NATHANS FAMOUS, INC. 10-Q

Item 1. Financial Statements. Nathan ’ s Famous, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 24, 2023 March 26, 2023 (Unaudited) ASSETS CURRENT ASSETS Cash $ 16,732 $ 29,861 Accounts and other receivables, net (Note H) 13,592 15,066 Inventories 554 539 Prepaid expenses and other current assets (Note I) 1,587 1,895 Total current assets 32,465 47,361 Property and equipment, net of accumulated depreciation of $ 11,637 and $ 10,871 , respectively 2,798 3,321 Operating lease assets (Note R) 6,393 6,421 Goodwill 95 95 Intangible asset, net (Note J) 739 869 Deferred income taxes 268 375 Other assets 148 168 Total assets $ 42,906 $ 58,610 LIABILITIES AND STOCKHOLDERS’ DEFICIT CURRENT LIABILITIES Accounts payable $ 4,681 $ 6,461 Accrued expenses and other current liabilities (Note L) 4,516 8,130 Current portion of operating lease liabilities (Note R) 1,880 1,782 Deferred franchise fees 338 336 Total current liabilities 11,415 16,709 Long-term debt, net of unamortized debt issuance costs of $ 507 and $ 952 , respectively (Note Q) 59,493 79,048 Operating lease liabilities (Note R) 5,169 5,406 Other liabilities 794 737 Deferred franchise fees 1,014 1,272 Total liabilities 77,885 103,172 COMMITMENTS AND CONTINGENCIES (Note S) STOCKHOLDERS’ DEFICIT Common stock, $ .01 par value; 30,000,000 shares authorized; 9,374,130 and 9,369,235 shares issued; and 4,084,615 and 4,079,720 shares outstanding at December 24, 2023 and March 26, 2023, respectively 94 94 Additional paid-in capital 62,749 62,565 Accumulated deficit ( 11,160 ) ( 20,559 ) Stockholders’ equity before treasury stock 51,683 42,100 Treasury stock, at cost, 5,289,515 shares at December 24, 2023 and March 26, 2023, respectively ( 86,662 ) ( 86,662 ) Total stockholders’ deficit ( 34,979 ) ( 44,562 ) Total liabilities and stockholders’ deficit $ 42,906 $ 58,610 The accompanying notes are an integral part of these consolidated financial statements. -3- Nathan ’ s Famous, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts) (Unaudited) Thirteen weeks ended Thirty-nine weeks ended December 24, 2023 December 25, 2022 December 24, 2023 December 25, 2022 REVENUES Sales $ 21,349 $ 18,340 $ 78,722 $ 72,535 License royalties 6,078 6,337 26,075 26,064 Franchise fees and royalties 955 976 3,321 3,268 Advertising fund revenue 508 501 1,501 1,504 Total revenues 28,890 26,154 109,619 103,371 COSTS AND EXPENSES Cost of sales 17,872 14,925 66,743 59,490 Restaurant operating expenses 896 932 3,279 3,217 Depreciation and amortization 268 303 896 837 General and administrative expenses 4,209 3,161 11,496 10,122 Advertising fund expense 508 501 1,501 1,679 Total costs and expenses 23,753 19,822 83,915 75,345 Income from operations 5,137 6,332 25,704 28,026 Interest expense ( 1,392 ) ( 1,944 ) ( 4,219 ) ( 5,831 ) Loss on debt extinguishment (Note Q) ( 169 ) - ( 169 ) - Interest income 138 158 350 260 Other income (expense), net 21 ( 60 ) 65 ( 4 ) Income before provision for income taxes 3,735 4,486 21,731 22,451 Provision for income taxes 1,128 1,223 6,025 6,093 Net income $ 2,607 $ 3,263 $ 15,706 $ 16,358 PER SHARE INFORMATION Weighted average shares used in computing income per share: Basic 4,080 4,080 4,080 4,092 Diluted 4,080 4,116 4,087 4,104 Income per share: Basic $ 0.64 $ 0.80 $ 3.85 $ 4.00 Diluted $ 0.64 $ 0.79 $ 3.84 $ 3.99 Dividends declared per share $ 0.50 $ 0.45 $ 1.50 $ 1.35 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 24, 2023 and December 25, 2022 (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 24, 2023 9,369,235 $ 94 $ 62,924 $ ( 11,727 ) 5,289,515 $ ( 86,662 ) $ ( 35,371 ) Shares issued in connection with share-based compensation plans 4,895 - - - - - - Withholding tax on net share settlement of share-based compensation plans - - ( 362 ) - - - ( 362 ) Dividends on common stock - - - ( 2,040 ) - - ( 2,040 ) Share-based compensation - - 187 - - - 187 Net income - - - 2,607 - - 2,607 Balance, December 24, 2023 9,374,130 $ 94 $ 62,749 $ ( 11,160 ) 5,289,515 $ ( 86,662 ) $ ( 34,979 ) 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 ) 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 24, 2023 and December 25, 2022 (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 26, 2023 9,369,235 $ 94 $ 62,565 $ ( 20,559 ) 5,289,515 $ ( 86,662 ) $ ( 44,562 ) Cumulative