NATHANS FAMOUS INC

CONSOLIDATED BALANCE SHEETS

September 29, 2024 and March 31, 2024

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CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share amounts)

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’** DEFICIT**

Thirteen weeks ended September 29, 2024 and September 24, 2023

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’** DEFICIT**

Twenty-six weeks ended September 29, 2024 and September 24, 2023

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Twenty-six weeks ended September 29, 2024 and September 24, 2023

(in thousands)

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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 29, 2024

(in thousands, except per share amounts)

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 twenty-six week periods ended September 29, 2024 and September 24, 2023 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 2025 fiscal year will end on March 30, 2025 and will contain 52 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 31, 2024 as filed with the SEC on June 12, 2024.

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 31, 2024.

NOTE B – 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 after December 15, 2023, and interim periods within fiscal years beginning December 15, 2024. For the Company, 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. Entities are required to adopt this guidance on a retrospective basis. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

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.

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NOTE C – REVENUES

The Company’s disaggregated revenues for the thirteen and twenty-six weeks ended September 29, 2024 and September 24, 2023 are as follows (in thousands):

The following table disaggregates revenues by primary geographical market (in thousands):

Contract balances

The following table provides information about contract liabilities from contracts with customers (in thousands):

Significant changes in deferred franchise fees are as follows (in thousands):

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Significant changes in deferred revenues are as follows (in thousands):

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):

We have applied the optional exemption, as provided for under ASC Topic 606 “Revenues from Contracts with Customers,” which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

NOTE D – INCOME PER SHARE

Basic net 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 net 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 net income per common share result from the assumed exercise of stock options, as determined using the treasury stock method.

The following chart provides a reconciliation of information used in calculating the per-share amounts for the thirteen and twenty-six week periods ended September 29, 2024 and September 24, 2023, respectively (in thousands, except per share amounts):

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NOTE E – CASH AND CASH EQUIVALENTS

The Company considers money market funds or short term investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents at September 29, 2024 were $18,000. The Company didnot have any cash equivalents at March 31, 2024. The Company’s cash balances principally consist of cash in bank and money market accounts.

At September 29, 2024 and March 31, 2024, substantially all of the Company’s cash balances are in excess of Federal government insurance limits. The Company has not experienced any losses in such accounts.

NOTE F – FAIR VALUE MEASUREMENTS

Nathan’s follows a three-level fair value hierarchy that prioritizes the inputs to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:

● Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market

● Level 2 - inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability

● Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability and reflect the Company’s own assumptions

The carrying amounts reported in the Company’s Consolidated Balance Sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of those items.

The carrying amount of our long-term debt (see NOTE P – LONG TERM DEBT to the unaudited consolidated financial statements in the Quarterly Report on Form 10-Q) also approximates fair value since such borrowings bear interest at variable market rates and is categorized as Level 2. The face and fair value of the 6.625% Senior Secured Notes due 2025 (“2025 Notes”) as of March 31, 2024 was $60,000 and $59,903, respectively, and was based upon review of observable pricing in secondary markets as of March 31, 2024. Accordingly, the Company classified it as Level 2.

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 September 29, 2024, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.

NOTE G – ACCOUNTS AND OTHER RECEIVABLES, NET

Accounts and other receivables, net, consist of the following (in thousands):

Our provision for credit losses is based on the current expected credit losses model. 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.

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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 Company considers both qualitative and quantitative information when developing the estimate including assessments of collectability based on historical trends, the financial condition of the Company’s franchisees, licensees and Branded Product Program customers, including any known or anticipated bankruptcies, and an evaluation of current economic conditions as well as the Company’s expectations of conditions in the future.

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.

Changes in the Company’s allowance for credit losses for the twenty-six week period ended September 29, 2024 and the fiscal year ended March 31, 2024 are as follows (in thousands):

NOTE H – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in thousands):

NOTE I - INTANGIBLE ASSET

The Company’s definite-lived intangible asset consists of trademarks, and the trade name and other intellectual property in connection with its Arthur Treacher’s co-branding agreements. Based upon review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements isfour 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 twenty-six week periods ended September 29, 2024 that would indicate that the carrying amount of the Company’s intangible asset may be impaired as of September 29, 2024.

NOTE J - LONG LIVED ASSETS

Long-lived assets on a restaurant-by-restaurant basis are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Long-lived assets include property, equipment and right-of-use assets for operating leases with finite useful lives. Assets are grouped at the individual restaurant level, which represents the lowest level for which cash flows can be identified largely independent of the cash flows of other assets and liabilities. The Company generally considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations.

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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 twenty-six week periods ended September 29, 2024 that would indicate that the carrying amount of the Company’s long-lived assets may be impaired as of September 29, 2024.

