June 28, 2020

June 30, 2019

Cash flows from operating activities:

Net income
$ 4,000 $ 5,369
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization
310 310
Non-cash rental expense
66 -
Amortization of debt issuance costs
173 173
Share-based compensation expense
29 28
Income tax benefit on stock option exercises
- 228
Provision for doubtful accounts
14 27
Deferred income taxes
(8 ) (8 )
Changes in operating assets and liabilities:

Accounts and other receivables, net
2,870 (4,828 )
Inventories
(367 ) (213 )
Prepaid expenses and other current assets
77 234
Other assets
5 (10 )
Accounts payable, accrued expenses and other current liabilities
(4,127 ) (2,351 )
Deferred franchise fees
(61 ) (79 )
Other liabilities
21 84

Net cash provided by (used in) operating activities
3,002 (1,036 )

Cash flows from investing activities:

Purchase of property and equipment
(237 ) (106 )

Net cash used in investing activities
(237 ) (106 )

Cash flows from financing activities:

Dividends paid to stockholders
(1,440 ) (1,479 )
Repurchase of treasury stock
(1,501 ) -
Proceeds from the exercise of stock options
- 1,078

Net cash used in financing activities
(2,941 ) (401 )

Net decrease in cash and cash equivalents
(176 ) (1,543 )

Cash and cash equivalents, beginning of period
77,117 75,446

Cash and cash equivalents, end of period
$ 76,941 $ 73,903

Cash paid during the period for:

Interest
$ 4,969 $ 4,969
Income taxes
$ 349 $ 60

Noncash financing activity:

Dividends declared per share
$ .35 $ .35

December 27,
2020
(Unaudited)

March 29,
2020

ASSETS
CURRENT ASSETS

Cash and cash equivalents (Note F)
$ 76,602 $ 77,117
Accounts and other receivables, net (Note H)
12,338 11,108
Inventories
415 378
Prepaid expenses and other current assets (Note I)
931 1,181
Total current assets
90,286 89,784

Property and equipment, net of accumulated depreciation of $10,283 and $9,468, respectively
4,193 4,610 ��
Operating lease assets (Note R)
8,471 9,181
Goodwill
95 95
Intangible asset, net
1,184 1,269
Deferred income taxes
5 0
Other assets
329 343

Total assets
$ 104,563 $ 105,282

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES

Accounts payable
$ 3,785 $ 3,509
Accrued expenses and other current liabilities (Note L)
5,169 9,297
Current portion of operating lease liabilities (Note R)
1,833 1,583
Deferred franchise fees
227 230
Total current liabilities
11,014 14,619

Long-term debt, net of unamortized debt issuance costs of $3,342 and $3,860, respectively (Note Q)
146,658 146,140
Operating lease liabilities (Note R)
7,722 8,532
Other liabilities (Note L)
743 696
Deferred franchise fees
1,553 1,687
Deferred income taxes
0 9

Total liabilities
167,690 171,683

COMMITMENTS AND CONTINGENCIES (Note S)

STOCKHOLDERS’ DEFICIT

Common stock, $.01 par value; 30,000,000 shares authorized; 9,369,015 and 9,368,792 shares issued; and 4,114,934 and 4,141,387 shares outstanding at December 27, 2020 and March 29, 2020, respectively
94 94
Additional paid-in capital
62,211 62,130
(Accumulated deficit)
(40,662 ) (45,356 )
Stockholders’ equity before treasury stock
21,643 16,868

Treasury stock, at cost, 5,254,081 and 5,227,405 shares at December 27, 2020 and March 29, 2020
(84,770 ) (83,269 )
Total stockholders’ deficit
(63,127 ) (66,401 )

Total liabilities and stockholders’ deficit
$ 104,563 $ 105,282

To help mitigate the impact of the COVID-19 pandemic, we have taken the following decisive actions which are on-going:

The Company also assessed the impact of the COVID-19 pandemic on the estimates and assumptions used in preparing these consolidated financial statements, including, but not limited to the carrying values of Goodwill, Intangible Assets, and other Long-lived Assets. See Note J for a further discussion related to Goodwill and Intangible Assets and Note K for a further discussion related to Long-lived Assets.

We ~~intend to~~ continue to actively monitor the evolving situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our team members, customers, suppliers and shareholders.

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

In June 2016, the FASB issued new guidance on the measurement of credit losses, which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under the new standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. In November 2019, the FASB deferred the effective date for smaller reporting companies for annual reporting periods beginning after December 15, 2022. This standard is required to take effect in Nathan’s first quarter ( June 2023) of our fiscal year ending March 31, 2024. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, ““Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. This standard is required to take effect in Nathan’s first quarter ( June 2021) of our fiscal year ending March 27, 2022. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

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

The Company’s disaggregated revenues for the thirteen and thirty-nineweeks ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019 are as follows (in thousands):

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

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

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

We have applied the optional exemption, as provided for under Topic 606, which allows us not to disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

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-nineweek periods ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019, respectively.

Options to purchase 10,000 shares of common stock in the thirteen and thirty-nineweek periods ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019 were not included in the computation of diluted EPS because the exercise price exceeded the average market price of common shares during ~~these periods.~~the period.

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 ~~June 28,~~December 27, 2020 and March 29, 2020.

At ~~June 28,~~December 27, 2020 and March 29, 2020, substantially all of the Company’s cash balances are in excess of Federal government insurance limits. The Company does not believe that it is exposed to any significant risk on these balances.

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:

The face value and fair value of long-term debt as of ~~June 28,~~December 27, 2020 and March 29, 2020 were as follows (in thousands):

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

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term 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 ~~June 28,~~December 27, 2020, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.

Accounts receivable are due within 30 days and are stated at amounts due from franchisees, retail licensees and Branded Product Program customers, net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are generally considered past due. The Company does not recognize franchise and license royalties that are not deemed to be realizable.

The Company individually reviews each past due account and determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current and expected future ability to pay its obligation to the Company, the condition of the general economy and the industry as a whole. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings. After the Company has used reasonable collection efforts, it writes off accounts receivable through a charge to the allowance for doubtful accounts.

Changes in the Company’s allowance for doubtful accounts for the ~~thirteen~~thirty-nine~~-week~~ week period ended ~~June 28,~~December 27, 2020 and the fiscal year ended March 29, 2020 are as follows (in thousands):

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

The Company determined that the impact of COVID-19 was a triggering event that required the Company to perform a quantitative interim goodwill impairment test. The Company’s impairment assessment was performed in accordance with the accounting guidance adopted in the first quarter of fiscal 2021 that simplifies the testing for goodwill impairment, as discussed in Note B – Adoption of New Accounting Standard. Based on the quantitative assessment performed, management determined that the Company’s goodwill has not been impaired as of ~~June 28,~~December 27, 2020 and, as a result, no impairment charge was recorded for the thirteen- and thirty-nine week ~~period~~periods ended ~~June 28,~~December 27, 2020.

The Company’s definite-lived intangible asset consists of trademarks, tradenames and other intellectual property in connection with its Arthur Treacher’s co-branding agreements. The Company ~~also~~reviews its definite-lived intangible asset for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company determined that the impact of COVID-19 on its business was a ~~triggering event~~sufficient indicator that ~~prompted~~ the ~~need to perform interim impairment testing~~carrying value may not be recoverable. The Company tested for recoverability of its ~~finite lived~~definite-lived intangible ~~asset. The Company elected~~asset based on the projected undiscounted cash flows to ~~assess qualitative factors to determine whether it was more likely than~~ ~~not~~ ~~that the fair value was less than the carrying amount. NaN impairment was identified as a result of the Company’s annual impairment test performed at~~ ~~March 29, 2020.~~ ~~Considering this and other factors, the Company determined qualitatively that its finite lived intangible asset,~~be derived from such co-branding agreements, which has a remaining useful life based upon the term of its ~~current Arthur Treacher’s co-branding agreements, is recoverable. As a result,~~agreements. Based on the quantitative test performed and other qualitative factors, the Company determined that the definite-lived intangible asset was recoverable and 0 impairment charge was recorded for the thirteen~~-week period~~ and thirty-nine week periods ended ~~June 28,~~December 27, 2020.

Long-lived assets on a restaurant-by-restaurant basis are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

As a result of the impact of the COVID-19 pandemic on its business, the Company determined that sufficient indicators existed to trigger the performance of an interim impairment analysis as of ~~June 28,~~December 27, 2020.

The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such assets. If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the asset. The Company generally measures fair value by considering discounted estimated future cash flows from such assets. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairments in future periods and such impairments could be material. The Company considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. NaN long-lived assets were deemed to be permanently impaired during the thirteen~~-week period~~ and thirty-nine week periods ended ~~June 28,~~December 27, 2020 based upon quantitative analysis.

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

On March 27, 2020, ~~President Trump signed~~ the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted into law which among other provisions increases the limitation on the allowed business interest expense deduction from 30 percent to 50 percent of adjusted taxable income for tax years beginning January 1, 2019 and 2020. Additionally, the CARES Act allows businesses to immediately expense the full cost of Qualified Improvement Property, retroactive to tax years beginning on or after January 1, 2018.

The income tax provisions for the ~~thirteen~~thirty-nine~~-week~~ week periods ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019 reflect effective tax rates of ~~28.1%~~27.7% and ~~25.3%~~26.1%, respectively.

