FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

[ X ]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
	For the quarterly period ended December 24, 2017.

~~For the quarterly period ended~~~~December~~~~25, 2016.~~

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT of 1934

For the transition period from to .

Commission file number 001-35962

~~Commission file number 0-3189~~

NATHAN'S FAMOUS, INC.

(Exact name of registrant as specified in its charter)

~~Delaware~~	Delaware	11-3166443
	(State or other jurisdiction of of incorporation or organization)	(I.R.S. Employer Identification No.)

	One Jericho Plaza, Second Floor – Wing A, Jericho, New York 11753
	(Address of principal executive offices) (Zip Code)

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

~~(Address of principal executive offices)~~

~~(Zip Code)~~

(516) 338-8500

(Registrant's telephone number, including area code)

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

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

YesX No __

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

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

Large accelerated filer _____	Accelerated filerX
Non-accelerated filer __	~~Smaller reporting company __~~
~~(Do~~___ (do not check if a smaller reporting company)
Emerging growth company ___	Smaller reporting company ___

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ NoX

~~AtFebruary 3, 2017~~AtFebruary 2, 2018 an aggregate of ~~4,176,497~~4,184,549 shares of the registrant's common stock, par value of $.01, were outstanding.

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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

INDEX

~~INDEX~~

		Page Number

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

	Consolidated Financial Statements
	Consolidated Balance Sheets – December ~~25, 2016~~24, 2017 (Unaudited) andMarch ~~27, 2016~~26, 2017	3

	Consolidated Statements of Earnings (Unaudited) - Thirteen and Thirty-nineWeeks Ended December ~~25, 2016~~24, 2017 and December ~~27, 2015~~25, 2016	4

	Consolidated ~~Statements~~Statement of ~~Comprehensive Income~~Stockholders’ (Deficit) (Unaudited) – ~~Thirteen and~~ Thirty-nine Weeks Ended December ~~25, 2016 and December 27, 2015~~24, 2017	5

	~~Consolidated Statement of Stockholders’ (Deficit) (Unaudited) –Thirty-nine Weeks Ended December 25, 2016~~	6

	Consolidated Statements of Cash Flows (Unaudited) – Thirty-nine WeeksEnded December 24, 2017 and December 25, 2016 ~~and December 27, 2015~~	7 6

	Notes to Consolidated Financial Statements	87

Item 2.	Management's Discussion and Analysis of FinancialCondition and Results of Operations.	18

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

Item 4.	Controls and Procedures.	29

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings.	30

Item 1A.	Risk Factors.	30

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

Item 3.	Defaults Upon Senior Securities.	30

Item 4.	Mine Safety Disclosures.	30

Item 5.	Other Information.	30

Item 6.	Exhibits.	31

SIGNATURES			32

Exhibit Index			33

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Nathan~~Nathan’s~~’s Famous, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

~~December 25, 2016~~December 24, 2017 and March ~~27, 2016~~26, 2017

(in thousands, except share and per share amounts)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

	December 25, 2016			March 27, 2016			December 24, 2017			March 26, 2017
	(Unaudited)						(Unaudited)
ASSETS
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	56,403		$	50,228
Cash							$	67,288		$	56,915
Accounts and other receivables, net		10,210			8,721			11,873			8,948
Inventories		394			687			406			579
Prepaid expenses and other current assets (Note G)		700			1,343			3,352			1,093
Total current assets		67,707			60,979			82,919			67,535

Property and equipment, net of accumulated depreciationof $8,195 and $7,190, respectively		9,009			9,013
Property and equipment, net of accumulated depreciation of $8,525 and $7,522, respectively								8,276			8,844
Goodwill		95			95			95			95
Intangible asset		1,353			1,353			1,353			1,353
Other assets		94			109			293			298
Total assets	$	78,258		$	71,549		$	92,936		$	78,125

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	2,774		$	4,887		$	4,268		$	4,809
Accrued expenses and other current liabilities (Note H)		9,118			6,176			26,644			5,865
Deferred franchise fees		141			137			198			98
Total current liabilities		12,033			11,200			31,110			10,772

Long-term debt, net of unamortized debt issuance costs of $3,824and $4,734, respectively (Note M)		131,176			130,266
Long-term debt, net of unamortized debt issuance costs of $5,374 and $3,525, respectively (Note N)								144,626			131,475
Other liabilities		1,564			1,706			1,484			1,555
Deferred income taxes		805			713			751			814

Total liabilities		145,578			143,885			177,971			144,616

COMMITMENTS AND CONTINGENCIES (Note N)
COMMITMENTS AND CONTINGENCIES (Note O)

STOCKHOLDERS’ (DEFICIT)
Common stock, $.01 par value; 30,000,000 shares authorized;9,303,870 and 9,274,066shares issued; and 4,176,497 and 4,177,309shares outstanding at December 25, 2016 and March 27, 2016, respectively		93			93
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 December 24, 2017 and March 26, 2017, respectively								93			93
Additional paid-in capital		60,482			60,950			60,723			60,582
(Accumulated deficit)		(50,592	)		(57,348	)		(68,548	)		(49,863	)
Treasury stock, at cost, 5,127,373 and 5,096,757 shares at December 25, 2016and March 27, 2016, respectively		(77,303	)		(76,031	)
Total stockholders’ (deficit)		(67,320	)		(72,336	)
Stockholders’ (deficit) equity before treasury stock								(7,732	)		10,812
Treasury stock, at cost, 5,127,373 shares at December 24, 2017 and March 26, 2017, respectively								(77,303	)		(77,303	)
Total stockholders’ (deficit)								(85,035	)		(66,491	)

Total liabilities and stockholders’ (deficit)	$	78,258		$	71,549		$	92,936		$	78,125

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

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Nathan~~Nathan’s~~’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

Thirteen and thirty-nine weeks ended December ~~25, 2016~~24, 2017 and December ~~27, 2015~~25, 2016

(in thousands, except share and per share amounts)

(Unaudited)

	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended						Thirty-nine weeks ended
	December 25, 2016			December 27, 2015			December 25, 2016			December 27, 2015			December 24, 2017			December 25, 2016			December 24, 2017			December 25, 2016

REVENUES
Sales	$	14,859		$	15,763		$	58,012		$	62,627		$	16,767		$	14,859		$	63,639		$	58,012
License royalties		3,990			3,614			15,602			15,406			4,228			3,990			17,393			15,602
Franchise fees and royalties		1,088			1,187			3,752			3,804			1,088			1,088			3,575			3,752
Total revenues		19,937			20,564			77,366			81,837			22,083			19,937			84,607			77,366

COSTS AND EXPENSES
Cost of sales		10,785			12,082			41,732			47,848			12,599			10,785			48,165			41,732
Restaurant operating expenses		695			699			2,711			2,890			760			695			2,769			2,711
Depreciation and amortization		309			303			1,005			975			320			309			1,055			1,005
General and administrative expenses		3,394			3,045			10,309			9,647			3,034			3,394			10,064			10,309
Total costs and expenses		15,183			16,129			55,757			61,360			16,713			15,183			62,053			55,757

Income from operations		4,754			4,435			21,609			20,477			5,370			4,754			22,554			21,609

Loss on debt extinguishment														(8,872	)		-			(8,872	)		-
Interest expense		(3,663	)		(3,708	)		(11,002	)		(11,126	)		(3,650	)		(3,663	)		(10,976	)		(11,002	)
Interest income		35			-			71			52			44			35			114			71
Other income, net		21			21			64			72			22			21			64			64

Income before provision for income taxes		1,147			748			10,742			9,475
Provision for income taxes		448			316			3,986			3,886
Net income	$	699		$	432		$	6,756		$	5,589
(Loss) income before provision for income taxes														(7,086	)		1,147			2,884			10,742
(Benefit) provision for income taxes														(3,307	)		448			621			3,986
Net (loss) income													$	(3,779	)	$	699		$	2,263		$	6,756

PER SHARE INFORMATION
Income per share:
(Loss) income per share:
Basic	$	. 17		$	. 10		$	1.62		$	1.25		$	( 0.90	)	$	. 17		$	.54		$	1.62
Diluted	$	. 17		$	. 10		$	1.61		$	1.24		$	(0.90	)	$	. 17		$	.54		$	1.61
Weighted average shares used in computing income per share:

Weighted average shares used in computing (loss) income per share:
Basic		4,175,000			4,408,000			4,171,000			4,474,000			4,185,000			4,175,000			4,180,000			4,171,000
Diluted		4,209,000			4,444,000			4,202,000			4,504,000			4,185,000			4,209,000			4,219,000			4,202,000

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

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Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT)

Thirty-nine weeks ended December 24, 2017

(in thousands, except share amounts)

(Unaudited)

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

Balance, March 26, 2017		9,303,870	$	93	$	60,582		$	(49,863	)		5,127,373	$	(77,303	)	$	(66,491	)

Shares issued in connection with share-based compensation plans		8,052		-		-			-			-		-			-

Withholding tax on net share settlement of share-based compensation plans		-		-		(157	)		-			-		-			(157	)

Share-based compensation		-		-		298			-			-		-			298

Cash dividends declared on common stock and restricted stock		-		-		-			(20,948	)		-		-			(20,948	)

Net income		-		-		-			2,263			-		-			2,263

Balance, December 24, 2017		9,311,922	$	93	$	60,723		$	(68,548	)		5,127,373	$	(77,303	)	$	(85,035	)

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

~~-4-~~-5-

Nathan~~Nathan’s~~’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CASH FLOWS

~~Thirteen and thirty-nine~~Thirty-nine weeks ended December ~~25, 2016~~24, 2017 and December ~~27, 2015~~25, 2016

(in thousands)

(Unaudited)

Thirteen weeks ended Thirty-nine weeks ended

December 25,
2016

December 27,
2015

December 25,
2016

December 27,
2015

Net income
$ 699 $ 432 $ 6,756 $ 5,589

Other comprehensive loss, net of deferred income taxes:

Less: Reclassification adjustment for gains includedin net income
- - - 47

Other comprehensive loss
- - - (47 )

Comprehensive income
$ 699 $ 432 $ 6,756 $ 5,542

	December 24, 2017			December 25, 2016
Cash flows from operating activities:
Net income	$	2,263		$	6,756
Adjustments to reconcile net income to net cash provided by operating activities
Loss on debt extinguishment		8,872			-
Depreciation and amortization		1,055			1,005
Amortization of debt issuance costs		932			910
Share-based compensation expense		298			482
Income tax benefit on stock option exercises		194			659
Provision for doubtful accounts		42			34
Deferred income taxes		(63	)		92
Changes in operating assets and liabilities:
Accounts and other receivables, net		(2,967	)		(1,523	)
Inventories		173			293
Prepaid expenses and other current assets		(2,259	)		643
Other assets		5			15
Accounts payable, accrued expenses and other current liabilities		(779	)		545
Deferred franchise fees		100			4
Other liabilities		(71	)		(142	)

Net cash provided by operating activities		7,795			9,773

Cash flows from investing activities:
Purchase of property and equipment		(488	)		(1,001	)

Net cash (used in) investing activities		(488	)		(1,001	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		150,000			-
Cash payments for extinguishment of debt		(135,000	)		-
Premium paid on extinguishment of debt		(6,750	)		-
Debt issuance costs		(4,902	)		-
Proceeds from exercise of stock options		-			44
Dividends paid upon vesting of restricted stock		(125	)		(375	)
Payments of withholding tax on net share settlement of share-based compensation plans		(157	)		(994	)
Repurchase of treasury stock		-			(1,272	)

Net cash provided by (used in) financing activities		3,066			(2,597	)

Net increase in cash		10,373			6,175

Cash, beginning of period		56,915			50,228

Cash, end of period	$	67,288		$	56,403

Cash paid during the period for:
Interest	$	9,038		$	6,750
Income taxes paid	$	3,447		$	2,976

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

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

~~-5-~~

~~Nathan’s Famous, Inc. and Subsidiaries~~

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

~~Thirty-nine weeks ended December 25, 2016~~

~~(in thousands, except share amounts)~~

~~(Unaudited)~~

Additional

Total

Common

Common

Paid-in

(Accumulated

Treasury Stock, at Cost

Stockholders’

Shares

Stock

Capital

Deficit)

Shares

Amount

(Deficit)

Balance, March 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
482 482

Net income
- - - 6,756 - - 6,756

Balance,December 25, 2016
9,303,870 $ 93 $ 60,482 $ (50,592 ) 5,127,373 $ (77,303 ) $ (67,320 )

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

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~~Nathan’s Famous, Inc. and Subsidiaries~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~Thirty-nine weeks ended December 25, 2016 and December 27, 2015~~

