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 1934, as amended, that involve risks and uncertainties. Words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, and similar expressions identify forward-looking statements, which are based on the current belief of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially include but are not limited to: the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement or the failure to satisfy the closing conditions; the possibility that the consummation of the proposed transaction is delayed or does not occur, including the failure of Nathan's stockholders to approve the proposed transaction; uncertainty as to whether the parties will be able to complete the proposed transaction on the terms set forth in the Merger Agreement; uncertainty regarding the timing of the receipt of required regulatory approvals for the proposed transaction and the possibility that the parties may be required to accept conditions that could reduce or eliminate the anticipated benefits of the proposed transaction as a condition to obtaining regulatory approvals or that the required regulatory approvals might not be obtained at all; the outcome of any legal proceedings that have been or may be instituted against the parties or others following announcement of the transactions contemplated by the Merger Agreement; challenges, disruptions and costs of integrating and achieving anticipated synergies, or that such synergies will take longer to realize than expected, risks that the proposed transaction and other transactions contemplated by the Merger Agreement disrupt current plans and operations that may harm Nathan's businesses; the amount of any costs, fees, expenses, impairments and charges related to the proposed transaction, and uncertainty as to the effects of the announcement or pendency of the proposed transaction on the market price of Nathan's common stock and/or on its financial performance; the impact of disease epidemics such as 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 our credit facility, including the effect on our ability to fund working capital, operations and make new investments; economic (including inflationary pressures like those currently being experienced); weather (including the impact on 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; potential changes in U.S. income tax or tariff policies; 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 employer” 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 and e coli; and the risk factors reported from time to time in the Company’s SEC reports. The Company does not undertake any obligation to update such forward-looking statements. The following discussion and analysis is intended to help you understand us, our operations and our financial performance. It should be read in conjunction with our condensed consolidated financial statements and the accompanying notes, which are included elsewhere in this report. 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; frozen crinkle-cut French fries and additional products to retail customers through supermarkets, grocery channels and club stores 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. -21- 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, grocery stores 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 28, 2026, our restaurant system, excluding virtual kitchens, consisted of 223 locations, including 111 Branded Menu Program locations, as well as four Company-owned restaurants (including one seasonal unit), located in 19 states, and 11 foreign countries. At June 29, 2025, our restaurant system, excluding virtual kitchens, consisted of 225 locations, including 115 Branded Menu Program locations, as well as four Company-owned restaurants (including one seasonal unit), located in 19 states, and 12 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 29, 2026, 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 and our proposed transaction with Smithfield Foods, Inc. under the Merger Agreement. 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 Merger Agreement As previously announced, on January 20, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Smithfield Foods, Inc., a Virginia corporation (“Buyer”) and Boardwalk Merger Sub, Inc. a Delaware corporation and wholly owned subsidiary of Buyer (“Merger Sub”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof and in accordance with the General Corporation Law of the State of Delaware (“DGCL”), Merger Sub shall merge with and into the Company (the “Merger,” and the effective time of the Merger, the “Effective Time”). As a result of the Merger, at the Effective Time, the separate corporate existence of Merger Sub shall cease, the Company shall continue as the surviving corporation in the Merger (the “Surviving Corporation”) and the Surviving Corporation shall become a wholly owned subsidiary of Buyer. After the Merger, the Company will cease to be publicly traded. Completion of the transaction remains contingent upon meeting several conditions specified in the Merger Agreement which include securing approval from the holders of a majority of Nathan’s outstanding stock, obtaining clearance from the Committee on Foreign Investment in the United States (CFIUS), and fulfilling other closing requirements. We expect the transaction to close in the second half of 2026. For more information regarding the Merger, see NOTE T – MERGER to the accompanying condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. -22- Inflationary Factors Inflationary pressures negatively impacted our earnings during the first three months of fiscal 2027, and we anticipate continued inflationary pressures on commodity prices, including beef and beef trimmings, as well as rising labor costs during the remainder of fiscal 2027. In general, we have been able to offset some of these cost increases resulting from inflation through various actions, such as increasing prices at our Company-owned restaurants and entering into sales agreements with our Branded Product Program customers that are correlated to our cost of beef and beef trimmings. We continue to monitor these inflationary pressures and may need to adjust our prices further to mitigate the impact of these inflationary pressures. 