000$10,000 during fiscal 2017.2020.

We also have licensing agreements with Hermann Pickle Packers, Inc., Gold Pure Food Products Co., Inc. and others. These companies licensed the “Nathan’s Famous” or “Arthur Treacher’s” name for the manufacture and sale of various products including mustard, salsa, sauerkraut and pickles. These products have been distributed on a limited basis. Fees and royalties earned from all of these products were approximately $319,000$303,000 during fiscal 20182021 and $311,000$341,000 during fiscal 2017.2020. Our license agreement with Gold Pure Food Products Co., Inc. terminated in December 2020.

We have a license agreement, which currently expires on December 31, 2019, with Inventure Foods, Inc. for the manufacture and sale of Nathan’s branded potato chips and other salty snack products. Royalties earned under this agreement were approximately $60,000during fiscal 2018 and $50,000 during fiscal 2017.

Provisions and Supplies                  

Nathan’s World Famous Beef Hot Dogs are primarily manufactured by John Morrell & Co. for sale by our Branded Product Program, our restaurant system, and at retail. John Morrell & Co. and other hot dog manufacturers supply the hot dogs for our Company-operated and franchise-operated restaurants. All hot dogs are manufactured in accordance with Nathan’s recipes, quality standards and proprietary spice formulations. Nathan’s believes that it has reliable sources of supply; however, in the event of any significant disruption in supply, management believes that alternative sources of supply are available. (See Item 1A- “Risk Factors”). Saratoga Specialties, Inc. produces Nathan’s proprietary spice formulations and we have, in the past, engaged Newly Weds Foods, Inc. as an alternative source of supply. Our frozen crinkle-cut French fries have been produced exclusivelyprimarily by Lamb Weston, Inc. McCain Foods USA is a secondary source of supply of our frozen French fries for our restaurant system. During fiscal 2018, McCain Foods USA provided approximately 18.5% of our frozen crinkle-cut French fries.

Most other Company provisions are purchased from multiple sources to prevent disruption in supply and to obtain competitive prices. We approve all products and product specifications. We negotiate directly with our suppliers on behalf of the entire system for all primary food ingredients and beverage products sold in the restaurants in an effort to ensure adequate supply of high quality items at competitive prices.

We currently utilize a cooperative distribution system pursuant to an agreement with UniPro Foodservice, Inc., the Multi-Unit Group, which is comprised of institutional food and non-food distributors organized to procure, distribute and market food service and non-food merchandise for the distribution needs of our domestic restaurant system. Our former distributionThe initial term of the agreement with US Foodservice, Inc. was due to expire on July 31, 2018. This newis for five (5) years, through November 15, 2022 and continuing for two successive one year renewal periods upon mutual consent. We believe this arrangement allows for more flexibility in expanding into new markets throughout the U.S.,United States, as well as proves to be more cost efficient for our current franchisees. The strategic distribution partners under this new agreement include: DiCarlo Distributors, Inc., Tapia Brothers Co., Cheney Brothers, Inc., Feesers, Inc., Lipari Foods, LLC and Chain Distribution Services LLC. Our branded products are delivered to our ultimate customers throughout the country by numerous distributors, including US Foodservice, Inc., SYSCO Corporation, Vistar / PFG,Performance Food Group, McLane and DOT Foods.

Marketing, Promotion and Advertising

Nathan’s believes that an integral part of its brand marketing strategy is to continue to build brand awareness through its complimentary points of distribution strategy of selling its signature products through restaurants, the Branded Product Program, the Branded Menu Program, and within supermarkets and club stores. We believe that as we continue to build brand awareness and expand our reputation for quality and value, we have further penetrated thewill continue to seek to grow existing markets that we serve and have also enteredexpand in new markets. We also derive furtherThe Nathan’s Famous brand recognitioncontinues to enjoy tremendous exposure and awareness from theour Nathan’s Famous Hot Dog Eating Contests. In 2017, we hosted 19Due to the COVID-19 pandemic, all regional hot dog eating contests at a variety of high profile locations such as New York New York Hotel and Casino, Las Vegas, NV, and Citi Field, Queens, NY, as well as withinwere canceled in 2020. However, while the cities of Boston, MA, Nashville, TN, San Antonio and Fort Worth, TX, St. Louis, MO, Charlotte, NC, Syracuse, NY, Norfolk, VA and Washington, DC.In 2018, we are again holding contests at the Great American Ballpark, Cincinnati, OH, Busch Stadium, St Louis, MO and Dutch Wonderland, Lancaster, PA and other cities across the U.S. Our first 2018 regional contest took place in Florida on March 31^st. In total we will host 15 regional contests. These regional contests culminate onregionals were canceled, our annual July 4^th as the regional champions converge at our flagship restaurant in Coney Island, NY, to compete for the coveted “Mustard Yellow Belt.” We also have a women’s-only Hot Dog Eating Contest Championship was held at Coney Island which includes the top finishing female competitor from each qualifying regional contest.our flagship restaurant. The regional contests typically garner significant amounts of local publicityappropriate safety precautions were taken and the national championship contest that is held onevent was closed to the public. ESPN aired our July 4^th generates significant brand exposure across major broadcast and cable networks nationally. The national championship contestHot Dog Eating Championship Contest as it has been aired nationally on ESPNdone since 2004.

Nathan’s Famous continues to look to sports sponsorships as a strategic marketing opportunity to further brand recognition. In addition to the branded signage opportunity, Nathan’s sells its Nathan’s World Famous Beef Hot DogDogs and crinkle-cut French fries. In many venues, Nathan’s World Famous Beef Hot Dogs and crinkle-cut French fries are sold at Nathan’s Famous trade-dressed concession stands and as menu items that are served in suites and throughout premium seating areas. Nathans’ current sports sponsorships include:

We believe that the Company’s overall sales and exposure have also been complemented by the sales of Nathan’s World Famous Beef Hot Dogs and other Nathan’s products through the publicity generated by our Hot Dog Eating Contests and our affiliation with a number of high profile sports arenas. In addition to marketing our products at these venues, the Nathan’s Famous brand has also been televised regionally, nationally and internationally.

We maintain an advertising fund for local, regional and national advertising under the Nathan’s Famous Systems, Inc. Franchise Agreement. Nathan’s Famous franchisees are generally required to spend on local marketing activities or contribute to the advertising fund up to 2.0% of restaurant sales for advertising and promotion. Franchisee contributions to the advertising fund for national marketing support are generally based upon the type of restaurant and its location. The difference, if any, between 2.0% and the contribution to the advertising fund mustare to be expended on local programs approved by us as to form, content and method of dissemination. Certain franchisees, including those operating pursuant to our Branded Menu Program were not obligated to contribute to the advertising fund during fiscal 2018.2021. Vendors that supply products to the Company and our restaurant system also contribute to the advertising fund based upon purchases made by our franchisees and at Company-owned restaurants.

ThroughoutIn fiscal 2018,2021, Nathan’s primary restaurant marketing emphasisefforts were largely focused on local store marketing campaigns featuring a value-oriented strategy supplementedmedia spending online with promotional “Limited Time Offers.” We anticipate that near-term marketingfocused efforts for Nathan’s will continue to emphasize local store marketing activities.generate awareness and sales through third-party delivery platforms. Since the COVID-19 pandemic temporarily closed many restaurants in our franchise system, the promotion of delivery through third-party platforms like UberEats, DoorDash and GrubHub, helped support our Company-owned restaurants and our franchise system.

Nathan’s marketing efforts include employing an “always on” social media strategy to support the use of free-standing inserts with coupons in Sunday newspapers. During fiscal 2018brand and fiscal 2017,franchise operations through our marketing activities continued withcentralized brand presence. The social media objectives include increasing our reach among our core customer base, while building brand awareness amongst the use of free-standing inserts and use of a localized newsprint campaigns. These newsprint campaigns typically reach more than eight million homes per insertion in the area surrounding approximately 100 Nathan’s company-owned and franchised restaurants. These programs usually feature discounted offers that are designed to attract customers to our restaurants. We monitor the results of these campaigns and have committed to additional campaigns in fiscal 2019.

We continue to market to and broaden Nathan’s brand exposure with theengaged younger generation. The goal is to increase brand awareness and seek to make the brand relevant with younger customers viaOur social media platforms.efforts also include driving foot traffic and sales through geo-targeting restaurant campaigns, as well as driving guests directly to various online menus.

The objective of our Branded Product Program has historically been to seek to provide our foodservice operator customers with value-added, high quality products supported with meaningful point of sale materials and other forms of operational support.

During fiscal 2018,2021, Nathan’s marketing efforts for the Branded Product Program concentrated primarily on participation in national industry trade shows, and regional, local distributor trade events.events, which were held virtually due to the COVID-19 pandemic. We have also advertised our products in distributor and trade periodicals and initiated distributor sales incentive contests.periodicals. Most of the sales of new restaurant franchises to franchisees are achieved through the direct effort of Company personnel. New arrangements with Branded Product Program points of sale are achieved through the combined efforts of Company personnel and a network of foodservice brokers and distributors who also are responsible for direct sales to national, regional and “street” accounts.

During the fiscal year ending March 31, 2019 (“fiscal 2019”),2022, we may seek to further expand our internal marketing resources along with our network of foodservice brokers and distributors. We may attempt to emphasize specific venues as we expand our broker network, focus management and broker responsibilities on a regional basis and expand the use of sales incentive programs. We are currently continuing the process of upgradingcontinue to upgrade our social media platforms by enhancing our corporate website and Facebook page and expanding the use of Twitter.

Human Capital

As of March 28, 2021, the Company employed 146 people, 33 of whom were corporate management and administrative employees, 21 of whom were restaurant managers and 92 of whom were hourly full-time and part-time foodservice employees.

As of March 28, 2021, more than 55% of our employees were female and approximately 73% of our employee population were comprised of racial and ethnic minorities.

We generally employ approximately 200-300 seasonal employees during the summer months. Food service employees at two Company-owned locations are currently represented by Local 1102 RWSDU UFCW AFL-CIO, CLC, Retail, Wholesale and Department Store Union, under an agreement that expires on June 30, 2023. Employees at a third location are represented by the same union pursuant to a different agreement that expires on November 30, 2022.

We believe that our efforts to manage our workforce have been effective as evidenced by the fact that the Company has not suffered any strike or work stoppage for more than 47 years.

Culture and diversity

Creating and fostering inclusive work environments and teams allows us to create an engaging and welcoming culture for our employees, which we believe positively affects the quality of products and experience we deliver to our customers.

The Company works to ensure our recruiting and hiring initiatives are reaching a broad audience, so that our workforce represents the communities in which we serve. We seek to provide opportunities for growth and development at all levels of our organization.

Our workforce represents nearly all demographics, with diversity in age, race, ethnicity and gender. Specifically, we employ more women than men and more employees identify as racial and ethnic minorities, than white.

Compensation and Benefits

The Company is committed to providing market-competitive and equitable pay and benefits to attract and retain great talent. In addition to competitive hourly rates and base salaries, all management employees at our Company-operated restaurants are eligible for performance-based cash incentive bonuses based on the attainment of certain financial metrics, along with all corporate management and administrative employees, at the discretion of our Board of Directors.

The Company attempts to provide a range of benefits to its employees and their families, including medical and prescription drug, dental and vision, long-term disability coverage, as well as a 401(k) savings and flexible spending accounts. The Company has historically matched contributions to its 401(k) savings plan at a rate of $0.25 per dollar contributed by the employee up to a maximum of 3% of the employee’s annual salary.

Talent Development

We offer various management-training courses for management personnel of our Company-owned and franchised Nathan’s Famous restaurants. A restaurant manager from each restaurant must successfully complete our mandated management-training program.

Safety of our employees and customers during COVID-19

We are committed to providing safe work environments and providing our employees with the resources they need to promote their well-being. We are also committed to providing a safe and healthy environment for our restaurant patrons. In light of the COVID-19 pandemic, fiscal 2021 presented a unique set of challenges. We took several actions during fiscal 2021 to support the safety and well-being of our employees, such as providing personal protective equipment (“PPE”), installing plexiglass at our Corporate offices and at Company-owned restaurants, requiring the use of face masks by all of our employees, promoting social distancing measures as stipulated by local government regulations, adding social distancing stickers, sanitizing stations, pre-shift temperature checks and providing for emergency paid sick leave.

Government Regulation         

We are subject to Federal Trade Commission (“FTC”) regulation and several states’ laws that regulate the offer and sale of franchises. We are also subject to a number of state laws which regulate substantive aspects of the franchisor-franchisee relationship.

The FTC’s “Trade Regulation Rule Concerning Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” (the “FTC Rule”) requires us to disclose certain information to prospective franchisees. Fifteen states, including New York, also require similar disclosure. While the FTC Rule does not require registration or filing of the disclosure document, 14 states require franchisors to register the disclosure document (or obtain exemptions from that requirement) before offering or selling a franchise. The laws of 17 other states require some form of registration (or a determination that a company is exempt or otherwise not required to register) under “business opportunity” laws, which sometimes apply to franchisors such as the Company. These laws have not precluded us from seeking franchisees in any given area.

Laws that regulate one or another aspect of the franchisor-franchisee relationship presently exist in 24 states as well as Puerto Rico and the U.S. Virgin Islands. These laws regulate the franchise relationship by, for example, requiring the franchisor to deal with its franchisees in good faith, prohibiting interference with the right of free association among franchisees, limiting the imposition of standards of performance on a franchisee, and regulating discrimination among franchisees. Although these laws may also restrict a franchisor in the termination of a franchise agreement by, for example, requiring “good cause” to exist as a basis for the termination, advance notice to the franchisee of the termination, an opportunity to cure a default, and repurchase of inventory or other compensation, these provisions have not had a significant effect on our operations. Our international franchise operations are subject to franchise-related and other laws in the jurisdictions in which our franchisees operate. These laws in the U.S.United States and overseas have not precluded us from enforcing the terms of our franchise agreements, and we do not believe that these laws are likely to significantly affect our operations.

We are not aware of any pending franchise legislation in the U.S.United States that we believe is likely to significantly affect our operations.

Each Company-owned and franchised restaurant is subject to regulation as to operational matters by federal agencies and to licensing and regulation by state and local health, sanitation, safety, fire and other departments. An inability to obtain or retain health department or other licenses could adversely affect our operations.

We are subject to the Federal Fair Labor Standards Act and various other federal and state laws that govern minimum wages, overtime, working conditions, mandatory benefits, health insurance, and other matters. Other regulatory interpretations (such as the NLRB’s review of joint employment standards under the National Labor Relations Act, the Labor Department’s review of the Fair Labor Standards Act, the SBA’sSmall Business Administration’s review of independence standards applicable to reviewing franchisee loan applications, etc.) may have an impact on our overall business as well, although we do not believe that these will significantly affect our operations. We are also subject to federal and state environmental regulations, which have not had a material effect on our operations. More stringent and varied requirements of local governmental bodies with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations. In addition, the Federal Americans with Disabilities Act applies with respect to the design, construction and renovation of all restaurants in the United States.

Each company that manufactures, supplies or sells our products is subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, safety and other departments.

In 2020 and 2021, various governmental bodies in the United States have addressed the spread of COVID-19 by imposing limitations on business operations or recommending that residents adopt stringent “social distancing” measures. Those formal and informal restraints, as well as consumer behavior and other factors (such as supply chain issues) may have a material impact on our ability to operate our business at least while those restrictions are in effect, which may possibly have a longer-term impact on our business and the demand for our products and restaurant services.

We are also subject to the requirement that our restaurants post certain calorie content information for standard menu items, pursuant to Section 4205 of the Patient Protection and Affordable Care Act of 2010. Some of our restaurants are subject to similar requirements that are imposed by certain localities around the country.

Alcoholic beverage control regulations require each restaurant that sells such products to apply to a state authority and, in certain locations, county and municipal authorities, for a license or permit to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of customers and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. TwoThree of our Company-owned restaurants offer beer or wine coolers for sale.Each of these restaurants has current alcoholic beverage licenses permitting the sale of these beverages. We have never had an alcoholic beverage license revoked.

We may be subject in certain states to “dram-shop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment which wrongfully served alcoholic beverages to such person. We carry liquor liability coverage as part of our existing comprehensive general liability insurance and have never been named as a defendant in a lawsuit involving “dram-shop” statutes.

The Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010, and rules promulgated thereunder by the Securities and Exchange Commission (“SEC”) and the Nasdaq Stock Market have imposed substantial new or enhanced regulations and disclosure requirements in the areas of corporate governance (including director independence, director selection and audit, corporate governance and compensation committee responsibilities), equity compensation plans, auditor independence, pre-approval of auditor fees and services and disclosure and internal control procedures. We are committed to industry best practices in these areas.

We believe that we operate in substantial compliance with applicable laws and regulations governing our operations, including the FTC Rule and state franchise laws.

Employees          

At March 25, 2018, we had 205 employees, 43 of whom were corporate management and administrative employees, 25 of whom were restaurant managers and 137of whom were hourly full-time and part-time foodservice employees. We generally employ approximately 300-400seasonal employees during the summer months. Foodservice employees at three Company-owned locations are currently represented by Local 1102 RWSDU UFCW AFL-CIO, CLC, Retail, Wholesale and Department Store Union, under an agreement that expires on June 30, 2020.Employees at a fourth location are represented by the same union pursuant to a different agreement that expires November 30, 2019. We consider our employee relations to be good and have not suffered any strike or work stoppage for more than 44 years.

We provide a training program for managers and assistant managers of our Company-owned and new franchised restaurants. Hourly food workers are trained on site by managers and crew trainers following Company practices and procedures outlined in our operating manuals.

Trademarks

We hold trademark and/or service mark registrations for NATHAN’S, NATHAN’S FAMOUS, NATHAN’S FAMOUS and design, NATHAN’S and Coney Island design, SINCE 1916 NATHAN’S FAMOUS and design, SINCE 1916 NATHAN’S FAMOUS, INC. and design, THE ORIGINAL SINCE 1916 NATHAN’S FAMOUS and design, SINCE 1916 NATHAN’S FAMOUS THIS IS THE ORIGINAL, THE ORIGINAL NATHAN’S FAMOUS, THE ORIGINAL NATHANSNATHAN’S FAMOUS 100TH ANNIVERSARY and design in color, SINCE 1916 NATHAN’S FAMOUS and hot dog design in color, SINCE 1916 NATHAN’S FAMOUS and hot dog, fries and drink design in color, and NATHAN’S FAMOUS EXPRESS within the United States, with some of these marks holding corresponding foreign trademark and service mark registrations in 80 international jurisdictions, including Canada and China.  We also hold various package design registrations and other related marks, FRANKSTERS, FROM A HOT DOG TO AN INTERNATIONAL HABIT, and MORE THAN JUST THE BEST HOT DOG! and design, and Mr. Frankie design, for restaurant services and some food items.

We hold trademark and/or service mark registrations for the marks ARTHUR TREACHER’S (stylized), ARTHUR TREACHER’S FISH & CHIPS (stylized), KRUNCH PUP and ORIGINAL within the United States.  We hold service mark registrations for ARTHUR TREACHER’S in China and Japan. We also hold service mark registrations for ARTHUR TREACHER’S FISH & CHIPS in Canada, ARTHUR TREACHER’S FISH & CHIPS and design in Canada and Mexico, and ARTHUR TREACHER’S FISH & CHIPS and design in Colombia, Costa Rica, Kuwait, Malaysia, Singapore and the United Arab Emirates.

Our trademark and service mark registrations were granted and expire on various dates. We believe that these trademarks and service marks provide significant value to us and are an important factor in the marketing of our products and services.  We believe that we do not infringe on the trademarks or other intellectual property rights of any third parties.  We also have licenses to use the Kenny Rogers trademarks and service marks in the then-existing Nathan’s restaurants existing on April 23, 2008.

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 franchise royalties are earned and the Company’s earnings have been highest during our first two fiscal quarters, with the fourth fiscal quarter typically representing the slowest period. ThisRoutine seasonality is primarily attributable to weather conditions in the marketplace for our Company-owned and franchised Nathan’s restaurants, which is principally the Northeast. Additionally, revenues from our Branded Product Program and retail licensing program generally follow similar seasonal fluctuations, although not to the same degree. We believe that future revenues and profits will continue to be highest during our first two fiscal quarters, with the fourth fiscal quarter representing the slowest period.

Competition

The fast food restaurant industry is highly competitive and can be significantly affected by many factors, including changes in local, regional or national economic conditions, changes in consumer tastes, consumer concerns about the nutritional quality of quick-service food, andas well as the increases in the number of, and particularthe locations of, competing restaurants.

Our restaurant system competes with numerous restaurants and drive-in units operating on both a national and local basis, including major national chains with greater financial and other resources than ours. We also compete with local restaurants and diners on the basis of menu diversity, food quality, price, size, site location and name recognition. There is also active competition for management personnel, as well as for suitable commercial sites for owned or franchised restaurants.

We believe that our emphasis on our signature products and the reputation of these products for taste and quality set us apart from our major competitors. Many fast food companies have adopted “value pricing” and/or deep discount strategies. Nathan’s markets our own form of “value pricing,” selling combinations of different menu items for a total price lower than the usual sale price of the individual items and other forms of price sensitive promotions. Our value pricing strategy may offer multi-sized alternatives to our value-priced combo meals.

We also compete with many restaurant franchisors and other business concepts for the sale of franchises to qualified and financially capable franchisees.

Our Branded Product Program competes directly with a variety of other nationally-recognized hot dog companies and other food companies; many of these entities have significantly greater resources than we do. Our products primarily compete based upon price, quality and value to the foodservice operator and consumer. We believe that Nathan’s reputation for superior quality, along with the ability to provide operational support to the foodservice operator, provides Nathan’s with a competitive advantage.

Our retail licensing program for the sale of packaged foods within supermarkets competes primarily on the basis of reputation, flavor, quality and price. In most cases, we compete against other nationally-recognized brands that may have significantly greater resources than those at our disposal.

Available Information

We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and a proxy statement on Schedule 14A. The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C., 20549. The public may obtain information about the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information about issuers such as us that file electronically with the SEC.

In addition, electronic copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statement on Schedule 14A and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”) are available free of charge on our website, www.nathansfamous.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The reference to our website address and the SEC website address do not constitute incorporation by reference of the information contained on the website and should not be considered part of this document.

The Board of Directors has also adopted, and we have posted in the Investor Relations section of our website, written Charters for each of the Board’s standing committees. We will provide without charge a copy of the Charter of any standing committee of the Board upon a stockholder’s request to us at Nathan’s Famous, Inc., One Jericho Plaza, Second Floor - Wing A, Jericho, NY 11753, Attention: Secretary.

For financial information regarding our results of operations, please see our consolidated financial statements beginning on page F-1.

Item 1A.Risk Factors.

Our business is subject to various risks. Certain risks are specific to each waycertain ways we do business, such as through Company-owned restaurants, franchised restaurants, branded products and retail, while other risks, such as health-related or economic risks, may affect all of the ways that we do business.

Investors should carefully consider all of the information set forth in this Form 10-K, including the following risk factors, before deciding to invest in any of the Company’s securities. The following risk factors are not exhaustive. Additional risks and uncertainties not presently known to the Company may also adversely impact its business. The Company’s business, financial condition, results of operations or prospects could be materially adversely affected by any of these risks. In that case, the trading price of the Company’s common stock could decline. This Form 10-K also contains forward-looking statements that involve risks and uncertainties. The Company’s results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks it faces described below and elsewhere. See “Forward-Looking Statements” above.

Risks Related to Business and Operations

Pandemics or disease outbreaks, such as the current novel coronavirus (COVID-19 virus) pandemic may disrupt our business, which could materially affect our operations and results of operations.

The COVID-19 pandemic has impacted and may continue to impact sales and traffic at our Company-owned restaurants and at our franchisees’ restaurants, may make it more difficult to staff restaurants and, in more severe cases, may damage our reputation, cause an inability to obtain supplies, increase commodity costs or continue to cause partial or total closures of impacted restaurants.

During the fiscal 2021 period, individuals in many areas where we operate our restaurants were required to practice social distancing, restricted from gathering in groups and / or mandated to “stay at home.”

Additionally, sales and profits from our Branded Product Program have been impacted as many of our customers operate in venues that are closed and may be slow to reopen, such as professional sports venues, amusement parks, shopping malls and movie theaters.

In response to the COVID-19 outbreak and government restrictions, for a portion of our fiscal 2021 period, we were required to close the dining rooms in our Company-owned restaurants and offer only takeout and delivery, and/or implement modified work hours. The mobility restrictions, fear of contracting the coronavirus and the sharp increase in unemployment caused by the closure of businesses in response to the COVID-19 outbreak, have adversely affected and will continue to adversely affect our guest traffic, which in turn may materially adversely affect our liquidity, financial condition or results of operations.

Even as and when the mobility restrictions are loosened or lifted, and vaccines are distributed, guests may still be reluctant to return to in-restaurant dining, professional sports venues, amusement parks, shopping malls and movie theaters and the impact of lost wages due to COVID-19 related unemployment may lower consumer spending for the foreseeable future.

The extent to which the COVID-19 pandemic and other epidemics, disease outbreaks or public health emergencies may adversely impact our business, liquidity, financial condition, and results of operations, will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic, epidemic, disease outbreak, or public health emergency; the availability, distribution and acceptance of vaccines; the negative impact on the economy; the public perception of gathering in public places like professional sports venues, amusement parks, shopping malls, and movie theaters; the short and longer-term impacts on the demand for restaurant services and levels of consumer confidence; the ability of us and our franchisees to successfully navigate the impact of the COVID-19 pandemic; government action, including restrictions on restaurant operations; increased unemployment; and reductions in consumer discretionary spending. Even if a virus or other disease does not spread significantly, the perceived risk of infection or health risk may damage our reputation and materially adversely affect our business, results of operations and financial condition. The COVID-19 pandemic has heightened many of the other risks described in this Item 1A, “Risk Factors.”

Our licensing revenue and overall profitability is substantially dependent on our agreement with John Morrell & Co. and the loss or a significant reduction of this revenue would have a material adverse effect on our financial condition and results of operations.

We earned license royalties from John Morrell & Co. of approximately $19,445,000$28,694,000 in fiscal 20182021 and approximately $17,073,000$23,680,000 in fiscal 20172020 representing 18.7%37.8% and 17.7%22.9% of total revenues, respectively. As a result of our agreement with John Morrell & Co., we expect that most of our license revenues will be earned from John Morrell & Co. for the foreseeable future. In addition, the increasereduction in our adjusted EBITDA (a non-GAAP financial measure (see Reconciliation of GAAP and Non-GAAP measures on page 38 of this report)) from $28.3 million$29,964,000 in fiscal 20172020 to $29.1 million$27,225,000 in fiscal 20182021 and income from operations from $27,172,000 in fiscal 2020 to $25,515,000 in fiscal 2021 was primarilypartially mitigated due to the result of an increase in license royalties earned from John Morrell.Morrell & Co. While our agreement with John Morrell & Co. expires in 2032, John Morrell’s BPP foodservice business is weighted towards one high volume user who has not sold product pursuant to a formal agreement. Accordingly, in the event that (i) John Morrell & Co. or its customers experience financial difficulties, (ii) there is a disruption or termination of the John Morrell & Co. Agreement or (iii) there is a significant decrease in our revenue from John Morrell & Co., it would have a material adverse effect on our business, results of operations and financial condition.

A significant amount of our Branded Product Program (“BPP”(“BPP”) revenue is from a small number of BPP accounts. The loss of any one or more of those BPP accounts could harm our profitability and operating results.

For the fiscal 2018 period, approximately 79%A small number of our BPP business is from seven accounts, including onecustomers account representing approximately 32%for a significant portion of theour BPP business, with which we have relatively short-term contracts.revenues. Sales to our five largest BPP customers were 70.4% and 72.4% of our BPP revenues in fiscal 2021 and fiscal 2020, respectively. In the event that these BPP customers experience financial difficulties or, upon the expiration of their existing agreements, if applicable, are not willing to do business with us in the future on terms acceptable to management, there could be a material adverse effect on our business, results of operations and financial condition.

Increases in the cost of food and paper products could harm our profitability and operating results.

The cost of the food and paper products we use depends on a variety of factors, many of which are beyond our control. Food and paper products typically represent approximately 25% to 30% of our cost of restaurant sales. We purchase large quantities of beef and our beef costs in the United States represent approximately 80% to 90% of our food costs. The market for beef is particularly volatile and is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand and other factors beyond our control. For several years prior to June 2015, reduced supply and increased demand in beef resulted in shortages, which required us to pay significantly higher prices for the beef we purchased. Since June 2015, beef prices have significantly declined. Accordingly, the market price of hot dogs during the fiscal 2016 period was approximately 7.1% lower than the period ended March 27, 2015 and was approximately 17.1% lower during the fiscal 2017 period than the fiscal 2016 period. The market price for hot dogs during our fiscal 2018 period was approximately 6.9% higher than the fiscal 2017 period.

We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2019.2022. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. If the price of beef or other food products that we use in our operations significantly increases, or tariffs are imposed, particularly in the BPP, and we choose not to pass, or cannot pass, these increases on to our customers, our operating margins will decrease and such decrease in operating margins could have a material adverse effect on our business, results of operations or financial condition.

Fluctuations in weather, supply and demand and economic conditions could adversely affect the cost, availability and quality of some of our critical products, including beef. Our inability to obtain requisite quantities of high-quality ingredients would adversely affect our ability to provide the menu items that are central to our business, and the highly competitive nature of our industry may limit our ability to pass through increased costs to our customers. Continuing increases in the cost of fuel would increase the distribution costs of our prime products thereby increasing the food and paper cost to us and to our franchisees, thus negatively affecting profitability.

From time to time, we have sought to lock in the cost of a portion of our beef purchases by entering into various commitments to purchase hot dogs during certain periods in an effort to ensure supply of product at a fixed cost of product. However, we may be unable to enter into similar purchase commitments in the future. In addition, we do not have the ability to effectively hedge all of our beef purchases using futures or forward contracts without incurring undue financial cost and risk.

John Morrell & Co. currently has threetwo manufacturing facilities producing different Nathan’sNathan’s products and a long-term significant interruption of a primary facility could potentially disrupt our operations.

John Morrell & Co. currently has threetwo manufacturing facilities producing different Nathan’s products. A temporary closure at either of any of the threethese plants could potentially cause a temporary disruption to our source of supply, potentially causing some or all of certain shipments to customers to be delayed. A longer-term significant interruption at anyeither of these production facilities, whether as a result of a natural disaster or other causes, could significantly impair our ability to operate our business on a day-to-day basis while John Morrell & Co. determines how to make up for any lost production capabilities, during which time we may not be able to secure sufficient alternative sources of supply on acceptable terms, if at all. In addition, a long-term disruption in supply to our customers could cause our customers to determine not to purchase some or all of their hot dogs from us in the future, which in turn would adversely affect our business, results of operations and financial condition. Furthermore, a supply disruption or other events such as the discovery in May 2017 that a limited number of packages of Nathan’s hot dogs had visible metal flakes between the hot dogs and the packaging film might affect our brand in the eyes of consumers and the retail trade, which damage might negatively impact our overall business in general, which could result in a material adverse effect on our business, results of operations or financial condition.

The loss of one or more of our key suppliers could lead to supply disruptions, increased costs and lower operating results.

We have historically relied on one supplier for the majority of our hot dogs and another supplier for a majority of our supply of frozen French fries for our restaurant system. An interruption in the supply of product from either of these suppliers without our obtaining an alternative source of supply on comparable terms could lead to supply disruptions, increased costs and lower operating results.

We have an agreement with a secondary hot dog manufacturer that continues to also supply natural casing hot dogs for our restaurant business. Additionally, a majority of the frozen crinkle-cut French fries sold through our franchised restaurants have been obtained from one supplier. Beginning in fiscal 2013, we began a relationship with a secondary source of supply of our frozen French fries for our restaurant system.

In the event that the hot dog or French fry suppliers are unable to fulfill our requirements for any reason, including due to a significant interruption in its manufacturing operations, whether as a result of a natural disaster or for other reasons, such interruption could significantly impair our ability to operate our business on a day-to-day basis.

In the event that we are unable to find one or more alternative suppliers of hot dogs or French fries on a timely basis, there could be a disruption in the supply of product to Company-owned restaurants, franchised restaurants and BPP accounts, which would damage our business, our franchisees and our BPP customers and, in turn, negatively impact our financial results. In addition, any gap in supply to retail customers would result in lost royalty payments to us, which could have a significant adverse financial impact on our results of operations. Furthermore, any gap in supply to retail customers may damage our brand in the eyes of consumers and the retail trade, which damage might negatively impact our overall business in general and impair our ability to continue our retail licensing program.

Additionally, there is no assurance that any supplemental sources of supply would be capable of meeting our specifications and quality standards on a timely and consistent basis or that the financial terms of such supply arrangement will be as favorable as our present terms with our hot dog or French fry supplier, as the case may be.

Any of the foregoing occurrences may cause disruptions in the supply of our hot dog or French fry products, as the case may be, damage our franchisees and our BPP customers, adversely impactaffect our business, results of operations and financial results and/or damage our brand.condition.

Our earnings and business growth strategy dependsdepend in large part on the success of our product licensees and product manufacturers. Our reputation and the reputation of our brand may be harmed by actions taken by our product licensees or product manufacturers that are otherwise outside of our control.

A significant portion of our earnings has come from royalties paid by our product licensees, such as John Morrell & Co., Saratoga Food Specialties, Inc., a wholly-owned subsidiary of John Morrell & Co., and Lamb Weston, Inc., and Perfection Foods. Although our agreements with these licensees contain numerous controls and safeguards, and we monitor the operations of our product licensees, our licensees are independent contractors, and their employees are not our employees. Accordingly, we cannot necessarily control the performance of our licensees under their license agreements, including without limitation, the licensee’s continued best efforts to manufacture our products for retail distribution and our foodservice businesses, timely delivery of the licensed products, market the licensed products and assure the quality of the licensed products produced and/or sold by a product licensee. Any shortcoming in the quality, quantity and/or timely delivery of a licensed product is likely to be attributed by consumers to an entire brand’s reputation, potentially adversely affecting our business, results of operations and financial condition. In addition, a licensee’s failure to effectively market the licensed products may result in decreased sales, which would adversely affect our business, results of operations and financial condition. Also, to the extent that the terms and conditions of any of these license agreements change or we change any of our product licensees, our business, results of operations and financial condition could be materially affected.

The quick-service restaurant business is highly competitive, and that competition could lower revenues, margins and market share.

The quick-service restaurant business of the foodservice industry is intensely competitive regarding price, service, location, personnel and type and quality of food. We and our franchisees compete with international, national, regional and local retailers primarily through the quality, variety and value perception of food products offered. Other key competitive factors include the number and location of restaurants, quality and speed of service, attractiveness of facilities, effectiveness of advertising and marketing programs, and new product development. We anticipate competition will continue to focus on convenience and pricing. Many of our competitors have substantially larger marketing budgets, which may provide them with a competitive advantage. Changes in pricing or other marketing strategies by these competitors can have an adverse impact on our sales, earnings and growth. For example, many of those competitors have adopted “value pricing” strategies intended to lure customers away from other companies, including our Company. Consequently, these strategies could have the effect of drawing customers away from companies which do not engage in discount pricing and could also negatively impact the operating margins of competitors which attempt to match their competitors’ price reductions. Extensive price discounting in the quick-service restaurant business could have an adverse effect on our financial results.

In addition, we and our franchisees compete within the foodservice market and the quick-service restaurant business not only for customers but also for management and hourly employees and qualified franchisees. If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.

Recent changes to minimum wage rates have increased our labor costs.

We must comply with the Fair Labor Standards Act and various federal and state laws governing minimum wages.  Increases in the minimum wage and labor regulations have increased our labor costs.  New York State passed legislation increasing the minimum hourly wage for fast food workers of restaurant chains with 30 or more locations nationwide which over a period of time will increase the minimum wage to $15.00 per hour. The first increase from this law took effect beginning December 31, 2015 and will be fully phased in by December 31, 2018 in New York City, where we operate three Company-owned restaurants and by December 31, 2021 throughout the rest of New York State which impacts the labor costs at our two remaining Company-owned restaurants and our franchised restaurants that operate in New York State. The impact of the New York minimum wage increases on our business amounted to a 12.3% average salary increase in 2016 and approximately an 11.0% average salary increase in 2017 for our employees that were affected.  We also expect that the increases that took effect on December 31, 2017 will increase the hourly wage by 11.4% for the employees that are affected in 2018. In addition, the federal government and a number of other states are evaluating various proposals to increase their respective minimum wage. As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. Additionally, as a result, we anticipate that our labor costs will continue to increase.  If we are unable to pass on these higher costs through price increases, our margins and profitability as well as the profitability and margins of our franchisees will be adversely impacted which could have a material adverse effect on our business, results of operations or financial condition. Our business could be further 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 existing franchised restaurants.