~~(in thousands)~~

~~(Unaudited)~~

December 25,
2016

December 27,
2015

Cash flows from operating activities:

Net income
$ 6,756 $ 5,589
Adjustments to reconcile net income to net cashprovided by operating activities

Depreciation and amortization
1,005 975
Amortization of bond premium
- 64
Gain on sale of marketable equity securities
- (26 )
Amortization of debt issuance costs
910 889
Share-based compensation expense
482 549
Income tax benefit on stock option exercises
659 -
Provision for doubtful accounts
34 23
Deferred income taxes
92 15
Changes in operating assets and liabilities:

Accounts and other receivables, net
(1,523 ) 441
Inventories
293 253
Prepaid expenses and other current assets
643 3,618
Other assets
15 134
Accounts payable, accrued expenses and other current liabilities
545 1,575
Deferred franchise fees
4 (81 )
Other liabilities
(142 ) (355 )

Net cash provided by operating activities
9,773 13,663

Cash flows from investing activities:

Proceeds from sales and maturities of available-for-sale securities
- 10,868
Purchase of property and equipment
(1,001 ) (550 )
Purchase of available-for-sale securities
- (3,887 )

Net cash (used in) provided by investing activities
(1,001 ) 6,431

Cash flows from financing activities:

Debt issuance costs
- (60 )
Income tax benefit on stock option exercises
- 142
Proceeds from exercise of stock options
44 44
Dividends paid upon vesting of restricted stock
(375 ) (375 )
Payments of withholding tax on net share settlement ofshare-based compensation plans
(994 ) (260 )
Repurchase of treasury stock
(1,272 ) (11,270 )

Net cash (used in) financing activities
(2,597 ) (11,779 )

Net increase in cash and cash equivalents
6,175 8,315

Cash and cash equivalents, beginning of period
50,228 51,393

Cash and cash equivalents, end of period
$ 56,403 $ 59,708

Cash paid (refunded) during the period for:

Interest
$ 6,750 $ 6,938
Income taxes paid / (refunded)
$ 2,976 $ (95 )

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

~~-7-~~

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~December 25, 2016~~December 24, 2017

(Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying consolidated financial statements of Nathan's Famous, Inc. and subsidiaries (collectively ~~“Nathan’s,~~“Nathan’s,” the “Company,” “we,” “us” or “our”) as of and for the thirteen and thirty-nine week periods ended December ~~25, 2016~~24, 2017 and December ~~27, 2015~~25, 2016 have been prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of financial condition, results of operations and cash flows for the periods presented. However, our results of operations are seasonal in nature, and the results of any interim period are not necessarily indicative of results for any other interim period or the full fiscal year.

Certain information and footnote disclosures normally included in financial statements in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the requirements of the Securities and Exchange Commission. Management believes that the disclosures included in the accompanying consolidated interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the consolidated financial statements and notes thereto included in Nathan’s Annual Report on Form 10-K for the fiscal year ended March ~~27, 2016.~~26, 2017.

A summary of the ~~Company’s~~Company’s significant accounting policies is identified in Note B of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March ~~27, 2016. Except for the adoption discussed in Note B – share-based payments to employees, there~~26, 2017. There have been no changes to the Company’s significant accounting policies subsequent to March ~~27, 2016.~~26, 2017.

NOTE B– ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

In March 2016, the Financial Accounting Standards Board (the “FASB”), issued new guidance which addresses how companies account for certain aspects of its share-based payments to employees. The update simplifies the accounting for the tax consequences. It also amends how excess tax benefits and a company’s payments to cover the tax bills for the shares’ recipients should be classified on the statement of cash flows related to share-based payments to employees. The amendments allow companies to estimate the number of stock awards they expect to vest, and the amendments revised the withholding requirements for classifying stock awards as equity. Previously, tax withholding was permitted only at the minimum statutory tax rates, which is being amended to permit higher income tax withholding as long as it does not exceed the maximum statutory tax rate for an employee in the applicable jurisdictions. This new standard is effective for public companies with fiscal years beginning after December 15, 2016 which will be Nathan’s first quarter ending (June 2017) of our fiscal year ending on March 25, 2018. However, early adoption is permitted.

The Company elected to early adopt this standard in the quarter ended June 26, 2016. The impact of the early adoption resulted in the Company recording a tax benefit of $38,000 and $659,000 within income tax expense for the thirteen and thirty-nine weeks ended December 25, 2016, respectively, related to the excess tax benefit on stock incentive awards that settled during these periods. Prior to adoption of this guidance, these amounts would have increased additional paid-in capital. These items shall not be factored into the projected annual income tax rate, but will be treated as discrete items when they occur. Accordingly, this new treatment will add additional volatility in the Company’s effective tax rate.

~~The excess tax benefits for the thirteen and thirty-nine weeks ended December 27, 2015 were $77,000 and $142,000, respectively which increased additional paid-in-capital.~~

The Company accounts for forfeitures as they occur. Under the new guidance, excess tax benefits related to employee share-based payments of $659,000 are classified as operating activities in the statement of cash flows for the thirty-nine weeks ended December 25, 2016. The Company applied the effect of the guidance to the presentation of excess tax benefits in the statement of cash flows prospectively and no prior periods have been adjusted. The Company did not record any cumulative-effect adjustment to accumulated deficit or net assets as a result of adopting this new accounting standard. The Company also modified its diluted earnings per share calculation by excluding the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of its diluted earnings per share for the thirteen and thirty-nine weeks ended December 25, 2016.

~~-8-~~

~~NOTE C – NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED~~

In May 2014, the FASB issued a new accounting standard that attempts to establish a uniform basis for recording income to virtually all industries financial statements, under U.S. GAAP as amended in March 2016 and April 2016. The FASB issued two updates to the standard clarifying reporting revenue between Principle versus Agent and clarification in determining performance obligations and licenses guidance. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled.In order to accomplish this objective, companies must evaluate the following five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. There are three basic transition methods that are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. guidance at the date of initial application and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. Prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. guidance. Early adoption is prohibited. Public companies were originally expected to apply the new standard for annual periods beginning after December 15, 2016, including interim periods therein, which for Nathan’s would have been its first quarter of fiscal 2018, beginning on March 27, 2017. On May 12, 2015, the FASB issued a second proposed update to the standard clarifying the distinction between revenue from licenses of intellectual property that represent a promise to deliver a good or service over time versus a promise to be satisfied at a point in time. On July 9, 2015, the FASB agreed to delay the standard’s effective date to annual reporting periods beginning after December 15, 2017 which will now be our first quarter (June 2018) of our fiscal year ending March 31, 2019. The Company is currently evaluating the impact of this new accounting standard on its consolidated financial position and results of operations. The Company does not believe that the standard will impact its recognition of revenue for its Branded Product Program, Company-operated restaurants or its recognition of royalties from its franchised restaurants or retail licenses, which are based on a percentage of sales. The Company is continuing to evaluate the impact the adoption of this standard will have on the recognition of fees received from international development fees from the sales of exclusive territorial rights, initial fees from franchises for new restaurant openings or extended franchise terms.

In August 2014, the FASB issued new guidance that requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. If such conditions exist, management will be required to include disclosures enabling users to understand those conditions and management’s plans to alleviate or mitigate those conditions. This new standard is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 16, 2016. This standard will take effect in Nathan’s fourth quarter of our fiscal year ending March 26, 2017. Nathan’s does not expect the adoption of this new guidance to have a material impact on its results of operations or financial position.

In July 2015, the ~~FASB~~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. ~~This new standard is~~The guidance was effective for ~~annual reporting periods~~the Company beginning ~~after December 15, 2016 which will be our first~~in the quarter ~~(June 2017) of our fiscal year ending March~~ended June 25, ~~2018. Nathan’s does~~2017 and did not ~~expect the adoption of this new guidance to~~ 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.

NOTE C – NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In May 2014, the FASB issued a new accounting standard that attempts to establish a uniform basis for recording revenue to virtually all industries’ financial statements, under U.S. GAAP as further amended during 2016. The FASB issued certain updates to the standard, including clarifying reporting revenue between Principle versus Agent and clarification in determining performance obligations and licenses guidance. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled.In order to accomplish this objective, companies must evaluate the following five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

There are two basic transition methods that are available – full retrospective, or modified retrospective transition methods. Early adoption is prohibited. Public companies were originally expected to apply the new standard for annual periods beginning after December 15, 2016, including interim periods therein, which for Nathan’s would have been its first quarter of fiscal 2018, beginning on March 27, 2017. On July 9, 2015, the FASB agreed to delay the standard’s effective date to annual reporting periods beginning after December 15, 2017 which will now be our first quarter (June 2018) of our fiscal year ending March 31, 2019.

The Company has assigned internal resources to evaluate and implement the new standard, and will continue to provide updates during fiscal year 2018. The Company is continuing its evaluation of the impact of the new standard, but currently does not believe that the standard will materially impact its recognition of revenue for its Company-operated restaurants or its recognition of royalties from its franchised restaurants or retail licenses, which are based on a percentage of sales. The Company is still assessing the impact of the new standard on revenues from its Branded Product Program as well as decisions reached by the FASB Transition Resource Group in November 2016 on the treatment of minimum guarantees in licensing arrangements, which may affect the timing of the Company’s recognition of royalty revenues. Currently, franchise and international development fees are recognized when the Company has performed substantially all initial services required by the agreements, which is generally when the franchisee begins operations. Under the new guidance, these fees may be recognized over the term of the agreements. The Company also expects that the adoption of this new guidance may change the reporting of contributions to the advertising fund from franchisees and other third parties and the related advertising fund expenditures, which are currently reported on a net basis in the Consolidated Statements of Earnings and Consolidated Balance Sheets. The Company expects the new guidance will require these advertising fund contributions and expenditures to be reported on a gross basis in the Consolidated Statement of Earnings. For the fiscal year ended March 26, 2017, advertising fund contributions from franchisees and other third parties were $2,572,000, and therefore we expect this change may impact our total revenues and expenses. The Company plans to adopt this standard in the first quarter of fiscal 2019, beginning March 26, 2018, using the modified retrospective method.

-7-

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 ~~ending~~ (June 2019) of our fiscal year ending March 29, 2020. The adoption will require a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented. The Company is currently evaluating the standard to determine the impact of ~~this new accounting standard~~the adoption on its consolidated financial ~~position~~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 an update to the accounting guidance to simplify the testing for goodwill impairment. The update removes the requirement to determine the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. A company will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The guidance is effective prospectively for public business entities for annual reporting periods beginning after December 15, 2019. This standard is required to take effect in Nathan’s first quarter (June 2020) of our fiscal year ending March 28, 2021. Nathan’s does not expect the adoption of this new guidance to have a material impact on its results of ~~operations.~~operations or financial position.

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

~~-9-~~

~~NOTE~~NOTE D – INCOME PER SHARE

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

The following chart provides a reconciliation of information used in calculating the per-share amounts for the thirteen and thirty-nine week periods ended December 24, 2017 and December 25, 2016, ~~and December 27, 2015,~~ respectively.

Thirteen weeks
									Net Income													Net (Loss) Income
	Net Income				Number of Shares				Per Share				Net (Loss) Income					Number of Shares				Per Share
	2016		2015		2016		2015		2016		2015		2017			2016		2017		2016		2017			2016
	(in thousands)				(in thousands)								(in thousands)					(in thousands)
Basic EPS
Basic calculation	$	699	$	432		4,175		4,408	$	0.17	$	0.10	$	(3,779	)	$	699		4,185		4,175	$	(0.90	)	$	0.17
Effect of dilutive employee stockoptions		-		-		34		36		-		-
Effect of dilutive employee stock options														-			-		-		34		-			-
Diluted EPS
Diluted calculation	$	699	$	432		4,209		4,444	$	0.17	$	0.10	$	(3,779	)	$	699		4,185		4,209	$	(0.90	)	$	0.17

-8-

Thirty-nine weeks
Thirty-nine weeks
									Net Income														Net Income
	Net Income				Number of Shares				Per Share						Net Income				Number of Shares				Per Share
	2016		2015		2016		2015		2016			2015			2017		2016		2017		2016		2017		2016
	(in thousands)				(in thousands)										(in thousands)				(in thousands)
Basic EPS
Basic calculation	$	6,756	$	5,589		4,171		4,474	$	1.62		$	1.25		$	2,263	$	6,756		4,180		4,171	$	0.54	$	1.62
Effect of dilutive employee stockoptions		-		-		31		30		(0.01	)		(0.01	)
Effect of dilutive employee stock options																-		-		39		31		-		(0.01	)
Diluted EPS
Diluted calculation	$	6,756	$	5,589		4,202		4,504	$	1.61		$	1.24		$	2,263	$	6,756		4,219		4,202	$	0.54	$	1.61

No options to purchase shares of common stock for the ~~thirteen or~~ thirty-nine week periods ended December 24, 2017 and December 25, 2016 ~~and~~or for the thirteen week period ended December ~~27, 2015~~25, 2016 were excluded from the computation of diluted earnings per share. For the thirteen week period ended December 24, 2017, 47,000 options to purchase common stock were excluded from the computation of dilutive earnings per share as the effect would be anti-dilutive.

