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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

Overview of the Impact of COVID-19

In March 2020, the World Health Organization (“WHO”) declared a global pandemic related to the outbreak of a novel strain of coronavirus, designated “COVID-19.”

During the fiscal 2021 period, COVID-19 spread throughout the United States and the rest of the world and government authorities have implemented measures to reduce the spread of COVID-19. These governmental restrictions and public perceptions of the risks associated with COVID-19 have caused consumers to avoid or to limit non-essential travel, gatherings in public places and other social interactions. The COVID-19 pandemic has had an adverse impact on the Company’s business, financial condition, cash flows, and results of operations for the fiscal 2021 period.

As a result of COVID-19, our Company-owned restaurants and our franchisees have experienced reduced customer traffic, as well as instances of reduced store-level operations, including reduced operating hours.

As of March 28, 2021, three of our four Company-owned restaurants were open. Our seasonal location on the Coney Island Boardwalk opened with reduced operating hours for the fiscal 2022 summer season on April 2, 2021.

Franchisees located in shopping malls, airports, and highway travel plazas continue to be subject to temporary closures or reduced operating hours. Approximately 77% of our franchise system is currently open in a full or limited capacity. Such closures and disruptions have impacted sales at our Company-owned restaurants, as well as franchise fees and royalties, as compared to the fiscal 2020 period. Plans to mitigate the loss of sales have included increasing consumer access to our products through third-party delivery channels.

Additionally, the COVID-19 pandemic has disrupted operations within our Branded Product Program. Operations at many of our Branded Product Program accounts have been hampered as many of our customers operate in venues that are closed or venues operating at reduced traffic levels, such as professional sports arenas, amusement parks, shopping malls, and movie theaters. Such closures and disruptions have impacted sales and operating income within our Branded Product Program.

During the fiscal 2021 period, royalties from our license agreements were significantly higher than during the fiscal 2020 period, due to significantly higher sales of consumer-packaged goods through grocery channels as consumers elected to “shelter at home” as a result of the COVID-19 pandemic.

In the second half of the fiscal 2021 period, certain of these governmental restrictions were relaxed as incidents of infection from the initial outbreak declined. The Company has instituted operational procedures to protect the health and foster the confidence of employees and guests at the restaurants. The Company continues to monitor developing and changing health authority recommendations and regulatory requirements.

With the roll-out, availability and acceptance of vaccines to combat the COVID-19 pandemic, we have seen an increase in the number of re-openings within our franchise system during the fourth quarter of our fiscal 2021 period and continuing into the first quarter of our fiscal 2022 period, as well as an increase in partial re-openings at some of our Branded Product Program accounts including professional sports arenas, amusement parks, movie theatres and shopping malls.

The business environment remains dynamic and uncertain and is subject to change as governmental authorities modify existing restrictions or implement new restrictions in response to changes in the number of COVID-19 infections and the availability and acceptance of vaccines around the United States and internationally. We expect that the pandemic will continue to have a negative impact on our revenue and net income for the foreseeable future. Even as government restrictions are lifted and vaccines are being distributed, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels, and may result in reduced restaurant traffic and consumer spending trends that may adversely impact our financial condition and results of operations.

Overview

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-fried potatoes, and a variety of other menu offerings. Our Company-owned and franchised units operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant opened in 1916. Nathan’s product licensing program sells packaged hot dogs and other meat products to retail customers through supermarkets or grocery-type retailers for off-site consumption. Our Branded Product Program enables foodservice retailers and others to sell some of Nathan’s proprietary products outside of the realm of a traditional franchise relationship. In conjunction with this program, purchasers of Nathan’s products are granted a limited use of the Nathan’s Famous trademark with respect to the sale of the purchased products, including Nathan’s World Famous Beef Hot Dogs, certain other proprietary food items and paper goods. Our Branded Menu Program is a limited franchise program, under which foodservice operators may sell a greater variety of Nathan’s Famous menu items than under the Branded Product Program.

Our revenues are generated primarily from selling products under Nathan’s Branded Product Program, operating Company-owned restaurants, licensing agreements for the sale of Nathan’s products within supermarkets and club stores, the sale of Nathan’s products directly to other foodservice operators and the manufacture of certain proprietary spices by third parties and franchising the Nathan’s restaurant concept (including the Branded Menu Program).

The following summary reflects the franchise openings and closings of the Nathan’s franchise system for the fiscal years ended March 28, 2021, March 29, 2020, March 31, 2019, March 25, 2018, and March 26, 2017.

Franchised restaurants opened during the period 7 16 13 40 53

Franchised restaurants closed during the period (10 ) (55 ) (34 ) (43 ) (33 )

Franchised restaurants operating at the end of the period 213 216 255 276 279

At March 28, 2021, our restaurant system consisted of 213 Nathan’s franchised units, including 94 Branded Menu units located in 19 states, and eight foreign countries, and four Company-owned and operated units (including one seasonal unit), located within the New York metropolitan area.

Over the past several years, our strategic emphasis has been to increase 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 and franchised units. The primary drivers of our recent growth have been our Licensing and Branded Product Programs, which are the largest contributors to the Company’s revenues and profits.

We remain committed to these parts of our business and we continue to reinvigorate our restaurant system. The operating plan we have adopted in this regard is focused on surrounding our core items, Nathan’s World Famous Beef Hot Dogs and crinkle-cut French fried potatoes, with other much higher quality menu items developed to deliver best-in-class customer experience and greater customer frequency. Menu development activities have been combined with concept positioning efforts, operational improvements and more effective digital and social marketing campaigns. The goal is to improve the performance of the existing restaurant system and to grow it through franchising efforts. Additionally, we have introduced virtual kitchens whereby existing branded restaurants have the ability to market and to sell our products through third-party delivery platforms. At March 28, 2021, we have expanded into 130 virtual kitchens, including 87 domestically and 43 internationally. 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 adopt to the ever-changing consumer and environment.

As described in Risk Factors and other sections in this Annual Report on Form 10-K for the year ended March 28, 2021, our future results could be impacted by many developments including the impact of the COVID-19 pandemic on our business, as well as our dependence on John Morrell & Co. as our principal supplier. In March 2014, John Morrell & Co., a subsidiary of Smithfield Foods, Inc. became Nathan’s exclusive licensee to manufacture and sell hot dogs, sausage and corned beef at retail. Our future operating results are substantially dependent on our agreement with John Morrell & Co. There are also certain risks associated with engaging John Morrell & Co. as exclusive licensee including whether (i) we can maintain or improve the quality and consistency of our products that is expected by our customers, and (ii) John Morrell & Co. will have a sufficient supply of products available for our customers on a timely basis, as well as the risks described under “Risk Factors - - Our licensing revenue and overall profitability is substantially dependent on our agreement with John Morrell & Co. and the loss or a significant reduction of this revenue would have a material adverse effect on our financial condition and results of operations.”