effect of adoption of ASU 2016-13 (Note B) - - - ( 187 ) - - ( 187 ) Shares issued in connection with share-based compensation plans 4,895 - - - - - - Withholding tax on net share settlement of share-based compensation plans - - ( 362 ) - - - ( 362 ) Dividends on common stock - - - ( 6,120 ) - - ( 6,120 ) Share-based compensation - - 546 - - - 546 Net income - - - 15,706 - - 15,706 Balance, December 24, 2023 9,374,130 $ 94 $ 62,749 $ ( 11,160 ) 5,289,515 $ ( 86,662 ) $ ( 34,979 ) 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 ) 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 24, 2023 and December 25, 2022 (in thousands) (Unaudited) December 24, 2023 December 25, 2022 Cash flows from operating activities: Net income $ 15,706 $ 16,358 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 896 837 Loss on debt extinguishment 169 - Loss on disposal of property and equipment - 87 Amortization of debt issuance costs 276 381 Share-based compensation expense 546 81 Provision for uncollectible accounts 75 114 Deferred income taxes 172 ( 2 ) Other non-cash items ( 111 ) ( 114 ) Changes in operating assets and liabilities: Accounts and other receivables, net 1,147 218 Inventories ( 15 ) 186 Prepaid expenses and other current assets 308 332 Other assets 20 20 Accounts payable, accrued expenses and other current liabilities ( 5,394 ) ( 4,856 ) Deferred franchise fees ( 256 ) ( 376 ) Other liabilities 57 63 Net cash provided by operating activities 13,596 13,329 Cash flows from investing activities: Insurance proceeds for property and equipment - 42 Purchase of property and equipment ( 243 ) ( 564 ) Net cash used in investing activities ( 243 ) ( 522 ) Cash flows from financing activities: Cash payments for extinguishment of debt ( 20,000 ) - Dividends paid to stockholders ( 6,120 ) ( 5,524 ) Repurchase of treasury stock - ( 1,892 ) Payments of withholding tax on net share settlement of share-based compensation plans ( 362 ) - Net cash used in financing activities ( 26,482 ) ( 7,416 ) Net (decrease) increase in cash and cash equivalents ( 13,129 ) 5,391 Cash and cash equivalents, beginning of period 29,861 50,063 Cash and cash equivalents, end of period $ 16,732 $ 55,454 Cash paid during the period for: Interest $ 5,477 $ 7,288 Income taxes $ 6,149 $ 5,041 Non-cash financing activity: Dividends declared per share $ 1.50 $ 1.35 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 24, 2023 (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 24, 2023 and December 25, 2022 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 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. The Company uses a 52-53 week fiscal year ending on the Sunday closest to March 31. The 2024 fiscal year will end on March 31, 2024 and will contain 53 weeks. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP 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 26, 2023 as filed with the SEC on June 8, 2023. Our significant interim accounting policies include the recognition of advertising fund expense in proportion to advertising fund 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 26, 2023. NOTE B – ADOPTION OF NEW ACCOUNTING STANDARD In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ” (“CECL”) which requires measurement and recognition of expected versus incurred losses for financial assets held. The Company adopted ASU 2016-13 as of March 27, 2023 (the first day of fiscal 2024) under the modified retrospective method. Accordingly, the consolidated financial statements have not been adjusted prior to the date of adoption. Upon adoption, the Company recorded an increase to the allowance for credit losses of $ 252 and a cumulative effect adjustment to retained earnings of $ 187 , net of $ 65 of income taxes. NOTE C – NEW ACCOUNTING STANDARDS NOT YET ADOPTED In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ” which provides guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment and contains other disclosure requirements. The purpose of the guidance is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective for fiscal years beginning December 15, 2023, and interim periods within fiscal years beginning December 15, 2024. For us, annual reporting requirements will be effective for our fiscal year 2025 beginning on April 1, 2024 and interim reporting requirements will be effective beginning with our fourth quarter of fiscal year 2025. