NATHANS FAMOUS, INC. 10-Q

Item 1. Financial Statements.     Nathan ’ s Famous, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS December 25, 2022 and March 27, 2022 (in thousands, except share and per share amounts)         December 25, 2022     March 27, 2022       (Unaudited)           ASSETS                                   CURRENT ASSETS                 Cash and cash equivalents (Note E)   $ 55,454     $ 50,063   Accounts and other receivables, net (Note G)     13,042       13,374   Inventories     336       522   Prepaid expenses and other current assets (Note H)     1,109       1,441   Total current assets     69,941       65,400                     Property and equipment, net of accumulated depreciation of $ 10,824 and $ 10,344 , respectively     3,513       3,785   Operating lease assets (Note Q)     6,604       7,416   Goodwill     95       95   Intangible asset, net     913       1,043   Deferred income taxes     584       582   Other assets     175       195                     Total assets   $ 81,825     $ 78,516                     LIABILITIES AND STOCKHOLDERS’ DEFICIT                                   CURRENT LIABILITIES                 Accounts payable   $ 3,847     $ 6,381   Accrued expenses and other current liabilities (Note K)     5,511       7,833   Current portion of operating lease liabilities (Note Q)     1,827       1,849   Deferred franchise fees     343       349   Total current liabilities     11,528       16,412                     Long-term debt, net of unamortized debt issuance costs of $ 1,436 and $ 1,817 , respectively (Note P)     108,564       108,183   Operating lease liabilities (Note Q)     5,583       6,487   Other liabilities     737       674   Deferred franchise fees     1,378       1,748                     Total liabilities     127,790       133,504                     COMMITMENTS AND CONTINGENCIES (Note R)                                   STOCKHOLDERS’ DEFICIT                 Common stock, $ .01 par value; 30,000,000 shares authorized; 9,369,235 shares issued; and 4,079,720 and 4,115,154 shares outstanding at December 25, 2022 and March 27, 2022, respectively     94       94   Additional paid-in capital     62,388       62,307   Accumulated deficit     ( 21,785 )     ( 32,619 ) Stockholders’ equity before treasury stock     40,697       29,782                     Treasury stock, at cost, 5,289,515 and 5,254,081 shares at December 25, 2022 and March 27, 2022, respectively     ( 86,662 )     ( 84,770 ) Total stockholders’ deficit     ( 45,965 )     ( 54,988 )                   Total liabilities and stockholders’ deficit   $ 81,825     $ 78,516     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 Thirty-nine weeks ended December 25, 2022 and December 26, 2021 (in thousands, except per share amounts) (Unaudited)       Thirteen weeks ended     Thirty-nine weeks ended       December 25, 2022     December 26, 2021     December 25, 2022     December 26, 2021                                     REVENUES                                 Sales   $ 18,340     $ 18,637     $ 72,535     $ 61,462   License royalties     6,337       5,878       26,064       24,218   Franchise fees and royalties     976       919       3,268       2,993   Advertising fund revenue     501       479       1,504       1,437   Total revenues     26,154       25,913       103,371       90,110                                     COSTS AND EXPENSES                                 Cost of sales     14,925       16,040       59,490       51,536   Restaurant operating expenses     932       547       3,217       2,874   Depreciation and amortization     303       259       837       807   General and administrative expenses     3,161       2,975       10,122       9,702   Advertising fund expense     501       479       1,679       1,437   Total costs and expenses     19,822       20,300       75,345       66,356                                     Income from operations     6,332       5,613       28,026       23,754                                     Interest expense     ( 1,944 )     ( 2,650 )     ( 5,831 )     ( 7,951 ) Interest income     158       24       260       88   Other (expense) income, net     ( 60 )     3       ( 4 )     24                                     Income before provision for income taxes     4,486       2,990       22,451       15,915   Provision for income taxes     1,223       860       6,093       4,477   Net income   $ 3,263     $ 2,130     $ 16,358     $ 11,438                                     PER SHARE INFORMATION                                 Weighted average shares used in computing income per share:                                 Basic     4,080       4,115       4,092       4,115   Diluted     4,116       4,115       4,104       4,115                                     Income