NATHANS FAMOUS, INC. 10-Q

Item 1. Financial Statements.   Nathan ’ s Famous, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS September 26, 2021 and March 28, 2021 (in thousands, except share and per share amounts)       September 26, 2021     March 28, 2021       (Unaudited)           ASSETS                 CURRENT ASSETS                 Cash and cash equivalents (Note F)   $ 86,756     $ 81,064   Accounts and other receivables, net (Note H)     14,817       11,652   Inventories     948       624   Prepaid expenses and other current assets (Note I)     612       1,325   Total current assets     103,133       94,665                     Property and equipment, net of accumulated depreciation of $ 10,270 and $ 9,779 , respectively     3,942       4,090   Operating lease assets (Note R)     7,772       8,337   Goodwill     95       95   Intangible asset, net     1,099       1,156   Deferred income taxes     154       138   Other assets     318       328                     Total assets   $ 116,513     $ 108,809                     LIABILITIES AND STOCKHOLDERS’ DEFICIT                                   CURRENT LIABILITIES                 Accounts payable   $ 5,084     $ 4,041   Accrued expenses and other current liabilities (Note L)     8,585       8,478   Current portion of operating lease liabilities (Note R)     1,846       1,837   Deferred franchise fees     351       237   Total current liabilities     15,866       14,593                     Long-term debt, net of unamortized debt issuance costs of $ 2,823   and $ 3,169 , respectively (Note Q)     147,177       146,831   Operating lease liabilities (Note R)     6,867       7,553   Other liabilities (Note L)     834       774   Deferred franchise fees     1,768       1,536                     Total liabilities     172,512       171,287                     COMMITMENTS AND CONTINGENCIES (Note S)                                       STOCKHOLDERS’ DEFICIT                 Common stock, $ .01 par value; 30,000,000 shares authorized; 9,369,235 and 9,369,015 shares issued; and 4,115,154 and 4,114,934 shares outstanding at September 26, 2021 and March 28, 2021, respectively     94       94   Additional paid-in capital     62,291       62,240   Accumulated deficit     ( 33,614 )     ( 40,042 ) Stockholders’ equity before treasury stock     28,771       22,292                     Treasury stock, at cost, 5,254,081 shares at September 26, 2021 and March 28, 2021     ( 84,770 )     ( 84,770 ) Total stockholders’ deficit     ( 55,999 )     ( 62,478 )                   Total liabilities and stockholders’ deficit   $ 116,513     $ 108,809     The accompanying notes are an integral part of these consolidated financial statements.   3       Nathan ’ s Famous, Inc. and Subsidiaries   CONSOLIDATED STATEMENTS OF EARNINGS Thirteen and Twenty-six weeks ended September 26, 2021 and September 27, 2020 (in thousands, except per share amounts) (Unaudited)       Thirteen weeks ended     Twenty-six weeks ended       September 26, 2021     September 27, 2020     September 26, 2021     September 27, 2020                                     REVENUES                                 Sales   $ 23,500     $ 12,692     $ 42,825     $ 19,375   License royalties     7,658       8,268       18,340       18,791   Franchise fees and royalties     1,167       476       2,074       667   Advertising fund revenue     553       403       958       692   Total revenues     32,878       21,839       64,197       39,525                                     COSTS AND EXPENSES                                 Cost of sales     20,131       9,927       35,496       15,224   Restaurant operating expenses     1,216       1,011       2,327       1,863   Depreciation and amortization     270       302       548       612   General and administrative expenses     3,269       2,612       6,727       5,456   Advertising fund expense     553       403       958       692   Total costs and expenses     25,439       14,255       46,056       23,847                                     Income from operations     7,439       7,584       18,141       15,678                                     Interest expense     ( 2,651 )     ( 2,651 )     ( 5,301 )     ( 5,301 ) Interest income     28       103       64       220   Other income, net     5       22       21       22                                     Income before provision for income taxes     4,821       5,058       12,925       10,619   Provision for income taxes     1,276       1,403       3,617       2,964   Net income   $ 3,545     $ 3,655     $ 9,308     $ 7,655                                     PER SHARE INFORMATION                                 Weighted average shares used in computing income per share:                                 Basic     4,115       4,115       4,115       4,118   Diluted     4,115       4,115       4,115       4,118                                     Income per share:                                 Basic   $ .86     $ .89     $ 2.26     $ 1.86   Diluted   $ .86     $ .89     $ 2.26     $ 1.86                                     Dividends declared per share   $ .35     $ .35     $ .70     $ .70     The accompanying notes are an integral part of these consolidated financial statements.   