Our future operating results could be impacted by supply constraints on beef prices and/or increases in beef prices.

On November 1, 2017, the Company issued $150.0 million of 6.625% Senior Secured Notes due 2025 (the "2025 Notes") in a private offering in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2025 Notes were issued pursuant to an indenture, dated November 1, 2017, (the “Indenture”) by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, as trustee and collateral trustee. The Company used the net proceeds of the 2025 Notes offering to (i) satisfy and discharge the Indenture relating to the 2020 Notes; (ii) redeem the 2020 Notes (the "Redemption"), (iii) pay a portion of a special $5.00 per share cash dividend to Nathan's stockholders of record (see Note J of the Notes to the Consolidated Financial Statements), and (iv) used the remaining net proceeds for general corporate purposes, including working capital. The Company also funded the majority of the special dividend of $5.00 per share through its existing cash. The Redemption occurred on November 16, 2017.

The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1st and November 1st of each year. During the fiscal year ended March 28, 2021, the Company made its required semi-annual interest payments of $4,968,750 on May 1, 2020 and November 1, 2020. On May 1, 2021, the Company paid its semi-annual interest payment of $4,968,750.

The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025.

Our future results may be impacted by our interest obligations under the 2025 Notes. As a result of the issuance of the 2025 Notes, Nathan’s incurs interest expense of $9,937,500 per annum and annual amortization of debt issuance costs of approximately $691,000. The terms and conditions of the 2025 Notes are as follows (terms not defined shall have the meanings set forth in the Indenture):

There are no ongoing financial maintenance covenants associated with the 2025 Notes. As of March 28, 2021, Nathan’s was in compliance with all covenants associated with the 2025 Notes.

The Indenture contains certain covenants limiting the Company’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to, subject to certain exceptions and qualifications: (i) incur additional indebtedness; (ii) pay dividends or make other distributions on, redeem or repurchase, capital stock; (iii) make investments or other restricted payments; (iv) create or incur certain liens; (v) incur restrictions on the payment of dividends or other distributions from its restricted subsidiaries; (vi) enter into certain transactions with affiliates; (vii) sell assets; or (viii) effect a consolidation or merger. Certain Restricted Payments which may be made or indebtedness incurred by Nathan’s or its Restricted Subsidiaries may require compliance with the following financial ratios:

Fixed Charge Coverage Ratio: the ratio of the Consolidated Cash Flow to the Fixed Charges for the relevant period, currently set at 2.0 to 1.0 in the Indenture. The Fixed Charge Coverage Ratio applies to determining whether additional Restricted Payments may be made, certain additional debt may be incurred and acquisitions may be made.

Priority Secured Leverage Ratio: the ratio of (a) Consolidated Net Debt outstanding as of such date that is secured by a Priority Lien to (b) Consolidated Cash Flow of Nathan’s for the Test Period then most recently ended, in each case with such pro forma adjustments as are appropriate; currently set at 0.40 to 1.00 in the Indenture.

Secured Leverage Ratio: the ratio of (a) Consolidated Net Debt outstanding as of such date that is secured by a Lien on any property of Nathan’s or any Guarantor to (b) Consolidated Cash Flow of Nathan’s for the Test Period then most recently ended, in each case with such pro forma adjustments as are appropriate. The Secured Leverage Ratio under the Indenture is 3.75 to 1.00 and applies if Nathan’s wants to incur additional debt on the same terms as the 2025 Notes.

The Indenture also contains customary events of default, including, among other things, failure to pay interest, failure to comply with agreements related to the Indenture, failure to pay at maturity or acceleration of other indebtedness, failure to pay certain judgments, and certain events of insolvency or bankruptcy. Generally, if any event of default occurs, the Trustee or the holders of at least 25% in principal amount of the 2025 Notes may declare the 2025 Notes due and payable by providing notice to the Company. In case of default arising from certain events of bankruptcy or insolvency, the 2025 Notes, will become immediately due and payable.

The 2025 Notes are general senior secured obligations, are fully and unconditionally guaranteed by substantially all of the Company’s wholly-owned subsidiaries and rank pari passu in right of payment with all of the Company’s existing and future indebtedness that is not subordinated, are senior in right of payment to any of the Company’s existing and future subordinated indebtedness, are structurally subordinated to any existing and future indebtedness and other liabilities of the Company’s subsidiaries that do not guarantee the 2025 Notes, and are effectively junior to all existing and future indebtedness that is secured by assets other than the collateral securing the 2025 Notes.

Pursuant to the terms of a collateral trust agreement, the liens securing the 2025 Notes and the guarantees will be contractually subordinated to the liens securing any future credit facility.

The 2025 Notes and the guarantees are the Company and the guarantors’ senior secured obligations and will rank:

The Company may redeem the 2025 Notes in whole or in part prior to November 1, 2020, at a redemption price of 100% of the principal amount of the 2025 Notes redeemed plus the Applicable Premium, plus accrued and unpaid interest. An Applicable Premium is the greater of 1% of the principal amount of the 2025 Notes; or the excess of the present value at such redemption date of (i) the redemption price of the 2025 Notes at November 1, 2020 plus (ii) all required interest payments due on the 2025 Notes through November 1, 2020 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over the then outstanding principal amount of the 2025 Notes.

Prior to November 1, 2020, if using the net cash proceeds of certain equity offerings, the Company had the option to redeem up to 35% of the aggregate principal amount of the 2025 Notes at a redemption price equal to 106.625% of the principal amount of the 2025 Notes redeemed, plus accrued and unpaid interest and any additional interest.

On or after November 1, 2020, the Company may redeem some or all of the 2025 Notes at a decreasing premium over time, plus accrued and unpaid interest as follows:

YEAR PERCENTAGE

In certain circumstances involving a change of control, the Company will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s 2025 Notes pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, the Company will be required to offer payment in cash equal to 101% of the aggregate principal amount of 2025 Notes repurchased plus accrued and unpaid interest, to the date of purchase.

If the Company sells certain collateralized assets and does not use the net proceeds as required, the Company will be required to use such net proceeds to repurchase the 2025 Notes at 100% of the principal amount thereof, plus accrued and unpaid interest and additional interest penalty, if any, to the date of repurchase.

The 2025 Notes may be traded between qualified institutional buyers pursuant to Rule 144A of the Securities Act. We have recorded the 2025 Notes at cost.

Effective June 1, 2020, Nathan’s Board of Directors authorized the repurchase of up to $10 million of the 2025 Notes by the Company (at a price equal to or less than par) from time to time. There is no set time limit on the repurchases.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the notes to our consolidated financial statements contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. We believe the following critical accounting policies involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset and liability amounts.