per share:                                 Basic   $ .80     $ .52     $ 4.00     $ 2.78   Diluted   $ .79     $ .52     $ 3.99     $ 2.78                                     Dividends declared per share   $ .45     $ .35     $ 1.35     $ 1.05     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 December 25, 2022 and December 26, 2021 (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, September 25, 2022     9,369,235     $ 94     $ 62,323     $ ( 23,212 )     5,289,515     $ ( 86,662 )   $ ( 47,457 )                                                           Dividends on common stock     -       -       -       ( 1,836 )     -       -       ( 1,836 ) Share-based compensation     -       -       65       -       -       -       65   Net income     -       -       -       3,263       -       -       3,263   Balance, December 25, 2022     9,369,235     $ 94     $ 62,388     $ ( 21,785 )     5,289,515     $ ( 86,662 )   $ ( 45,965 )                         Additional                             Total       Common     Common     Paid-in     Accumulated     Treasury Stock, at Cost     Stockholders’       Shares     Stock     Capital     Deficit     Shares     Amount     Deficit                                                             Balance, September 26, 2021     9,369,235     $ 94     $ 62,291     $ ( 33,614 )     5,254,081     $ ( 84,770 )   $ ( 55,999 )                                                           Dividends on common stock     -       -       -       ( 1,440 )     -       -       ( 1,440 ) Share-based compensation     -       -       8       -       -       -       8   Net income     -       -       -       2,130       -       -       2,130   Balance, December 26, 2021     9,369,235     $ 94     $ 62,299     $ ( 32,924 )     5,254,081     $ ( 84,770 )   $ ( 55,301 )   The accompanying notes are an integral part of these consolidated financial statements.   -5-     Nathan ’ s Famous, Inc. and Subsidiaries   CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ DEFICIT Thirty-nine weeks ended December 25, 2022 and December 26, 2021 (in thousands, except share amounts) (Unaudited)                       Additional                             Total       Common     Common     Paid-in     Accumulated     Treasury Stock, at Cost     Stockholders’       Shares     Stock     Capital     Deficit     Shares     Amount     Deficit                                                             Balance, March 27, 2022     9,369,235     $ 94     $ 62,307     $ ( 32,619 )     5,254,081     $ ( 84,770 )   $ ( 54,988 )                                                           Repurchase of common stock     -       -       -       -       35,434       ( 1,892 )     ( 1,892 ) Dividends on common stock     -       -       -       ( 5,524 )     -       -       ( 5,524 ) Share-based compensation     -       -       81       -       -       -       81   Net income     -       -       -       16,358       -       -       16,358   Balance, December 25, 2022     9,369,235     $ 94     $ 62,388     $ ( 21,785 )     5,289,515     $ ( 86,662 )   $ ( 45,965 )                         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     -       -       -       ( 4,320 )     -       -       ( 4,320 ) Share-based compensation     -       -       66       -       -       -       66   Net income     -       -       -       11,438       -       -       11,438   Balance, December 26, 2021     9,369,235     $ 94     $ 62,299     $ ( 32,924 )     5,254,081     $ ( 84,770 )   $ ( 55,301 )   The accompanying notes are an integral part of these consolidated financial statements.   -6-       Nathan ’ s Famous, Inc. and Subsidiaries   CONSOLIDATED STATEMENTS OF CASH FLOWS Thirty-nine weeks ended December 25, 2022 and December 26, 2021 (in thousands) (Unaudited)       December 25, 2022     December 26, 2021   Cash flows from operating activities:                 Net income   $ 16,358     $ 11,438   Adjustments to reconcile net income to net cash provided by operating activities                 Depreciation and amortization     837       807   Loss on disposal of property and equipment     87       -   Amortization of debt issuance costs     381       518   Share-based compensation expense     81       66   Provision for doubtful accounts     114       112   Deferred income taxes     ( 2 )     ( 10 ) Other non-cash items     ( 114 )     ( 98 ) Changes in operating assets and liabilities:                 Accounts and other receivables, net     218       ( 2,635 ) Inventories     186       253   Prepaid expenses and other current assets     332       504   Other assets     20       128   Accounts payable, accrued expenses and other current liabilities     ( 4,856 )     ( 1,395 ) Deferred franchise fees     ( 376 )     249   Other liabilities     63       ( 41 )                   Net cash provided by operating activities     13,329       9,896                     Cash flows from investing activities:                 Insurance proceeds for property and equipment     42       -   Purchase of property and equipment     ( 564 )     ( 465 )                   Net cash used in investing activities     ( 522 )     ( 465 )                   Cash flows from financing activities:                 Dividends paid to stockholders     ( 5,524 )     ( 4,320 ) Payments of withholding tax on net share settlement of share-based compensation plans     -       ( 7 ) Repurchase of treasury stock     ( 1,892 )     -                     Net cash used in financing activities     ( 7,416 )     ( 4,327 )                   Net increase in cash and cash equivalents     5,391       5,104                     Cash and cash equivalents, beginning of period     50,063       81,064                     Cash and cash equivalents, end of period   $ 55,454     $ 86,168                     Cash paid during the period for:                 Interest   $ 7,288     $ 9,938   Income taxes paid   $ 5,041     $ 3,558                     Non-cash financing activity:                 Dividends declared per share   $ 1.35     $ 1.05     The accompanying notes are an integral part of these consolidated financial statements.   -7-     NATHAN'S FAMOUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 25, 2022 (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 thirty-nine week periods ended December 25, 2022 and December 26, 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of financial condition, results of operations and cash flows for the periods presented. However, our results of operations are seasonal in nature, and the results of any interim period are not necessarily indicative of results for any other interim period or the full fiscal year.   Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the requirements of the U.S. Securities and Exchange Commission (“SEC”).   Management believes that the disclosures included in the accompanying consolidated interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Nathan’s Annual Report on Form 10-K for the fiscal year ended March 27, 2022 as filed with the SEC on June 10, 2022.   Our significant interim accounting policies include the recognition of advertising fund expense in proportion to advertising funds revenue, and the recognition of income taxes using an estimated annual effective tax rate.   A summary of the Company’s significant accounting policies is identified in Note B of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2022.   COVID-19 Pandemic and Inflation   In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19), a global pandemic. The COVID-19 pandemic has had and may continue to have a significant impact on our business and results of operations.   During fiscal 2022, we experienced pandemic and inflationary pressures, most notably within our Restaurant Operations and Branded Products Program segments. We experienced macroeconomic impacts arising from the long-term duration of the pandemic, including rising labor costs, increasing commodity prices, higher packaging costs and fuel prices, which contributed to a decline in consumer confidence and spending. We expect this trend to continue for the remainder of fiscal 2023. Our average cost of hot dogs for the thirty-nine week period ended December 25, 2022 was approximately 3 % higher than during the thirty-nine week period ended December 26, 2021.   Inflation has an impact on food, paper, utility, labor and benefits and other general and administrative expenses which can impact our results of operations. In general, we have been able to offset cost increases resulting from inflation by increasing prices. We may not be able to offset cost increases in the future.   The Company’s franchisees and Branded Menu Program operators also have experienced some disruptions and challenges as a result of the pandemic including workforce absences, as well as changes in the availability and cost of labor, including higher wages and overtime costs.   There is continued uncertainty due to the COVID-19 pandemic and supply chain disruptions and their impacts on the Company’s business. We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain.   The extent to which COVID-19 will continue to impact the Company will depend on future developments, which cannot be predicted, including the duration and severity of the COVID-19 pandemic, which may be impacted by new and evolving variants, the adoption rates of vaccines in the jurisdictions in which the Company operates, and further actions that may be taken to limit the public health and economic impact.   Such impacts may include non-cash asset impairments and difficulty collecting trade receivables, among other things.   -8-       NOTE B – 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 consolidated 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.   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 C – REVENUES   The Company’s disaggregated revenues for the thirteen and thirty-nine weeks ended December 25, 2022 and December 26, 2021 are as follows (in thousands):       Thirteen weeks ended     Thirty-nine weeks ended       December 25, 2022     December 26, 2021     December 25, 2022     December 26, 2021                                     Branded Products   $ 16,661     $ 16,901     $ 61,862     $ 51,960   Company-owned restaurants     1,679       1,736       10,673       9,502   Total sales     18,340       18,637       72,535       61,462                                     License royalties     6,337       5,878       26,064       24,218                                     Franchise royalties     829       744       2,785       2,581   Franchise fees     147       175       483       412   Total franchise fees and royalties     976       919       3,268       2,993                                     Advertising fund revenue     501       479       1,504       1,437                                     Total revenues   $ 26,154     $ 25,913     $ 103,371     $ 90,110     The following table disaggregates revenues by primary geographical market (in thousands):       Thirteen weeks ended     Thirty-nine weeks ended       December 25, 2022     December 26, 2021     December 25, 2022     December 26, 2021                                     United States   $ 24,824     $ 25,066     $ 98,836     $ 87,545   International     1,330       847       4,535       2,565   Total revenues   $ 26,154     $ 25,913     $ 103,371     $ 90,110     -9-     Contract balances   The following table provides information about contract receivables and liabilities (deferred franchise fees) from contracts with customers (in thousands):       December 25, 2022     March 27, 2022   Receivables, which are included in “Accounts and other receivables, net” (a)   $ -     $ 312   Deferred franchise fees (b)   $ 1,721     $ 2,097       (a) Includes receivables related to “franchise fees and royalties”   (b) Deferred franchise fees of $ 343 and $ 1,378 as of December 25, 2022 and $ 349 and $ 1,748 as of March 27, 2022 are included in Deferred franchise fees – current and long term, respectively.   Significant changes in deferred franchise fees are as follows (in thousands):       Thirty-nine weeks ended       December 25, 2022     December 26, 2021   Deferred franchise fees at beginning of period   $ 2,097     $ 1,773   New deferrals due to cash received and other     107       661   Revenue recognized during the period     ( 483 )     ( 412 ) Deferred franchise fees at end of period   $ 1,721     $ 2,022     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   2023 (a)   $ 86   2024     339   2025     322   2026     287   2027     168   Thereafter     519   Total   $ 1,721       (a) Represents franchise fees expected to be recognized for the remainder of the 2023 fiscal year, which includes international development fees expected to be recognized over the duration of one year or less. Amount does not include $ 483 of franchise fee revenue recognized for the thirty-nine weeks ended December 25, 2022.   We have applied the optional exemption, as provided for under ASC Topic 606, Revenues from Contracts with Customers , which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.     NOTE D – INCOME PER SHARE                     Basic income per common share is calculated by dividing income by the weighted-average number of common shares outstanding and excludes any dilutive effect of stock options. Diluted income per common share gives effect to all potentially dilutive common shares that were outstanding during the period. Dilutive common shares used in the computation of diluted income per common share result from the assumed exercise of stock options and warrants, as determined using the treasury stock method.   -10-     The following chart provides a reconciliation of information used in calculating the per-share amounts for the thirteen and thirty-nine week periods ended December 25, 2022 and December 26, 2021, respectively.   