4       Nathan ’ s Famous, Inc. and Subsidiaries   CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ DEFICIT Thirteen weeks ended September 26, 2021 and September 27, 2020 (in thousands, except share amounts) (Unaudited)                       Additional                             Total       Common     Common     Paid-in     Accumulated     Treasury Stock, at Cost     Stockholders’       Shares     Stock     Capital     Deficit     Shares     Amount     Deficit                                                             Balance, June 27, 2021     9,369,015     $ 94     $ 62,269     $ ( 35,719 )     5,254,081     $ ( 84,770 )   $ ( 58,126 )                                                           Shares issued in connection with share-based compensation plans     220       -       -       -       -       -       -   Withholding tax on net share settlement of share-based compensation plans     -       -       ( 7 )     -       -       -       ( 7 ) Dividends on common stock     -       -       -       ( 1,440 )     -       -       ( 1,440 ) Share-based compensation     -       -       29       -       -       -       29   Net income     -       -       -       3,545       -       -       3,545   Balance, September 26, 2021     9,369,235     $ 94     $ 62,291     $ ( 33,614 )     5,254,081     $ ( 84,770 )   $ ( 55,999 )                       Additional                             Total       Common     Common     Paid-in     Accumulated     Treasury Stock, at Cost     Stockholders’       Shares     Stock     Capital     Deficit     Shares     Amount     Deficit                                                             Balance, June 28, 2020     9,368,792     $ 94     $ 62,159     $ ( 42,796 )     5,254,081     $ ( 84,770 )   $ ( 65,313 )                                                           Shares issued in connection with share-based compensation plans     223       -       -       -       -       -       -   Withholding tax on net share settlement of share-based compensation plans     -       -       ( 6 )     -       -       -       ( 6 ) Dividends on common stock     -       -       -       ( 1,440 )     -       -       ( 1,440 ) Share-based compensation     -       -       29       -       -       -       29   Net income     -       -       -       3,655       -       -       3,655   Balance, September 27, 2020     9,369,015     $ 94     $ 62,182     $ ( 40,581 )     5,254,081     $ ( 84,770 )   $ ( 63,075 )   The accompanying notes are an integral part of these consolidated financial statements.   5     Nathan ’ s Famous, Inc. and Subsidiaries   CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ DEFICIT Twenty-six weeks ended September 26, 2021 and September 27, 2020 (in thousands, except share amounts) (Unaudited)                       Additional                             Total       Common     Common     Paid-in     Accumulated     Treasury Stock, at Cost     Stockholders’       Shares     Stock     Capital     Deficit     Shares     Amount     Deficit                                                             Balance, March 28, 2021     9,369,015     $ 94     $ 62,240     $ ( 40,042 )     5,254,081     $ ( 84,770 )   $ ( 62,478 )                                                           Shares issued in connection with share-based compensation plans     220       -       -       -       -       -       -   Withholding tax on net share settlement of share-based compensation plans     -       -       ( 7 )     -       -       -       ( 7 ) Dividends on common stock     -       -       -       ( 2,880 )     -       -       ( 2,880 ) Share-based compensation     -       -       58       -       -       -       58   Net income     -       -       -       9,308       -       -       9,308   Balance, September 26, 2021     9,369,235     $ 94     $ 62,291     $ ( 33,614 )     5,254,081     $ ( 84,770 )   $ ( 55,999 )                       Additional                             Total       Common     Common     Paid-in     Accumulated     Treasury Stock, at Cost     Stockholders’       Shares     Stock     Capital     Deficit     Shares     Amount     Deficit                                                             Balance, March 29, 2020     9,368,792     $ 94     $ 62,130     $ ( 45,356 )     5,227,405     $ ( 83,269 )   $ ( 66,401 )                                                           Shares issued in connection with share-based compensation plans     223       -       -       -       -       -       -   Withholding tax on net share settlement of share-based compensation plans     -       -       ( 6 )     -       -       -       ( 6 ) Repurchase of common stock     -       -       -       -       26,676       ( 1,501 )     ( 1,501 ) Dividends on common stock     -       -       -       ( 2,880 )     -       -       ( 2,880 ) Share-based compensation     -       -       58       -       -       -       58   Net income     -       -       -       7,655       -       -       7,655   Balance, September 27, 2020     9,369,015     $ 94     $ 62,182     $ ( 40,581 )     5,254,081     $ ( 84,770 )   $ ( 63,075 )   The accompanying notes are an integral part of these consolidated financial statements.   