Increases in labor costs due to new regulations or labor shortages could slow our growth or harm our business.

In addition to minimum wage increases, in the past several years, state and local governments have enacted legislation which had increased labor costs. For instance, effective November 27, 2017, the City of New York enacted Fair Work Week Legislation. A key component of this legislation is a requirement that fast food restaurants schedule their workers at least two weeks in advance or pay employees between $10 to $75 per scheduling change, depending on the situation. Due to Nathan’s dependency on weather conditions at our two Coney Island locations during the summer, we are unable to determine the potential impact on our results of operations, which could be material. We have estimated that the daily penalty could amount to as much as $10,000 per day during the height of the summer season for these two restaurants. Continued increases in our labor costs as a result of this or other new legislation could have a material adverse effect on our business, financial condition and results of operations.

Moreover, our success depends in part upon our ability and the ability of our franchisees to continue to attract, motivate and retain regional, operational and restaurant general managers with the qualifications to succeed in our industry and the motivation to apply our core service philosophy. If we or our franchisees are unable to continue to recruit and retain sufficiently qualified managers or to motivate our employees to achieve sustained high service levels, our business and our growth could be adversely affected. Competition for these employees could require the payment of higher wages that could result in higher labor costs.

Changes in the U.S. healthcare system could increase our cost of doing business.

In March 2010, the federal government passed new legislation to reform the U.S. health care system. As part of the plan, employers are expected to provide their employees with minimum levels of healthcare coverage or incur certain financial penalties. Our workforce includes numerous part-time workers, which may increase our health care costs and expose us to certain excise taxes, in the event that healthcare is offered to less than 95% of our full-time employees, as defined by the legislation. Additionally, some states and localities have passed state and local laws mandating the provision of certain levels of health benefits by some employers. Continued increases in health care costs could adversely affect our operations and those of the restaurant industry and we might have to further reconsider our pricing strategy as a means to offset reduced operating margins. Increased health care costs could have a material adverse effect on our business, financial condition and results of operations.

Changes in economic, market and other conditions could adversely affect us and our franchisees, and thereby our operating results.

The quick-service restaurant business is affected by changes in international, national, regional, and local economic conditions, consumer preferences and spending patterns, demographic trends, consumer perceptions of food safety and health, diet and nutrition, weather, traffic patterns, the type, number and location of competing restaurants, and the effects of war or terrorist activities and any governmental responses thereto. Factors such as inflation, higher costs for each of food, labor, benefits and utilities, the availability and cost of suitable sites, fluctuating insurance rates, state and local regulations and licensing requirements, legal claims, and the availability of an adequate number of qualified management and hourly employees also adversely affect restaurant operations and administrative expenses. Our ability and our franchisees’ ability to finance new restaurant development, to make improvements and additions to existing restaurants, and the acquisition of restaurants from, and sale of restaurants to, franchisees is affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds.

Current restaurant locations may become unattractive, and attractive new locations may not be available for a reasonable price, if at all, which may reduce our revenue.

The success of any restaurant depends in substantial part on its location. There can be no assurance that current locations will continue to be attractive as demographic patterns change. Neighborhood or economic conditions where restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations. If we and our franchisees cannot obtain desirable additional and alternative locations at reasonable prices, our results of operations would be adversely affected.

Any perceived or real health risks related to the food industry could adversely affect our ability to sell our products.

We are subject to risks affecting the food industry generally, including risks posed by the following:

Our products are susceptible to contamination by disease-producing organisms, or pathogens, such as listeria monocytogenes, salmonella, campylobacter, hepatitis A, trichinosis and generic E. coli. In addition, our beef products are also subject to the risk of contamination from bovine spongiform encephalopathy. Because these pathogens are generally found in the environment, there is a risk that these pathogens could be introduced to our products as a result of improper handling at the manufacturing, processing, foodservice or consumer level. Our suppliers’ manufacturing facilities and products, as well as our franchisee and Company-operated restaurant operations, are subject to extensive laws and regulations relating to health, food preparation, sanitation and safety standards. Difficulties or failures by these companies in obtaining any required licenses or approvals or otherwise complying with such laws and regulations could adversely affect our revenue that is generated from these companies. Furthermore, we cannot assure you that compliance with governmental regulations by our suppliers or in connection with restaurant operations will eliminate the risks related to food safety. In addition, our beef products are also subject to the risk of contamination from bovine spongiform encephalopathy.

Events reported in the media, or incidents involving food-borne illnesses or food tampering, whether or not accurate, can cause damage to our brand’s reputation and affect sales and profitability. Reports, whether true or not, of food-borne illnesses (such as e-coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have in the past severely injured the reputations of participants in the quick-service restaurant business and could in the future affect our business as well. Our brand’s reputation is an important asset to the business; as a result, anything that damages our brand’s reputation could immediately and severely hurt system-wide sales and, accordingly, revenue and profits. If customers become ill from food-borne illnesses or food tampering, we could also be forced to temporarily close some, or all, restaurants. In addition, instances of food-borne illnesses or food tampering, even those occurring solely at the restaurants of competitors, could, by resulting in negative publicity about the restaurant industry, adversely affect system sales on a local, regional or system-wide basis. A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a temporary closure of any of our Company-owned restaurants or our franchisees’ restaurants, could materially harm our business, results of operations and financial condition.

Additionally, we may be subject to liability if the consumption of any of our products causes injury, illness, or death. A significant product liability judgment or a widespread product recall may negatively impact our sales and profitability for a period of time depending on product availability, competitive reaction, and consumer attitudes. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. Injury to our brand’s reputation would likely reduce revenue and profits.

Negative publicity, including complaints on social media platforms and other internet-based communications, could damage our reputation and harm our guest traffic, and in turn, negatively impact our business, financial condition, results of operations and prospects.

There has been a marked increase in the use of social media platforms and similar devices, including blogs, social media websites and other forms of internet-based communications that allow individuals to access a broad audience of consumers and other interested persons. Consumers value readily available information concerning goods and services that they have or plan to purchase, and may act on such information without further investigation or authentication. The availability of information on social media platforms is virtually immediate, as is its impact. Many social media platforms immediately publish the content their subscribers and participants can post, often without filters or checks on accuracy of the content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our business and products may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms could also be used for dissemination of trade secret information, compromising valuable Company assets. In sum, theThe dissemination of information online, regardless of its accuracy, could harm our business, financial condition, results of operations and prospects.financial condition.

Changing health or dietary preferences may cause consumers to avoid products offered by us in favor of alternative foods.

The foodservice industry is affected by consumer preferences and perceptions. Reports of the use of hormones, antibiotics or pesticides in the production of certain food products may cause consumers to reduce or avoid consumption of such food products. If prevailing health or dietary preferences, perceptions and governmental regulation cause consumers to avoid the products we offer in favor of alternative or healthier foods, demand for our products may be reduced and could materially adversely affect our business, results of operations and financial condition.

We may not be able to adequately protect our intellectual property, which could decrease the value of our business or the value of our brands and products.

The success of our business depends on the continued ability to use existing trademarks, service marks and other components of each of our brands in order to increase brand awareness and further develop branded products. We may not be able to adequately protect our trademarks, and the use of these trademarks may result in liability for trademark infringement, trademark dilution or unfair competition. All of the steps we have taken to protect our intellectual property may not be adequate.

We have registered or applied to register many of our trademarks and service marks both in the United States and in foreign countries. Because of the differences in foreign trademark laws, our trademark rights may not receive the same degree of protection in foreign countries as they would in the United States. We also cannot assure you that our trademark and service mark applications will be approved. In addition, third parties may oppose our trademark and service mark applications, or otherwise challenge our use of the trademarks or service marks. In the event that our trademarks or service marks are successfully challenged, we could be forced to rebrand our products and services, which could result in loss of brand recognition, and could require us to devote resources advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our marks, or that we will have adequate resources to enforce our trademarks or service marks.

We also license third party franchisees and other licensees to use our trademarks and service marks. We enter into franchise agreements with our franchisees and license agreements with other licensees which govern the use of our trademarks and service marks. Although we make efforts to police the use of our trademarks and service marks by our franchisees and other licensees, we cannot assure you that these efforts will be sufficient to ensure that our franchisees and other licensees abide by the terms of the trademark licenses. In the event that our franchisees and licensees fail to do so, our trademark and service mark rights could be diluted.

Our earnings and business growth strategy depend in large part on the success of our restaurant franchisees and on new restaurant openings. Our corporate reputation or brand reputation may be harmed by actions taken by restaurant franchisees that are otherwise outside of our control.

A significant portion of our earnings comes from royalties, fees and other amounts paid by our restaurant franchisees. The opening and success of franchised restaurants depends on various factors, including the demand for our franchises and the selection of appropriate franchisee candidates, the availability of suitable restaurant sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the availability of financing and the financial and other capabilities of our franchisees and area developers. We cannot assure you that area developers planning the opening of franchised restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements. We cannot assure you that franchisees will successfully participate in our strategic initiatives or operate their restaurants in a manner consistent with our concept and standards. Our franchisees are independent contractors, and their employees are not our employees. We provide training and support to, and monitor the operations of, our franchisees, but the quality of their restaurant operations may be diminished by any number of factors beyond our control. Consequently, the franchisees may not successfully operate their restaurants in a manner consistent with our high standards and requirements, and franchisees may not hire and train qualified managers and other restaurant personnel. Any operational shortcoming of a franchised restaurant is likely to be attributed by consumers to an entire brand or our system, thus damaging our corporate or brand reputation, potentially adversely affecting our business, results of operations and financial condition.

Growth in our restaurant revenue and earnings is significantly dependent on new restaurant openings. Numerous factors beyond our control may affect restaurant openings. These factors include but are not limited to: our ability to attract new franchisees; the availability of site locations for new restaurants; the ability of potential restaurant owners to obtain financing, which may become more difficult due to current market conditions and operating results; the ability of restaurant owners to hire, train and retain qualified operating personnel; construction and development costs of new restaurants, particularly in highly-competitive markets; the ability of restaurant owners to secure required governmental approvals and permits in a timely manner, or at all; and adverse weather conditions.

We cannot assure you that franchisees will renew their franchise agreements or that franchised restaurants will remain open. Closings of franchised restaurants are expected in the ordinary course and may cause our royalty revenues and financial performance to decline. Our principal competitors may have greater influence over their respective restaurant systems than we do because of their significantly higher percentage of company restaurants and/or ownership of franchisee real estate and, as a result, may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs.

As our franchisees are independent operators, we have limited influence over their ability to invest in other businesses or incur excessive indebtedness. Some of our franchisees have invested in other businesses, including other restaurant concepts. Such franchisees may use the cash generated by their Nathan’s restaurants to expand their other businesses or to subsidize losses incurred by such businesses. Additionally, as independent operators, franchisees do not require our consent to incur indebtedness. Consequently, our franchisees have in the past, and may in the future, experience financial distress as a result of over-leveraging. To the extent that our franchisees use the cash from their Nathan’s restaurants to subsidize their other businesses or experience financial distress, due to over-leveraging, delayed or reduced payments of royalties, advertising fund contributions and rents for properties we lease to them, or otherwise, it could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, lenders to our franchisees may be less likely to provide current or prospective franchisees necessary financing on favorable terms, or at all, due to market conditions and operating results.

We rely on the performance of major retailers, wholesalers, specialty distributors and mass merchants for the success of our business, and should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.

We sell our products to retail outlets and wholesale distributors including, traditional supermarkets, mass merchandisers, warehouse clubs, wholesalers, food service distributors and convenience stores. The replacement by or poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could materially and adversely affect our results of operations and financial condition. In addition, our customers offer branded and private label products that compete directly with our products for retail shelf space and consumer purchases. Accordingly, there is a risk that our customers may give higher priority to their own products or to the products of our competitors. In the future, our customers may not continue to purchase our products or provide our products with adequate levels of promotional support. A significant decline in the purchase of our products would have a material adverse effect on our business, results of operations and financial condition.

The sophistication and buying power of our customers could have a negative impact on profits.

Our customers, such as supermarkets, warehouse clubs, and food distributors, have continued to consolidate, resulting in fewer customers with which to do business. These consolidations and the growth of supercenters have produced large, sophisticated customers with increased buying power and negotiating strength who are more capable of resisting price increases and can demand lower pricing, increased promotional programs, or specialty tailored products. In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own retailer brands. If the larger size of these customers results in additional negotiating strength and/or increased private label or store brand competition, our profitability could decline.

Consolidation also increases the risk that adverse changes in our customers’ business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases.

We may evaluate acquisitions, joint ventures and other strategic initiatives, any of which could distract management or otherwise have a negative effect on revenue, costs and stock price.

Our future success may depend on opportunities to buy or obtain rights to other businesses that could complement, enhance or expand our current business or products or that might otherwise offer growth opportunities. In particular, we may evaluate potential mergers, acquisitions, joint venture investments, strategic initiatives, alliances, vertical integration opportunities and divestitures. We have no commitments, agreements or understandings with respect to any of such transactions. In addition, our ability to engage in these transactions may be impacted by the incurrence of debt as a result of the Notes. Any attempt by us to engage in these transactions may expose us to various inherent risks, including:

Our annual and quarterly financial results may fluctuate depending on various factors, many of which are beyond our control, and, if we fail to meet the expectations of investors, our share price may decline.

Our sales and operating results can vary from quarter to quarter and year to year depending on various factors, many of which are beyond our control. Certain events and factors may directly and immediately decrease demand for our products. These events and factors include:

Our operations are influenced by adverse weather conditions.

Weather, which is unpredictable, can impact our sales. Harsh weather conditions that keep customers from dining out result in lost opportunities for our Company-owned and our franchisees’ restaurants. A heavy snowstorm or a tropical storm or hurricane in the Northeast can shut down an entire metropolitan area, resulting in a reduction in sales in that area at Company-owned and franchised restaurants. Our fourth quarter includes winter months and historically has a lower level of sales at Company-owned and franchised restaurants. Additionally, our Company-owned restaurants at Coney Island are heavily dependent on favorable weather conditions during the summer season. Rain during the weekends and/or unseasonably cold temperatures will negatively impact the number of patrons going to the Coney Island beach locations. Because a significant portion of our restaurant operating costs is fixed or semi-fixed in nature, the loss of sales during these periods adversely impacts our operating margins, and can result in restaurant operating losses. For these reasons, a quarter-to-quarter comparison may not be a good indication of our performance or how it may perform in the future.

Due to the concentration of our restaurants in particular geographic regions, our business results could be impacted by the adverse economic conditions prevailing in those regions regardless of the state of the national economy as a whole.

As of March 28, 2021, we and our franchisees (including units operated pursuant to our BMP) operated Nathan’s restaurants in 19 states and eight foreign countries. As of March 28, 2021, the highest concentration of operating units was in the Northeast, principally in New York and New Jersey. This geographic concentration in the Northeast can cause economic conditions in particular areas of the country to have a disproportionate impact on our overall results of operations. It is possible that adverse economic conditions in states or regions that contain a high concentration of Nathan’s restaurants could have a material adverse impact on our business, results of operations and financial condition.

We rely extensively on computer systems, point of sales system and information technology to manage our business. Any disruption in our computer systems, point of sales system or information technology may adversely affect our ability to run our business.

We are significantly dependent upon our computer systems, point of sales system and information technology to properly conduct our business. A failure or interruption of computer systems, point of sales systems or information technology could result in the loss of data, business interruptions or delays in business operations. Further, despite our considerable efforts and technological resources to secure our computer systems, point of sales systems and information technology, security breaches, such as unauthorized access and computer viruses, may occur resulting in system disruptions, shutdowns or unauthorized disclosure of confidential information. Any security breach of our computer systems, point of sales systems or information technology may result in adverse publicity, loss of sales and profits, penalties or loss resulting from misappropriation of information.

Cyberattacks and breaches could cause operational disruptions, fraud or theft of sensitive information.

Aspects of our operations are reliant upon internet-based activities, such as ordering supplies and back-office functions such as accounting and transaction processing, making payments and accepting credit card payments in our restaurants, as well as at third party online ordering and delivery businesses, processing payroll and other administrative functions, etc. For instance, if we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs.

We also use third-party vendors. While we select third-party vendors carefully, we do not control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyberattacks and security breaches at a vendor could adversely affect our ability to deliver products and services to conduct our business.

Although we have taken measures to protect our technology systems and infrastructure, including continuously working to install new, and upgrade our existing information technology systems and provide employee training around phishing, malware and other cyber risks, there can be no assurance that we will be successful and fully protected against cyber risks and security breaches. A security breach could result in operational disruptions, theft or fraud, or exposure of sensitive information to unauthorized parties. Such events could result in additional costs related to operational inefficiencies, or damages, claims or fines.

Catastrophic events may disrupt our business.

Unforeseen events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues such as epidemics or pandemics (including, without limitation, as a result of the COVID-19 pandemic), labor unrest and natural disasters such as earthquakes, hurricanes or other extreme adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of franchisees, suppliers or customers, or result in political or economic instability. These events could negatively impact consumer spending, thereby reducing demand for our products, or the ability to receive products from suppliers. We do not have insurance policies that insure against certain of these risks. To the extent that we do maintain insurance with respect to some of these risks, our receipt of the proceeds of such policies may be delayed or the proceeds may be insufficient to offset our losses fully.

Our international operations are subject to various factors of uncertainty.

Our business outside of the United States is subject to a number of additional factors, including international economic and political conditions, differing cultures and consumer preferences, currency regulations and fluctuations, diverse government regulations and tax systems, uncertain or differing interpretations of rights (including intellectual property rights) and obligations in connection with international franchise agreements and the collection of royalties from international franchisees, the availability and cost of land and construction costs, and the availability of appropriate franchisees. In developing markets, we may face risks associated with new and untested laws and judicial systems. Although we believe we have developed the support structure required for international growth, there is no assurance that such growth will occur or that international operations will be profitable.

Our business operations and future development could be significantly disrupted if we lose key members of our management team.

The success of our business continues to depend to a significant degree upon the continued contributions of our senior officers and key employees, both individually and as a group. Our future performance will be substantially dependent, in particular, on our ability to retain and motivate our executive officers, for certain of whom we currently have employment agreements in place. The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as our ability to satisfy our obligations under the Notes, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all.

We face risks of litigation and pressure tactics, such as strikes, boycotts and negative publicity from customers, franchisees, suppliers, employees and others, which could divert our financial, and management resources and which may negatively impact our financial condition and results of operations.

Class action lawsuits have been filed, and may continue to be filed, against various quick-service restaurants alleging, among other things, that quick-service restaurants have failed to disclose the health risks associated with high-fat foods and that quick-service restaurant marketing practices have targeted children and encouraged obesity. In addition, we face the risk of lawsuits and negative publicity resulting from injuries, including injuries to infants and children, allegedly caused by our products, toys and other promotional items available in our restaurants or by our playground equipment.

In addition, activist groups, including animal rights activists and groups acting on behalf of franchisees, the workers who work for suppliers and others, have in the past, and may in the future, use pressure tactics to generate adverse publicity by alleging, for example, inhumane treatment of animals by our suppliers, poor working conditions or unfair purchasing policies. These groups may be able to coordinate their actions with other groups, threaten strikes or boycotts or enlist the support of well-known persons or organizations in order to increase the pressure on us to achieve their stated aims. In the future, these actions or the threat of these actions may force us to change our business practices or pricing policies, which may have a material adverse effect on our business, results of operations and financial condition.

Further, we may be subject to employee, franchisee and other claims in the future based on, among other things, mismanagement of the system, unfair or unequal treatment, discrimination, harassment, wrongful termination and wage, rest break and meal break issues, including those relating to overtime compensation. We have been subject to these types of claims in the past, and if one or more of these claims were to be successful or if there is a significant increase in the number of these claims, our business, results of operations and financial condition could be harmed.

Risks Related to Regulatory Matters

Recent changes to minimum wage rates have increased our labor costs.

We must comply with the Fair Labor Standards Act and various federal and state laws governing minimum wages.  Increases in the minimum wage and labor regulations have increased our labor costs.  New York State passed legislation increasing the minimum hourly wage for fast food workers of restaurant chains with 30 or more locations nationwide which over a period of time will increase the minimum wage to $15.00 per hour. The first increase from this law took effect beginning December 31, 2015 and was fully phased in by December 31, 2018 in New York City, where we operate two Company-owned restaurants and by December 31, 2021 throughout the rest of New York State which impacts the labor costs at our two remaining Company-owned restaurants and our franchised restaurants that operate in New York State. In addition, the federal government and a number of other states are evaluating various proposals to increase their respective minimum wage. As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. Additionally, as a result, we anticipate that our labor costs will continue to increase.  If we are unable to pass on these higher costs through price increases, our margins and profitability as well as the profitability and margins of our franchisees will be adversely impacted which could have a material adverse effect on our business, results of operations or financial condition. Our business could be further 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 existing franchised restaurants.

Increases in labor costs due to new regulations or labor shortages could slow our growth or harm our business.

In addition to minimum wage increases, in the past several years, state and local governments have enacted legislation which increased labor costs. For instance, effective November 27, 2017, the City of New York enacted Fair Work Week Legislation. A key component of this legislation is a requirement that fast food restaurants schedule their workers at least two weeks in advance or pay employees between $10 to $75 per scheduling change, depending on the situation. Due to Nathan’s dependency on weather conditions at our two Coney Island locations during the summer, we are unable to determine the potential impact on our results of operations, which could be material. Continued increases in our labor costs as a result of this or other new legislation could have a material adverse effect on our business, financial condition and results of operations.

Moreover, our success depends in part upon our ability and the ability of our franchisees to continue to attract, motivate and retain regional, operational and restaurant general managers with the qualifications to succeed in our industry and the motivation to apply our core service philosophy. If we or our franchisees are unable to continue to recruit and retain sufficiently qualified managers or to motivate our employees to achieve sustained high service levels, our business and our growth could be adversely affected.

The COVID-19 pandemic has caused additional changes as companies struggle to find and hire workers as states begin to ease restrictions. As demand for new hires increases, the competition for these employees could require the payment of higher wages that could result in higher labor costs.

Changes in franchise regulation laws could impact our ability to obtain or retain licenses or approvals and adversely affect our business, financial condition, results of operations and prospects.

We are also subject to federal statutes and regulations, including the rules promulgated by the U.S. Federal Trade Commission, as well as certain state laws governing the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and on provisions concerning the termination or non-renewal of a franchise. Some states require that certain materials be filed for a franchisor to be registered and approved, before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could have a material adverse effect on our business, financial condition, results of operations and prospects.

We are subject to health, employment, environmental and other government regulations, and failure to comply with existing or future government regulations could expose us to litigation, damage our corporate reputation or the reputation of our brands and lower profits.

We and our franchisees are subject to various federal, state and local laws, rules or regulations affecting our businesses. To the extent that the standards imposed by local, state and federal authorities are inconsistent, they can adversely affect popular perceptions of our business and increase our exposure to litigation or governmental investigations or proceedings. We may be unable to manage effectively the impact of new, potential or changing regulations that affect or restrict elements of our business. The successful development and operation of restaurants depends to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use (including the placement of drive-thru windows), environmental (including litter), traffic and other regulations. There can be no assurance that we and our franchisees will not experience material difficulties or failures in obtaining the necessary licenses or approvals for new restaurants which could delay the opening of such restaurants in the future. Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, food preparation, sanitation and safety standards, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions and citizenship requirements), federal and state laws prohibiting discrimination and other laws regulating the design and operation of facilities, such as the Federal Americans with Disabilities Act of 1990. If we fail to comply with any of these laws, we may be subject to governmental action or litigation, and accordingly our reputation could be harmed.

Injury to us or our brand’s reputation would, in turn, likely reduce revenue and profits. In addition, difficulties or failures in obtaining any required licenses or approvals could delay or prevent the development or opening of a new restaurant or renovations to existing restaurants, which would adversely affect our revenue.

In recent years, there has been an increased legislative, regulatory and consumer focus on nutrition and advertising practices in the food industry, particularly among quick-service restaurants. As a result, we may become subject to regulatory initiatives in the area of nutrition disclosure or advertising, such as requirements to provide information about the nutritional content of our food products, which could increase expenses. The operation of our franchise system is also subject to franchise laws and regulations enacted by a number of states and rules promulgated by the U.S. Federal Trade Commission. Any future legislation regulating franchise relationships may negatively affect our operations, particularly our relationship with our franchisees. Failure to comply with new or existing franchise laws and regulations in any jurisdiction or to obtain required government approvals could result in a ban or temporary suspension on future franchise sales. Changes in applicable accounting rules imposed by governmental regulators or private governing bodies could also affect our reported results of operations, which could cause our stock price to fluctuate or decline.

We may not be able to adequately protect our intellectual property, which could decrease the value of our business or the value of our brands and products.

The success of our business depends on the continued ability to use existing trademarks, service marks and other components of each of our brands in order to increase brand awareness and further develop branded products. We may not be able to adequately protect our trademarks, and the use of these trademarks may result in liability for trademark infringement, trademark dilution or unfair competition. All of the steps we have taken to protect our intellectual property may not be adequate.

We have registered or applied to register many of our trademarks and service marks both in the United States and in foreign countries. Because of the differences in foreign trademark laws, our trademark rights may not receive the same degree of protection in foreign countries as they would in the United States. We also cannot assure you that our trademark and service mark applications will be approved. In addition, third parties may oppose our trademark and service mark applications, or otherwise challenge our use of the trademarks or service marks. In the event that our trademarks or service marks are successfully challenged, we could be forced to rebrand our products and services, which could result in loss of brand recognition, and could require us to devote resources advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our marks, or that we will have adequate resources to enforce our trademarks or service marks.

We also license third party franchisees and other licensees to use our trademarks and service marks. We enter into franchise agreements with our franchisees and license agreements with other licensees which govern the use of our trademarks and service marks. Although we make efforts to police the use of our trademarks and service marks by our franchisees and other licensees, we cannot assure you that these efforts will be sufficient to ensure that our franchisees and other licensees abide by the terms of the trademark licenses. In the event that our franchisees fail to do so, our trademark and service mark rights could be diluted.

Our earnings and business growth strategy depends in large part on the success of our restaurant franchisees and on new restaurant openings. Our corporate reputation or brand reputation may be harmed by actions taken by restaurant franchisees that are otherwise outside of our control.

A significant portion of our earnings comes from royalties, fees and other amounts paid by our restaurant franchisees. The opening and success of franchised restaurants depends on various factors, including the demand for our franchises and the selection of appropriate franchisee candidates, the availability of suitable restaurant sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the availability of financing and the financial and other capabilities of our franchisees and area developers. We cannot assure you that area developers planning the opening of franchised restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements. We cannot assure you that franchisees will successfully participate in our strategic initiatives or operate their restaurants in a manner consistent with our concept and standards. Our franchisees are independent contractors, and their employees are not our employees. We provide training and support to, and monitor the operations of, our franchisees, but the quality of their restaurant operations may be diminished by any number of factors beyond our control. Consequently, the franchisees may not successfully operate their restaurants in a manner consistent with our high standards and requirements, and franchisees may not hire and train qualified managers and other restaurant personnel. Any operational shortcoming of a franchised restaurant is likely to be attributed by consumers to an entire brand or our system, thus damaging our corporate or brand reputation, potentially adversely affecting our business, results of operations and financial condition.

Growth in our restaurant revenue and earnings is significantly dependent on new restaurant openings. Numerous factors beyond our control may affect restaurant openings. These factors include but are not limited to:

We cannot assure you that franchisees will renew their franchise agreements or that franchised restaurants will remain open. Closings of franchised restaurants are expected in the ordinary course and may cause our royalty revenues and financial performance to decline. Our principal competitors may have greater influence over their respective restaurant systems than we do because of their significantly higher percentage of company restaurants and/or ownership of franchisee real estate and, as a result, may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs.

As our franchisees are independent operators, we have limited influence over their ability to invest in other businesses or incur excessive indebtedness. Some of our franchisees have invested in other businesses, including other restaurant concepts. Such franchisees may use the cash generated by their Nathan’s restaurants to expand their other businesses or to subsidize losses incurred by such businesses. Additionally, as independent operators, franchisees do not require our consent to incur indebtedness. Consequently, our franchisees have in the past, and may in the future, experience financial distress as a result of over-leveraging. To the extent that our franchisees use the cash from their Nathan’s restaurants to subsidize their other businesses or experience financial distress, due to over-leveraging, delayed or reduced payments of royalties, advertising fund contributions and rents for properties we lease to them, or otherwise, it could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, lenders to our franchisees may be less likely to provide current or prospective franchisees necessary financing on favorable terms, or at all, due to current market conditions and operating results.

Changes in franchise regulation laws could impact our ability to obtain or retain licenses or approvals and adversely affect our business, financial condition, results of operations and prospects.

We are also subject to federal statutes and regulations, including the rules promulgated by the U.S. Federal Trade Commission, as well as certain state laws governing the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and on provisions concerning the termination or non-renewal of a franchise. Some states require that certain materials be filed for a franchisor to be registered and approved, before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could have a material adverse effect on our business, financial condition, results of operations and prospects.

We rely on the performance of major retailers, wholesalers, specialty distributors and mass merchants for the success of our business, and should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.

We sell our products to retail outlets and wholesale distributors including, traditional supermarkets, mass merchandisers, warehouse clubs, wholesalers, food service distributors and convenience stores. The replacement by or poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could materially and adversely affect our results of operations and financial condition. In addition, our customers offer branded and private label products that compete directly with our products for retail shelf space and consumer purchases. Accordingly, there is a risk that our customers may give higher priority to their own products or to the products of our competitors. In the future, our customers may not continue to purchase our products or provide our products with adequate levels of promotional support. A significant decline in the purchase of our products would have a material adverse effect on our business, results of operations and financial condition.

The sophistication and buying power of our customers could have a negative impact on profits.

Our customers, such as supermarkets, warehouse clubs, and food distributors, have continued to consolidate, resulting in fewer customers with which to do business. These consolidations and the growth of supercenters have produced large, sophisticated customers with increased buying power and negotiating strength who are more capable of resisting price increases and can demand lower pricing, increased promotional programs, or specialty tailored products. In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own retailer brands. If the larger size of these customers results in additional negotiating strength and/or increased private label or store brand competition, our profitability could decline.

Consolidation also increases the risk that adverse changes in our customers’ business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases.

Failure by third-party manufacturers or suppliers of raw materials to comply with food safety, environmental or other regulations may disrupt our supply of certain products and adversely affect our business.

We rely on third-party manufacturers to produce our products and on other suppliers to supply raw materials. Such manufacturers and other suppliers, whether in the United States or outside the United States, are subject to a number of regulations, including food safety and environmental regulations. Failure by any of our manufacturers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations. Disruption of the operations of a manufacturer or other suppliers could disrupt our supply of product or raw materials, which could have an adverse effect on our business, consolidated financial condition, results of operations, or liquidity.and financial condition. Additionally, actions we may take to mitigate the impact of any such disruption or potential disruption, including increasing inventory in anticipation of a potential production or supply interruption, may adversely affect our business, consolidated financial condition, results of operations, or liquidity.

Leasing of real estate exposes us to possible liabilities and losses.financial condition.

We lease land and/or buildings for certain restaurants, which can include the sub-letting of leased land and/or buildings to franchisees or companies other than our franchisees. Accordingly, we are subject to all of the risks associatedmany federal, state and local laws, as well as statutory and regulatory requirements. Failure to comply with, owning, leasing and sub-leasing real estate. We generally cannot cancel these leases. If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform the obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of the leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations.

We may evaluate acquisitions, joint ventures and other strategic initiatives, any of which could distract management or otherwise have a negative effect on revenue, costs and stock price.

Our future success may depend on opportunities to buy or obtain rights to other businesses that could complement, enhance or expand our current business or products or that might otherwise offer growth opportunities. In particular, we may evaluate potential mergers, acquisitions, joint venture investments, strategic initiatives, alliances, vertical integration opportunities and divestitures. We have no commitments, agreements or understandings with respect to any of such transactions. In addition, our ability to engagechanges in these transactions may be impacted by the incurrence of debt as a result of our sale of the Notes. Any attempt by us to engage in these transactions may expose us to various inherent risks, including:

Our annual and quarterly financial results may fluctuate depending on various factors, many of which are beyond our control, and, if we fail to meet the expectations of investors, our share price may decline.

Our sales and operating results can vary from quarter to quarter and year to year depending on various factors, many of which are beyond our control. Certain events and factors may directly and immediately decrease demand for our products. These events and factors include:

Our operations are influenced by adverse weather conditions.

Weather, which is unpredictable, can impact our sales. Harsh weather conditions that keep customers from dining out result in lost opportunities for our Company-owned and our franchisees’ restaurants. A heavy snowstormlaws or a tropical storm or hurricane in the Northeast can shut down an entire metropolitan area, resulting in a reduction in sales in that area at Company-owned and franchised restaurants. Our fourth quarter includes winter months and historically has a lower level of sales at Company-owned and franchised restaurants. Additionally, our Company-owned restaurants at Coney Island are heavily dependent on favorable weather conditions during the summer season. Rain during the weekends and/or unseasonably cold temperatures will negatively impact the number of patrons going to the Coney Island beach locations. Because a significant portion of our restaurant operating costs is fixed or semi-fixed in nature, the loss of sales during these periods hurts our operating margins, and can result in restaurant operating losses. For these reasons, a quarter-to-quarter comparison may not be a good indication of our performance or how it may perform in the future.

Due to the concentration of our restaurants in particular geographic regions, our business results could be impacted by the adverse economic conditions prevailing in those regions regardless of the state of the national economy as a whole.

As of March 25, 2018, we and our franchisees (including units operated pursuant to our BMP) operated Nathan’s restaurants in 20states and 12 foreign countries. As of March 25, 2018, the highest concentration of operating units was in the Northeast, principally in New York and New Jersey. This geographic concentration in the Northeast can cause economic conditions in particular areas of the country to have a disproportionate impact on our overall results of operations. It is possible that adverse economic conditions in states or regions that contain a high concentration of Nathan’s restaurantsrequirements, could have a materialan adverse impact on our results of operations in the future.

business.We rely extensively on computer systems, point of sales system and information technology to manage our business. Any disruption in our computer systems, point of sales system or information technology may adversely affect our ability to run our business.

We are significantly dependent upon our computer systems, point of sales system and information technology to properly conduct our business. A failure or interruption of computer systems, point of sales systems or information technology could result in the loss of data, business interruptions or delays in business operations. Further, despite our considerable efforts and technological resources to secure our computer systems, point of sales systems and information technology, security breaches, such as unauthorized access and computer viruses, may occur resulting in system disruptions, shutdowns or unauthorized disclosure of confidential information. Any security breach of our computer systems, point of sales systems or information technology may result in adverse publicity, loss of sales and profits, penalties or loss resulting from misappropriation of information.

Cyberattacks and breaches could cause operational disruptions, fraud or theft of sensitive information.

Aspects of our operations are reliant upon internet-based activities, such as ordering supplies and back-office functions such as accounting and transaction processing, making payments and accepting credit card  payments in our restaurants , processing payroll and other administrative functions, etc.  For instance, if we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired.  In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs.

We also use third-party vendors.  While we select third-party vendors carefully, we do not control their actions.  Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyberattacks and security breaches at a vendor could adversely affect our ability to deliver products and services to conduct our business.

Although we have taken measures to protect our technology systems and infrastructure, including continuously working to install new, and upgrade our existing information technology systems and provide employee training around phishing, malware and other cyber risks, there can be no assurance that we will be successful and fully protected  against cyber risks and security breaches.  A security breach could result in operational disruptions, theft or fraud, or exposure of sensitive information to unauthorized parties. Such events could result in additional costs related to operational inefficiencies, or damages, claims or fines.

We may be required to recognize additional asset impairment and other asset-related charges.

We have long-lived assets, goodwill and intangible assets and have incurred impairment charges in the past with respect to those assets. In accordance with applicable accounting standards, we test for impairment annually, or more frequently, if there are indicators of impairment, such as:

Based upon future economic and capital market conditions, as well as the performance of individual operating units, future impairment charges could be incurred.

Catastrophic events may disrupt our business.

Unforeseen events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues such as epidemics or pandemics, labor unrest and natural disasters such as earthquakes, hurricanes or other extreme adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of franchisees, suppliers or customers, or result in political or economic instability. These events could negatively impact consumer spending, thereby reducing demand for our products, or the ability to receive products from suppliers. We do not have insurance policies that insure against certain of these risks. To the extent that we do maintain insurance with respect to some of these risks, our receipt of the proceeds of such policies may be delayed or the proceeds may be insufficient to offset our losses fully.

Our international operations are subject to various factors of uncertainty.