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements. -8- In December 2023, the FASB issued ASU 2023-09, “ Income Taxes (Topic 740): Improvements to Income Tax Disclosures ” which updates income tax disclosure requirements primarily by requiring specific categories and greater disaggregation within the rate reconciliation table and disaggregation of income taxes paid, net of refunds, by jurisdiction. All entities are required to apply the guidance prospectively, with the option to apply it retrospectively. The guidance is effective for fiscal years beginning after December 15, 2024, which for us is our fiscal year 2026 beginning on March 31, 2025. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements. The Company does not believe that any recently issued, but not yet effective accounting standards, when adopted, will have a material effect on the accompanying consolidated financial statements. NOTE D – REVENUES The Company’s disaggregated revenues for the thirteen and thirty-nine weeks ended December 24, 2023 and December 25, 2022 are as follows (in thousands): Thirteen weeks ended Thirty-nine weeks ended December 24, 2023 December 25, 2022 December 24, 2023 December 25, 2022 Branded Products $ 19,688 $ 16,661 $ 68,210 $ 61,862 Company-owned restaurants 1,661 1,679 10,512 10,673 Total sales 21,349 18,340 78,722 72,535 License royalties 6,078 6,337 26,075 26,064 Franchise royalties 868 829 2,996 2,785 Franchise fees 87 147 325 483 Total franchise fees and royalties 955 976 3,321 3,268 Advertising fund revenue 508 501 1,501 1,504 Total revenues $ 28,890 $ 26,154 $ 109,619 $ 103,371 The following table disaggregates revenues by primary geographical market (in thousands): Thirteen weeks ended Thirty-nine weeks ended December 24, 2023 December 25, 2022 December 24, 2023 December 25, 2022 United States $ 27,644 $ 24,824 $ 104,970 $ 98,836 International 1,246 1,330 4,649 4,535 Total revenues $ 28,890 $ 26,154 $ 109,619 $ 103,371 Contract balances The following table provides information about contract liabilities from contracts with customers (in thousands): December 24, 2023 March 26, 2023 Deferred franchise fees (a) $ 1,352 $ 1,608 Deferred revenues, which are included in “Accrued expenses and other current liabilities” (b) $ 250 $ 1,406 (a) Deferred franchise fees of $ 338 and $ 1,014 as of December 24, 2023 and $ 336 and $ 1,272 as of March 26, 2023 are included in Deferred franchise fees – current and long term, respectively. (b) Includes $ 250 of deferred advertising fund revenue as of December 24, 2023 and $ 906 of deferred license royalties and $ 500 of deferred advertising fund revenue as of March 26, 2023. -9- Significant changes in deferred franchise fees are as follows (in thousands): Thirty-nine weeks ended December 24, 2023 December 25, 2022 Deferred franchise fees at beginning of period $ 1,608 $ 2,097 New deferrals due to cash received and other 69 107 Revenue recognized during the period ( 325 ) ( 483 ) Deferred franchise fees at end of period $ 1,352 $ 1,721 Significant changes in deferred revenues are as follows (in thousands): Thirty-nine weeks ended December 24, 2023 December 25, 2022 Deferred revenues at beginning of period $ 1,406 $ 876 New deferrals due to cash received and other 500 - Revenue recognized during the period ( 1,656 ) ( 876 ) Deferred revenues at end of period $ 250 $ - 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 2024 (a) $ 86 2025 336 2026 304 2027 191 2028 99 Thereafter 336 Total $ 1,352 (a) Represents franchise fees expected to be recognized for the remainder of the 2024 fiscal year, which includes international development fees expected to be recognized over the duration of one year or less. Amount does not include $ 325 of franchise fee revenue recognized for the thirty-nine weeks ended December 24, 2023. 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 E – INCOME PER SHARE Basic income per common share is calculated by dividing net income by the weighted average number of common shares outstanding and excludes any dilutive effect of share-based awards. 