Nathan’s effective tax rate for the ~~thirteen~~thirty-nine~~-week~~ week period ended ~~June 30,~~December 29, 2019 was reduced by ~~3.2%,~~1.6% as a result of the tax benefits associated with stock compensation. For the ~~thirteen~~thirty-nine~~-week~~ week period ended ~~June 30,~~December 29, 2019 excess tax benefits of $228,000 were reflected in the Consolidated Statements of Earnings as a reduction in determining the provision for income taxes. Nathan’s effective tax rate without this adjustment would have been ~~28.5%~~27.8% for the fiscal 2020 period.

The amount of unrecognized tax benefits at ~~June 28,~~December 27, 2020 was ~~$321,000~~$336,000 all of which would impact Nathan’s effective tax rate, if recognized. As of ~~June 28,~~December 27, 2020, Nathan’s had ~~$274,000~~$292,000 of accrued interest and penalties in connection with unrecognized tax benefits.

In November 2019, the State of New Jersey notified Nathan’s that our tax returns for the fiscal years ended March 27, 2016, March 26, 2017 and March 25, 2018 will be audited. ~~The~~In November 2020, the audit ~~is ongoing.~~was completed and no adjustments were noted.

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

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

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

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

Revenues from operating segments are from transactions with unaffiliated third parties and do not include any intersegment revenues.

Income from operations attributable to Corporate consists principally of administrative expenses not allocated to the operating segments such as executive management, finance, information technology, legal, insurance, corporate office costs, corporate incentive compensation and compliance costs and expenses of the advertising fund.

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

Total share-based compensation ~~during~~for each of the thirteen-week periods ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019 was ~~$29,000~~ $29,000. Total share-based compensation for each of the thirty-nine week periods ended December 27, 2020 and ~~$28,000, respectively.~~December 29, 2019 was $87,000. Total share-based compensation is included in general and administrative expenses in our accompanying Consolidated Statements of Earnings. As of ~~June 28,~~December 27, 2020, there was ~~$140,000~~$83,000 of unamortized compensation expense related to share-based incentive awards. ~~We expect~~The Company expects to recognize this expense over approximately ~~fourteen~~eight months, which represents the weighted average remaining requisite service periods for such awards.

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):

There were 0 new share-based awards granted during the ~~thirteen~~thirty-nine~~-week~~ week period December 27, 2020.

During the fiscal year ended ~~June 28, 2020.~~March 31, 2019, the Company granted options to purchase 10,000 shares at an exercise price of $89.90 per share, all of which expire five years from the date of grant. All such stock options vest ratably over a three-year period commencing September 12, 2019.

Transactions with respect to stock options for the ~~thirteen~~thirty-nine weeks ended ~~June 28,~~December 27, 2020 are as follows:

Transactions with respect to restricted stock for the ~~thirteen~~thirty-nine weeks ended ~~June 28,~~December 27, 2020 are as follows:

Effective June 12, 2020, the Board declared its first quarterly cash dividend of $0.35 per share for fiscal year 2021, aggregating $1,440,000, which was paid on June 26, 2020 to stockholders of record as of the close of business on June 22, 2020.

Effective August 7, 2020, the Board declared its second quarterly cash dividend of $0.35 per share ~~payable~~for fiscal year 2021, aggregating $1,440,000, which was paid on September 4, 2020 to stockholders of record as of the close of business on August 24, 2020.

Effective November 6, 2020 the Board declared its third quarterly cash dividend of $0.35 per share for fiscal year 2021, aggregating $1,440,000, which was paid on December 4, 2020 to stockholders of record as of the close of business on November 23, 2020.

Effective February 5, 2021 the Board declared its fourth quarterly cash dividend of $0.35 per share payable on March 5, 2021 to stockholders of record as of the close of business on February 22, 2021.

Our ability to pay future dividends is limited by the terms of the Indenture with U.S. Bank National Association, as trustee and collateral trustee (see Note Q). In addition to the terms of the Indenture, the declaration and payment of any cash dividends in the future are subject to final determination of the Board and will be dependent upon our earnings and financial requirements.

On September 13, 2012, the Company amended the Nathan’s Famous, Inc. 2010 Stock Incentive Plan (the “2010 Plan”) increasing the number of shares available for issuance by 250,000 shares. Shares to be issued under the 2010 Plan may be made available from authorized but unissued stock, common stock held by the Company in its treasury, or common stock purchased by the Company on the open market or otherwise. The number of shares issuable and the grant, purchase or exercise price of outstanding awards are subject to adjustment in the amount that the Company’s Compensation Committee considers appropriate upon the occurrence of certain events, including stock dividends, stock splits, mergers, consolidations, reorganizations, recapitalizations, or other capital adjustments. ~~In the event that the Company issues restricted stock awards pursuant to the~~ ~~2010~~ ~~Plan, each share of restricted stock would reduce the amount of available shares for issuance by either 3.2 shares for each share of restricted stock granted or~~ 1 ~~share for each share of restricted stock granted.~~

On September 18, 2019, the Company’s shareholders approved the Nathan’s Famous, Inc. 2019 Stock Incentive Plan (the “2019 Plan”). The 2019 Plan became effective ~~as of~~ July 1, 2020 (the "Effective Date"). Following the Effective Date, (i) no additional stock awards ~~will be~~were granted under the 2010 Plan and (ii) all outstanding stock awards previously granted under the 2010 Plan remained subject to the terms of the 2010 Plan. All awards granted on or after the Effective Date of the 2019 Plan shall be subject to the terms of the 2019 Plan.

As of the Effective Date, we were able to issue up to: (a) 369,584 shares of common stock under the 2019 Plan which includes: (i) shares that ~~have~~had been authorized but not issued pursuant to the 2010 Plan as of the Effective Date up to a maximum of an additional 208,584 shares and (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of the Effective Date and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 11,000 shares. As of ~~June 28,~~December 27, 2020, there were up to 208,584 shares available to be issued for future option grants or up to 184,808 shares of restricted stock ~~that~~ ~~may~~ to be granted under the ~~2010~~2019 Plan.

During the period from October 2001 through ~~June 28,~~December 27, 2020, Nathan’s purchased 5,254,081shares of common stock at a cost of $84,770,000pursuant to various stock repurchase plans previously authorized by the Board of Directors. During the ~~thirteen~~thirty-nine~~-week~~ week period ended ~~June 28,~~December 27, 2020, we repurchased 26,676 shares of common stock at a cost of $1,501,000.

In 2016, the 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 ~~June 28,~~December 27, 2020, Nathan’s had repurchased 1,066,450 shares at a cost of $37,108,000 under the sixth stock repurchase plan. At ~~June 28,~~December 27, 2020 there were 133,550 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately-negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases.

On March 13, 2020, the Company’s Board of Directors approved a 10b5-1 stock plan (the “10b5-1 Plan”) which ~~will expire~~expired on ~~the earlier of (a)~~ August 12, ~~2020~~2020. ~~or (b) the earlier of when (i) the aggregate purchase price of all shares of common stock purchased under the~~ ~~10b5~~-1 ~~Plan equals $5,550,000 and (ii) the aggregate purchases under the~~ ~~10b5~~-1 ~~Plan equals 100,000 shares unless terminated earlier by the Company’s Board of Directors.~~

During the fiscal ~~thirteen~~2021~~-week~~ period, ~~ended~~ ~~June 28, 2020,~~ the Company repurchased in open market transactions 26,676 shares of the Company’s common stock at an average share price of $56.26 for a total cost of $1,501,000 under the 10b5-1 Plan.

~~June 28, 2020,~~ 17~~$1,322,000 or 22,406 shares were available for repurchase under the~~ ~~10b5~~-1 ~~Plan.~~

~~-16-~~

NOTE Q – LONG-TERM DEBT

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

	June 28,			March 29,			December 27,			March 29,
	2020			2020			2020			2020

6.625% Senior Secured Notes due 2025	$	150,000		$	150,000		$	150,000		$	150,000
Less: unamortized debt issuance costs		(3,687	)		(3,860	)		(3,342	)		(3,860	)
Long-term debt, net	$	146,313		$	146,140		$	146,658		$	146,140

On November 1, 2017, the Company issued $150,000,000 of 6.625% Senior Secured Notes due 2025 (the "2025 Notes") in a private offering in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2025 Notes were issued pursuant to an indenture dated as of November 1, 2017 by and among the Company, certain of its wholly-owned subsidiaries and U.S. Bank National Association (the “Indenture”). The Company used the net proceeds of the 2025 Notes offering to satisfy and discharge the Indenture relating to the $135,000,000 of 10.000% Senior Secured Notes due 2020 and redeem ~~the~~ ~~2020~~ ~~Notes~~such notes (the "Redemption"), paid a portion of a special $5.00 per share cash dividend to Nathan's stockholders of record, with the remaining net proceeds for general corporate purposes, including working capital. The Company also funded the majority of the special dividend of $5.00 per share through its existing cash. The Redemption occurred on November 16, 2017.

The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1^st and November 1^st of each year. OnThe Company made its required semi-annual interest payments of $4,968,750 on May 1, 2020 ~~the Company paid its~~and ~~first~~ ~~semi-annual interest payment of fiscal~~ ~~2021.~~November 1, 2020.

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

~~The~~A summary of certain terms and conditions of the 2025 Notes ~~are~~is as follows (terms not defined shall have the meanings set forth in the Indenture):

There are no ~~ongoing~~ financial maintenance covenants associated with the 2025 Notes. As of ~~June 28,~~December 27, 2020, Nathan’s was in compliance with all covenants associated with the 2025 Notes.