6       Nathan ’ s Famous, Inc. and Subsidiaries   CONSOLIDATED STATEMENTS OF CASH FLOWS Twenty-six weeks ended September 26, 2021 and September 27, 2020 (in thousands) (Unaudited)       September 26, 2021     September 27, 2020   Cash flows from operating activities:                 Net income   $ 9,308     $ 7,655   Adjustments to reconcile net income to net cash provided by operating activities                 Depreciation and amortization     548       612   Non-cash rental expense     208       127   Amortization of debt issuance costs     346       346   Share-based compensation expense     58       58   Provision for doubtful accounts     27       27   Deferred income taxes     ( 16 )     ( 16 ) Changes in operating assets and liabilities:                 Accounts and other receivables, net     ( 3,192 )     2,114   Inventories     ( 324 )     ( 179 ) Prepaid expenses and other current assets     713       560   Other assets     10       9   Accounts payable, accrued expenses and other current liabilities     830       ( 2,166 ) Deferred franchise fees     346       ( 83 ) Other liabilities     60       43                     Net cash provided by operating activities     8,922       9,107                     Cash flows from investing activities:                 Purchase of property and equipment     ( 343 )     ( 318 )                   Net cash used in investing activities     ( 343 )     ( 318 )                   Cash flows from financing activities:                 Dividends paid to stockholders     ( 2,880 )     ( 2,880 ) Payments of withholding tax on net share settlement of share-based compensation plans     ( 7 )     ( 6 ) Repurchase of treasury stock     -       ( 1,501 )                   Net cash used in financing activities     ( 2,887 )     ( 4,387 )                   Net increase in cash and cash equivalents     5,692       4,402                     Cash and cash equivalents, beginning of period     81,064       77,117                     Cash and cash equivalents, end of period   $ 86,756     $ 81,519                     Cash paid during the period for:                 Interest   $ 4,969     $ 4,969   Income taxes   $ 2,673     $ 2,743                     Non-cash financing activity:                 Dividends declared per share   $ .70     $ .70     The accompanying notes are an integral part of these consolidated financial statements.   7     NATHAN'S FAMOUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 26, 2021 (Unaudited)   NOTE A - BASIS OF PRESENTATION   The accompanying consolidated financial statements of Nathan's Famous, Inc. and subsidiaries (collectively “Nathan’s,” the “Company,” “we,” “us” or “our”) as of and for the thirteen and twenty-six week periods ended September 26, 2021 and September 27, 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of financial condition, results of operations and cash flows for the periods presented. However, our results of operations are seasonal in nature, and the results of any interim period are not necessarily indicative of results for any other interim period or the full fiscal year.   Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the requirements of the U.S. Securities and Exchange Commission.   Management believes that the disclosures included in the accompanying consolidated interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Nathan’s Annual Report on Form 10 -K for the fiscal year ended March 28, 2021.   Our significant interim accounting policies include the recognition of advertising fund expense in proportion to advertising funds revenue.   A summary of the Company’s significant accounting policies is identified in Note B of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10 -K for the fiscal year ended March 28, 2021.   Covid- 19 Pandemic   In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID- 19 ), a global pandemic. The COVID- 19 pandemic has had an impact on the Company’s business, financial condition, cash flows and results of operations for the thirteen and twenty-six weeks ended September 26, 2021 ( “fiscal 2022 period”) and continues into the third quarter of fiscal 2022. Governmental restrictions and public perceptions of the risks associated with COVID- 19 have caused consumers to avoid or limit nonessential travel, gatherings in public places and other social interactions, which has adversely affected, and could continue to adversely affect, our business. The COVID- 19 pandemic, has and may continue to impact customer traffic at our Company-owned restaurants and franchised restaurants, as well as sales to our Branded Product Program customers. During the fiscal 2022 period, the number of COVID- 19 cases continued to stabilize with approved vaccines being more widely distributed and administered and, as a result, more regions continued to loosen restrictions, adhering to state and local guidelines. We cannot predict the ultimate duration, scope and severity of the COVID- 19 pandemic or its ultimate impact on our business in the short or long-term, which may be impacted by variants of the COVID- 19 virus and the adoption rate of the COVID- 19 vaccines in the areas in which the Company operates.     NOTE B – ADOPTION OF NEW ACCOUNTING STANDARD   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. The Company adopted this guidance on March 29, 2021. The adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.     NOTE C – NEW ACCOUNTING STANDARD NOT YET ADOPTED   In June 2016, the FASB issued ASU 2016 - 13, “ Financial Instruments – Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments, ” which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under 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.   8     The Company does not believe that any other recently issued, but not yet effective accounting standards, when adopted, will have a material effect on the accompanying consolidated financial statements.     