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 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 24, 2023 and December 25, 2022, respectively. Thirteen weeks Net Income Net Income Number of Shares Per Share 2023 2022 2023 2022 2023 2022 (in thousands) (in thousands) Basic EPS Basic calculation $ 2,607 $ 3,263 4,080 4,080 $ 0.64 $ 0.80 Effect of dilutive share-based awards - - - 36 - ( 0.01 ) Diluted EPS Diluted calculation $ 2,607 $ 3,263 4,080 4,116 $ 0.64 $ 0.79 Thirty-nine weeks Net Income Net Income Number of Shares Per Share 2023 2022 2023 2022 2023 2022 (in thousands) (in thousands) Basic EPS Basic calculation $ 15,706 $ 16,358 4,080 4,092 $ 3.85 $ 4.00 Effect of dilutive share-based awards - - 7 12 (0.01 ) ( 0.01 ) Diluted EPS Diluted calculation $ 15,706 $ 16,358 4,087 4,104 $ 3.84 $ 3.99 Options to purchase 20,000 shares of common stock in the thirteen and thirty-nine week periods ended December 24, 2023 and December 25, 2022 were excluded in the computation of diluted earnings per share because the exercise price exceeded the average market price of common shares during these periods. NOTE F – CASH AND CASH EQUIVALENTS The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents at December 24, 2023 and March 26, 2023. The Company’s cash balances principally consist of cash in bank and money market accounts. At December 24, 2023 and March 26, 2023, 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 G – FAIR VALUE MEASUREMENTS Nathan’s follows a three-level fair value hierarchy that prioritizes the inputs to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows: ● Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market ● Level 2 - inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability ● Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability -11- The face value and fair value of long-term debt as of December 24, 2023 and March 26, 2023 were as follows (in thousands): December 24, 2023 March 26, 2023 Face value Fair value Face value Fair value Long-term debt $ 60,000 $ 59,700 $ 80,000 $ 80,080 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 24, 2023, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities. NOTE H – ACCOUNTS AND OTHER RECEIVABLES, NET Accounts and other receivables, net, consist of the following (in thousands): December 24, March 26, 2023 2023 Branded product sales $ 10,211 $ 11,106 Franchise and license royalties 3,025 3,817 Other 709 623 13,945 15,546 Less: allowance for credit losses ( 353 ) ( 480 ) Accounts and other receivables, net $ 13,592 $ 15,066 The Company is exposed to credit losses through its trade accounts receivable. Trade 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 credit losses. Accounts that are outstanding longer than the contractual payment terms are generally considered past due. An allowance for credit losses is determined by pooling financial assets based on similar risk characteristics and delinquency status under an aging method at the measurement date. The risk characteristics the Company generally reviews when analyzing its trade accounts receivable pools include the type of receivable (for example, franchise receivable versus license receivable), payment terms, the Company’s previous loss history, current and future economic conditions and the length of time accounts receivables are past due. For those trade accounts receivable that no longer share similar risk characteristics with its pool and potential loss is evident, a specific reserve is recorded. For pooled trade account receivables, the Company develops its allowance for credit losses by applying a historical loss rate to each pool based on historical account write-off trends. The Company believes that the past five years provide a reasonable representation of the Company’s operations and performance through various business cycles, both favorable and unfavorable. The allowance for credit losses is then adjusted for current macroeconomic factors, including the effects of inflation and reasonable and supportable forecasts of future economic conditions. The Company provides for expected credit losses 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 credit losses. -12- Changes in the Company’s allowance for credit losses for the thirty-nine week period ended December 24, 2023 and the fiscal year ended March 26, 2023 are as follows (in thousands): December 24, 2023 March 26, 2023 Beginning balance $ 480 $ 258 Cumulative effect of adoption of