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

Fixed Charge Coverage Ratio: the ratio of the Consolidated Cash Flow to the Fixed Charges for the relevant period, currently set at 2.0 to 1.0 in the Indenture. The Fixed Charge Coverage Ratio applies to determining whether additional Restricted Payments may be made, certain additional debt may be incurred and acquisitions may be made.

Priority Secured Leverage Ratio: the ratio of (a) Consolidated Net Debt outstanding as of such date that is secured by a Priority Lien to (b) Consolidated Cash Flow of Nathan’s for the Test Period then most recently ended, in each case with such pro forma adjustments as are appropriate; currently set at 0.40 to 1.00 in the Indenture.

Secured Leverage Ratio: the ratio of (a) Consolidated Net Debt outstanding as of such date that is secured by a Lien on any property of Nathan’s or any Guarantor to (b) Consolidated Cash Flow of Nathan’s for the Test Period then most recently ended, in each case with such pro forma adjustments as are appropriate. The Secured Leverage Ratio under the Indenture is 3.75 to 1.00 and applies if Nathan’s wants to incur additional debt on the same terms as the 2025 Notes.

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

The 2025 Notes are general senior secured obligations, are fully and unconditionally guaranteed by substantially all of the Company’s wholly-owned subsidiaries and rank pari passu in right of payment with all of the Company’s existing and future indebtedness that is not subordinated, are senior in right of payment to any of the Company’s existing and future subordinated indebtedness, are structurally subordinated to any existing and future indebtedness and other liabilities of the Company’s subsidiaries that do not guarantee the 2025 Notes, and are effectively junior to all existing and future indebtedness that is secured by assets other than the collateral securing the 2025 Notes.

- 1718-

Pursuant to the terms of a collateral trust agreement, the liens securing the 2025 Notes and the guarantees will be contractually subordinated to the liens securing any future credit facility.

The 2025 Notes and the guarantees are the Company and the guarantors’ senior secured obligations and will rank:

	●	senior in right of payment to all of the Company and the guarantors’ future subordinated indebtedness;

	●	effectively senior to all unsecured senior indebtedness to the extent of the value of the collateral securing the 2025 Notes and the guarantees;

	●	pari passu with all of the Company and the guarantors’ other senior indebtedness;

	●	effectively junior to any future credit facility to the extent of the value of the collateral securing any future credit facility and the 2025 Notes and the guarantees and certain other assets;

	●	effectively junior to any of the Company and the guarantors’ existing and future indebtedness that is secured by assets other than the collateral securing the 2025 Notes and the guarantees to the extent of the value of any such assets; and

	●	structurally subordinated to the indebtedness of any of the Company’s current and future subsidiaries that do not guarantee the 2025 Notes.

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

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

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

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

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

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

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

Effective June 1, 2020, Nathan’s Board of Directors authorized the repurchase of up to $10,000,000 of the 2025 Notes by the Company (at a price equal to or less than par) from time to time. There is no set time limit on the repurchases.

~~-18-~~19

NOTE R – LEASES

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

Company as lessee

The components of the net lease cost for the thirteen~~-week period~~ and thirty-nine week periods ended ~~June 28,~~December 27, 2020and December 29, 2019 were as follows (in thousands):

	Thirteen weeks ended					Thirteen weeks ended						Thirty-nine weeks ended
	June 28, 2020		June 30, 2019			December 27, 2020			December 29, 2019			December 27, 2020			December 29, 2019
Statement of Earnings
Operating lease cost	$	415	$	342		$	370		$	339		$	1,181		$	899
Short term lease cost		-		6			0			4			0			14
Variable lease cost		338		423			292			280			1,007			1,240
Less: Sublease income, net		-		(21	)		(9	)		(22	)		(31	)		(63	)

Total net lease cost (a)	$	753	$	750		$	653		$	601		$	2,157		$	2,090

(a)

~~the~~The thirteen~~-week~~ and thirty-nine week periods ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019 include ~~$579~~$502,000, net and ~~$550,~~$1,696,000, net and $470,000, net and $1,679,000, net, respectively, recorded to “Restaurant Operating Expenses” for leases for Company-operated ~~restaurants, $174~~restaurants; $160,000 and ~~$170~~$492,000, and $153,000 and $474,000, respectively, recorded to “General and administrative expenses” for leases for corporate offices and ~~equipment~~equipment; and $-$9,000 and ~~$21~~$31,000, and $22,000 and $63,000, respectively, recorded to “Other income, net” for leased properties that are leased to franchisees.

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

Thirteen weeks ended

June 28, 2020

June 30, 2019

Operating cash flows from operating leases
$ 205 $ 160

	Thirteen weeks ended				Thirty-nine weeks ended
	December 27, 2020		December 29, 2019		December 27, 2020		December 29, 2019

Operating cash flows from operating leases	$	153	$	60	$	560	$	351

The weighted average remaining lease term and weighted-average discount rate for operating leases as of ~~June~~December 27, 2020 ~~28,~~~~2020~~were as follows:

Weighted average remaining lease term (years):
Operating leases	~~7.8~~7.4

Weighted average discount rate:
Operating leases	~~8.876~~8.877	%

Future lease commitments to be paid and received by the Company as of ~~June 28,~~December 27, 2020 were as follows (in thousands):

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

Fiscal year:
2021 (a)	$	1,164	$	170	$	994	$	377	$	38	$	339
2022		1,837		247		1,590		1,837		247		1,590
2023		1,849		168		1,681		1,849		168		1,681
2024		1,774		169		1,605		1,774		169		1,605
2025		1,678		169		1,509		1,678		169		1,509
Thereafter		5,473		352		5,121		5,474		352		5,122
Total lease commitments	$	13,775	$	1,275	$	12,500	$	12,989	$	1,143	$	11,846
Less: Amount representing interest		3,865						3,434
Present value of lease liabilities (b)	$	9,910					$	9,555

(a)

Represents future lease commitments to be paid and received by the Company for the remainder of the 2021 fiscal year. Amount does not include ~~$338~~$956,000 of lease commitments paid and received by the Company for the ~~thirteen~~thirty-nine~~-week~~ week period ended ~~June 28,~~December 27, 2020.

(b)

The present value of minimum operating lease payments of ~~$1,702~~$1,833,000 and ~~$8,208~~$7,722,000 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively.

- 1920-

Company as lessor

The components of lease income for the thirteen~~-week~~ and thirty-nine week periods ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019 were as follows (in thousands):

Thirteen weeks ended

June 28, 2020

June 30, 2019

Operating lease income, net
$ - $ 21

	Thirteen weeks ended				Thirty-nine weeks ended
	December 27, 2020		December 29, 2019		December 27, 2020		December 29, 2019

Operating lease income, net	$	9	$	22	$	31	$	63

NOTE S – 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. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees. As of ~~June 28,~~December 27, 2020, Nathan’s has recorded a liability of $110,000 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.

2. Contingencies

The Company and its subsidiaries are from time to time involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include money damages and, in such event, could result in a material adverse impact on the Company’s results of operations for the period in which the ruling occurs.

~~-20-~~

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

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

Statements in this Form 10-Q quarterly report may be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties, many of which are not within our control, include but are not limited to: the impact of the COVID-19 pandemic;economic, weather (including the affects on the supply of cattle and the impact of weather on sales at our restaurants, particularly during the Summer months), and change in the price of beef trimmings; our ability to pass on the cost of any price increases in beef and beef trimmings, or labor costs; legislative, business conditions or tariffs; the collectibility of receivables; changes in consumer tastes; the status of our licensing and supply agreements, including our licensing revenue and overall profitability being substantially dependent on our agreement with John Morrell & Co., the impact of our debt service and repayment obligations under the 2025 ~~Notes;~~Notes (as defined herein); the impact of the Tax Cuts and Jobs ~~Act (“the Tax Act”);~~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 court decisions which could render a franchisor as a “joint employee” or the impact of our new union 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 29, 2020, 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.

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

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

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

At ~~June 28,~~December 27, 2020, our restaurant system consisted of ~~217~~215 Nathan’s franchised units, including 9593 Branded Menu units, and four Company-owned units (including one seasonal unit), located in 2019 states, and 9 foreign countries. At ~~June 30,~~December 29, 2019, our restaurant system consisted of ~~253~~226 Nathan’s franchised units, including ~~111~~96 Branded Menu units, and four Company-owned units (including one seasonal unit), located in 22 states, and 1410 foreign countries.

Over the past several years, our strategic emphasis has been to increase the number of distribution points for our products across all of our business platforms, including our Licensing Program for distribution of Nathan’s Famous branded consumer packaged goods, our Branded Products Program for distribution of Nathan’s Famous branded bulk products to the foodservice industry, and our namesake restaurant system comprised of both Company-owned and franchised units. The primary drivers of our recent growth have been our Licensing and Branded Product Programs, which ~~have been~~are now the largest contributors to the Company’s revenues and profits.

We remain committed to these parts of our business and we continue to reinvigorate our restaurant system. The operating plan we have adopted in this regard is focused on surrounding our core items, Nathan’s World Famous beef hot dogs and crinkle-cut French fried potatoes, with other much higher quality menu items developed to deliver best-in-class customer experience and greater customer frequency. Menu development activities have been combined with concept positioning efforts, operational improvements and more effective digital and social marketing campaigns. The goal is to improve the performance of the existing restaurant system and to grow it through franchising efforts. Additionally, ~~while~~we have introduced ghost kitchens whereby well-known restaurants have the ability to market and to sell our products. At December 27, 2020, we have expanded into 75 ghost kitchens, including 37 domestically and 38 internationally. While we do not expect to significantly increase the number of ~~company-owned~~Company-owned units, we ~~do expect to~~may opportunistically and strategically invest in a small number of new units as showcase locations for prospective franchisees and master developers as we seek to grow our franchise system. We continue to seek opportunities to drive sales in a variety of ways as we adopt to the ever-changing consumer and environment.