Our business outside of the United States is subject to a number of additional factors, including international economic and political conditions, differing cultures and consumer preferences, currency regulations and fluctuations, diverse government regulations and tax systems, uncertain or differing interpretations of rights (including intellectual property rights) and obligations in connection with international franchise agreements and the collection of royalties from international franchisees, the availability and cost of land and construction costs, and the availability of appropriate franchisees. In developing markets, we may face risks associated with new and untested laws and judicial systems. Although we believe we have developed the support structure required for international growth, there is no assurance that such growth will occur or that international operations will be profitable.

Fluctuations in weather, supply and demand and economic conditions could adversely affect the cost, availability and quality of some of our critical products, including beef. Our inability to obtain requisite quantities of high-quality ingredients would adversely affect our ability to provide the menu items that are central to our business, and the highly competitive nature of our industry may limit our ability to pass through increased costs to our customers. Continuing increases in the cost of fuel would increase the distribution costs of our prime products thereby increasing the food and paper cost to us and to our franchisees, thus negatively affecting profitability.

We have sought to lock in the cost of a portion of our beef purchases by entering into various commitments to purchase hot dogs during certain periods in an effort to ensure supply of product at a fixed cost of product. However, we may be unable to enter into similar purchase commitments in the future. In addition, we do not have the ability to effectively hedge all of our beef purchases using futures or forward contracts without incurring undue financial cost and risk.

Our business operations and future development could be significantly disrupted if we lose key members of our management team.

The success of our business continues to depend to a significant degree upon the continued contributions of our senior officers and key employees, both individually and as a group. Our future performance will be substantially dependent, in particular, on our ability to retain and motivate our executive officers, for certain of whom we currently have employment agreements in place. The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as our ability to satisfy our obligations under the Notes. If we lose the services of any of these individuals in the foreseeable future; we currently have no effective replacement for any of these individuals due to their experience, reputation in the industry and special role in our operations.

A recent ruling and complaint filed by the general counsel of the National Labor Relations Board could, if upheld, make us liable for violations of overtime, wage or union-organization violations by our franchisees.

On July 29, 2014, the General Counsel of the National Labor Relations Board (NLRB) issued a statement announcing that McDonald’s USA LLC might be charged with being jointly liable for labor and wage violations by its franchisees. Subsequently on December 19, 2014, the General Counsel issued complaints alleging that McDonald’s USA LLC waspreviously considered whether to hold certain franchisors responsible as a “joint employer” withof its franchisees at certain franchised locations,franchisees’ staff under certain fact patterns. McDonald’s USA LLC and itstheir franchisees are currently inwere the subject of administrative litigation with the NLRB. However,That matter was resolved through a settlement in March 2018,2019, and in 2020, the NLRB announcedissued a proposed settlement ofregulation that complaint. Ifchanged the parties do not ultimately settle andstandard for determining when a party such as Nathan's would be deemed a “joint employer” under the NLRB’s general counsel were to prevail inNational Labor Relations Act. The new NLRB standard would make it less likely that the administrative proceedings (as wellNLRB would initiate an action against a company such as in related appeals in federal courts that will ensue), against McDonald’s USA LLC, then depending uponus. However, the facts charged in that case, the “joint employment” principlenew NLRB standard may be extended more broadly to franchisorsrevised or revoked. There is also the possibility of administrative action from other than McDonald’s, USA LLC (such as Nathan’s). If that took place, then we also might be held partly liableagencies, state governments, and in cases of alleged overtime, wage, or union-organizing violations by our franchisees. Similar to the NLRB’s action, there have been private lawsuits in which parties have allegedthat may allege that a franchisor and its franchisee “jointly employ” the franchisee’s staff, that the franchisor is responsible for the franchisees’ staff (under theories of apparent agency, ostensible agency, or actual agency), or otherwise. In 2021 and beyond, if the United States Department of Labor and agencies such as OSHA and the NLRB take a more aggressive position on defining and enforcing joint employer status, or it both houses of Congress pass the pending “PRO Act,” that might change the status quo and expose Nathan’s to the possibility of being deemed a “joint employer” of our franchisees’ staff together with our franchisees.

Among other things, a determination that Nathan's and its franchisees are joint employers of one or more franchisees’ staff may make it easier to organize our franchisees’ staff into unions, provide the staff and their union representatives with bargaining power to request that we have our franchisees raise wages, and make it more expensive and less profitable to operate a Nathan’s franchised restaurant. A decrease in profitability or the closing of a significant number of franchised restaurants could significantly impact our business (as well as our franchisees’ businesses), and we may also be significantly impacted if the NLRB or a private party successfully brought an action against our company alleging that we are a “joint employer” of our franchisees’ staffs.

We face risks of litigation and pressure tactics, such as strikes, boycotts and negative publicity from customers, franchisees, suppliers, employees and others, which could divert our financial, and management resources and which may negatively impact our financial condition and results of operations.

Class action lawsuits have been filed, and may continue to be filed, against various quick-service restaurants alleging, among other things, that quick-service restaurants have failed to disclose the health risks associated with high-fat foods and that quick-service restaurant marketing practices have targeted children and encouraged obesity. In addition, we face the risk of lawsuits and negative publicity resulting from injuries, including injuries to infants and children, allegedly caused by our products, toys and other promotional items available in our restaurants or by our playground equipment.

In addition, activist groups, including animal rights activists and groups acting on behalf of franchisees, the workers who work for suppliers and others, have in the past, and may in the future, use pressure tactics to generate adverse publicity by alleging, for example, inhumane treatment of animals by our suppliers, poor working conditions or unfair purchasing policies. These groups may be able to coordinate their actions with other groups, threaten strikes or boycotts or enlist the support of well-known persons or organizations in order to increase the pressure on us to achieve their stated aims. In the future, these actions or the threat of these actions may force us to change our business practices or pricing policies, which may have a material adverse effect on our business, results of operations and financial condition.

Further, we mayIn September 2019, California adopted a law known as “AB-5,” which was ostensibly intended to address the relationship between “gig” workers and companies such as “Uber” and “Lyft.” By ballot initiative in November 2020, California voters adopted “Proposition 22” to exempt companies such as Uber and Lyft (and others) from California Assembly Bill 5 (“AB-5”); however, the remaining language of AB‑5 is broad enough to raise the possibility that it might be subjectapplied to employee, franchiseethe relationship between a franchisor such as Nathan's and other claimsits California franchisees. If AB-5 were applied to the franchisor-franchisee relationship that Nathan's enjoys with its franchisees, that might significantly impact the structure and financial viability of any California franchised or licensed locations.

California also adopted a new law to address data privacy. The California Consumer Privacy Act (CCPA) took effect at the beginning of 2020, and imposes stringent data security standards, which might apply more broadly than only within the borders of that state (for example, if a California resident buys products or has them shipped into the state and pays with a credit or debit card). Both New York and Virginia have since adopted similar requirements, which take effect in 2021. It is still uncertain whether the CCPA and the laws adopted in New York and Virginia will have a material impact on our operations or that of our franchisees.

Changes in tax laws and unfavorable resolution of tax contingencies could adversely affect our tax expense.

Our future based on, among other things, mismanagement ofeffective tax rates could be adversely affected by changes in tax laws, both domestically and internationally. From time to time, the system, unfair or unequal treatment, discrimination, harassment, wrongful terminationUnited States Congress and wage, rest breakforeign, state and meal break issues, including those relatinglocal governments consider legislation that could increase our effective tax rates. If changes to overtime compensation. We have been subject to these types of claims in the past, and if one or more of these claims were to be successful or if there is a significant increase in the number of these claims,applicable tax laws are enacted, our business, results of operations and financial condition could be harmed.negatively impacted. Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to impose tax) are subject to review and audit by federal, state, local and international taxing authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations.

Risks Related to Organizational Structure

Our certificate of incorporation and by-laws and other corporate documents include anti-takeover provisions which may deter or prevent a takeover attempt.

Some provisions of our certificate of incorporation, by-laws, other corporate documents, including the terms and condition of our Notes, and provisions of Delaware law may discourage takeover attempts and hinder a merger, tender offer or proxy contest targeting us, including transactions in which stockholders might receive a premium for their shares. This may limit the ability of stockholders to approve a transaction that they may think is in their best interest. The corporate documents include:

General regulation of the restaurant industry could adversely impact our business, financial condition, results of operations and prospects.

The restaurant industry is subject to extensive federal, state and local governmental regulations, including those relating to the preparation and sale of food and those relating to building and zoning requirements. In recent years, there has been an increased legislative, regulatory and consumer focus on nutrition and advertising practices in the food industry, particularly among restaurants. This focus has resulted in, and may continue to result in, the enactment of laws and regulations that impact the ingredients and nutritional content of our menu offerings. For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information available to customers, or have enacted legislation restricting the use of certain types of ingredients in restaurants. Furthermore, the 2010 Patient Protection and Affordable Care Act (“PPACA”) establishes a uniform, federal requirement for certain restaurants to post nutritional information on their menus. Specifically, the PPACA amended the Federal Food, Drug and Cosmetic Act to require chain restaurants with 20 or more locations operating under the same name and offering substantially the same menus to publish the total number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of a total daily calorie intake. The PPACA also requires covered restaurants to provide to consumers, upon request, a written summary of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this information.

The PPACA further permits the United States Food and Drug Administration (the “FDA”) to require covered restaurants to make additional nutrient disclosures, such as disclosure of trans fat content. The FDA nutritional labeling rules require establishments to post calorie counts on all menu items, calorie boards and drive-thru displays throughout the United States. Businesses affected by the new regulations had one year to comply. Compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may be costly and time-consuming.

An unfavorable report on, or reaction to, our menu ingredients, the size of our portions or the nutritional content of our menu items could negatively influence the demand for our offerings. Additionally, if consumer health regulations or consumer eating habits change significantly, we may be required to modify or discontinue certain menu items, and we may experience higher costs associated with the implementation of those changes. Additionally, some government authorities are increasing regulations regarding trans fats and sodium, which may require us to limit or eliminate trans fats and sodium from our menu offerings, switch to higher cost ingredients or may hinder our ability to operate in certain markets. Failure to comply with these laws or regulations could have a material adverse effect on our business, financial condition, results of operations and prospects.

We cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions or our ability to successfully implement the nutrient content disclosure requirements and to adapt our menu offerings to trends in eating habits. The imposition of menu-labeling laws could have an adverse effect on our results of operations and financial position, as well as the restaurant industry in general.

While we recentlyhave approved a quarterly dividend policy, there can be no assurance as to the declaration of future dividends or the amount of such dividend.

We paid our shareholders a special $25.00 per share dividend in 2015 and a special $5.00 per share dividend in January 2018. On May 31, 2018, Nathans’ Board of Directors authorized the commencement of a regular dividend of $1.00 per share per annum, payable at the rate of $0.25 per quarter. The initial $0.25 per share dividend was declared on June 8, 2018 and will be paid on Friday June 22, 2018 to shareholders of record at the close of business on June 18, 2018.Our declaration and payment of future cash dividends  are subject to the final determination  by our Board of Directors that (i) the dividend will be made in compliance with laws applicable to the declaration and payment of cash dividends, including Section 170 of the Delaware General  Business Corporation Law, (ii) the dividend complies with the terms of the Indenture, and (iii) the payment of dividends remains in our best interests, which determination will be based on a number of factors, including the impact of changing laws and regulations, economic conditions, our results of operations and/or financial condition, capital resources, the ability to satisfy financial covenants and other factors considered relevant by the Board of Directors. There can be no assurance our Board of Directors will approve the payment of cash dividends in the future or the amount of a cash dividend. Any discontinuance of the payment of a dividend or changes to the amount of a dividend compared to prior dividends could cause our stock price to decline.

The Tax Cuts and Jobs Act of 2017 may increase the after-tax cost of our outstanding indebtedness.

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) limits our interest expense deduction on our Notes to 30% of taxable income before interest, depreciation and amortization from 2018 to 2021 and then taxable income before interest thereafter. The Tax Act permits us to carry forward disallowed interest expense indefinitely. Due to our high degree of leverage, beginning in 2018, a portion of our interest expense in future years may not be deductible, which may increase the after tax cost of any new debt financings as well as the refinancing of our existing debt. We are currently analyzing the impact of the nondeductible interest on our operations and capital structure.

Changes in tax laws and unfavorable resolution of tax contingencies could adversely affect our tax expense.

Our future effective tax rates could be adversely affected by changes in tax laws, both domestically and internationally. From time to time, the United States Congress and foreign, state and local governments consider legislation that could increase our effective tax rates. If changes to applicable tax laws are enacted, our results of operations could be negatively impacted. Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to impose tax) are subject to review and audit by federal, state, local and international taxing authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations.

Our certificate of incorporation and by-laws and other corporate documents include anti-takeover provisions which may deter or prevent a takeover attempt.

Some provisions of our certificate of incorporation, by-laws, other corporate documents, including the terms and condition of our Notes, and provisions of Delaware law may discourage takeover attempts and hinder a merger, tender offer or proxy contest targeting us, including transactions in which stockholders might receive a premium for their shares. This may limit the ability of stockholders to approve a transaction that they may think is in their best interest. The corporate documents include:

Our net income and cash results could be impacted by the closing of the sale of our Company-owned restaurant, including the real estate, in Bay Ridge, Brooklyn, New York.

We have entered into an Agreement of Sale to sell our Company-owned restaurant, including the real estate, in Bay Ridge, Brooklyn, New York.  We have received an aggregate of $1.2 million deposit in connection with entering into the Agreement of Sale and an amendment thereto and proceeds for the sale are estimated to be $12.25 million. Such consideration would contribute significantly to our net income for the period in which the closing occurs as well our cash.  While the Agreement of Sale, as amended, contemplates a closing in the second quarter of fiscal 2019, the Agreement of Sale initially contemplated a closing in the first quarter of fiscal 2019 and there can be no assurance that the closing of the Agreement of Sale will occur in the second quarter of fiscal 2019 or at all.  If the Agreement of Sale does not close, we will not receive the expected increase to our net income and cash.

Risks Related to the Notes

We haveOur substantial indebtedness makes us more sensitive to adverse economic conditions, may limit our ability to plan for or respond to significant changes in our business, and requires a substantialsignificant amount of indebtedness.cash to service our debt payment obligations that we may be unable to generate or obtain.

We have significant indebtedness and debt service obligations. As of March 25, 2018,28, 2021, we had total outstanding indebtedness of $150$150.0 million which is due in 2025. In addition, subjectSubject to the terms of any future agreements, we and our subsidiaries may be able to incur additional indebtedness in the future. There is a risk that we will not be able to generate sufficient funds to repay our debt. If we cannot service our fixed charges, itfuture, which would have a material adverse effect on our business and results of operations.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under the Notes and our other debt.

As of March 25, 2018, we had $150.0 million of indebtedness under the Notes. Our substantial indebtedness could have important consequences to you. For example, it could:

In addition, the terms of the indenture governing the Notes contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debts, including the Notes. The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations, prospects or ability to satisfy our obligations under the Notes.

Despite our current indebtedness level, we may still be able to incur significant additional amounts of debt, which could further exacerbate the risks associated withrelated to our substantialhigh level of indebtedness.

We may be able to incur substantial additional indebtedness, including additional Notes and other secured indebtedness, in the future. Although the indenture governing the Notes contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our existing debt levels, the related risks that we face would intensify and we may not be able to meet all our debt obligations, including the repayment of the Notes. In addition, the indenture governing the Notes does not prevent us from incurring obligations that do not constitute indebtedness under the indenture.

To serviceSpecifically, our high level of indebtedness could have important potential consequences, including, but not limited to:

There is no assurance that we will generate cash flow from operations or that future debt or equity financings will be available to us to enable us to pay our indebtedness we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. As such, we may not be able to generate sufficient cash to service the Notes or our other indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make payments on the Notes, to fund plannedother liquidity needs. If conditions related to the COVID-19 pandemic result in significant disruptions to capital expenditures and to maintain sufficient working capital will depend onfinancial markets, our cost of borrowing, our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatoryaccess capital on favorable terms and other factors that are beyond our control.

We cannot assure you thatoverall liquidity could be adversely impacted. If our business willdoes not generate sufficient cash flow from operations or if future borrowings from other sourcesare not available to us in an amountamounts sufficient to enable us to servicepay our indebtedness including the Notes, or to fund our other liquidity needs. Ifneeds, our cash flowsfinancial condition and capital resources are insufficient to allow us to make scheduled payments on our indebtedness,results of operations may be adversely affected. As a result, we may need to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance all or a portion of our indebtedness including the Notes, on or before the maturity thereof, any of which could have a material adverse effect on our operations. We cannot assure youmaturity. There is no assurance that we will be able to refinance any of our indebtedness including the Notes, on commercially reasonablefavorable terms, or at all, or that the terms of that indebtedness will allow any of the above alternative measures or that these measures would satisfy our scheduled debt service obligations. If we are unableall. Any inability to generate sufficient cash flow to repay or refinance our debtindebtedness on favorable terms it could significantly adversely affect our financial condition, the value of our outstanding debt, including the Notes, and our ability to make any required cash payments under our indebtedness, including the Notes. Our ability to restructure or refinance our debt will dependhave a material adverse effect on the condition of the capital markets and our financial condition at that time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, any future credit facility may be secured by a priority lien on substantially all of our assets. As such, our ability to refinance the Notes or seek additional financing could be impaired as a result of such security interest.

We are subject to a number of restrictive covenants, which may restrict our business and financing activities.

The indenture governing the Notes imposes, and the terms of any future indebtedness may impose, operating and other restrictions on us. Such restrictions will affect, and in many respects limit or prohibit, among other things, our ability to:

The restrictions in the indenture governing the Notes may prevent us from taking actions that we believe would be in the best interests of our business, and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We also may incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. Our ability to comply with these covenants in future periods will largely depend on the pricing of our products and services, and our ability to successfully implement our overall business strategy. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements. The breach of any of these covenants and restrictions could result in a default under the indenture governing the Notes, which could result in an acceleration of our indebtedness.condition.

Changes in respect of the debt ratings of our Notes may materially and adversely affect the availability, the cost and the terms and conditions of our debt.

Our Notes have been publicly rated by Moody’s Investors Service, Inc., or Moody’s, and Standard & Poor’s Rating Services, or S&P, independent rating agencies. In addition, future debt instruments may be publicly rated. These debt ratings may affect our ability to raise debt. Any future downgrading of the Notes or our other debt by Moody’s or S&P may affect the cost and terms and conditions of our financings and could adversely affect the value and trading of the Notes.

Item 1B.Unresolved Staff Comments.

None.

Item 2.Properties.

Our principal executive offices consist of approximately 9,300 square feet of leased space in Jericho, NY. The lease commenced on January 1, 2010, hashad a ten (10) year term, with a five (5) year renewal right. We also own a regional office building consisting of approximately 9,500 square feet in Fort Lauderdale, Florida. We currently own one restaurant property consisting of a 2,650 square foot Nathan’s restaurant at 86th Street in Brooklyn, NY, locatedEffective April 1, 2019, we executed the first amendment to the lease extending the lease for an additional ten (10) year term to expire on a 25,000 square foot lot. We have entered into an agreement to sell this restaurant, including the real estate, in July 2018, which we expect to continue operating through September 2018, before it ceases operations.March 31, 2029.

At March 25, 2018,28, 2021, other Company-owned restaurants that were operating were located in leased space with terms expiring as shown in the following table:

Aggregate rental expense, net of sublease income, under all current leases amounted to $1,592,000$1,391,000 in fiscal 2018.2021.

Item 3.Legal Proceedings.

We and our 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 our 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 moneymonetary damages and, in such event, could result in a material adverse impact on our results of operations for the period in which the ruling occurs.

Item 4.Mine Safety Disclosures.

Not applicable.

PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Common Stock Prices

Our common stock is quoted on the NASDAQ Global Market (“Nasdaq”) under the symbol “NATH.” The following table sets forth the high and low closing sales prices per share for the periods indicated:

		High				Low
Fiscal year ended March 25, 2018
First quarter		$	71.80			$	61.30
Second quarter			71.40				54.95
Third quarter			100.05				72.00
Fourth quarter			78.60				61.15
Fiscal year ended March 26, 2017
First quarter		$	46.86			$	40.85
Second quarter			51.37				42.08
Third quarter			65.00				48.00
Fourth quarter			66.10				57.80

At June 5, 2018, the closing price per share for our common stock, as reported by Nasdaq, was $87.95.

Performance Graph

The graph below represents the Company’s cumulative 5-year total shareholder return on common stock with the cumulative total returns of the S&P 500 index and the S&P Restaurant Index. The graph tracks the performance of a $100 investment in our common stock and in each of our indexes (with the reinvestment of all dividends).

 

Dividend Policy

 

Historically, Nathan’s has not paid or declared any regular dividends on our common stock since our initial public offering in 1993. However, we have paid two Special Dividends,special dividends, a $5.00 per share Special Dividendspecial dividend in January 2018 and a $25.00 per share Special Dividendspecial dividend in March 2015. On May 31, 2018, Nathans’Nathan’s Board of Directors authorized the commencement of a regular dividend of $1.00 per share per annum, payable at the rate of $0.25 per quarter. The initialOn June 14, 2019, Nathan’s Board of Directors authorized the increase of its regular dividend from $0.25 to $0.35 per share dividend wasquarter. During the fiscal 2020 and fiscal 2021 periods, the Company declared on June 8, 2018 and will be paid on June 22, 2018 to shareholdersfour quarterly dividends of record at the close of business on June 18, 2018. $0.35 per share.

Our ability to pay future dividends is limited by the terms of an indenture, dated November 1, 2017, between the indenture with USCompany, certain of its wholly-owned subsidiaries, as guarantors and U.S. Bank National Association, as trustee and collateral trustee.trustee (the “Indenture”). It has been the Board of Directors’ policy to return capital to our shareholders primarily through the purchase of stock pursuant to our stock buyback programs.

Effective June 11, 2021, the Board declared its first quarterly cash dividend of $0.35 per share for fiscal year 2022 which is payable on June 25, 2021 to stockholders of record as of the close of business on June 21, 2021.

In addition to the terms of the indenture,Indenture, the payment of any cash dividends in the future will be dependent upon our earnings and financial requirements and there can be no assurance that we will declare and pay any dividends subsequent to the June 22, 201825, 2021 dividend.

 

Shareholders

 

As of June 5, 2018,4, 2021, we had approximately 446364 shareholders of record, excluding shareholders whose shares were held by brokerage firms, depositories and other institutional firms in “street name” for their customers.

 

Issuer Purchases of Equity Securities

 

The Company did not repurchase any of its common stock during the fiscal yearquarter ended March 25, 2018.28, 2021.

 

Since the commencement of the Company’s stock buybackbuy-back program in September 2001 through March 25, 2018,28, 2021, Nathan’s has purchased a total of 5,127,3735,254,081 shares of common stock at a cost of approximately $77,303,000$84,770,000 under all of its stock repurchase programs and two modified Dutch Auction tender offers.programs.

 

On March 11,In 2016, the Company’s Board of Directors authorized increases to the sixth stock repurchase plan for the purchase by the Company of up to 1,200,000 shares of its common stock.stock on behalf of the Company. As of March 25, 2018,28, 2021, Nathan’s had repurchased 939,7421,066,450 shares at a cost of $29,640,676$37,108,000 under the sixth stock repurchase plan. At March 25, 2018,28, 2021, there were 260,258133,550 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.

 

 

Reconciliation of GAAP and Non-GAAP 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) gain on sale of property and equipment; (ii) loss on debt extinguishment; (iii) impairment charge long-lived assets; and (iv) share-based compensation that the Company believes will impact the comparability of its results of operations.

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.

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.

		Fiscal Year (1)
(In thousands)		2021				2020				2019				2018				2017
Net income		$	11,075			$	13,435			$	21,493			$	2,630			$	7,485
Interest expense			10,601				10,601				10,792				13,591				14,665
Income taxes			4,250				4,579				7,917				1,482				4,319
Depreciation & amortization			1,183				1,233				1,212				1,352				1,297
EBITDA			27,109				29,848				41,414				19,055				27,766
Gain on sale of property and equipment			-				-				(11,177	)			-				-
Loss on debt extinguishment			-				-				-				8,872				-
Impairment charge long-lived assets			-				-				-				790				-
Share-based compensation			116				116				162				398				582
ADJUSTED EBITDA		$	27,225			$	29,964			$	30,399			$	29,115			$	28,348

(1)

Our fiscal year ends on the last Sunday in March, which results in a 52- or 53-week year. The fiscal years ended March 28, 2021 and March 29, 2020 were each on the basis of a 52-week reporting period. The fiscal year ended March 31, 2019 was on the basis of a 53-week reporting period. The fiscal years ended March 25, 2018 and March 26, 2017 were each on the basis of a 52-week reporting period.

Item 6.

Selected Financial Data.

 

		Fiscal years ended (1)
		March 25, 2018				March 26, 2017				March 27, 2016				March 29, 2015				March 30, 2014
		(In thousands, except per share amounts)
Statement of Earnings Data:
Revenues:
Sales (2)		$	76,708			$	70,820			$	75,590			$	75,057			$	65,106
License royalties			23,020				20,368				19,815				18,011				8,513
Franchise fees and royalties			4,473				5,068				5,044				5,581				5,718
Total revenues			104,201				96,256				100,449				98,649				79,337
Costs and Expenses:
Cost of sales			58,752				51,634				57,557				61,488				52,657
Restaurant operating expenses			3,506				3,386				3,557				3,747				3,142
Depreciation and amortization			1,352				1,297				1,255				1,253				1,157
General and administrative expenses			13,491				13,659				13,117				12,203				11,460
Total costs and expenses			77,101				69,976				75,486				78,691				68,416
Income from operations			27,100				26,280				24,963				19,958				10,921
Interest expense			(13,591	)			(14,665	)			(14,630	)			(816	)			(135	)
Loss on debt extinguishment (Note L)			(8,872	)			-				-				-				-
Impairment charge long-lived assets			(790	)			-				-				-				-
Interest and other income, net			265				189				151				263				401
Impairment charge long-term investment			-				-				(100	)			-				(400	)
Insurance gain			-				-				-				-				2,774
Income before provision for income taxes			4,112				11,804				10,384				19,405				13,561
Provision for income taxes			1,482				4,319				4,288				7,702				5,234
Net income (2)		$	2,630			$	7,485			$	6,096			$	11,703			$	8,327
Income per share:
Basic (2)		$	0.63			$	1.79			$	1.38			$	2.61			$	1.87
Diluted (2)		$	0.62			$	1.78			$	1.37			$	2.55			$	1.81
Dividends paid per share		$	5.00			$	-			$	-			$	25.00			$	-
Dividends paid		$	20,948			$	-			$	-			$	116,110			$	-
Weighted average shares used in computing net income per share
Basic			4,181				4,172				4,430				4,486				4,450
Diluted			4,221				4,206				4,463				4,588				4,605
Balance Sheet Data at End of Fiscal Year:
Working capital		$	53,702			$	56,763			$	49,779			$	61,328			$	35,378
Total assets		$	80,091			$	78,125			$	71,549			$	84,389			$	56,135
Long-term debt, net (3)		$	144,758			$	131,475			$	130,266			$	129,140			$	-
Stockholders’ (deficit) equity		$	(84,568	)		$	(66,491	)		$	(72,336	)		$	(59,908	)		$	43,897

Item 6.Selected Financial Data.

 

Supplemental Non-GAAP information (4):Not applicable as we are considered a smaller reporting company.

EBITDA (5)		$	19,055			$	27,766			$	26,269			$	21,474			$	14,853
Adjusted EBITDA (6)		$	29,115			$	28,348			$	27,155			$	22,497			$	13,350

Selected Restaurant Operating Data:
Company-owned restaurant sales (2)(3)		$	14,085			$	14,646			$	16,222			$	15,412			$	12,816
Number of Units Open at End of Fiscal Year:
Company-owned restaurants			5				5				5				5				5
Franchised			276				279				259				296				324

Notes to Selected Financial Data

(1)	Our fiscal year ends on the last Sunday in March, which results in a 52- or 53-week year. The fiscal years ended March 25, 2018, March 26, 2017, March 27, 2016, March 29, 2015 and March 30, 2014 were each on the basis of a 52-week reporting period.

(2)

On October 29, 2012, the Northeastern United States was hit by Superstorm Sandy which caused significant damage to our Flagship Coney Island location closing the restaurant for repair from October 29, 2012 until May 20, 2013. During the first quarter of fiscal 2014, Nathan’s settled the property claim with its insurance carriers and received approximately $3.4 million, net of fees, and used these proceeds towards the rebuilding of the restaurant. In April 2014, Nathan’s settled the business interruption claim with the insurance carrier and received approximately $718,000, net of fees. On November 25, 2012, we closed the Company-owned restaurant in Yonkers, New York, as a part of a redevelopment of the property into a strip center, which includes a new Nathan’s Company-owned restaurant that re-opened on November 18, 2013. Additionally, our Oceanside restaurant was also temporarily closed from January 4, 2015 until March 25, 2015 due to its relocation. These three events significantly impacted our results of operations and the comparability of restaurant operations during the fiscal 2015 and fiscal 2014 periods reported.

(3)	Represents $150.0 million outstanding debt net of unamortized debt issuance costs of $5,242at March 25, 2018 and $135.0 million outstanding debt net of unamortized debt issuance costs of $3,525, $4,734 and $5,860 at March 26, 2017, March 27, 2016 and March 29, 2015, respectively.

(4)

The Company has provided EBITDA and Adjusted EBITDA that the Company believes will impact the comparability of its results of operations. The Company believes that EBITDA and Adjusted EBITDA are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure. EBITDA and Adjusted EBITDA are not recognized terms under US GAAP and should not be viewed as alternatives to net income (loss) or other measures of financial performance or liquidity in conformity with US GAAP. Additionally, our definitions of EBITDA and Adjusted EBITDA may differ from other companies. Analysis of results and outlook on a non-US GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with US GAAP.

(5)	EBITDA represents net income adjusted for the reversal of (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense.

(6)

Adjusted EBITDA represents EBITDA adjusted for the reversal of (i) share-based compensation; (ii) amortization of bond premium on available-for-sale investments; (iii) insurance gain in fiscal 2014, (iv) loss on debt extinguishment, and (v) impairment charges on long-lived assets in fiscal 2018 and long-term investment in fiscal 2016 and 2014.

 

 

ReconciliationItem 7.Management’s Discussion and Analysis of GAAPFinancial Condition and Non-GAAP MeasuresResults of Operations.

Introduction

Overview of the Impact of COVID-19

In March 2020, the World Health Organization (“WHO”) declared a global pandemic related to the outbreak of a novel strain of coronavirus, designated “COVID-19.”

During the fiscal 2021 period, COVID-19 spread throughout the United States and the rest of the world and government authorities have implemented measures to reduce the spread of COVID-19. These governmental restrictions and public perceptions of the risks associated with COVID-19 have caused consumers to avoid or to limit non-essential travel, gatherings in public places and other social interactions. The COVID-19 pandemic has had an adverse impact on the Company’s business, financial condition, cash flows, and results of operations for the fiscal 2021 period.

As a result of COVID-19, our Company-owned restaurants and our franchisees have experienced reduced customer traffic, as well as instances of reduced store-level operations, including reduced operating hours.

As of March 28, 2021, three of our four Company-owned restaurants were open. Our seasonal location on the Coney Island Boardwalk opened with reduced operating hours for the fiscal 2022 summer season on April 2, 2021.

Franchisees located in shopping malls, airports, and highway travel plazas continue to be subject to temporary closures or reduced operating hours. Approximately 77% of our franchise system is currently open in a full or limited capacity. Such closures and disruptions have impacted sales at our Company-owned restaurants, as well as franchise fees and royalties, as compared to the fiscal 2020 period. Plans to mitigate the loss of sales have included increasing consumer access to our products through third-party delivery channels.

Additionally, the COVID-19 pandemic has disrupted operations within our Branded Product Program. Operations at many of our Branded Product Program accounts have been hampered as many of our customers operate in venues that are closed or venues operating at reduced traffic levels, such as professional sports arenas, amusement parks, shopping malls, and movie theaters. Such closures and disruptions have impacted sales and operating income within our Branded Product Program.

During the fiscal 2021 period, royalties from our license agreements were significantly higher than during the fiscal 2020 period, due to significantly higher sales of consumer-packaged goods through grocery channels as consumers elected to “shelter at home” as a result of the COVID-19 pandemic.

In the second half of the fiscal 2021 period, certain of these governmental restrictions were relaxed as incidents of infection from the initial outbreak declined. The Company has instituted operational procedures to protect the health and foster the confidence of employees and guests at the restaurants. The Company continues to monitor developing and changing health authority recommendations and regulatory requirements.

With the roll-out, availability and acceptance of vaccines to combat the COVID-19 pandemic, we have seen an increase in the number of re-openings within our franchise system during the fourth quarter of our fiscal 2021 period and continuing into the first quarter of our fiscal 2022 period, as well as an increase in partial re-openings at some of our Branded Product Program accounts including professional sports arenas, amusement parks, movie theatres and shopping malls.

 

The followingbusiness environment remains dynamic and uncertain and is providedsubject to supplement certain Non-GAAP financial measures discussedchange as governmental authorities modify existing restrictions or implement new restrictions in response to changes in the Selected Financial Data presented above.

In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles innumber of COVID-19 infections and the availability and acceptance of vaccines around the United States of America ("US GAAP"), the Company has provided EBITDA excluding (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense. The Company has also provided Adjusted EBITDA excluding (i) loss on debt extinguishment, (ii) impairment charge on long-lived assets, (iii) share-based compensation; (iv) amortization of bond premium on the Company’s available-for sale investments; (v) insurance gain and (vi) impairment charge on long-term investmentinternationally. We expect that the Company believespandemic will continue to have a negative impact on our revenue and net income for the comparability of itsforeseeable future. Even as government restrictions are lifted and vaccines are being distributed, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels, and may result in reduced restaurant traffic and consumer spending trends that may adversely impact our financial condition and results of operations.

 

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

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.

		Fiscal Year (1)
(In thousands)		2018				2017				2016				2015				2014
Net income			2,630				7,485				6,096				11,703				8,327
Interest expense			13,591				14,665				14,630				816				135
Income taxes			1,482				4,319				4,288				7,702				5,234
Depreciation & amortization			1,352				1,297				1,255				1,253				1,157
EBITDA			19,055				27,766				26,269				21,474				14,853
Loss on debt extinguishment			8,872				-				-				-				-
Impairment charge long-lived assets			790				-				-				-				-
Share-based compensation			398				582				722				859				721
Impairment charge long-term investment			-				-				100				-				400
Amortization of bond premium			-				-				64				164				150
Insurance gain			-				-				-				-				(2,774	)
ADJUSTED EBITDA			29,115				28,348				27,155				22,497				13,350

(1) Our fiscal year ends on the last Sunday in March which results in a 52- 53-week year. The fiscal years ended March 25, 2018, March 26, 2017, March 27, 2016, March 29, 2015 and March 30, 2014 consisted of 52 weeks.

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Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

IntroductionOverview

 

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 began in 1978 by sellingsells packaged hot dogs and other meat products to retail customers through supermarkets or grocery-type retailers for off-site consumption. During fiscal 1998, we introduced ourOur Branded Product Program which currently enables foodservice retailers and others to sell some of Nathan’s proprietary products outside of the realm of a traditional franchise relationship. In conjunction with this program, purchasers of Nathan’s products are granted a limited use of the Nathan’s Famous trademark with respect to the sale of the purchased products, including Nathan’s World Famous Beef Hot Dogs, certain other proprietary food items and paper goods. Our Branded Menu Program is a limited franchise program, under which foodservice operators may sell a greater variety of Nathan’s Famous menu items than under the Branded Product Program.

 

Our revenues are generated primarily from selling products under Nathan’s Branded Product Program, restaurant operations consisting ofoperating Company-owned restaurants, and franchising the Nathan’s restaurant concept (including under the Branded Menu Program) and product licensing agreements for the sale of Nathan’s products within supermarkets and club stores, the manufacture of certain proprietary spices and the sale of Nathan’s products directly to other foodservice operators. For further information, please see Note K – Segment Information inoperators and the accompanying financial statements.manufacture of certain proprietary spices by third parties and franchising the Nathan’s restaurant concept (including the Branded Menu Program).

 

The following summary reflects the franchise openings and closings of the Nathan’s franchise system for the fiscal years ended March 28, 2021, March 29, 2020, March 31, 2019, March 25, 2018, and March 26, 2017, March 27, 2016, March 29, 2015, and March 30, 2014.2017.