NOTE K – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):

NOTE L – INCOME TAXES

The income tax provisions for the thirteen weeks ended September 29, 2024 and September 24, 2023 reflect effective tax rates of 25.5% and 27.4%, respectively. The effective income tax rate for the thirteen weeks ended September 29, 2024 reflected $2,069 of income tax expense recorded on $8,099 of pre-tax income. The effective income tax rate for the thirteen weeks ended September 24, 2023 reflected $2,153 of income tax expense recorded on $7,864 of pre-tax income.

The income tax provisions for the twenty-six weeks ended September 29, 2024 and September 24, 2023 reflect effective tax rates of 26.7% and 27.2%, respectively. The effective income tax rate for the twenty-six weeks ended September 29, 2024 reflected $5,576 of income tax expense recorded on $20,883 of pre-tax income. The effective income tax rate for the twenty-six weeks ended September 24, 2023 reflected $4,897 of income tax expense recorded on $17,996 of pre-tax income.

The effective income tax rates for the thirteen and twenty-six week periods ended September 29, 2024 and September 24, 2023 were higher than the United States statutory income tax rate primarily due to state and local taxes as well as non-deductible compensation under the Internal Revenue Code Section 162(m).

The amount of unrecognized tax benefits included in Other liabilities at September 29, 2024 and March 31, 2024 was $494 and $465, respectively, all of which would impact the Company’s effective rate, if recognized. As of September 29, 2024 and March 31, 2024, the Company had approximately $379 and $345, respectively, accrued for the payment of interest and penalties in connection with unrecognized tax benefits.

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NOTE M – SEGMENT INFORMATION

Nathan’s considers itself to be a brand marketer of the Nathan’s Famous signature products to the foodservice industry pursuant to its various business structures. Nathan’s sells its products directly to consumers through its restaurant operations segment consisting of Company-owned and franchised restaurants, including virtual kitchens, to distributors that resell our products to the foodservice industry through the Branded Product Program and by third party manufacturers pursuant to license agreements that sell our products to 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, frozen crinkle-cut French fries and additional products through retail supermarkets, grocery channels and club stores throughout the United States.

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, compliance costs and the operating results of the Advertising Fund.

Interest expense, loss on debt extinguishment, interest and dividend income, and other income, net, are managed centrally at the corporate level, and, accordingly, such items are not presented by segment since they are excluded from the measure of profitability reviewed by the CODM.

Operating segment information is as follows (in thousands):

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NOTE N – SHARE-BASED COMPENSATION

Total share-based compensation expense during the thirteen and twenty-six week periods ended September 29, 2024 and September 24, 2023 was $229 and $182, and $417 and $359, respectively. Total share-based compensation expense is included in general and administrative expenses in our accompanying Consolidated Statements of Earnings. As of September 29, 2024, there was $3,857** *unamortized compensation expense related to share-based awards. We expect to recognize this expense over approximately 42 *months, which represents the weighted average remaining requisite service periods for such awards.

The Company recognizes compensation expense 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):

Stock options

During the twenty-six week period ended September 29, 2024, the Company granted options to purchase 110,000 shares at an exercise price of $74.47 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 19, 2024.

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 twenty-six week period ended September 29, 2024 are as follows:

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 twenty-six weeks ended September 29, 2024 are as follows**:**

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Restricted stock units

Transactions with respect to restricted stock units for the twenty-six weeks ended September 29, 2024 are as follows:

NOTE O – STOCKHOLDERS’ EQUITY

1.Dividends

Effective June 12, 2024, the Company’s Board of Directors (the “Board”) declared its first quarterly cash dividend of $0.50 per share for fiscal 2025 which was paid on July 2, 2024 to stockholders of record as of the close of business on June 24, 2024.

Effective August 8, 2024, the Board declared its second quarterly cash dividend of $0.50 per share for fiscal 2025 which was paid on September 6, 2024 to stockholders of record as of the close of business on August 26, 2024.

Effective November 7, 2024, the Board declared its third quarterly cash dividend of $0.50 per share for fiscal 2025 payable on December 6, 2024 to stockholders of record as of the close of business on November 25, 2024.

Our ability to pay future dividends is limited by the terms of our Credit Agreement (as defined in NOTE P – LONG TERM DEBT to the unaudited consolidated financial statements in the Quarterly Report on Form 10-Q). In addition to the terms of our Credit Agreement, the declaration and payment of any cash dividends in the future are subject to final determination of the Board and will be dependent upon our earnings and financial requirements.

2*. Stock Repurchase Programs*

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 September 29, 2024, Nathan’s had repurchased 1,101,884 shares at a cost of $39,000** **under the sixth stock repurchase plan. At September 29, 2024 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 P – LONG-TERM DEBT

The carrying amounts of the Company’s long-term debt were as follows (in thousands):

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The Company’s mandatory debt principal repayments as of September 29, 2024 were as follows (in thousands):

On July 10, 2024 (the “Effective Date”), the Company entered into a five-year unsecured Credit Agreement (the “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 (capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Credit Agreement).