As described in our Annual Report on Form 10-K for the year ended March 29, 2020, our future results could be materially impacted by many developments including the impact of the COVID-19 pandemic on our business, our dependence on John Morrell & Co. as our principal 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 in addition to the potential impact that any future tariffs may have on the business.

On November 1, 2017, the Company issued $150,000,000 of 6.625% Senior Secured Notes due 2025 (the “2025 Notes”) and used the majority of the proceeds of this offering to redeem (the “Redemption”) the Company’s 10.000% Senior Secured Notes due 2020 (the “2020 Notes”), paid a portion of the special $5.00 cash dividend and used 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 incurs interest expense of $9,937,500 per annum, which reduced our cash interest expense by $3,562,500 per annum as compared to our annual interest requirements under the 2020 Notes. Nathan’s expects to incur annual amortization of debt issuance costs of approximately $691,000 through November 1, 2025.

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

The COVID-19 pandemic has had an impact on the Company’s business, financial condition, cash flows and results of operations for the ~~thirteen~~thirty-nine weeks ended ~~June 28,~~December 27, 2020 (“fiscal 2021 period”) and continues into the ~~second~~fourth quarter of fiscal 2021. Governmental restrictions and public perceptions of the risks associated with COVID-19 have caused consumers to avoid or limit nonessential travel, gatherings in public places and other social interactions, which has adversely affected, and could continue to adversely affect, our business. The COVID-19 pandemic, has and may continue to impact customer traffic at our Company-owned restaurants and franchised restaurants, as well as sales to our Branded Product Program customers.

Three of our four Company-owned restaurants remained open throughout the fiscal 2021 period and continued to offer food primarily through take-out and delivery. Our ~~seasonal~~ location on the Coney Island Boardwalk opened on May 15, 2020 for the summer months and closed for the season on September 13, 2020. ~~As governmental restrictions ease, we expect to offer dine-in seating~~Beginning in the second quarter fiscal 2021, the Company re-opened the dining rooms at our Company-owned restaurants located in Oceanside, New York and ~~service~~Yonkers, New York, which currently remain open. Although, these dining rooms are open, they are operating at reduced capacity, ~~at our restaurants.~~as stipulated under government orders, as well as due to social distancing protocols that are also mandated by the same government orders. Even without government restrictions, customers may continue to choose to reduce or to eliminate in-restaurant dining because of the rise in the number of COVID-19 cases.

A majority of our franchised locations ~~were~~closed temporarily ~~closed~~ during the fiscal 2021 period due to their locations being in venues that ~~are~~were closed (such as ~~shopping malls and~~ movie theaters) or venues operating at ~~significantly~~ reduced traffic levels (such as airports, ~~and~~ highway travel ~~plazas)~~plazas and shopping malls). Such closures and disruptions have materially impacted franchise fees and royalties during the fiscal 2021 period, as compared to the same period last year. We are principally focused on the well-being and safety of our guests, franchisees, restaurant associates and all other employees. Approximately ~~52%~~60% of our franchised locations have reopened as of the date of this report.

The sales and profits from our Branded Product Program have been adversely impacted as many of our customers operate in venues that are currently closed ~~and may be slow to reopen,~~(such as movie theaters) or venues operating at reduced traffic levels, such as professional sports ~~venues,~~arenas, amusement parks and shopping ~~malls and movie theaters.~~malls.

To help mitigate the impact of the COVID-19 pandemic, we have taken the following decisive actions during the fiscal 2021 period which ~~are on-going:~~continue into the fourth quarter of fiscal 2021:

While there is significant uncertainty as to the duration and extent of the impact of the COVID-19 pandemic, we expect the pandemic will continue to have a negative impact on our revenue and net income for the remainder of fiscal 2021. Even as government restrictions are lifted and vaccines begin to be distributed, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels, and could result in reduced restaurant traffic and consumer spending trends that may adversely impact our financial ~~position~~condition and results of operations.

As discussed in our Form 10-K for the fiscal year ended March 29, 2020, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those consolidated financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; leases; impairment of goodwill and other intangible assets; impairment of long-lived assets; share-based compensation and income taxes (including uncertain tax positions). Except for the adoption in Note B – simplifying the testing for goodwill impairment, there have been no other significant changes to the Company’s accounting policies subsequent to March 29, 2020.

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

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

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

In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP"), the Company has provided EBITDA, a non-GAAP financial measure, which is defined as net income excluding (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense. The Company has also provided Adjusted EBITDA, a non-GAAP financial measure, which is defined as EBITDA, excluding share-based compensation that the Company believes will impact the comparability of its results of operations.

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

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

Thirteen weeks ended ~~June~~ 28~~, 20~~20December 27, 2020 compared to thirteen weeks ended ~~June~~ 30~~, 201~~9December 29, 2019

Total sales decreased by ~~67%~~26% to ~~$6,683,000~~$11,322,000 for the thirteen weeks ended ~~June 28,~~December 27, 2020 (“third quarter fiscal ~~2021 period”~~2021”) as compared to ~~$20,237,000~~$15,356,000 for the thirteen weeks ended ~~June 30,~~December 29, 2019 (“third quarter fiscal ~~2020 period”~~2020”). Foodservice sales from the Branded Product Program decreased by ~~70.5%~~27% to ~~$4,749,000~~$10,003,000 for the third quarter fiscal 2021 ~~period~~ as compared to sales of ~~$16,113,000~~$13,694,000 in the third quarter fiscal ~~2020 period.~~2020. The sales from our Branded Product Program have been negatively impacted by the COVID-19 pandemic as many of our customers operate in venues that are currently closed, ~~and may be slow to reopen,~~such as movie theaters, or venues operating at reduced capacity, such as professional sports ~~venues,~~arenas, amusement parks and shopping ~~malls~~malls. Our average selling prices decreased by approximately 2.5% as compared to the third quarter fiscal 2020. During the third quarter fiscal 2021, the volume of business decreased by approximately 26% as compared to the third quarter fiscal 2020.

Total Company-owned restaurant sales decreased by 21% to $1,319,000 during the third quarter fiscal 2021 compared to $1,662,000 during the third quarter fiscal 2020. The decrease was primarily due to a decline in customer traffic related to the impact of the COVID-19 pandemic. Additionally, as stipulated under government orders, the dining rooms at our Company-owned restaurants are operating at reduced capacity and maintaining social distancing protocols under these same government orders.

License royalties increased by 34% to $5,898,000 in the third quarter fiscal 2021 as compared to $4,412,000 in the third quarter fiscal 2020. 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 and WalMart, increased 33% to $5,284,000 for the third quarter fiscal 2021 as compared to $3,979,000 in the third quarter fiscal 2020. As consumers shelter at home, our licensing business continues to show strong consumer demand. The increase is due to a 40% increase in retail volume during the third quarter fiscal 2021 period and a 3% increase in average net selling price as compared to the third quarter fiscal 2020 period. Additionally, the foodservice business earned lower royalties of $52,000 as compared to the third quarter fiscal 2020 due to a shift in the Sam’s Club business. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $181,000 during the third quarter fiscal 2021 as compared to the third quarter fiscal 2020 primarily due to additional royalties earned on sales of French fries, cocktail franks and mozzarella sticks.

Franchise fees and royalties were $420,000 in the third quarter fiscal 2021 as compared to $1,035,000 in the third quarter fiscal 2020. Total royalties were $361,000 in the third quarter fiscal 2021 as compared to $802,000 in the third quarter fiscal 2020. Royalties earned under the Branded Menu program were $65,000 in the third quarter fiscal 2021 as compared to $148,000 in the third quarter fiscal 2020. 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 $296,000 in the third quarter fiscal 2021 as compared to $654,000 in the third quarter fiscal 2020. Franchise restaurant sales declined to $6,178,000 in the third quarter fiscal 2021 as compared to $14,587,000 in the third quarter fiscal 2020 primarily due to temporary closings, as well as venues operating at significantly reduced traffic as a result of the COVID-19 pandemic. Comparable domestic franchise sales (consisting of 51 Nathan’s outlets, excluding sales under the Branded Menu Program) were $4,778,000 in the third quarter fiscal 2021 as compared to $9,144,000 in the third quarter fiscal 2020.

At December 27, 2020, 215 franchised outlets, including domestic, international and Branded Menu Program outlets were operating compared to 226 domestic and international franchised or Branded Menu Program franchise outlets at December 29, 2019. Total franchise fee income was $59,000 in the third quarter fiscal 2021 compared to $233,000 in the third quarter fiscal 2020. Domestic franchise fee income was $34,000 in the third quarter fiscal 2021 compared to $35,000 in the third quarter fiscal 2020. International franchise fee income was $25,000 in the third quarter fiscal 2021 compared to $38,000 during the third quarter fiscal 2020.

We did not recognize any forfeited fees in the third quarter fiscal 2021. We recognized $160,000 of forfeited fees in the third quarter fiscal 2020 primarily from the termination of our Master Franchise Agreement for Turkey and the closing of various domestic and international franchise locations. During the third quarter fiscal 2021, one new franchised outlet opened. Additionally, 40 new ghost kitchens opened. During the third quarter fiscal 2020, three franchised outlets opened.

