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; increases in the cost of food and paper products; the impact of price increases on customer visits; the status of our licensing and supply agreements, including our licensing revenue and overall profitability being substantially dependent on our agreement with Smithfield Foods, Inc.; the impact of our debt service and repayment obligations under the 2025 Notes (as defined below), including the effect on our ability to fund working capital, operations and make investments; economic (including inflationary pressures like those currently being experienced); weather (including the impact on sales at our restaurants particularly during the summer months), and changes in the price of beef and beef trimmings; our ability to pass on the cost of any price increases in beef and beef trimmings; legislative and business conditions; the collectability of receivables; changes in consumer tastes; the continued viability of Coney Island as a destination location for visitors; the ability 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 26, 2023, 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 fries, and a variety of other menu offerings. Our Company-owned and franchised restaurants 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, 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 25, 2023, our restaurant system, excluding virtual kitchens, consisted of 235 locations, including 121 Branded Menu Program locations, and four Company-owned restaurants (including one seasonal unit), located in 17 states, and 13 foreign countries (including 2 Branded Menu Program locations in Ukraine which are temporarily closed as a result of the Russia-Ukraine conflict.) Our virtual kitchens in operation consisted of 263 locations in 19 states and 6 foreign countries.   At June 26, 2022, our restaurant system, excluding virtual kitchens, consisted of 238 locations, including 121 Branded Menu Program locations, and four Company-owned restaurants (including one seasonal unit), located in 18 states, and 12 foreign countries. Our virtual kitchens in operation consisted of 196 locations in 15 states and 5 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 restaurants and franchised locations, including virtual kitchens. The primary drivers of our growth have been our Licensing and Branded Product Programs which have been the largest contributors to the Company’s revenues and profits.   While we do not expect to significantly increase the number of Company-owned restaurants, 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 business climate.   As described in our Annual Report on Form 10-K for the year ended March 26, 2023, our future results could be materially impacted by many developments including our dependence on Smithfield Foods, Inc. as our principal supplier and the dependence of our licensing revenue and overall profitability on our agreement with Smithfield Foods, Inc. 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 a 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. Subsequently, on March 21, 2023, the Company redeemed an additional $30,000,000 in aggregate principal amount of its 2025 Notes. $80,000,000 of the 2025 Notes were outstanding as of June 25, 2023. On May 1, 2023, the Company paid its first semi-annual interest payment of fiscal 2024.   Our future results may be impacted by our interest obligations under the 2025 Notes. As a result of the outstanding balance of the 2025 Notes, the Company expects to incur annual interest expense of $5,300,000 and annual amortization costs of approximately $369,000.   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.”   Recent events   Inflationary Factors   The Company continues to experience rising labor costs, as well as higher commodity prices, including beef and beef trimmings. We expect this trend to continue throughout the remainder of fiscal year 2024. In general, we have been able to offset cost increases resulting from inflation by increasing prices and adjusting product mix. We continue to monitor these inflationary pressures and will continue to implement mitigation plans as needed. Inherent volatility in commodity markets, including beef and beef trimmings, could have a significant impact on our results of operations. Delays in implementing price increases, competitive pressures, consumer spending levels and other factors may limit our ability to implement further price increases in the future.   -19-     COVID-19 Pandemic   The COVID-19 pandemic had an adverse effect on the Company and the economy. The impacts were most severe in fiscal 2021, improved in fiscal 2022, and had a minimal effect in fiscal 2023. While the disruptions to our business from the COVID-19 pandemic have subsided, the resurgence of COVID-19 or variants, as well as an outbreak of other widespread health epidemics or pandemics, may disrupt our operations in the future, including employee absences and changes in the availability and cost of labor.   Critical Accounting Policies and Estimates   As discussed in our Form 10-K for the fiscal year ended March 26, 2023, 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 (“US GAAP”). 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). As discussed in Note B, the Company adopted ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ” effective March 27, 2023. There have been no other significant changes to the Company’s accounting policies subsequent to March 26, 2023.   