Leases

We determine if a contract contains a lease at inception. Our material operating leases consist of our Company-owned restaurants and Corporate office space. Renewal options are typically not included in the lease term as it is not reasonably certain at commencement date that we would exercise the option to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. Fixed minimum rent payments are recognized on a straight-line basis over the lease term. Contingent rent payments are recognized each period as the liability is incurred or the asset is earned.

Operating lease assets and liabilities are recognized at time of lease inception. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned.

The lease liability equals the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rate implicit in the Company’s leases is not readily determinable. This incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially.

Revenue Recognition

We earn revenues through our Company-owned restaurants, franchised restaurants and virtual kitchens. Retail sales from franchised restaurants and virtual kitchens are reported to us by our franchisees and virtual kitchen operators and are not included in our revenues. Retail sales from Company-owned restaurants are recognized at the point-of-sale. Royalty revenues resulting from the retail sales from franchised restaurants and virtual kitchens are generally based on a percentage of sales and recognized on a monthly basis when it is earned and deemed collectible. Franchise fees, renewal fees, area development fees, and transfer fees are recognized as revenue over the term of each respective agreement, or upon termination of the franchise agreement. Revenues from Company-owned restaurants and revenues from franchisees and our virtual kitchen operators can fluctuate from time-to-time as a result of restaurant count and sales level changes.

We may also generate revenues from advertising contributions which are made to the Company’s Advertising Fund which are also generally based on a percentage of sales. Some vendors that supply products to the Company and our restaurant system may also contribute to the Advertising Fund based upon purchases made by our franchisees and at Company-owned restaurants.

Revenue from license royalties is generally based on a percentage of sales, subject to certain annual minimum royalties, recognized on a monthly basis when it is earned and deemed collectible.

The Company recognizes sales from the Branded Product Program and certain products sold from the Branded Menu Program upon delivery to Nathan’s customers via third party common carrier.

Impairment of Goodwill and Other Intangible Assets

Goodwill and intangible assets consist of (i) goodwill of $95,000 resulting from the acquisition of Nathan’s in 1987; and (ii) trademarks, trade names and other intellectual property of $1,156,000 in connection with Arthur Treacher’s. We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. As of March 28, 2021 and March 29, 2020, the Company performed its annual impairment test of goodwill and has determined that no impairment is deemed to exist.

During the fiscal year ended March 29, 2020, the Company determined its indefinite-lived intangible asset to have a finite useful life based on the expected future use of this intangible asset. Based upon the review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is twelve years and the intangible asset is subject to annual amortization. The Company has recorded amortization expense of $113,000 and $84,000 during the fiscal years ending March 28, 2021 and March 29, 2020, respectively. As of March 28, 2021 and March 29, 2020, the Company performed its annual impairment test of this finite-lived intangible asset and has determined that no impairment is deemed to exist.

Impairment of Long-Lived Assets

Long-lived assets include property, equipment and right of use assets for operating leases with finite useful lives. Impairment losses are recorded on long-lived assets whenever impairment factors are determined to be present. The Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will record 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 asset. 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 impairments in future periods and such impairments could be material. The Company considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. No long-lived assets were deemed impaired during the fiscal years ended March 28, 2021 and March 29, 2020.

Stock-Based Compensation

As discussed in Note L.2 of the Notes to Consolidated Financial Statements, we have one active share-based compensation plan that provides stock options and restricted stock awards for certain employees and non-employee directors to acquire shares of our common stock. For stock option awards, the grant date fair value of the awards is determined using the Black-Scholes option pricing model and involves several assumptions in determining the value of stock-based compensation including:

(a) expected option term based upon expected termination behavior;

(d) risk free interest rate on date of grant.

Income Taxes

The Company’s current provision for income taxes is based upon its estimated taxable income in each of the jurisdictions in which it operates, after considering the impact on taxable income of temporary differences resulting from different treatment of items for tax and financial reporting purposes and income tax benefits from share-based payments. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and any operating loss or tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible. Should management determine that it is more likely than not that some portion of the deferred tax assets will not be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made.

Uncertain Tax Positions

The Company has recorded liabilities for underpayment of income taxes and related interest and penalties for uncertain tax positions based on the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Nathan’s recognizes accrued interest and penalties associated with unrecognized tax benefits as part of the income tax provision. See Note H of the Notes to Consolidated Financial Statements.

Adoption of New Accounting Standards

In January 2017, the FASB issued an update to the accounting guidance to simplify the testing for goodwill impairment. The update removes the requirement to determine the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. A company will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The Company adopted this guidance on March 30, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

New Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under this standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. In November 2019, the FASB deferred the effective date for smaller reporting companies for annual reporting periods beginning after December 15, 2022. This standard is required to take effect in Nathan’s first quarter (June 2023) of our fiscal year ending March 31, 2024. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. This standard is required to take effect in Nathan’s first quarter (June 2021) of our fiscal year ending March 27, 2022. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

The Company does not believe that any other recently issued, but not yet effective accounting standards, when adopted, will have a material effect on the accompanying consolidated financial statements.

Results of Operations

Fiscal year ended March 28, 2021 compared to fiscal year ended March 29, 2020

Revenues

Total sales were $41,326,000 for the fifty-two weeks ended March 28, 2021 as compared to $70,559,000 for the fifty-two weeks ended March 29, 2020. Foodservice sales from the Branded Product Program were $33,617,000 for the fiscal 2021 period as compared to sales of $57,586,000 for the fiscal 2020 period. The sales from our Branded Product Program have been negatively impacted by the COVID-19 pandemic as many of our customers operate in venues that are currently closed, such as movie theaters, or venues operating at reduced capacity, such as professional sports arenas, amusement parks and shopping malls. During the fiscal 2021 period, the volume of business decreased by approximately 41% as compared to the fiscal 2020 period. Our average selling prices increased by approximately 0.4% as compared to the fiscal 2020 period.

Total Company-owned restaurant sales were $7,709,000 during the fiscal 2021 period compared to $12,973,000 during the fiscal 2020 period. The decrease was primarily due to a decline in customer traffic at our Coney Island locations related to the impact of the COVID-19 pandemic during the fiscal 2021 period. Additionally, as stipulated under government orders, the dining rooms at our Company-owned restaurants were operating at reduced capacity and maintaining social distancing protocols under these same government orders.