 

		March 25, 2018				March 26, 2017				March 27, 2016				March 29, 2015				March 30, 2014				March 28, 2021				March 29, 2020				March 31, 2019				March 25, 2018				March 26, 2017
Franchised restaurants operating at the beginning of the period			279				259				296				324				303				216				255				276				279				259
Franchised restaurants opened during the period			40				53				56				36				56				7				16				13				40				53
Franchised restaurants closed during the period			(43	)			(33	)			(93	)			(64	)			(35	)			(10	)			(55	)			(34	)			(43	)			(33	)
Franchised restaurants operating at the end of the period			276				279				259				296				324				213				216				255				276				279

 

At March 25, 2018,28, 2021, our franchiserestaurant system consisted of 276213 Nathan’s franchised units, including 94 Branded Menu units located in 2019 states, and 12eight foreign countries. We also operate fivecountries, and four Company-owned Nathan’sand operated units including(including one seasonal location,unit), located within the New York metropolitan area.

Over the past several years, our strategic emphasis has been to increase 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. The primary drivers of our recent growth have been our Licensing and Branded Product Programs, which are the largest contributors to the Company’s revenues and profits.

We remain committed to these parts of our business and 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 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. Additionally, we have introduced virtual kitchens whereby existing branded restaurants have the ability to market and to sell our products through third-party delivery platforms. At March 28, 2021, we have expanded into 130 virtual kitchens, including 87 domestically and 43 internationally. While we do not expect to significantly increase the number of Company-owned restaurants, 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 adopt to the ever-changing consumer and environment.

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As described in Risk Factors and other sections in this Annual Report on Form 10-K for the year ended March 25, 2018,28, 2021, our future results could be impacted by many developments.developments including the impact of the COVID-19 pandemic on our business, as well as our dependence on John Morrell & Co. as our principal supplier. In March 2014, John Morrell & Co., a subsidiary of Smithfield Foods, Inc. became Nathan’s exclusive licensee to manufacture and sell hot dogs, sausage and corned beef at retail. Our future operating results are substantially dependent on our agreement with John Morrell & Co. There are also certain risks associated with engaging John Morrell & Co. as exclusive licensee including whether (i) we can maintain or improve the quality and consistency of our products that is expected by our customers, and (ii) John Morrell & Co. will have a sufficient supply of products available for our customers on a timely basis, as well as the risks described under “Risk Factors - - Our licensing revenue and overall profitability is substantially dependent on our agreement with John Morrell & Co. and the loss or a significant reduction of this revenue would have a material adverse effect on our financial condition and results of operations.”

 

Our future operating results could be impacted by supply constraints on beef prices and/or increases in beef prices.

 

On November 1, 2017, the Company completed the issuance ofissued $150.0 million 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 November 1, 2017, (the “Indenture”) by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, as trustee and collateral trustee.  The Company used the net proceeds of the 2025 Notes offering to (i) satisfy and discharge the indentureIndenture relating to the 2020 Notes (as hereinafter defined) andNotes; (ii) redeem the 2020 Notes (the "Redemption"), paid(iii) pay a portion of a special $5.00 per share cash dividend to Nathan's stockholders of record (see(see Note M.1 J of the Notes to the Consolidated Financial Statements), withand (iv) 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 Company performed2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1^st and November 1^st of each year. During the required evaluation of the refinancing and determined that a portion of the Redemption of the 2020 Notes is accounted for as a modification of the debt and a portion as an extinguishment of the debt. In connection with the Redemption,fiscal year ended March 28, 2021, the Company recorded a lossmade its required semi-annual interest payments of $4,968,750 on early extinguishmentMay 1, 2020 and November 1, 2020. On May 1, 2021, the Company paid its semi-annual interest payment of debt of $8,872,000 that primarily reflects a portion of the premium paid to redeem the 2020 Notes and the write-off of certain debt issuance costs.$4,968,750.

 

On March 10, 2015, the Company completed the issuance of $135.0 million of 10.000% Senior SecuredThe 2025 Notes due 2020 (“the 2020 Notes”) in a Rule 144A transaction. The 2020 Notes were issued pursuanthave no scheduled principal amortization payments prior to an indenture, dated March 10, 2015, by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, a national banking association, as trustee and collateral trustee. Debt issuance costs of approximately $5,985,000 were incurred, which were being amortized into interest expense over the remaining 5-year term of the 2020 Notes, or until redeemed.final maturity on November 1, 2025.

 

Our future results could alsomay be impacted by our interest obligations under the 2025 Notes. As a result of the issuance of the 2025 Notes, Nathan’s expects to incurincurs interest expense of $9,937,500 per annum and annual amortization of debt issuance costs of approximately $690,000.$691,000. The Indenture governingterms and conditions of the 2025 Notes imposes operating and other restrictions on us.are as follows (terms not defined shall have the meanings set forth in the Indenture):

 

DuringThere are no ongoing financial maintenance covenants associated with the fiscal year ended2025 Notes. As of March 25, 2018, we paid interest28, 2021, Nathan’s was in compliance with all covenants associated with the 2025 Notes.

The Indenture contains certain covenants limiting the Company’s ability and the ability of $6,750,000its 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, September 15, 2017redeem 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:

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Fixed Charge Coverage Ratio: the ratio of the Consolidated Cash Flow to the Fixed Charges for the 2020relevant 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 paid interestare 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 $2,287,500a 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.

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

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

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

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

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

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

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

Effective June 1, 2020, Nathan’s Board of Directors authorized the repurchase of up to $10 million of the 2025 Notes by the Company (at a price equal to or less than par) from time to time. There is no set time limit on the repurchases.

Critical Accounting Policies and Estimates

 

Our consolidated financial statements and the notes to our consolidated financial statements contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. We believe the following critical accounting policies involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset and liability amounts.

 

Revenue RecognitionLeases

 

Sales byWe determine if a contract contains a lease at inception. Our material operating leases consist of our Company-owned restaurants whichand Corporate office space. Renewal options are typically paidnot included in cashthe lease term as it is not reasonably certain at commencement date that we would exercise the option to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. Fixed minimum rent payments are recognized on a straight-line basis over the lease term. Contingent rent payments are recognized each period as the liability is incurred or the asset is earned.

Operating lease assets and liabilities are recognized at time of lease inception. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned.

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The lease liability equals the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rate implicit in the Company’s leases is not readily determinable. This incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially.

Revenue Recognition

We earn revenues through our Company-owned restaurants, franchised restaurants and virtual kitchens. Retail sales from franchised restaurants and virtual kitchens are reported to us by the customer,our franchisees and virtual kitchen operators and are not included in our revenues. Retail sales from Company-owned restaurants are recognized at the point of sale. Salespoint-of-sale. Royalty revenues resulting from the retail sales from franchised restaurants and virtual kitchens are presented netgenerally based on a percentage of sales tax.

In connection with its franchising operations, Nathan’s receives initial franchise fees, area development fees, royalties, and in certain cases, revenue from sub-leasing restaurant properties to franchisees.

Beginning in the first quarter Fiscal 2019, Nathan’s will adopt ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” which changes the way in which franchise fees are recognized. ASC 606 requires franchise and development fees to be earned ratably over the term of the agreement. (See “New Accounting Pronouncements Not Yet Adopted” and Note B.21 of the Notes to Consolidated Financial Statements for further discussion on the impact on Nathan’s.)

Franchise and area development fees, which are typically received prior to completion of the revenue recognition process, are recorded as deferred revenue. Initial franchise fees, which are non-refundable, have historically been recognized as income when substantially all services to be performed by Nathan’s and conditions relating to the sale of the franchise have been performed or satisfied, which generally occurs when the franchised restaurant commences operations. The following services are typically provided by Nathan’s prior to the opening of a franchised restaurant:

●

Approval of all site selections to be developed.

●

Provision of architectural plans suitable for restaurants to be developed.

●

Assistance in establishing building design specifications, reviewing construction compliance and equipping the restaurant.

●

Provision of appropriate menus to coordinate with the restaurant design and location to be developed.

●

Provision of management training for the new franchisee and selected staff.

●

Assistance with the initial operations and marketing of restaurants being developed.

Development fees are nonrefundable and the related agreements require the franchisee to open a specified number of restaurants in the development area within a specified time period or the agreements may be canceled by the Company. Revenue from development agreements is deferred and has historically been recognized, with an appropriate provision for estimated uncollectible amounts, when all material services or conditions to the sale have been substantially performed by the franchisor. If substantial obligations under the development agreement are not dependent on the number of individual franchise locations to be opened, substantial performance shall be determined using the same criteria applicable to an individual franchise, which is generally the opening of the first location pursuant to the development agreement. If substantial performance was dependent on the number of locations, then the development fee is deferred and was recognized ratably over the term of the agreement, as restaurants in the development area commence operations on a pro rata basis to the minimum number of restaurants required to be open, or at the time the development agreement is effectively canceled.

Nathan’s recognizes franchise royalties on a monthly basis which are generally based upon a percentage of sales made by Nathan’s franchisees, when they areit is earned and deemed collectible. Franchise fees, renewal fees, area development fees, and royalties thattransfer fees are not deemed to be collectible are not recognized as revenue until paid byover the franchisee,term of each respective agreement, or until collectability is deemed to be reasonably assured.upon termination of the franchise agreement. Revenues from Company-owned restaurants and revenues from franchisees and our virtual kitchen operators can fluctuate from time-to-time as a result of restaurant count and sales level changes.

 

Nathan’s recognizes royalty revenueWe may also generate revenues from its Branded Menu Program either upon its saleadvertising contributions which are made to the Company’s Advertising Fund which are also generally based on a percentage of hot dogs or royalty income when it has been determinedsales. Some vendors that other qualifyingsupply products have been sold byto the manufacturerCompany and our restaurant system may also contribute to Nathan’s Branded Menu Program franchisees orthe Advertising Fund based upon product purchasedpurchases made by these franchisees.

Nathan’s recognizes revenue from the Branded Product Program upon delivery to Nathan’s customers via third party common carrier to Nathan’s customers. Rebates to customers are recorded as a reduction to sales.our franchisees and at Company-owned restaurants.

 

Revenue from sub-leasing properties is recognized as income as the revenue is earned and becomes receivable and deemed collectible. Sub-lease rental income is presented net of associated lease costs in the consolidated statements of earnings.

Nathan’s recognizes revenue from royalties on the licensing of the use of its intellectual property in connection with certain products produced and sold by outside vendors. The use of the Nathan’s intellectual property must be approved by Nathan’s prior to each specific application to ensure proper quality and project a consistent image. Revenue from license royalties is generally based on a percentage of sales, subject to certain annual minimum royalties, recognized on a monthly basis when it is earned and deemed collectible.

 

InThe Company recognizes sales from the normal course of business, we extend credit to franchisees and licensees for the payment of ongoing royalties and to trade customers of our Branded Product Program. AccountsProgram and other receivables, net, as shown on our consolidated balance sheets are net of allowances for doubtful accounts. An allowance for doubtful accounts is determined through analysis ofcertain products sold from the aging of accounts receivable at the date of the financial statements, assessment of collectability basedBranded Menu Program upon historical trends and an evaluation of the impact of current and projected economic conditions. In the event that the collectability of a receivable at the date of the transaction is doubtful, the associated revenue is not recorded until the facts and circumstances change in accordance with the applicable accounting standards. The Company writes off accounts receivable when they are deemed uncollectible.delivery to Nathan’s customers via third party common carrier.

 

Impairment of Goodwill and Other Intangible Assets

 

Goodwill and intangible assets are deemed to have indefinite lives,consist of (i) goodwill of $95,000 resulting from the acquisition of Nathan’s in 1987; and accordingly, are not amortized, but are evaluated(ii) trademarks, trade names and other intellectual property of $1,156,000 in connection with Arthur Treacher’s. We test goodwill for impairment annually, (oror more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable) for impairment. The most significant assumptions, which are used in this test, are estimates of future cash flows. We typically use the same assumptions for this test as we use in the development of our business plans. If these assumptions differ significantly from actual results, impairment chargesasset may be required inimpaired. As of March 28, 2021 and March 29, 2020, the future. We conducted ourCompany performed its annual impairment teststest of goodwill and has determined that no goodwill or otherimpairment is deemed to exist.

During the fiscal year ended March 29, 2020, the Company determined its indefinite-lived intangible assets wereasset to have a finite useful life based on the expected future use of this intangible asset. Based upon the review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is twelve years and the intangible asset is subject to be impairedannual amortization. The Company has recorded amortization expense of $113,000 and $84,000 during the fiscal years endedending March 25, 2018, March 26, 201728, 2021 and March 27, 2016.29, 2020, respectively. As of March 28, 2021 and March 29, 2020, the Company performed its annual impairment test of this finite-lived intangible asset and has determined that no impairment is deemed to exist.

 

Impairment of Long-Lived Assets

 

Long-lived assets are reviewedinclude property, equipment and right of use assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Each reporting period, management reviews the carrying value of its investments based upon the financial information provided by the investment’s management and considers whether indicators of an other-than-temporary impairment exists.  If an impairment indicator exists, management evaluates the fair value of its investment to determine if an, other-than-temporary impairment in value has occurred.  We are required to recognize an impairment on the investment if such impairment is considered to be other-than temporary. 

operating leases with finite useful lives. Impairment losses are recorded on long-lived assets on a restaurant-by-restaurant basis whenever impairment factors are determined to be present. The Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will record 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 asset. 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 in future periods and such impairments could be material. The Company considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. At March 25, 2018, we performed our annual impairment evaluation and recorded an impairment charge of $790,000 to write down the value of the long-lived assets at one of our restaurants.  No long-lived assets were deemed impaired during the fiscal years ended March 26, 201728, 2021 and March 27, 2016.29, 2020.

 

Impairment of Long-Term Investment

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We make judgments regarding the future realizability of this investment based upon the financial information provided to us by the investment’s management. We typically rely on management’s assumptions, of future revenues and cash flows based upon the annual business plans presented. If these assumptions differ significantly from actual results, we consider whether indicators of impairment exist. If an impairment indicator exists, management evaluates the fair value of its investment to determine if an, other than temporary impairment in value has occurred. We have annually performed our evaluation of whether indicators of impairment existed, and determined that an other-than-temporary impairment has occurred and recorded impairment charges of $100,000 and $400,000 on this investment during the fifty-two week periods ended March 27, 2016 and March 30, 2014, respectively. We have not recognized any further impairment on our long-term investments during the fifty-two week period ended March 25, 2018.

Stock-Based Compensation

 

As discussed in Note M.2L.2 of the Notes to Consolidated Financial Statements, we have one active share-based compensation plan that provides stock options and restricted stock awards for certain employees and non-employee directors to acquire shares of our common stock. We considerFor stock option awards, the following factorsgrant date fair value of the awards is determined using the Black-Scholes option pricing model and involves several assumptions in determining the value of stock-based compensation:compensation including:

 

(a)

expected option term based upon expected termination behavior;

(a)(b)

expected option termvolatility based upon expected termination behavior;

(b)

volatility based upon historical price changes of the Company’s common stock over a period equal to the expected life of the Company’s common stock over a period equal to the expected life of the option;

(c)

expected dividend yield; and

(d)

risk free interest rate on date of grant.

 

Income Taxes

 

The Company’s current provision for income taxes is based upon its estimated taxable income in each of the jurisdictions in which it operates, after considering the impact on taxable income of temporary differences resulting from different treatment of items for tax and financial reporting purposes.purposes and income tax benefits from share-based payments. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and any operating loss or tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible. Should management determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made.

 

Uncertain Tax Positions

 

Financial Accounting Standards establish guidanceThe Company has recorded liabilities for underpayment of income taxes and related interest and penalties for uncertain tax positions based on the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Financial Accounting Standards also provide guidance on derecognition, classification,Nathan’s recognizes accrued interest and penalties accounting in interim periods and disclosure requirements. (Seeassociated with unrecognized tax benefits as part of the income tax provision. See Note JH of the Notes to Consolidated Financial Statements.)

 

Adoption of New Accounting PronouncementsStandards

In July 2015, the Financial Accounting Standards Board (“FASB”) updated U.S. accounting guidance to simplify the ways businesses measure inventory. Companies that use the first-in, first-out (FIFO) method or the average cost method will measure inventory at the lower of its cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business, minus the cost of completion, disposal, and transportation. Companies will no longer consider replacement cost or net realizable value less a normal profit margin when measuring inventory. The guidance was effective for the Company beginning in the quarter ended June 25, 2017 and did not have a material impact on its results of operations or financial position.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)”. This update addresses eight specific cash flow topics with the objective of reducing the existing diversity in practice for certain aspects under Topic 230. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company elected to early adopt ASU 2016-15 during the quarter ending December 24, 2017. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued a new accounting standard ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, that attempts to establish a uniform basis for recording revenue to virtually all industries’ financial statements. The revenue standard’s core principle is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. Additionally, the new guidance requires enhanced disclosure to help financial statement users better understand the nature, amount, timing and uncertainty of the revenue recorded.

Public companies were originally expected to apply the new standard for annual periods beginning after December 15, 2016. However, the FASB agreed to delay the standard’s effective date to annual reporting periods beginning after December 15, 2017. The Company will adopt the standard commencing our first quarter (June 2018) of our fiscal year ending March 31, 2019.

There are two basic transition methods that are available – full retrospective, or modified retrospective transition methods. We will adopt the standards using the modified retrospective approach.

The Company has determined that this standard will not impact the recognition of revenue for its Company-owned restaurants, the revenues from its Branded Product Program or its recognition of royalties from its franchised restaurants or retail licenses, which are based on a percentage of sales.

The new standard will change how the Company records initial restaurant fees from franchisees, renewal fees and international development fees. Through March 25, 2018, we recognized these fees in full when the related services have been provided, which was when a store opened or when renewal options become effective. We also recorded international development fees, net of direct expenses, upon the completion of all of Nathan’s obligations, typically upon the opening of the first unit in the respective country.

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

Upon adoption, we expect to record deferred revenue for the unamortized portion of fees received on behalf of the then operating franchise agreements of $2,735,000, net deferred tax assets of $731,000 and a cumulative effect adjustment to increase accumulated deficit by approximately $2,004,000 on our Consolidated Balance Sheet.

The adoption of the new guidance will also change the reporting of advertising fund contributions from franchisees and the related advertising fund expenditures, which are not currently included in the Consolidated Statements of Earnings, but are reported on the Consolidated Balance Sheet. The new guidance requires these advertising fund contributions and expenditures to be reported on a gross basis in the Consolidated Statements of Earnings, which will impact our total revenues and expenses although we do not expect a material impact on net income as the fund is managed such that revenues and expenses are generally offsetting over the year. If the new guidance had been in effect during fiscal 2018, consolidated revenues would have increased by approximately $2,500,000.

We are finalizing the impact of the standards on our disclosures of the Company’s revenues. Further, we are currently implementing internal controls related to the recognition and presentation of the Company’s revenues under these new standards.

In February 2016, the FASB issued a new accounting standard on leases.  The new standard, among other changes, will require lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases.  The lease liability will be measured at the present value of the lease payments over the lease term.  The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions).  The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods.  This standard is required to take effect in Nathan’s first quarter (June 2019) of our fiscal year ending March 29, 2020.  The adoption currently requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented.  In March 2018, the FASB has tentatively approved an exposure draft which provides an alternative transition method of adoption that permits the recognition of a cumulative-effect adjustment to retained earnings on the date of adoption. The Company is currently evaluating the transition methods of the standard to determine the impact of the adoption on its consolidated financial statements but expects that the standard will result in a significant increase to its other assets and other liabilities.

In January 2017, the FASB issued a new accounting standard that narrows the definition of a business. The concept is fundamental in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU revised the definition of a business to consist of the following key concepts:

●

A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants.

●

To be capable of being conducted and managed for the purposes described above, an integrated set of activities and assets requires two essential elements–inputs and a substantive process(es) applied to those inputs.

The amendment is effective prospectively for public business entities for annual reporting periods beginning after December 15, 2017. This standard is required to take effect in Nathan’s first quarter ending (June 2018) of our fiscal year ending March 31, 2019. The Company does not expect this new accounting standard will have a material effect on the Company’s results of operations, cash flows or financial position. Early adoption is permitted when certain criteria are met.

 

In January 2017, the FASB issued an update to the accounting guidance to simplify the testing for goodwill impairment. The update removes the requirement to determine the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. A company will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The Company adopted this guidance ison March 30, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

New Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under this standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. In November 2019, the FASB deferred the effective prospectivelydate for public business entitiessmaller reporting companies for annual reporting periods beginning after December 15, 2019.2022. This standard is required to take effect in Nathan’s first quarter (June 2020)2023) of our fiscal year ending March 28, 2021. Nathan’s does not expect31, 2024.The Company is currently evaluating the impact that the adoption of this newguidance will have on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify 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. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. This standard is required to take effect in Nathan’s first quarter (June 2021) of our fiscal year ending March 27, 2022. The Company is currently evaluating the impact that the adoption of this guidance will have a material impact on its results of operations orconsolidated financial position.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.

 

Results of Operations

 

Fiscal year ended March 25, 201828, 2021 compared to fiscal year ended March 26, 201729, 2020

 

Revenues

Total sales were $76,708,000$41,326,000 for the fifty-two weeks ended March 25, 2018 (“fiscal 2018 period”)28, 2021 as compared to $70,820,000$70,559,000 for the fifty-two weeks ended March 26, 2017 (“fiscal 2017 period”).29, 2020. Foodservice sales from the Branded Product Program were $62,623,000$33,617,000 for the fiscal 20182021 period as compared to sales of $55,960,000 in$57,586,000 for the fiscal 20172020 period. The sales from our Branded Product Program have been negatively impacted by the COVID-19 pandemic as many of our customers operate in venues that are currently closed, such as movie theaters, or venues operating at reduced capacity, such as professional sports arenas, amusement parks and shopping malls. During the fiscal 20182021 period, the volume of business increaseddecreased by approximately 9.4%. As result of our pricing strategy, which is more closely correlated to the cost of beef which increased by approximately 7.2%, our average selling prices were higher by approximately 1.8% during the fiscal 2018 period41% as compared to the fiscal 20172020 period. Our average selling prices increased by approximately 0.4% as compared to the fiscal 2020 period.

Total Company-owned restaurant sales were $14,085,000$7,709,000 during the fiscal 20182021 period compared to $14,646,000$12,973,000 during the fiscal 2017 period2020 period. The decrease was primarily due primarily to lower salesa decline in customer traffic at our Coney Island location. Saleslocations related to the impact of the COVID-19 pandemic during the fiscal 2021 period. Additionally, as stipulated under government orders, the dining rooms at our Company-owned restaurants were unfavorably affected during the fiscal 2018 period due primarily to unfavorable summer weather conditions. Direct retail sales also decreased $214,000 during the fiscal 2018 period as compared to the fiscal 2017 period as we transitioned this business into our Branded Product Program during the second quarter of fiscal 2017.operating at reduced capacity and maintaining social distancing protocols under these same government orders.

 

License royalties were $23,020,000$31,368,000 in the fiscal 20182021 period as compared to $20,368,000$25,859,000 in the fiscal 20172020 period. Total royalties earned on sales of hot dogs from our license agreement with John Morrell & Co. at retail and foodservice, substantially from sales of hot dogs to Sam’s Cluband WalMart, increased to $20,833,000$28,694,000 for the fiscal 20182021 period as compared to $18,424,000$23,680,000 for the fiscal 20172020 period. As consumers sheltered at home as a result of the COVID-19 pandemic, our licensing business exhibited strong consumer demand. The increase is due to a 9.3%12% increase in retail volume during the fiscal 20182021 period, as well as a 12% increase in average net selling price as compared to the fiscal 20172020 period. Average selling prices, on which ourThe foodservice business earned lower royalties are calculated, increased by 4.5%of $457,000 as compared to the fiscal 2020 period due to pricing increases duringa shift in the fourth quarter. business.Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $243,000$495,000 during the fiscal 20182021 period as compared to the fiscal 2017 period.2020 period primarily due to additional royalties earned on sales of French fries, cocktail franks and mozzarella sticks.

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Franchise fees and royalties were $4,473,000$1,601,000 in the fiscal 20182021 period as compared to $5,068,000$4,572,000 in the fiscal 20172020 period. Total royalties were $4,138,000$1,317,000 in the fiscal 20182021 period as compared to $4,290,000$3,327,000 in the fiscal 20172020 period. Royalties earned under the Branded Menu programProgram were $1,008,000$229,000 in the fiscal 20182021 period as compared to $955,000$643,000 in the fiscal 20172020 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales, but are based upon product purchases. Traditional franchise royalties were $3,130,000$1,088,000 in the fiscal 20182021 period as compared to $3,335,000$2,684,000 in the fiscal 20172020 period. Franchise restaurant sales decreaseddeclined to $69,838,000$22,269,000 in the fiscal 20182021 period as compared to $74,553,000$61,542,000 in the fiscal 2017 period2020 primarily due to temporary closings, as well as venues operating at significantly reduced traffic as a result of the impact of units closed in the previous year, and a 1.5% decline in comparable domestic sales.COVID-19 pandemic. Comparable domestic franchise sales (consisting of 8659 Nathan’s outlets, excluding sales under the Branded Menu Program) were $50,496,000 in$17,095,000 during the fiscal 20182021 period as compared to $51,274,000 in$40,516,000 during the fiscal 20172020 period.

 

At March 25, 2018, 27628, 2021, 213 franchised outlets, including domestic, international and Branded Menu Program outlets were operating as compared to 279216 franchised outlets, including domestic, international and Branded Menu Program outlets at March 26, 2017.29, 2020. Total franchise fee income was $335,000$284,000 in the fiscal 20182021 period as compared to $778,000$1,245,000 in the fiscal 20172020 period. Domestic franchise fee income decreased to $155,000was $133,000 in the fiscal 20182021 period as compared to $268,000$143,000 in the fiscal 2017 period due primarily to the difference in the types of locations opened, and associated fees earned, between the two periods.2020 period. International franchise fee income decreased to $133,000was $103,000 in the fiscal 20182021 period as compared to $470,000$151,000 in the fiscal 2017 period due to the timing2020 period.

We recognized $48,000 and $951,000 of new international development. We also recognized $47,000 and $40,000 in forfeited fees in the fiscal 20182021 and fiscal 2017 periods,2020 period, respectively. The forfeited fees in the fiscal 2020 period were primarily from the termination of our Master Franchise Agreements for Russia, Kyrgyzstan, Australia, United Kingdom and Turkey. During the fiscal 20182021 period, 40newseven franchised outlets opened, including 16international locations, and 19two new Branded Menu Program outlets. Additionally, 130new virtual kitchens opened. During the fiscal 20172020 period, 53 new16 franchised outlets opened, including 20five international locations,units and 26three new Branded Menu Program outlets.

 

Advertising fund revenue, after eliminating Company contributions, was $1,544,000 in the fiscal 2021 period and $2,335,000 during the fiscal 2020 period.

Costs and Expenses

Overall, our cost of sales increaseddecreased by $7,118,000$21,952,000 to $58,752,000$32,536,000 in the fiscal 20182021 period as compared to $51,634,000$54,488,000 in the fiscal 20172020 period. Our gross profit (representing the difference between sales and cost of sales) was $17,956,000$8,790,000 or 23.4%21.3% of sales during the 2021 period as compared to $16,071,000 or 22.8% of sales during the fiscal 2018 period as compared to $19,186,000 or 27.1% of sales during the fiscal 20172020 period. The reduction in margin decline was primarily due to the higher cost of beef in the Branded Products Program and in the Company-operated restaurants, in addition to the higher laborprime restaurant costs at the Company-owned restaurants.

Cost of sales in the Branded Product Program increased by approximately $7,306,000 during the fiscal 2018 period as compared to the fiscal 2017 period, primarily due to the 9.4% increase in volume of product sold and the 7.2% increase in the average cost per pound of our hot dogs. During the fiscal 2017 period, we completed our purchase of approximately 662,000 lbs. of hot dogs pursuant to the open purchase commitment, representing approximately 3.2% of volume, which reduced our overall cost of hot dogs by approximately 36 BPS. We did not make any purchases during the fiscal 2018 period pursuant to any purchase commitment. 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 2018 period was $8,030,000 or 57% of restaurant sales, as compared to $8,022,000 or 54.8% of restaurant sales in the fiscal 2017 period due primarily to lower revenuesassociated with new menu offerings, and higher labor costs principally associated with the effectshigher minimum hourly rates of the New York State minimum wage increase. We expect that our future labor costs will continue to be impacted by the multi-year new increase in minimum wage requirements in New York State, as well as other new labor regulations and any increase in food costs from higher commodity costs.

Restaurant operating expenses were $3,506,000 in the fiscal 2018 period as compared to $3,386,000 in the fiscal 2017 period. The increase in restaurant operating costs results primarily from higher occupancy, insurance and other costs.

Depreciation and amortization was $1,352,000 in the fiscal 2018 period compared to $1,297,000 in the fiscal 2017 period.

General and administrative expenses decreased $168,000 or 1.2% to $13,491,000 in the fiscal 2018 period as compared to $13,659,000 in the fiscal 2017 period. The decrease in general and administrative expenses was primarily attributable to reduced marketing and promotional activities in connection with the commemorationpay at two of our 100^th anniversary during the fiscal 2017 period, partly offset by higher marketing expenses for our Branded Product Program and professional fees during the fiscal 2018 period.

Other Items

On November 1, 2017, the Company completed the issuance of $150,000,000 of the 2025 Notes. The 2025 Notes were issued pursuant to the Indenture by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, as trustee and collateral trustee. The Company used the net proceeds of the 2025 Notes offering to satisfy and discharge the Indenture relating to the 2020 Notes and the Redemption, paid a portion of a special $5.00 per share cash dividend to Nathan's stockholders of record (see Note M.1), with the remaining net proceeds for general corporate purposes, including working capital. The Redemption occurred on November 16, 2017. The Company performed the required evaluation of the refinancing and determined that a portion of the Redemption of the 2020 Notes is accounted for as a modification of the debt and a portion as an extinguishment of the debt. In connection with the Redemption, the Company recorded a loss on early extinguishment of debt of $8,872,000 that primarily reflects a portion of the premium paid to redeem the 2020 Notes and the write-off of certain debt issuance costs.

Interest expense of $13,591,000 in the fiscal 2018 period represents interest of $8,574,000 on the 2020 Notes, $3,948,000 accrued interest on the 2025 Notes and total amortization of debt issuance costs of $1,069,000. On November 1, 2017, the Company issued the 2025 Notes and the Redemption occurred on November 16, 2017. The Company incurred additional interest expense of approximately $562,500 from the time the 2025 Notes closed until the Redemption. As a result of the issuance of the 2025 Notes and the Redemption, the Company expects to reduce its annual interest expense by approximately $4,068,000 per annum.

Impairment charge – long-lived assets of $790,000 in the fiscal 2018 period represents write-down of one restaurant based upon the Company’s evaluation of its ability to recover its investment from future cash flows.

Interest income was $166,000 in the fiscal 2018 period as compared to $104,000 in the fiscal 2017 period. Nathan’s established its interest bearing money market account during fiscal 2017 period.

Other income, which primarily relates to a sublease of a franchised restaurant, was $99,000 in the fiscal 2018 period, as compared to $85,000 in the fiscal 2017 period.

Provision for Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law, which reduced corporate income tax rates to 21% effective January 1, 2018. Nathan’s has determined that its blended federal income tax rate for fiscal 2018 will be 31%. Fiscal year taxpayers are required to determine their final tax rate by prorating the federal tax rate prior to enactment and prorating the new rate for the balance of the fiscal year to determine the blended federal tax rate for the fiscal year.

The income tax provision for the fifty-two week periods ended March 25, 2018 and March 26, 2017 reflect effective tax rates of 36.0% and 36.6%, respectively. Nathan’s effective tax rate for the fifty-two week periods ended March 25, 2018 and March 26, 2017 were reduced by 4.2% and5.6%, respectively, as a result of the tax benefits associated with stock compensation. For the fifty-two weeks ended March 25, 2018, excess tax benefits of $173,000 were reflected in the Consolidated Statements of Earnings as a reduction to the provision for income taxes. The amount of unrecognized tax benefits at March 25, 2018 was $263,000, all of which would impact Nathan’s effective tax rate, if recognized. Nathan’s has determined reasonable estimates to its deferred assets and liabilities and pursuant to ASC 740, Income Taxes, the Company has recognized the effect(s) of the Act on current and deferred income taxes in its financial statements during the fiscal period ended March 25, 2018. Nathan’s has completed its analysis and review of the Act and recorded the following discrete adjustment to its deferred tax liability and unrecognized tax benefits which reduced the provision for income taxes by $245,000 or by 6.0% during the fiscal year-end March 25, 2018. As described in Note J to the Consolidated Financial Statements, Nathan’s estimates that its annual tax rate for the fiscal year ending March 31, 2019 will be in the range of approximately 27.0% to 30.0%, excluding the impact of the discrete items recorded and excess tax benefit associated with stock compensation. The final annual tax rate is subject to many variables, including the ultimate determination of revenue and income tax by state, among other factors, and therefore cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from our current estimates. As of March 25, 2018, Nathan’s had $214,000 of accrued interest and penalties in connection with unrecognized tax benefits. Nathan’s estimates that its unrecognized tax benefit including accrued interest and penalties could be further reduced by up to $6,000.

Fiscal year ended March 26, 2017 compared to fiscal year ended March 27, 2016

Revenues

Total sales were $70,820,000 for the fifty-two weeks ended March 26, 2017 (“fiscal 2017 period”) as compared to $75,590,000 for the fifty-two weeks ended March 27, 2016 (“fiscal 2016 period”). Foodservice sales from the Branded Product Program were $55,960,000 for the fiscal 2017 period as compared to sales of $58,545,000 in the fiscal 2016 period. During the fiscal 2017 period, the volume of business increased by approximately 4.6%. However, as a result of our pricing strategy, which is more closely correlated to the cost of beef which declined by approximately 13.9%, our average selling prices were lowered by approximately 8.2% during the fiscal 2017 period as compared to the fiscal 2016 period.Total Company-owned restaurant sales were $14,646,000 during the fiscal 2017 period compared to $16,222,000 during the fiscal 2016 period due primarily to lower sales at both Coney Island locations. Sales at our Company-owned restaurants were unfavorably affected during the fiscal 2017 period due primarily to unfavorable summer weather conditions, in addition to the rain and unseasonably cool weather during April and May 2016, as compared to weather conditions in 2015. Moreover, sales at our Coney Island locations in the fiscal 2016 period were the highest on record. Direct retail sales also decreased $608,000 during the fiscal 2017 period as compared to the fiscal 2016 period as we began to transition this business into our Branded Product Program during the second quarter of fiscal 2017.restaurants.

License royalties were $20,368,000 in the fiscal 2017 period as compared to $19,815,000 in the fiscal 2016 period. Total royalties earned on sales of hot dogs from our license agreement with John Morrell & Co. at retail and foodservice, substantially from sales of hot dogs to Sam’s Club, increased to $18,424,000 for the fiscal 2017 period as compared to $17,975,000 for the fiscal 2016 period. The increase is due to a 7.3% increase in volume during the fiscal 2017 period as compared to the fiscal 2016 period.The increased volume was partially offset by a 4.0% decline in average selling prices, on which our royalties are calculated, due to competitor pricing pressures experienced early in the second quarter.Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $104,000 during the fiscal 2017 period as compared to the fiscal 2016 period.

Franchise fees and royalties were $5,068,000 in the fiscal 2017 period as compared to $5,044,000 in the fiscal 2016 period. Total royalties were $4,290,000 in the fiscal 2017 period as compared to $4,293,000 in the fiscal 2016 period. Royalties earned under the Branded Menu program were $955,000 in the fiscal 2017 period as compared to $1,000,000 in the fiscal 2016 period. This decline was primarily attributable to the full year impact of the K-Mart closures and to declines in our sporting venues during the third quarter of fiscal 2017, including the significant decrease of post season baseball in venues where our products are sold. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales, but are based upon product purchases. Traditional franchise royalties were $3,335,000 in the fiscal 2017 period as compared to $3,293,000 in the fiscal 2016 period. Franchise restaurant sales increased to $74,553,000 in the fiscal 2017 period as compared to $73,276,000 in the fiscal 2016 period primarily due to the impact of new restaurant openings during the previous fiscal year. Comparable domestic franchise sales (consisting of 86 Nathan’s outlets, excluding sales under the Branded Menu Program) were $51,288,000 in the fiscal 2017 period as compared to $53,027,000 in the fiscal 2016 period.