Adoption of New Accounting Standard             Please refer to Note B of the preceding consolidated financial statements for our discussion of the Adoption of the New Accounting Standard.   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 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 25, 2023     June 26, 2022       (unaudited)   Net income   $ 7,388     $ 7,137   Interest expense     1,414       1,944   Provision for income taxes     2,744       2,743   Depreciation and amortization     313       233   EBITDA     11,859       12,057                     Share-based compensation     177       8   Adjusted EBITDA   $ 12,036     $ 12,065     Seasonality   Our routine business pattern is affected by seasonal fluctuations, including the effects of weather and economic conditions. Historically, sales from our Company-owned restaurants, principally at Coney Island, and franchised restaurants from which franchised royalties are earned and the Company’s earnings have been highest during our first two fiscal quarters, with the fourth quarter representing the slowest period. Additionally, revenues from our Branded Product Program, Branded Menu Program and retail licensing program generally follow similar season fluctuations, although not to the same degree. Working capital requirements may vary throughout the year to support these seasonal patterns.   Due to the above seasonal factors, as well as inflationary pressures, our results of operations for the thirteen weeks ended June 25, 2023 are not necessarily indicative of those for a full fiscal year.   Results of Operations                    Thirteen weeks ended June 25, 2023 compared to thirteen weeks ended June 26, 2022   Revenues   Total revenues increased by 6% to $41,985,000 for the thirteen weeks ended June 25, 2023 (“fiscal 2024 period”) as compared to $39,720,000 for the thirteen weeks ended June 26, 2022 (“fiscal 2023 period”).   Total sales increased by 7% to $28,828,000 for the fiscal 2024 period as compared to $26,894,000 for the fiscal 2023 period which included foodservice sales from the Branded Product Program increasing by 9% to $25,170,000 for the fiscal 2024 period as compared to sales of $23,171,000 in the fiscal 2023 period. During the fiscal 2024 period, the volume of hot dogs sold in the Branded Product Program increased by approximately 2% as compared to the fiscal 2023 period. Our average selling prices, which are partially correlated to the beef markets, increased by approximately 5% as compared to the fiscal 2023 period.   Total Company-owned restaurant sales decreased by 2% to $3,658,000 during the fiscal 2024 period as compared to $3,723,000 during the fiscal 2023 period. The decrease was primarily due to lower sales at our Coney Island locations as a result of unfavorable weather conditions during June 2023.   License royalties increased by 3% to $11,658,000 in the fiscal 2024 period as compared to $11,314,000 in the fiscal 2023 period. Total royalties earned on sales of hot dogs from our license agreement with Smithfield Foods, Inc. at retail and foodservice, increased 3% to $10,796,000 in the fiscal 2024 period as compared to $10,450,000 in the fiscal 2023 period. The increase is due to a 3% increase in retail volume, as well as a 0.4% increase in average net selling price as compared to the fiscal 2023 period. The foodservice business earned higher royalties of $54,000 as compared to the fiscal 2023 period. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products decreased by $2,000 during the fiscal 2024 period as compared to the fiscal 2023 period primarily due to lower royalties earned on sales of pickles, offset by higher royalties earned on sales of cocktail franks and mozzarella sticks.   -21-     Franchise fees and royalties were $1,075,000 in the fiscal 2024 period as compared to $1,093,000 in the fiscal 2023 period. Total royalties were $980,000 in the fiscal 2024 period as compared to $901,000 in the fiscal 2023 period. Royalties earned under the Branded Menu Program were $181,000 in the fiscal 2024 period as compared to $140,000 in the fiscal 2023 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 $32,000 in the fiscal 2024 period as compared to $44,000 in the fiscal 2023 period. Traditional franchise royalties were $767,000 in the fiscal 2024 period as compared to $717,000 in the fiscal 2023 period. Franchise restaurant sales increased to $17,263,000 in the fiscal 2024 period as compared to $15,946,000 in the fiscal 2023 period primarily due to higher sales at airport locations; highway travel plazas; shopping malls and movie theaters. Comparable domestic franchise sales (consisting of 63 Nathan’s franchised restaurants, excluding sales under the Branded Menu Program) were $14,481,000 in the fiscal 2024 period as compared to $13,250,000 in the fiscal 2023 period.            At June 25, 2023, 235 franchised locations, including domestic, international and Branded Menu Program units were operating as compared to 238 franchised locations, including domestic, international and Branded Menu Program units at June 26, 2022. Total franchise fee income was $95,000 in the fiscal 2024 period as compared to $192,000 in the fiscal 2023 period. Domestic franchise fee income was $27,000 in the fiscal 2024 period as compared to $29,000 in the fiscal 2023 period. International franchise fee income was $60,000 in the fiscal 2024 period as compared to $70,000 during the fiscal 2023 period.   