Advertising fund revenue, after eliminating Company contributions, was $390,000 during the third quarter fiscal 2021 and $573,000 during the third quarter fiscal 2020 period.

Overall, our cost of sales decreased by 27% to $8,937,000 in the third quarter fiscal 2021 as compared to $12,262,000 in the third quarter fiscal 2020. Our gross profit (representing the difference between sales and cost of sales) decreased to $2,385,000 or 21% of sales during the third quarter fiscal 2021 as compared to $3,094,000 or 20% of sales during the third quarter fiscal 2020. The increase in margin was primarily due to the lower cost of beef in the Branded Product Program, partially offset by higher labor costs associated with higher minimum hourly rates of pay at two of our Company-owned restaurants.

Cost of sales in the Branded Product Program decreased by approximately $3,173,000 during the third quarter fiscal 2021 as compared to the third quarter fiscal 2020, primarily due to the 4.6% decrease in the average cost per pound of our hot dogs, as well as the 26% decreasein the volume of product sold due to the COVID-19 pandemic as discussed above. We did not make any purchase commitments of beef during the third quarter fiscal 2021 or the third quarter fiscal 2020. If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases or otherwise reduce any increase in our costs through the use of purchase commitments, our margins will be adversely impacted.

Beginning in May 2020, the cost of hot dogs increased significantly due primarily to the effects of the COVID-19 pandemic on the meat processing industry.

With respect to Company-owned restaurants, our cost of sales during the third quarter fiscal 2021 was $989,000 or 75% of restaurant sales, as compared to $1,141,000 or 69% of restaurant sales in the third quarter fiscal 2020. We experienced higher labor costs associated with higher minimum hourly rates of pay at two of our Company-owned restaurants.We expect that our future labor costs will continue to be impacted by the remaining multi-year increase in minimum wage requirements in New York State as well as other new labor regulations and our food costs may be impacted by increases in commodity costs.

Restaurant operating expenses were $759,000 in the third quarter fiscal 2021 as compared to $764,000 in the third quarter fiscal 2020. We incurred lower marketing expenses of $17,000, lower utility expenses of $11,000, and lower repairs and maintenance expenses of $16,000 which were offset, in part, by higher delivery charges associated with offsite consumption.

Depreciation and amortization were $288,000 in the third quarter fiscal 2021 as compared to $294,000 in the third quarter fiscal 2020.

General and administrative expenses decreased by $367,000 or 10% to $3,253,000 in the third quarter fiscal 2021 as compared to $3,620,000 in the third quarter fiscal 2020. The Company continued to reduce expenses in response to the impact of the COVID-19 pandemic. These activities included transitioning certain Corporate personnel from a furloughed status to a permanent layoff. The Company incurred severance charges of approximately $343,000 which are reflected in general and administrative expenses in our Consolidated Statements of Earnings for the third quarter fiscal 2021. This was offset by a lower incentive compensation accrual, reduced tradeshow expenses in light of the COVID-19 pandemic and reductions in other discretionary expenses including marketing and travel.

Advertising fund expense, after eliminating Company contributions, was $390,000 during the third quarter fiscal 2021, as compared to $573,000 in the third quarter fiscal 2020.

Interest expense of $2,650,000 in both the third quarter fiscal 2021 and the third quarter fiscal 2020 represented accrued interest of $2,477,000 on the 2025 Notes and amortization of debt issuance costs of $173,000.

Interest income was $89,000for the third quarter fiscal 2021 as compared to$338,000 in the third quarter fiscal 2020.

Other income, which primarily relates to a sublease of a franchised restaurant, was $9,000 in the third quarter fiscal 2021, as compared to $22,000 in the third quarter fiscal 2020.

The income tax provision for the third quarter fiscal 2021 and third quarter fiscal 2020 reflect effective tax rates of 26.6% and 22.9%, respectively.

During the third quarter fiscal 2021, the Company’s effective tax rate was favorably affected by 1.0% due to its return to provision adjustment of approximately $18,000 in connection with the filing of its March 2020 tax returns. During the third quarter fiscal 2020, the Company’s effective tax rate was favorably affected by 3.3% due to its return to provision adjustment of approximately $52,000 in connection with the filing of its March 2019 tax returns. Nathan’s effective tax rates without these adjustments would have been 27.6% for the third quarter fiscal 2021 and 26.2% for the third quarter fiscal 2020.

The amount of unrecognized tax benefits at December 27, 2020 was $336,000 all of which would impact Nathan’s effective tax rate, if recognized. As of December 27, 2020, Nathan’s had $292,000 of accrued interest and penalties in connection with unrecognized tax benefits.

Nathan’s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by up to $16,000 during the fiscal year ending March 28, 2021.

Thirty-nine weeks ended December 27, 2020 compared to thirty-nine weeks ended December 29, 2019

Total sales decreased by 47% or $27,002,000 to $30,697,000 for the thirty-nine weeks ended December 27, 2020 (“fiscal 2021 period”) as compared to $57,699,000 for the thirty-nine weeks ended December 29, 2019 (“fiscal 2020 period”). Foodservice sales from the Branded Product Program decreased by 47% to $24,450,000 for the fiscal 2021 period as compared to sales of $45,989,000 for the fiscal 2020 period. The sales from our Branded Product Program have been negatively impacted by the COVID-19 pandemic as many of our customers operate in venues that are currently closed, such as movie ~~theatres.~~theaters, or venues operating at reduced capacity, such as professional sports arenas, amusement parks and shopping malls. Our average selling prices increased by approximately ~~7.0%.~~2.9% as compared to the fiscal 2020 period. During the fiscal 2021 period, the volume of business decreasedby approximately ~~71%~~48% as compared to the fiscal 2020 period.

Total Company-owned restaurant sales decreased by ~~53.1%~~47% to ~~$1,934,000~~$6,247,000 during the fiscal 2021 period as compared to ~~$4,124,000~~$11,710,000 during the fiscal 2020 period. The decrease was primarily due to a decline in customer traffic related to the impact of the COVID-19 pandemic during the fiscal 2021 period. ~~Due to governmental restrictions,~~Additionally, as stipulated under government orders, the dining rooms at our Company-owned restaurants ~~have been only offering food through take-out~~are operating at reduced capacity and ~~delivery services.~~maintaining social distancing protocols under these same government orders.

License royalties increased by ~~20.6%,~~33% to ~~$10,523,000~~$24,689,000 in the fiscal 2021 period as compared to ~~$8,722,000~~$18,559,000 in the fiscal 2020 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 and WalMart, increased ~~19.5%~~33% to ~~$9,744,000~~$22,743,000 for the 2021 fiscal period as compared to ~~$8,157,000~~$17,071,000 in the fiscal 2020 period. As consumers shelter at home, our licensing business continues to show strong consumer demand. The increase is due to a ~~7.1%~~21% increase in retail volume during the fiscal 2021 period and a ~~15.3%~~15% increase in average net selling price as compared to the fiscal 2020 period. Additionally, the foodservice business earned lower royalties of ~~$267,000~~$401,000 as compared to the fiscal 2020 period due to a shift in the Sam’s Club business. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by ~~$214,000~~$457,000 during the fiscal 2021 period as compared to the fiscal 2020 period primarily due to additional royalties earned on sales of French fries, pickles, cocktail franks and mozzarella sticks.

Franchise fees and royalties were ~~$191,000~~$1,087,000 in the fiscal 2021 period as compared to ~~$1,077,000~~$3,610,000 in the fiscal 2020 period. Total royalties were ~~$110,000~~$880,000 in the fiscal 2021 period as compared to ~~$980,000~~$2,829,000 in the fiscal 2020 period. Royalties earned under the Branded Menu program were ~~$17,000~~$152,000 in the fiscal 2021 period as compared to ~~$209,000~~$577,000 in the fiscal 2020 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases. Traditional franchise royalties were ~~$93,000~~$728,000 in the fiscal 2021 period as compared to ~~$771,000~~$2,252,000 in the fiscal 2020 period. Franchise restaurant sales declined to ~~$2,218,000~~$15,366,000 in the fiscal 2021 period as compared to ~~$17,516,000~~$50,425,000 in the fiscal 2020 period primarily due to ~~mandated shutdowns and stay~~temporary closures, as well as venues operating at ~~home orders across the country~~significantly reduced traffic as a result of the COVID-19 pandemic. Comparable domestic franchise sales (consisting of 29 53Nathan’s outlets, excluding sales under the Branded Menu Program) were ~~$1,479,000~~$12,003,000 in the fiscal 2021 period as compared to ~~$7,600,000~~$31,917,000 in the fiscal 2020 period.

At ~~June 28,~~December 27, 2020, ~~217~~215 franchised outlets, including domestic, international and Branded Menu Program outlets were operating compared to ~~253~~226 domestic and international franchised ~~outlets, including domestic, international and~~or Branded Menu Program franchise outlets at ~~June 30,~~December 29, 2019. Total franchise fee income was ~~$81,000~~$207,000 in the fiscal 2021 period as compared to ~~$97,000~~$781,000 in the fiscal 2020 period. Domestic franchise fee income was ~~$33,000~~$98,000 in the fiscal 2021 period as compared to ~~$38,000~~$108,000 in the fiscal 2020 period. International franchise fee income was ~~$25,000~~$76,000 in the fiscal 2021 period as compared to ~~$41,000~~$120,000 during the fiscal 2020 period.