Thirteen weeks                                                                                     Net Income       Net Income     Number of Shares     Per Share       2022     2021     2022     2021     2022     2021       (in thousands)     (in thousands)                   Basic EPS                                                 Basic calculation   $ 3,263     $ 2,130       4,080       4,115     $ 0.80     $ 0.52   Effect of dilutive employee stock options     -       -       36       -       ( 0.01 )     -   Diluted EPS                                                 Diluted calculation   $ 3,263     $ 2,130       4,116       4,115     $ 0.79     $ 0.52     Thirty-nine weeks                                                                                     Net Income       Net Income     Number of Shares     Per Share       2022     2021     2022     2021     2022     2021       (in thousands)     (in thousands)                   Basic EPS                                                 Basic calculation   $ 16,358     $ 11,438       4,092       4,115     $ 4.00     $ 2.78   Effect of dilutive employee stock options     -       -       12       -       ( 0.01 )     -   Diluted EPS                                                 Diluted calculation   $ 16,358     $ 11,438       4,104       4,115     $ 3.99     $ 2.78     Options to purchase 20,000 shares of common stock in the thirteen and thirty-nine week periods ended December 25, 2022 and December 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.     NOTE E – CASH AND CASH EQUIVALENTS   The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents at December 25, 2022 and March 27, 2022. The Company’s cash balances principally consist of cash in bank and money market accounts.   At December 25, 2022 and March 27, 2022, substantially all of the Company’s cash balances are in excess of Federal government insurance limits. The Company has not experienced any losses in such accounts.     NOTE F – 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   -11-     The face value and fair value of long-term debt as of December 25, 2022 and March 27, 2022 were as follows (in thousands):       December 25, 2022     March 27, 2022       Face value     Fair value     Face value     Fair value                                     Long-term debt   $ 110,000     $ 107,497     $ 110,000     $ 111,346     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 December 25, 2022, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.     NOTE G – ACCOUNTS AND OTHER RECEIVABLES, NET                     Accounts and other receivables, net, consist of the following (in thousands):     December 25,     March 27,       2022     2022                     Branded product sales   $ 9,301     $ 9,318   Franchise and license royalties     3,276       3,923   Other     753       391         13,330       13,632                     Less: allowance for doubtful accounts     288       258   Accounts and other receivables, net   $ 13,042     $ 13,374     Accounts receivable are generally due within 30 days and are stated at amounts due from franchisees, including virtual 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 thirty-nine week period ended December 25, 2022 and the fiscal year ended March 27, 2022 are as follows (in thousands):                 December 25, 2022     March 27, 2022                     Beginning balance   $ 258     $ 345   Bad debt expense     114       186   Write offs and other     ( 84 )     ( 273 ) Ending balance   $ 288     $ 258     -12-       NOTE H – PREPAID EXPENSES AND OTHER CURRENT ASSETS   Prepaid expenses and other current assets consist of the following (in thousands):       December 25,     March 27,       2022     2022                     Real estate taxes   $ 151     $ 71   Insurance     306       327   Marketing     372       653   Other     280       390   Total prepaid expenses and other current assets   $ 1,109     $ 1,441       NOTE I – INTANGIBLE ASSET   The Company’s definite-lived intangible asset consists of trademarks, and the trade name and other intellectual property in connection with its Arthur Treacher’s co-branding agreements. Based upon review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is six years concluding in fiscal year 2028, and the intangible asset is subject to annual amortization. The Company performs an annual impairment test, or more frequently if events or changes in circumstances indicate that the intangible asset may be impaired. The Company tests for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements. Cash flow projections require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record an impairment charge in future periods and such impairment could be material.   There have been no significant events or changes in circumstances during the thirteen and thirty-nine week periods ended December 25, 2022 that would indicate that the carrying amount of the Company’s intangible asset may be impaired as of December 25, 2022.     NOTE J - 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.   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 impairment charges in future periods and such impairments could be material.   