NOTE E– FAIR VALUE MEASUREMENTS

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

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

● 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

~~At December 25, 2016 and March 27, 2016, we did not have any marketable securities that were valued at fair value.~~

The ~~Company’s~~Company’s long-term debt had a face value of ~~$135,000,000~~$150,000,000 as of December ~~25, 2016~~24, 2017 and a fair value of ~~$146,981,000~~$155,625,000 as of December ~~25, 2016.~~24, 2017. 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.

~~-10-~~

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

Certain non-financial assets and liabilities are measured at fair value on a non-recurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances, such as when evidence of impairment exists. At December ~~25, 2016,~~24, 2017, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.

NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET

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

	December 25,		March 27,		December 24,		March 26,
	2016		2016		2017		2017

Branded product sales	$	6,545	$	5,689	$	8,726	$	6,037
Franchise and license royalties		2,866		2,592		2,534		2,746
Other		1,299		911		1,093		622
		10,710		9,192		12,353		9,405

Less: allowance for doubtful accounts		500		471		480		457
Accounts and other receivables, net	$	10,210	$	8,721	$	11,873	$	8,948

Accounts receivable are due within 30 days and are ~~stated~~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.

-9-

Changes in the ~~Company’s~~Company’s allowance for doubtful accounts for the thirty-nine week period ended December ~~25, 2016~~24, 2017 and the fiscal year ended March ~~27, 2016~~26, 2017 are as follows (in thousands):

	December 25, 2016			March 27, 2016			December 24, 2017			March 26, 2017

Beginning balance	$	471		$	433		$	457		$	471
Bad debt expense		34			38			42			53
Accounts written off		(5	)		(10	)		(19	)		(67	)
Ending balance	$	500		$	471		$	480		$	457

NOTE G – PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

December 25,

March 27,

2016

2016

Income taxes
$ - $ 211
Insurance
225 488
Other
475 644
Total prepaid expenses and other current assets
$ 700 $ 1,343

~~-11-~~

	December 24,		March 26,
	2017		2017

Income taxes	$	2,751	$	-
Insurance		247		319
Other		354		774
Total prepaid expenses and other current assets	$	3,352	$	1,093

~~NOTE~~NOTE H – ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES

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

	December 25,		March 27,		December 24,		March 26,
	2016		2016		2017		2017
Payroll and other benefits	$	2,114	$	2,919	$	2,087	$	2,708
Income taxes		823		82
Accrued rebates		1,236		940		1,245		1,050
Rent and occupancy costs		203		218		207		215
Deferred revenue		79		679		17		723
Construction costs		216		183		70		160
Interest		3,849		507		1,470		463
Professional fees		204		101		168		109
Income taxes						33		143
Dividend payable		125		375		21,073		125
Other		269		172		274		169
Total accrued expenses, other current liabilities and other liabilities	$	9,118	$	6,176
Total accrued expenses and other current liabilities					$	26,644	$	5,865

Other liabilities consist of the following (in thousands):

	December 25,		March 27,		December 24,		March 26,
	2016		2016		2017		2017
Deferred development fees	$	174	$	129	$	154	$	67
Reserve for uncertain tax positions		436		427		419		366
Deferred rental liability		822		893		700		786
Dividend payable		125		250		-		125
Other		7		7		211		211
Total other liabilities	$	1,564	$	1,706	$	1,484	$	1,555

-10-

~~NOTE~~NOTE I – SALES

The ~~Company’s~~Company’s sales for the thirteen and thirty-nine weeks ended December ~~25, 2016~~24, 2017 and December ~~27, 2015~~25, 2016 are as follows (in thousands):

	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Thirty-nine weeks ended
	December 25, 2016		December 27, 2015		December 25, 2016		December 27, 2015		December 24, 2017		December 25, 2016		December 24, 2017		December 25, 2016

Branded Products	$	12,868	$	13,565	$	44,349	$	47,160	$	14,674	$	12,868	$	50,741	$	44,349
Company-operated restaurants		1,991		2,030		13,449		14,872		2,093		1,991		12,898		13,449
Other		-		168		214		595		-		-		-		214
Total sales	$	14,859	$	15,763	$	58,012	$	62,627	$	16,767	$	14,859	$	63,639	$	58,012

NOTE J – INCOME TAXES

The income tax provisions for the thirty-nine week periods ended December ~~25, 2016~~24, 2017 and December ~~27, 2015~~25, 2016 reflect effective tax rates of ~~37.1%~~21.5% and ~~41.0%~~37.1%, respectively. Nathan’s effective tax ~~rate was~~rates for the thirty-nine week periods ended December 24, 2017 and December 25, 2016 were reduced by ~~6.1% during the fiscal 2017 period~~670 BPS and 610 BPS, respectively, as a result of ~~a discrete~~the tax ~~benefit~~benefits associated with stock compensation guidance from the FASB that was recently adopted by the Company. This favorable tax benefit was partially offset by an estimated unfavorable discrete adjustment of a prior years’ tax position which increased Nathan’s effective tax rate during the fiscal 2017 period by 1.1%. During the fiscal 2016 period, the Company’s tax rate was negatively affected by 1.0% due to lost interest deductions arising from its investments in municipal securities. The Company’s tax rate was favorably affected by 0.2% and 0.1% during the fiscal 2016 period, due to the settlement of an uncertain tax position and effects of tax-exempt interest income, respectively.compensation. For the thirty-nine week ~~period~~periods ended December 24, 2017 and December 25, 2016, excess tax benefits of $194,000 and $659,000, ~~associated with stock compensation~~respectively, were reflected in the Consolidated Statements of Earnings as a ~~component of~~reduction to the provision for income taxes as a result of the early adoption of guidance addressing how companies account for certain aspects of its share-based payments to employees. Please refer to Note B for more details regarding the adoption.

~~-12-~~

In June 2016, Nathan’s received notification from the Internal Revenue Service that it was seeking to review Nathan’s federal tax return for the period April 1, 2014 through March 31, 2015. The income tax examination has been completed with no changes to the original return as filed.taxes.

The amount of unrecognized tax benefits at December ~~25, 2016~~24, 2017 was ~~$207,000,~~$207,000, all of which would impact Nathan’s effective tax rate, if recognized. As of December ~~25, 2016,~~24, 2017, Nathan’s had ~~$228,000~~$212,000 of accrued interest and penalties in connection with unrecognized tax benefits.

During the fiscal year ending March ~~26, 2017, Nathan’s~~25, 2018, 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 ~~$31,000,~~$5,000, which would favorably impact Nathan’s effective tax rate, although no assurances can be given in this regard.

On December 22, 2017, the Enactment Date, President Trump signed the Tax Cuts and Jobs Act (“Act”) into law which among other provisions, permanently reduces the top corporate tax rate from 35 percent to a flat 21 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 and modifies the definition of “covered employees”. The new law allows businesses to immediately write of the full cost of new equipment.

Pursuant to Staff Accounting Bulletin #118, 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 quarter ended December 24, 2017. Nathan’s has recorded the following discrete adjustment to its deferred tax liability and unrecognized tax benefits which reduced the provision for income taxes by $436,000 or 1510 BPS during the thirty-nine weeks ended December 24, 2017.

Nathan’s estimates that its blended federal tax rate will be 31% for its fiscal year ending March 25, 2018 and that its annual ~~effective~~ tax rate for the fiscal year ending March ~~26, 2017~~25, 2018 will be in the range of approximately ~~42.0%~~40.8% to ~~44.0%~~43.1%, excluding the impact of the discrete items recorded and excess tax benefit associated with stock ~~compensation and the potential impact of any reduction to the Company’s unrecognized tax benefits and related accrued interest and penalties.~~compensation. The final annual ~~effective~~ tax rate is subject to many variables, including the ultimate determination of revenue and income tax ~~provision~~ by state, ~~and local tax jurisdiction,~~ among other factors, and therefore cannot be determined until the end of the fiscal year; therefore, the actual ~~effective~~ 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.

NOTE K – SEGMENT INFORMATION

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

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

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

-11-

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.

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

Operating segment information is as follows (in thousands):

	Thirteen weeks ended						Thirty-nine weeks ended
	Dec. 24, 2017			Dec. 25, 2016			Dec. 24, 2017			Dec. 25, 2016

Revenues
Branded Product Program	$	14,674		$	12,868		$	50,741		$	44,563
Product licensing		4,228			3,990			17,393			15,602
Restaurant operations		3,181			3,079			16,473			17,201
Corporate		-			-			-			-
Total revenues	$	22,083		$	19,937		$	84,607		$	77,366

Income from operations
Branded Product Program	$	2,924		$	2,886		$	7,888		$	8,336
Product licensing		4,182			3,944			17,257			15,465
Restaurant operations		(21	)		48			3,209			4,083
Corporate		(1,715	)		(2,124	)		(5,800	)		(6,275	)
Income from operations	$	5,370		$	4,754		$	22,554		$	21,609

Loss on debt extinguishment		(8,872	)		-			(8,872	)		-
Interest expense		(3,650	)		(3,663	)		(10,976	)		(11,002	)
Interest income		44			35			114			71
Other income, net		22			21			64			64
(Loss) income before provision for income taxes	$	(7,086	)	$	1,147		$	2,884		$	10,742

NOTE L – SHARE-BASED COMPENSATION

Total share-based compensation during the thirteen-week periods ended December 24, 2017 and December 25, 2016 was $99,000 and ~~December 27, 2015 was~~ $136,000, ~~and $173,000,~~ respectively. Total share-based compensation during the thirty-nine week periods ended December 24, 2017 and December 25, 2016 was $298,000 and ~~December 27, 2015 was~~ $482,000, ~~and $549,000,~~ respectively. Total share-based compensation is included in general and administrative expense in our accompanying Consolidated Statements of Earnings. As of December ~~25, 2016,~~24, 2017, there was ~~$599,000~~$200,000 of unamortized compensation expense related to share-based incentive awards. We expect to recognize this expense over approximately ~~one year and~~ seven months, which represents the weighted average remaining requisite service periods for such awards.

~~There were no new share-based awards granted during the thirty-nine week period ended December 25, 2016.~~

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

	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended				Thirty-nine weeks ended
	December 25, 2016		December 27, 2015		December 25, 2016		December 27, 2015		December 24, 2017		December 25, 2016		December 24, 2017		December 25, 2016

Stock options	$	38	$	38	$	114	$	144	$	38	$	38	$	114	$	114
Restricted stock		98		135		368		405		61		98		184		368
Total compensation cost	$	136	$	173	$	482	$	549	$	99	$	136	$	298	$	482

-12-

Stock options outstanding:

There were no new share-based awards granted during the thirty-nine week period ended December 24, 2017.

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.

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.

In connection with the ~~Company’s~~Company’s special cash dividend, ~~which was~~ 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 ~~Company’s~~ 2010 ~~Stock Incentive~~ Plan, and issued replacement options to purchase 75,745 shares at an exercise price of ~~$35.576~~$35.58 for the unvested stock options ~~that were~~ outstanding as of March 29, ~~2015.~~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 ~~Friday,~~ 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.

~~-13-~~

Transactions with respect to stock options for the thirty-nine weeks ended December ~~25, 2016~~24, 2017 are as follows:

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

Options outstanding at the beginning of thefiscal year (A)		124,030		$	26.29		2.13	$	1,952
Options outstanding at the beginning of the fiscal year											75,745		$	35.58		2.36	$	1,899

Granted		-			-		-		-		-			-		-		-

Replacement options issued (A)											68,498		$	33.438		1.61	$	3,093

Expired		-			-		-		-		-			-		-		-

Cancellation of outstanding options (A)											(64,384	)	$	35.58		1.61	$	3,093

Exercised		(48,285	)	$	11.72		-		1,555		(11,361	)	$	35.58		-		379

Options outstanding at December 25, 2016		75,745		$	35.58		2.61	$	2,164
Options Outstanding at December 24, 2017 (A)											68,498		$	33.438		1.61	$	3,093

Options exercisable at December 25, 2016		37,873		$	35.58		2.61	$	1,082
Options exercisable at December 24, 2017 (A)											48,348		$	33.438		1.61	$	2,183

A-

Represents the effects on outstanding options after giving effect to the replacement options issued in connection with the ~~Company’s~~Company’s special ~~dividend.~~dividend to shareholders of record on December 22, 2017.