We recognized ~~$23,000~~ $33,000and ~~$18,000 in~~$553,000 of forfeited fees in the fiscal 2021 and fiscal 2020 periods, respectively. The forfeited fees in the 2020 fiscal period were primarily from the termination of our Master Franchise Agreements for Russia, Kyrgyzstan and Turkey. During the fiscal 2021 period, ~~two new traditional~~five franchised outlets opened, ~~domestically.~~including one new Branded Menu Program outlet. Additionally, 75new ghost kitchens opened. During the fiscal 2020 period, ~~four new traditional~~15 franchised outlets opened, ~~domestically.~~including five international units and three Branded Menu Program outlets.

Advertising fund revenue, after eliminating Company contributions, was ~~$289,000~~$1,082,000 in the fiscal 2021 period, as compared to ~~$482,000 in~~$1,752,000 during the fiscal 2020 period.

Overall, our cost of sales decreased by ~~65.7%~~45% to ~~$5,297,000~~$24,161,000 in the fiscal 2021 period as compared to ~~$15,422,000~~$43,973,000 in the fiscal 2020 period. Our gross profit (representing the difference between sales and cost of sales) decreased to ~~$1,386,000~~$6,536,000 or ~~20.7%~~21% of sales during the fiscal 2021 period as compared to ~~$4,815,000~~$13,726,000 or ~~23.8%~~24% of sales during the fiscal 2020 period. The reduction in margin was primarily due to the higher cost of beef in the Branded Product Program, ~~and~~ higher prime restaurant costs associated with new menu ~~offerings.~~offerings, and higher labor costs associated with higher minimum hourly rates of pay at two of our Company-owned restaurants.

Cost of sales in the Branded Product Program decreased by approximately ~~$9,178,000~~$17,612,000 during the fiscal 2021 period as compared to the fiscal 2020 period, primarily due to the ~~10.4%~~2.7% increase in the average cost per pound of our hot dogs offset by the ~~71%~~48% decrease in the volume of product sold due to the COVID-19 pandemic as discussed above. We did not make any purchase commitments offor beef during the fiscal 2021 and 2020 periods. If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases or otherwise reduce any increase in our costs through the use of purchase commitments, our margins will be adversely impacted.

Beginning in May 2020, the cost of hot dogs increased significantly due primarily to the effects of the COVID-19 pandemic on the meat processing industry.

With respect to Company-owned restaurants, our cost of sales during the fiscal 2021 period was ~~$1,344,000~~$4,173,000 or ~~69.5%~~67% of restaurant sales, as compared to ~~$2,291,000~~$6,373,000 or ~~55.6%~~54% of restaurant sales in the fiscal 2020 period. We experienced higher food costs driven by the higher commodity costs of beef, higher prime costs associated with new menu offerings, and higher labor costs ~~in connection with training~~ associated with ~~the introduction~~higher minimum hourly rates of ~~new menu offerings.~~ pay at two of our Company-owned restaurants.We expect that our future labor costs will continue to be impacted by the remaining multi-year increase in minimum wage requirements in New York State as well as other new labor regulations and our food costs may be impacted by increases in commodity costs.

Restaurant operating expenses were ~~$852,000~~$2,622,000 in the fiscal 2021 period as compared to ~~$919,000~~$2,791,000 in the fiscal 2020 period. We incurred lower ~~marketing~~occupancy expenses of ~~$48,000 and~~$61,000, lower utility expenses of ~~$14,000.~~$48,000, lower marketing expenses of $69,000 and lower repairs and maintenance expenses of $38,000 which were offset, in part, by higher delivery charges associated with offsite consumption.

Depreciation and amortization ~~was $310,000 in the fiscal 2021 and fiscal 2020 periods.~~

~~General and administrative expenses decreased by $1,093,000 or 27.8% to $2,844,000~~were $900,000 in the fiscal 2021 period as compared to ~~$3,937,000~~$941,000 in the fiscal 2020 period.

General and administrative expenses decreasedby $2,407,000 or 22% to $8,709,000 in the fiscal 2021 period as compared to $11,116,000 in the fiscal 2020 period. The ~~decrease~~Company continued to reduce expenses in response to the impact of the COVID-19 pandemic. These activities included transitioning certain Corporate personnel from a furloughed status to a permanent layoff. The Company incurred severance charges of approximately $343,000 which are reflected in general and administrative expenses in our Consolidated Statements of Earnings for the fiscal 2021 period. This was ~~primarily attributable to reduced corporate payroll expenses through salary reductions and furloughs,~~offset by a lower incentive compensation accrual, reduced tradeshow expenses in light of the COVID-19 pandemic, and reductions in other discretionary expenses including marketing and travel.

Advertising fund expense, after eliminating Company contributions, was ~~$289,000~~$1,082,000 in the fiscal 2021 period, as compared to ~~$482,000~~$2,122,000 in the fiscal 2020 period.

Interest expense of ~~$2,650,000~~$7,951,000 in both the fiscal 2021 period and the fiscal 2020 ~~periods~~period represented accrued interest of ~~$2,477,000~~$7,433,000 on the 2025 Notes ~~at 6.625% per annum~~ and amortization of debt issuance costs of ~~$173,000.~~$518,000.

Interest income was ~~$117,000~~$309,000 for the fiscal 2021 period as compared to ~~$366,000~~$1,074,000 in the fiscal 2020 period.

Other income, which primarily relates to a sublease of a franchised restaurant, was ~~$21,000~~$31,000 and $61,000 in the fiscal 2021 and fiscal 2020 ~~period.~~periods, respectively.

The income tax provision for the ~~thirteen-week periods ended June 28,~~fiscal 2021 period and fiscal 2020 ~~and June 30, 2019~~period reflect effective tax rates of ~~28.1%~~27.7% and ~~25.3%~~26.1%, respectively. During the third quarter fiscal 2021, the Company’s effective tax rate was favorably affected by 0.1% due to its return to provision adjustment of approximately $18,000 in connection with the filing of its March 2020 tax returns. Nathan’s effective tax rate without this adjustment would have been 27.8% for the fiscal 2021 period. Nathan’s effective tax rate for the ~~thirteen-week~~fiscal 2020 period ~~June 30, 2019~~ was reduced by ~~3.2%,~~1.6% as a result of the tax benefits associated with stock compensation. For the ~~thirteen weeks ended June 30, 2019,~~fiscal 2020 period, excess tax benefits of $228,000 were reflected in the Consolidated Statements of Earnings as a reduction toin determining the provision for income taxes. Nathan’s effective ~~tax~~ rate ~~without this adjustment would have been 28.5%~~ for the fiscal 2020 ~~period. In November~~period was favorably affected by 0.4% due to its return to provision adjustment of approximately $52,000 in connection with the filing of its March 2019 ~~the State of New Jersey notified~~tax returns. Nathan’s ~~that our~~effective tax ~~returns~~rate without these adjustments would have been 28.1% for the fiscal ~~years ended March 27, 2016, March 26, 2017, and March 25, 2018 will be audited. The audit is ongoing.~~2020 period.

The amount of unrecognized tax benefits at ~~June 28,~~December 27, 2020 was ~~$321,000~~$336,000 all of which would impact Nathan’s effective tax rate, if recognized. As of ~~June 28,~~December 27, 2020, Nathan’s had ~~$274,000~~$292,000 of accrued interest and penalties in connection with unrecognized tax benefits.

Nathan’s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by up to $16,000 during the fiscal year ending March 28, 2021.

At ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019, Nathan’s did not have any open purchase commitments for hot dogs. Nathan’s may enter into purchase commitments in the future as favorable market conditions become available.

Cash and cash equivalents at ~~June 28,~~December 27, 2020 aggregated ~~$76,941,000,~~$76,602,000, a ~~$176,000~~$515,000 decreaseduring the fiscal 2021 period as compared to cash and cash equivalents of $77,117,000 at March 29, 2020. Net working capital increased to ~~$76,404,000~~$79,272,000 from $75,165,000 at March 29, 2020. OnWe paid our semi-annual interest payments for fiscal 2021 of $4,968,750 on May 1, 2020 and November 1, 2020, respectively. For the fiscal 2021 period, we have paid ~~our first semi-annual interest payment of $4,968,750 for fiscal 2021. We paid our first quarter dividend of $1,440,000 on June 26, 2020.~~three quarterly dividends totaling $4,320,000.

In November 2017, the Company refinanced its then-outstanding 2020 Notes totaling $135.0 million at 10.000% per annum by issuing $150.0 million 2025 Notes at 6.625% per annum. Please refer to Note Q – Long Term Debt in the accompanying Consolidated Financial Statements, for a further discussion of the Redemption.

The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1^st and November 1^st of each year, beginning on May 1, 2018. ~~Semi-annual interest payments are $4,968,750. During the thirteen-week period ended June 28, 2020, we paid interest of $4,968,750 on May 1, 2020 for the 2025 Notes.~~ The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025.