NOTE D – REVENUES   The Company’s disaggregated revenues for the thirteen and twenty-six weeks ended September 26, 2021 and September 27, 2020 are as follows (in thousands):       Thirteen weeks ended     Twenty-six weeks ended       September 26, 2021     September 27, 2020     September 26, 2021     September 27, 2020                                     Branded Products   $ 19,063     $ 9,698     $ 35,059     $ 14,447   Company-operated restaurants     4,437       2,994       7,766       4,928   Total sales     23,500       12,692       42,825       19,375                                     License royalties     7,658       8,268       18,340       18,791                                     Franchise royalties     1,037       409       1,837       519   Franchise fees     130       67       237       148   Total franchise fees and royalties     1,167       476       2,074       667                                     Advertising fund revenue     553       403       958       692                                     Total revenues   $ 32,878     $ 21,839     $ 64,197     $ 39,525     The following table disaggregates revenues by primary geographical market (in thousands):       Thirteen weeks ended     Twenty-six weeks ended       September 26, 2021     September 27, 2020     September 26, 2021     September 27, 2020                                     United States   $ 31,878     $ 21,501     $ 62,479     $ 38,913   International     1,000       338       1,718       612   Total revenues   $ 32,878     $ 21,839     $ 64,197     $ 39,525     Contract balances   The following table provides information about contract receivables and liabilities (deferred franchise fees) from contracts with customers (in thousands):       September 26, 2021     March 28, 2021   Receivables, which are included in “Accounts and other receivables, net” (a)   $ 250     $ -   Deferred franchise fees (b)   $ 2,119     $ 1,773       (a) Includes receivables related to “franchise fees and royalties”   (b) Deferred franchise fees of $ 351 and $ 1,768   as of September 26, 2021 and $ 237 and $ 1,536 as of March 28, 2021 are included in Deferred franchise fees – current and long term, respectively.   9     Significant changes in deferred franchise fees are as follows (in thousands):       Twenty-six weeks ended       September 26, 2021     September 27, 2020   Deferred franchise fees at beginning of period     1,773       1,917   Additions to deferred revenue     583       65   Revenue recognized during the period     ( 237 )     ( 148 ) Deferred franchise fees at end of period   $ 2,119     $ 1,834     Anticipated future recognition of deferred franchise fees   The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period (in thousands):       Estimate for fiscal year   2022 (a)   $ 180   2023     322   2024     301   2025     285   2026     258   Thereafter     773   Total   $ 2,119       (a) Represents franchise fees expected to be recognized for the remainder of the 2022 fiscal year, which includes international development fees expected to be recognized over the duration of one year or less. Amount does not include $ 237 of franchise fee revenue recognized for the twenty-six weeks ended September 26, 2021.     NOTE E – INCOME PER SHARE                     Basic income per common share is calculated by dividing income by the weighted-average number of common shares outstanding and excludes any dilutive effect of stock options. Diluted income per common share gives effect to all potentially dilutive common shares that were outstanding during the period. Dilutive common shares used in the computation of diluted income per common share result from the assumed exercise of stock options and warrants, as determined using the treasury stock method.   The following chart provides a reconciliation of information used in calculating the per-share amounts for the thirteen and twenty-six week periods ended September 26, 2021 and September 27, 2020, respectively.   Thirteen weeks                                                                                     Net Income       Net Income     Number of Shares     Per Share       2021     2020     2021     2020     2021     2020       (in thousands)     (in thousands)                   Basic EPS                                                 Basic calculation   $ 3,545     $ 3,655       4,115       4,115     $ 0.86     $ 0.89   Effect of dilutive employee stock options     -       -       -       -       -       -   Diluted EPS                                                 Diluted calculation   $ 3,545     $ 3,655       4,115       4,115     $ 0.86     $ 0.89     10     Twenty-six weeks                                                                                     Net Income       Net Income     Number of Shares     Per Share       2021     2020     2021     2020     2021     2020       (in thousands)     (in thousands)                   Basic EPS                                                 Basic calculation   $ 9,308     $ 7,655       4,115       4,118     $ 2.26     $ 1.86   Effect of dilutive employee stock options     -       -       -       -       -       -   Diluted EPS                                                 Diluted calculation   $ 9,308     $ 7,655       4,115       4,118     $ 2.26     $ 1.86     Options to purchase 20,000 shares of common stock in the thirteen and twenty-six week periods ended September 26, 2021 were not included in the computation of diluted EPS because the exercise price exceeded the average market price of common shares during the period.   