NATHANS FAMOUS, INC. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.   Forward-Looking Statements   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; 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, including the effect on our ability to fund working capital, operations and make new investments; economic (including inflationary pressures like those currently being experienced), weather (including the impact on the supply of cattle and the impact 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 and business conditions; the collectibility of receivables; changes in consumer tastes; the continued viability of Coney Island as a destination location for visitors; the ability to continue to attract franchisees; the impact of the minimum wage legislation on labor costs in New York State or other changes in labor laws, including regulations which could render a franchisor as a “joint employee” or the impact of our union contracts; our ability to attract competent restaurant and managerial personnel; the enforceability of international franchising agreements; the future effects of any food borne illness; such as bovine spongiform encephalopathy, BSE or e-coli; as well as those risks discussed from time to time in this Form 10-Q and our Form 10-K annual report for the year ended March 27, 2022, and in other documents we file with the U.S. Securities and Exchange Commission. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements. We generally identify forward-looking statements with the words “believe,” “intend,” “plan,” “expect,” “anticipate,” “estimate,” “will,” “should” and similar expressions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q.   Introduction   As used in this Report, the terms “we”, “us”, “our”, “Nathan’s” 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.   -18-     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 the royalties, fees and other sums we can earn from franchising the Nathan’s restaurant concept (including the Branded Menu Program and virtual kitchens).   At June 26, 2022, our restaurant system, excluding virtual kitchens, consisted of 238 Nathan’s franchised units, including 121 Branded Menu units, and four Company-owned units (including one seasonal unit), located in 18 states, and 12 foreign countries (including 7 Branded Menu units in Ukraine which are temporarily closed as a result of the Russia-Ukraine conflict.) Our virtual kitchens in operation consisted of 196 units located in 15 states and 5 foreign countries.   At June 27, 2021, our restaurant system consisted of 219 Nathan’s franchised units, including 100 Branded Menu units, and four Company-owned units (including one seasonal unit), located in 19 states, and 10 foreign countries. Our virtual kitchens in operation consisted of 201 units located in 18 states and 7 foreign countries.   Our primary focus is to expand the market penetration of the Nathan’s Famous brand by increasing 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, including virtual kitchens. The primary drivers of our recent growth have been our Licensing and Branded Product Programs which have been the largest contributors to the Company’s profits.   While we do not expect to significantly increase the number of Company-owned units, we may opportunistically and strategically invest in a small number of new units as showcase locations for prospective franchisees and master developers as we seek to grow our franchise system. We continue to seek opportunities to drive sales in a variety of ways as we adapt to the ever-changing consumer and environment. Our virtual kitchens should position us to further expand our delivery options and should allow us to reach even more of our customers.   As described in our Annual Report on Form 10-K for the year ended March 27, 2022, 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, beef trimmings and other commodities due to inflationary pressures compared to earlier periods.   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 Company’s 10.000% Senior Secured Notes due 2020, paid a portion of the special $5.00 cash dividend and used the remaining proceeds for general corporate purposes, including working capital.   On January 26, 2022, the Company redeemed $40,000,000 in aggregate principal amount of its 2025 Notes. As a result of the partial redemption, the Company expects to reduce its future cash interest expense by $2,650,000 per annum.   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.”   Impact of COVID-19 Pandemic and Inflation   In March 2020, the World Health Organization declared a global pandemic related to the outbreak of a novel strain of coronavirus, designated COVID-19.   COVID-19 related pressures have continued into the first quarter of fiscal 2023, although to a lesser extent than during the fiscal year 2022. As approved vaccines continue to be distributed and administered, state and local restrictions continue to be lessened.   Customer traffic at our Company-owned restaurants, in particular at Coney Island, during the first quarter of fiscal 2023 increased by approximately 13% over the first quarter of fiscal 2022. Additionally, we experienced increased customer traffic within our franchise system, including shopping malls, movie theaters, as well as airport and highway travel plazas. The increase in customer traffic translated into higher Company-owned restaurant sales and higher franchise fees and royalties over the first quarter of fiscal 2022.   