There have been no significant events or changes in circumstances during the thirteen and thirty-nine week periods ended December 25, 2022 that would indicate that the carrying amount of the Company’s long-lived assets may be impaired as of December 25, 2022.   -13-       NOTE K – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES   Accrued expenses and other current liabilities consist of the following (in thousands):                December 25,     March 27,       2022     2022   Payroll and other benefits   $ 2,590     $ 3,109   Accrued rebates     156       166   Rent and occupancy costs     118       90   Deferred revenue     -       876   Construction costs     -       58   Interest     1,131       2,968   Professional fees     71       129   Sales, use and other taxes     55       39   Corporate income taxes     1,094       103   Other     296       295   Total accrued expenses and other current liabilities   $ 5,511     $ 7,833       NOTE L – INCOME TAXES   The effective income tax rates for the thirteen weeks ended December 25, 2022 and December 26, 2021 were 27.3 % and 28.8 %, respectively. The effective income tax rate for the thirteen weeks ended December 25, 2022 reflected $ 1,223 of income tax expense recorded on $ 4,486 of pre-tax income. The effective income tax rate for the thirteen weeks ended December 26, 2021 reflected $ 860 of income tax expense recorded on $ 2,990 of pre-tax income.   The effective income tax rates for the thirty-nine weeks ended December 25, 2022 and December 26, 2021 were 27.1 % and 28.1 %, respectively. The effective income tax rate for the thirty-nine weeks ended December 25, 2022 reflected $ 6,093 of income tax expense recorded on $ 22,451 of pre-tax income. The effective income tax rate for the thirty-nine weeks ended December 26, 2021 reflected $ 4,477 of income tax expense recorded on $ 15,915 of pre-tax income.   The effective income tax rates for the thirteen and thirty-nine weeks ended December 25, 2022 and December 26, 2021 were higher than the United States statutory income tax rate primarily due to state and local taxes.   The amount of unrecognized tax benefits included in Other Liabilities at December 25, 2022 and March 27, 2022 was $ 437 and $ 403 , respectively, all of which would impact the Company’s effective tax rate, if recognized. As of December 25, 2022 and March 27, 2022, the Company had approximately $ 315 and $ 271 , respectively, accrued for the payment of interest and penalties in connection with unrecognized tax benefits.   On August 16, 2022, the United States enacted the Inflation Reduction Act. Among other provisions, this new law imposes a 1% excise tax on stock buybacks made after December 31, 2022, with certain exceptions including stock repurchases of less than $1,000 within a tax year. We are not expecting this new law to have a material effect on our consolidated financial statements.     NOTE M – 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-owned and franchised restaurants, including virtual kitchens, to distributors that resell our products to the foodservice industry through the Branded Product Program 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.   -14-     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 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 (expense) income, net, are managed centrally at the corporate level, and, accordingly, such items are not presented by segment since they are excluded from the measure of profitability reviewed by the CODM.   Operating segment information is as follows (in thousands):       Thirteen weeks ended     Thirty-nine weeks ended       December 25, 2022     December 26, 2021     December 25, 2022     December 26, 2021                                     Revenues                                 Branded Product Program   $ 16,661     $ 16,901     $ 61,862     $ 51,960   Product licensing     6,337       5,878       26,064       24,218   Restaurant operations     2,655       2,655       13,941       12,495   Corporate (1)     501       479       1,504       1,437   Total revenues   $ 26,154     $ 25,913     $ 103,371     $ 90,110                                     Income from operations                                 Branded Product Program   $ 2,451     $ 1,681     $ 7,003     $ 5,096   Product licensing     6,292       5,832       25,928       24,081   Restaurant operations     ( 238 )     ( 69 )     1,879       623   Corporate     ( 2,173 )     ( 1,831 )     ( 6,784 )     ( 6,046 ) Income from operations   $ 6,332     $ 5,613     $ 28,026     $ 23,754                                     Interest expense     ( 1,944 )     ( 2,650 )     ( 5,831 )     ( 7,951 ) Interest income     158       24       260       88   Other (expense) income, net     ( 60 )     3       ( 4 )     24   Income before provision for income taxes   $ 4,486     $ 2,990     $ 22,451     $ 15,915           (1) Represents advertising fund revenue.     