Options to purchase 10,000 shares of common stock in the thirteen and twenty-six week periods ended September 27, 2020 were not included in the computation of diluted EPS because the exercise price exceeded the average market price of common shares during the period.     NOTE F – CASH AND CASH EQUIVALENTS   The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents at September 26, 2021 and March 28, 2021.   At September 26, 2021 and March 28, 2021, 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.     NOTE G – FAIR VALUE MEASUREMENTS   Nathan’s follows a three -level fair value hierarchy that prioritizes the inputs to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:   ●    Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market   ●    Level 2 - inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability   ●    Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability   The face value and fair value of long-term debt as of September 26, 2021 and March 28, 2021 were as follows (in thousands):       September 26, 2021     March 28, 2021       Face value     Fair value     Face Value     Fair value                                     Long-term debt   $ 150,000     $ 153,212     $ 150,000     $ 154,420     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 September 26, 2021, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.   11       NOTE H – ACCOUNTS AND OTHER RECEIVABLES, NET                     Accounts and other receivables, net, consist of the following (in thousands):       September 26,     March 28,       2021     2021                     Branded product sales   $ 10,458     $ 6,480   Franchise and license royalties     3,307       5,224   Other     1,347       293         15,112       11,997                     Less: allowance for doubtful accounts     295       345   Accounts and other receivables, net   $ 14,817     $ 11,652     Accounts receivable are due within 30 days and are stated at amounts due from franchisees, virtual or “ghost” kitchens, 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 twenty-six week period ended September 26, 2021 and the fiscal year ended March 28, 2021 are as follows (in thousands):                September 26, 2021     March 28, 2021                     Beginning balance   $ 345     $ 237   Bad debt expense     27       101   Write-offs and other     ( 77 )     7   Ending balance   $ 295     $ 345       NOTE I – PREPAID EXPENSES AND OTHER CURRENT ASSETS   Prepaid expenses and other current assets consist of the following (in thousands):       September 26,     March 28,       2021     2021                     Income taxes   $ -     $ 280   Real estate taxes     72       87   Insurance     162       388   Marketing     -       196   Other     378       374   Total prepaid expenses and other current assets   $ 612     $ 1,325       NOTE J - GOODWILL AND INTANGIBLE ASSET   The Company has continued to monitor the economic uncertainty as a result of COVID- 19 and has determined that the impact of COVID- 19 was a triggering event that required the Company to perform a quantitative interim goodwill impairment test. Based on the quantitative test performed, management determined that the Company’s goodwill has not been impaired as of September 26, 2021 and September 27, 2020, and as a result, no impairment charge was recorded for the thirteen and twenty-six week periods ended September 26, 2021 and September 27, 2020.   12     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 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 sufficient indicator that the carrying value may not be recoverable. The Company tested for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements, which has a remaining useful life based upon the term of its agreements. Based on the quantitative test performed, the Company determined that the definite-lived intangible asset was recoverable and no impairment charge was recorded for the thirteen and twenty-six week periods ended September 26, 2021 and September 27, 2020.     NOTE K - LONG LIVED ASSETS   Long-lived assets on a restaurant-by-restaurant basis are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.   Long-lived assets include property, equipment and right of use assets for operating leases with finite useful lives. Assets are grouped at the individual restaurant level which represents the lowest level for which cash flows can be identified largely independent of the cash flows of other assets and liabilities. The Company generally considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. 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 September 26, 2021 and September 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 on a restaurant-by-restaurant basis, an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the asset. The Company generally measures fair value by considering discounted estimated future cash flows from such assets. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairments in future periods and such impairments could be material. As a result of the Company’s analysis, no long-lived assets were deemed to be impaired as of September 26, 2021 and September 27, 2020, and, as a result, no impairment charge was recorded for the thirteen and twenty-six week periods ended September 26, 2021 and September 27, 2020.     