Additionally, as the economy continues to reopen and travel continues to increase, our Branded Product Program customers, including professional sports arenas, amusement parks, shopping malls and movie theaters have experienced stronger attendance contributing to higher sales over the first quarter of fiscal 2022.   -19-     We continue to follow guidance from health officials in determining the appropriate restrictions, if any, to place within our operations. Our Company-owned and franchised restaurants could be disrupted by COVID-19 related employee absences or due to changes in the availability and cost of labor.   We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, we have experienced rising transportation costs, rising costs of hot dogs due to the higher costs for beef and beef trimmings, and other food costs and paper products, which could continue to increase as the impact of COVID-19 continue across the supply chain.   We anticipate that inflationary pressures that began in the latter half of fiscal 2022 in labor and commodity costs, in particular beef and beef trimmings, due to supply chain challenges will continue during the remainder of fiscal 2023 and may impact our operations.   As a result of the recent inflationary pressures and the continued supply chain challenges, we expect to mitigate, to the extent possible, the impact with planned price increases on select products and menu items that were implemented during the first quarter of 2023. We continue to monitor these inflationary pressures and will continue to implement mitigation plans as needed.   There continues to be uncertainty around the COVID-19 pandemic as variants including Omicron and BA.4 and BA.5, subvariants of Omicron, have caused increases in the number of reported COVID-19 cases. 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. The ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels, and may result in reduced customer traffic and consumer spending trends that may adversely impact our financial condition and results of operations.   Critical Accounting Policies and Estimates   As discussed in our Form 10-K for the fiscal year ended March 27, 2022, 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 intangible assets; impairment of long-lived assets; and income taxes (including uncertain tax positions). Since March 27, 2022, there have been no changes in our critical accounting policies or significant changes to the assumptions and estimates related to them.   New Accounting Standard Not Yet Adopted             Please refer to Note B of the preceding consolidated financial statements for our discussion of the New Accounting Standard Not Yet Adopted.   EBITDA and Adjusted EBITDA   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.   Reconciliation of GAAP and Non-GAAP Measures   The following is provided to supplement certain Non-GAAP financial measures.   In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP"), the Company has provided EBITDA, 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.   -20-     The following is a reconciliation of net income to EBITDA and Adjusted EBITDA (in thousands):       Thirteen weeks ended       June 26, 2022     June 27, 2021       (unaudited)   Net income   $ 7,137     $ 5,763   Interest expense     1,944       2,650   Provision for income taxes     2,743       2,341   Depreciation and amortization     233       278   EBITDA     12,057       11,032                     Share-based compensation     8       29   Adjusted EBITDA   $ 12,065     $ 11,061     Results of Operations                    Thirteen weeks ended June 26, 2022 compared to thirteen weeks ended June 27, 2021   Revenues   Total revenues increased by 27% to $39,720,000 for the thirteen weeks ended June 26, 2022 (“fiscal 2023 period”) as compared to $31,319,000 for the thirteen weeks ended June 27, 2021 (“fiscal 2022 period”).   Total sales increased by 39% to $26,894,000 for the fiscal 2023 period as compared to $19,325,000 for the fiscal 2022 period which included foodservice sales from the Branded Product Program increasing by 45% to $23,171,000 for the fiscal 2023 period as compared to sales of $15,996,000 in the fiscal 2022 period. During the fiscal 2023 period, the volume of hot dogs sold increased by approximately 29% as compared to the fiscal 2022 period. Our average selling prices increased by approximately 14% as compared to the fiscal 2022 period.   Total Company-owned restaurant sales increased by 12% to $3,723,000 during the fiscal 2023 period as compared to $3,329,000 during the fiscal 2022 period. The increase was primarily due to an increase in traffic at our Coney Island locations.   License royalties increased by 6% to $11,314,000 in the fiscal 2023 period as compared to $10,682,000 in the fiscal 2022 period. Total royalties earned on sales of hot dogs from our license agreement with John Morrell & Co. at retail and foodservice, including sales of hot dogs to WalMart, increased 6% to $10,450,000 in the fiscal 2023 period as compared to $9,880,000 in the fiscal 2022 period. The increase is due to a 15% increase in average net selling price as compared to the fiscal 2022 period, which was offset by an 8% decrease in retail volume. The foodservice business earned higher royalties of $62,000 as compared to the fiscal 2022 period. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $62,000 during the fiscal 2023 period as compared to the fiscal 2022 period primarily due to additional royalties earned on sales of French fries and pickles.   