-13-

Restricted stock:

Transactions with respect to restricted stock for the thirty-nine weeks ended December ~~25, 2016~~24, 2017 are as follows:

				Weighted-		Shares			Weighted- Average Grant-date Fair value Per share
				Average
				Grant-date Fair value
	Shares			Per share
Unvested restricted stock at March 27, 2016		25,000		$	41.59
Unvested restricted stock at March 26, 2017							10,000		$	49.80

Granted		-			-		-			-
Vested		(15,000	)	$	36.13		(5,000	)	$	49.80

Unvested restricted stock at December 25, 2016		10,000		$	49.80
Unvested restricted stock at December 24, 2017							5,000		$	49.80

NOTE LM – STOCKHOLDERS’ EQUITY

1. 1.Dividends

On November 1, 2017, the Company’s Board of Directors declared a special cash dividend of $5.00 per share payable to stockholders of record as of December 22, 2017 of which approximately $20,923,000 was paid on January 4, 2018 to the stockholders. The Company also accrued $25,000 for the expected dividends payable on unvested restricted shares pursuant to the terms of the restricted stock agreement. As unvested restricted stock vests, the declared dividend is paid. We estimate that $25,000 (see Note H) will be paid during our fiscal year ending March 31, 2019.

On March 10, 2015, the ~~Company’s~~Company’s Board of Directors declared a special cash dividend of $25.00 per share payable to stockholders of record as of March 20, 2015 of which approximately $115,100,000 was paid on March 27, 2015 to the stockholders. The Company ~~also~~ accrued $1,000,000 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 ~~will be~~is paid. We have paid ~~$750,000of~~$875,000of the accrued dividend and estimate that ~~an additional $125,000will also~~the remaining $125,000(see Note H) will be paid during ~~each of~~ our fiscal ~~years~~year ending March ~~25, 2018 and March 24,~~31, 2019.

2. Common Stock Purchase Rights

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

~~-14-~~

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

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

At ~~December 25, 2016,~~December 24, 2017, the Company has reserved ~~6,992,892~~5,696,732 shares of common stock for issuance upon exercise of the Common Stock Purchase Rights approved by the Board of Directors on June 5, 2013.

3. 3.Stock Repurchase Programs

During the period from October 2001 through December ~~25, 2016,~~24, 2017, Nathan’s purchased 5,127,373 shares of its common stock at a cost of ~~approximately$~~approximately $77,303,000 pursuant to various stock repurchase plans previously authorized by the Board of Directors. During the thirty-nine week period ended December ~~25, 2016, the Company repurchased 30,616shares~~24, 2017, we did not repurchase anyshares of common ~~stock at a cost of $1,272,000.~~

On March 11, 2016, the Company and Mutual Securities, Inc. (“MSI”) entered into an agreement pursuant to which MSI was authorized on the Company’s behalf to purchase up to 175,000 shares of the Company’s common stock, commencing March 21, 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, 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, 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.stock.

As of December ~~25, 2016,~~24, 2017, an aggregate of 260,258 shares can still be purchased under Nathan’s existing stock buy-back program.

~~Purchases~~Purchases 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~~these stock-repurchase ~~plan.~~plans.

-14-

NOTE MN – LONG-TERM DEBT

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

	December 25,			March 27,			December 24,			March 26,
	2016			2016			2017			2017

6.625% Senior secured notes due 2025							$	150,000			-
10.000% Senior secured notes due 2020	$	135,000		$	135,000			-		$	135,000
Less: unamortized debt issuance costs		(3,824	)		(4,734	)		(5,374	)		(3,525	)
Total long-term debt	$	131,176		$	130,266		$	144,626		$	131,475

On November 1, 2017, the Company completed the issuance of $150,000,000 of 6.625% Senior Secured Notes due 2025 (the "2025 Notes") in a private offering in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2025 Notes were issued pursuant to an indenture, dated 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 satisfy and discharge the Indenture relating to the 2020 Notes (as hereinafter defined) 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 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 $8,872,000 that primarily reflects 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 $135,000,000 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 ~~as of~~ March 10, 2015 ~~(the “Indenture”),~~ 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 $116,100,000 (see Note L)M.1) with the remaining net proceeds for general corporate purposes, including working capital. Debt issuance costs of approximately $5,985,000 were incurred, which ~~will be~~were being amortized into interest expense over the remaining 5-year term of the ~~Notes.~~2020 Notes, or until redeemed.

The 2020 Notes ~~bear~~bore interest at 10.000% per annum, payable semi-annually on March 15^th and September 15^th. An interest ~~paymentof~~payment of $6,750,000 was paid on September ~~15, 2016.The~~14, 2017.The 2020 Notes ~~have~~had 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 $6,750,000 associated with the Redemption and incurred debt issuance costs of $4,902,000 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 on November 16, 2017.

The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1^st and November 1^st of each year, beginning on May 1, 2018. Semi-annual interest payments are expected to be $4,968,750. The Company expects to reduce its annual cash interest expense by approximately $3,562,500 per annum.

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

There are no financial maintenance covenants associated with the 2025 Notes. As of December ~~25, 2016,~~24, 2017, Nathan’s was in compliance with all covenants associated with the 2025 Notes.

~~-15-~~

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

Fixed Charge Coverage Ratio: the ratio of the Consolidated Cash Flow to the Fixed Charges for the relevant period, currently set at 2.0 to 1.0 in the ~~Indenture.The~~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.

-15-

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~~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 ~~The~~2025 Notes are general senior secured obligations, are fully and unconditionally guaranteed by substantially all of the Company’s wholly-owned subsidiaries and rankpari 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.

The2025 Notes and the guarantees will be the Company and the guarantors’ senior secured obligations and will rank:

●

senior in right of payment to all of the Company and the ~~guarantors’~~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’~~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~~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 ~~September 15, 2017,~~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 ~~September 15, 2017~~November 1, 2020 plus (ii) all required interest payments due on the 2025 Notes through ~~September 15, 2017~~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.

~~-16-~~

Prior to ~~September 15, 2017,~~November 1, 2020, if using the net cash proceeds of certain equity offerings, the Company has the option to redeem up to 35% of the aggregate principal amount of the 2025 Notes at a redemption price equal to ~~110%~~106.625% of the principal amount of the 2025 Notes redeemed, plus accrued and unpaid interest and any additional interest.

On or after ~~September 15, 2017,~~November 1, 2020, the Company may redeem some or all of the2025 Notes at a decreasing premium over time, plus accrued and unpaid interest as follows:

YEAR	PERCENTAGE
On or after ~~September 15, 2017~~November 1, 2020 and prior to ~~March 15, 2018~~November 1, 2021		~~105.000~~103.313	%
On or after ~~March 15, 2018~~November 1, 2021 and prior to ~~March 15, 2019~~November 1, 2022		~~102.500~~101.656	%
On or after ~~March 15, 2019~~November 1, 2022		100.000	%

-16-

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~~holder’s option, any part, of each holder’s 2025 Notes pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, the Company will be required to offer payment in cash equal to 101% of the aggregate principal amount of 2025 Notes repurchased plus accrued and unpaid interest, to the date of purchase.

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

The2025 Notes may be traded between qualified institutional buyers pursuant to Rule 144A of the Securities ~~Act of 1933.~~Act. We have recorded the 2025 Notes at cost.

NOTE NO – COMMITMENTS AND CONTINGENCIES

1. Commitments

On February 27, 2017, a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the “Brooklyn Guaranty”) in connection with its re-franchising of a restaurant located in Brooklyn, New York. The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. Nathan’s has recorded a liability of $204,000 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.

On December 6, 2017, the Company amended its employment agreement with Howard M. Lorber. Under the amendment, the term of the employment agreement was extended from December 31, 2017 to December 31, 2022 and the base compensation of Mr. Lorber will be $1,000,000 per annum. All other terms and conditions remained the same.

2. Contingencies

The Company and its subsidiaries are from time to time involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on the ~~Company’s~~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 O – RECLASSIFICATIONS~~

~~Prior period amounts on the Consolidated Statement of Cash Flows have been reclassified to conform to the current period presentation.~~

-17-

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

Forward-Looking Statements

Statements in this Form 10-Q quarterly report may be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties, many of which are not within our control, include but are not limited to: economic, weather (including the affects on the supply of cattle and the impact of weather on sales at our restaurants, particularly during Summer months), and change in the price of beef trimmings; our ability to pass on the cost of any price increases in beef and beef trimmings, or labor costs; legislative and business conditions; the collectibility of receivables; changes in consumer tastes; the status of our licensing and supply agreements, including the impact of our supply agreement for hot dogs with John Morrell & Co., the impact of our debt service and repayment obligations under the 2025 Notes; the impact of the Tax Cuts and Jobs Act (“the Act”); the continued viability of Coney Island as a destination location for visitors; the ability to continue to attract franchisees; the impact of the new minimum wage legislation in New York State or other changes in labor laws, including ~~regulations~~court decisions which could render a franchisor as a “joint employee” or the impact of our new union ~~contract;~~contracts; our ability to attract competent restaurant and managerial personnel; the enforceability of international franchising agreements and the future effects of any food borne illness; such as bovine spongiform encephalopathy, BSE or e-coli; as well as those risks discussed from time to time in this Form 10-Q and our Form 10-K annual report for the year ended March ~~27, 2016,~~26, 2017, and in other documents we file with the Securities and Exchange Commission. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements. We generally identify forward-looking statements with the words “believe,” “intend,” “plan,” “expect,” “anticipate,” “estimate,” “will,” “should” and similar expressions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q.

Introduction

As used in this Report, the terms “we”, “us”, “our”, ~~“Nathan’s”~~“Nathan’s” or the “Company” mean Nathan’s Famous, Inc. and its subsidiaries (unless the context indicates a different meaning).

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

Our revenues are generated primarily from selling products under ~~Nathan’s~~Nathan’s Branded Product Program, operating Company-owned restaurants, licensing agreements for the sale of Nathan’s products within supermarkets and club stores, the sale of Nathan’s products directly to other foodservice operators and the manufacture of certain proprietary spices by third parties and franchising the Nathan’s restaurant concept (including the Branded Menu Program).

At December 24, 2017, our restaurant system consisted of 285 units comprised of 280 Nathan’s franchised units, including 124 Branded Menu units, and five Company-owned units (including one seasonal unit), located in 19 states, and 12 foreign countries. At December 25, 2016, our restaurant system consisted of 287 units comprised of 282 Nathan’s franchised units, including 114 Branded Menu units, and five Company-owned units (including one seasonal unit), located in 20 states, and 10 foreign countries. At December 27, 2015, our restaurant system consisted of 267 units, comprised of 262 Nathan’s franchised units, including 112 Branded Menu units, and five Company-owned units (including one seasonal unit), located in 23 states, and nine foreign countries.

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

~~-18-~~

As described in our Annual Report on Form 10-K for the year ended March ~~27, 2016,~~26, 2017, our future results could be materially impacted by many developments including our dependence on John Morrell & Co. as our principal ~~supplier.~~supplier and the dependence of our licensing revenue and overall profitability on our agreement with John Morrell & Co. In addition, our future operating results could be impacted by supply constraints on beef or by increased costs of beef compared to earlier periods.

-18-

On ~~March 10, 2015, we consummated a $135,000,000 offering~~November 1, 2017, the Company completed the issuance of ~~10.000%~~$150,000,000 of 6.625% Senior Secured Notes due ~~2020 (“the~~2025 (the “2025 Notes”) and used the majority of the proceeds of this offering to redeem the 2020 Notes (the “Redemption”), paid a portion of the special $5.00 cash dividend ~~of $25.00 per share (or approximately $116,100,000 in the aggregate).~~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 a result of the issuance of the 2025 Notes, Nathan’s expects to incur interest expense of ~~$13,500,000~~$9,937,500 per annum, ~~and~~reducing its cash interest expense by $3,562,500 per annum. Nathan’s expects to incur annual amortization of debt issuance costs of approximately ~~$1,200,000. The Indenture governing~~$685,000. Please refer to Note N – Long Term Debt, for the ~~Notes will impose operating and other restrictions on us.~~effects of the Company’s refinancing from the preceding consolidated financial statements. The impact of interest expense on net income has been reflected in our results for the thirteen and thirty-nine week periods ended December ~~25, 2016~~24, 2017 and December ~~27, 2015. Accordingly, as~~25, 2016.