The Credit Agreement provides for a term loan facility (“Term Loan”) of $60,000 and a revolving credit facility (“Revolving Loan”) of up to $10,000. 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 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 in Term Loan borrowings on the Effective Date to refinance and redeem its outstanding 2025 Notes. The Company will use any Revolving Loan borrowings under the Credit Agreement for working capital and general corporate purposes.

In connection with the refinancing, the Company recorded a loss on extinguishment of debt of $334** during the quarter ending September 29, 2024 **that reflected the write-off of the remainder of the debt issuance costs on the 2025 Notes. Additionally, in connection with the refinancing, the Company incurred $431 of debt issuance costs on the Term Loan borrowings that were capitalized and will be amortized over the term of the Credit Agreement.

Term Loan and Revolving Loan borrowings under the Credit Agreement will bear interest at a rate per annum, at the Company’s option, of (a) for Base Rate Loans, the Base Rate plus the Applicable Rate of 0.00% or (b) for Term SOFR Loans, Term SOFR plus the Applicable Rate of 1.40% for one (1), three (3) or six (6) month periods, as selected by the Company in its Loan Notice. The Company will be subject to a commitment fee of 0.20% per annum on the daily amount of the undrawn portion of the Revolving Committed Amount. The interest rate on the Term Loan borrowings at September 29, 2024 was 6.805%.

The Credit Agreement contains customary affirmative covenants and negative covenants and requires the Company to maintain a Consolidated Fixed Charge Ratio not to exceed 1.20 to 1.00 and a Consolidated Net Leverage Ratio not to exceed 3.00 to 1.00, in each case, beginning with the fiscal quarter ending September 29, 2024. The Company was in compliance with the covenants of the Credit Agreement at September 29, 2024.

The outstanding Term Loan borrowings under the Credit Agreement are payable in equal quarterly installments of 1.0% of the original principal amount of the Term Loan, or $600, beginning September 30, 2024, with the balance payable on the final maturity date.

The outstanding Term Loan borrowings and the Revolving Loan borrowings under the Credit Agreement are voluntarily prepayable by the Company without penalty or premium, provided, that each of the following shall require a mandatory prepayment of outstanding Term Loan borrowings and Revolving Loan borrowings by the Company as follows: (i)100% of any Net Cash Proceeds in excess of $2,000 individually or in the aggregate over the term of the Credit Agreement in respect of any Extraordinary Receipt provided that the Company shall be permitted to reinvest such Net Cash Proceeds in accordance with the Credit Agreement, (ii)100% of any Net Cash Proceeds of an Equity Issuance, (iii)100% of any Net Cash Proceeds from a Debt Issuance and (iv)100% of any Net Cash Proceeds from the Disposition of certain assets individually, or in the aggregate, in excess of $2,000 in any fiscal year provided that the Company shall be permitted to reinvest such Net Cash Proceeds in accordance with the Credit Agreement.

Subsequent to the quarter ending September 29, 2024, on October 10, 2024, the Company made a voluntary principal prepayment of $8,000 of its Term Loan borrowings and expects to incur a loss on debt extinguishment of approximately $55 in the third quarter of fiscal 2025 related to the write-off of a portion of previously recorded debt issuance costs on the Term Loan borrowings.

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NOTE Q – LEASES

The Company is party as lessee to various leases for its Company-owned restaurants and lessee/sublessor to one franchised location property, including land and buildings, as well as leases for its corporate office and certain office equipment.

Company as lessee

The components of the net lease cost for the thirteen and twenty-six week periods ended September 29, 2024 and September 24, 2023 were as follows (in thousands):

The components of the net lease cost on the Consolidated Statements of Earnings for the thirteen and twenty-six week periods ended September 29, 2024 and September 24, 2023 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities for the thirteen and twenty-six week periods ended September 29, 2024 and September 24, 2023 were as follows (in thousands):

The weighted average remaining lease term and weighted average discount rate for operating leases as of September 29, 2024 were as follows:

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Future lease commitments to be paid and received by the Company as of September 29, 2024 were as follows (in thousands):

Company as lessor

The components of net lease income for the thirteen and twenty-six week periods ended September 29, 2024 and September 24, 2023 were as follows (in thousands):

NOTE R – COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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 S – SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date the consolidated financial statements were issued and filed with the SEC. Except for the voluntary principal prepayment of $8,000 of its Term Loan borrowings under the Credit Agreement (see NOTE P – LONG TERM DEBT to the unaudited consolidated financial statements in the Quarterly Report on Form 10-Q), there were no additional subsequent events that required recognition or disclosure.

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