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, a decline in consumer spending levels and other factors may limit our ability to recover such cost increases. Critical Accounting Policies and Estimates As discussed in our Form 10-K for the fiscal year ended March 29, 2026, the discussion and analysis of our financial condition and results of operations are based upon our condensed 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 condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those condensed consolidated financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting estimates relate to impairment of intangible assets; impairment of long-lived assets; current expected credit losses; customer rebates and income taxes (including uncertain tax positions). During the thirteen week period ended June 28, 2026, there have been no changes to our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended March 29, 2026. New Accounting Standards Not Yet Adopted Please refer to NOTE B – NEW ACCOUNTING STANDARDS NOT YET ADOPTED in the accompanying condensed consolidated financial statements for our discussion of New Accounting Standards Not Yet Adopted. EBITDA and Adjusted EBITDA The Company believes that EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure. Reconciliation of GAAP and Non-GAAP Measures The following is provided to supplement certain Non-GAAP financial measures. In addition to disclosing results that are determined in accordance with 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 (i) non-recurring transaction costs consisting primarily of professional fees incurred in connection with the Merger Agreement and (ii) 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. -23- The following is a reconciliation of net income to EBITDA and Adjusted EBITDA (in thousands): Thirteen weeks ended June 28, 2026 June 29, 2025 (unaudited) Net income $ 8,829 $ 8,928 Interest expense 638 758 Provision for income taxes 3,334 3,329 Depreciation and amortization 239 228 EBITDA 13,040 13,243 Transaction costs (1) 295 - Share-based compensation 280 288 Adjusted EBITDA $ 13,615 $ 13,531 (1) Consists principally of legal costs incurred in connection with the transaction contemplated by the Merger Agreement. 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. Routine seasonality is primarily attributable to weather conditions in the marketplace for our Company-owned and franchised restaurants, which are principally located in the Northeast of the United States. Additionally, revenues from our Branded Product Program, Branded Menu Program and Product licensing program generally follow similar seasonal fluctuations, although not to the same degree. We expect that this seasonality will continue. 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 28, 2026 are not necessarily indicative of those for any other quarter or for a full fiscal year. Results of Operations Thirteen weeks ended June 28, 2026 compared to thirteen weeks ended June 29, 2025 Revenues Total revenues increased by approximately 15% to $54,062,000 for the thirteen weeks ended June 28, 2026 (“fiscal 2027 period”) as compared to $46,998,000 for the thirteen weeks ended June 29, 2025 (“fiscal 2026 period”). The increase in total revenues was primarily driven by pricing actions within the Branded Product Program and modest increases in certain license royalty streams, which were partially offset by lower franchise fees and royalties and Company-owned restaurant revenues. Foodservice sales from the Branded Product Program increased by approximately 20% to $35,039,000 during the fiscal 2027 period as compared to $29,075,000 for the fiscal 2026 period. During the fiscal 2027 period, the total volume of hot dogs sold in the Branded Product Program increased by approximately 8% as compared to the fiscal 2026 period. Our average selling price, which is partially correlated to the beef markets, increased by approximately 17% as compared to the fiscal 2026 period. Total Company-owned restaurant sales decreased by approximately 1% to $3,951,000 during the fiscal 2027 period as compared to $3,986,000 during the fiscal 2026 period. Restaurant sales were primarily impacted by a 1% decline in average check. -24- License royalties increased by approximately 10% to $13,587,000 in the fiscal 2027 period as compared to $12,381,000 in the fiscal 2026 period. Total royalties earned on sales of hot dogs from our license agreement with Smithfield Foods, Inc. at retail and foodservice, increased by approximately 10% to $12,617,000 in the fiscal 2027 period as compared to $11,464,000 in the fiscal 2026 period. The increase is due to a 3% increase in retail volume, as well as a 7% increase in net selling price. The royalties earned on the foodservice business decreased by $47,000 as compared to the fiscal 2026 period. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $53,000 during the fiscal 2027 period as compared to the fiscal 2026 period primarily due to higher royalties earned on sales of proprietary spices and beef sticks offset, in part, by lower royalties on franks-in-a-blanket, mozzarella sticks and other hors d’oeuvres. Franchise fees and royalties were $1,074,000 in the fiscal 2027 period as compared to $1,129,000 in the fiscal 2026 period. Total royalties were $1,020,000 in the fiscal 2027 period as compared to $1,001,000 in the fiscal 2026 period. Royalties earned under the Branded Menu Program were $179,000 in the fiscal 2027 period as compared to $176,000 in the fiscal 2026 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 $48,000 in the fiscal 2027 period as compared to $15,000 in the fiscal 2026 period. Traditional franchise royalties were $793,000 in the fiscal 2027 period as compared to $810,000 in the fiscal 2026 period. Franchise restaurant sales decreased to $18,204,000 in the fiscal 2027 period as compared to $18,444,000 in the fiscal 2026 period principally due to lower sales at mall locations and casino locations, primarily in Las Vegas, Nevada, offset, in part, by higher sales at travel plazas and airports. Comparable domestic franchise sales (consisting of 60 Nathan’s franchised restaurants, excluding sales under the Branded Menu Program) were $14,623,000 in the fiscal 2027 period as compared to $14,417,000 in the fiscal 2026 period. At June 28, 2026, 223 franchised locations, including domestic, international and Branded Menu Program units were operating as compared to 225 franchised locations, including domestic, international and Branded Menu Program units at June 29, 2025. Total franchise fee income was $54,000 in the fiscal 2027 period as compared to $128,000 in the fiscal 2026 period. Domestic franchise fee income was $27,000 in the fiscal 2027 period as compared to $23,000 in the fiscal 2026 period. International franchise fee income was $27,000 in the fiscal 2027 period as compared to $54,000 in the fiscal 2026 period. We recognized $51,000 in forfeited fees in the fiscal 2026 period. During the fiscal 2027 period, four franchise locations opened and two franchise locations closed. During the fiscal 2026 period, eight franchise locations opened and thirteen franchise locations closed. Advertising fund revenue, after eliminating Company contributions, was $411,000 in the fiscal 2027 period as compared to $427,000 in the fiscal 2026 period. Costs and Expenses Overall, our cost of sales increased by approximately 24% to $35,205,000 in the fiscal 2027 period as compared to $28,423,000 in the fiscal 2026 period. Our gross profit (calculated as total Branded Products sales plus total Company-owned restaurant sales less cost of sales) was $3,785,000 during the fiscal 2027 period as compared to $4,638,000 during the fiscal 2026 period. Cost of sales in the Branded Product Program increased by approximately 26% to $33,087,000 in the fiscal 2027 period as compared to $26,233,000 in the fiscal 2026 period, primarily due to an 8% increase in the volume of hot dogs sold, as well as a 22% increase in the average cost per pound of our hot dogs. A shrinking supply of cattle due to drought conditions and high input costs, combined with strong industry demand and inflationary pressures have resulted in higher commodity prices, including beef and beef trimmings, contributing to the increase in the average cost per pound of our hot dogs. We did not make any purchase commitments of beef during the fiscal 2027 and 2026 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 2027 period was $2,118,000 or 54% of restaurant sales, as compared to $2,190,000 or 55% of restaurant sales during the fiscal 2026 period. Food and paper costs as a percentage of Company-owned restaurant sales were 24%, which was comparable to the prior year. Labor and related expenses as a percentage of Company-owned restaurant sales were 29%, down from 31% primarily as a result of tighter management and staffing stabilization. Restaurant operating expenses were $1,216,000 in the fiscal 2027 period as compared to $1,179,000 in the fiscal 2026 period. The increase is due primarily to higher repairs and maintenance expense of $14,000 and higher utilities expense of $36,000 which were offset, in part, by lower credit card processing fees of $29,000. As a percentage of Company-owned restaurant sales, restaurant operating expenses were 30.8% in the fiscal 2027 period as compared to 29.6% in the fiscal 2026 period. Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment and the amortization of a definite-lived intangible asset, was $239,000 in the fiscal 2027 period as compared to $228,000 in the fiscal 2026 period. -25- General and administrative expenses increased by approximately 9% to $4,323,000 in the fiscal 2027 period as compared to $3,950,000 in the fiscal 2026 period. The increase in general and administrative expenses was primarily attributable to higher professional fees of $288,000 due primarily to our pending acquisition with Buyer pursuant to the Merger Agreement. Refer to NOTE T – MERGER in the accompanying condensed consolidated financial statements above for further information. Advertising fund expense, after eliminating Company contributions, was $411,000 in the fiscal 2027 period as compared to $427,000 in the fiscal 2026 period. Other Items Interest expense of $638,000 in the fiscal 2027 period represented interest expense of $620,000 on the Secured Overnight Financing Rate (“SOFR”) Term Loan borrowings and amortization of debt issuance costs of $18,000. Interest expense of $758,000 in the fiscal 2026 period represented interest expense of $739,000 on the SOFR Term Loan borrowings and amortization of debt issuance costs of $19,000. The reduction in interest expense of $120,000 is due primarily to lower outstanding long-term debt and a lower interest rate associated with our Credit Agreement. Interest and dividend income of $133,000 in the fiscal 2027 period represented amounts earned by the Company on its interest bearing money market accounts and money market funds as compared to $203,000 in the fiscal 2026 period. The decrease is due to lower levels of invested cash in the fiscal 