Total franchise fee income was $778,000 in the fiscal 2017 period as compared to $751,000 in the fiscal 2016 period. Domestic franchise fee income was $268,000 in the fiscal 2017 period as compared to $394,000 in the fiscal 2016 period due primarily to the difference in the types of locations opened, and associated fees earned, between the two periods. International franchise fee income was $470,000 in the fiscal 2017 period as compared to $299,000 in the fiscal 2016 period due to the timing of new international development. We also recognized forfeited fees of $40,000 during the fiscal 2017 period and $58,000 during the fiscal 2016 period. During the fiscal 2017 period, 53 new franchised outlets opened, including 20 international locations and 26 Branded Menu Program outlets. During the fiscal 2017 period we opened our first four units in Kyrgyzstan, two units in Kazakhstan and one unit in the Philippines pursuant to new development agreements. Additionally, we opened five units in Russia, four units in Australia, two units in Panama, one unit in Malaysia and one unit in Turkey. During the fiscal 2016 period, 56 new franchised outlets opened, including 25 international locations, and 22 Branded Menu Program outlets. During the fiscal 2016 period we opened our first two units in Panama and Australia pursuant to new development agreements. Additionally, we opened 17 units in Russia, 2 units in Malaysia, one unit in Costa Rica and one unit in the Dominican Republic.

Costs and Expenses

Our cost of sales decreased by $5,923,000 to $51,634,000 in the fiscal 2017 period as compared to $57,557,000 in the fiscal 2016 period. Our gross profit (representing the difference between sales and cost of sales) was $19,186,000 or 27.1% of sales during the fiscal 2017 period as compared to $18,033,000 or 23.9% of sales during the fiscal 2016 period. The margin improvement was primarily due to the lower cost of beef in the Branded Products Program and in the Company-operated restaurants which was partly offset by higher restaurant and labor costs.

 

Cost of sales in the Branded Product Program decreased by approximately $4,748,000$19,910,000 during the fiscal 20172021 period as compared to the fiscal 20162020 period, primarily due to the 14.2%0.8% decrease in the average cost per pound of our hot dogs, partly offset byas well as the higher41% decrease in the volume of product sold. Duringsold due to the fiscal 2017 period, we completed our purchase of hot dogs pursuant to an open purchase commitment entered into during the fiscal 2016 period, which reduced our overall cost of hot dogs by approximately 29 BPS.COVID-19 pandemic as discussed above. We did not make any purchasespurchase commitments for beef during the fiscal 2017 period pursuant to any purchase commitment.2021 and 2020 periods. If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases or otherwise reduce any increase in our costs through the use of purchase commitments, our margins will be adversely impacted.

 

Beginning in May 2020, the cost of hot dogs increased significantly due primarily to the effects of the COVID-19 pandemic on the meat processing industry. This trend continued during the summer months and then declined during the second half of the fiscal 2021 period.

With respect to Company-owned restaurants, our cost of sales during the fiscal 20172021 period was $8,022,000$5,295,000 or 57.0%68.7% of restaurant sales, as compared to $8,712,000$7,337,000 or 53.7%56.6% of restaurant sales in the fiscal 2016 period due primarily to lower revenues2020 period. We experienced higher food costs driven by higher prime costs associated with new menu offerings, and higher labor costs principally associated with the effectshigher minimum hourly rates of the New York State minimum wage increase, partly offset by lower food and incentive compensation costspay at two of our Company-owned restaurants. We expect that our future labor costs going forward will continue to be impacted by the multi-year newadditional increase in minimum wage requirements in New York State which will commence on July 1, 2021, as well as other new labor regulations and any increase inour food costs from highermay be impacted by increases in commodity costs.

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Restaurant operating expenses were $3,386,000$3,268,000 in the fiscal 20172021 period as compared to $3,557,000$3,476,000 in the fiscal 20162020 period. The decreaseWe incurred lower occupancy expenses of $252,000, lower utility expenses of $18,000, lower marketing expenses of $73,000 and lower repairs and maintenance expenses of $15,000 which were offset, in restaurant operatingpart, by higher insurance costs results primarily from the reduction in percentage rent at our Boardwalk restaurant, lower credit card processing fees, maintenanceof $33,000 and related costs at our restaurants and utilities. Despite the recent stability in our utility costs, we continue to be concerned about the volatile market conditions for oil and natural gas.higher delivery charges of $147,000 associated with offsite consumption.

Depreciation and amortization was $1,297,000$1,183,000 in the fiscal 20172021 period as compared to $1,255,000$1,233,000 in the fiscal 20162020 period.

 

General and administrative expenses increased $542,000decreased $2,738,000 or 4.2%18.5% to $13,659,000$12,041,000 in the fiscal 20172021 period as compared to $13,117,000$14,779,000 in the fiscal 20162020 period. The increaseCompany reduced expenses in response to the impact of the COVID-19 pandemic. The decrease in general and administrative expenses was primarily attributable to ourreduced corporate payroll expenses through temporary salary reductions and layoffs, a lower incentive compensation accrual, reduced tradeshow and sponsorship expenses in light of the COVID-19 pandemic and reductions in other discretionary expenses including marketing and promotional activitiestravel. These reductions were partially offset by increases in commemorationlegal and other professional fees and severance costs related to transitioning certain Corporate personnel from a furloughed status to a permanent layoff.

Advertising fund expense, after eliminating Company contributions, was $1,296,000 in the fiscal 2021 period, as compared to $2,177,000 in the fiscal 2020 period.

Other Items

Interest expense of our 100^th anniversary,$10,601,000 in both the fiscal 2021 and fiscal 2020 periods represented accrued interest of $9,910,000 on the 2025 Notes at 6.625% per annum and amortization of debt issuance costs of additional marketing and development personnel and higher proxy and related expenses partly offset by lower incentive compensation.

Other Items$691,000.

 

Interest income was $104,000 in$364,000 for the fiscal 20172021 period as compared to $52,000$1,357,000 in the fiscal 20162020 period.

 

Other income, which relates primarily relates to a sublease of a franchised restaurant was $85,000$47,000 and $86,000 in the fiscal 2017 period, as compared to $99,000 in2021 and fiscal 2020 periods, respectively.

Provision for Income Taxes

The income tax provision for the fiscal 2016 period.

Interest expense2021 period and fiscal 2020 period reflect effective tax rates of $14,665,000 in27.7% and 25.4%, respectively. Nathan’s effective tax rate for the fiscal 2017 period represents interest of $13,456,000 on theyear ended March 29, 2020 Notes and amortization of debt issuance costs of $1,209,000 during the same period. Aswas reduced by 1.3%, as a result of the issuancetax benefits associated with stock compensation. For the fiscal year ended March 29, 2020, excess tax benefits of the 2020 Notes, Nathan’s expects to incur interest expense of approximately $13,500,000 per annum and annual amortization of debt issuance costs of approximately $1,200,000.

The Company recognized an, other-than-temporary impairment charge on its long-term investment of $100,000$228,000 were reflected in the fiscal 2016 period based on management’s assessmentConsolidated Statements of Earnings as a reduction to the future recoverability of the investments.

Provisionprovision for Income Taxes

In the fiscal 2017 period, the income tax provision was $4,319,000 or 36.6% of earnings before income taxes as compared to $4,288,000 or 41.3% of earnings before income taxes in the fiscal 2016 period.taxes. Nathan’s effective tax rate was reduced by 5.6% duringwithout this adjustment would have been 26.7% for the fiscal 20172020 period. The Company’s tax rate for the fiscal 2021 period as a resultwas favorably affected by 0.1% due to its return to provision adjustment of a discrete tax benefit associated with the stock compensationapproximately $18,000 in connection with the accounting guidance that was adopted by the Company in the first quarterfiling of the fiscal 2017 period. During the fiscal 2017 period, Nathan’s resolved certain uncertainits March 2020 tax positions, reducing the associatedreturns.

The amount of unrecognized tax benefits along with the relatedat March 28, 2021 was $397,000 all of which would impact Nathan’s effective tax rate, if recognized. As of March 28, 2021, Nathan’s had $256,000 of accrued interest and penalties by approximately $63,000, which lowered the effective tax rate by 1.0%. These favorable tax benefits were partially offset by an unfavorable discrete adjustment of a prior years’ tax position which increased Nathan’s effective tax rate during the fiscal 2017 period by 1.0%. During the fiscal 2016 period, Nathan’s resolved certain uncertain tax positions, reducing the associatedin connection with unrecognized tax benefits, along with the relatedbenefits.

Nathan’s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by approximately $184,000, which lowered the effective tax rate by 1.8%. Additionally,up to $19,000 during the fiscal 2016 period, Nathan’s effective tax rate increased by approximately 1.0% due to limitations associated with its tax exempt investments. Nathan’s effective tax rates without these adjustments would have been 42.1% for the fiscal 2017 period and 40.5% for the fiscal 2016 period.year ending March 27, 2022.

 

Off-Balance Sheet Arrangements

 

At March 25, 201828, 2021 and March 26, 2017,29, 2020, Nathan’s did not have any open purchase commitment to purchase hot dogs. Nathan’s may continue to enter into additional purchase commitments in the future as favorable market conditions become available.

 

Liquidity and Capital Resources         

 

Cash and cash equivalents at March 25, 201828, 2021 aggregated $57,339,000,$81,064,000, a $424,000$3,947,000 increase during the fiscal 20182021 period as compared to cash and cash equivalents of $56,915,000$77,117,000 at March 26, 2017.29, 2020. Net working capital decreasedincreased to $53,702,000$80,072,000 from $56,763,000$75,165,000 at March 26, 2017, which primarily relates to the special dividend of approximately $20,923,000 that was paid to shareholders on January 4, 2018.

On November 1, 2017,29, 2020. Through March 28, 2021, the Company issued the 2025 Notes and used the majority of the proceeds for the Redemption, paid a portion of the special $5.00 cash dividend and will use any remaining proceeds for general corporate purposes, including working capital. Our future results could also be impacted by our obligations under the 2025 Notes, as well as the new limitation on the deduction of interest expense under the Tax Act. As a result of the issuance of the 2025 Notes, Nathan’s expects to incur interest expense of $9,937,500 per annum, reducing its debt service requirements by $4,068,000 per annum. Nathan’s expects to incur annual amortization of debt issuance costs of approximately $690,000. Please refer to Note L – Long Term Debt of the Notes to the Consolidated Financial Statements, for the effects of the Company’s refinancing from the preceding consolidated financial statements.

On March 10, 2015, we issued the 2020 Notesdeclared and paid a dividendfour regular dividends of $25.00$0.35 per common share (or approximately $116,100,000 inaggregating $5,761,000. During the aggregate). In connection withfiscal 2021 period, the 2020 Notes, Nathan’s incurredCompany made its required semi-annual interest expensepayments of $13,500,000 per annum and annual amortization of debt issuance costs of approximately $1,200,000.

Nathan's used the net proceeds of the 2025 Notes offering to satisfy and discharge the Indenture relating to the Redemption on November 16, 2017, paid a portion of a special $5.00 per share cash dividend to Nathan's stockholders of record (see Note M.1) with the remaining net proceeds for general corporate purposes, including working capital. The payment in connection with the Redemption was approximately $144,000,000. Nathan's also funded the majority of the special dividend through its existing cash.

The Company paid a 5% call premium of $6,750,000 associated with the Redemption and incurred debt issuance costs of $4,908,000 in connection with the issuance of the 2025 Notes. The Company also incurred additional interest expense of approximately $562,500 from the closing of the 2025 Notes on November 1, 2017 until the Redemption.

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$4,968,750 on May 1, 2018. Semi-annual interest payments are expected to be $4,968,750. The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on2020 and November 1, 2025. As a result of2020. On May 1, 2021, we made the issuance of the 2025 Notes and the Redemption, the Company expects to reduce its debt service requirements by approximately $4,068,000 per annum.

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

The Indenture for the 2025 Notes also contains customary events of default, including, among other things, failure to pay interest, failure to comply with agreements related to the Indenture, failure to pay at maturity or acceleration of other indebtedness, failure to pay certain judgments, and certain events of insolvency or bankruptcy. Generally, if any event of default occurs, the Trustee or the holders of at least 25% in principal amount of the 2025 Notes may declare the 2025 Notes due and payable by providing notice to the Company. In case of default arising from certain events of bankruptcy or insolvency, the 2025 Notes will become immediately due and payable.fiscal 2022.

 

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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.

As of March 25, 2018, Nathan’s was in compliance with all covenants associated with the Notes.

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

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Cash provided by operations of $18,862,000$11,766,000 in the fiscal 20182021 period is primarily attributable to net income of $2,630,000$11,075,000 in addition to other non-cash operating items of $12,176,000, and increases in$2,064,000, offset by changes in other operating assets and liabilities of $4,056,000.$1,373,000. Non-cash operating items include loss on debt extinguishmentexpenses consist principally of $8,872,000, depreciation and amortization of $1,352,000,$1,183,000, amortization of debt issuance costscost of $1,069,000, impairment charge – long-lived assets$691,000, share-based compensation expense of $790,000$116,000, non-cash rental expense of $120,000, and $173,000bad debts of excess income tax benefits from stock-based compensation arrangements as a result of the accounting for certain aspects of its share-based payments to employees.$101,000. In the fiscal 20182021 period, accounts and other receivables increased by $1,588,000 compared to the fiscal 2017 period$645,000 due primarily to higher receivables fromfranchise and license royalties receivable of $925,000 offset by lower Branded Product Program salesreceivables of $1,567,000. In the fiscal 2018 period, prepaid$309,000. Prepaid expenses and other current assets increased by $1,780,000$144,000 due principally to prepaidthe prepayment of income taxes and insurance of $1,624,000$280,000 and $125,000, respectively, which were deposited prior to the successful debt refinancing. The increaseoffset, in accountspart, by a reduction in prepaid marketing expenses of $173,000. Accounts payable, accrued expenses and other current liabilities decreased by $287,000 due principally to a reduction in accrued payroll and other benefits of $7,091,000 is$282,000 due primarily to lower incentive compensation accruals; a reduction in accrued rebates due to increasedunder the Branded Product Program of $382,000; and a reduction in accrued interestincome taxes of $3,485,000$176,000 which were offset, in part, by an increase in accounts payable of $532,000 due to the change in timing of the semi-annual payment from March 15^th to May 1^st. Additionally, trade accounts payable increased by $1,756,000 and we received a deposit of $1,201,000 toward the sale of a restaurant.seasonal product purchases.

 

Cash used in investing activities was $550,000$551,000 in the fiscal 20182021 period primarily in connection with capital expenditures incurred for our Branded Product Program and select restaurant improvements.the installation of a new point-of-sale system at our Company-owned restaurants.

 

Cash used in financing activities of $17,888,000$7,268,000 in the fiscal 20182021 period relates primarily to the special $5.00 per share dividend the Company paid to its shareholders on January 4, 2018, totaling $20,948,000. In connection with Nathan’s refinancing of the 2020 Notes, the Company received gross proceeds of $150,000,000 from the sale of 2025 Notes, repaid the 2020 Notes, and paid a call premium of $6,750,000 in addition to $4,908,000 of debt issuance costs. The Company also paid $157,000 for withholding taxes on the net share vesting of employee restricted stock and dividends of $125,000 relating to the previously declared special cash dividend in connection with the vesting of 5,000 sharespayments of the Company’s restricted stock.regular quarterly $0.35 per share cash dividend totaling $5,761,000. Additionally, during the fiscal 2021 period, Nathan’s repurchased 26,676 shares of common stock for $1,501,000.

 

During the period from October 2001 through March 25, 2018,28, 2021, Nathan’s purchased 5,127,3735,254,081 shares of its common stock at a cost of approximately $77,303,000$84,770,000 pursuant to its stock repurchase plans previously authorized by the Board of Directors. Since March 25, 2008, to date,26, 2007, we have repurchased 3,236,2733,362,981 shares at a total cost of approximately $70,145,000,$77,612,000, reducing the number of shares then-outstanding by 53.8%55.9%.

 

On March 11,In 2016, the Company’s Board of Directors authorized increases to the sixth stock repurchase plan for the purchaserepurchase of up to 1,200,000 shares of its common stock on behalf of the Company. As of March 25, 2018,28, 2021, Nathan’s has repurchased 939,7421,066,450 shares at a cost of $29,641,000approximately $37,108,000 under the sixth stock repurchase plan. At March 25, 2018,28, 2021, there were 260,258133,550 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately-negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases.

Management believes that available cash, and cash generatedOn March 13, 2020, the Company’s Board of Directors approved a 10b5-1 stock plan (the “10b5-1 Plan”) which expired on August 12, 2020. During the fiscal 2021 period, the Company repurchased in open market transactions 26,676 shares of the Company’s common stock at an average share price of $56.26 for a total cost of $1,501,000 under the 10b5-1 Plan.

Effective June 1, 2020, Nathan’s Board of Directors authorized the repurchase of up to $10 million of the 2025 Notes by the Company (at a price equal to or less than par) from operations should provide sufficient capitaltime to finance our operations, satisfy our debt service requirements, for at leasttime. There is no set time limit on the next 12 months.repurchases.

 

As discussed above, we had cash and cash equivalents at March 25, 201828, 2021 aggregating $57,339,000.$81,064,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. In November 2017, we successfully refinanced $135.0 million 10.000%our 2020 Notes due 2020 with $150.0 million 6.625%through the issuance of the 2025 Notes due 2025 and, our Board of Directors announced the payment of a $5.00 per share special dividend to the shareholders of record as of the close of business on December 22, 2017. On May 31, 2018, Nathans’ Board of Directors authorized the commencement of a regular dividend of $1.00 per share per annum, payable at the rate of $0.25 per share per quarter. The initial $0.25On June 14, 2019, Nathan’s Board of Directors authorized the increase of its regular quarterly dividend wasto $0.35 from $0.25. During the fiscal 2021 period, we have declared onand paid four quarterly dividend distributions totaling $5,761,000.

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Effective June 8, 2018 and11, 2021, the Board declared its first quarterly cash dividend of $0.35 per share for fiscal 2022 which will be paid on June 22, 201825, 2021 to shareholdersstockholders of record atas of the close of business on June 18, 2018. 21, 2021.

Our ability to pay future dividends is limited by the terms of the Indenture with US Bank National Association, as trustee and collateral trustee.for the 2025 Notes. In addition, to the terms of the Indenture, 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 shareholdersstockholders 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.

Prior to the end of fiscal 2018, we entered into an agreement to sell a Company-owned restaurant located in Bay Ridge, Brooklyn, NY. We have received a $1.2 million non-refundable deposit. We anticipate that the transaction will close during the second quarter of fiscal 2019. Pre-tax gross proceeds are estimated at $12.25 million. Equipment of $610,000 related to this sale has been classified as assets held for sale in our Consolidated Balance Sheet at March 25, 2018.

 

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. Pursuant toIn the Indenture,fiscal year ending March 28, 2021, we arewere required to make semi-annual interest payments of $4,968,750 on$9,937,500, all of which have been made as of November 1, 2020. During the fiscal year ending March 27, 2022, we will be required to make interest payments of $9,937,500. On May 1,^st, which 2021, we made the first semi-annual interest payment was made,of fiscal 2022.

Management believes that available cash, cash equivalents, and November 1^st.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 March 25, 2018,28, 2021, 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 any of such leases.lease.

 

The following schedule represents Nathan’s cashOur contractual obligations primarily consist of the 2025 Notes and commitments by maturity as ofthe related interest payments, operating leases, and employment 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 25, 2018 (in thousands):                                       29, 2020.

		Payments Due by Period
Cash Contractual Obligations		Total				Less than 1 Year				1-3 Years				3-5 Years				More than 5 Years
Long term debt (a)		$	150,000			$	-			$	-			$	-			$	150,000
Employment Agreements			6,925				1,200				2,375				2,000				1,350
Dividends Payable			150				150				-				-				-
Operating Leases			11,399				1,654				2,658				2,195				4,892
Gross Cash Contractual Obligations			168,474				3,004				5,033				4,195				156,242
Sublease Income			2,099				330				641				438				690
Net Cash Contractual Obligations		$	166,375			$	2,674			$	4,392			$	3,757			$	155,552

a)

Represents the principal due on the 2025 Notes, but does not include interest expense.

b)

At March 25, 2018, the Company had unrecognized tax benefits of $263,000. The Company believes that it is reasonably possible that the unrecognized tax benefits may decrease by $3,000 within the next year. A reasonable estimate of the timing of the remaining liabilities is not practicable.

 

On February 27, 2017, a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the “Brooklyn Guaranty”) in connection with its re-franchising of a restaurant located in Brooklyn, New York. The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees. As of March 28, 2021, Nathan’s has recorded a liability of $204,015$113,000 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees.

 

Inflationary Impact

 

We do not believe that general inflation has materially impacted earnings since 2006.earnings. However, we have experienced significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities. From 2011 through 2014, we experienced unprecedented increasesBetween April 2018 and March 2020, beef prices traded within a range of + or - 10%. Prices were at the lowest levels between October 2018 and March 2019 as compared to higher levels between October 2019 and March 2020. Our average cost of hot dogs between October 2019 and March 2020 was approximately 11.2% higher than between October 2018 and March 2019. Our average cost of hot dogs between April 2020 and March 2021 was approximately 0.8% lower than between April 2019 and March 2020.

Beginning in May 2020, the cost of beef. Beginning March 2015,hot dogs increased significantly due primarily to the beef markets stabilized through June 2015 before subsequently declining by approximately 30%. As a resulteffects of the decline through March 2016,COVID-19 pandemic on the market price of hot dogsmeat processing industry. This trend continued during the fiscal year ended March 27, 2016 was approximately 7.1% lower than the fiscal 2015 period. During the fiscal 2017 period, beef prices remained favorable,summer months and as such, our market price for hot dogs was 17.1% lower thanthen declined during the fiscal 2016 period. Despite the favorable pricing of fiscal 2017, prices began escalating in January 2017and continued increasing through June 2017 before beginning to slightly decline until July which is when the costs stabilized through March 2018 at approximately 10% higher than the same periodsecond half of the fiscal 20172021 period. As such, the market price for hot dogs during our fiscal 2018 period was approximately 6.9% higher than the fiscal 2017 period.

50

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We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2019.2022. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. Our most recent purchase commitment was completed in 2016 for approximately 2,600,000 pounds of hot dogs at approximately $2.01 per pound which we purchased between February and May 2016.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 the minimum hourly wage for fast food workers of restaurant chains with 30 or more locations nationwide. The increase will beis being phased in differently between New York City and the rest of New York State. Effective December 31, 2017,2019, the minimum wage increased to $13.50 and $11.75was $15.00 in New York City and outsideincreased to $13.75 per hour for the remainder of New York City, respectively.

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

 

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

 

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

 

The Company is further studying the impact on the Company’s operations and is developing strategies and tactics, including pricing and potential operating efficiencies,We may attempt to minimizeoffset the effects of these increases and future increases. We have recently increased certain selling prices to pass on recent cost of saleswage inflation, at least in part, through periodic menu price increases. However, ifno assurance can be given that we are unablewill be able to fully offset these and futurewage increases through pricing and operating efficiencies, our margins and profits will be negatively affected.

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

Effective December 1, 2016, changes to the Fair Labor Standards Act were to take effect until nationwide implementation was enjoined by a Federal District Court. The legislation would have increased the minimum salary threshold for overtime exemption from $23,660 to $47,476 per annum. Nathan’s performed its evaluation of its workforce and determined that the proposed legislation is not expected to have a significant impact on our results of operations.future.

 

Effective November 27, 2017, the City of New York Fair Work Week Legislation package of bills took effect that the city estimates will cover some 65,000covers City of New York fast food workers by giving them more predictable work schedules. A key component of the package is a requirement that fast food restaurants schedule their workers at least two weeks in advance or pay employees between $10 to $75 per scheduling change, depending on the situation. Due to Nathan’s dependency on weather conditions at our two Coney Island beach locations during the summer season, we are unable to determine the potential impact on our results of operations, which could be material. We believe that we have estimated thatbeen able to implement tools to minimize the daily penaltyfinancial impact of this legislation.

Continued increases in labor, food and other operating expenses, including health care, could amount to as much as $10,000 per day during the heightadversely affect our operations and those of the summer season for these two restaurants.restaurant industry and we might have to further reconsider our pricing strategy as a means to offset reduced operating margins.

 

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

 

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

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, please see the discussions in “Forward-Looking Statements”, “Risk Factors”, and “Notes to Consolidated Financial Statements” in this Form 10-K.

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Item 7A.        Quantitative and Qualitative Disclosures About Market Risk.

 

Cash and Cash Equivalents                  

 

We have historically invested our cash and cash equivalents in money market funds or short-term, fixed rate, highly rated and highly liquid instruments which are generally reinvested when they mature. Although these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of March 25, 2018,28, 2021, Nathan’s cash and cash equivalentsaggregated $57,339,000.$81,064,000. Earnings on this cash would increase or decrease by approximately $143,000$203,000 per annum for each 0.25% change in interest rates.

 

Borrowings                                    

 

At March 25, 2018,28, 2021, we had $150.0 million of 2025 Notes outstanding which are due in November 2025. Interest expense on these borrowings would increase or decrease by approximately $375,000 per annum for each 0.25% change in interest rates. We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings.

 

Commodity Costs

 

We do not believe that general inflation has materially impacted earnings since 2006.earnings. However, we have experienced significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities. From 2011 through 2014, we experienced unprecedented increases inBetween April 2018 and March 2020, beef prices traded within a range of + or - 10%. Prices were at the lowest levels between October 2018 and March 2019 as compared to higher levels between October 2019 and March 2020. Our average cost of hot dogs between October 2019 and March 2020 was approximately 11.2% higher than between October 2018 and March 2019. Our average cost of hot dogs between April 2020 and March 2021 was approximately 0.8% lower than between April 2019 and March 2020.

Beginning May 2020, the cost of beef. Beginning March 2015,hot dogs increased significantly due primarily to the beef markets stabilized through June 2015 before subsequently declining by approximately 30%. As a resulteffects of the decline through March 2016,COVID-19 pandemic on the market price of hot dogsmeat processing industry. This trend continued during the fiscal year ended March 27, 2016 was approximately 7.1% lower than the fiscal 2015 period. During the fiscal 2017 period, beef prices remained favorable,summer months and as such, our market price for hot dogs was 17.1% lower thanthen declined during the fiscal 2016 period. Despite the favorable pricing of fiscal 2017, prices began escalating in January 2017and continued increasing through June 2017 before beginning to slightly decline until July which is when the costs stabilized through March 2018 at approximately 10% higher than the same periodsecond half of the fiscal 20172021 period. As such, the market price for hot dogs during our fiscal 2018 period was approximately 6.9% higher than the fiscal 2017 period.

We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2019.2022. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. Our most recent purchase commitment was completed in 2016 for approximately 2,600,000 pounds of hot dogs at approximately $2.01 per pound which we purchased between February and May 2016.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 uncertaintyhardening 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%10% in the cost of our food and paper products for the year ended March 25, 201828, 2021 would have increased or decreased our cost of sales by approximately $5,290,000.$2,877,000.

 

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.

 

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Item 8.

Financial Statements and Supplementary Data.

Item 8.Financial Statements and Supplementary Data.

 

The consolidated financial statements and supplementary data are submitted as a separate section of this report beginning on Page F-1.

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

Item 9A.

Controls and Procedures.

Item 9A.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 requireddefined by Exchange Act Rule 13a-15.13a-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.

 

Management’sManagement’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting.reporting, as defined by Exchange Act Rule 13a-15(f) and Exchange Act Rule 15d-15(f). Our internal control over financial reporting includes those policies and procedures that:

 

●

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

●

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

●

provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles in the United States, and that our receipts and expenditures are being made only in accordance with generally accepted accounting principles in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 

●

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Management has assessed the effectiveness of our system of internal control over financial reporting as of March 25, 2018.28, 2021. In making this assessment, management used the framework in Internal Control — Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment and the criteria set forth by COSO in 2013, management believes that Nathan’s maintained effective internal control over financial reporting as of March 25, 2018.28, 2021. The effectiveness of our internal control over financial reporting as of March 25, 2018,28, 2021, has been audited by Grant ThorntonMarcum LLP, an independent registered public accounting firm which has also audited our consolidated financial statements, as stated in its attestation report which is included herein.

 

Changes in Internal Controls

 

There were no changes in our internal controls over financial reporting that occurred during the quarter ended March 25, 201828, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Controls

 

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

Item 9B.

Other Information.

Item 9B.        Other Information.

 

As disclosed in this Annual Report on Form 10-K, the Company’s Board of Directors has declared a $0.25$0.35 per share dividend payable on June 22, 201825, 2021 to shareholders of record at the close of business on June 18, 2018.21, 2021.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

 

To the Stockholders and Board of Directors and Stockholdersof

Nathan’s Famous, Inc.

 

Opinion on internal controlInternal Control over financial reportingFinancial Reporting

We have audited theNathan’s Famous, Inc. and Subsidiaries (the “Company”) internal control over financial reporting of Nathan’s Famous, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of March 25, 2018,28, 2021, based on criteria established in the 2013 Internal Control—IntegratedControl-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).Commission. In our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of March 25, 2018,28, 2021, based on criteria established in the 2013 Internal Control—Control –Integrated Framework (2013) issued by COSO.the Committee of Sponsoring Organizations of the Treadway Commission.

 

We have also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financialbalance sheets as of March 28, 2021 and March 29, 2020 and the related consolidated statements of earnings, stockholders’ deficit, and cash flows and the Company asrelated notes for each of and for the fifty-two weeksweek periods ended March 25, 2018,28, 2021 and March 29, 2020 of the Company, and our report dated June 8, 2018 11, 2021expressed an unqualified opinion on those financial statements.

 

Basis for opinionOpinion

The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s“Management Annual Report on Internal Control Overover Financial Reporting.Reporting”. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, andrisk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and limitationsLimitations of internal controlInternal Control over financial reportingFinancial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of itsthe inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ GRANT THORNTON LLPMarcum llp

 

Marcum llp

New York, New York NY

June 8, 2018 11, 2021

 

Grant Thornton LLP

U.S. member firm of Grant Thornton International Ltd

 

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

Item 10.Directors, Executive Officers and Corporate Governance.

 

The information required in response to this Item is incorporated herein by reference from the discussions under the captions Proposal 1 – Election of Directors, Corporate Governance Management and Security Ownership in our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this Report.

 

Our Board of Directors has adopted a Financial Officer Code of Ethics applicable to the Company’s Chief Executive Officer, Chief Financial Officer and all other members of the Company’s Finance Department. This Code of Ethics is posted on the Company’s website within a broader Code of Business Conduct and Ethics at www.nathansfamous.com in the Investor Relations section. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, the provision of our Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of such provision of our Code of Ethics by posting such information on our website within four business days of the date of such amendment or waiver. In the case of a waiver, the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver will also be disclosed.

Item 11.

Executive Compensation.

Item 11.Executive Compensation.

 

The information required in response to this Item is incorporated herein by reference from the discussion under the caption Executive Compensation, including the Summary Compensation and other tables, Non-Qualified Deferred Compensation, Risk Consideration in our Compensation Programs and 20182021 Director Compensation in our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this Report.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The information required in response to this Item is incorporated herein by reference from the discussion under the caption Equity Plan Information and Security Ownership in our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this Report.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

Item 13.Certain Relationships and Related Transactions, and Director Independence.

 

The information required in response to this Item is incorporated herein by reference from the discussion under the caption Corporate Governance – Director Independence and Corporate Governance – Certain Relationships and Related Persons transactions in our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this Report.

 

Item 14.

Principal Accountant Fees and Services.

Item 14.Principal Accountant Fees and Services.

 

Audit Fees

 

We were billed by Grant ThorntonMarcum LLP the aggregate amount of approximately $465,000$235,000 in respect ofthe fiscal 20182021 period and $244,000 $165,000in respect ofthe fiscal 20172020 period, for fees for professional services rendered for the audit of our annual financial statements and the effectiveness of our internal control over financial reporting, as well as the review of our financial statements included in our FormsForm 10-Q. The fiscal 2018 amount includes billings

We were billed by Grant Thornton LLP in the fiscal 2020 period the aggregate amount of approximately $120,000 for fees for the professional services rendered for the review of interim financial information$100,000 in connection withrespect to the issuance of their comfort letter in conjunction withits consent to the private placementinclusion of the fiscal 2017 and fiscal 2018 audited financial statements of the Company in the Company’s Senior Secured Notes.Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and $50,000 for the issuance of its consent to the inclusion of fiscal 2018 audited financial statements of a wholly-owned subsidiary of the Company for the fiscal year ended March 29, 2020 in our Franchise Disclosure Document.

 

Audit-Related Fees

 

Grant ThorntonMarcum LLP did not render any audit-related services for fiscal 20182021 and 20172020, respectively and, accordingly, did not bill for any such services.

 

Tax Fees

 

Grant ThorntonMarcum LLP did not render any tax compliance, tax advice or tax planning services for fiscal 20182021 and 20172020, respectively and, accordingly, did not bill for any such services.

 

All Other Fees

 

Grant ThorntonMarcum LLP did not render any other services for fiscal 20182021 and 20172020, respectively and, accordingly, did not bill for any such services.

 

Pre-Approval Policies

 

Our Audit Committee has not adopted any pre-approval policies. Instead, the Audit Committee will specifically pre-approve the provision by Grant ThorntonMarcum LLP of all audit and non-audit services.

 

Our Audit Committee approved all of the audit services provided by Grant ThorntonMarcum LLP during 2018fiscal 2021 and 2017.2020, respectively.

 

 

PART IV

Item 15.

Exhibits and Financial Statement Schedules.

Item 15.Exhibits and Financial Statement Schedules.

 

(a) (1)

Consolidated Financial Statements

 

The consolidated financial statements listed in the accompanying index to the consolidated financial statements and schedule on Page F-1 are filed as part of this Report.

 

(2)	Financial Statement Schedule

 

The consolidated financial statement schedule listed in the accompanying index to the consolidated financial statements and schedule on Page F-1 is filed as part of this Report.None.

 

(3)

Exhibits

 

Certain of the following exhibits were previously filed as exhibits to other reports or registration statements filed by the Registrant under the Securities Act of 1933 or under the Securities Exchange Act of 1934 and are therefrom incorporated by reference.

 

Exhibit No.	Exhibit
3.1	Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 No. 33- 56976.)
3.2	Amendment to the Certificate of Incorporation, filed December 15, 1992. (Incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 No. 33-56976.)
3.3	By-Laws, as amended. (Incorporated by reference to Exhibit 3.1 to Form 8-K dated November 1, 2006.)
4.1	Specimen Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1 No. 33-56976.)
4.2	Rights Agreement, dated as of June 5, 2013, between Nathan’s Famous, Inc. and American Stock Transfer and Trust Company, LLC, as Rights Agent, which includes form of Rights Certificate as Exhibit A and the Summary of Rights to Purchase as Exhibit B. (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report filed on Form 8-K dated June 11, 2013.)
4.3	Indenture, dated as of November 1, 2017, by and among Nathan’s Famous, Inc., certain of its wholly owned subsidiaries, as guarantors, and U.S. Bank National Association, a National Banking Association, as trustee and collateral trustee (including the form of Note (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report filed on Form 8-K dated November 1, 2017.)
4.3	Description of Common Stock (incorporated by reference to Exhibit 4.5 to Form 10-K for the year ended March 29, 2020.)
10.1	Leases for premises at Coney Island, New York, as follows: (Incorporated by reference to Exhibit 10.3 to Registration Statement on Form S-1 No. 33-56976.)
	a) Lease, dated November 22, 1967, between Nathan’s Realty Associates and the Company.
	b) Lease, dated November 22, 1967, between Ida’s Realty Associates and the Company.
10.2	Form of Standard Franchise Agreement. (Incorporated by reference to Exhibit 10.12 to Registration Statement on Form S-1 No. 33-56976.)
10.3	Intentionally omitted.
10.4	***Employment Agreement with Howard M. Lorber, dated as of December 15, 2006. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 15, 2006.)
10.510.4	***Employment Agreement with Eric Gatoff, dated as of December 15, 2006. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 15, 2006.)
10.610.5	***Amendment to Employment Agreement with Eric Gatoff dated August 3, 2010. (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended June 27, 2010.)
10.710.6	Agreement of Lease between One-Two Jericho Plaza Owner LLC and Nathan’s Famous Services, Inc. dated September 11, 2009, (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended September 27, 2009.)

10.810.7	Guaranty by Nathan’s Famous, Inc. of Agreement of Lease with One-Two Jericho Plaza Owner LLC dated September 11, 2009, (Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended September 27, 2009).
10.910.8	***2010 Stock Incentive Plan (Incorporated by reference to Exhibit A to Proxy Statement on Schedule 14A dated July 23, 2010).
10.1010.9	***Amendment to 2010 Stock Incentive Plan (Incorporated by reference to Exhibit A to Proxy Statement on Schedule 14A dated July 23, 2012).