Franchise fees and royalties were $1,093,000 in the fiscal 2023 period as compared to $907,000 in the fiscal 2022 period. Total royalties were $901,000 in the fiscal 2023 period as compared to $800,000 in the fiscal 2022 period. Royalties earned under the Branded Menu program were $140,000 in the fiscal 2023 period as compared to $82,000 in the fiscal 2022 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases. Virtual kitchen royalties were $44,000 in the fiscal 2023 period as compared to $73,000 in the fiscal 2022 period. Traditional franchise royalties were $717,000 in the fiscal 2023 period as compared to $645,000 in the fiscal 2022 period. Franchise restaurant sales increased to $15,946,000 in the fiscal 2023 period as compared to $12,985,000 in the fiscal 2022 period primarily due to higher sales at airport locations; highway travel plazas; movie theaters; and casino locations, primarily in Las Vegas, Nevada. Comparable domestic franchise sales (consisting of 63 Nathan’s franchised restaurants, excluding sales under the Branded Menu Program) were $13,114,000 in the fiscal 2023 period as compared to $10,335,000 in the fiscal 2022 period.            At June 26, 2022, 238 franchised units, including domestic, international and Branded Menu Program units were operating as compared to 219 franchised units, including domestic, international and Branded Menu Program units at June 27, 2021. Total franchise fee income was $192,000 in the fiscal 2023 period as compared to $107,000 in the fiscal 2022 period. Domestic franchise fee income was $29,000 in the fiscal 2023 period as compared to $35,000 in the fiscal 2022 period. International franchise fee income was $70,000 in the fiscal 2023 period as compared to $54,000 during the fiscal 2022 period.   -21-     We recognized $93,000 and $18,000 in forfeited fees in the fiscal 2023 and fiscal 2022 periods, respectively. During the fiscal 2023 period, three new traditional franchised units opened. Additionally, 15 new virtual kitchens opened. During the fiscal 2022 period, one new traditional franchised unit opened, internationally, as well as seven new Branded Menu Program units. Additionally, 71 new virtual kitchens opened.   Advertising fund revenue, after eliminating Company contributions, was $419,000 in the fiscal 2023 period, as compared to $405,000 in the fiscal 2022 period.   Costs and Expenses   Overall, our cost of sales increased by 47% to $22,667,000 in the fiscal 2023 period as compared to $15,365,000 in the fiscal 2022 period. Our gross profit (representing the difference between sales and cost of sales) increased to $4,227,000 or 16% of sales during the fiscal 2023 period as compared to $3,960,000 or 20% of sales during the fiscal 2022 period.   Cost of sales in the Branded Product Program increased by 54% to $20,400,000 in the fiscal 2023 period as compared to $13,230,000 in the fiscal 2022 period, primarily due to the 29% increase in the volume of hot dogs sold as discussed above, as well as a 21% increase in the average cost per pound of our hot dogs. Beginning in July 2021, the cost of hot dogs has increased significantly due to higher costs for beef and beef trimmings, labor, packaging and transportation, as well as supply chain challenges associated with increased consumer demand as a result of the continued recovery from the COVID-19 pandemic. We did not make any purchase commitments of beef during the fiscal 2023 and 2022 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.   With respect to Company-owned restaurants, our cost of sales during the fiscal 2023 period was $2,267,000 or 61% of restaurant sales, as compared to $2,135,000 or 64% of restaurant sales in the fiscal 2022 period. The increase in cost of sales during the fiscal 2023 period was primarily due to the 12% increase in sales discussed above. The decrease in cost of sales, as a percent of total restaurant sales, was due to an increase in customer counts driving higher sales which were offset by higher commodity costs and restaurant labor costs. Food and paper costs as a percentage of Company-owned restaurant sales were 29%, down from 30% in the comparable period of the prior year primarily due to commodity inflation, offset by an increase in sales. Labor and related expenses as a percentage of Company-owned restaurant sales were 32%, down from 34% in the comparable period in the prior year due to labor wage increases as a result of competitive pressures, offset by higher sales.   Restaurant operating expenses were $1,032,000 in the fiscal 2023 period as compared to $1,111,000 in the fiscal 2022 period. We incurred lower occupancy expenses of $119,000, offset by higher utility expenses of $20,000, and higher insurance costs of $25,000.   Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, was $233,000 in the fiscal 2023 period as compared to $278,000 in the fiscal 2022 period.   General and administrative expenses increased by $131,000 or 4% to $3,589,000 in the fiscal 2023 period as compared to $3,458,000 in the fiscal 2022 period. The increase in general and administrative expenses was primarily attributable to higher marketing and trade show related expenses of $237,000, and higher bad debt expense of $81,000, offset in part, by lower salaries expense of $113,000 and lower professional fees of $55,000.   Advertising fund expense, after eliminating Company contributions, was $419,000 in the fiscal 2023 period, as compared to $405,000 in the fiscal 2022 period.   Other Items   Interest expense of $1,944,000 in the fiscal 2023 period represented accrued interest of $1,817,000 on the 2025 Notes and amortization of debt issuance costs of $127,000.   Interest expense of $2,650,000 in the fiscal 2022 period represented accrued interest of $2,477,000 on the 2025 Notes and amortization of debt issuance costs of $173,000.   