ASU 2016-13 252 - Bad debt expense 75 457 Write offs and other ( 454 ) ( 235 ) Ending balance $ 353 $ 480 NOTE I – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following (in thousands): December 24, March 26, 2023 2023 Income taxes $ 499 $ 146 Real estate taxes 158 78 Insurance 244 389 Marketing 409 814 Other 277 468 Total prepaid expenses and other current assets $ 1,587 $ 1,895 NOTE J – 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 five 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 24, 2023 that would indicate that the carrying amount of the Company’s intangible asset may be impaired as of December 24, 2023. NOTE K - LONG LIVED ASSETS Long-lived assets on a restaurant-by-restaurant basis are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Long-lived assets include property, equipment and right-of-use assets for operating leases with finite useful lives. Assets are grouped at the individual restaurant level which represents the lowest level for which cash flows can be identified largely independent of the cash flows of other assets and liabilities. The Company generally considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. 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 24, 2023 that would indicate that the carrying amount of the Company’s long-lived assets may be impaired as of December 24, 2023. -13- NOTE L – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following (in thousands): December 24, March 26, 2023 2023 Payroll and other benefits $ 2,357 $ 3,410 Accrued rebates 748 698 Rent and occupancy costs 77 70 Deferred revenue 250 1,406 Interest 608 2,143 Professional fees 57 99 Sales, use and other taxes 71 76 Other 348 228 Total accrued expenses and other current liabilities $ 4,516 $ 8,130 NOTE M – INCOME TAXES The effective income tax rates for the thirteen weeks ended December 24, 2023 and December 25, 2022 were 30.2% and 27.3%, respectively. The effective income tax rate for the thirteen weeks ended December 24, 2023 reflected $1,128 of income tax expense recorded on $3,735 of pre-tax income. 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 rates for the thirty-nine weeks ended December 24, 2023 and December 25, 2022 were 27.7 % and 27.1 %, respectively. The effective income tax rate for the thirty-nine weeks ended December 24, 2023 reflected $ 6,025 of income tax expense recorded on $ 21,731 of pre-tax income. 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 rates for the thirteen and thirty-nine weeks ended December 24, 2023 and December 25, 2022 were higher than the United States statutory income tax rate primarily due to state and local taxes, as well as non-deductible executive compensation under the Internal Revenue Code Section 162(m). The amount of unrecognized tax benefits included in Other liabilities at December 24, 2023 and March 26, 2023 was $ 465 and $ 432 , respectively, all of which would impact the Company’s effective tax rate, if recognized. As of December 24, 2023 and March 26, 2023, the Company had approximately $ 343 and $ 305 , respectively, accrued for the payment of interest and penalties in connection with unrecognized tax benefits. NOTE N – SEGMENT INFORMATION Nathan’s considers itself to be a brand marketer of the Nathan’s Famous signature products to the foodservice industry pursuant to its various business structures. Nathan’s sells its products directly to consumers through its restaurant operations segment consisting of Company-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 supermarkets, club stores and grocery stores nationwide. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”) who regularly reviews operating results, 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, sausages, frozen crinkle-cut French fries and additional products through retail supermarkets, 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, loss on debt extinguishment, interest income, and other income (expense), 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 24, 2023 December 25, 2022 December 24, 2023 December 25, 2022 Revenues Branded Product Program $ 19,688 $ 16,661 $ 68,210 $ 61,862 Product licensing 6,078 6,337 26,075 26,064 Restaurant operations 2,616 2,655 13,833 13,941 Corporate (1) 508 501 1,501 1,504 Total revenues $ 28,890 $ 26,154 $ 109,619 $ 