NOTE L – ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES   Accrued expenses and other current liabilities consist of the following (in thousands):                September 26,     March 28,       2021     2021   Payroll and other benefits   $ 1,942     $ 2,793   Accrued rebates     460       132   Rent and occupancy costs     458       73   Deferred revenue     201       841   Construction costs     55       60   Interest     4,043       4,057   Professional fees     158       200   Sales, use and other taxes     192       60   Corporate income taxes     621       -   Other     455       262   Total accrued expenses and other current liabilities   $ 8,585     $ 8,478     Other liabilities consist of the following (in thousands):       September 26,     March 28,       2021     2021   Reserve for uncertain tax positions   $ 713     $ 653   Other     121       121   Total other liabilities   $ 834     $ 774     13       NOTE M – INCOME TAXES   On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (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 twenty-six week periods ended September 26, 2021 and September 27, 2020 reflect effective tax rates of 28.0 % and 27.9 %, respectively.   The amount of unrecognized tax benefits at September 26, 2021 was $ 433,000 all of which would impact Nathan’s effective tax rate, if recognized. As of September 26, 2021, Nathan’s had $ 293,000 of accrued interest and penalties in connection with unrecognized tax benefits.     NOTE N – SEGMENT INFORMATION   Nathan’s considers itself to be a brand marketer of the Nathan’s Famous signature products to the foodservice industry pursuant to its various business structures. Nathan’s sells its products directly to consumers through its restaurant operations segment consisting of Company-operated and franchised restaurants, including virtual or “ghost” kitchens, 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, including its virtual or “ghost” kitchens.   Revenues from operating segments are from transactions with unaffiliated third parties and do not include any intersegment revenues.   Income from operations attributable to Corporate consists principally of administrative expenses not allocated to the operating segments such as executive management, finance, information technology, legal, insurance, corporate office costs, corporate incentive compensation and compliance costs and expenses of the advertising fund.   Interest expense, interest income, and other income, net, are managed centrally at the corporate level, and, accordingly, such items are not presented by segment since they are excluded from the measure of profitability reviewed by the CODM.   14     Operating segment information is as follows (in thousands):       Thirteen weeks ended     Twenty-six weeks ended       September 26, 2021     September 27, 2020     September 26, 2021     September 27, 2020                                     Revenues                                 Branded Product Program   $ 19,063     $ 9,698     $ 35,059     $ 14,447   Product licensing     7,658       8,268       18,340       18,791   Restaurant operations     5,604       3,470       9,840       5,595   Corporate (1)     553       403       958       692   Total revenues   $ 32,878     $ 21,839     $ 64,197     $ 39,525                                     Income from operations                                 Branded Product Program   $ 1,161     $ 1,252     $ 3,415     $ 1,524   Product licensing     7,612       8,223       18,249       18,700   Restaurant operations     694       ( 138 )     692       ( 1,031 ) Corporate     ( 2,028 )     ( 1,753 )     ( 4,215 )     ( 3,515 ) Income from operations   $ 7,439     $ 7,584     $ 18,141     $ 15,678                                     Interest expense     ( 2,651 )     ( 2,651 )     ( 5,301 )     ( 5,301 ) Interest income     28       103       64       220   Other income, net     5       22       21       22   Income before provision for income taxes   $ 4,821     $ 5,058     $ 12,925     $ 10,619       ( 1 ) Represents advertising fund revenue     NOTE O – SHARE-BASED COMPENSATION   Total share-based compensation during each of the thirteen week periods ended September 26, 2021 and September 27, 2020 was $ 29,000 . Total share-based compensation during each of the twenty-six week periods ended September 26, 2021 and September 27, 2020 was $ 58,000 . As of September 26, 2021, there was $ 126,000 of unamortized compensation expense related to share-based incentive awards. We expects to recognize this expense over approximately twenty-three 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):       Thirteen weeks ended     Twenty-six weeks ended       September 26, 2021     September 27, 2020     September 26, 2021     September 27, 2020                                     Stock options   $ 23     $ 21     $ 44     $ 42   Restricted stock     6       8       14       16   Total compensation cost   $ 29     $ 29     $ 58     $ 58     Stock options:   During the twenty-six week period ended September 26, 2021, the Company granted options to purchase 10,000 shares at an exercise price of $ 68.50 per share, all of which expire five years from the date of grant. All such options vest ratably over a four -year period commencing August 10, 2021.   