We recognized $8,000 and $93,000 in forfeited fees in the fiscal 2024 and fiscal 2023 periods, respectively. During the fiscal 2024 period, seven franchise locations opened and four franchise locations closed. Additionally, four virtual kitchens opened. During the fiscal 2023 period, three franchise locations opened and four franchise locations closed. Additionally, 15 virtual kitchens opened.   Advertising fund revenue, after eliminating Company contributions, was $424,000 in the fiscal 2024 period as compared to $419,000 in the fiscal 2023 period.   Costs and Expenses   Overall, our cost of sales increased by 9% to $24,684,000 in the fiscal 2024 period as compared to $22,667,000 in the fiscal 2023 period. Our gross profit (representing the difference between sales and cost of sales) decreased to $4,144,000 or 14% of sales during the fiscal 2024 period as compared to $4,227,000 or 16% of sales during the fiscal 2023 period.   Cost of sales in the Branded Product Program increased by 11% to $22,568,000 in the fiscal 2024 period as compared to $20,400,000 in the fiscal 2023 period, primarily due to the 2% increase in the volume of hot dogs sold as discussed above, as well as an 8% increase in the average cost per pound of our hot dogs. We continue to experience pricing pressures on commodities, including beef and beef trimmings.   We did not make any purchase commitments of beef during the fiscal 2024 and 2023 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 2024 period was $2,116,000 or 58% of restaurant sales, as compared to $2,267,000 or 61% of restaurant sales in the fiscal 2023 period. The decrease in cost of sales during the fiscal 2024 period was primarily due to the 2% decrease in sales discussed above. Food and paper costs as a percentage of Company-owned restaurant sales were 28%, down from 29% in the comparable period of the prior year. Labor and related expenses as a percentage of Company-owned restaurant sales were 30%, down from 32% in the comparable period in the prior year due to tighter management and staffing stabilization.   Restaurant operating expenses were $1,043,000 in the fiscal 2024 period as compared to $1,032,000 in the fiscal 2023 period. We incurred higher occupancy expenses of $8,000 and higher contract maintenance costs of $6,000.   Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, was $313,000 in the fiscal 2024 period as compared to $233,000 in the fiscal 2023 period.   General and administrative expenses increased by $469,000 or 13% to $4,058,000 in the fiscal 2024 period as compared to $3,589,000 in the fiscal 2023 period. The increase in general and administrative expenses was primarily attributable to higher incentive compensation expenses of $129,000, higher share-based compensation expense of $169,000 and higher professional fees of $108,000.   Advertising fund expense, after eliminating Company contributions, was $424,000 in the fiscal 2024 period as compared to $419,000 in the fiscal 2023 period.   -22-     Other Items   Interest expense of $1,414,000 in the fiscal 2024 period represented interest expense of $1,322,000 on the 2025 Notes and amortization of debt issuance costs of $92,000.   Interest expense of $1,944,000 in the fiscal 2023 period represented interest expense of $1,817,000 on the 2025 Notes and amortization of debt issuance costs of $127,000.   The reduction in interest expense of $530,000 is due to the reduction in the outstanding balance of the Company’s 2025 Notes as a result of the $30,000,000 partial redemption completed in March 2023.   Interest income of $62,000 in the fiscal 2024 period represented amounts earned by the Company on its interest bearing bank and money market accounts, as compared to $22,000 in the fiscal 2023 period.   Other income, net was $21,000 and $22,000 in the fiscal 2024 and fiscal 2023 periods, respectively, which primarily relates to sublease income from a franchised restaurant.   Provision for Income Taxes   The effective income tax rate for the fiscal 2024 period was 27.1% as compared to 27.8% in the fiscal 2023 period. The effective income tax rate for the fiscal 2024 period reflected income tax expense of $2,744,000 recorded on $10,132,000 of pre-tax income. The effective income tax rate for the fiscal 2023 period reflected income tax expense of $2,743,000 recorded on $9,880,000 of pre-tax income. The effective tax rates are higher than the U.S. Federal statutory rates primarily due to state and local taxes.   The amount of unrecognized tax benefits at June 25, 2023 was $446,000 all of which would impact the Company’s effective tax rate, if recognized. As of June 25, 2023, the Company had approximately $321,000 accrued for the payment of interest and penalties in conjunction with unrecognized tax benefits.   Nathan’s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by up to $19,000 during the fiscal year ending March 31, 2024 due primarily to the lapse of statutes of limitations which would favorably impact the Company’s effective tax rate, although no assurances can be given in this regard.   Off-Balance Sheet Arrangements   At June 25, 2023 and June 26, 2022, 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 at June 25, 2023 aggregated $31,936,000, a $2,075,000 increase during the fiscal 2024 period as compared to cash of $29,861,000 at March 26, 2023. Net working capital increased to $36,157,000 in the fiscal 2024 period from $30,652,000 at March 26, 2023. On May 1, 2023, we paid our first semi-annual interest payment of $2,650,000 for the fiscal 2024 period. We paid our first quarterly cash dividend of fiscal 2024 of $2,040,000 on June 28, 2023.   