NOTE N – SHARE-BASED COMPENSATION   Total share-based compensation during each of the thirteen and thirty-nine week periods ended December 25, 2022 and December 26, 2021 was $ 65 and $ 8 , and $ 81 and $ 66 , respectively. As of December 25, 2022, there was $ 3,409 of unamortized compensation expense related to share-based incentive awards. We expect to recognize this expense over approximately fifty-five months, which represents the weighted average remaining requisite service periods for such awards.   During the thirty-nine week period ended December 25, 2022, the Company granted 50,000 restricted stock units at a fair value of $ 67.59 per unit representing the closing price on the date of grant, which will be fully vested five years from the date of grant. The restricted stock units vest ratably over a five-year period as follows: 10,000 restricted stock units on December 8, 2023; 10,000 restricted stock units on December 8, 2024; 10,000 restricted stock units on December 8, 2025; 10,000 restricted stock units on December 8, 2026; and 10,000 restricted stock units on December 8, 2027.   The Company recognizes compensation cost for unvested stock-based incentive awards on a straight-line basis over the requisite service period. Compensation cost charged to expense under all stock-based incentive awards is as follows (in thousands):            Thirteen weeks ended     Thirty-nine weeks ended       December 25, 2022     December 26, 2021     December 25, 2022     December 26, 2021                                     Stock options   $ 8     $ 8     $ 24     $ 52   Restricted stock units     57       -       57       14   Total compensation cost   $ 65     $ 8     $ 81     $ 66     -15-     Stock options:   There were no new share-based awards granted during the thirty-nine week period ended December 25, 2022.   Transactions with respect to stock options for the thirty-nine weeks ended December 25, 2022 are as follows:               Weighted-     Weighted-     Aggregate               Average     Average     Intrinsic               Exercise     Remaining     Value       Shares     Price     Contractual Life     (in thousands)                                                                       Options outstanding at March 27, 2022     20,000     $ 79.20       2.92       -   Granted     -       -       -       -   Exercised     -       -       -       -   Options outstanding at December 25, 2022     20,000     $ 79.20       2.17       -                                     Options exercisable at December 25, 2022     12,500     $ 85.62       1.29       -     Restricted stock units:   Transactions with respect to restricted stock units for the thirty-nine weeks ended December 25, 2022 are as follows:               Weighted-               Average               Grant-date Fair value       Shares     Per share   Unvested restricted stock units at March 27, 2022     --     $ --   Granted     50,000     $ 67.59   Vested     --     $ -   Unvested restricted stock units at December 25, 2022     50,000     $ 67.59       NOTE O– STOCKHOLDERS’ EQUITY   1. Dividends   Effective June 10, 2022, the Company’s Board of Directors (the “Board”) declared its first quarterly cash dividend of $ 0.45 per share for fiscal 2023, which was paid on June 24, 2022 to stockholders of record as of the close of business on June 20, 2022.   Effective August 5, 2022, the Board declared its second quarterly cash dividend of $ 0.45 per share for fiscal 2023, which was paid on September 2, 2022 to stockholders of record as of the close of business on August 22, 2022.   Effective November 3, 2022, the Board declared its third quarterly cash dividend of $ 0.45 per share for fiscal 2023 which was paid on December 2, 2022 to stockholders of record as of the close of business on November 21, 2022.   Effective February 2, 2023, the Board authorized the increase of its regular dividend from $0.45 to $0.50 per quarter and declared its fourth quarterly cash dividend of $ 0.50 per share payable on March 3, 2023 to stockholders of record as of the close of business on February 21, 2023.   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. 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 Repurchase Program   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 December 25, 2022, Nathan’s had repurchased 1,101,884 shares at a cost of $ 39,000 under the sixth stock repurchase plan. At December 25, 2022 there were 98,116 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.   -16-     On June 14, 2022, the Board approved a 10b5-1 Plan (the “10b5-1 Plan”) which expired on September 13, 2022.   During the thirty-nine week period ended December 25, 2022, the Company repurchased in open market transactions 35,434 shares of the Company’s common stock at an average share price of $ 53.39 for a total cost of $ 1,892 under the 10b5-1 Plan.     