License royalties were $31,368,000 in the fiscal 2021 period as compared to $25,859,000 in the fiscal 2020 period. Total royalties earned on sales of hot dogs from our license agreement with John Morrell & Co. at retail and foodservice, substantially from sales of hot dogs to Sam’s Cluband WalMart, increased to $28,694,000 for the fiscal 2021 period as compared to $23,680,000 for the fiscal 2020 period. As consumers sheltered at home as a result of the COVID-19 pandemic, our licensing business exhibited strong consumer demand. The increase is due to a 12% increase in retail volume during the fiscal 2021 period, as well as a 12% increase in average net selling price as compared to the fiscal 2020 period.The foodservice business earned lower royalties of $457,000 as compared to the fiscal 2020 period due to a shift in the business.Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $495,000 during the fiscal 2021 period as compared to the fiscal 2020 period primarily due to additional royalties earned on sales of French fries, cocktail franks and mozzarella sticks.

Franchise fees and royalties were $1,601,000 in the fiscal 2021 period as compared to $4,572,000 in the fiscal 2020 period. Total royalties were $1,317,000 in the fiscal 2021 period as compared to $3,327,000 in the fiscal 2020 period. Royalties earned under the Branded Menu Program were $229,000 in the fiscal 2021 period as compared to $643,000 in the fiscal 2020 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales, but are based upon product purchases. Traditional franchise royalties were $1,088,000 in the fiscal 2021 period as compared to $2,684,000 in the fiscal 2020 period. Franchise restaurant sales declined to $22,269,000 in the fiscal 2021 period as compared to $61,542,000 in the fiscal 2020 primarily due to temporary closings, as well as venues operating at significantly reduced traffic as a result of the COVID-19 pandemic. Comparable domestic franchise sales (consisting of 59 Nathan’s outlets, excluding sales under the Branded Menu Program) were $17,095,000 during the fiscal 2021 period as compared to $40,516,000 during the fiscal 2020 period.

At March 28, 2021, 213 franchised outlets, including domestic, international and Branded Menu Program outlets were operating compared to 216 franchised outlets, including domestic, international and Branded Menu Program outlets at March 29, 2020. Total franchise fee income was $284,000 in the fiscal 2021 period as compared to $1,245,000 in the fiscal 2020 period. Domestic franchise fee income was $133,000 in the fiscal 2021 period as compared to $143,000 in the fiscal 2020 period. International franchise fee income was $103,000 in the fiscal 2021 period as compared to $151,000 in the fiscal 2020 period.

We recognized $48,000 and $951,000 of forfeited fees in the fiscal 2021 and fiscal 2020 period, respectively. The forfeited fees in the fiscal 2020 period were primarily from the termination of our Master Franchise Agreements for Russia, Kyrgyzstan, Australia, United Kingdom and Turkey. During the fiscal 2021 period, seven franchised outlets opened, including two new Branded Menu Program outlets. Additionally, 130new virtual kitchens opened. During the fiscal 2020 period, 16 franchised outlets opened, including five international units and three new Branded Menu Program outlets.

Advertising fund revenue, after eliminating Company contributions, was $1,544,000 in the fiscal 2021 period and $2,335,000 during the fiscal 2020 period.

Costs and Expenses

Overall, our cost of sales decreased by $21,952,000 to $32,536,000 in the fiscal 2021 period as compared to $54,488,000 in the fiscal 2020 period. Our gross profit (representing the difference between sales and cost of sales) was $8,790,000 or 21.3% of sales during the 2021 period as compared to $16,071,000 or 22.8% of sales during the fiscal 2020 period. The reduction in margin was primarily due to higher prime restaurant costs associated with new menu offerings, and higher labor costs associated with higher minimum hourly rates of pay at two of our Company-owned restaurants.

Cost of sales in the Branded Product Program decreased by approximately $19,910,000 during the fiscal 2021 period as compared to the fiscal 2020 period, primarily due to the 0.8% decrease in the average cost per pound of our hot dogs, as well as the 41% decrease in the volume of product sold due to the COVID-19 pandemic as discussed above. We did not make any purchase commitments for beef during the fiscal 2021 and 2020 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.

Beginning in May 2020, the cost of hot dogs increased significantly due primarily to the effects of the COVID-19 pandemic on the meat processing industry. This trend continued during the summer months and then declined during the second half of the fiscal 2021 period.

With respect to Company-owned restaurants, our cost of sales during the fiscal 2021 period was $5,295,000 or 68.7% of restaurant sales, as compared to $7,337,000 or 56.6% of restaurant sales in the fiscal 2020 period. We experienced higher food costs driven by higher prime costs associated with new menu offerings, and higher labor costs associated with higher minimum hourly rates of pay at two of our Company-owned restaurants. We expect that our future labor costs will continue to be impacted by the additional increase in minimum wage requirements in New York State which will commence on July 1, 2021, as well as other new labor regulations and our food costs may be impacted by increases in commodity costs.

Restaurant operating expenses were $3,268,000 in the fiscal 2021 period as compared to $3,476,000 in the fiscal 2020 period. We incurred lower occupancy expenses of $252,000, lower utility expenses of $18,000, lower marketing expenses of $73,000 and lower repairs and maintenance expenses of $15,000 which were offset, in part, by higher insurance costs of $33,000 and higher delivery charges of $147,000 associated with offsite consumption.

Depreciation and amortization was $1,183,000 in the fiscal 2021 period as compared to $1,233,000 in the fiscal 2020 period.

General and administrative expenses decreased $2,738,000 or 18.5% to $12,041,000 in the fiscal 2021 period as compared to $14,779,000 in the fiscal 2020 period. The Company reduced expenses in response to the impact of the COVID-19 pandemic. The decrease in general and administrative expenses was primarily attributable to reduced corporate payroll expenses through temporary salary reductions and layoffs, a lower incentive compensation accrual, reduced tradeshow and sponsorship expenses in light of the COVID-19 pandemic and reductions in other discretionary expenses including marketing and travel. These reductions were partially offset by increases in legal and other professional fees and severance costs related to transitioning certain Corporate personnel from a furloughed status to a permanent layoff.

Advertising fund expense, after eliminating Company contributions, was $1,296,000 in the fiscal 2021 period, as compared to $2,177,000 in the fiscal 2020 period.

Other Items

Interest expense of $10,601,000 in both the fiscal 2021 and fiscal 2020 periods represented accrued interest of $9,910,000 on the 2025 Notes at 6.625% per annum and amortization of debt issuance costs of $691,000.

Interest income was $364,000 for the fiscal 2021 period as compared to $1,357,000 in the fiscal 2020 period.

Other income, which relates primarily to a sublease of a franchised restaurant was $47,000 and $86,000 in the fiscal 2021 and fiscal 2020 periods, respectively.