103,371 Income from operations Branded Product Program $ 2,421 $ 2,451 $ 5,769 $ 7,003 Product licensing 6,033 6,292 25,939 25,928 Restaurant operations ( 308 ) ( 238 ) 2,000 1,879 Corporate ( 3,009 ) ( 2,173 ) ( 8,004 ) ( 6,784 ) Income from operations $ 5,137 $ 6,332 $ 25,704 $ 28,026 Interest expense ( 1,392 ) ( 1,944 ) ( 4,219 ) ( 5,831 ) Loss on debt extinguishment ( 169 ) - ( 169 ) - Interest income 138 158 350 260 Other income (expense), net 21 ( 60 ) 65 ( 4 ) Income before provision for income taxes $ 3,735 $ 4,486 $ 21,731 $ 22,451 (1) Represents advertising fund revenue . NOTE O – SHARE-BASED COMPENSATION Total share-based compensation during each of the thirteen and thirty-nine week periods ended December 24, 2023 and December 25, 2022 was $ 187 and $ 65 , and $ 546 and $ 81 , respectively. Total share-based compensation is included in general and administrative expenses in our accompanying Consolidated Statements of Earnings. As of December 24, 2023, there was $ 2,848 of unamortized compensation expense related to share-based awards. We expect to recognize this expense over approximately forty-two months, which represents the weighted average remaining requisite service periods for such awards. The Company recognizes compensation cost for unvested share-based awards on a straight-line basis over the requisite service period. Compensation expense under all share-based awards is as follows (in thousands): Thirteen weeks ended Thirty-nine weeks ended December 24, 2023 December 25, 2022 December 24, 2023 December 25, 2022 Stock options $ 18 $ 8 $ 39 $ 24 Restricted stock units 169 57 507 57 Total compensation cost $ 187 $ 65 $ 546 $ 81 -15- Stock options: During the thirty-nine week period ended December 24, 2023, the Company granted options to purchase 10,000 shares at an exercise price of $ 78.00 per share, all of which expire five years from the date of grant. All such options vest ratably over a four-year period commencing August 11, 2023. The weighted average option fair value, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the thirty-nine week period ended December 24, 2023 are as follows: Weighted average option fair values $ 16.23 Expected life (years) 4.4 Interest rate 4.31 % Volatility 24.29 % Dividend yield 2.56 % The expected dividend yield is based on historical and projected dividend yields. The Company estimates volatility based primarily on historical monthly price changes of the Company’s stock equal to the expected life of the option. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on expected historical exercise patterns and employment termination behavior. Transactions with respect to stock options for the thirty-nine weeks ended December 24, 2023 are as follows: Weighted- Weighted- Aggregate Average Average Intrinsic Exercise Remaining Value Shares Price Contractual Life (in thousands) Options outstanding at March 26, 2023 20,000 $ 79.20 1.92 $ 40 Granted 10,000 $ 78.00 4.64 - Expired ( 10,000 ) $ 89.90 - - Options outstanding at December 24, 2023 20,000 $ 73.25 3.63 $ 88 Options exercisable at December 24, 2023 5,000 $ 68.50 2.63 $ 44 Restricted stock units: Transactions with respect to restricted stock units for the thirty-nine weeks ended December 24, 2023 are as follows: Weighted Average Grant-date Fair value Shares Per share Unvested restricted stock units at March 26, 2023 50,000 $ 67.59 Granted - $ - Vested ( 10,000 ) $ 67.59 Unvested restricted stock units at December 24, 2023 40,000 $ 67.59 -16- NOTE P– STOCKHOLDERS’ EQUITY 1. Dividends On June 28, 2023, September 1, 2023 and December 1, 2023, the Company paid quarterly dividends of $ 0.50 per share. Through December 24, 2023, the Company paid quarterly dividends aggregating $ 6,120 . Effective February 1, 2024, the Company’s Board of Directors (the “Board”) declared its fourth quarterly cash dividend of $ 0.50 per share for fiscal 2024 payable on March 1, 2024 to stockholders of record as of the close of business on February 20, 2024. Our ability to pay future dividends is limited by the terms of the Indenture with U.S. Bank Trust Company, 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 is 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 24, 2023, Nathan’s had repurchased 1,101,884 shares at a cost of $ 39,000 under the sixth stock repurchase