Interest income was $22,000 in the fiscal 2023 period as compared to $36,000 in the fiscal 2022 period.   Other income, net was $22,000 and $16,000 in the fiscal 2023 and fiscal 2022 periods, respectively, which primarily relates to sublease income from a franchised restaurant.   -22-     Provision for Income Taxes   The income tax provision for the thirteen week periods ended June 26, 2022 and June 27, 2021 reflect effective tax rates of 27.8% and 28.9%, respectively. The effective tax rates are higher than the statutory rates primarily due to state and local taxes.   The amount of unrecognized tax benefits at June 26, 2022 was $418,000 all of which would impact Nathan’s effective tax rate, if recognized. As of June 26, 2022, Nathan’s had $289,000 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 26, 2023.   Off-Balance Sheet Arrangements   At June 26, 2022 and June 27, 2021, 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.   Liquidity and Capital Resources             Cash and cash equivalents at June 26, 2022 aggregated $47,668,000, a $2,395,000 decrease during the fiscal 2023 period as compared to cash and cash equivalents of $50,063,000 at March 27, 2022. Net working capital increased to $53,173,000 in the fiscal 2023 period from $48,988,000 at March 27, 2022. On May 1, 2022, we paid our first semi-annual interest payment of $3,643,750 for the fiscal 2023 period. We paid our first quarter fiscal 2023 dividend of $1,852,000 on June 24, 2022.   The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1 st and November 1 st of each year. Semi-annual interest payments are $3,643,750. The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025.   Cash provided by operations of $771,000 in the fiscal 2023 period is primarily attributable to net income of $7,137,000 in addition to other non-cash operating items of $404,000, offset by changes in other operating assets and liabilities of $6,770,000. Non-cash operating expenses consist principally of depreciation and amortization of $233,000, amortization of debt issuance costs of $127,000, share-based compensation expense of $8,000, and bad debts of $81,000. In the fiscal 2023 period, accounts and other receivables increased by $7,558,000 due primarily to higher receivables from Branded Product Program sales of $4,486,000, higher franchise and license royalties receivable of $2,143,000, and higher receivables due to the Advertising Fund of $698,000 . Prepaid expenses and other current assets decreased by $133,000 due principally to a decrease in prepaid insurance of $61,000 and prepaid trade show expenses of $138,000 offset, in part, by an increase in prepaid real estate taxes of $81,000. Accounts payable, accrued expenses and other current liabilities increased by $1,123,000 due principally to an increase in accounts payable of $1,836,000 due to the timing of seasonal product purchases for our Branded Product Program and Company-owned restaurants, as well as an increase in accrued rebates due under the Branded Product Program of $389,000 as a result of higher sales. Additionally, there was an increase in accrued corporate taxes of $2,553,000 due to the timing of estimated tax payments and higher earnings. Offsetting these increases was a reduction in accrued payroll and other benefits of $1,736,000 resulting from the payment of year-end compensation as well as a reduction in accrued interest expense of $1,827,000 resulting from the partial redemption of our 2025 Notes and our May 2022 interest payment on our 2025 Notes.   Cash used in investing activities was $244,000 in the fiscal 2023 period primarily in connection with capital expenditures incurred for our Branded Product Program and our Coney Island restaurants.   Cash used in financing activities of $2,922,000 in the fiscal 2023 period relates to the payment of the Company’s regular $0.45 per share cash dividend on June 24, 2022 of $1,852,000. Additionally, during the fiscal 2023 period, the Company repurchased 20,370 shares of common stock for $1,070,000 under the 10b5-1 Plan.   In 2016, the Company’s Board of Directors (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 June 26, 2022, Nathan’s has repurchased 1,086,820 shares at a cost of $38,178,000 under the sixth stock repurchase plan. At June 26, 2022, there were 113,180 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.   -23-     On June 14, 2022, the Board approved a 10b5-1 stock plan (the “10b5-1 Plan”) which will expire on the earlier of (a) September 13, 2022 or (b) the earlier of when the aggregate purchases under the 10b5-1 Plan equals 50,000 shares unless terminated earlier by the Board.   During the thirteen weeks ended June 26, 2022, the Company repurchased in open market transactions 20,370 shares of the Company’s common stock at an average price of $52.49 for a total cost of $1,070,000 under the 10b5-1 Plan. At June 26, 2022, 29,630 shares were available for repurchase under the 10b5-1 Plan.   Through July 29, 2022, the Company repurchased an additional 13,896 shares of the Company’s common stock at an average price of $54.51 for a total cost of $758,000 . At July 29, 2022, 15,734 shares were available for repurchase under the 10b5-1 Plan.   As discussed above, we had cash and cash equivalents at June 26, 2022 aggregating $47,668,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. On May 31, 2018, the Board 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, the Board authorized the increase of its regular quarterly dividend to $0.35 from $0.25. On February 4, 2022, the Board authorized the increase of its regular quarterly dividend to $0.45 from $0.35. The Company paid its first quarter fiscal 2023 dividend of $1,852,000 on June 24, 2022.   