On March 10, 2015, we consummated a $135,000,000 offering of 10.000% Senior Secured Notes due 2020 (the “2020 Notes”) and paid a dividend of $25.00 per share (or approximately $116,100,000 in the aggregate). As a result of the issuance of the 2020 Notes, Nathan’s incurred interest expense of $13,500,000 per annum and annual amortization of debt issuance costs of approximately $1,200,000.

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

On November 1, 2017, the Board of Directors declared a special cash dividend of $5.00 per share, or $20,923,000 to stockholders of record at the close of business on December 22, 2017, which was paid on January 4, 2018.

Critical Accounting Policies and Estimates

As discussed in our Form 10-K for the fiscal year ended March ~~27, 2016,~~26, 2017, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; impairment of goodwill and other intangible assets; impairment of long-lived assets; share-based compensation and income taxes (including uncertain tax positions). Except for the adoption discussed in Note B – ~~share based payments to employees;~~simplifying the measurement of inventory and simplifying the elements of cash flow classification; there have ~~beenno~~been no changes to the Company’s significant accounting policies subsequent to March ~~27, 2016.~~26, 2017.

Adoption of New AccountingPronouncements

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

New AccountingPronouncements Not Yet Adopted

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

EBITDA and Adjusted EBITDA

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

Reconciliation of GAAP and Non-GAAP Measures

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

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

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

-19-

The following is a reconciliation of Net (loss) income ~~in accordance with US GAAP~~ to ~~EBITDA and~~ Adjusted EBITDA (in thousands):

	Thirteen weeks ended				Thirty-nine weeks ended					Thirteen weeks ended					Thirty-nine weeks ended
	December 25, 2016		December 27, 2015		December 25, 2016			December 27, 2015		December 24, 2017			December 25, 2016		December 24, 2017		December 25, 2016


Net income	$	699	$	432	$	6,756		$	5,589
Net (loss) income										$	(3,779	)	$	699	$	2,263	$	6,756
Interest expense		3,663		3,708		11,002			11,126		3,650			3,663		10,976		11,002
Income taxes		448		316		3,986	��		3,886

(Benefit) provision for income taxes											(3,307	)		448		621		3,986
Depreciation and amortization		309		303		1,005			975		320			309		1,055		1,005
EBITDA		5,119		4,759		22,749			21,576		(3,116	)		5,119		14,915		22,749

Loss on debt extinguishment											8,872			-		8,872		-
Stock-based compensation		136		173		482			549		99			136		298		482

Amortization of bond premium		-		-		-			64
Adjusted EBITDA	$	5,255	$	4,932	$	23,231		$	22,189	$	5,855		$	5,255	$	24,085	$	23,231

Results of Operations

Thirteen weeks ended December ~~25, 2016~~24, 2017 compared to thirteen weeks ended December ~~27, 2015~~25, 2016

Revenues

Total sales ~~decreased~~increased by ~~5.7%~~12.8% to $16,767,000 for the thirteen weeks ended December 24, 2017 (“third quarter fiscal 2018”) as compared to $14,859,000 for the thirteen weeks ended December 25, 2016 (“third quarter fiscal 2017”) ~~as compared to $15,763,000 for the thirteen weeks ended December 27, 2015 (“third quarter fiscal 2016”)~~. Foodservice sales from the Branded Product Program ~~decreased~~increased by ~~5.1%~~14.0% to ~~$12,868,000~~$14,674,000 for the third quarter fiscal ~~2017~~2018 as compared to sales of ~~$13,565,000~~$12,868,000 in the third quarter fiscal ~~2016. This decrease was primarily attributable to a reduction in our~~2017. During the third quarter fiscal 2018, the volume of business increased by approximately 10.4%. Our average selling prices ofincreased by approximately ~~8.2%~~3.0% as a ~~direct~~ result of our ~~cost basis~~ pricing strategy, ~~resulting from a 14.5% decline in our~~which is more closely correlated to the cost of beef ~~costs partly offset~~which increased by ~~a 4.2% increase in~~approximately 8.0%, during the ~~volume of products sold.~~third quarter fiscal 2018 as compared to the third quarter fiscal 2017. Total Company-owned restaurant sales ~~decreased~~increased by ~~1.9%~~5.1% to $2,093,000 during the third quarter fiscal 2018 as compared to $1,991,000 during the third quarter fiscal 2017 ~~as compared~~due primarily to ~~$2,030,000 during~~higher sales at our Coney Island and Yonkers locations attributable to a higher check average of 3.8% and higher customer counts.

License royalties increased 6.0% to $4,228,000 in the third quarter fiscal 2016 due primarily to lower sales at our Oceanside and Yonkers locations, partly due to the closing of the restaurants for the Christmas holiday which fell on a weekend, and greater on-line shopping which impacted customer counts. Direct retail sales also decreased by $168,000 during the third quarter fiscal 20172018 as compared ~~to the third quarter fiscal 2016 as we transitioned this business into our Branded Product Program.~~

~~License royalties increased 10.4%~~ to $3,990,000 in the third quarter fiscal ~~2017 as compared to $3,614,000 in the third quarter fiscal 2016.~~2017. 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 ~~10.8%~~$180,000 to ~~$3,500,000~~$3,680,000 for the third quarter fiscal ~~2017~~2018 as compared to ~~$3,160,000~~$3,500,000 in the third quarter fiscal ~~2016.~~2017. The increase is due to ~~a 4.9%~~an increase in retail volume ~~and higher average net price (reported by licensee)~~ during the third quarter fiscal ~~2017~~2018 as compared to the third quarter fiscal ~~2016.Royalties~~2017, partly offset by lower average selling prices, on which our royalties are calculated. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by ~~$36,000~~$58,000 during the third quarter fiscal ~~2017~~2018 as compared to the third quarter fiscal ~~2016.~~2017.

Franchise fees and royalties were ~~$1,088,000~~$1,088,000 in both the third quarter fiscal 2018 and the third quarter fiscal 2017. Total royalties were $963,000 in the third quarter fiscal ~~2017~~2018 as compared to ~~$1,187,000 in the third quarter fiscal 2016. Total royalties were~~ $984,000 in the third quarter fiscal ~~2017 as compared to $1,006,000 in the third quarter fiscal 2016.~~2017. Royalties earned under the Branded Menu program were $259,000 in the third quarter fiscal 2018 as compared to $214,000 in the third quarter fiscal 2017 as compared to $253,000 in the third quarter fiscal 2016. This decline was primarily attributable to declines in our sporting venues, including the loss of any post season baseball where our products are sold.2017. 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 ~~increased~~decreased to $704,000 in the third quarter fiscal 2018 as compared to $770,000 in the third quarter fiscal ~~2017 as compared~~2017. Franchise restaurant sales decreased to ~~$753,000~~$15,596,000 in the third quarter fiscal ~~2016 due primarily from higher international royalties. Franchise restaurant sales increased~~2018 as compared to $17,184,000 in the third quarter fiscal 2017 ~~as compared to $16,803,000 in the third quarter fiscal 2016~~ primarily due to the decline in comparable domestic sales and the impact of ~~restaurant openings during~~units closed in the previous fiscal year. Comparable domestic franchise sales (consisting of 9092 Nathan’s outlets, excluding sales under the Branded Menu Program) were ~~$12,463,000~~$12,251,000 in the third quarter fiscal ~~2017~~2018 as compared to ~~$12,629,000~~$12,863,000 in the third quarter fiscal ~~2016, a decline of 1.3%.~~2017.

~~-20-~~

At December ~~25, 2016, 282~~24, 2017, 280 franchised outlets, including domestic, ~~and~~ international ~~franchised or~~and Branded Menu Program ~~franchise~~ outlets were operating as compared to ~~262~~282 franchised outlets, including domestic, ~~and~~ international ~~franchised or~~and Branded Menu Program ~~franchise~~ outlets at December ~~27, 2015.~~25, 2016. Total franchise fee income was $125,000 in the third quarter fiscal 2018 as compared to $104,000 in the third quarter fiscal ~~2017 as compared to $181,000~~2017. Domestic franchise fee income was $33,000 in the third quarter fiscal ~~2016. Domestic franchise fee income decreased~~2018 as compared to $90,000 in the third quarter fiscal 2017, ~~as compared to $125,000 in the third quarter fiscal 2016,~~ due primarily to the difference in the types of locations opened, and associated fees earned, between the two periods. International franchise fee income was ~~$6,000~~$92,000 in the third quarter fiscal ~~2017~~2018 as compared to ~~$26,000~~$6,000 during the third quarter fiscal ~~2016.~~2017, primarily due to the timing of new international development fees. We also recognized $8,000 in forfeited fees in the third quarter fiscal 2017. During the third quarter fiscal ~~2017, we recognized forfeited fees of $8,000.~~2018, 8 new franchised outlets opened, including three units in Australia, one unit in the Philippines and two new Branded Menu Program outlets. During the third quarter fiscal 2017, 22 new franchised outlets opened, including nine new Branded Menu Program ~~outlets and nine international~~ outlets. ~~During the third quarter fiscal 2016 period, 12 new franchised outlets opened, including four international locations and five Branded Menu Program outlets.~~

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Costs and Expenses

Overall, our cost of sales ~~decreased~~increased by ~~10.7%~~16.8% or ~~$1,297,000~~$1,814,000 to $12,599,000 in the third quarter fiscal 2018, as compared to $10,785,000 in the third quarter fiscal ~~2017, as compared to $12,082,000 in the third quarter fiscal 2016.~~2017. Our gross profit (representing the difference between sales and cost of sales) was $4,168,000 or 24.9% of sales during the third quarter fiscal 2018 as compared to $4,074,000 or 27.4% of sales during the third quarter fiscal ~~2017 as compared to $3,681,000 or 23.4% of sales during the third quarter fiscal 2016.~~2017. The margin ~~improvement~~reduction was primarily due to the ~~lower~~higher cost of beef in the Branded Product Program and in the Company-operated restaurants ~~partly offset by~~in addition to the higher ~~restaurant~~ labor ~~and related costs.~~costs at the Company-owned restaurants.

Cost of sales in the Branded Product Program ~~decreased~~increased by approximately ~~$1,187,000~~$1,736,000 during the third quarter fiscal ~~2017 period~~2018 as compared to the third quarter fiscal ~~2016 period~~2017, primarily due to the ~~14.5% decrease~~10.4% increase in the volume of product sold and the 8.0% increase in the average cost per pound of our hot ~~dogs partly offset by higher volume of product sold.~~dogs. We did not make any purchases during the third ~~quarters~~quarter fiscal ~~2017~~2018 or third quarter fiscal ~~2016~~2017 pursuant to any purchase commitments. If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases or otherwise reduce any increase in our costs through the use of purchase commitments, our margins will be adversely impacted.

With respect to Company-owned restaurants, our cost of sales during the third quarter fiscal ~~2017~~2018 was ~~$1,355,000~~$1,434,000 or ~~68.1%~~68.5% of restaurant sales, as compared to ~~$1,329,000~~$1,355,000 or ~~65.5%~~68.1% of restaurant sales in the third quarter fiscal ~~2016~~2017 due primarily to the impact of higher food costs on higher revenues and higher labor costs principally associated with the effects of the New York State minimum wage ~~increase, partly offset by lower food and incentive compensation costs at our Company-owned restaurants.~~increase. We expect that our labor costs going forward will continue to be impacted by the multi-year new ~~multi-year~~ increase in minimum wage requirements in New York State and any increase in food costs from higher commodity costs.

Restaurant operating expenses were $760,000 in the third quarter fiscal 2018 as compared to $695,000 in the third quarter fiscal ~~2017 as compared to $699,000 in the third quarter fiscal 2016.~~2017. The ~~decrease~~increase in restaurant operating costs results primarily from ~~decreased~~higher occupancy costs, ~~of maintenance, utilities~~insurance and ~~marketing partially offset by higher supplies. Despite the recent stability in our utility costs, we continue to be concerned about the volatile market conditions for oil and natural gas.~~utilities.

Depreciation and amortization was $320,000 in the third quarter fiscal 2018 as compared to $309,000 in the third quarter fiscal ~~2017 as compared~~2017.

