PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’(DEFICIT)

Thirty-nineThirteen weeks ended December 24, 201725, 2022 and December 26, 2021

(in thousands, except share amounts)

(Unaudited)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Thirty-nine weeks ended December 24, 2017 and December 25, 2016

(in thousands)

(Unaudited)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

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

(in thousands, except share amounts)

(Unaudited)

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

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(in thousands)

(Unaudited)

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

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 24, 2017December 25, 2022

(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 24, 201725, 2022 and December 25, 201626, 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of financial condition, results of operations and cash flows for the periods presented. However, our results of operations are seasonal in nature, and the results of any interim period are not necessarily indicative of results for any other interim period or the full fiscal year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the requirements of the U.S. Securities and Exchange Commission. Commission (“SEC”).

Management believes that the disclosures included in the accompanying consolidated interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and notesNotes thereto included in Nathan’s Annual Report on Form 10-K for the fiscal year ended March 26, 2017.27, 2022 as filed with the SEC on June 10, 2022.

Our significant interim accounting policies include the recognition of advertising fund expense in proportion to advertising funds revenue, and the recognition of income taxes using an estimated annual effective tax rate.

A summary of the Company’sCompany’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 26, 2017. There have been no changes to the Company’s significant accounting policies subsequent to March 26, 2017.27, 2022.

NOTE B– ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTSCOVID-19 Pandemic and Inflation

In July 2015,March 2020, the Financial Accounting Standards Board (“FASB”) updated U.S. accounting guidanceWorld Health Organization declared the novel strain of coronavirus (COVID-19), a global pandemic. The COVID-19 pandemic has had and may continue to simplifyhave a significant impact on our business and results of operations.

During fiscal 2022, we experienced pandemic and inflationary pressures, most notably within our Restaurant Operations and Branded Products Program segments. We experienced macroeconomic impacts arising from the ways businesses measure inventory. Companies that uselong-term duration of the first-in, first-out (FIFO) method orpandemic, including rising labor costs, increasing commodity prices, higher packaging costs and fuel prices, which contributed to a decline in consumer confidence and spending. We expect this trend to continue for the remainder of fiscal 2023. Our average cost method will measure inventory atof hot dogs for the lowerthirty-nine week period ended December 25, 2022 was approximately 3% higher than during the thirty-nine week period ended December 26, 2021.

Inflation has an impact on food, paper, utility, labor and benefits and other general and administrative expenses which can impact our results of itsoperations. In general, we have been able to offset cost or net realizable value. Net realizable value is the estimated selling priceincreases resulting from inflation by increasing prices. We may not be able to offset cost increases in the normal coursefuture.

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

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

The extent to which COVID-19 will no longer consider replacement cost or net realizable value less a normal profit margin when measuring inventory. The guidance was effective forcontinue to impact the Company beginningwill depend on future developments, which cannot be predicted, including the duration and severity of the COVID-19 pandemic, which may be impacted by new and evolving variants, the adoption rates of vaccines in the quarter ended June 25, 2017jurisdictions in which the Company operates, and did not have a material impact on its results of operations or financial position.further actions that may be taken to limit the public health and economic impact.

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

NOTE B – NEW ACCOUNTING STANDARD NOT YET ADOPTED

In AugustJune 2016, the FASB issued ASU 2016-15, 2016-13, “StatementFinancial Instruments – Credit Losses (Topic 326): Measurement of Cash Flows (Topic 230): ClassificationCredit Losses on Financial Instruments,”which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition 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 recognitioncredit losses based on an incurred loss impairment methodology that reflects losses once 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.

Therelosses 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 applyprobable. Under the new standard, for annual periods beginning after December 15, 2016,the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the consolidated financial instruments that are in the scope of this update, including interim periods therein, which for Nathan’s would have been its first quartertrade receivables. The CECL model uses a broader range of fiscal 2018, beginning on March 27, 2017. On July 9, 2015,reasonable and supportable information in the development of credit loss estimates. In November 2019, the FASB agreed to delaydeferred the standard’s effective date to annualfor smaller 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.

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 effectivecompanies for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods.2022. This standard is required to take effect in Nathan’s first quarter (June 2019)2023) 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.31, 2024. The Company is currently evaluating the standard to determineimpact that the impactadoption of the adoptionthis guidance will have on its consolidated financial statements but expects that the standard will result in a significant increase to its other assets and other liabilities.

In January 2017, the FASB issued 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 or financial position.related disclosures.

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

NOTENOTE C – REVENUES

The Company’s disaggregated revenues for the thirteen and thirty-nine weeks ended December 25, 2022 and December 26, 2021 are as follows (in thousands):

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, 201725, 2022 and December 25, 2016,26, 2021, respectively.

No optionsOptions to purchase 20,000 shares of common stock forin the thirteen and thirty-nine week periods ended December 24, 201725, 2022 and December 25, 2016 or for the thirteen week period ended December 25, 201626, 2021, were excluded fromnot included in the computation of diluted earnings per share. ForEPS because the thirteen week period ended December 24, 2017, 47,000 options to purchaseexercise price exceeded the average market price of common stock were excluded fromshares during the computation of dilutive earnings per share as the effect would be anti-dilutive.period.

NOTE E – CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents at December 25, 2022 and March 27, 2022. The Company’s cash balances principally consist of cash in bank and money market accounts.

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

NOTE E–F – FAIR VALUE MEASUREMENTS

Nathan’sNathan’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

The Company’sface value and fair value of long-term debt had a face value of $150,000,000 as of December 24, 201725, 2022 and a fair value of $155,625,000March 27, 2022 were as of December 24, 2017. follows (in thousands):