2027 period as compared to the fiscal 2026 period. Other income, net was $21,000 in the fiscal 2026 period which primarily relates to sublease income from a franchised restaurant. Provision for Income Taxes The effective income tax rate for the fiscal 2027 period was 27.4% as compared to 27.2% in the fiscal 2026 period. The effective income tax rate for the fiscal 2027 period reflected income tax expense of $3,334,000 recorded on $12,163,000 of pre-tax income. The effective income tax rate for the fiscal 2026 period reflected income tax expense of $3,329,000 recorded on $12,257,000 of pre-tax income. The effective tax rates are higher than the U.S. Federal statutory rates primarily due to state and local taxes, as well as non-deductible executive compensation under the Internal Revenue Code Section 162(m). The effective income tax rate for the fiscal 2027 period included an unfavorable discrete tax adjustment of 0.6% for non-deductible transaction costs offset, in part, by a favorable discrete tax adjustment of 0.4% for stock compensation activity. The American Rescue Plan Act of 2021 (“ARPA”), among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations. Effective for tax years starting after December 31, 2026 (March 29, 2027 for the Company), ARPA expands the limitations to cover the next five most highly compensated employees. We continue to evaluate the potential impact ARPA may have on our operations and condensed consolidated financial statements in future periods. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others to be implemented through 2027. The OBBBA did not have a material impact to our provision for income taxes for the fiscal 2027 period. The amount of unrecognized tax benefits at June 28, 2026 was $375,000 all of which would impact the Company’s effective tax rate, if recognized. As of June 28, 2026, the Company had approximately $372,000 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 $50,000 during the fiscal year ending March 28, 2027 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. -26- Off-Balance Sheet Arrangements At June 28, 2026 and June 29, 2025, 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 Sources and uses of cash Cash and cash equivalents at June 28, 2026 aggregated $24,686,000, a $282,000 increase during the fiscal 2027 period as compared to cash of $24,404,000 at March 29, 2026. Net working capital increased to $34,764,000 at June 28, 2026 as compared to $28,218,000 at March 29, 2026. Our primary sources of liquidity and capital resources are cash flows from operations and our cash and cash equivalents. Our primary cash requirements are to fund the June 2026 Regular Cash Dividend, to satisfy the debt service under our credit facility, capital expenditures, lease obligations, working capital and general corporate needs. Summary of Cash Flows The following table presents summary cash flow information for the periods indicated (in thousands). (In thousands) Thirteen weeks ended June 28, 2026 June 29, 2025 Net cash provided by (used in) operating activities $ 949 $ (220 ) Net cash used in investing activities (67 ) (115 ) Net cash used in financing activities (600 ) (600 ) Net increase (decrease) in cash and cash equivalents $ 282 $ (935 ) Operating activities Cash provided by operations of $949,000 is primarily attributable to net income of $8,829,000 in addition to other non-cash operating items of $565,000, offset by changes in other operating assets and liabilities of $8,445,000. Non-cash operating expenses consist principally of depreciation and amortization of $239,000, amortization of debt issuance costs of $18,000, share-based compensation expense of $280,000 and a provision for credit losses of $57,000. In the fiscal 2027 period, accounts and other receivables increased by $11,493,000 due primarily to higher Branded Product Program receivables of $3,819,000, higher franchise and license royalties receivable of $6,975,000 and higher receivables due to the Advertising Fund of $685,000 . Inventories increased by $508,000 due to timing and Branded Product Program inventory in transit. Prepaid expenses and other current assets decreased by $541,000 due primarily to a decrease in prepaid income taxes of $210,000 and a decrease in prepaid marketing and other expenses of $401,000 which were offset, in part, by an increase in prepaid real estate taxes of $92,000. Accounts payable, accrued expenses and other current liabilities increased by $3,100,000 due principally to an increase in accounts payable of $2,701,000 due to the timing of product purchases for our Branded Product Program and Company-owned restaurants. Additionally, there was an increase in accrued corporate taxes of $2,906,000 due to the timing of estimated tax payments. Offsetting these increases was a reduction in accrued payroll and other benefits of $1,848,000 resulting from the payment of fiscal year-end 2026 compensation as well as the recognition of $707,000 of deferred revenue. Investing activities Cash used in investing activities of $67,000 in the fiscal 2027 period is primarily attributable to capital expenditures incurred for our Branded Product Program and our Coney Island restaurants. Financing activities During fiscal 2027, we made $600,000 of mandatory principal repayments on our Term Loan borrowings under the Credit Agreement. Subsequent to the fiscal 2027 period, we paid our next quarterly mandatory principal repayment on our Term Loan borrowings of $600,000 on June 30, 2026. -27- Credit Agreement On July 10, 2024 (the “Effective Date”), the Company entered into a five-year unsecured Credit Agreement among the Company, as borrower, direct and indirect subsidiaries of the Company, as guarantors, the lenders from time to time party thereto (the “Lenders”) and Citibank, N.A., as