Cash provided by operations of ~~$3,002,000~~$5,710,000 in the fiscal 2021 period is primarily attributable to net income of ~~$4,000,000~~$9,014,000 in addition to other non-cash operating items of ~~$584,000,~~$1,711,000, offset by changes in other operating assets and liabilities of ~~$1,582,000.~~$5,015,000. Non-cash operating expenses consist principally of ~~$310,000 of~~ depreciation and amortization ~~$173,000~~of $900,000, amortization of debt issuance costs of $518,000, share-based compensation expense of ~~$29,000,~~$87,000, non-cash rental expense of ~~$66,000,~~$150,000, and bad debts of ~~$14,000.~~$70,000. In the fiscal 2021 period, accounts and other receivables ~~decreased~~increased by ~~$2,870,000~~$1,300,000 due primarily to ~~lower~~higher Branded Product Program receivables of ~~$3,231,000 due to reduced sales as a result of the COVID-19 pandemic, offset, in part, by~~$690,000 and higher franchise and license royalty receivables ~~and higher seasonal receivables due on behalf~~ of ~~the Advertising Fund.~~$428,000. In the fiscal 2021 period, accounts payable, accrued expenses and other current liabilities decreased by ~~$4,127,000~~$3,852,000 due to lower accrued interest of $2,505,000 as a result of timing of our interest payments on our 2025 Notes, deferred revenue of $700,000 that was earned during the fiscal 2021 period and the reduction in accrued ~~interest of $2,491,000 resulting from our May 2020 debt service payment. Accrued~~ payroll and other benefits ~~declined by $1,929,000~~of $829,000 resulting from the payment of year-end incentive compensation. This was offset by higher accrued corporate taxes of $1,199,000. Accounts payable decreased by $790,000 due principally to reduced product purchases made for the Branded Product Program due to the slowdown resulting from the COVID-19 pandemic. Rebates due under the Branded Product Program were lower by ~~$337,000~~$233,000 due primarily to reduced sales as a result of the COVID-19 pandemic. ~~Partially offsetting this reduction were~~This was offset by higher accrued rent and occupancy costs of $146,000. Accounts payable increased ~~accrued expenses~~by $276,000 due principally to the timing of product purchases made for ~~construction costs and other items.~~the Branded Product Program.

Cash used in investing activities was ~~$237,000~~$398,000 in the fiscal 2021 period primarily in connection with capital expenditures incurred for our Branded Product Program and the installation of a new ~~point-of-sale~~point-of sale system at our Company-owned ~~units.~~restaurants.

Cash used in financing activities of ~~$2,941,000~~$5,827,000 in the fiscal 2021 period relates to the ~~payment~~payments of the Company’s ~~regular~~quarterly $0.35 per share cash dividend ~~of $1,440,000.~~totaling $4,320,000. Additionally, during the fiscal 2021 period, Nathan’s repurchased 26,676 shares of common stock for $1,501,000.

During the period from October 2001 through ~~June 28,~~December 27, 2020, Nathan’s purchased 5,254,081 shares of its common stock at a cost of approximately $84,770,000pursuant to its stock repurchase plans previously authorized by the Board of Directors. Since March 26, 2007, we have repurchased 3,362,981 shares at a total cost of approximately $77,612,000, reducing the number of shares then-outstanding by 55.9%.

In 2016, the 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 ~~June 28,~~December 27, 2020, Nathan’s has repurchased 1,066,450 shares at a cost of $37,108,000 under the sixth stock repurchase plan. At ~~June 28,~~December 27, 2020, there were 133,550 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately-negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases.

On March 13, 2020, ~~The~~the Company’s Board of Directors approved a 10b5-1 stock plan (the “10b5-1 Plan”) which ~~will expire~~expired on ~~the earlier of (a)~~ August 12, 2020 or (b) the earlier of when (i) the aggregate purchase price of all shares of common stock purchased under the 10b5-1 Plan equals $5,550,000 and (ii) the aggregate purchases under the 10b5-1 Plan equals 100,000 shares unless terminated earlier by the Company’s Board of Directors.

2020. During the ~~thirteen weeks ended June 28, 2020,~~fiscal 2021 period, the Company repurchased in open market transactions 26,676 shares of the Company’s common stock at an average share price of $56.26 for a total cost of $1,501,000 ~~under the 10b5-1 Plan. At June 28, 2020, $1,322,000 or 22,406 shares were available for repurchase~~ under the 10b5-1 Plan.

Effective June 1, 2020, Nathan’s Board of Directors authorized the repurchase of up to $10,000,000 of the 2025 Notes by the Company (at a price equal to or less than par) from time to time. There is no set time limit on the repurchases.

As discussed above, we had cash and cash equivalents at ~~June 28,~~December 27, 2020 aggregating ~~$76,941,000.~~$76,602,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. In November 2017, we refinanced our 2020 Notes through the issuance of the 2025 Notes and, our Board of Directors announced the payment of a $5.00 per share special dividend to the shareholders of record as of the close of business on December 22, 2017. On May 31, 2018, Nathan’s Board of Directors authorized the commencement of a regular dividend of $1.00 per share per annum, payable at the rate of $0.25 per share per quarter. On June 14, 2019, ~~Nathans’~~Nathan’s Board of Directors authorized the increase of its regular quarterly dividend to $0.35 from $0.25. The Company paid its first quarter fiscal 2021 dividend of $1,440,000 on June 26, 2020, its second quarter fiscal 2021 dividend of $1,440,000 on September 4, 2020 and its third quarter fiscal 2021 dividend of $1,440,000 on December 4, 2020.

Effective ~~August 7, 2020,~~February 5, 2021, the Company declared its ~~second~~fourth quarter dividend of $0.35 per common share to stockholders of record as of the close of business on ~~August 24, 2020,~~February 22, 2021, which is payable on ~~September 4, 2020.~~March 5, 2021.

We expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the outstanding debt, fund our dividend program and may continue our stock repurchase programs, funding those investments from our operating cash flow. We may also incur capital and other expenditures or engage in investing activities in connection with opportunistic situations that may arise on a case-by-case basis. During the fiscal year ending March 28, 2021, we will be required to make interest payments of $9,937,500, of which ~~$4,968,750 has~~all have been made ~~on May~~as of November 1, 2020.

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

At ~~June 28,~~December 27, 2020, we sublet one property to a franchisee that we lease from a third party. We remain contingently liable for all costs associated with this property including: rent, property taxes and insurance. We may incur future cash payments with respect to such property, consisting primarily of future lease payments, including costs and expenses associated with terminating such lease.

~~The following schedule represents Nathan’s cash~~Our contractual obligations primarily consist of the 2025 Notes and ~~commitments by maturity as of June 28, 2020 (in thousands):~~ the related interest payments, operating leases, and employment agreements with certain executive officers. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations since March 29, 2020.

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

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

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

		Page Number

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements.		3

	Consolidated Financial Statements
	Consolidated Balance Sheets – ~~June 28,~~December 27, 2020 (Unaudited) and March 29, 2020		3

	Consolidated Statements of Earnings (Unaudited) – Thirteen and Thirty-nine Weeks Ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019		4

	Consolidated Statements of Stockholders’ Deficit (Unaudited) – Thirteen Weeks Ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019		5

	Consolidated Statements of Stockholders’ Deficit (Unaudited) – Thirty-nine Weeks Ended December 27, 2020 and December 29, 2019	6

	Consolidated Statements of Cash Flows (Unaudited) – ~~Thirteen~~Thirty-nine Weeks Ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019		67

	Notes to Consolidated Financial Statements		78

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.		2122

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		3032

Item 4.	Controls and Procedures.		3133

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings.		3234

Item 1A.	Risk Factors.		3234

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		3234

Item 3.	Defaults Upon Senior Securities.		3234

Item 4.	Mine Safety Disclosures.		3334

Item 5.	Other Information.		3334

Item 6.	Exhibits.		3435

SIGNATURES			3536

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

Balance, September 29, 2019		9,368,792	$	94	$	62,072	$	(46,810	)		5,141,763	$	(78,303	)	$	(62,947	)

Repurchase of common stock		0		0		0		0			13,709		(985	)		(985	)
Dividends on common stock		-		0		0		(1,479	)		-		0			(1,479	)
Share-based compensation		-		0		29		0			-		0			29
Net income		-		0		0		1,213			-		0			1,213
Balance, December 29, 2019		9,368,792	$	94	$	62,101	$	(47,076	)		5,155,472	$	(79,288	)	$	(64,169	)

	June 28, 2020			March 29, 2020
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note F)	$	76,941		$	77,117
Accounts and other receivables, net (Note H)		8,224			11,108
Inventories		745			378
Prepaid expenses and other current assets (Note I)		1,104			1,181
Total current assets		87,014			89,784

Property and equipment, net of accumulated depreciation of $9,751 and $9,468, respectively		4,563			4,610
Operating lease assets (Note R)		8,913			9,181
Goodwill		95			95
Intangible asset		1,240			1,269
Other assets		338			343

Total assets	$	102,163		$	105,282

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Accounts payable	$	2,719		$	3,509
Accrued expenses and other current liabilities (Note L)		5,960			9,297
Current portion of operating lease liabilities (Note R)		1,702			1,583
Deferred franchise fees		229			230
Total current liabilities		10,610			14,619

Long-term debt, net of unamortized debt issuance costs of $3,687 and $3,860, respectively (Note Q)		146,313			146,140
Operating lease liabilities (Note R)		8,208			8,532
Other liabilities (Note L)		717			696
Deferred franchise fees		1,627			1,687
Deferred income taxes		1			9

Total liabilities		167,476			171,683

COMMITMENTS AND CONTINGENCIES (Note S)

STOCKHOLDERS’ DEFICIT
Common stock, $.01 par value; 30,000,000 shares authorized; 9,368,792 shares issued; and 4,114,711 and 4,141,387 shares outstanding at June 28, 2020 and March 29, 2020, respectively		94			94
Additional paid-in capital		62,159			62,130
(Accumulated deficit)		(42,796	)		(45,356	)
Stockholders’ equity before treasury stock		19,457			16,868