NOTE P – LONG-TERM DEBT   Long-term debt consists of the following (in thousands):     December 25,     March 27,       2022     2022                     6.625 % Senior Secured Notes due 2025   $ 110,000     $ 110,000   Less: unamortized debt issuance costs     ( 1,436 )     ( 1,817 ) Long-term debt, net   $ 108,564     $ 108,183       NOTE Q – LEASES   The Company is party as lessee to various leases for its Company-owned 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 thirty-nine week periods ended December 25, 2022 and December 26, 2021 were as follows (in thousands):       Thirteen weeks ended     Thirty-nine weeks ended       December 25, 2022     December 26, 2021     December 25, 2022     December 26, 2021                                     Operating lease cost   $ 378     $ 378     $ 1,214     $ 1,223   Variable lease cost     396       57       1,246       1,023   Less: Sublease income, net     ( 22 )     ( 41 )     ( 64 )     ( 62 )                                   Total net lease cost   $ 752     $ 394     $ 2,396     $ 2,184     The following table presents the components of the net lease cost on the Consolidated Statement of Earnings for the thirteen and thirty-nine week periods ended December 25, 2022 and December 26, 2021 (in thousands):       Thirteen weeks ended     Thirty-nine weeks ended       December 25, 2022     December 26, 2021     December 25, 2022     December 26, 2021                                     Restaurant operating expenses   $ 589     $ 243     $ 1,908     $ 1,713   General and administrative expenses     185       192       552       533   Less: Other income, net     ( 22 )     ( 41 )     ( 64 )     ( 62 )                                   Total net lease cost   $ 752     $ 394     $ 2,396     $ 2,184     Cash paid for amounts included in the measurement of lease liabilities were as follows (in thousands):       Thirteen weeks ended     Thirty-nine weeks ended       December 25, 2022     December 26, 2021     December 25, 2022     December 26, 2021                                     Operating cash flows from operating leases   $ 216     $ 187     $ 950     $ 544     -17-     The weighted average remaining lease term and weighted average discount rate for operating leases as of December 25, 2022 were as follows:   Weighted average remaining lease term (years):     5.6             Weighted average discount rate:     8.868 %   Future lease commitments to be paid and received by the Company as of December 25, 2022 were as follows (in thousands):       Payments     Receipts               Operating Leases     Subleases     Net Leases                             Fiscal year:                         2023 (a)   $ 383     $ 42     $ 341   2024     1,782       271       1,511   2025     1,687       274       1,413   2026     1,717       278       1,439   2027     1,726       281       1,445   Thereafter     2,036       624       1,412   Total lease commitments   $ 9,331     $ 1,770     $ 7,561   Less: Amount representing interest     1,921                   Present value of lease liabilities (b)   $ 7,410                       (a) Represents future lease commitments to be paid and received by the Company for the remainder of the 2023 fiscal year. Amount does not include $ 1,216   of lease commitments paid and received by the Company for the thirty-nine week period ended December 25, 2022.         (b) The present value of minimum operating lease payments of $ 1,827 and $ 5,583   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 lease income for the thirteen and thirty-nine week periods ended December 25, 2022 and December 26, 2021 were as follows (in thousands):       Thirteen weeks ended     Thirty-nine weeks ended       December 25, 2022     December 26, 2021     December 25, 2022     December 26, 2021                                     Operating lease income, net   $ 22     $ 41     $ 64     $ 62       NOTE R – COMMITMENTS AND CONTINGENCIES   1. Commitments   On December 8, 2022, the Company amended its employment agreement with its Executive Chairman of the Board, Howard M. Lorber. Under the amendment, the term of the employment agreement was extended from December 31, 2022 to December 31, 2027. In addition, Mr. Lorber received a grant of 50,000 restricted stock units subject to vesting as provided in a Restricted Stock Unit Award Agreement between Mr. Lorber and the Company.   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.   -18-       NOTE S – SUBSEQUENT EVENTS   The Company evaluated subsequent events through the date the Consolidated Financial Statements were issued and filed with the SEC. There were no subsequent events that require recognition or disclosure.   -19-