General and administrative expenses decreased by $360,000 or 10.6% to ~~$303,000~~$3,034,000 in the third quarter fiscal ~~2016.~~

~~General and administrative expenses increased by $349,000 or 11.5%~~2018 as compared to $3,394,000 in the third quarter fiscal ~~2017 as compared to $3,045,000 in the third quarter fiscal 2016.~~2017. The ~~increase~~decrease in general and administrative expenses was primarily attributable to ~~higher~~lower compensation ~~cost, accounting~~expenses, the timing of expenses in connection with our fiscal 2018 audit and ~~tax preparation fees, and our marketing and promotional activities in commemoration of our 100~~^th ~~anniversary.~~lower bad debts.

Other Items

On November 1, 2017, the Company completed the issuance of $150,000,000 of the 2025 Notes in a private offering in accordance with Rule 144A under the Securities Act. 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 redeem the 2020 Notes, 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 $3,650,000 in the third quarter fiscal 2018 represents interest of $1,847,000 on the 2020 Notes, $1,470,000 accrued interest on the 2025 Notes and total amortization of debt issuance costs of $333,000. 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 $3,562,500 per annum.

Interest income was $44,000 in the third quarter fiscal 2018 as compared to $35,000 in the third quarter fiscal ~~2017.~~2017 due principally to rising interest rates earned on our money market account.

Other income, which primarily relates to a sublease of a franchised restaurant, was ~~$21,000 for both the third quarter fiscal 2017 and the third quarter fiscal 2016.~~

~~Interest expense of $3,663,000~~$22,000 in the third quarter fiscal ~~2017 represents accrued interest of $3,364,000 on~~2018 and $21,000 in the Notes and amortization of debt issuance costs of $299,000 during the same period. As a result of the issuance of the Notes, Nathan’s expects to incur during the term of the Notes interest expense of $13,500,000 per annum and annual amortization of debt issuance costs of approximately $1,200,000.third quarter fiscal 2017.

Provision for Income Taxes

In the third quarter fiscal ~~2017,~~2018, the income tax ~~provision~~benefit was ~~$448,000~~$(3,307,000) or ~~39.1%~~46.7% of ~~earnings~~loss before income taxes as compared to ~~$316,000~~the income tax provision of $448,000 or ~~42.2%~~39.1% of earnings before income taxes in the third quarter fiscal ~~2016. Nathan’s~~2017.

Nathan’s effective tax rate for the thirteen week period ended December 25, 2016 was reduced by ~~3.3% during the third quarter fiscal 2017~~330 BPS, as a result of the tax benefits associated with stock compensation. For the thirteen week period ended December 25, 2016, excess tax benefits of $39,000, were reflected in the Consolidated Statements of Earnings as a reduction to the provision for income taxes. Pursuant to Staff Accounting Bulletin #118, 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 quarter ended December 24, 2017. Nathan’s has recorded the following discrete adjustment to its deferred tax liability and unrecognized tax benefits which reduced the provision for income taxes by $436,000 during the thirteen weeks ended December 24, 2017. As described in Note J to the Consolidated Financial Statements, Nathan’s estimates that its blended federal tax rate will be 31% for its fiscal year ending March 25, 2018 and that its annual tax rate for the fiscal year ending March 25, 2018 will be in the range of approximately 40.8% to 43.1%, 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 ~~stock compensation~~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 December 24, 2017, Nathan’s had $212,000 of accrued interest and penalties in connection with ~~the accounting guidance that was recently adopted by the Company. During the third quarter fiscal 2016, the Company’s~~unrecognized tax rate was negatively affected by 2.1% due to its return to provision adjustment of $16,000 in connection with the filing of its March 2015 tax returns. Nathan’s effective tax rates without these adjustments would have been 42.4% for the third quarter fiscal 2017 and 40.1% for the third quarter fiscal 2016.benefits. Nathan’s estimates that its unrecognized tax benefits, including the related accrued interest and penalties could be further reduced by up to ~~$60,000~~$5,000 during the remainder of fiscal 2017. As described under Note J to the Consolidated Financial Statements, Nathan’s estimates that its annual tax rate for the fiscal year ending March 26, 2017 will be in the range of approximately 42.0% to 44.0% excluding the impact of the excess tax benefits associated with stock compensation and the potential impact of any reduction to the Company’s unrecognized tax benefits.2018.

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Results of Operations

TThirty-nine weeks ended December 24, 2017 compared to thirty-nine weeks endedDecember 25, 2016 ~~compared to t~~~~hirty-nine~~ ~~weeks ended~~~~Dec~~~~ember 2~~7~~, 201~~5

Revenues

Total sales ~~decreased~~increased by ~~7.4%~~9.7% to $63,639,000 for the thirty-nine weeks ended December 24, 2017 (“fiscal 2018 period”) as compared to $58,012,000 for the thirty-nine weeks ended December 25, 2016 (“fiscal 2017 period”) ~~as compared to $62,627,000 for the thirty-nine weeks ended December 27, 2015 (“fiscal 2016 period”)~~. Foodservice sales from the Branded Product ~~and Branded Menu Programs decreased~~Program increased by ~~6.0%~~14.4% to ~~$44,349,000~~$50,741,000 for the fiscal ~~2017~~2018 period as compared to sales of ~~$47,160,000~~$44,349,000 for the fiscal ~~2016~~2017 period. ~~This decrease was primarily attributable to a reduction in our~~During the fiscal 2018 period, the volume of business increased by approximately 10.9%. Our average selling prices ofincreased by approximately ~~9.0%~~3.2% in the fiscal 2018 period as a ~~direct~~ result of our ~~cost basis~~ pricing strategy, ~~resulting from a 16.8% decline in our~~which is more closely correlated to the cost of beef ~~costs partly offset~~which increased by ~~a 3.4% increase in~~approximately 8.6%, during the ~~volume of products sold.~~fiscal 2018 period as compared to the fiscal 2017 period. Total Company-owned restaurant sales ~~decreased $1,423,000~~were $12,898,000 during the fiscal 2018 period as compared to $13,449,000 during the fiscal 2017 ~~period as compared to $14,872,000 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~~2018 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 that hurt our Coney Island locations. Sales at our Coney Island locations in the fiscal 2016 period were the highest on record.conditions. Direct retail sales also decreased by ~~$381,000~~$214,000 during the fiscal ~~2017~~2018 period as compared to the fiscal ~~2016~~2017 period as we began to transition this business into our Branded Product Program during ~~the second quarter~~ fiscal 2017.

License royalties were $17,393,000 in the fiscal 2018 period as compared to $15,602,000 in the fiscal 2017 ~~period as compared to $15,406,000 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 11.5% to $15,853,000 for the fiscal 2018 period as compared to $14,214,000 for the fiscal 2017 ~~period as compared to $14,091,000 for the fiscal 2016~~ period. The increase is due to ~~a 6.5%~~an 8.5% increase in volume during the fiscal ~~2017~~2018 period as compared to the fiscal ~~2016 period.The increased volume was partially offset by~~2017 period, in addition to a ~~4.7% decline~~4.1% increase in average selling prices, on which our royalties are ~~calculated, due to competitor pricing pressures experienced early in the second quarter.Royalties~~calculated. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by ~~$73,000~~$152,000 during the fiscal ~~2017~~2018 period as compared to the fiscal ~~2016~~2017 period.

Franchise fees and royalties were $3,575,000 in the fiscal 2018 period as compared to $3,752,000 in the fiscal 2017 period. Total royalties were $3,293,000 in the fiscal 2018 period as compared to ~~$3,804,000 in the fiscal 2016 period. Total royalties were~~ $3,386,000 in the fiscal 2017 ~~period as compared to $3,416,000 in the fiscal 2016~~ period. Royalties earned under the Branded Menu program were $873,000 in the fiscal 2018 period as compared to $779,000 in the fiscal 2017 ~~period as compared to $826,000 in the fiscal 2016~~ period. ~~This decline was primarily attributable to declines in our sporting venues during the third quarter fiscal 2017, including the loss of any post season baseball 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 $2,420,000 in the fiscal 2018 period as compared to $2,607,000 in the fiscal 2017 ~~period as compared to $2,590,000 in the fiscal 2016~~ period. Franchise restaurant sales ~~increased~~decreased to $54,737,000 in the fiscal 2018 period as compared to $58,118,000 in the fiscal 2017 period ~~as compared to $57,227,000 in the fiscal 2016 period~~ primarily due to the decline in comparable domestic sales and the impact of ~~new restaurant openings during~~units closed in the previous fiscal year. Comparable domestic franchise sales (consisting of 9089 Nathan’s outlets, excluding sales under the Branded Menu Program) were ~~$42,406,000~~$40,490,000 in the fiscal 2018 period as compared to $41,709,000 in the fiscal 2017 ~~period as compared to $44,044,000 in the fiscal 2016~~ period.

At December ~~25, 2016, 282~~24, 2017, 280 franchised outlets, including domestic, ~~and~~ international ~~franchised or~~and Branded Menu Program ~~franchise~~ outlets were operating as compared to ~~262~~282 franchised outlets, including domestic, ~~and~~ international ~~franchised or~~and Branded Menu Program ~~franchise outlets~~outlets at December ~~27, 2015.~~25, 2016. Total franchise fee income was $282,000 in the fiscal 2018 period as compared to $366,000 in the fiscal 2017 ~~period as compared to $388,000 in the fiscal 2016~~ period. Domestic franchise fee income was $140,000 in the fiscal 2018 period as compared to $177,000 in the fiscal 2017 ~~period as compared to $301,000 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 $132,000 in the fiscal 2018 period as compared to $156,000 in the fiscal 2017 ~~period as compared to $29,000 in the fiscal 2016~~ period due to the timing of new international ~~development.~~development fees. We also recognized $10,000 and $33,000 in forfeited fees ~~of $33,000 during~~in the fiscal 2018 and fiscal 2017 ~~period and $58,000 during~~periods, respectively. During the fiscal ~~2016 period.~~2018 period, 35 new franchised outlets opened, including 13 international locations, and 17 Branded Menu Program outlets. During the fiscal 2017 period, 42 new franchised outlets opened, including 16 international locations, and 20 Branded Menu Program outlets. ~~During the fiscal 2016 period, 35 new franchised outlets opened, including 11 international locations and 16 Branded Menu Program outlets.~~

Costs and Expenses

Overall, our cost of sales ~~decreased~~increased by ~~$6,116,000~~$6,433,000 to $48,165,000 in the fiscal 2018 period as compared to $41,732,000 in the fiscal 2017 ~~period as compared to $47,848,000 in the fiscal 2016~~ period. Our gross profit (representing the difference between sales and cost of sales) was $15,474,000 or 24.3% of sales during the fiscal 2018 period as compared to $16,280,000 or 28.1% of sales during the fiscal 2017 ~~period as compared to $14,779,000 or 23.6% of sales during the fiscal 2016~~ period. The margin ~~improvement~~decline was primarily due to the ~~lower~~higher cost of beef in the Branded Products Program and in the Company-operated restaurants, ~~which was partly offset by~~in addition to the higher ~~restaurant and~~ labor ~~costs.~~costs at the Company-owned restaurants.

-22-

Cost of sales in the Branded Product Program ~~decreased~~increased by approximately ~~$5,200,000~~$6,677,000 during the fiscal ~~2017~~2018 period as compared to the fiscal ~~2016~~2017 period, primarily due to the ~~16.8% decrease~~10.9% increase in volume of product sold and the 8.6% increase in the average cost per pound of our hot ~~dogs partly offset by higher volume of product sold.~~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 4.1% of volume, which reduced our overall cost of hot dogs by approximately 36 ~~BPS.We~~BPS. We did not make any purchases during the fiscal ~~2017~~2018 period pursuant to any purchase commitments. 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 ~~2017~~2018 period was $7,199,000 or 55.8% of restaurant sales, as compared to $7,247,000 or 53.9% of restaurant sales ~~as compared to $7,862,000 or 52.9% of restaurant sales~~ in the fiscal ~~2016~~2017 period due primarily to the impact of lower revenues and higher labor costs principally associated with the effects of the New York State minimum wage ~~increase, partly offset by lower food and incentive compensation costs at our Company-owned restaurants.~~increase. We expect that our future labor costs ~~going forward~~ will continue to be impacted by the multi-year new increase in minimum wage requirements in New York State and any increase in food costs from higher commodity costs.

Restaurant operating expenses were $2,769,000 in the fiscal 2018 period as compared to $2,711,000 in the fiscal 2017 ~~period as compared to $2,890,000 in the fiscal 2016~~ period. The ~~decrease~~increase in restaurant operating costs results primarily from ~~the reduction in percentage rent at our Boardwalk restaurant, lower credit card processing fees, maintenance~~higher occupancy 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.~~insurance costs.