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10.1110.10	***Amendment to Employment Agreement with Howard M. Lorber, dated November 1, 2012. (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 23, 2012).
10.1210.11	***Amendment Number 2, dated December 7, 2017 to Employment Agreement with Howard M. Lorber (Incorporated by reference to Exhibit 10.1 to the Company’s current reportCurrent Report on Form 8-K dated December 6, 2017).
10.1310.12	**Letter agreement dated December 5, 2012 between Nathan’s Famous Systems, Inc. and John Morrell & Co. (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended December 23, 2012).
10.1410.13	First Amendment to Licensing and Supply Agreement, dated September 22, 2016 between Nathan’s Famous Systems, Inc. and John Morrell & CompanyCo. (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 24, 2017).
10.1510.14	Second Amendment to Licensing and Supply Agreement, dated June 29, 2017 between Nathan’s Famous Systems, Inc. and John Morrell & CompanyCo. (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended September 24, 2017).
10.1610.15	***Restricted Stock Agreement with Eric Gatoff, dated June 4, 2013. (Incorporated by reference to Exhibit 10.27 to Form 10-K for the year ended March 31, 2013.)
10.1710.16	Parity Lien Security Agreement dated as of November 1, 2017, by and among Nathan’s Famous, Inc. and Other Assignors Identified therein and U.S. Bank National Association as Collateral Trustee. (Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended December 24, 2017.)
10.1810.17	***20182019 Management Incentive Plan for the Fiscal Year ending March 25, 201829, 2020 (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 25, 2017)24, 2018).
10.1910.18	***Nathan’s Famous, Inc. Code Section 162(m) Bonus Plan (Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on July 28, 2016).
10.20 10.19	(1) Agreement of Sale between Nathan’s Famous Operating Corp. and 660 86 LLC dated September 8, 2017. (Incorporated by reference to Exhibit 10.20 to Form 10-K for the year ended March 25, 2018.)
10.21 10.20	(1) Amendment to Agreement of Sale between Nathan’s Famous Operating Corp. and 660 86 LLC dated March 6, 2018. (Incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended March 25, 2018.)
10.21	Amendment to Agreement of Sale between Nathan’s Famous Operating Corp. and 660 86 LLC dated July 15, 2018. (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended June 24, 2018.)
10.22	First Amendment to Lease, dated April 1, 2019 by and between Jericho Plaza, LLC and Nathan’s Famous Services, Inc. (Incorporated by reference to Exhibit 10.22 to Form 10-K for the year ended March 31, 2019.)
10.23	***2019 Stock Incentive Plan. (Incorporated by reference to Annex A to Proxy Statement on Schedule 14A dated July 26, 2019.)
10.24	***Agreement dated as of December 13, 2019 between Nathans’ Famous, Inc. and Ronald G. DeVos. (Incorporated by reference to Exhibit 10.1 to Form 8-K dated December 13, 2019.)
16.1	Letter of Grant Thornton LLP, dated July 6, 2018. (Incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K dated July 6, 2018.)
21	(1) List of Subsidiaries of the Registrant.
2323.1	(1) Consent of Grant ThorntonMarcum LLP dated June 8, 2018.11, 2021.
31.1	(1) Certification by Eric Gatoff, Chief Executive Officer, pursuant to Rule 13a - 14(a).
31.2	(1) Certification by Ronald G. DeVos,Robert Steinberg, Chief Financial Officer, pursuant to Rule 13a - 14(a).
32.1	(1) Certification by Eric Gatoff, Chief Executive Officer of 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	(1) Certification by Ronald G. DeVos,Robert Steinberg, Chief Financial Officer of 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.INS	Inline XBRL Instance Document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

 

(1) Filed herewith.

 

**Filed with confidential portions omitted pursuant to request for confidential treatment. The omitted portions have been separately filed with the SEC.

 

*** Indicates a management plan or arrangement.

Item 16.

Form 10-K Summary. Item 16.Form 10-K Summary.

 

None.

 

58

---

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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 on the 8th11th day of June, 2018.2021.

 

Nathan’s Famous, Inc.
/s/ ERIC GATOFF
Eric Gatoff
Chief Executive Officer
(Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 8th11th day of June, 2018.2021.

 

/s/ ERIC GATOFF
Eric Gatoff
Chief Executive Officer
(Principal Executive Officer)
/s/ HOWARD LORBER
Howard Lorber
Executive Chairman
/s/ RONALD G. DEVOSROBERT STEINBERG
Ronald G. DeVosRobert Steinberg
Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ WAYNE NORBITZ
Wayne Norbitz
Director
/s/ ROBERT J. EIDE
Robert J. Eide
Director
/s/ BARRY LEISTNER
Barry Leistner
Director
/s/ BRIAN GENSON
Brian Genson
Director
/s/ ATTILIO F. PETROCELLI
Attilio F. Petrocelli
Director
/s/ CHARLES RAICH
Charles Raich
Director
/s/ ANDREW LEVINE
Andrew Levine
Director

 

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Nathan’s Famous, Inc. and Subsidiaries

 

TABLE OF CONTENTS

 

 

 

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Earnings	F-4
Consolidated Statements of Comprehensive IncomeStockholders’ Deficit	F-5
Consolidated Statements of Stockholders’ (Deficit)	F-6 – F-8F-6
Consolidated Statements of Cash Flows	F-9F-7
Notes to Consolidated Financial Statements	F-10F-8
Schedule II - Valuation and Qualifying Accounts	F-46

 

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Stockholders and Board of Directors and Stockholdersof

Nathan’s Famous, Inc.

 

Opinion on the financial statementsFinancial Statements

We have audited the accompanying consolidated balance sheets of Nathan’s Famous, Inc. (a Delaware corporation) and subsidiariesSubsidiaries (the “Company”) as of March 25, 201828, 2021 and March 26, 2017,29, 2020, the related consolidated statements of earnings, comprehensive income, stockholders’ (deficit),deficit and cash flows for each of the fifty-two weeksweek periods ended March 25, 2018, March 26, 201728, 2021 and March 27, 2016,29, 2020, and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 25, 201828, 2021 and March 26, 2017,29, 2020, and the results of its operations and its cash flows for each of the fifty-two weeksweek periods ended March 25, 2018, March 26, 2017,28, 2021 and March 27, 201629, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”("PCAOB"), the Company’sCompany's internal control over financial reporting as of March 25, 2018,28, 2021, based onthe criteria established in the 2013 Internal Control—Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”),(COSO) in 2013 and our report dated June 8, 2018 11, 2021, expressed an unqualified opinion.opinion on the effectiveness of the Company’s internal control over financial reporting.

 

Basis for opinionOpinion

These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits.audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our auditsaudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.

 

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ GRANT THORNTON LLPMarcum llp

Marcum llp

 

We have served as the Company’s auditor since 2002.2018.

 

New York, New YorkNY

June 8, 201811, 2021

 

F-2

---

 

Grant Thornton LLP

U.S. member firm of Grant Thornton International Ltd

Nathan’sNathan’s Famous, Inc. and Subsidiaries

 

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

		March 25, 2018				March 26, 2017
ASSETS
CURRENT ASSETS
Cash		$	57,339			$	56,915
Accounts and other receivables, net			10,502				8,948
Inventories			384				579
Prepaid expenses and other current assets (Note F)			2,873				1,093
Assets held for sale (Note G)			610				-
Total current assets			71,708				67,535
Property and equipment, net of accumulated depreciation of $8,264 and $7,522, respectively			6,642				8,844
Goodwill			95				95
Intangible asset			1,353				1,353
Other assets			293				298
Total assets		$	80,091			$	78,125
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
CURRENT LIABILITIES
Accounts payable		$	6,565			$	4,809
Accrued expenses and other current liabilities (Note I)			11,248				5,865
Deferred franchise fees			193				98
Total current liabilities			18,006				10,772
Long-term debt, net of unamortized debt issuance costs of $5,242 and $3,525, respectively (Note L)			144,758				131,475
Other liabilities (Note I)			1,593				1,555
Deferred income taxes			302				814
Total liabilities			164,659				144,616
COMMITMENTS AND CONTINGENCIES (Note N)
STOCKHOLDERS’ (DEFICIT)
Common stock, $.01 par value; 30,000,000 shares authorized; 9,311,922 and 9,303,870 shares issued; and 4,184,549 and 4,176,497 shares outstanding at March 25, 2018 and March 26, 2017, respectively			93				93
Additional paid-in capital			60,823				60,582
(Accumulated deficit)			(68,181	)			(49,863	)
Stockholders’ (deficit) equity before treasury stock			(7,265	)			10,812
Treasury stock, at cost, 5,127,373 shares at March 25, 2018 and March 26, 2017			(77,303	)			(77,303	)
Total stockholders’ (deficit)			(84,568	)			(66,491	)
Total liabilities and stockholders’ (deficit)		$	80,091			$	78,125

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except share and per share amounts)

		Fifty-Two				Fifty-Two				Fifty-Two
		weeks ended				weeks ended				weeks ended
		March 25, 2018				March 26, 2017				March 27, 2016
REVENUES
Sales		$	76,708			$	70,820			$	75,590
License royalties			23,020				20,368				19,815
Franchise fees and royalties			4,473				5,068				5,044
Total revenues			104,201				96,256				100,449
COSTS AND EXPENSES
Cost of sales			58,752				51,634				57,557
Restaurant operating expenses			3,506				3,386				3,557
Depreciation and amortization			1,352				1,297				1,255
General and administrative expenses			13,491				13,659				13,117
Total costs and expenses			77,101				69,976				75,486
Income from operations			27,100				26,280				24,963
Interest expense			(13,591	)			(14,665	)			(14,630	)
Loss on debt extinguishment (Note L)			(8,872	)			-				-
Impairment charge – long-lived assets (Note B)			(790	)			-				-
Impairment charge – long-term investment			-				-				(100	)
Interest income			166				104				52
Other income, net			99				85				99
Income before provision for income taxes			4,112				11,804				10,384
Provision for income taxes			1,482				4,319				4,288
Net income		$	2,630			$	7,485			$	6,096
PER SHARE INFORMATION
Income per share:
Basic		$	0.63			$	1.79			$	1.38
Diluted		$	0.62			$	1.78			$	1.37
Weighted average shares used in computing income per share:
Basic			4,181,000				4,172,000				4,430,000
Diluted			4,221,000				4,206,000				4,463,000

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

		Fifty-Two				Fifty-Two				Fifty-Two
		weeks ended				weeks ended				weeks ended
		March 25, 2018				March 26, 2017				March 27, 2016
Net income		$	2,630			$	7,485			$	6,096
Other comprehensive loss, net of deferred income taxes:
Less: Reclassification adjustment for gains included in net income			-				-				47
Other comprehensive loss			-				-				(47	)
Comprehensive income		$	2,630			$	7,485			$	6,049

		March 28, 2021				March 29, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	81,064			$	77,117
Accounts and other receivables, net (Note D)			11,652				11,108
Inventories			624				378
Prepaid expenses and other current assets (Note E)			1,325				1,181
Total current assets			94,665				89,784
Property and equipment, net of accumulated depreciation of $9,779 and $9,468, respectively			4,090				4,610
Operating lease assets (Note K)			8,337				9,181
Goodwill			95				95
Intangible asset, net			1,156				1,269
Deferred income taxes			138				0
Other assets			328				343
Total assets		$	108,809			$	105,282
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable		$	4,041			$	3,509
Accrued expenses and other current liabilities (Note G)			8,478				9,297
Current portion of operating lease liabilities (Note K)			1,837				1,583
Deferred franchise fees			237				230
Total current liabilities			14,593				14,619
Long-term debt, net of unamortized debt issuance costs of $3,169 and $3,860, respectively (Note J)			146,831				146,140
Operating lease liabilities (Note K)			7,553				8,532
Other liabilities (Note G)			774				696
Deferred franchise fees			1,536				1,687
Deferred income taxes			0				9
Total liabilities			171,287				171,683
COMMITMENTS AND CONTINGENCIES (Note M)
STOCKHOLDERS’ DEFICIT
Common stock, $.01 par value; 30,000,000 shares authorized; 9,369,015 and 9,368,792 shares issued; and 4,114,934 and 4,141,387 shares outstanding at March 28, 2021 and March 29, 2020, respectively			94				94
Additional paid-in capital			62,240				62,130
Accumulated deficit			(40,042	)			(45,356	)
Stockholders’ equity before treasury stock			22,292				16,868
Treasury stock, at cost, 5,254,081 and 5,227,405 shares at March 28, 2021 and March 29, 2020			(84,770	)			(83,269	)
Total stockholders’ deficit			(62,478	)			(66,401	)
Total liabilities and stockholders’ deficit		$	108,809			$	105,282

 

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

 

F-3

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Nathan’sNathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)

Fifty-two weeks ended March 25, 2018, Fifty-two weeks ended March 26, 2017 and the Fifty-two weeks ended March 27, 2016

 (in thousands, except share amounts)

														Retained				Accumulated
										Additional				Earnings				Other												Total
		Common				Common				Paid-in				(Accumulated				Comprehensive				Treasury Stock, at Cost								Stockholders’
		Shares				Stock				Capital				Deficit)				Income				Shares				Amount				(Deficit)
Balance, March 29, 2015			9,252,097			$	93			$	60,196			$	(63,444	)		$	47				4,647,687			$	(56,800	)		$	(59,908	)
Shares issued in connection with share-based compensation plans			21,969				-				89				-				-				-				-				89
Withholding tax on net share settlement of share-based compensation plans			-				-				(285	)			-				-				-				-				(285	)
Repurchase of common stock			-				-				-				-				-				449,070				(19,231	)			(19,231	)
Income tax benefit on stock option exercises			-				-				228				-				-				-				-				228
Share-based compensation			-				-				722				-				-				-				-				722
Reclassification adjustment for gains included in net income, net of deferred income tax benefit of $25			-				-				-				-				(47	)			-				-				(47	)
Net income			-				-				-				6,096				-				-				-				6,096
Balance, March 27, 2016			9,274,066			$	93			$	60,950			$	(57,348	)		$	-				5,096,757			$	(76,031	)		$	(72,336	)

The accompanying notes are an integral part of these consolidatedfinancial statements.

Nathan’s Famous, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)

Fifty-two weeks ended March 25, 2018, Fifty-two weeks ended March 26, 2017 and the Fifty-two weeks ended March 27, 2016EARNINGS

(in thousands, except share and per share amounts)

 

										Additional																Total
		Common				Common				Paid-in				(Accumulated				Treasury Stock, at Cost								Stockholders’
		Shares				Stock				Capital				Deficit)				Shares				Amount				(Deficit)
Balance, March 27, 2016			9,274,066			$	93			$	60,950			$	(57,348	)			5,096,757			$	(76,031	)		$	(72,336	)
Shares issued in connection with share-based compensation plans			29,804				-				44				-				-				-				44
Withholding tax on net share settlement of share-based compensation plans			-				-				(994	)			-				-				-				(994	)
Repurchase of common stock			-				-				-				-				30,616				(1,272	)			(1,272	)
Share-based compensation			-				-				582				-				-				-				582
Net income			-				-				-				7,485				-				-				7,485
Balance, March 26, 2017			9,303,870			$	93			$	60,582			$	(49,863	)			5,127,373			$	(77,303	)		$	(66,491	)

		Fifty-Two				Fifty-Two
		weeks ended				weeks ended
		March 28, 2021				March 29, 2020
REVENUES
Sales		$	41,326			$	70,559
License royalties			31,368				25,859
Franchise fees and royalties			1,601				4,572
Advertising fund revenue			1,544				2,335
Total revenues			75,839				103,325
COSTS AND EXPENSES
Cost of sales			32,536				54,488
Restaurant operating expenses			3,268				3,476
Depreciation and amortization			1,183				1,233
General and administrative expenses			12,041				14,779
Advertising fund expense			1,296				2,177
Total costs and expenses			50,324				76,153
Income from operations			25,515				27,172
Interest expense			(10,601	)			(10,601	)
Interest income			364				1,357
Other income, net			47				86
Income before provision for income taxes			15,325				18,014
Provision for income taxes			4,250				4,579
Net income		$	11,075			$	13,435
PER SHARE INFORMATION
Weighted average shares used in computing income per share:
Basic			4,116,000				4,216,000
Diluted			4,116,000				4,216,000
Income per share:
Basic		$	2.69			$	3.19
Diluted		$	2.69			$	3.19
Dividends declared per share		$	1.40			$	1.40

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

 

F-4

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Nathan’sNathan’s Famous, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)STOCKHOLDERS’ DEFICIT

Fifty-two weeks ended March 25, 2018, Fifty-two weeks ended March 26, 201728, 2021 and the Fifty-two weeks ended March 27, 201629, 2020

(in thousands, except share and per share amounts)

 

										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 26, 2017			9,303,870			$	93			$	60,582			$	(49,863	)			5,127,373			$	(77,303	)		$	(66,491	)
Balance, March 31, 2019																															9,336,338			$	93			$	60,945			$	(52,879	)			5,141,763			$	(78,303	)		$	(70,144	)
Shares issued in connection with share-based compensation plans			8,052				-				-				-				-				-				-				32,454				1				1,077				0				0				0				1,078
Withholding tax on net share settlement of share-based compensation plans			-				-				(157	)			-				-				-				(157	)			-				0				(8	)			0				-				0				(8	)
Dividends on common stock			-				-				-				(20,948	)			-				-				(20,948	)
Repurchase of common stock																															0				0				0				0				85,642				(4,966	)			(4,966	)
Dividends on common stock																															-				0				0				(5,912	)			-				0				(5,912	)
Share-based compensation			-				-				398				-				-				-				398				-				0				116				0				-				0				116
Net income			-				-				-				2,630				-				-				2,630				-				0				0				13,435				-				0				13,435
Balance, March 25, 2018			9,311,922			$	93			$	60,823			$	(68,181	)			5,127,373			$	(77,303	)		$	(84,568	)
Balance, March 29, 2020																															9,368,792			$	94			$	62,130			$	(45,356	)			5,227,405			$	(83,269	)		$	(66,401	)

 

 

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

 

F-5

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Nathan’sNathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Fifty-two weeks ended March 28, 2021 and the Fifty-two weeks ended March 29, 2020

(in thousands, except share and per share amounts)

										Additional																Total
		Common				Common				Paid-in				Accumulated				Treasury Stock, at Cost								Stockholders’
		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	)
Shares issued in connection with share-based compensation plans			223				0				0				0				0				0				0
Withholding tax on net share settlement of share-based compensation plans			-				0				(6	)			0				-				0				(6	)
Repurchase of common stock			0				0				0				0				26,676				(1,501	)			(1,501	)
Dividends on common stock			-				0				0				(5,761	)			-				0				(5,761	)
Share-based compensation			-				0				116				0				-				0				116
Net income			-				0				0				11,075				-				0				11,075
Balance, March 28, 2021			9,369,015			$	94			$	62,240			$	(40,042	)			5,254,081			$	(84,770	)		$	(62,478	)

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

F-6

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Nathan’s Famous, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

		Fifty-Two				Fifty-Two				Fifty-Two				Fifty-Two				Fifty-Two
		weeks ended				weeks ended				weeks ended				weeks ended				weeks ended
		March 25, 2018				March 26, 2017				March 27, 2016				March 28, 2021				March 29, 2020
Cash flows from operating activities:
Net income		$	2,630			$	7,485			$	6,096			$	11,075			$	13,435
Adjustments to reconcile net income to net cash provided by operating activities
Loss on debt extinguishment			8,872				-				-
Depreciation and amortization			1,352				1,297				1,255				1,183				1,233
Amortization of bond premium			-				-				64
Gain on sale of marketable equity securities			-				-				(26	)
Gain on sale of property and equipment			-				-				(18	)
Non cash rental expense															120				232
Amortization of debt issuance costs			1,069				1,209				1,185				691				691
Share-based compensation expense			398				582				722				116				116
Income tax benefit on stock option exercises			173				659				-				0				228
Provision for doubtful accounts			34				53				38				101				71
Impairment charge – long lived assets			790				-				-
Impairment charge – long-term investment			-				-				100
Deferred income taxes			(512	)			101				(13	)			(147	)			352
Changes in operating assets and liabilities:
Accounts and other receivables, net			(1,588	)			(280	)			740				(645	)			(1,006	)
Inventories			195				108				135				(246	)			157
Prepaid expenses and other current assets			(1,780	)			250				3,189				(144	)			(174	)
Other assets			5				(189	)			138				15				122
Accounts payable, accrued expenses and other current liabilities			7,091				(673	)			(293	)			(287	)			(2,028	)
Deferred franchise fees			95				(39	)			(141	)			(144	)			(1,088	)
Other liabilities			38				(151	)			(691	)			78				8
Net cash provided by operating activities			18,862				10,412				12,480				11,766				12,349
Cash flows from investing activities:
Proceeds from sales and maturities of available-for-sale securities			-				-				10,868
Proceeds from disposal of property and equipment			13				-				133
Purchase of property and equipment			(563	)			(1,128	)			(1,125	)			(551	)			(870	)
Purchase of available-for-sale securities			-				-				(3,887	)
Net cash (used in) provided by investing activities			(550	)			(1,128	)			5,989
Net cash used in investing activities															(551	)			(870	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			150,000				-				-
Cash payments for extinguishment of debt			(135,000	)			-				-
Premium paid on extinguishment of debt			(6,750	)			-				-
Debt issuance costs			(4,908	)			-				(60	)
Dividends paid to stockholders			(21,073	)			(375	)			(375	)			(5,761	)			(5,912	)
Repurchase of treasury stock			-				(1,272	)			(19,231	)			(1,501	)			(4,966	)
Proceeds from the exercise of stock options			-				44				89				0				1,078
Income tax benefit on stock option exercises			-				-				228
Payments of withholding tax on net share settlement of share-based compensation plans			(157	)			(994	)			(285	)			(6	)			(8	)
Net cash used in financing activities															(7,268	)			(9,808	)
Net cash (used in) financing activities			(17,888	)			(2,597	)			(19,634	)
Net increase in cash and cash equivalents															3,947				1,671
Net increase (decrease) in cash			424				6,687				(1,165	)
Cash and cash equivalents, beginning of year															77,117				75,446
Cash, beginning of year			56,915				50,228				51,393
Cash, end of year		$	57,339			$	56,915			$	50,228
Cash and cash equivalents, end of year														$	81,064			$	77,117
Cash paid during the year for:
Interest		$	9,038			$	13,500			$	13,688			$	9,938			$	9,938
Income taxes		$	3,584			$	4,049			$	848			$	4,768			$	3,874
Noncash financing activity:
Dividends declared per share														$	1.40			$	1.40

 

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

 

F-7

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Nathan’sNathan’s Famous, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

 

March 25, 2018, 28, 2021 and March 26, 2017 andMarch 27, 201629, 2020

 

 

 

NOTE A - DESCRIPTION AND ORGANIZATION OF BUSINESS

 

Nathan’s Famous, Inc. and subsidiaries (collectively the “Company” or “Nathan’s”) has historically operated or franchised a chain of retail fast food restaurants featuring the “Nathan’s World Famous Beef Hot Dog”, crinkle-cut French-fried potatoes and a variety of other menu offerings. Nathan’s has also established a Branded Product Program, which enables foodservice retailers to sell select Nathan’s proprietary products outside of the realm of a traditional franchise relationship. Nathan’s also licenses the manufacture and sale of “Nathan’s Famous” packaged hot dogs, crinkle-cut French fries and a number of other products to a variety of third parties for sale to supermarkets, club stores and grocery stores. The Company is also the owner of the Arthur Treacher’s brand. Arthur Treacher’s main product is its "Original Fish & Chips" product consisting of fish fillets coated with a special batter prepared under a proprietary formula, deep-fried golden brown, and served with English-style chips and corn meal "hush puppies." The Company considers itself to be a brand marketer of its products to the foodservice and retail industries, pursuant to its various business structures. Nathan’s has also pursued co-branding and co-hosting initiatives.

 

At March 25, 2018, 28, 2021, the Company’s restaurant system included fivefour Company-owned units in the New York City metropolitan area and 276213 franchised or licensed units, located in 20nineteen states and 12eight foreign countries.

Covid-19 Pandemic

In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19), a global pandemic. The COVID-19 pandemic has had an impact on the Company’s business, financial condition, cash flows and results of operations for the fiscal year ended March 28, 2021 and continues into 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. We cannot predict whether, when or the manner in which the conditions surrounding the pandemic will change and cannot currently estimate the impact on our business in the short or long-term.

 

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The following significant accounting policies have been applied in the preparation of the consolidated financial statements:

 

1.

1.

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

 

2.

Fiscal Year

The Company’s fiscal year ends on the last Sunday in March, which results in a 52 or 53-week reporting period. The results of operations and cash flows for the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016 are on the basis of a 52-week reporting period.

3.

Reclassifications

We have reclassified certain items in the Consolidated Statements of Earnings for prior periods to be comparable with the classification for the fiscal year ended March 25, 2018. These reclassifications had no effect on previously reported net income.

F- 8

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

2.	4.Fiscal Year

The Company’s fiscal year ends on the last Sunday in March, which results in a 52 or 53-week reporting period. The fiscal years ended March 28, 2021 and March 29, 2020 are on the basis of a 52-week reporting period.

3.	Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant estimates made by management in preparing the consolidated financial statements include revenue recognition, the allowance for doubtful accounts, valuation of stock-based compensation, accounting for income taxes, and the valuation of goodwill, intangible assets and other long-lived assets.

 

4.	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 March 28, 2021 or March 29, 2020.

At March 28, 2021 and March 29, 2020, 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.

5.	Inventories

 

Inventories, which are stated at the lower of cost or net realizable value, consist primarily of food items and supplies. Cost is determined using the first-in, first-outfirst-in, first-out method.

 

6.

6.

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized and minor replacements, maintenance and repairs are charged to expense as incurred. Depreciation and amortization are calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows:

 

Building and improvements (years)		5	–	25
Machinery, equipment, furniture and fixtures (years)		3	–	15
Leasehold improvements (years)		5	–	20

Building and improvements (in years)		5	–	25
Machinery, equipment, furniture and fixtures (in years)		3	–	15
Leasehold improvements (in years)		5	–	20

F- 9

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

7.

7.

Goodwill and Intangible AssetAssetss

 

Goodwill and intangible assets consist of (i) goodwill of $95 resulting from the acquisition of Nathan’s in 1987; and (ii) trademarks, trade names and other intellectual property of $1,353$1,156 in connection with Arthur Treacher’s.

As of March 28, 2021, the Company performed its annual impairment test of goodwill in accordance with the accounting guidance adopted in the first quarter fiscal 2021 that simplifies the testing for goodwill impairment, as discussed in Note B.22 – Adoption of New Accounting Standard. NaN impairment charges were recognized on goodwill for the fiscal years ended March 28, 2021 and March 29, 2020.

During the fiscal year ended March 29, 2020, the Company determined its indefinite-lived intangible asset to have a finite useful life based on the expected future use of this intangible asset. Based upon the review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is twelve years and the intangible asset is subject to annual amortization. The Company has recorded amortization expense of $113 and $84 for the fiscal years ending March 28, 2021 and March 29, 2020, respectively.

 

The Company’s goodwill andCompany reviews its definite-lived intangible assets are deemed to have indefinite lives and, accordingly, are not amortized, but are evaluatedasset for impairment at least annually, but more often whenever events or changes in facts and circumstances occur which may indicate that the carrying value may not be recoverable. AsThe Company determined that the impact of March 25, 2018 and March 26, 2017,COVID-19 on its business was a sufficient indicator that the carrying value may not be recoverable. The Company tested for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements. Based on the quantitative test performed, the Company performed its required annualdetermined that the definite-lived intangible asset was recoverable and no impairment test of goodwill charge was recorded for the fiscal years ended March 28, 2021 and intangible assets and has determined no impairment is deemed to exist.March 29, 2020.

 

Annual amortization of the intangible asset for the next five years and thereafter will approximate the following:

		Estimate for fiscal year
2022		$	113
2023			113
2024			113
2025			113
2026			113
Thereafter			591
Total		$	1,156

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

8.	Long-lived Assets

 

8.

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. recoverable.

F- 10

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Each reporting period, management reviews the carrying value

Long-lived assets include property, equipment and right of its investments based upon the financial information provided by the investment’s management and considers whether indicators of an other-than-temporary impairment exists. If an impairment indicator exists, management evaluates the fair value of its investment to determine if an, other-than-temporary impairment in value has occurred. We are required to recognize an impairment on the investment if such impairment is considered to be other-than-temporary.

Impairment losses are recorded on long-liveduse assets on a restaurant-by-restaurant basis whenever impairment factors are determined to be present. The Company tests the recoverability of its long-lived assetsfor operating leases with finite useful lives whenever events or changes in circumstances indicate thatlives. Assets are grouped at the carrying valueindividual restaurant level which represents the lowest level for which cash flows can be identified largely independent of the asset may notcash flows of other assets and liabilities. The Company generally considers a history of restaurant operating losses to be recoverable. 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 impairment analysis as of March 28, 2021.

The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such asset.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 asset.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 in future periods and such impairments could be material. The Company considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations.  At March 25, 2018, we performed our annual impairment evaluation and recorded an impairment charge of $790 to write down the value of the long-lived assets at one of our restaurants. No long-lived assets were deemed to be permanently impaired during the fiscal years ended March 26, 2017 28, 2021 and March 27, 2016.29, 2020.

 

9.

9Leases

Determination of Whether a Contract Contains a Lease

We determine if an arrangement is a lease at inception or modification of a contract, and classify each lease as either an operating or finance lease at commencement. The Company only reassesses lease classifications subsequent to commencement upon a change to the expected lease term or the contract being modified. Operating leases represent the Company’s right to use an underlying asset as lessee for the lease term, and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

ROU Model and Determination of Lease Term

The Company uses the right-of-use (“ROU”) model to account for leases where the Company is the lessee, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, as both lessee and lessor, the Company includes option periods when it is reasonably certain that those options will be exercised.

F- 11

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Operating Leases

For operating leases, minimum lease payments or receipts, including minimum scheduled rent increases, are recognized as rent expense where the Company is a lessee, or income where the Company is a lessor, as applicable, on a straight-line basis (“Straight-Line Rent”) over the applicable lease terms. There is a period under certain lease agreements referred to as a rent holiday (“Rent Holiday”) that generally begins on the possession date and ends on the rent commencement date. During a Rent Holiday, no cash rent payments are typically due under the terms of the lease; however, rent expense is recorded for that period on a straight-line basis. The excess of the Straight-Line Rent over the minimum rents paid is included in the ROU asset where the Company is a lessee. The excess of the Straight-Line Rent over the minimum rents received is recorded as a deferred lease asset and is included in “Other Assets” where the Company is a lessor. The Company recorded $34 and $32 in Other Assets at March 28, 2021 and March 29, 2020, respectively. Certain leases contain provisions, referred to as contingent rent (“Contingent Rent”), that require additional rental payments based upon restaurant sales volume. Contingent Rent is recognized each period as the liability is incurred or the asset is earned.

Lease cost for operating leases is recognized on a straight-line basis and includes the amortization of the ROU asset and interest expense relating to the operating lease liability. Variable lease cost for operating leases include Contingent Rent and payments for executory costs such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability. Short-term lease cost for operating leases includes rental expense for leases with a term of less than 12 months. Leases with an initial expected term of 12 months or less are not recorded in the Consolidated Balance Sheets and the related lease expense is recognized on a straight-line basis over the lease term. Lease costs are recorded in the Consolidated Statements of Earnings based on the nature of the underlying leases as follows: (1) rental expense related to leases for Company-operated restaurants is recorded to “Restaurant Operating Expenses,” (2) rental expense for leased properties that are subsequently subleased to franchisees is recorded to “Other Income, net” and (3) rental expense related to leases for corporate offices and equipment is recorded to “General and administrative expenses.”

Rental income for operating leases on properties subleased to franchisees is recorded net of associated lease costs to “Other income, net.” At March 28, 2021, the Company leases one site which it in turn subleases to a franchisee, which expires in April 2027 exclusive of renewal options. The Company remains liable for all lease costs when property is subleased to a franchisee.

Significant Assumptions and Judgement

Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, property lives, discount rates and probable term, all of which can impact (1) the classification and accounting for a lease or sublease as operating or finance, (2) the Rent Holiday and escalations in payment that are taken into consideration when calculating Straight-Line Rent, (3) the term over which leasehold improvements for each restaurant are amortized and (4) the values and lives of adjustments to the initial ROU asset where the Company is the lessee, or favorable and unfavorable leases where the Company is the lessor. The amount of depreciation and amortization, interest and rent expense and income would vary if different estimates and assumptions were used.

F- 12

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In April 2020, the FASB issued guidance allowing entities to make a policy election whether to account for lease concessions related to the COVID-19 pandemic as lease modifications. The election applies to any lessor – provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. During the fiscal year ended March 28, 2021, the Company received non-substantial concessions from certain landlords in the form of rent reductions. The Company elected to not account for these rent concessions as lease modifications. This election did not have a material impact on our Consolidated Financial Statements as of March 28, 2021.

.10.	Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).

 

The fair value hierarchy, as outlined in the applicable accounting guidance, is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable.  Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. 

 

The fair value hierarchy consists of the following three levels:

 

●

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 quoted prices (unadjusted) for an identicalunobservable and significant to the fair value measurement of the 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

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The use of observable market inputs (quoted market prices) when measuring fair value and, specifically, the use of Level 1 quoted prices to measure fair value are required whenever possible. The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures quarterly and based on various factors, it is possible that an asset or liability may be classified differently from year to year.

 

At March 25, 2018 28, 2021 and March 26, 2017, 29, 2020, we did not have any assets or liabilities that were recorded at fair value.

 

The Company’s long-term debt had a face value of $150,000 as of March 25, 2018 28, 2021 and a fair value of $150,750$154,420 as of March 25, 2018. 28, 2021. 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.

 

F- 13

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

 

The majority of the Company’s non-financial assets and liabilities are not required to be carried at fair value on a recurring basis. However, the Company is required on a non-recurring basis to use fair value measurements when analyzing asset impairment as it relates to goodwill and other indefinite-lived intangibledefinite- lived assets and long-lived assets. The Company utilized the income approach (Level 3 inputs) which utilized projected undiscounted cash flow forecasts for future income and were discounted to present valueflows in performing its annual impairment testing of intangible assets.