administrative agent, swing line lender, L/C issuer and a Lender. The Credit Agreement provides for a term loan facility (“Term Loan”) of $60,000,000 and a revolving credit facility (“Revolving Loan”) of up to $10,000,000. The Credit Agreement also provides that the Company has the right from time to time during the term of the Credit Agreement to request the Lenders for incremental revolving loan borrowing increases of up to an additional $10,000,000 in the aggregate, subject to, among other items, the Lenders agreeing to lend any such additional amounts and compliance with terms specified in the Credit Agreement. The Credit Agreement matures on July 10, 2029. The Company borrowed $60,000,000 in Term Loan borrowings on the Effective Date to refinance and redeem its 2025 Notes. The Company will use any Revolving Loan borrowings under the Credit Agreement for working capital and general corporate purposes. As of June 28, 2026, there were no outstanding borrowings under the Revolving Loan. See Note P – LONG-TERM DEBT in the accompanying condensed consolidated financial statements for additional information on the Credit Agreement. Share Repurchases 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 June 28, 2026, Nathan’s has repurchased 1,101,884 shares at a cost of $39,000,000 under the sixth stock repurchase plan. At June 28, 2026, 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 2027 period and the fiscal 2026 period. The terms of the Merger Agreement prohibit the Company from repurchasing any of its common stock subject to certain limited exceptions. Common Stock Dividends As discussed above, we had cash and cash equivalents at June 28, 2026 aggregating $24,686,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. The Company paid the June 2026 Regular Cash Dividend of $2,048,000 on June 30, 2026. After the payment of the June 2026 Regular Cash Dividend, the Company is no longer permitted to declare and pay any further dividends under the Merger Agreement. Purchase Commitments At June 28, 2026 and March 29, 2026, Nathan’s did not have any open purchase commitments to purchase hot dogs. Cash Flow Outlook 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, and service the principal and interest obligations under the Credit Agreement, 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 as permitted pursuant to our Credit Agreement, and the Merger Agreement. While our Credit Agreement bears interest at a fluctuating interest rate based on the SOFR plus a spread adjustment, if the Company makes cash interest payments on the Term Loan borrowings at the interest rate effective at August 7, 2026, then for the remainder of the fiscal year ending March 28, 2027, we expect to make cash interest payments of approximately $1,802,000 on the Term Loan borrowings. We may from time to time seek to make voluntary prepayments of our Term Loan borrowings under our Credit Agreement. Such voluntary prepayments, if any, will depend on market conditions, our liquidity requirements, satisfactory compliance of covenants and conditions pursuant to our Credit Agreement, the Merger Agreement and other factors. Management believes that available cash and cash equivalents and cash generated from operations should provide sufficient capital to finance our operations, fund our operating lease obligations, capital expenditures and satisfy our debt service requirements for the next 12 months. -28- Contractual Obligations At June 28, 2026, our contractual obligations primarily consist of the Term Loan borrowings under our Credit Agreement and the mandatory debt principal repayments 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. See NOTE P – LONG-TERM DEBT and NOTE Q - LEASES in the accompanying condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and as disclosed in our Form 10-K for the fiscal year ended March 29, 2026 as filed with the SEC on June 9, 2026. Inflationary Pressures 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 2027 period, and this trend may continue through the remainder of fiscal 2027. Our average cost of hot dogs during the fiscal 2027 period was approximately 22% higher than during the fiscal 2026 period. Our average cost of hot dogs during the fiscal year ended March 29, 2026 was approximately 19% higher than during the fiscal year ended March 30, 2025. 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 are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during the remainder of fiscal 2027. 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. We have experienced competitive pressure on labor rates as a result of the increase in the minimum hourly wage for fast food workers where our Company-owned restaurants are located. On January 1, 2026, the minimum wage increased from $16.50 to $17.00 in New York City, Long Island and Westchester. Further, beginning in 2027, the minimum wage across New York State will increase annually according to the Consumer Price Index. There has also been an increased demand for labor at all levels which has resulted in greater challenges retaining adequate staffing levels at our Company-owned restaurants; our franchised restaurants and Branded Menu Program locations; as well as for certain vendors in our supply chain that we depend on for our commodities. We remain in contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain. We 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. We expect to continue experiencing volatility in oil and gas prices on our distribution costs for food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from rising rates. 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 Condensed Consolidated Financial Statements” in this Form 10-Q and “Risk Factors” in our Form 10-K for our fiscal year ended March 29, 2026. -29-