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 $2,650,000. The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025.   -23-     Cash provided by operations of $2,148,000 in the fiscal 2024 period is primarily attributable to net income of $7,388,000 in addition to other non-cash operating items of $547,000, offset by changes in other operating assets and liabilities of $5,787,000. Non-cash operating expenses consist principally of depreciation and amortization of $313,000, amortization of debt issuance costs of $92,000, share-based compensation expense of $177,000, and a provision for uncollectible accounts of $81,000. In the fiscal 2024 period, accounts and other receivables increased by $6,232,000 due primarily to higher Branded Product Program receivables of $3,018,000, higher franchise and license royalties receivable of $2,572,000, and higher receivables due to the Advertising Fund of $736,000 . Prepaid expenses and other current assets decreased by $534,000 due principally to a decrease in prepaid income taxes of $146,000 and a decrease in prepaid marketing and other expenses of $434,000. Accounts payable, accrued expenses and other current liabilities increased by $156,000 due principally to an increase in accounts payable 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 of $95,000 as a result of higher sales. Additionally, there was an increase in accrued corporate taxes of $2,540,000 due to the timing of estimated tax payments and higher earnings. Offsetting these increases was a reduction in accrued payroll and other benefits of $2,100,000 resulting from the payment of year-end fiscal 2023 compensation; a reduction in accrued interest expense of $1,329,000 resulting from our May 2023 semi-annual interest payment on our 2025 Notes; and earned deferred revenue of $609,000.   Cash used in investing activities was $73,000 in the fiscal 2024 period primarily in connection with capital expenditures incurred for our Branded Product Program and various computer equipment.   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 25, 2023, Nathan’s has repurchased 1,101,884 shares at a cost of $39,000,000 under the sixth stock repurchase plan. At June 25, 2023, 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. There were no stock repurchases during the fiscal 2024 period.   As discussed above, we had cash at June 25, 2023 aggregating $31,936,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. The Company paid its first quarterly cash dividend of fiscal 2024 of $2,040,000 on June 28, 2023.   Effective August 3, 2023, the Company declared its second quarter fiscal 2024 dividend of $0.50 per common share to stockholders of record as of the close of business on August 21, 2023, which is payable on September 1, 2023.   If the Company pays regular quarterly cash dividends for the remainder of fiscal 2024 at the same rate as declared in the first quarter of fiscal 2024, the Company’s total cash requirement for dividends for all of fiscal 2024 would be approximately $8,160,000 based on the number of shares of common stock outstanding at July 28, 2023. 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 may from time to time seek to redeem additional portions of our 2025 Notes, through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on market conditions, our liquidity requirements, and other factors.   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 31, 2024, we will be required to make interest payments of $5,300,000, of which $2,650,000 has been made on May 1, 2023.   Management believes that available cash 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 25, 2023, 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.   -24-     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 26, 2023.                              Inflationary Impact   Inflationary pressures on labor and rising commodity prices, most notably for beef and beef trimmings, have impacted our consolidated results of operations during the fiscal 2024 period, and this trend may continue through the remainder of fiscal year 2024.                     Our average cost of hot dogs during the fiscal 2024 period was approximately 8% higher than during the fiscal 2023 period. 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 an adverse effect on our results of operations. This impact will depend on our ability to manage such volatility through price increases and product mix.   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, 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.   New York State recently passed legislation which will increase the minimum wage on January 1, 2024 to $16.00 in New York City, Long Island and Westchester followed by $0.50 annual increases in 2025 and 2026. Further, beginning in 2027, the minimum wage across New York State will increase annually according to the Consumer Price Index.   We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024. 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. 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 believe that these increases in the minimum wage and other changes in employment laws 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 health care, 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, competitive pressures, consumer spending levels and other factors 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 26, 2023.   -25-