plan. At December 24, 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. NOTE Q – LONG-TERM DEBT Long-term debt consists of the following (in thousands): December 24, March 26, 2023 2023 6.625% Senior Secured Notes due 2025 $ 60,000 $ 80,000 Less: unamortized debt issuance costs ( 507 ) ( 952 ) Long-term debt, net $ 59,493 $ 79,048 On November 14, 2023, the Company announced its intent to complete the partial redemption, in the principal amount of $ 20,000 , of the 2025 Notes in accordance with the terms and conditions of the Indenture. The redemption price of the redeemed notes was 100 % of the principal amount, plus accrued and unpaid interest from, and including November 1, 2023 to, but excluding the redemption date of December 19, 2023. On December 19, 2023, the Company completed the partial redemption by paying cash of $ 20,177 , inclusive of accrued interest of $ 177 , and recognized a loss on early extinguishment of $ 169 that reflected the write-off of a portion of previously recorded debt issuance costs. NOTE R – 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 24, 2023 and December 25, 2022 were as follows (in thousands): Thirteen weeks ended Thirty-nine weeks ended December 24, 2023 December 25, 2022 December 24, 2023 December 25, 2022 Operating lease cost $ 389 $ 378 $ 1,238 $ 1,214 Variable lease cost 424 396 1,311 1,246 Less: Sublease income, net ( 21 ) ( 22 ) ( 65 ) ( 64 ) Total net lease cost $ 792 $ 752 $ 2,484 $ 2,396 -17- 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 24, 2023 and December 25, 2022 (in thousands): Thirteen weeks ended Thirty-nine weeks ended December 24, 2023 December 25, 2022 December 24, 2023 December 25, 2022 Restaurant operating expenses $ 613 $ 589 $ 1,960 $ 1,908 General and administrative expenses 200 185 589 552 Less: Other income, net ( 21 ) ( 22 ) ( 65 ) ( 64 ) Total net lease cost $ 792 $ 752 $ 2,484 $ 2,396 Cash paid for amounts included in the measurement of lease liabilities for the thirteen and thirty-nine week periods ended December 24, 2023 and December 25, 2022 were as follows (in thousands): Thirteen weeks ended Thirty-nine weeks ended December 24, 2023 December 25, 2022 December 24, 2023 December 25, 2022 Operating cash flows from operating leases $ 234 $ 216 $ 1,019 $ 950 The weighted average remaining lease term and weighted average discount rate for operating leases as of December 24, 2023 were as follows: Weighted average remaining lease term (years): 4.7 Weighted average discount rate: 8.492 % Future lease commitments to be paid and received by the Company as of December 24, 2023 were as follows (in thousands): Payments Receipts Operating Leases Subleases Net Leases Fiscal year: 2024 (a) $ 387 $ 42 $ 345 2025 1,884 274 1,610 2026 1,919 278 1,641 2027 1,928 281 1,647 2028 1,778 129 1,649 Thereafter 602 495 107 Total lease commitments $ 8,498 $ 1,499 $ 6,999 Less: Amount representing interest ( 1,449 ) Present value of lease liabilities (b) $ 7,049 (a) Represents future lease commitments to be paid and received by the Company for the remainder of the 2024 fiscal year. Amount does not include $ 1,234 of lease commitments paid and received by the Company for the thirty-nine week period ended December 24, 2023. (b) The present value of minimum operating lease payments of $ 1,880 and $ 5,169 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively on the Consolidated Balance Sheet. -18- Company as lessor The components of net lease income for the thirteen and thirty-nine week periods ended December 24, 2023 and December 25, 2022 were as follows (in thousands): Thirteen weeks ended Thirty-nine weeks ended December 24, 2023 December 25, 2022 December 24, 2023 December 25, 2022 Operating lease income, net $ 21 $ 22 $ 65 $ 64 NOTE S – COMMITMENTS AND CONTINGENCIES 1. Contingencies The Company and its subsidiaries are from time to time involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include money damages and, in such event, could result in a material adverse impact on the Company’s results of operations for the period in which the ruling occurs. NOTE T – SUBSEQUENT EVENTS The Company evaluated subsequent events through the date the Consolidated Financial Statements were issued and filed with the SEC. There were no subsequent events that require recognition or disclosure. -19-