Provision for Income Taxes

The income tax provision for the fiscal 2021 period and fiscal 2020 period reflect effective tax rates of 27.7% and 25.4%, respectively. Nathan’s effective tax rate for the fiscal year ended March 29, 2020 was reduced by 1.3%, as a result of the tax benefits associated with stock compensation. For the fiscal year ended March 29, 2020, excess tax benefits of $228,000 were reflected in the Consolidated Statements of Earnings as a reduction to the provision for income taxes. Nathan’s effective tax rate without this adjustment would have been 26.7% for the fiscal 2020 period. The Company’s tax rate for the fiscal 2021 period was favorably affected by 0.1% due to its return to provision adjustment of approximately $18,000 in connection with the filing of its March 2020 tax returns.

The amount of unrecognized tax benefits at March 28, 2021 was $397,000 all of which would impact Nathan’s effective tax rate, if recognized. As of March 28, 2021, Nathan’s had $256,000 of accrued interest and penalties in connection with unrecognized tax benefits.

Nathan’s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by up to $19,000 during the fiscal year ending March 27, 2022.

Off-Balance Sheet Arrangements

At March 28, 2021 and March 29, 2020, Nathan’s did not have any open purchase commitment to purchase hot dogs. Nathan’s may continue to enter into additional purchase commitments in the future as favorable market conditions become available.

Liquidity and Capital Resources

Cash and cash equivalents at March 28, 2021 aggregated $81,064,000, a $3,947,000 increase during the fiscal 2021 period as compared to cash and cash equivalents of $77,117,000 at March 29, 2020. Net working capital increased to $80,072,000 from $75,165,000 at March 29, 2020. Through March 28, 2021, the Company declared and paid four regular dividends of $0.35 per common share aggregating $5,761,000. During the fiscal 2021 period, the Company made its required semi-annual interest payments of $4,968,750 on May 1, 2020 and November 1, 2020. On May 1, 2021, we made the first semi-annual interest payment of fiscal 2022.

Cash provided by operations of $11,766,000 in the fiscal 2021 period is primarily attributable to net income of $11,075,000 in addition to other non-cash operating items of $2,064,000, offset by changes in other operating assets and liabilities of $1,373,000. Non-cash operating expenses consist principally of depreciation and amortization of $1,183,000, amortization of debt issuance cost of $691,000, share-based compensation expense of $116,000, non-cash rental expense of $120,000, and bad debts of $101,000. In the fiscal 2021 period, accounts and other receivables increased by $645,000 due primarily to higher franchise and license royalties receivable of $925,000 offset by lower Branded Product Program receivables of $309,000. Prepaid expenses and other current assets increased by $144,000 due principally to the prepayment of income taxes and insurance of $280,000 and $125,000, respectively, which were offset, in part, by a reduction in prepaid marketing expenses of $173,000. Accounts payable, accrued expenses and other current liabilities decreased by $287,000 due principally to a reduction in accrued payroll and other benefits of $282,000 due primarily to lower incentive compensation accruals; a reduction in accrued rebates due under the Branded Product Program of $382,000; and a reduction in accrued income taxes of $176,000 which were offset, in part, by an increase in accounts payable of $532,000 due to the timing of seasonal product purchases.

Cash used in investing activities was $551,000 in the fiscal 2021 period primarily in connection with capital expenditures incurred for our Branded Product Program and the installation of a new point-of-sale system at our Company-owned restaurants.

Cash used in financing activities of $7,268,000 in the fiscal 2021 period relates to the payments of the Company’s regular quarterly $0.35 per share cash dividend totaling $5,761,000. Additionally, during the fiscal 2021 period, Nathan’s repurchased 26,676 shares of common stock for $1,501,000.

During the period from October 2001 through March 28, 2021, Nathan’s purchased 5,254,081 shares of its common stock at a cost of approximately $84,770,000 pursuant to stock repurchase plans previously authorized by the Board of Directors. Since March 26, 2007, we have repurchased 3,362,981 shares at a total cost of approximately $77,612,000, reducing the number of shares then-outstanding by 55.9%.

In 2016, the Company’s Board of Directors authorized increases to the sixth stock repurchase plan for the repurchase of up to 1,200,000 shares of its common stock on behalf of the Company. As of March 28, 2021, Nathan’s has repurchased 1,066,450 shares at a cost of approximately $37,108,000 under the sixth stock repurchase plan. At March 28, 2021, there were 133,550 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.

On March 13, 2020, the Company’s Board of Directors approved a 10b5-1 stock plan (the “10b5-1 Plan”) which expired on August 12, 2020. During the fiscal 2021 period, the Company repurchased in open market transactions 26,676 shares of the Company’s common stock at an average share price of $56.26 for a total cost of $1,501,000 under the 10b5-1 Plan.

As discussed above, we had cash and cash equivalents at March 28, 2021 aggregating $81,064,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. In November 2017, we refinanced our 2020 Notes through the issuance of the 2025 Notes and, our Board of Directors announced the payment of a $5.00 per share special dividend to the shareholders of record as of the close of business on December 22, 2017. On May 31, 2018, Nathans’ Board of Directors authorized the commencement of a regular dividend of $1.00 per share per annum, payable at the rate of $0.25 per share per quarter. On June 14, 2019, Nathan’s Board of Directors authorized the increase of its regular quarterly dividend to $0.35 from $0.25. During the fiscal 2021 period, we have declared and paid four quarterly dividend distributions totaling $5,761,000.

Effective June 11, 2021, the Board declared its first quarterly cash dividend of $0.35 per share for fiscal 2022 which will be paid on June 25, 2021 to stockholders of record as of the close of business on June 21, 2021.

Our ability to pay future dividends is limited by the terms of the Indenture for the 2025 Notes. In addition, the payment of any cash dividends in the future, are subject to final determination of the Board and will be dependent upon our earnings and financial requirements. We may also return capital to our stockholders through stock repurchases, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock-repurchase plan.

We expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the outstanding debt, fund our dividend program and may continue our stock repurchase programs, funding those investments from our operating cash flow. We may also incur capital and other expenditures or engage in investing activities in connection with opportunistic situations that may arise on a case-by-case basis. In the fiscal year ending March 28, 2021, we were required to make interest payments of $9,937,500, all of which have been made as of November 1, 2020. During the fiscal year ending March 27, 2022, we will be required to make interest payments of $9,937,500. On May 1, 2021, we made the first semi-annual interest payment of fiscal 2022.

Management believes that available cash, cash equivalents, and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements, fund dividend distributions and stock repurchases for at least the next 12 months.

At March 28, 2021, we sublet one property to a franchisee that we lease from a third party. We remain contingently liable for all costs associated with this property including: rent, property taxes and insurance. We may incur future cash payments with respect to such property, consisting primarily of future lease payments, including costs and expenses associated with terminating such lease.

Our contractual obligations primarily consist of the 2025 Notes and the related interest payments, operating leases, and employment agreement with certain executive officers. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations since March 29, 2020.