Depreciation and amortization was $1,055,000 in the fiscal 2018 period as compared to $1,005,000 in the fiscal 2017 ~~period as compared to $975,000 in the fiscal 2016~~ period.

General and administrative expenses ~~increased $662,000~~decreased $245,000 or ~~6.9%~~2.4% to $10,064,000 in the fiscal 2018 period as compared to $10,309,000 in the fiscal 2017 ~~period as compared to $9,647,000 in the fiscal 2016~~ period. The ~~increase~~decrease in general and administrative expenses was primarily attributable to ~~our~~reduced marketing and promotional activities in connection with the commemoration of our ~~100~~^th100th anniversary ~~costs of additional marketing and development personnel and higher proxy and related expenses~~during the fiscal 2017 period, partly offset by ~~lower incentive compensation.~~higher compensation expenses during the fiscal 2018 period.

Other Items

Interest expense of $10,976,000 in the fiscal 2018 period represents interest of $8,574,000 on the 2020 Notes, $1,470,000 accrued interest on the 2025 Notes and total amortization of debt issuance costs of $932,000. 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 $3,562,500 per annum.

Interest income was $114,000 in the fiscal 2018 period as compared to $71,000 in the fiscal 2017 ~~period as compared to $52,000 in~~period. Nathan’s established its interest bearing money market account during the fiscal ~~2016~~2017 period.

Other income, which primarily relates to a sublease of a franchised restaurant, was $64,000 in the fiscal ~~2017~~2018 period, as compared to ~~$72,000 in the fiscal 2016 period.~~

~~Interest expense of $11,002,000~~$64,000 in the fiscal 2017 ~~period represents interest of $10,092,000 on the Notes and amortization of debt issuance costs of $910,000 during the same~~ period. As a result of the issuance of the 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.

Provision for Income Taxes

~~In the fiscal 2017 period, the~~The income tax ~~provision was $3,986,000 or~~provisions for the thirty-nine week periods ended December 24, 2017 and December 25, 2016 reflect effective tax rates of 21.5% and 37.1%, respectively. Nathan’s effective tax rates for the thirty-nine week periods ended December 24, 2017 and December 25, 2016 were reduced by 670 BPS and 610 BPS, respectively, as a result of ~~earnings before income taxes as compared to $3,886,000 or 41.0%~~the tax benefits associated with stock compensation. For the thirty-nine week periods December 24, 2017 and December 25, 2016, excess tax benefits of ~~earnings before income taxes~~$194,000 and $659,000, respectively, were reflected in the ~~fiscal 2016 period.~~Consolidated Statements of Earnings as a reduction to the provision for income taxes. The amount of unrecognized tax benefits at December 24, 2017 was $207,000, all of which would impact Nathan’s effective tax rate, ~~was reduced by 6.1%~~if recognized. Pursuant to Staff Accounting Bulletin #118, 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 2017 period as a result of a~~quarter ended December 24, 2017. Nathan’s has recorded the following discrete adjustments to its deferred tax benefit associated with the stock compensation in connection with the accounting guidance that was recently adopted by the Company. This favorable tax benefit was partially offset by an estimated unfavorable discrete adjustment of a prior years’ tax position which increased Nathan’s effective tax rate during the fiscal 2017 period by 1.1%. During the fiscal 2016 period, the Company’s tax rate was negatively affected by 1.0% due to lost interest deductions arising from its investments in municipal securitiesliability and return to provision adjustment of 0.1%. The Company’s tax rate was favorably affected by 0.2% and 0.1% during the fiscal 2016 period, due to the settlement of an uncertain tax position and effects of tax-exempt interest income, respectively. Nathan’s effective tax rates without these adjustments would have been 42.1% for the fiscal 2017 period and 40.2% for the fiscal 2016 period. Nathan’s estimates that its unrecognized tax benefits ~~including~~which reduced the ~~related accrued interest and penalties could be further reduced~~provision for income taxes by ~~up to $60,000~~$436,000 or 1510 BPS during the ~~remainder of fiscal~~thirty-nine weeks ended December 24, 2017. As described ~~under~~in Note J to the Consolidated Financial Statements, Nathan’s estimates that its blended federal tax rate will be 31% for its fiscal year ending March 25, 2018 and that its annual tax rate for the fiscal year ending March ~~26, 2017~~25, 2018 will be in the range of approximately ~~42.0%~~40.8% to ~~44.0%~~43.1%, excluding the impact of the discrete items recorded and excess tax benefit associated with stock ~~compensation~~compensation. The final annual tax rate is subject to many variables, including the ultimate determination of revenue and income tax by state, among other factors, and therefore cannot be determined until the ~~potential impact~~end of ~~any reduction to~~ the ~~Company’s~~fiscal year; therefore, the actual tax rate could differ from our current estimates. As of December 24, 2017, Nathan’s had $212,000 of accrued interest and penalties in connection with unrecognized tax benefits.

-23-

Off-Balance Sheet Arrangements

~~Nathan’s~~Nathan’s did not have any open purchase commitments for hot dogs outstanding as of December ~~25, 2016.~~24, 2017. Nathan’s may enter into purchase commitments in the future as favorable market conditions become available.

~~-23-~~

Liquidity and Capital Resources

Cash ~~and cash equivalents~~ at December ~~25, 2016~~24, 2017 aggregated ~~$56,403,000,~~$67,288,000, a ~~$6,175,000~~$10,373,000 increase during the fiscal ~~2017~~2018 period as compared to cash ~~and cash equivalents~~ of ~~$50,228,000~~$56,915,000 at March ~~27, 2016.~~26, 2017. Net working capital ~~increased~~decreased to ~~$55,674,000~~$51,809,000 from ~~$49,779,000~~$56,763,000 at March ~~27,~~26, 2017, which primarily relates to the special dividend of approximately $20,923,000 payable to the shareholders of record on December 22, 2017 that was paid on January 4, 2018.

On November 1, 2017, 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 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 cash interest expense by $3,562,500 per annum. Nathan’s expects to incur annual amortization of debt issuance costs of approximately $685,000. Please refer to Note N – Long Term Debt, for the effects of the Company’s refinancing from the preceding consolidated financial statements. The impact of interest expense on net income has been reflected in our results for the thirteen and thirty-nine week periods ended December 24, 2017 and December 25, 2016.

On March 10, 2015, we issued the ~~Company completed an offering~~2020 Notes and paid a dividend of ~~$135,000,000 aggregate principal amount~~$25.00 per share (or approximately $116,100,000 in the aggregate). In connection with the 2020 Notes, Nathan’s incurred interest expense of ~~the Notes. The Company used~~$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 ~~pay~~satisfy and discharge the Indenture relating to the 2020 Notes and the Redemption, paid a portion of a special ~~dividend of $25.00~~$5.00 per share ~~(approximately $116,100,000 in the aggregate)~~cash dividend to ~~Company~~Nathan's stockholders of record ~~and will use~~(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 Redemption occurred on November 16, 2017.

The 2025 Notes were issued pursuant to an indenture, dated as of March 10, 2015 (the “Indenture”), 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 Notes mature on March 15, 2020 and~~ bear interest at ~~a rate of 10.000%~~6.625% per annum, payable semi-annually ~~in cash in arrears~~ on ~~March 15~~May 1^st and ~~September 15~~November 1^st of each year, beginning ~~September 15, 2015.~~on May 1, 2018. Semi-annual interest payments are expected to be $4,968,750. The 2025 Notes ~~are redeemable under certain circumstances.~~have no scheduled principal amortization payments prior to its final maturity on November 1, 2025. As a result of the issuance of the 2025 Notes and the Redemption, the Company expects to reduce its annual interest expense by approximately $3,562,500 per annum.

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

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

~~As of December 25, 2016, Nathan’s was in compliance with all covenants associated with the Notes.~~

-24-

The2025 Notes and the guarantees will be the Company and the guarantors’ senior secured obligations and will rank:

●

senior in right of payment to all of the Company and the ~~guarantors’~~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’~~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~~Company’s current and future subsidiaries that do not guarantee the 2025 Notes.

~~-24-~~

Cash provided by operations of ~~$9,773,000~~$7,795,000 in the fiscal ~~2017~~2018 period is primarily attributable to net income of ~~$6,756,000~~$2,263,000 in addition to other non-cash operating items of ~~$3,182,000, and decreased~~$11,330,000, offset by increases in changes in other operating assets and liabilities of ~~$165,000.~~$5,798,000. Non-cash operating items include ~~$659,000~~$194,000 of excess income tax benefits from stock-based compensation arrangements as a result of the ~~early adoption of guidance addressing how companies account~~accounting for certain aspects of its share-based payments to employees. ~~Accounts~~In the fiscal 2018 period, accounts and other receivables increased by ~~$1,523,000~~$2,967,000 compared to the fiscal 2017 period due primarily to higher receivables from Branded Product Program sales of $2,489,000 and increased seasonal advances to the Advertising Fund of ~~$514,000. Prepaid~~$593,000, partly offset by lower seasonal license royalties of $358,000. In the fiscal 2018 period, prepaid expenses and other current assets ~~decreased~~increased by ~~$643,000~~$2,259,000 due principally to ~~the utilization of prepaid marketing, insurance and other expenses during the fiscal 2017 period and $211,000~~ prepaid income taxes ~~that~~of $2,751,000 which were ~~applied~~deposited prior to ~~estimated income tax payments for 2016.~~the successful debt refinancing. The ~~increase~~decrease in accounts payable, accrued expenses and other current liabilities of ~~$545,000~~$779,000 is primarily due to ~~increased accrued interest expense~~reductions in deferred revenue of ~~$3,342,000, increased accrued~~$706,000 that was recognized into income ~~taxes of $742,000, partially offset by a reduction in~~during the fiscal 2018 period, accrued payroll and other benefits of ~~$805,000~~$621,000 due primarily to the payment of prior year incentive compensation, ~~a reduction in deferred revenue of $600,000 and reduced~~lower accounts payable of ~~$2,113,000 attributable~~$541,000 arising primarily from seasonally lower product purchases for the Branded Product Program, which were partly offset by higher accrued interest of $1,007,000 and accrued rebates of $195,000. The decrease in other liabilities of $71,000 is primarily due to ~~food, insurance and capital expenditures.~~dividend payments of $125,000 on vested restricted stock, offset by an increase in the accrual for uncertain tax positions of $53,000. The Company also declared a $5.00 per share special cash dividend to the shareholders of record as of the close of business on December 22, 2017 which was paid on January 4, 2018 in the amount of $20,923,000 which has been presented as a noncash financing activity on the accompanying consolidated statement of cash flows.

Cash used in investing activities was ~~$1,001,000~~$488,000 in the fiscal ~~2017~~2018 period in connection with capital expenditures incurred for our Branded Product Program and select restaurant ~~improvements and information technology initiatives.~~improvements.

Cash ~~used in~~provided by financing activities of ~~$2,597,000~~$3,066,000 in the fiscal ~~2017~~2018 period ~~primarily~~ relates to the Company’s ~~purchase~~refinancing of ~~30,616 shares of its common stock at an aggregate cost of $1,272,000.~~the 2020 Notes. The Company received gross proceeds of $150,000,000 from the sale of 2025 Notes, repaid the 2020 Notes, paid ~~$994,000~~a call premium of $6,750,000 in addition to $4,902,000 of debt issuance costs. The Company also paid $157,000 for ~~the payment of~~ withholding ~~tax~~taxes on the net share ~~settlement exercise~~vesting of employee restricted stock ~~options. Additionally, we paid~~and dividends of ~~$375,000~~$125,000 relating to the previously declared special cash dividend in connection with the vesting of ~~15,000~~5,000 shares of the Company’s restricted stock. ~~Nathan’s also received proceeds from the exercise of Director/employee stock options of $44,000.~~

During the period from October 2001 through December ~~25, 2016,~~24, 2017, Nathan’s purchased 5,127,373 shares of its common stock at a cost of approximately $77,303,000 pursuant to its stock repurchase plans previously authorized by the Board of Directors. Since March 26, 2007, ~~to date,~~ we have repurchased 3,236,273 shares at a total cost of approximately $70,145,000, reducing the number of shares then-outstanding by 53.8%.

On February 1, 2016 and March 11, 2016, the ~~Company’s~~Company’s Board of Directors authorized increases to the sixth stock repurchase plan for the purchase of up to 1,200,000 shares of its common stock on behalf of the Company. As of December ~~25, 2016,~~24, 2017, Nathan’s has repurchased 939,742 shares at a cost of $29,641,000 under the sixth stock repurchase plan. At December ~~25, 2016,~~24, 2017, there were 260,258 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately-negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases.