11. 10. Start-up Costs   Pre-opening and similar restaurant costs are expensed as incurred.   12. 11. Revenue Recognition - Branded Product Program The Company recognizes sales from the Branded Product Program and certain products sold from the Branded Menu Program upon delivery to Nathan’s customers via third party common carrier. Rebates provided to customers are classified as a reduction to sales.   13. 12. Revenue Recognition - Company-owned Restaurants Sales by Company-owned restaurants, which are typically paid in cash or credit card by the customer, are recognized at the point of sale. Sales are presented net of sales tax. 14. 13. Revenue Recognition - Franchising Operations – In connection with its franchising operations, the Company receives initial franchise fees, international development fees, royalties, and in certain cases, revenue from sub-leasing restaurant properties to franchisees. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Franchise and international development fees, which are typically received prior to completion of the revenue recognition process, are initially recorded as deferred revenue. Initial franchise fees, which are non-refundable, are recognized as income when substantially all services to be performed by Nathan’s and conditions relating to the sale of the franchise have been performed or satisfied, which generally occurs when the franchised restaurant commences operations. The following services are typically provided by the Company prior to the opening of a franchised restaurant: o Approval of all site selections to be developed. o Provision of architectural plans suitable for restaurants to be developed. o Assistance in establishing building design specifications, reviewing construction compliance and equipping the restaurant. o Provision of appropriate menus to coordinate with the restaurant design and location to be developed. o Provision of management training for the new franchisee and selected staff. o Assistance with the initial operations of restaurants being developed. International development fees are recognized, net of direct expenses, upon the opening of the first restaurant within the territory. In each case, this is when the Company has performed substantially all initial services required by the agreements. At March 25, 2018 and March 26, 2017, $193 and $98, respectively, of deferred franchise fees are included in the accompanying consolidated balance sheets. For the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016, the Company earned franchise fees of $334, $778 and $751, respectively, from new unit openings, transfers, co-branding and forfeitures. Development fees are non-refundable and the related agreements require the franchisee to open a specified number of restaurants in the development area within a specified time period or the agreements may be canceled by the Company. Revenue from development agreements is deferred and shall be recognized, with an appropriate provision for estimated uncollectible amounts, when all material services or conditions to the sale have been substantially performed by the franchisor. If substantial obligations under the development agreement are not dependent on the number of individual franchise locations to be opened, substantial performance shall be determined using the same criteria applicable to an individual franchise, which is generally the opening of the first location pursuant to the development agreement. If substantial performance is dependent on the number of locations, then the development fee is deferred and recognized ratably over the term of the agreement, as restaurants in the development area commence operations on a pro rata basis to the minimum number of restaurants required to be open, or at the time the development agreement is effectively canceled. At March 25, 2018 and March 26, 2017, $238 and $67, respectively, of deferred development fee revenue is included in other liabilities in the accompanying consolidated balance sheets. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The following is a summary of franchise openings and closings for the Nathan’s franchise restaurant system for the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016:     March 25,     March 26,     March 27,       2018     2017     2016                             Franchised restaurants operating at the beginning of the period     279       259       296                             New franchised restaurants opened during the period     40       53       56                             Franchised restaurants closed during the period     (43 )     (33 )     (93 )                           Franchised restaurants operating at the end of the period     276       279       259   The Company recognizes franchise royalties on a monthly basis, which are generally based upon a percentage of sales made by the Company’s franchisees, when they are earned and deemed collectible. The Company recognizes royalty revenue from its Branded Menu Program directly from the sale of Nathan’s products by its primary distributor or directly from the manufacturers. Franchise fees and royalties that are not deemed to be collectible are not recognized as revenue until paid by the franchisee or until collectibility is deemed to be reasonably assured. (See Note B.21 for further discussion about the future impact of the new revenue recognition accounting standard.) 14. Revenue Recognition – License Royalties   The Company earns revenue from royalties on the licensing of the use of its intellectual property in connection with certain products produced and sold by outside vendors. The use of the Company’s intellectual property must be approved by the Company prior to each specific application to ensure proper quality and a consistent image. Revenue from license royalties is generally based on a percentage of sales, subject to certain annual minimum royalties, recognized on a monthly basis when it is earned and deemed collectible.   F- 14 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 15. Revenue Recognition - Franchising Operations In connection with its franchising operations, the Company receives initial franchise fees, international development fees, royalties, and in certain cases, revenue from sub-leasing restaurant properties to franchisees. The following services are typically provided by the Company prior to the opening of a franchised restaurant.   15. ● Approval of all site selections to be developed. ● Provision of architectural plans suitable for restaurants to be developed. ● Assistance in establishing building design specifications, reviewing construction compliance and equipping the restaurant. ● Provision of appropriate menus to coordinate with the restaurant design and locations to be developed. ● Provision of management training for the new franchisee and selected staff. ● Assistance with the initial operations of restaurants being developed. The services provided in exchange for these upfront restaurant franchise fees do not contain separate and distinct performance obligations from the franchising right and these initial franchise fees, renewal fees and transfer fees are deferred and recognized over the term of each respective agreement, or upon termination of the franchise agreement. The services provided in exchange for these international development fees do not contain separate and distinct performance obligations from the franchise right and these international development fees are deferred and recognized over the term of each respective agreement. Certain other costs, such as legal expenses, are expensed as incurred. The Company recognizes franchise royalties on a monthly basis, which are generally based upon a percentage of sales made by the Company’s franchisees, when they are earned and deemed collectible. The Company recognizes royalty revenue from its Branded Menu Program directly from the sale of Nathan’s products by its primary distributor or directly from the manufacturers. Franchise fees and royalties that are subsequently deemed to be not collectible are recorded as bad debts until paid by the franchisee or until collectability is deemed to be reasonably assured. The following is a summary of franchise openings and closings for the Nathan’s franchise restaurant system for the fiscal years ended March 28, 2021 and March 29, 2020:     March 28,     March 29,       2021     2020                     Franchised restaurants operating at the beginning of the period     216       255                     New franchised restaurants opened during the period     7       16                     Franchised restaurants closed during the period     (10 )     (55 )                   Franchised restaurants operating at the end of the period     213       216   F- 15 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Contract balances The following table provides information about contract liabilities (Deferred franchise fees) from contracts with customers:     March 28, 2021     March 29, 2020   Deferred franchise fees (a)   $ 1,773     $ 1,917   (a) Deferred franchise fees of $237and $1,536 are included in Deferred franchise fees – current and long term as of March 28, 2021, respectively and $230 and $1,687 as of March 29, 2020, respectively. Significant changes in Deferred franchise fees for the fiscal years ended March 28, 2021 and March 29, 2020 are as follows:     March 28, 2021     March 29, 2020   Deferred franchise fees at beginning of period   $ 1,917     $ 3,005   New deferrals due to cash received and other     140       157   Revenue recognized during the period     (284 )     (1,245 ) Deferred franchise fees at end of period   $ 1,773     $ 1,917   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:              Estimate for fiscal year   2022     237   2023     213   2024     198   2025     183   2026     159   Thereafter     783   Total   $ 1,773   We have applied the optional exemption, as provided for under Topic 606, which allows us not to disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty. F- 16 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 16. Revenue Recognition – National Advertising Fund The Company maintains a national advertising fund (the “Advertising Fund”) established to collect and administer funds contributed for use in advertising and promotional programs for Company-owned and franchised restaurants. The revenue, expenses and cash flows of the Advertising Fund are fully consolidated into the Company’s Consolidated Statements of Earnings and Statements of Cash Flows. While this treatment impacts the gross amount of reported advertising fund revenue and related expenses, the impact is expected to approximately offset the increase to both revenue and expense, with minimal impact to income from operations or net income because the Company attempts to manage the Advertising Fund to breakeven over the course of the fiscal year. However, any surplus or deficit in the Advertising Fund will impact income from operations and net income. 17. Business Concentrations and Geographical Information At March 25, 2018 and March 26, 2017 the Company maintained cash balances which are in excess of Federal government insurance limits. The Company does not believe that it is exposed to any significant risk on these balances.   The Company’s accounts receivable consistconsists principally of receivables from franchisees for royalties and advertising contributions, from sales under the Branded Product Program, and from royalties from retail licensees. At March 25, 2018, three28, 2021, 3 Branded Product customers represented 41%19%, 20%13% and 8%7%, of accounts receivable. At March 26, 2017, four29, 2020, 3 Branded Product customers represented 21%24%, 15%, 12%11% and 8%10%, of accounts receivable. One Branded Products customer accounted for 19%,9% and 12% and 14% of total revenue for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016, 29, 2020, respectively. One retail licensee accounted for 21%, 20%39% and 19%24% of the total revenue for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016, 29, 2020, respectively.   The Company’s primary supplier of hot dogs represented 92% of product purchases for each of the fiscal years ended March 28, 2021 and March 29, 2020. The Company’s primary distributor of products to its Company-owned restaurants represented 6% and 5% of product purchases for each of the fiscal years ended March 28, 2021 and March 29, 2020, respectively. The Company’s revenues for the fiscal years ended March 28, 2021 and March 29, 2020 were derived from the following geographic areas:     March 28, 2021     March 29, 2020                     Domestic (United States)   $ 74,737     $ 98,453   Non-domestic     1,102       4,872       $ 75,839     $ 103,325   F- 17   NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)   The Company’s primary supplier of hot dogs represented 92%, 91% and 90% of product purchases for the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016, respectively. The Company’s distributor of products to its Company-owned restaurants represented 4%, 5% and 5% of product purchases for each of the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016, respectively. The Company’s revenues for the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016 were derived from the following geographic areas:     March 25, 2018     March 26, 2017     March 27, 2016                             Domestic (United States)   $ 97,661     $ 90,070     $ 95,214   Non-domestic     6,540       6,186       5,235       $ 104,201     $ 96,256     $ 100,449   The Company’s sales for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016 29, 2020 were derived from the following:     March 25, 2018     March 26, 2017     March 27, 2016     March 28, 2021     March 29, 2020                             Branded Products   $ 62,623     $ 55,960     $ 58,545     $ 33,617     $ 57,586   Company-owned restaurants     14,085       14,646       16,222       7,709       12,973   Other     -       214       823   Total sales   $ 41,326     $ 70,559     $ 76,708     $ 70,820     $ 75,590     License royalties   $ 31,368     $ 25,859     Royalties     1,317     3,327   Franchise fees     284       1,245   Total franchise fees and royalties     1,601       4,572     Advertising fund revenue     1,544       2,335     Total revenues   $ 75,839     $ 103,325     18. 16. Advertising   The Company administers an advertising fund on behalf of its restaurant system to coordinate the marketing efforts of the Company. Under this arrangement, the Company collects and disburses fees paid by manufacturers, franchisees and Company-owned stores for national and regional advertising, promotional and public relations programs. Contributions to the advertising fund are based on specified percentages of net sales, generally ranging up to 2%. Company-owned store advertising expense, which is expensed as incurred, was $117, $182$72 and $191,$145, for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016, 29, 2020, respectively, and have been included within restaurant operating expenses in the accompanying Consolidated Statements of Earnings.   (See Note B.21 for further discussion about the future impact of the new revenue recognition accounting standard.) NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 19. 17. Stock-Based Compensation   At March 25, 2018, 28, 2021, the Company had one stock-based compensation plan in effect which is more fully described in Note M.2.                                L.2.   The cost of all share-based payments, including grants of restricted stock and stock options, is recognized in the consolidated financial statements based on their fair values measured at the grant date, or the date of any later modification, over the requisite service period. The Company recognizes compensation cost for unvested stock awards on a straight-line basis over the requisite vesting period.   F- 18 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 20. 18. Classification of Operating Expenses   Cost of sales consists of the following:     ○o The cost of food and other products sold by Company-operated restaurants, through the Branded Product Program and through other distribution channels. o The cost of foodlabor and other products sold by Company-operated restaurants, through the Branded Product Programassociated costs of in-store restaurant management and through other distribution channels.crew.   ○o The cost of labor and associated costs of in-store restaurant management and crew.paper products used in Company-operated restaurants.   ○ The cost of paper products used in Company-operated restaurants. ○o Other direct costs such as fulfillment, commissions, freight and samples.   Restaurant operating expenses consist of the following:     ○o Occupancy costs of Company-operated restaurants. Occupancy costs of Company-operated restaurants.   ○o Utility costs of Company-operated restaurants. Utility costs of Company-operated restaurants.   ○o Repair and maintenance expenses of Company-operated restaurant facilities. Repair and maintenance expenses of Company-operated restaurant facilities.   ○o Marketing and advertising expenses done locally and contributions to advertising funds for Company-operated restaurants. Marketing and advertising expenses done locally and contributions to advertising funds for Company-operated restaurants.   ○o Insurance costs directly related to Company-operated restaurants. 21. Insurance costs directly related to Company-operated restaurants. 19. Income Taxes   The Company’s current provision for income taxes is based upon its estimated taxable income in each of the jurisdictions in which it operates, after considering the impact on taxable income of temporary differences resulting from different treatment of items for tax and financial reporting purposes and income tax benefits from share-based payments. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and any operating loss or tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible. Should management determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)   Uncertain Tax Positions   The Company has recorded liabilities for underpayment of income taxes and related interest and penalties for uncertain tax positions based on the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Nathan’s recognizes accrued interest and penalties associated with unrecognized tax benefits as part of the income tax provision.   See Note JH for a further discussion of our income taxes.   20. Adoption of New Accounting Pronouncements  In July 2015, the Financial Accounting Standards Board (“FASB”) updated U.S. accounting guidance to simplify the ways businesses measure inventory. Companies that use the first-in, first-out (FIFO) method or the average cost method will measure inventory at the lower of its cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business, minus the cost of completion, disposal, and transportation. Companies will no longer consider replacement cost or net realizable value less a normal profit margin when measuring inventory. The guidance was effective for the Company beginning in the quarter ended June 25, 2017 and did not have a material impact on its results of operations or financial position. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)”. This update addresses eight specific cash flow topics with the objective of reducing the existing diversity in practice for certain aspects under Topic 230. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company elected to early adopt ASU 2016-15 during the quarter ending December 24, 2017. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements. 21. New Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued a new accounting standard ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, that attempts to establish a uniform basis for recording revenue to virtually all industries’ financial statements. The revenue standard’s core principle is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. Additionally, the new guidance requires enhanced disclosure to help financial statement users better understand the nature, amount, timing and uncertainty of the revenue recorded. F- 19   NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)   Public companies were originally expected to apply the new standard for annual periods beginning after December 15, 2016. However, the FASB agreed to delay the standard’s effective date to annual reporting periods beginning after December 15, 2017. The Company will adopt the standard commencing our first quarter (June 2018) of our fiscal year ending March 31, 2019. There are two basic transition methods that are available – full retrospective, or modified retrospective transition methods. We will adopt the standards using the modified retrospective approach. The Company has determined that this standard will not impact the recognition of revenue for its Company-owned restaurants, the revenues from its Branded Product Program or its recognition of royalties from its franchised restaurants or retail licenses, which are based on a percentage of sales. The new standard will change how the Company records initial restaurant fees from franchisees, renewal fees and international development fees. Through March 25, 2018, we recognized these fees in full when the related services have been provided, which was when a store opened or when renewal options become effective. We also recorded international development fees, net of direct expenses, upon the completion of all of Nathan’s obligations, typically upon the opening of the first unit in the respective country. The standard requires that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation would then be recognized as the performance obligations are satisfied. The services we provide related to upfront fees we receive from franchisees do not contain separate and distinct performance obligations from the franchise right and as of March 26, 2018, initial restaurant fees, renewal fees and international development fees shall be recognized over the term of the respective agreement. The Company does not incur significant upfront costs to obtain new domestic franchises. Upon adoption, we expect to record deferred revenue for the unamortized portion of fees received on behalf of the then operating franchise agreements of $2,735, net deferred tax assets of $731 and a cumulative effect adjustment to increase accumulated deficit by approximately $2,004 on our Consolidated Balance Sheet. The adoption of the new guidance will also change the reporting of advertising fund contributions from franchisees and the related advertising fund expenditures, which are not currently included in the Consolidated Statements of Earnings, but are reported on the Consolidated Balance Sheet. The new guidance requires these advertising fund contributions and expenditures to be reported on a gross basis in the Consolidated Statements of Earnings, which will impact our total revenues and expenses although we do not expect a material impact on net income as the fund is managed such that revenues and expenses are generally offsetting over the year. If the new guidance had been in effect during fiscal 2018, consolidated revenues would have increased by approximately $2,500. We are finalizing the impact of the standards on our disclosures of the Company’s revenues. Further, we are currently implementing internal controls related to the recognition and presentation of the Company’s revenues under these new standards. 22. Adoption of New Accounting Standard   In February 2016, the FASB issued a new accounting standard on leases.  The new standard, among other changes, will require lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases.  The lease liability will be measured at the present value of the lease payments over the lease term.  The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions).  The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods.  This standard is required to take effect in Nathan’s first quarter (June 2019) of our fiscal year ending March 29, 2020.  The adoption currently requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented.  In March 2018, the FASB has tentatively approved an exposure draft which provides an alternative transition method of adoption that permits the recognition of a cumulative-effect adjustment to retained earnings on the date of adoption. The Company is currently evaluating the transition methods of the standard to determine the impact of the adoption on its consolidated financial statements but expects that the standard will result in a significant increase to its other assets and other liabilities. In January 2017, the FASB issued a new accounting standard that narrows the definition of a business. The concept is fundamental in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU revised the definition of a business to consist of the following key concepts: ●     A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. ●     To be capable of being conducted and managed for the purposes described above, an integrated set of activities and assets requires two essential elements–inputs and a substantive process(es) applied to those inputs. The amendment is effective prospectively for public business entities for annual reporting periods beginning after December 15, 2017. This standard is required to take effect in Nathan’s first quarter ending (June 2018) of our fiscal year ending March 31, 2019. The Company does not expect this new accounting standard will have a material effect on the Company’s results of operations, cash flows or financial position. Early adoption is permitted when certain criteria are met. In January 2017, the FASB issued an update to the accounting guidance to simplify the testing for goodwill impairment. The update removes the requirement to determine the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. A company will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The Company adopted this guidance ison March 30, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. 23. New Accounting Standards Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under this standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. In November 2019, the FASB deferred the effective prospectivelydate for public business entitiessmaller reporting companies for annual reporting periods beginning after December 15, 2019. 2022. This standard is required to take effect in Nathan’s first quarter (June 2020) ( June 2023) of our fiscal year ending March 28, 2021. Nathan’s does not expect31, 2024.The Company is currently evaluating the impact that the adoption of this newguidance will have on its consolidated financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify 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. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. This standard is required to take effect in Nathan’s first quarter ( June 2021) of our fiscal year ending March 27, 2022. The Company is currently evaluating the impact that the adoption of this guidance will have a material impact on its results of operations orconsolidated financial position.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 C - 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.   F- 20 NOTE C - INCOME PER SHARE (continued) The following chart provides a reconciliation of information used in calculating the per-share amounts for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016, 29, 2020, respectively:     Net Income     Shares     Net income per share     Net Income   Shares   Net income per share     2018     2017     2016     2018     2017     2016     2018     2017     2016     2021     2020     2021     2020     2021     2020                                                                                                     Basic EPS                                                                                                   Basic calculation   $ 2,630     $ 7,485     $ 6,096       4,181,000       4,172,000       4,430,000     $ 0.63     $ 1.79     $ 1.38     $ 11,075     $ 13,435       4,116,000     4,216,000     $ 2.69     $ 3.19   Effect of dilutive                                                                         employee stock options     -       -       -       40,000       34,000       33,000       (.01 )     (.01 )     (.01 ) Effect of dilutive employee stock options     -       -       0       0       0       0                                                                                                     Diluted EPS                                                                                                   Diluted calculation   $ 2,630     $ 7,485     $ 6,096       4,221,000       4,206,000       4,463,000     $ 0.62     $ 1.78     $ 1.37     $ 11,075     $ 13,435       4,116,000       4,216,000     $ 2.69     $ 3.19     No optionsOptions to purchase 10,000 shares of common stock for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016 29, 2020 were excluded from the computation of diluted earnings per share.share because the exercise price exceeded the average market price.     NOTE D – MARKETABLE SECURITIES At March 25, 2018 and March 26, 2017, we did not have any marketable securities. At March 27, 2016, proceeds from the sale of available-for-sale securities and the resulting gross realized gains included in the determination of net income were as follows:     March 27, 2016   Available-for-sale securities:         Proceeds   $ 10,868   Gross realized gains   $ 26   As a result of the sale of all of the marketable securities during the fiscal year ended March 27, 2016, all prior unrealized gains have been realized and are included in net income and reclassified in determining other comprehensive income for the year ended March 27, 2016. The reclassification of unrealized gains for the year ended March 27, 2016 was $47, which was net of taxes of $25. NOTE E - ACCOUNTS AND OTHER RECEIVABLES, NET   Accounts and other receivables, net, consist of the following:     March 25,     March 26,     March 28,   March 29,     2018     2017     2021     2020                     Branded product sales   $ 7,604     $ 6,037     $ 6,480     $ 6,789   Franchise and license royalties     2,767       2,746       5,224     4,299   Other     599       622       293       257       10,970       9,405       11,997     11,345                     Less: allowance for doubtful accounts     468       457       345       237                     Accounts and other receivables, net   $ 10,502     $ 8,948     $ 11,652     $ 11,108     Accounts receivable are due within 30 days and are stated at amounts due from franchisees, retail licensees and Branded Product Program customers, net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are generally considered past due. The Company does not recognize franchise and license royalties that are not deemed to be realizable.   The Company individually reviews each past due account and determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current and expected future ability to pay its obligation to the Company, the condition of the general economy and the industry as a whole. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings. After the Company has used reasonable collection efforts, it writes off accounts receivable through a charge to the allowance for doubtful accounts.   F- 21 NOTE D - ACCOUNTS AND OTHER RECEIVABLES, NET (continued) Changes in the Company’s allowance for doubtful accounts for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016 29, 2020 are as follows:       March 25, 2018     March 26, 2017     March 27, 2016                             Beginning balance   $ 457     $ 471     $ 443   Bad debt expense     34       53       38   Accounts written off     (23 )     (67 )     (10 )                           Ending balance   $ 468     $ 457     $ 471       March 28, 2021     March 29, 2020                     Beginning balance   $ 237     $ 585   Bad debt expense     101       71   Write offs and other     7       (419 )                   Ending balance   $ 345     $ 237       NOTE F –E - PREPAID EXPENSES AND OTHER CURRENT ASSETS   Prepaid expenses and other current assets consist of the following:       March 25,     March 26,       2018     2017                     Income taxes   $ 1,624     $ -   Insurance     266       319   Other     983       774                     Total prepaid expenses and other current assets   $ 2,873     $ 1,093       March 28,     March 29,       2021     2020                     Income taxes   $ 280     $ 0   Real estate taxes     87       75   Insurance     388       263   Marketing     196       369   Other     374       474                     Total prepaid expenses and other current assets   $ 1,325     $ 1,181       NOTE G – ASSETS HELD FOR SALE Prior to the end of fiscal 2018, we entered into an agreement to sell a Company-owned restaurant located in Bay Ridge, Brooklyn, NY for $12,250. We have received a $1,201 non-refundable deposit and anticipate that the transaction will close during the second quarter of fiscal 2019. Property and equipment of $610 related to this sale has been classified as assets held for sale in our Consolidated Balance Sheet at March 25, 2018. NOTE HF - PROPERTY AND EQUIPMENT, NET   Property and equipment consistsconsist of the following:     March 25,     March 26,     March 28,   March 29,     2018     2017     2021     2020                     Land   $ 835     $ 1,197     $ 123     $ 123   Building and improvements     2,035       2,119       1,398     1,456   Machinery, equipment, furniture and fixtures     5,450       5,749       5,292     5,529   Leasehold improvements     6,578       7,181       7,044     6,891   Construction-in-progress     8       120       12       79   Total property and equipment     14,906       16,366       13,869     14,078   Less: accumulated depreciation and amortization     8,264       7,522       9,779       9,468                     Property and equipment, net   $ 6,642     $ 8,844     $ 4,090     $ 4,610   Depreciation and amortization expense related to properties was $1,070 and $1,149 for the fiscal years ended March 28, 2021 and March 29, 2020, respectively.   F- 22   NOTE G –I– ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES   Accrued expenses and other current liabilities consist of the following:     March 25,     March 26,     March 28,   March 29,     2018     2017     2021     2020   Payroll and other benefits   $ 2,733     $ 2,708     $ 2,793     $ 3,075   Accrued rebates     1,541       1,050       132     514   Rent and occupancy costs     200       215       73     84   Deferred revenue     780       723       841     797   Construction costs     68       160       60     105   Interest     3,948       463       4,057     4,084   Professional fees     157       109       200     194   Corporate income taxes     0     176   Sales, use and other taxes     80       143       60     17   Dividend payable     150       125   Deposit payable     1,201       -   Other     390       169       262       251   Total accrued expenses and other current liabilities   $ 11,248     $ 5,865     $ 8,478     $ 9,297     Other liabilities consist of the following:       March 25,     March 26,       2018     2017   Deferred development fees   $ 238     $ 67   Reserve for uncertain tax positions (Note J)     467       366   Deferred rental liability     677       786   Dividend payable     -       125   Other     211       211   Total other liabilities   $ 1,593     $ 1,555       March 28,     March 29,       2021     2020   Reserve for uncertain tax positions (Note H)     653       567   Other     121       129   Total other liabilities   $ 774     $ 696     NOTE H –J- INCOME TAXES   The income tax provision consists of the following for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016:29, 2020:                       March 25, 2018     March 26, 2017     March 27, 2016     March 28, 2021     March 29, 2020   Federal                           Current   $ 1,077     $ 3,024     $ 3,176     $ 3,146     $ 2,904   Deferred     (474 )     79       (11 )     (92 )     322   Total Federal income tax     603       3,103       3,165       3,054       3,226   State and local                           Current     917       1,195       1,135       1,251     1,323   Deferred     (38 )     21       (12 )     (55 )     30   Total State and local income tax     879       1,216       1,123       1,196       1,353   Total provision for income taxes   $ 1,482     $ 4,319     $ 4,288     $ 4,250     $ 4,579     F- 23   NOTE JH - INCOME TAXES (continued) (continued)   On December 22, 2017, March 27, 2020, the Enactment Date, President Trump signed Coronavirus Aid, Relief and Economic Security (“the Tax Cuts and Jobs Act (“CARES Act”) was enacted into law which among other provisions permanently reducesincreases the top corporate tax ratelimitation on the allowed business interest expense deduction from 3530 percent to a flat 2150 percent beginning January 1, 2018 and eliminates the corporate Alternative Minimum Tax. The new law limits the deduction of business interest, net of interest income, to 30 percent of the adjusted taxable income of the taxpayer in any taxable year. Any amount disallowed under the limitation is treated as business interest paid or accrued in the following year. Disallowed interest will have an indefinite carryforward. The new law also repeals the performance-based exception to the $1.0 million deduction limitation on executive compensation for tax years beginning January 1, 2019 and modifies the definition of “covered employees”.2020. Additionally, the new lawCARES Act allows businesses to immediate expensing ofimmediately expense the full cost of new equipment.Qualified Improvement Property, retroactive to tax years beginning on or after January 1, 2018.   Nathan’s has determined reasonable estimates to its deferred assets and liabilities and pursuant to ASC 740, Income Taxes, the Company has recognized the effect(s) of the Act on current and deferredThe income taxes in its consolidated financial statementstax provisions for the fiscal yearyears ended March 25, 2018. Nathan’s has completed its analysis 28, 2021 and reviewMarch 29, 2020 reflect effective tax rates of the Act27.7% and recorded the following discrete adjustment to its deferred tax liability and unrecognized tax benefits which reduced the provision for income taxes by $245 during the fiscal year ended March 25, 2018. Nathan’s has determined that its blended federal tax rate will be 31%. Fiscal year taxpayers are required to determine their final tax rate by prorating the federal tax rate prior to enactment and prorating the new rate for the balance of the fiscal year to determine the blended federal tax rate for the fiscal year.25.4%, respectively.   The total income tax provision for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016 29, 2020 differs from the amounts computed by applying the United States Federal income tax rate of 31%,34% and 34%, respectively21% to income before income taxes as a result of the following:                                                       March 25, 2018     March 26, 2017     March 27, 2016                             Computed “expected” tax expense   $ 1,275     $ 4,013     $ 3,531   State and local income taxes, net of Federal income tax benefit     506       797       826   Change in uncertain tax positions, net     98       (11 )     (129 ) Nondeductible meals and entertainment and other     21       61       60   Nondeductible compensation     -       118       -   Tax reform act     (245 )     -       -   Tax benefit share based payments     (173 )     (659 )     -   Total provision for income taxes   $ 1,482     $ 4,319     $ 4,288   NOTE J - INCOME TAXES (continued)     March 28, 2021     March 29, 2020                     Computed tax expense   $ 3,218     $ 3,783   State and local income taxes, net of Federal income tax benefit     936       1,028   Change in uncertain tax positions, net     68       60   Nondeductible meals and entertainment and other     (35 )     (95 ) Nondeductible compensation     63       31   Tax benefit share based payments     0       (228 ) Total provision for income taxes   $ 4,250     $ 4,579     The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:     March 25,     March 26,     March 28,   March 29,     2018     2017     2021     2020   Deferred tax assets                   Accrued expenses   $ 310     $ 361     $ 339     $ 394   Allowance for doubtful accounts     40       59       87     57   Deferred revenue     291       347       445     485   Deferred stock compensation     166       224       58     45   Excess of straight line over actual rent     194       338   Investment     123       187   Operating lease liability     2,190     2,321   Other     97       104       120       94   Total deferred tax assets   $ 1,221     $ 1,620     $ 3,239     $ 3,396                     Deferred tax liabilities                   Deductible prepaid expense     280       288       223     246   Operating lease right-of-use asset   1,954     2,116   Depreciation expense     882       1,771       634     720   Amortization     361       374       290       323   Total deferred tax liabilities     1,523       2,433       3,101       3,405   Net deferred tax (liability)   $ (302 )   $ (813 ) Net deferred tax asset (liability)   $ 138     $ (9 )   A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. We consider the level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted. Based upon these considerations, management believes that it is more likely than not that the Company will realize the benefit of its deferred tax asset.   F- 24 NOTE H - INCOME TAXES (continued) The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016.29, 2020.     March 25, 2018     March 26, 2017     March 27, 2016     March 28, 2021     March 29, 2020                             Unrecognized tax benefits, beginning of year   $ 167     $ 208     $ 266     $ 311     $ 253   Decreases of tax positions taken in prior years     (2 )     (31 )     (98 )     (16 )   (10 ) Increases based on tax positions taken in current year     98       41       43       102     52   Settlements of tax positions taken in prior years     -       (51 )     (3 )     0       16   Unrecognized tax benefits, end of year   $ 263     $ 167     $ 208     $ 397     $ 311     The amount of unrecognized tax benefits at March 25, 2018, 28, 2021 and March 26, 201729, 2020 were $397 and March 27, 2016 were $263, $167 and $208,$311, respectively, all of which would impact Nathan’s effective tax rate, if recognized. As of March 25, 2018 28, 2021 and March 26, 2017, 29, 2020, the Company had $214$256 and $183,$259, respectively, accrued for the payment of interest and penalties. For the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016 29, 2020 Nathan’s recognized interest and penalties in the amounts of $31, $29 $(3)and $34,$32, respectively. During the fiscal year ending March 31, 2019, 27, 2022, Nathan’s will seek to settle additional uncertain tax positions with the tax authorities. As a result, it is reasonably possible the amount of unrecognized tax benefits, excluding the related accrued interest and penalties, could be reduced by up to $3, $19,which would favorably impact Nathan’s effective tax rate, although no assurances can be given in this regard. NOTE J - INCOME TAXES (continued)   In January 2018, Nathan’s received notification from November 2019, the State of VirginiaNew Jersey notified Nathan’s that it was seeking to review Nathan’sour tax returns for the period April 2014 through fiscal years ended March 2017. The review is ongoing. Nathan’s estimates that its annual tax rate for the fiscal year ending 27, 2016, March 31, 2019 26, 2017 and March 25, 2018 will be in audited. In November 2020, the range of approximately 27.0%to 30.0% excluding the impact of the discrete items recordedaudit was completed and excess tax benefit associated with stock compensation. The final annual tax rate is subject to many variables, including the ultimate determination of revenue and income tax by state, among other factors, and therefore cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from our current estimates. In addition, the ultimate benefit of the Act on Nathan’s is unclear as the lower annual tax rate could be outweighed by the limitation of the deduction of interest expense and other provisions.no adjustments were noted.   The earliest tax years’years that are subject to examination by taxing authorities by major jurisdictions are as follows:   Jurisdiction Fiscal Year Federal 2015 2018 New York State 20152018 New York City 20152018 New Jersey 20142017 PennsylvaniaCalifornia 20152017 Virginia 2015   F- 25   NOTE I K– –SEGMENT INFORMATIONINFORMATION   Nathan’s considers itself to be a brand marketer of the Nathan’s Famous signature products to the foodservice industry pursuant to its various business structures. Nathan’s sells its products directly to consumers through its restaurant operations segment consisting of Company-operated and franchised restaurants, to distributors that resell our products to the foodservice industry through the Branded Product Program (“BPP”) and by third party manufacturers pursuant to license agreements that sell our products to club stores and grocery stores nationwide. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”) who evaluates performance and allocates resources for the Branded Product Program, Product Licensing and Restaurant Operations segments based upon a number of factors, the primary profit measure being income from operations. Certain administrative expenses are not allocated to the segments and are reported within Corporate.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 hotdogs,hot dogs, sausage and corned beef products, frozen French fries and additional products through retail grocery channels and club stores throughout the United States.   Restaurant operations – This segment derives revenue from the sale of our products at Company-owned restaurants and earns fees and royalties from its franchised restaurants.   Revenues from operating segments are from transactions with unaffiliated third parties and do not include any intersegment revenues.   Income from operations attributable to Corporate consists principally of administrative expenses not allocated to the operating segments such as executive management, finance, information technology, legal, insurance, corporate office costs, corporate incentive compensation and compliance costs.costs and expenses of the advertising fund.   Loss on debt extinguishment, interestInterest expense, interest income impairment charge 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.   Corporate assets consist primarily of cash and cash equivalents, and long-lived assets.   F- 26   NOTE I K– –SEGMENT INFORMATIONINFORMATION (continued)   Operating segment information for the fiscal years ended March 28, 2021 and March 29, 2020 is as follows:     Fifty-Two     Fifty-Two     Fifty-Two     weeks ended     weeks ended     weeks ended     March 25, 2018     March 26, 2017     March 27, 2016     March 28, 2021     March 29, 2020                             Revenues                                 Branded Product Program   $ 62,623     $ 56,174     $ 59,367     $ 33,617     $ 57,586   Product licensing     23,020       20,368       19,815       31,368     25,859   Restaurant operations     18,558       19,714       21,267       9,310     17,545   Corporate     -       -       -   Corporate (1)     1,544       2,335   Total revenues   $ 104,201     $ 96,256     $ 100,449     $ 75,839     $ 103,325                             Income from operations                                 Branded Product Program   $ 9,469     $ 10,257     $ 8,394     $ 4,635     $ 7,688   Product licensing     22,838       20,186       19,812       31,186     25,677   Restaurant operations     2,730       4,101       5,253       (2,856 )   1,637   Corporate     (7,937 )     (8,264 )     (8,496 )     (7,450 )     (7,830 ) Income from operations   $ 27,100     $ 26,280     $ 24,963     $ 25,515     $ 27,172     Interest expense     (13,591 )     (14,665 )     (14,630 )   $ (10,601 )   $ (10,601 ) Loss on debt extinguishment (Note L)     (8,872 )     -       -   Impairment charge – long lived assets (Note B)     (790 )     -       -   Impairment charge – long-term investment     -       -       (100 ) Interest income     166       104       52       364     1,357   Other income, net     99       85       99       47       86   Income before provision for income taxes   $ 4,112     $ 11,804     $ 10,384     $ 15,325     $ 18,014                             Total assets                                 Branded Product Program   $ 8,174     $ 7,113     $ 6,827     $ 7,037     $ 7,352   Product licensing     2,269       2,003       1,832       4,775     3,906   Restaurant operations     7,537       8,740       9,054       11,662     12,915   Corporate     62,111       60,269       53,836       85,335       81,109   Total assets   $ 80,091     $ 78,125     $ 71,549     $ 108,809     $ 105,282                             Depreciation & amortization expense                                 Branded Product Program   $ 298     $ 316     $ 370     $ 247     $ 312   Product licensing     -       -       -   Restaurant operations     786       762       710       613     641   Corporate     268       219       175       323       280   Total depreciation & amortization expense   $ 1,352     $ 1,297     $ 1,255     $ 1,183     $ 1,233   (1) Represents advertising fund revenue   F- 27   NOTE J L– – LONG-TERM DEBT   Long-term debt consists of the following:     March 25,     March 26,     March 28,   March 29,     2018     2017     2021     2020                     6.625% Senior Secured Notes due 2025   $ 150,000       -     $ 150,000     $ 150,000   10.000% Senior Secured Notes due 2020     -     $ 135,000   Less: unamortized debt issuance costs     (5,242 )     (3,525 )     (3,169 )     (3,860 ) Long-term debt, net   $ 144,758     $ 131,475     $ 146,831     $ 146,140     On November 1, 2017, the Company completed the issuance ofissued $150,000 of 6.625% Senior Secured Notes due 2025 (the "2025"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 (the “Indenture”) by and among the Company, certain of its wholly-owned subsidiaries as guarantors, and U.S. Bank National Association as trustee and collateral trustee.