On February 27, 2017, a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the “Brooklyn Guaranty”) in connection with its re-franchising of a restaurant located in Brooklyn, New York. The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees. As of March 28, 2021, Nathan’s has recorded a liability of $113,000 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty.

Inflationary Impact

We do not believe that general inflation has materially impacted earnings. However, we have experienced significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities. Between April 2018 and March 2020, beef prices traded within a range of + or - 10%. Prices were at the lowest levels between October 2018 and March 2019 as compared to higher levels between October 2019 and March 2020. Our average cost of hot dogs between October 2019 and March 2020 was approximately 11.2% higher than between October 2018 and March 2019. Our average cost of hot dogs between April 2020 and March 2021 was approximately 0.8% lower than between April 2019 and March 2020.

We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2022. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. Our most recent purchase commitment was completed in 2016 for approximately 2,600,000 pounds of hot dogs. We may attempt to enter into similar purchase arrangements for hot dogs and other products in the future. Additionally, we expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from the uncertainty of the insurance markets.

New York State passed legislation increasing the minimum hourly wage for fast food workers of restaurant chains with 30 or more locations nationwide. The increase is being phased in differently between New York City and the rest of New York State. Effective December 31, 2019, the minimum wage was $15.00 in New York City and increased to $13.75 per hour for the remainder of New York State.

The minimum hourly rate of pay for the remainder of New York State increased to $14.50 on Dec. 31, 2020; and will increase to $15.00 on July 1, 2021.

All of Nathan’s Company-operated restaurants are within New York State, two of which operate within New York City that have been significantly affected by this legislation.

We may attempt to offset the effects of wage inflation, at least in part, through periodic menu price increases. However, no assurance can be given that we will be able to offset these wage increases in the future.

Effective November 27, 2017, the City of New York Fair Work Week Legislation package of bills took effect that covers City of New York fast food workers by giving them more predictable work schedules. A key component of the package is a requirement that fast food restaurants schedule their workers at least two weeks in advance or pay employees between $10 to $75 per scheduling change, depending on the situation. Due to Nathan’s dependency on weather conditions at our two Coney Island beach locations during the summer season, we are unable to determine the potential impact on our results of operations, which could be material. We believe that we have been able to implement tools to minimize the financial impact of this legislation.

Continued increases in labor, food and other operating expenses, including health care, could adversely affect our operations and those of the restaurant industry and we might have to further reconsider our pricing strategy as a means to offset reduced operating margins.

We believe the increases in the minimum wage and other changes in employment laws could have 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.

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, please see the discussions in “Forward-Looking Statements”, “Risk Factors”, and “Notes to Consolidated Financial Statements” in this Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Cash and Cash Equivalents

We have historically invested our cash and cash equivalents in money market funds or short-term, fixed rate, highly rated and highly liquid instruments which are generally reinvested when they mature. Although these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of March 28, 2021, Nathan’s cash and cash equivalentsaggregated $81,064,000. Earnings on this cash would increase or decrease by approximately $203,000 per annum for each 0.25% change in interest rates.

Borrowings

At March 28, 2021, we had $150.0 million of 2025 Notes outstanding which are due in November 2025. Interest expense on these borrowings would increase or decrease by approximately $375,000 per annum for each 0.25% change in interest rates. We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings.

Commodity Costs

Beginning May 2020, the cost of hot dogs increased significantly due primarily to the effects of the COVID-19 pandemic on the meat processing industry. This trend continued during the summer months and then declined during the second half of the fiscal 2021 period.

We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2022. 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. Our most recent purchase commitment was completed in 2016 for approximately 2,600,000 pounds of hot dogs. We may attempt to enter into similar purchase arrangements for hot dogs and other products in the future. Additionally, we expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from the hardening of the insurance markets.

With the exception of purchase commitments, we have not attempted to hedge against fluctuations in the prices of the commodities we purchase using future, forward, option or other instruments. As a result, we expect that the majority of our future commodity purchases will be subject to market changes in the prices of such commodities. We have attempted to enter sales agreements with our customers that are correlated to our cost of beef, thus reducing our market volatility, or have passed through permanent increases in our commodity prices to our customers that are not on formula pricing, thereby reducing the impact of long-term increases on our financial results. A short-term increase or decrease of 10% in the cost of our food and paper products for the year ended March 28, 2021 would have increased or decreased our cost of sales by approximately $2,877,000.

Foreign Currencies

Foreign franchisees generally conduct business with us and make payments in United States dollars, reducing the risks inherent with changes in the values of foreign currencies. As a result, we have not purchased future contracts, options or other instruments to hedge against changes in values of foreign currencies and we do not believe fluctuations in the value of foreign currencies would have a material impact on our financial results.

Item 8.Financial Statements and Supplementary Data.

The consolidated financial statements are submitted as a separate section of this report beginning on Page F-1.

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined by Exchange Act Rule 13a-15(e) and Exchange Act Rule 15d-15(e). Based on that evaluation, the Chief Executive Officer, and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined by Exchange Act Rule 13a-15(f) and Exchange Act Rule 15d-15(f). Our internal control over financial reporting includes those policies and procedures that:

Management has assessed the effectiveness of our system of internal control over financial reporting as of March 28, 2021. In making this assessment, management used the framework in Internal Control — Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment and the criteria set forth by COSO in 2013, management believes that Nathan’s maintained effective internal control over financial reporting as of March 28, 2021. The effectiveness of our internal control over financial reporting as of March 28, 2021, has been audited by Marcum LLP, an independent registered public accounting firm which has also audited our consolidated financial statements, as stated in its attestation report which is included herein.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting that occurred during the quarter ended March 28, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective at the reasonable assurance level.

Item 9B. Other Information.

As disclosed in this Annual Report on Form 10-K, the Company’s Board of Directors has declared a $0.35 per share dividend payable on June 25, 2021 to shareholders of record at the close of business on June 21, 2021.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Stockholders and Board of Directors of

Nathan’s Famous, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Nathan’s Famous, Inc. and Subsidiaries (the “Company”) internal control over financial reporting as of March 28, 2021, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of March 28, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of March 28, 2021 and March 29, 2020 and the related consolidated statements of earnings, stockholders’ deficit, and cash flows and the related notes for each of the fifty-two week periods ended March 28, 2021 and March 29, 2020 of the Company, and our report dated June 11, 2021expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.

/s/ Marcum llp

Marcum llp

New York, NY

June 11, 2021

PART III

Item 10.Directors, Executive Officers and Corporate Governance.

The information required in response to this Item is incorporated herein by reference from the discussions under the captions Proposal 1 – Election of Directors, Corporate Governance Management and Security Ownership in our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this Report.