Effective August 5, 2022, the Company declared its second quarter fiscal 2023 dividend of $0.45 per common share to stockholders of record as of the close of business on August 22, 2022, which is payable on September 2, 2022.   If the Company pays regular quarterly cash dividends for the remainder of fiscal 2023 at the same rate as declared in the first quarter of fiscal 2023, the Company’s total cash requirement for dividends for all of fiscal 2023 would be approximately $7,361,000 based on the number of shares of common stock outstanding at July 29, 2022. The Company intends to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid or of the amount or timing of such dividends, if any.   Our ability to pay future dividends is limited by the terms of the Indenture for the 2025 Notes. In addition, the payment of any cash dividends in the future, are subject to final determination of the Board and will be dependent upon our earnings and financial requirements. We may also return capital to our stockholders through stock repurchases, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock repurchase plan.   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 26, 2023, we will be required to make interest payments of $7,287,500, of which $3,643,750 has been made on May 1, 2022.   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 26, 2022, 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.   Our contractual obligations primarily consist of the 2025 Notes and 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 27, 2022.                              -24-     Inflationary Impact                      Beginning in fiscal 2022 and continuing into the first quarter of fiscal 2023, we have experienced inflationary pressures on commodity prices. We expect this trend to continue throughout the remainder of fiscal 2023. Our average cost of hot dogs during fiscal 2022 was approximately 19% higher than during fiscal 2021. Our average cost of hot dogs between April 2022 and June 2022 was approximately 21% higher than between April 2021 and June 2021. Beginning in July 2021, the cost of hot dogs has increased significantly due to higher costs for beef and beef trimmings, labor, packaging and transportation, as well as supply chain challenges associated with increased consumer demand as a result of the continued recovery from the COVID-19 pandemic. Inherent volatility experienced in certain commodity markets, such as those for beef and beef trimmings due to seasonal shifts, climate conditions, industry demand, inflationary pressures and other macroeconomic factors could have a significant effect on our results of operations.   We have experienced competitive pressure on labor rates as a result of the increase in the minimum hourly wage for fast food workers which increased to $15.00 in New York state during fiscal 2022 where our Company-owned restaurants are located. Additionally, as the economy reopens with the continued recovery from the COVID-19 pandemic, there has been an increased demand for labor at all levels which has resulted in greater challenges retaining adequate staffing levels at our Company-owned restaurants; our franchised restaurants and Branded Menu Program locations; as well as for certain vendors in our supply chain that we depend on for our commodities. We remain in contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain.   We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during the remainder of fiscal 2023. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. Our most recent purchase commitment was completed in 2016 for approximately 2,600,000 pounds of hot dogs. We may attempt to enter into similar purchase arrangements for hot dogs and other products in the future. Additionally, we expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from the uncertainty of the insurance markets.   We must comply with the Fair Labor Standards Act and various federal and state laws governing minimum wages. Increases in the minimum wage and labor regulations have increased our labor costs. The minimum wage for New York State increased to $15.00 per hour on December 31, 2021. All of our Company-owned restaurants operate in New York State. In addition, the federal government and a number of other states are evaluating various proposals to increase their respective minimum wage.   We believe that these increases in the minimum wage and other changes in employment law have had a significant financial impact on our financial results and the results of our franchisees that operate in New York State. Our business could be negatively impacted if the decrease in margins for our franchisees results in the potential loss of new franchisees or the closing of a significant number of franchised restaurants.   Continued increases in labor costs, commodity prices and other operating expenses, including healthcare, could adversely affect our operations. We attempt to manage inflationary pressure, and rising commodity costs, at least in part, through raising prices. Delays in implementing price increases may limit our ability to offset these rising costs. Volatility in commodity prices, including beef and beef trimmings could have a significant adverse effect on our results of operations.   The Company’s business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in “Forward-Looking Statements” and “Notes to Consolidated Financial Statements” in this Form 10-Q and “Risk Factors” in our Form 10-K for our fiscal year ended March 27, 2022.   -25-