Treasury stock, at cost, 5,254,081 and 5,227,405 shares at June 28, 2020 and March 29, 2020		(84,770	)		(83,269	)
Total stockholders’ deficit		(65,313	)		(66,401	)

Total liabilities and stockholders’ deficit	$	102,163		$	105,282

	June 28, 2020			June 30, 2019

REVENUES
Sales	$	6,683		$	20,237
License royalties		10,523			8,722
Franchise fees and royalties		191			1,077
Advertising fund revenue		289			482
Total revenues		17,686			30,518

COSTS AND EXPENSES
Cost of sales		5,297			15,422
Restaurant operating expenses		852			919
Depreciation and amortization		310			310
General and administrative expenses		2,844			3,937
Advertising fund expense		289			482
Total costs and expenses		9,592			21,070

Income from operations		8,094			9,448

Interest expense		(2,650	)		(2,650	)
Interest income		117			366
Other income, net		-			21

Income before provision for income taxes		5,561			7,185
Provision for income taxes		1,561			1,816
Net income	$	4,000		$	5,369

PER SHARE INFORMATION
Weighted average shares used in computing income per share:
Basic		4,120			4,206
Diluted		4,120			4,206

Income per share:
Basic	$	.97		$	1.28
Diluted	$	.97		$	1.28

Dividends declared per share	$	.35		$	.35

	June 28, 2020			June 30, 2019
Cash flows from operating activities:
Net income	$	4,000		$	5,369
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		310			310
Non-cash rental expense		66			-
Amortization of debt issuance costs		173			173
Share-based compensation expense		29			28
Income tax benefit on stock option exercises		-			228
Provision for doubtful accounts		14			27
Deferred income taxes		(8	)		(8	)
Changes in operating assets and liabilities:
Accounts and other receivables, net		2,870			(4,828	)
Inventories		(367	)		(213	)
Prepaid expenses and other current assets		77			234
Other assets		5			(10	)
Accounts payable, accrued expenses and other current liabilities		(4,127	)		(2,351	)
Deferred franchise fees		(61	)		(79	)
Other liabilities		21			84

Net cash provided by (used in) operating activities		3,002			(1,036	)

Cash flows from investing activities:
Purchase of property and equipment		(237	)		(106	)

Net cash used in investing activities		(237	)		(106	)

Cash flows from financing activities:
Dividends paid to stockholders		(1,440	)		(1,479	)
Repurchase of treasury stock		(1,501	)		-
Proceeds from the exercise of stock options		-			1,078

Net cash used in financing activities		(2,941	)		(401	)

Net decrease in cash and cash equivalents		(176	)		(1,543	)

Cash and cash equivalents, beginning of period		77,117			75,446

Cash and cash equivalents, end of period	$	76,941		$	73,903

Cash paid during the period for:
Interest	$	4,969		$	4,969
Income taxes	$	349		$	60

Noncash financing activity:
Dividends declared per share	$	.35		$	.35

	December 27, 2020 (Unaudited)			March 29, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note F)	$	76,602		$	77,117
Accounts and other receivables, net (Note H)		12,338			11,108
Inventories		415			378
Prepaid expenses and other current assets (Note I)		931			1,181
Total current assets		90,286			89,784

Property and equipment, net of accumulated depreciation of $10,283 and $9,468, respectively		4,193			4,610	��
Operating lease assets (Note R)		8,471			9,181
Goodwill		95			95
Intangible asset, net		1,184			1,269
Deferred income taxes		5			0
Other assets		329			343

Total assets	$	104,563		$	105,282

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES
Accounts payable	$	3,785		$	3,509
Accrued expenses and other current liabilities (Note L)		5,169			9,297
Current portion of operating lease liabilities (Note R)		1,833			1,583
Deferred franchise fees		227			230
Total current liabilities		11,014			14,619

Long-term debt, net of unamortized debt issuance costs of $3,342 and $3,860, respectively (Note Q)		146,658			146,140
Operating lease liabilities (Note R)		7,722			8,532
Other liabilities (Note L)		743			696
Deferred franchise fees		1,553			1,687
Deferred income taxes		0			9

Total liabilities		167,690			171,683

COMMITMENTS AND CONTINGENCIES (Note S)

STOCKHOLDERS’ DEFICIT
Common stock, $.01 par value; 30,000,000 shares authorized; 9,369,015 and 9,368,792 shares issued; and 4,114,934 and 4,141,387 shares outstanding at December 27, 2020 and March 29, 2020, respectively		94			94
Additional paid-in capital		62,211			62,130
(Accumulated deficit)		(40,662	)		(45,356	)
Stockholders’ equity before treasury stock		21,643			16,868

Treasury stock, at cost, 5,254,081 and 5,227,405 shares at December 27, 2020 and March 29, 2020		(84,770	)		(83,269	)
Total stockholders’ deficit		(63,127	)		(66,401	)

Total liabilities and stockholders’ deficit	$	104,563		$	105,282

		June 28, 2020				March 29, 2020
Deferred franchise fees (a)		$	1,856			$	1,917

	Estimate for fiscal year		Estimate for fiscal year
2021 (a)	$	172	$	58
2022		221		223
2023		198		200
2024		186		188
2025		177		181
Thereafter		902		930
Total	$	1,856	$	1,780

Thirteen weeks
									Net Income												Net Income
	Net Income				Number of Shares				Per Share				Net Income				Number of Shares				Per Share
	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
	(in thousands)				(in thousands)								(in thousands)				(in thousands)
Basic EPS
Basic calculation	$	4,000	$	5,369		4,120		4,206	$	.97	$	1.28	$	1,359	$	1,213		4,115		4,225	$	0.33	$	0.29
Effect of dilutive employee stock options		-		-		-		-		-		-		-		-		0		0		0		0

Diluted EPS
Diluted calculation	$	4,000	$	5,369		4,120		4,206	$	.97	$	1.28	$	1,359	$	1,213		4,115		4,225	$	0.33	$	0.29

Thirty-nine weeks
									Net Income
	Net Income				Number of Shares				Per Share
	2020		2019		2020		2019		2020		2019
	(in thousands)				(in thousands)
Basic EPS
Basic calculation	$	9,014	$	10,240		4,117		4,219	$	2.19	$	2.43
Effect of dilutive employee stock options		-		-		0		0		0		0
Diluted EPS
Diluted calculation	$	9,014	$	10,240		4,117		4,219	$	2.19	$	2.43

	June 28, 2020				March 29, 2020
	Face value		Fair value		Face Value		Fair value

Long-term debt	$	150,000	$	152,250	$	150,000	$	138,000

	June 28, 2020			March 29, 2020

Beginning balance	$	237		$	585
Bad debt expense		14			71
Accounts written off		(30	)		(419	)
Ending balance	$	221		$	237

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

Options outstanding at March 29, 2020		10,000	$	89.90		3.45		-	10,000	$	89.90		3.45		-
Granted		-		-		-		-	0		0		-		-
Exercised		-		-		-		-	0		0		-		0
Options outstanding at June 28, 2020		10,000	$	89.90		3.21		-
Options outstanding at December 27, 2020									10,000	$	89.90		2.71		0

Options exercisable at June 28, 2020		3,333	$	89.90		3.21		-
Options exercisable at December 27, 2020									6,667	$	89.90		2.71		0

			Weighted-
			Average
			Grant-date Fair value
	Shares		Per share
Unvested restricted stock at March 29, 2020		667	$	89.90
Granted		-		-
Vested		-		-
Unvested restricted stock at June 28, 2020		667	$	89.90

	Shares			Weighted- Average Grant-date Fair value Per share
Unvested restricted stock at March 29, 2020		667		$	89.90
Granted		0			0
Vested		(334	)	$	89.90
Unvested restricted stock at December 27, 2020		333		$	89.90

	Payments Due by Period
Cash Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long term debt (a)	$	150,000	$	-	$	-	$	-	$	150,000
Employment Agreements (b)		3,892		1,292		2,000		400		200
Operating Leases (c)		13,775		1,702		3,691		3,417		4,965
Gross Cash Contractual Obligations		167,667		2,994		5,691		3,817		155,165
Sublease Income (c)		1,275		246		381		338		310
Net Cash Contractual Obligations	$	166,392	$	2,748	$	5,310	$	3,479	$	154,855

Period (A)	Total Number of Shares Purchased (B)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
March 30, 2020 April 26, 2020	18,747	$57.27	18,747	141,479
April 27, 2020 May 24, 2020	7,338	$53.86	7,338	134,141
May 25, 2020 June 28, 2020	591	$53.99	591	133,550
Total	26,676	$56.26	26,676	133,550

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

	~~32.1~~
	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~~
	32.2	*Certification by Robert Steinberg, CFO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	~~101.1~~
	101.1	*The following materials from the Nathan’s Famous, Inc., Quarterly Report on Form 10-Q for the quarter ended ~~June 28,~~December 27, 2020 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Stockholders’ Deficit, (iv) the Consolidated Statements of Cash Flows and (v) related notes.

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

	NATHAN'S FAMOUS, INC.

Date: ~~August 7, 2020~~February 5, 2021	By:	/s/ Eric Gatoff
		Eric Gatoff
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~August 7, 2020~~February 5, 2021	By:	/s/ Robert Steinberg
		Robert Steinberg
		Vice President - Finance
		and Chief Financial Officer
		(Principal Financial and Accounting Officer)