Our Board of Directors has adopted a Financial Officer Code of Ethics applicable to the Company’s Chief Executive Officer, Chief Financial Officer and all other members of the Company’s Finance Department. This Code of Ethics is posted on the Company’s website within a broader Code of Business Conduct and Ethics at www.nathansfamous.com in the Investor Relations section. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, the provision of our Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that relates to any element of such provision of our Code of Ethics by posting such information on our website within four business days of the date of such amendment or waiver. In the case of a waiver, the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver will also be disclosed.

Item 11.Executive Compensation.

The information required in response to this Item is incorporated herein by reference from the discussion under the caption Executive Compensation, including the Summary Compensation and other tables, Non-Qualified Deferred Compensation, Risk Consideration in our Compensation Programs and 2021 Director Compensation in our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this Report.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required in response to this Item is incorporated herein by reference from the discussion under the caption Equity Plan Information and Security Ownership in our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this Report.

Item 13.Certain Relationships and Related Transactions, and Director Independence.

The information required in response to this Item is incorporated herein by reference from the discussion under the caption Corporate Governance – Director Independence and Corporate Governance – Certain Relationships and Related Persons transactions in our proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this Report.

Item 14.Principal Accountant Fees and Services.

Audit Fees

We were billed by Marcum LLP the aggregate amount of approximately $235,000 in the fiscal 2021 period and $165,000in the fiscal 2020 period, for fees for professional services rendered for the audit of our annual financial statements and the effectiveness of our internal control over financial reporting, as well as the review of our financial statements included in our Form 10-Q.

We were billed by Grant Thornton LLP in the fiscal 2020 period the aggregate amount of approximately $100,000 in respect to the issuance of its consent to the inclusion of the fiscal 2017 and fiscal 2018 audited financial statements of the Company in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and $50,000 for the issuance of its consent to the inclusion of fiscal 2018 audited financial statements of a wholly-owned subsidiary of the Company for the fiscal year ended March 29, 2020 in our Franchise Disclosure Document.

Audit-Related Fees

Marcum LLP did not render any audit-related services for fiscal 2021 and 2020, respectively and, accordingly, did not bill for any such services.

Tax Fees

Marcum LLP did not render any tax compliance, tax advice or tax planning services for fiscal 2021 and 2020, respectively and, accordingly, did not bill for any such services.

All Other Fees

Marcum LLP did not render any other services for fiscal 2021 and 2020, respectively and, accordingly, did not bill for any such services.

Pre-Approval Policies

Our Audit Committee has not adopted any pre-approval policies. Instead, the Audit Committee will specifically pre-approve the provision by Marcum LLP of all audit and non-audit services.

Our Audit Committee approved all of the audit services provided by Marcum LLP during fiscal 2021 and 2020, respectively.

PART IV

Item 15.Exhibits and Financial Statement Schedules.

(a) (1) Consolidated Financial Statements

The consolidated financial statements listed in the accompanying index to the consolidated financial statements on Page F-1 are filed as part of this Report.

(2) Financial Statement Schedule

None.

(3) Exhibits

Certain of the following exhibits were previously filed as exhibits to other reports or registration statements filed by the Registrant under the Securities Act of 1933 or under the Securities Exchange Act of 1934 and are therefrom incorporated by reference.

Exhibit No. Exhibit

21 (1) List of Subsidiaries of the Registrant.

23.1 (1) Consent of Marcum LLP dated June 11, 2021.

101.INS Inline XBRL Instance Document.

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

(1) Filed herewith.

**Filed with confidential portions omitted pursuant to request for confidential treatment. The omitted portions have been separately filed with the SEC.

*** Indicates a management plan or arrangement.

Item 16.Form 10-K Summary.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 11th day of June, 2021.

Nathan’s Famous, Inc.

/s/ ERIC GATOFF

Eric Gatoff

Chief Executive Officer

(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 11th day of June, 2021.

/s/ ERIC GATOFF

Eric Gatoff

Chief Executive Officer

(Principal Executive Officer)

/s/ HOWARD LORBER

Howard Lorber

Executive Chairman

/s/ ROBERT STEINBERG

Robert Steinberg

Vice President - Finance and Chief Financial Officer

(Principal Financial and Accounting Officer)

/s/ WAYNE NORBITZ

Wayne Norbitz

Director

/s/ ROBERT J. EIDE

Robert J. Eide

Director

/s/ BARRY LEISTNER

Barry Leistner

Director

/s/ BRIAN GENSON

Brian Genson

Director

/s/ ATTILIO F. PETROCELLI

Attilio F. Petrocelli

Director

/s/ CHARLES RAICH

Charles Raich

Director

/s/ ANDREW LEVINE

Andrew Levine

Director

Nathan’s Famous, Inc. and Subsidiaries

TABLE OF CONTENTS

Page

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets F-3

Consolidated Statements of Earnings F-4

Consolidated Statements of Stockholders’ Deficit F-5 – F-6

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Nathan’s Famous, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Nathan’s Famous, Inc. and Subsidiaries (the “Company”) as of March 28, 2021 and March 29, 2020, the related consolidated statements of earnings, stockholders’ deficit and cash flows for each of the fifty-two week periods ended March 28, 2021 and March 29, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 28, 2021 and March 29, 2020, and the results of its operations and its cash flows for each of the fifty-two week periods ended March 28, 2021 and March 29, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of March 28, 2021, based onthe criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated June 11, 2021, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Marcum llp

Marcum llp

We have served as the Company’s auditor since 2018.

New York, NY

June 11, 2021

F-2

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

ASSETS

CURRENT ASSETS

Accounts and other receivables, net (Note D) 11,652 11,108

Prepaid expenses and other current assets (Note E) 1,325 1,181

Operating lease assets (Note K) 8,337 9,181

Deferred income taxes 138 -

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES

Accrued expenses and other current liabilities (Note G) 8,478 9,297

Current portion of operating lease liabilities (Note K) 1,837 1,583

Deferred franchise fees 237 230

Operating lease liabilities (Note K) 7,553 8,532

Other liabilities (Note G) 774 696

Deferred income taxes - 9

COMMITMENTS AND CONTINGENCIES (Note M)

STOCKHOLDERS’ DEFICIT

Stockholders’ equity before treasury stock 22,292 16,868

Total liabilities and stockholders’ deficit $ 108,809 $ 105,282

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except share and per share amounts)

Fifty-Two Fifty-Two

weeks ended weeks ended

REVENUES

COSTS AND EXPENSES

Restaurant operating expenses 3,268 3,476

Depreciation and amortization 1,183 1,233

Other income, net 47 86

Income before provision for income taxes 15,325 18,014

PER SHARE INFORMATION

Weighted average shares used in computing income per share:

Income per share:

Dividends declared per share $ 1.40 $ 1.40

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Fifty-two weeks ended March 28, 2021 and the Fifty-two weeks ended March 29, 2020