On March 11, 2016, the Company and Mutual Securities, Inc. (“MSI”) entered into an agreement pursuant to which MSI was authorized on the Company’s behalf to purchase up to 175,000 shares of the Company’s common stock, commencing March 21, 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 plan and terminated August 2016.

-25-

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

As discussed above, we had cash ~~and cash equivalents~~ at December ~~25, 2016~~24, 2017 aggregating ~~$56,403,000.~~$67,288,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. In ~~March 2015,~~November 2017, we ~~completed~~successfully refinanced $135.0 million 10.000% Notes due 2020 with $150.0 million 6.625% Notes due 2025 and, our Board of Directors announced the payment of a $5.00 per share special dividend ~~recapitalization,~~ to ~~return approximately $116,100,000 to our~~the shareholders ~~and we~~of record as of the close of business on December 22, 2017. We may continue to return capital to our shareholders through stock repurchases or cash dividends, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock-repurchase plan.

We expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the outstanding debt and continue our stock repurchase programs, funding those investments from our operating cash flow. We may also incur capital and other expenditures or engage in investing activities in connection with opportunistic situations that may arise on a case-by-case basis. InWe are not required to make interest payments during the remainder of our fiscal year ending March ~~27, 2016,~~25, 2018. Pursuant to the Indenture, we will be required to make semi-annual interest payments of ~~approximately $13,500,000, of which $6,750,000 was paid~~$4,968,750 on ~~September 15, 2016.~~May 1, 2018 and November 1, 2018.

At December ~~25, 2016,~~24, 2017, 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 ~~lease.~~leases.

~~-25-~~

The following schedule represents ~~Nathan’s~~Nathan’s cash contractual obligations and commitments by maturity as of December ~~25, 2016~~24, 2017 (in thousands):

	Payments Due by Period										Payments Due by Period
Cash Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long term debt (a)	$	135,000	$	-	$	-	$	135,000	$	-	$	150,000	$	-	$	-	$	-	$	150,000
Employment Agreements		2,361		1,161		800		400		-		6,700		1,100		2,000		2,000		1,600
Dividends Payable		250		125		125		-		-		21,073		21,073		-		-		-
Operating Leases		13,182		1,641		3,314		2,119		6,108		11,540		1,652		2,717		2,137		5,034
Gross Cash Contractual Obligations		150,793		2,927		4,239		137,519		6,108		189,313		23,825		4,717		4,137		156,634
Sublease Income		2,498		323		661		587		927		2,175		329		640		474		732
Net Cash Contractual Obligations	$	148,295	$	2,604	$	3,578	$	136,932	$	5,181	$	187,138	$	23,496	$	4,077	$	3,663	$	155,902

Represents ~~10.000% Senior Secured~~the Notes due ~~March 2020.~~2025.

At December ~~25, 2016,~~24, 2017, the Company had unrecognized tax benefits of $207,000. The Company believes that it is reasonably possible that the unrecognized tax benefits may decrease by ~~$31,000~~$5,000 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. Nathan’s has recorded a liability of $204,015 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees.

-26-

Inflationary Impact

We do not believe that general inflation has materially impacted earnings since 2006. However, we have experienced significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities. ~~Our commodity costs for beef have been especially volatile since fiscal 2004.~~ From 2011 through 2014, we experienced unprecedented increases in the cost of beef. Beginning March 2015, the beef markets stabilized through June 2015 before subsequently declining by approximately 30%. As a result of the decline through March 2016, the market price of hot dogs during the fiscal year ended March 27, 2016 ~~period~~ was approximately 7.1% lower than the fiscal ~~2015 period.~~year ended March 29, 2015. During the fiscal 2017 period, beef prices ~~have~~ remained favorable, and as such, our market price for hot dogs ~~is 16.4%~~was 17.1% lower than during the period ended September 25, 2016. Despite the favorable pricing of fiscal ~~2016~~2017, prices began escalating in January 2017 and continued through June 2017 before beginning to slightly decline until July which is when the costs stabilized for the balance of 2017 at approximately 10% higher than the last six months of 2016. As such, our market price for hot dogs during our fiscal 2018 period was approximately 8.2% 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 ~~the remainder of~~ fiscal ~~2017.~~2018. 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. WeMost recently, we concluded a purchase commitment for approximately 2,600,000 pounds of hot dogs at approximately $2.01 per pound which we purchased between February and May 2016. 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.

In March 2010, the Federal government passed new legislation to reform the U.S. health care system. As part of the plan, employers will be expected to provide their employees that work more than 30 hours per week with minimum levels of healthcare coverage or incur certain financial penalties. As ~~Nathan’s~~Nathan’s workforce includes numerous part-time workers that typically are not offered healthcare coverage, we may be forced to expand healthcare coverage ~~in 2016~~ or potentially incur new penalties which may increase our health care costs.

New York State recently passed legislation increasing the minimum hourly wage for fast food workers of restaurant chains with 30 or more locations nationwide. The increase will be phased in differently between New York City and the rest of New York State. Effective December 31, ~~2016,~~2017, the minimum wage increased to ~~$12.00~~$13.50 and ~~$10.75~~$11.75 in New York City and outside of New York City, respectively.

In New York City, the hourly rate of pay will increase ~~to:~~

~~$13.50 on Dec. 31, 2017; and~~to $15.00 on Dec. 31, 2018.

~~The~~The minimum hourly rate of pay for the remainder of New York State will increase to:

$~~11.75 on Dec. 31, 2017; $12.75~~12.75 on Dec. 31, 2018; $13.75 on Dec. 31, 2019;

~~$14.50~~ $14.50 on Dec. 31, 2020; and $15.00 on July 1, 2021.

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

~~-26-~~

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

Effective April 1, 2014, the City of New York, passed legislation requiring employers to offer paid sick leave to all employees, including part-time employees, who work more than 80 hours for the employer. ~~Nathan’s~~Nathan’s 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 ~~increasing~~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.

On May 30, 2017, New York City Mayor Bill de Blasio signed into law the Fair Work Week Legislation package of bills that the city estimates will cover some 65,000 fast food workers by giving them more predictable work schedules effective November 27, 2017. 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 beach 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 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~~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~~also see the discussions in “Forward-Looking Statements” and “Notes to Consolidated Financial Statements” in this Form 10-Q and “Risk Factors” in this Form 10-Q and our Form 10-K for our fiscal year ended March ~~27, 2016.~~26, 2017.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Cash ~~and Cash Equivalents~~

We have historically invested our cash ~~and cash equivalents~~ in ~~short term,~~money market funds or short-term, fixed rate, highly rated and highly liquid instruments which are generally reinvested when they ~~mature throughout the year.~~mature. Although ~~our~~these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of December ~~25, 2016,~~24, 2017, Nathan’s cash ~~and cash equivalents~~ aggregated ~~$56,403,000.~~$67,288,000. Earnings on this ~~amount of~~ cash ~~and cash equivalents~~ would increase or decrease by approximately ~~$141,000~~$168,000 per annum for each 0.25% change in interest rates.

~~Marketable Securities~~

We have historically, invested our marketable securities in intermediate term, fixed rate, highly rated and highly liquid instruments. These investments are subject to fluctuations in interest rates. As of December 25, 2016, Nathan’s did not have any marketable securities on hand. Nathan’s anticipates investing in marketable securities in the future. Marketable securities are considered at risk with respect to interest rates to determine their current market value. Our future rate of return could also be affected at the time of reinvestment as a result of intervening events.

Borrowings

At December ~~25, 2016,~~24, 2017, we had ~~$135,000,000~~$150.0 Million of 2025 Notes outstanding which are due in ~~March 2020. Upon maturity, we anticipate having to refinance a significant portion of the Notes and such refinancing would be based upon the then-prevailing interest rates.~~November 2025. Interest expense on these borrowings would increase or decrease by approximately ~~$338,000~~$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~~

~~The cost of commodities is subject to market fluctuation.~~Commodity Costs

We do not believe that general inflation has materially impacted earnings since 2006. However, we have experienced significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities. Our commodity costs for beef have been especially volatile since fiscal 2004. From 2011 through 2014, we experienced unprecedented increases in the cost of beef. Beginning March 2015, the beef markets stabilized through June 2015 before subsequently declining by approximately 30%. As a result of the decline through March 2016, the market price of hot dogs during the fiscal 2016 period was approximately 7.1% lower than the fiscal 2015 period. During the fiscal 2017 period, beef prices ~~have~~ remained favorable, and as such, our market price for hot dogs ~~is 16.4%~~was 17.1% lower than during the fiscal 2016 period. Despite the favorable pricing of fiscal 2017, prices began escalating in January 2017 and continued through June 2017 before beginning to slightly decline until July which is when the costs stabilized for the balance of 2017 at approximately 10% higher than the last six months of 2016. As such, our market price for hot dogs during our fiscal 2018 period was approximately 8.2% 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 ~~the remainder of~~ fiscal ~~2017.~~2018. 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 ~~in an effort~~ to reduce the impact of increasing market prices. ~~We recently~~During fiscal 2017, we concluded a purchase commitment for approximately 2,600,000 pounds of hot dogs at approximately $2.01 per pound which we purchased between February and May 2016. We may attempt to enter into similar purchase arrangements for hot dogs and other products in the future. Additionally, we expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from the uncertainty of the insurance markets.

With the exception of ~~those~~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. ~~Generally, we~~We have attempted to ~~pass~~enter sales agreements with our customers that are correlated to our cost of beef, thus reducing our market volatility, or have passed through permanent increases in our commodity prices to our customers that are not on formula pricing, thereby reducing the impact of long-term increases on our financial results. A short-term increase or decrease of 10.0% in the cost of our food and paper products for the thirty-nine weeks ended December ~~25, 2016~~24, 2017 would have increased or decreased our cost of sales by approximately ~~$3,660,000.~~$4,303,000.

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.

-28-

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

There were no changes in our internal controls over financial reporting that occurred during the quarter ended December ~~25, 2016~~24, 2017 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.

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PART II. OTHER INFORMATION

IItem 1. Legal Proceedings.

None

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended March ~~27, 2016,~~26, 2017, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing Nathan's. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

None.

Item 5. Other Information.

~~None.~~None

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ItemItem 6. Exhibits.

3.1

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


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


3.3	By-Laws, as amended. (Incorporated by reference to Exhibit 3.1 to Form 8-K dated November 1,6, 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~~4.3	Indenture, dated as of ~~March 10, 2015,~~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 ~~March 10, 2015.~~November 1, 2017.))

	10.1	**Amendment, dated as of December 6, 2017 to the Employment Agreement dated as of December 15, 2016, as amended November 1, 2012 between Howard M. Lorber and Nathan’s Famous, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report filed on Form 8-K dated December 12, 2017.)

	10.2	*Parity Lien Security Agreement, dated November 1, 2017, by and among Nathan's Famous, Inc. and The Other Assignors Identified Herein and U.S. Bank National Association, as Collateral Trustee.

31.1

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


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


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


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

~~101.1~~101.1

*The following materials from the Nathan’s Famous, Inc., Quarterly Report on Form 10-Q for the quarter ended December ~~25, 2016~~24, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statement of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) related notes.

*Filed herewith.

** Indicates a management plan or amendment.

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SIGNATURES

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

	NATHAN'S FAMOUS, INC.

Date: February ~~3, 2017~~ 2, 2018	By:	/s/ Eric Gatoff
		Eric Gatoff
		Chief Executive Officer (Principal Executive Officer)

Date: February ~~3, 2017~~

2, 2018

By:

/s/ Ronald G. DeVos

Ronald G. DeVos

Vice President - Finance

and Chief Financial Officer

(Principal Financial and Accounting Officer)

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Exhibit Index.

3.1

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


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


3.3	By-Laws, as amended. (Incorporated by reference to Exhibit 3.1 to Form 8-K dated November 1,6, 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~~4.3	Indenture, dated as of ~~March 10, 2015,~~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 ~~March 10, 2015.~~November 1, 2017.))

	10.1	**Amendment, dated as of December 6, 2017 to the Employment Agreement dated as of December 15, 2016, as amended November 1, 2012 between Howard M. Lorber and Nathan’s Famous, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report filed on Form 8-K dated December 12, 2017.)

	10.2	*Parity Lien Security Agreement, dated November 1, 2013, by and among Nathan's Famous, Inc. and The Other Assignors Identified Herein and U.S. Bank National Association, as Collateral Trustee.

31.1

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


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


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


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

~~101.1~~101.1

*Filed herewith.

** Indicates a management plan or amendment.

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