The weighted-average option fair values, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the twenty-six week period ended September 26, 2021 are as follows:   Weighted-average option fair values   $ 13.04   Expected life (years)     4.4   Interest rate     0.82 % Volatility     27.69 % Dividend yield     2.04 %   15     The expected dividend yield is based on historical and projected dividend yields. The Company estimates volatility based primarily on historical monthly price changes of the Company’s stock equal to the expected life of the option. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on expected historical exercise patterns and employment termination behavior.   Transactions with respect to stock options for the twenty-six weeks ended September 26, 2021 are as follows :               Weighted-     Weighted-     Aggregate               Average     Average     Intrinsic               Exercise     Remaining     Value       Shares     Price     Contractual Life     (in thousands)                                     Options outstanding at March 28, 2021     10,000     $ 89.90       2.46       -   Granted     10,000     $ 68.50       4.87       -   Exercised     -       -       -       -   Options outstanding at September 26, 2021     20,000     $ 79.20       3.42       -                                     Options exercisable at September 26, 2021     10,000     $ 89.90       1.96       -     Restricted stock:   Transactions with respect to restricted stock for the twenty-six weeks ended September 26, 2021 are as follows:               Weighted-               Average               Grant-date Fair value       Shares     Per share   Unvested restricted stock at March 28, 2021     333     $ 89.90   Granted     -       -   Vested     ( 333 )   $ 89.90   Unvested restricted stock at September 26, 2021     -       -       NOTE P – STOCKHOLDERS’ EQUITY   1. Dividends   Effective June 11, 2021, the Board of Directors (the “Board”) declared its first quarterly cash dividend of $ 0.35 per share for fiscal year 2022, aggregating $ 1,440,000 , which was paid on June 25, 2021 to stockholders of record as of the close of business on June 21, 2021.   Effective August 6, 2021, the Board declared its second quarterly cash dividend of $ 0.35 per share for fiscal year 2022, aggregating $ 1,440,000 , which was paid on September 3, 2021 to stockholders of record as of the close of business on August 23, 2021.   Effective November 5, 2021 the Board declared its third quarterly cash dividend of $ 0.35 per share payable on December 3, 2021 to stockholders of record as of the close of business on November 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.   2. Stock Incentive Plans   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 were granted under the 2010 Stock Incentive Plan (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 are subject to the terms of the 2019 Plan.   16     As of the Effective Date, we were able to issue up to: (a) 369,584 shares of common stock under the 2019 Plan which includes: (i) shares that have been authorized but not issued pursuant to the 2010 Plan 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 September 26, 2021, there were up to 198,584 shares available to be issued for future option grants or up to 181,683 shares of restricted stock that may be granted under the 2019 Plan.   3. Stock Repurchase Programs   During the period from October 2001 through September 26, 2021, Nathan’s purchased 5,254,081 shares of common stock at a cost of $ 84,770,000 pursuant to various stock repurchase plans previously authorized by the Board. During the twenty-six week period ended September 26, 2021, we did not repurchase any shares of common stock.   In 2016, the Board 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 September 26, 2021, Nathan’s had repurchased 1,066,450 shares at a cost of $ 37,108,000 under the sixth stock repurchase plan. At September 26, 2021 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 Board approved a 10b5 - 1 stock plan (the “10b5 - 1 Plan”) which expired on August 12, 2020. During the fiscal 2021 period, the Company repurchased in open market transactions 26,676 shares of the Company’s common stock at an average share price of $ 56.26 for a total cost of $ 1,501,000 under the 10b5 - 1 Plan.     NOTE Q – LONG-TERM DEBT   Long-term debt consists of the following (in thousands):       September 26,     March 28,       2021     2021                     6.625% Senior Secured Notes due 2025   $ 150,000     $ 150,000   Less: unamortized debt issuance costs     ( 2,823 )     ( 3,169 ) Long-term debt, net   $ 147,177     $ 146,831     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 redeemed such notes (the "Redemption"), paid a portion of a special $ 5.00 per share cash dividend to Nathan's stockholders of record, and used the remaining net proceeds for general corporate purposes, including working capital. The Company also funded the majority of the special dividend of $5.00 per share through its existing cash. The Redemption occurred on November 16, 2017.   The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1 st and November 1 st of each year. The Company made its required semi-annual interest payments of $ 4,968,750 on May 1, 2021 and November 1, 2021.   The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025.   