(the “Indenture”). The Company used the net proceeds of the 2025 Notes offering to satisfy and discharge the Indenture relating to the 2020$135,000 of 10.000% Senior Secured Notes (as hereinafter defined)due 2020 and redeem the 2020 Notes (the "Redemption"), paid a portion of a special $5.00 per share cash dividend to Nathan's stockholders of record, (see Note M.1), with the remaining net proceeds for general corporate purposes, including working capital. The Company also funded the majority of the special dividend of $5.00 per share through its existing cash. The Redemption occurred on November 16, 2017. The Company performed the required evaluation of the refinancing and determined that a portion of the Redemption of the 2020 Notes is accounted for as a modification of the debt and a portion as an extinguishment of the debt. In connection with the Redemption, the Company recorded a loss on early extinguishment of debt of $8,872 that primarily reflected a portion of the premium paid to redeem the 2020 Notes and the write-off of certain debt issuance costs. On March 10, 2015, the Company completed the issuance of $135,000 of 10.000% Senior Secured Notes due 2020 (“the 2020 Notes”) in a Rule 144A transaction. The 2020 Notes were issued pursuant to an indenture, dated March 10, 2015, by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, a national banking association, as trustee and collateral trustee. The Company used the proceeds to pay a special cash dividend of approximately $116,100 (see Note M.1) with the remaining net proceeds for general corporate purposes, including working capital. Debt issuance costs of approximately $5,985 were incurred, which were being amortized into interest expense over the remaining 5-year term of the 2020 Notes, or until redeemed.   The 20202025 Notes borebear interest at 10.000%6.625% per annum, payable semi-annually on March 15May 1thst and September 15November 1thst. An of each year. The Company made its required semi-annual interest payments of $4,969 on May 1, 2020 and November 1, 2020. On May 1, 2021, the Company paid its first semi-annual interest payment of $6,750 was paid on September 14, 2017.fiscal 2022. The 20202025 Notes had have no scheduled principal amortization payments prior to its final maturity on March 10, 2020. The 2025 Notes will have no scheduled principal amortization payments prior to its final maturity on November 1, 2025. The Company paid a 5% call premium of $6,750 associated with the Redemption and incurred debt issuance costs of $4,908 in connection with the issuance of the 2025 Notes. The Company also incurred additional interest expense of approximately $563 from the closing of the 2025 Notes on November 1, 2017 until the Redemption on November 16, 2017. NOTE L – LONG-TERM DEBT (continued) The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1st and November 1st of each year. The Company made its initial payment on May 1, 2018. Semi-annual interest payments are expected to be $4,969. The Company expects to reduce its annual debt service requirements by approximately $4,068 per annum.   The terms and conditions of the 2025 Notes are as follows:follows (terms not defined shall have the meanings set forth in the Indenture):   There are no ongoing financial maintenance covenants associated with the 2025 Notes. As of March 25, 2018, 28, 2021, Nathan’s was in compliance with all covenants associated with the 2025 Notes.   The Indenture contains certain covenants limiting the Company’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to, subject to certain exceptions and qualifications: (i) incur additional indebtedness; (ii) pay dividends or make other distributions on, redeem or repurchase, capital stock; (iii) make investments or other restricted payments; (iv) create or incur certain liens; (v) incur restrictions on the payment of dividends or other distributions from its restricted subsidiaries; (vi) enter into certain transactions with affiliates; (vii) sell assets; or (viii) effect a consolidation or merger. Certain Restricted Payments which may be made or indebtedness incurred by Nathan’s or its Restricted Subsidiaries may require compliance with the following financial ratios:   F- 28 NOTE J – LONG-TERM DEBT (continued) 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. NOTE L– LONG-TERM DEBT (continued)   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.   F- 29 NOTE J – LONG-TERM DEBT (continued) The 2025 Notes and the guarantees will beare the Company and the guarantors’ senior secured obligations and will rank:   ● senior in right of payment to all of the Company and the guarantors’ future subordinated indebtedness; ● effectively senior to all unsecured senior indebtedness to the extent of the value of the collateral securing the 2025 Notes and the guarantees; ● pari passu with all of the Company and the guarantors’ other senior indebtedness; ● effectively junior to any future credit facility to the extent of the value of the collateral securing any future credit facility and the 2025 Notes and the guarantees and certain other assets; ● effectively junior to any of the Company and the guarantors’ existing and future indebtedness that is secured by assets other than the collateral securing the 2025 Notes and the guarantees to the extent of the value of any such assets; and ● structurally subordinated to the indebtedness of any of the Company’s current and future subsidiaries that do not guarantee the 2025 Notes.   The Company may redeem the 2025 Notes in whole or in part prior to November 1, 2020, at a redemption price of 100% of the principal amount of the 2025 Notes redeemed plus the Applicable Premium, as of, plus accrued and unpaid interest. An Applicable Premium is the greater of 1% of the principal amount of the 2025 Notes; or the excess of the present value at such redemption date of (i) the redemption price of the 2025 Notes at November 1, 2020 plus (ii) all required interest payments due on the 2025 Notes through November 1, 2020 (excluding(excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over the then outstanding principal amount of the 2025 Notes.   Prior to November 1, 2020, if using the net cash proceeds of certain equity offerings, the Company hashad the option to redeem up to 35% of the aggregate principal amount of the 2025 Notes at a redemption price equal to 106.625% of the principal amount of the 2025 Notes redeemed, plus accrued and unpaid interest and any additional interest.   On or after November 1, 2020, the Company may redeem some or all of the 2025 Notes at a decreasing premium over time, plus accrued and unpaid interest as follows:   YEAR   PERCENTAGE   On or after November 1, 2020 and prior to November 1, 2021     103.313 % On or after November 1, 2021 and prior to November 1, 2022 101.656 % On or after November 1, 2021 and prior to November 1, 2022     101.656100.000 % On or after November 1, 2022 100.000 %   In certain circumstances involving a change of control, the Company will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s 2025 Notes pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, the Company will be required to offer payment in cash equal to 101% of the aggregate principal amount of 2025 Notes repurchased plus accrued and unpaid interest, to the date of purchase.   F- 30   NOTE J L– – LONG-TERM DEBT (continued)   If the Company sells certain collateralized assets and does not use the net proceeds as required, the Company will be required to use such net proceeds to repurchase the 2025 Notes at 100% of the principal amount thereof, plus accrued and unpaid interest and additional interest penalty, if any, to the date of repurchase.   The 2025 Notes may be traded between qualified institutional buyers pursuant to Rule 144A of the Securities Act. We have recorded the 2025 Notes at cost. Effective June 1, 2020, Nathan’s Board of Directors authorized the repurchase of up to $10 million of the 2025 Notes by the Company (at par or better) from time to time. There is no set time limit on the repurchases.     NOTE K M– LEASES The Company is party as lessee to various leases for its Company-operated 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 fiscal years ended March 28, 2021 and March 29, 2020 were as follows:     March 28, 2021     March 29, 2020   Statement of Earnings                 Operating lease cost   $ 1,444     $ 1,238   Short term lease cost     0       17   Variable lease cost     1,194       1,517   Less: Sublease income, net     (47 )     (85 )                   Total net lease cost (a)   $ 2,591     $ 2,687   (a) The fiscal years ended March 28, 2021 and March 29, 2020 include $1,981, net and $2,137, net, respectively, recorded to “Restaurant Operating Expenses” for leases for Company-operated restaurants; $657 and $635, respectively, recorded to “General and administrative expenses” for leases for corporate offices and equipment; and$47 and $85, respectively, recorded to “Other income, net” for leased properties that are leased to franchisees. Cash paid for amounts included in the measurement of lease liabilities for the fiscal years ended March 28, 2021 and March 29, 2020 were as follows:     March 28, 2021     March 29, 2020                     Operating cash flows from operating leases     $727       $375   F- 31 NOTE K – STOCKHOLDERS’ LEASES (continued) The weighted average remaining lease term and weighted-average discount rate for operating leases for the fiscal years ended March 28, 2021 and March 29, 2020 were as follows:     March 28, 2021     March 29, 2020                     Weighted average remaining lease term (years):     7.2       8.1                     Weighted average discount rate:     8.870 %     8.869 % Future lease commitments to be paid and received by the Company as of March 28, 2021 were as follows:     Payments     Receipts               Operating Leases     Subleases     Net Leases                             Fiscal year:                         2022   $ 1,837     $ 247     $ 1,590   2023     1,849       168       1,681   2024     1,774       169       1,605   2025     1,678       169       1,509   2026     1,712       169       1,543   Thereafter     3,761       183       3,578   Total lease commitments   $ 12,611     $ 1,105     $ 11,506   Less: Amount representing interest     3,221                   Present value of lease liabilities (a)   $ 9,390                   (a) The present value of minimum operating lease payments of $1,837 and $7,553are 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 fiscal years ended March 28, 2021 and March 29, 2020 were as follows:     March 28, 2021     March 29, 2020                     Operating lease income, net     $47       $84   F- 32 NOTE L – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS     1. DividendsDividends On May 31, 2018, Nathans’Effective June 14, 2019, the Board of Directors authorized the commencement of a regulardeclared its first quarterly cash dividend of $1.00$0.35 per share for fiscal year 2020. Through March 29, 2020, the Company declared and paid four regular quarterly dividends of $0.35 per annum, payable at common share aggregating $5,912. Effective June 12, 2020, the rateBoard declared its first quarterly cash dividend of $0.25 per quarter. The initial $0.25 $0.35per share for fiscal year 2021. Through March 28, 2021, the Company declared and paid four regular quarterly dividends of $0.35 per common share aggregating $5,761. Effective June 11, 2021, the Board declared its first quarterly cash dividend was declaredof $0.35per share for fiscal year 2022 which is payable on June 8, 2018 and will be paid on June 22, 2018 25, 2021 to shareholdersstockholders of record atas of the close of business on June 18, 2018. 21, 2021. Our ability to pay future dividends is limited by the terms of the Indenture with USU.S. Bank National Association, as trustee and collateral 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.   On November 1, 2017, the Company’s Board of Directors declared a special cash dividend of $5.00 per share payable to stockholders of record as of December 22, 2017 of which approximately $20,923 was paid on January 4, 2018 to the stockholders. The Company also accrued $25 for the expected dividends payable on unvested restricted shares pursuant to the terms of the restricted stock agreement. As unvested restricted stock vests, the declared dividend is paid. We estimate that $25 will be paid during our fiscal year ending March 31, 2019. On March 10, 2015, the Company’s Board of Directors declared a special cash dividend of $25.00 per share payable to stockholders of record as of March 20, 2015 of which approximately $115,100 was paid on March 27, 2015 to the stockholders. The Company accrued $1,000 for the expected dividends payable on unvested restricted shares pursuant to the terms of the restricted stock agreements. As unvested restricted stock vests, the declared dividend is paid. We have paid $875of the accrued dividend and estimate that the remaining $125 will be paid during our fiscal year ending March 31, 2019.   2. Stock Incentive Plans On September 14, 2010, 13, 2012, the Company’s shareholders approvedCompany amended the Nathan’s Famous, Inc. 2010 Stock Incentive Plan (the “2010“2010 Plan”), which provides for the issuance of nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other stock-based awards to directors, officers and key employees. The Company was initially authorized to issue up to 150,000 shares of common stock under the 2010 Plan, together with any shares which had not been previously issued under the Company’s previous stock option plans as of July 19, 2010 (171,000 shares), plus any shares subject to any outstanding options or restricted stock grants under the Company’s previous stock option plans that were outstanding as of July 19, 2010 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 100,000 shares. NOTE M – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued) On September 13, 2012, the Company amended the 2010 Plan increasing the number of shares available for issuance by 250,000 shares. Shares to be issued under the 2010 Plan maywere to be made available from authorized but unissued stock, common stock held by the Company in its treasury, or common stock purchased by the Company on the open market or otherwise. The number of shares issuable and the grant, purchase or exercise price of outstanding awards arewere subject to adjustment in the amount that the Company’s Compensation Committee considersconsidered appropriate upon the occurrence of certain events, including stock dividends, stock splits, mergers, consolidations, reorganizations, recapitalizations, or other capital adjustments. In On September 18, 2019, the event thatCompany’s shareholders approved the Company issues restrictedNathan’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 of the 2019 Plan shall be subject to the terms of the 2019 Plan. 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 have been authorized but not issued pursuant to the 2010 Plan each shareas 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 would reducegrants under any plan of the amountCompany that were outstanding as of available shares for issuance by either 3.2 shares for each sharethe Effective Date and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of restricted stock granted or 1 share for each share of restricted stock granted.an additional 11,000 shares. As of March 25, 2018, 28, 2021, there were up to 219,584208,584 shares available to be issued for future option grants or up to 188,933184,808 shares of restricted stock that mayto be granted under the 20102019 Plan.   F- 33 NOTE L – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued) In general, options granted under the Company’s stock incentive plans have terms of five or ten years and vest over periods of between three and five years. The Company has historically issued new shares of common stock for options that have been exercised and used the Black-Scholes option valuation model to determine the fair value of options granted at the grant date.   During the fiscal year ended March 29, 2015, the Company granted options to purchase 50,000 shares at an exercise price of $53.89 per share, all of which expire five years from the date of grant. All such stock options vest ratably over a four-year period commencing August 6, 2015. 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 year ended March 29, 2015 were as follows: Weighted-average option fair values    $ 11.970             Expected life (years)     4.5             Interest rate     1.66 %           Volatility     22.77 %           Dividend Yield     0 % The expected dividend yield is based on historical and projected yields for regular dividends. The Company estimates expected volatility based primarily on historical monthly price changes of the Company’s stock equal to the expected life of the option. The risk free interest rate is based on the U.S. Treasury yield in effect at the time of the grant. The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on expected employment termination behavior. NOTE M – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued) During the fiscal year ended March 30, 2014, the Company granted 25,000 shares of restricted stock at a fair value of $49.80 per share representing the closing price on the date of grant, which will be fully vested five years from the date of grant. The restrictions on the shares lapse ratably over a five-year period on the annual anniversary of the date of grant. The compensation expense related to this restricted stock award is expected to be $1,245 and will be recognized, commencing on the grant date, over the next five years. 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 for the fiscal years ended March 28, 2021 and March 29, 2020 is as follows:     March 25, 2018     March 26, 2017     March 27, 2016     March 28, 2021     March 29, 2020                             Stock options   $ 150     $ 150     $ 181     $ 85     $ 85   Restricted stock     248       432       541       31       31     $ 398     $ 582     $ 722     $ 116     $ 116     The tax benefit on stock-based compensation expense was $144, $213$32 and$298 $29 for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016, 29, 2020, respectively. As of March 25, 2018, 28, 2021, there was $100$54 of unamortized compensation expense related to stock-based incentive awards. The Company expects to recognize this expense over approximately fourfive months,which represents the weighted average remaining requisite service periods for such awards. No options were granted during the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016. In connection with the Company’s special cash dividend, paid on January 4, 2018, to stockholders of record as of December 22, 2017, the Company performed an analysis, pursuant to the anti-dilution provisions of the 2010 Plan (the “2010 Plan”), and issued replacement options to purchase 68,498 shares at an exercise price of $33.438 for the unvested stock options outstanding as of the record date of December 22, 2017, cancelling 64,384 shares at an exercise price of $35.58 per share. Nathan’s performed its evaluation based on the closing price of its common stock on December 20, 2017, the day before the stock went ex-dividend, of $83.20 per share, or $78.20 per share excluding the dividend of $5.00 per share. No other terms or conditions of the outstanding options were modified. The anti-dilution provisions of the original award were structured to equalize the award’s fair value before and after the modification. In connection with the Company’s special cash dividend, paid on March 27, 2015, to stockholders of record as of March 20, 2015, the Company performed an analysis, pursuant to the anti-dilution provisions of the 2010 Plan, and issued replacement options to purchase 75,745 shares at an exercise price of $35.58 for the unvested stock options outstanding as of March 29, 2015, canceling 50,000 shares at an exercise price of $53.89. Nathan’s performed its evaluation based on the closing price of its common stock on March 27, 2015 of $73.56 per share, or $48.56 per share excluding the dividend of $25.00 per share. No other terms or conditions of the outstanding options were modified. The anti-dilution provisions of the original award were structured to equalize the award’s fair value before and after the modification. NOTE M – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued)award.   A summary of the status of the Company’s stock options at March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016 29, 2020 and changes during the fiscal years then ended is presented in the tables below:       2018     2017     2016               Weighted-             Weighted-             Weighted-               Average             Average             Average               Exercise             Exercise             Exercise       Shares     Price     Shares     Price     Shares     Price   Options outstanding – beginning of year     75,745     $ 35.58       124,030     $ 26.29       142,964     $ 24.36                                                     Granted     -       -       -       -       -       -                                                     Replacement options issued (A)     68,498     $ 33.44                                                                                     Expired     -       -       -       -       (3,787 )     11.72                                                     Cancellation of outstanding options (A)     (64,384 )   $ 35.58                                                                                     Exercised     (11,361 )     35.58       (48,285 )     11.72       (15,147 )     11.72                                                     Options outstanding - end of year     68,498     $ 33.438       75,745     $ 35.58       124,030     $ 26.29                                                     Options exercisable - end of year     48,348     $ 33.438       37,873     $ 35.58       67,221     $ 18.44       2021     2020                                             Weighted-             Weighted-               Average             Average               Exercise             Exercise       Shares     Price     Shares     Price   Options outstanding – beginning of year     10,000     $ 89.90       42,234     $ 46.807                                     Granted     0       0       0       0                                     Expired     0       0       0       0                                     Exercised     0       0       (32,234 )     33.438                                     Options outstanding - end of year     10,000     $ 89.90       10,000     $ 89.90                                     Options exercisable - end of year     6,667     $ 89.90       3,333     $ 89.90     A – RepresentsThere were no stock option exercises for the effects on outstanding options after giving to the replacement options issued in connection with the Company’s special dividend to the shareholders of record on December 22, 2017. fiscal year ended March 28, 2021. During the fiscal yearsyear ended March 25, 2018, March 26, 2017 and March 27, 2016, 29, 2020, options to purchase 11,361,48,285 and 15,14732,234 shares were exercised which aggregated proceeds of $-0- (due to net settlement), $44 and$89, respectively,$1,078 to the Company. The aggregate intrinsic valuesvalue of the stock options exercised during the fiscal yearsyear ended March 25, 2018, March 26, 2017 and March 27, 2016 29, 2020 was $379, $1,555 and $486, respectively.$1,134.   F- 34 NOTE L – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued) The following table summarizes information about outstanding stock options at March 25, 2018:28, 2021:               Weighted-     Weighted-                       Average     Average     Aggregate               Exercise     Remaining     Intrinsic       Shares     Price     Contractual Life     Value                                     Options outstanding at March 25, 2018     68,498     $ 33.438       1.36     $ 2,648                                     Options exercisable at March 25, 2018     48,348     $ 33.438       1.36     $ 1,869                                     Exercise price is $33.438                                 NOTE M – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued)             Weighted-     Weighted-                       Average     Average     Aggregate               Exercise     Remaining     Intrinsic       Shares     Price     Contractual Life     Value                                     Options outstanding at March 28, 2021     10,000     $ 89.90       2.46     $ 0                                     Options exercisable at March 28, 2021     6,667     $ 89.90       2.46     $ 0     Restricted stock:   Transactions with respect to restricted stock for the fiscal year ended March 25, 2018 28, 2021 are as follows:             Weighted-         Weighted-             Average         Average             Grant-date Fair value         Grant-date Fair value                     Shares     Per share     Shares     Per share     Unvested restricted stock at March 26, 2017     10,000     $ 49.80   Unvested restricted stock at March 29, 2020     667     $ 89.90                     Granted     -       -       0     $ 0                     Vested     (5,000 )   $ 49.80       334     $ 89.90                     Unvested restricted stock at March 25, 2018     5,000     $ 49.80   Unvested restricted stock at March 28, 2021     333     $ 89.90   The aggregate fair value of restricted stock vested during the fiscal years ended March 25, 2018, 28, 2021 and March 26, 201729, 2020 was $17 and March 27, 2016 was $321, $736 and $683,$23, respectively.     3. Common Stock Purchase RightsRepurchase Programs   On June 5, 2013, Nathan’s adoptedMarch 13, 2020, the Company's Board of Directors approved a new stockholder rights10b5-1 stock plan (the “2013 Rights Plan”"10b5-1 Plan") under which all stockholders of record as of June 17, 2013 received rights to purchase shares of common stock (the “2013 Rights”) andexpired on August 12, 2020. During the previously existing “New Rights Plan” was terminated. The 2013 Rights were distributed as a dividend. Initially, fiscal year ended March 28, 2021, the 2013 Rights will attach to, and trade with, the Company’s common stock.  Subject to the terms, conditions and limitations of the 2013 Rights Plan, the 2013 Rights will become exercisable if (among other things) a person or group acquires 15% or more of the Company’s common stock. Upon such an event and payment of the purchase price of $100.00 (the “2013 Right Purchase Price”), each 2013 Right (except those held by the acquiring person or group) will entitle the holder to acquire one share of the Company’s common stock (or the economic equivalent thereof) or, if the then-currentCompany repurchased in open market price is less than the then current 2013 Right Purchase Price, a number oftransactions 26,676 shares of the Company’s common stock which at the time of the transaction has a market value equal to the then current 2013 Right Purchase Price at a purchase price peran average share equal to the then current market price of $56.26 for a total cost of $1,501 under the Company’s Common Stock.10b5-1 Plan.   TheIn 2016, the Company’s Board of Directors may redeem the 2013 Rights priorauthorized increases to the time they are triggered. Upon adoption of the 2013 Rights Plan, the Company initially reserved 10,188,600 shares of common stock for issuance upon exercise of the 2013 Rights.  The 2013 Rights will expire on June 17, 2018unless earlier redeemed or exchanged by the Company. At March 25, 2018, the Company has reserved 6,210,307 shares of common stock for issuance upon exercise of the Common Stock Purchase Rights approved by the Board of Directors on June 5, 2013. NOTE M – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued) 4. Stock Repurchase Programs During the period from October 2001 through March 25, 2018, Nathan’s purchased 5,127,373 shares of common stock at a cost of approximately $77,303 pursuant to various stock repurchase plans previously authorized by the Board of Directors. During the fiscal year ended March 25, 2018, we did not repurchase any shares of common stock. On November 9, 2009, Nathan’s Board of Directors authorized its sixth stock repurchase plan for the purchase of up to 500,0001,200,000 shares of its common stock on behalf of the Company. On February 1, 2011, As of March 28, 2021, Nathan’s Board of Directors increased the authorization to purchase its common stock by an additional 300,000 shares. On February 1, 2016, Nathan’s Board of Directors increased the authorization to purchase its common stock by an additional 200,000 shares. On March 11, 2016, Nathan’s Board of Directors increased the authorization to purchase its common stock by an additional 200,000 shares increasing the aggregate authorization under the Sixth Securities Repurchase Program to 1.2 million shares. The Company hashad repurchased 939,7421,066,450 shares at a cost of $29,641$37,108 under the sixth stock repurchase plan through plan. At March 25, 2018. On March 11, 2016, the Company and Mutual Securities, Inc. (“MSI”) entered into an agreement (the “Agreement”)28, 2021, there were 133,550 shares remaining to be repurchased pursuant to which MSI has been authorized onthe sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s behalf to purchase up to 175,000 shares of the Company’s common stock $.01 par value, commencing on March 21, 2016. The Agreement was adopted under the safe harbor provided by Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, as amended, in order to assist the Company in implementing its stock purchase plans and terminated in August 2016. On September 9, 2016, the Company and MSI entered into an agreement pursuant to which MSI was authorized on the Company’s behalf to purchase up to 100,000 shares of the Company’s common stock, $.01 par value, commencing September 19, 2016. This Agreement was adopted under the safe harbor provided by Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, as amended, to assist the Company in implementing its stock purchase plans and terminated September 9, 2017. As of March 25, 2018, an aggregate of 260,258 shares can still be purchased under Nathan’s existing stock buy-back program. Purchases 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 to be made under the stock-repurchase plan.     repurchases.   F- 35   NOTE L M– – STOCKHOLDERS’STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued)     5.4. Employment Agreements Employment Agreements Effective January 1, 2007, Howard M. Lorber, previously Chairman of the Board and Chief Executive Officer, assumed the newly-created position of Executive Chairman of the Board of Nathan’s and Eric Gatoff, previously Vice President and Corporate Counsel, became Chief Executive Officer of Nathan’s.   In connection with the foregoing, the Company entered into an employment agreement with each of Messrs. Lorber (as amended, the “Lorber Employment Agreement”) and Gatoff (as amended, the “Gatoff Employment Agreement”). Under the terms of the Lorber Employment Agreement, Mr. Lorber willwould serve as Executive Chairman of the Board from January 1, 2007 until December 31, 2012, unless his employment is terminated in accordance with the terms of the Lorber Employment Agreement. On November 1, 2012, the Company amended its employment agreement with Mr. Lorber, extending the term of the employment agreement to December 31, 2017 and increasing the base compensation of Mr. Lorber to $600 per annum. In addition, Mr. Lorber received a grant of 50,000 shares of restricted stock subject to vesting as provided in a Restricted Stock Agreement between Mr. Lorber and the Company. Mr. Lorber will not receive a contractually-required bonus. On December 6, 2017, the Company amended its employment agreement with Mr. Lorber, extending the term of the employment agreement from December 31, 2017 to December 31, 2022 and increasing the base compensation of Mr. Lorber to $1,000 per annum. The Lorber Employment Agreement provides for a three-yearthree-year consulting period after the termination of employment during which Mr. Lorber will receive a consulting fee of $200 per year in exchange for his agreement to provide no less than 15 days of consulting services per year, provided, Mr. Lorber is not required to provide more than 50 days of consulting services per year.   The Lorber Employment Agreement provides Mr. Lorber with the right to participate in employment benefits offered to other Nathan’s executives. During and after the contract term, Mr. Lorber is subject to certain confidentiality, non-solicitation and non-competition provisions in favor of the Company.   NOTE M – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued) In the event that Mr. Lorber’s employment is terminated without cause, he is entitled to receive his salary and bonus for the remainder of the contract term. The Lorber Employment Agreement further provides that in the event there is a change in control, as defined in the agreement, Mr. Lorber has the option, exercisable within one year after such event, to terminate the agreement. Upon such termination, he has the right to receive a lump sum cash payment equal to the greater of (A) his salary and annual bonuses for the remainder of the employment term (including a prorated bonus for any partial fiscal year), which bonus shall be equal to the average of the annual bonuses awarded to him during the three fiscal years preceding the fiscal year of termination; or (B) 2.99 times his salary and annual bonus for the fiscal year immediately preceding the fiscal year of termination, in each case together with a lump sum cash payment equal to the difference between the exercise price of any exercisable options having an exercise price of less than the then current market price of the Company’s common stock and such then current market price. In addition, Nathan’s will provide Mr. Lorber with a tax gross-up payment to cover any excise tax due.   F- 36 NOTE L – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued) In the event of termination due to Mr. Lorber’s death or disability, he is entitled to receive an amount equal to his salary and annual bonuses for a three-yearthree-year period, which bonus shall be equal to the average of the annual bonuses awarded to him during the three fiscal years preceding the fiscal year of termination.   Under the terms of the Gatoff Employment Agreement, Mr. Gatoff initially served as Chief Executive Officer from January 1, 2007 until December 31, 2008, which period automatically extends for additional one-yearone-year periods unless either party delivers notice of non-renewal no less than 180 days prior to the end of the term then in effect. Consequently, the Gatoff Employment Agreement is expected to be extended through December 31, 2019, 2022, based on the original terms, and no non-renewal notice has been given.   Pursuant to the agreement, Mr. Gatoff will receive a base salary, currently $500 effective June 1, 2016, and an annual bonus based on his performance measured against the Company’s financial, strategic and operating objectives as determined by the Compensation Committee pursuant to the terms of the 2018 Management Incentive Plan approved by shareholders on September 13, 2017.Committee. The Gatoff Employment Agreement provides for an automobile allowance and the right of Mr. Gatoff to participate in employment benefits offered to other Nathan’s executives. The employment agreement automatically extends for successive one-yearone-year periods unless notice of non-renewal is provided in accordance with the agreement. During and after the contract term, Mr. Gatoff is subject to certain confidentiality, non-solicitation and non-competition provisions in favor of the Company. On June 4, 2013, Mr. Gatoff received a grant of 25,000 shares of restricted stock at a fair value of $49.80 per share representing the closing price on the date of grant, subject to vesting as provided in a Restricted Stock Agreement between Mr. Gatoff and the Company. The compensation expense related to this restricted stock award is expected to bewas $1,245 and will bewas recognized, commencing ofon the grant date, over the next five years. NOTE M – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued) On June 10, 2015, the Company and Wayne Norbitz entered into a Transition Agreement (the “Transition Agreement”) relating to the retirement of Mr. Norbitz as President and Chief Operating Officer of the Company. Under the Transition Agreement, Mr. Norbitz continued to serve as President and Chief Operating Officer of the Company through August 7, 2015 at which time he became a Consultant to the Company pursuant to the terms of a one year Consulting Agreement between him and the Company (the “Consulting Agreement”). The Consulting Agreement provided that Mr. Norbitz would receive a consulting fee of $16.3 per month. The Transition Agreement further provided that Mr. Norbitz would receive a severance payment of $289 and under the terms of the Transition Agreement, the Company purchased from Mr. Norbitz 56,933 shares of the Company’s common stock, $.01 par value (the “Common Stock”) at a purchase price of $40.28 which was the closing price of the Common Stock as reported on the Nasdaq Global Market on June 10, 2015. Effective August 4, 2016, the Company and Wayne Norbitz executed an Amendment to the Consulting Agreement (the “Amendment”), whereas the Term of the Agreement was originally extended to expire August 10, 2017, which has been further extended to expire on December 31, 2017. Pursuant to the terms of the Amendment, Mr. Norbitz shall provide consulting services one (1) day a week, as directed by the Board of Directors of the Company and/or Eric Gatoff, Chief Executive Officer of the Company. The Amendment provided that Mr. Norbitz will receive a consulting fee of $8.1 per month for services rendered. Effective December 31, 2017, the Consulting Agreement between the Company and Wayne Norbitz expired and no extension was initiated. The Company and one employee of Nathan’s entered into a change of control agreement effective May 31, 2007 for annual compensation of $136 per year. The agreement additionally includes a provision under which the employee has the right to terminate the agreement and receive payment equal to approximately three times his annual compensation upon a change in control, as defined.       Each employment agreement terminates upon death or voluntary termination by the respective employee or may be terminated by the Company on up to 30-days’30-days’ prior written notice by the Company in the event of disability or “cause,” as defined in each agreement.   6.5. Defined Contribution and Union Pension Plans Defined Contribution and Union Pension Plans The Company has a defined contribution retirement plan under Section 401(k)401(k) of the Internal Revenue Code covering all nonunion employees over age 21, who have been employed by the Company for at least one year. Employees may contribute to the plan, on a tax-deferred basis, up to 20% of their total annual salary. Historically, the Company has matched contributions at a rate of $.25 per dollar contributed by the employee on up to a maximum of 3% of the employee’s total annual salary. Employer contributions for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 29, 2020 were $36and March 27, 2016 were $40, $41$44, respectively, and $35, respectively.are included in general and administrative expenses on the Consolidated Statements of Earnings.   F- 37   NOTE L M– – STOCKHOLDERS’STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS (continued) The Company participates in a noncontributory, multi-employer, defined benefit pension plan (the “Union Plan”) covering substantially all of the Company’s union-represented employees. The risks of participating in the Union Plan are different from a single-employer plan in the following aspects: (a) assets contributed to the Union Plan by one employer may be used to provide benefits to employees of other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (c) if the Company chooses to stop participating in the Union Plan, the Company may be required to pay the Union Plan an amount based on the underfunded status of the Union Plan, referred to as a withdrawal liability. The most recent estimate of our potential withdrawal liability is $441$384 as of March 25, 2018. December 31, 2020. The Company has no plans or intentions to stop participating in the plan as of March 25, 2018 28, 2021 and does not believe that there is a reasonable possibility that a withdrawal liability will be incurred. Any adjustment for withdrawal liability will be recorded only when it is probable that a liability exists and can be reasonably estimated, in accordance with U.S. GAAP. Contributions to the Union Plan were $12, $10$5 and $8$6 for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 201729, 2020, respectively, and March 27, 2016, respectively.are included in general and administrative expenses on the Consolidated Statements of Earnings.     7.6. Other Benefits Other Benefits The Company provides, on a contributory basis, medical benefits to active employees. The Company does not provide medical benefits to retirees.     NOTE M N– -GUARANTY AND OTHER COMMITMENTS AND CONTINGENCIES     1. CommitmentsGuaranty   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’s operations are principally conductedCompany is obligated to make payments under the Brooklyn Guaranty in leased premises.the event of a default by the tenant/franchisee. The leases generally haveBrooklyn Guaranty has an initial terms ranging from 5 to 20term of 10 years and usually provideone5-year option and is limited to 24 months of rent for renewal options ranging from 5 to 20 years. Mostthe firstthree years of the leases contain escalation clausesterm. Nathan’s has recorded a liability of $113 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and common area maintenance charges (including taxes and insurance). Revenueother costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from sub-leasing properties is recognized in income as the revenue is earned and deemed collectible. Sub-lease rental income is presented net of associated lease costs infranchisee for all obligations under the accompanying consolidated Statements of Earnings. NOTE N - COMMITMENTS AND CONTINGENCIES (continued) As of March 25, 2018,Brooklyn Guaranty. For the Company had non-cancelable operating lease commitments, net of certain sublease rental income, as follows:     Lease     Sublease     Net lease       commitments     income     commitments                             2019   $ 1,654     $ 330     $ 1,324   2020     1,569       332       1,237   2021     1,089       309       780   2022     1,092       263       829   2023     1,103       175       928   Thereafter     4,892       690       4,202                                 $ 11,399     $ 2,099     $ 9,300   Aggregate rental expense, net of sublease income, under all current leases amounted to $1,591, $1,566 and $1,628 for the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016, respectively. Sublease rental income was $274, $272and$270 for the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016, respectively. Contingent rental payments on building leases are typically made based on the percentage of gross salesremainder of the individual restaurants that exceed predetermined levels. The percentageterm, the Brooklyn Guaranty is limited to 12 months of gross sales to be paidrent plus reasonable costs of collection and related gross sales level vary by unit. Contingent rental expense, which is inclusive of common area maintenance charges, was approximately $478, $457and$517 for the fiscal years ended March 25, 2018, March 26, 2017 and March 27, 2016, respectively. At March 25, 2018, the Company leases one site which it in turn subleases to a franchisee, which expires in April 2027 exclusive of renewal options. The Company remains liable for all lease costs when property is subleased to a franchisee.attorney’s fees.     2. Legal ProceedingsProceedings   The Company and its subsidiaries are from time to time involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include money damages and, in such event, could result in a material adverse impact on the Company’s results of operations for the period in which the ruling occurs.   NOTE N - COMMITMENTS AND CONTINGENCIES (continued) 3. Guaranty On February 27, 2017, a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the “Brooklyn Guaranty”) in connection with its re-franchising of a restaurant located in Brooklyn, New York. The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. Nathan’s has recorded a liability of $204 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees.         NOTE ON - RELATED PARTY TRANSACTIONS   A firm to which Mr. Lorberthe Company’s Executive Chairman of the Board is as an investor (and, prior to January 2012, a consultant), and the firm’s affiliates, received ordinary and customary insurance commissions aggregating approximately $36, $26$19 and $19$29 for the fiscal years ended March 25, 2018, 28, 2021 and March 26, 2017 and March 27, 2016, 29, 2020, respectively.   F-38 NOTE P - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)     First Quarter     Second Quarter     Third Quarter     Fourth Quarter                                     Fiscal Year 2018                                                                   Total revenues   $ 30,803     $ 31,471     $ 22,021     $ 19,906   Gross profit (a)     4,820       6,486       4,168       2,482   Income from operations     8,450       8,734       5,370       4,546   Net income (loss)     2,922       3,120       (3,779 )     367                                     Per share information                                 Net income (loss) per share                                 Basic (b)   $ .70     $ .75     $ (.90 )   $ .09   Diluted (b)   $ .69     $ .74     $ (.90 )   $ .09                                     Shares used in computation of net income (loss) per share                                 Basic (b)     4,177,000       4,179,000       4,185,000       4,185,000   Diluted (b)     4,215,000       4,212,000       4,185,000       4,228,000       First Quarter     Second Quarter     Third Quarter     Fourth Quarter                                     Fiscal Year 2017                                                                   Total revenues   $ 29,280     $ 27,871     $ 19,873     $ 19,232   Gross profit (a)     5,804       6,402       4,074       2,906   Income from operations     8,824       8,031       4,754       4,671   Net income     3,550       2,507       699       729                                     Per share information                                 Net income per share                                 Basic (b)   $ .85     $ .60     $ .17     $ .17   Diluted (b)   $ .85     $ .60     $ .17     $ .17                                     Shares used in computation of net income per share                                 Basic (b)     4,166,000       4,172,000       4,175,000       4,176,000   Diluted (b)     4,191,000       4,207,000       4,209,000       4,217,000   (a) Gross profit represents the difference between sales and cost of sales. (b) The sum of the quarters may not equal the full year per share amounts included in the accompanying consolidated statements of earnings due to the effect of the weighted average number of shares outstanding during the fiscal years as compared to the quarters. Nathan’s Famous, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS March 25, 2018, March 26, 2017 and March 27, 2016 (in thousands) COL. A   COL. B     COL. C     COL. D     COL. E                                                                                       Description   Balance at beginning of period     Additions charged to costs and expenses     Additions charged to other accounts     Deductions     Balance at end of period                                             Fifty-two weeks ended March 25, 2018                                                                                   Allowance for doubtful accounts - accounts receivable   $ 457     $ 34     $ -     $ (23 ) (a)   $ 468                                             Fifty-two weeks ended March 26, 2017                                                                                   Allowance for doubtful accounts - accounts receivable   $ 471     $ 53     $ -     $ (67 ) (a)   $ 457                                             Fifty-two weeks ended March 27, 2016                                                                                   Allowance for doubtful accounts - accounts receivable   $ 443     $ 38     $ -     $ (10 ) (a)   $ 471   (a) Uncollectible amounts written off. F-46