The terms and conditions of the 2025 Notes are as follows (terms not defined shall have the meanings set forth in the Indenture):   There are no financial maintenance covenants associated with the 2025 Notes. As of September 26, 2021, Nathan’s was in compliance with all covenants associated with the 2025 Notes.   The Indenture contains certain covenants limiting the Company’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to, subject to certain exceptions and qualifications: (i) incur additional indebtedness; (ii) pay dividends or make other distributions on, redeem or repurchase, capital stock; (iii) make investments or other restricted payments; (iv) create or incur certain liens; (v) incur restrictions on the payment of dividends or other distributions from its restricted subsidiaries; (vi) enter into certain transactions with affiliates; (vii) sell assets; or (viii) effect a consolidation or merger. Certain Restricted Payments which may be made or indebtedness incurred by Nathan’s or its Restricted Subsidiaries may require compliance with the following financial ratios:   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.   17     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.   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.   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.   18     If the Company sells certain assets and does not use the net proceeds as required, the Company will be required to use such net proceeds to repurchase the 2025 Notes at 100 % of the principal amount thereof, plus accrued and unpaid interest and additional interest penalty, if any, to the date of repurchase.   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, the Board 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.     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 and twenty-six week periods ended September 26, 2021 and September 27, 2020 were as follows (in thousands):       Thirteen weeks ended     Twenty-six weeks ended       September 26, 2021     September 27, 2020     September 26, 2021     September 27, 2020   Statement of Earnings                                 Operating lease cost   $ 413     $ 396     $ 845     $ 811   Variable lease cost     524       377       966       715   Less: Sublease income, net     ( 5 )     ( 22 )     ( 21 )     ( 22 )                                   Total net lease cost (a)   $ 932     $ 751     $ 1,790     $ 1,504       (a) The thirteen and twenty-six week periods ended September 26, 2021 and September 27, 2020 include $ 770 , net and $ 1,470 , net and $ 614 , net and $ 1,194 , net, respectively, recorded to “Restaurant Operating Expenses” for leases for Company-operated restaurants; $ 167 and $ 341 , and $ 159 and $ 332 , respectively, recorded to “General and administrative expenses” for leases for corporate offices and equipment; and $ 5 and $ 21 , and $ 22 and $ 22 , 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     Twenty-six weeks ended       September 26, 2021     September 27, 2020     September 26, 2021     September 27, 2020                                     Operating cash flows from operating leases   $ 183     $ 202     $ 357     $ 407     The weighted average remaining lease term and weighted-average discount rate for operating leases as of September 26, 2021  were as follows:   Weighted average remaining lease term (years):     6.7             Weighted average discount rate:     8.882 %   19     Future lease commitments to be paid and received by the Company as of September 26, 2021 were as follows (in thousands):       Payments     Receipts               Operating Leases     Subleases     Net Leases                             Fiscal year:                         2022 (a)   $ 760     $ 77     $ 683   2023     1,849       168       1,681   2024     1,774       169       1,605   2025     1,678       169       1,509   2026     1,712       169       1,543   Thereafter     3,762       183       3,579   Total lease commitments   $ 11,535     $ 935     $ 10,600   Less: Amount representing interest     2,822                   Present value of lease liabilities (b)   $ 8,713                       (a) Represents future lease commitments to be paid and received by the Company for the remainder of the 2022 fiscal year. Amount does not include $ 890   of lease commitments paid and received by the Company for the twenty-six week period ended September 26, 2021.   (b) The present value of minimum operating lease payments of $ 1,846 and $ 6,867   are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively on the Consolidated Balance Sheet.   Company as lessor   The components of net lease income for the thirteen week and twenty-six week periods ended September 26, 2021 and September 27, 2020 were as follows (in thousands):       Thirteen weeks ended     Twenty-six weeks ended       September 26, 2021     September 27, 2020     September 26, 2021     September 27, 2020                                     Operating lease income, net   $ 5     $ 22     $ 21     $ 22       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 renewal 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 September 26, 2021, Nathan’s has recorded a liability of $ 113,000 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty.   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.     NOTE T – SUBSEQUENT EVENTS   The Company evaluated subsequent events through the date the Consolidated Financial Statements were issued and filed with the U.S. Securities and Exchange Commission. There were no subsequent events that require recognition or disclosure.   20