(in thousands, except share and per share amounts)

Additional Total

Common Common Paid-in Accumulated Treasury Stock, at Cost Stockholders’

Shares Stock Capital Deficit Shares Amount Deficit

Dividends on common stock - - - (5,912 ) - - (5,912 )

Share-based compensation - - 116 - - - 116

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

Fifty-two weeks ended March 28, 2021 and the Fifty-two weeks ended March 29, 2020

(in thousands, except share and per share amounts)

Additional Total

Common Common Paid-in Accumulated Treasury Stock, at Cost Stockholders’

Shares Stock Capital Deficit Shares Amount Deficit

Shares issued in connection with share-based compensation plans 223 - - - - - -

Dividends on common stock - - - (5,761 ) - - (5,761 )

Share-based compensation - - 116 - - - 116

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Fifty-Two Fifty-Two

weeks ended weeks ended

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization 1,183 1,233

Non cash rental expense 120 232

Amortization of debt issuance costs 691 691

Share-based compensation expense 116 116

Income tax benefit on stock option exercises - 228

Provision for doubtful accounts 101 71

Deferred income taxes (147 ) 352

Changes in operating assets and liabilities:

Accounts and other receivables, net (645 ) (1,006 )

Prepaid expenses and other current assets (144 ) (174 )

Accounts payable, accrued expenses and other current liabilities (287 ) (2,028 )

Deferred franchise fees (144 ) (1,088 )

Other liabilities 78 8

Net cash provided by operating activities 11,766 12,349

Cash flows from investing activities:

Purchase of property and equipment (551 ) (870 )

Net cash used in investing activities (551 ) (870 )

Cash flows from financing activities:

Dividends paid to stockholders (5,761 ) (5,912 )

Repurchase of treasury stock (1,501 ) (4,966 )

Proceeds from the exercise of stock options - 1,078

Net cash used in financing activities (7,268 ) (9,808 )

Net increase in cash and cash equivalents 3,947 1,671

Cash and cash equivalents, beginning of year 77,117 75,446

Cash and cash equivalents, end of year $ 81,064 $ 77,117

Cash paid during the year for:

Noncash financing activity:

Dividends declared per share $ 1.40 $ 1.40

The accompanying notes are an integral part of these consolidated financial statements.

F-7

Nathan’s Famous, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

March 28, 2021 and March 29, 2020

NOTE A - DESCRIPTION AND ORGANIZATION OF BUSINESS

Nathan’s Famous, Inc. and subsidiaries (collectively the “Company” or “Nathan’s”) has historically operated or franchised a chain of retail fast food restaurants featuring the “Nathan’s World Famous Beef Hot Dog”, crinkle-cut French-fried potatoes and a variety of other menu offerings. Nathan’s has also established a Branded Product Program, which enables foodservice retailers to sell select Nathan’s proprietary products outside of the realm of a traditional franchise relationship. Nathan’s also licenses the manufacture and sale of “Nathan’s Famous” packaged hot dogs, crinkle-cut French fries and a number of other products to a variety of third parties for sale to supermarkets, club stores and grocery stores. The Company is also the owner of the Arthur Treacher’s brand. Arthur Treacher’s main product is its "Original Fish & Chips" product consisting of fish fillets coated with a special batter prepared under a proprietary formula, deep-fried golden brown, and served with English-style chips and corn meal "hush puppies." The Company considers itself to be a brand marketer of its products to the foodservice and retail industries, pursuant to its various business structures. Nathan’s has also pursued co-branding and co-hosting initiatives.

At March 28, 2021, the Company’s restaurant system included four Company-owned units in the New York City metropolitan area and 213 franchised or licensed units, located in nineteenstates and eightforeign countries.

Covid-19 Pandemic

In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19), a global pandemic. The COVID-19 pandemic has had an impact on the Company’s business, financial condition, cash flows and results of operations for the fiscal year ended March 28, 2021 and continues into fiscal 2022. Governmental restrictions and public perceptions of the risks associated with COVID-19 have caused consumers to avoid or limit nonessential travel, gatherings in public places and other social interactions, which has adversely affected, and could continue to adversely affect, our business. The COVID-19 pandemic, has and may continue to impact customer traffic at our Company-owned restaurants and franchised restaurants, as well as sales to our Branded Product Program customers. We cannot predict whether, when or the manner in which the conditions surrounding the pandemic will change and cannot currently estimate the impact on our business in the short or long-term.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies have been applied in the preparation of the consolidated financial statements:

1. Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2. Fiscal Year

The Company’s fiscal year ends on the last Sunday in March, which results in a 52 or 53-week reporting period. The fiscal years ended March 28, 2021 and March 29, 2020 are on the basis of a 52-week reporting period.

3. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates made by management in preparing the consolidated financial statements include revenue recognition, the allowance for doubtful accounts, valuation of stock-based compensation, accounting for income taxes, and the valuation of goodwill, intangible assets and other long-lived assets.

4. 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 March 28, 2021 or March 29, 2020.

At March 28, 2021 and March 29, 2020, 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.

5. Inventories

Inventories, which are stated at the lower of cost or net realizable value, consist primarily of food items and supplies. Cost is determined using the first-in, first-out method.

6. Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized and minor replacements, maintenance and repairs are charged to expense as incurred. Depreciation and amortization are calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows:

Building and improvements (years) 5 – 25

Machinery, equipment, furniture and fixtures (years) 3 – 15

Leasehold improvements (years) 5 – 20

F-

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

7. Goodwill and Intangible Assets

Goodwill and intangible assets consist of (i) goodwill of $95 resulting from the acquisition of Nathan’s in 1987; and (ii) trademarks, trade names and other intellectual property of $1,156 in connection with Arthur Treacher’s.

As of March 28, 2021, the Company performed its annual impairment test of goodwill in accordance with the accounting guidance adopted in the first quarter fiscal 2021 that simplifies the testing for goodwill impairment, as discussed in Note B.22 – Adoption of New Accounting Standard. No impairment charges were recognized on goodwill for the fiscal years ended March 28, 2021 and March 29, 2020.

During the fiscal year ended March 29, 2020, the Company determined its indefinite-lived intangible asset to have a finite useful life based on the expected future use of this intangible asset. Based upon the review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is twelve years and the intangible asset is subject to annual amortization. The Company has recorded amortization expense of $113 and $84 for the fiscal years ending March 28, 2021 and March 29, 2020, respectively.

The Company reviews its definite-lived intangible asset for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company determined that the impact of COVID-19 on its business was a sufficient indicator that the carrying value may not be recoverable. The Company tested for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements. Based on the quantitative test performed, the Company determined that the definite-lived intangible asset was recoverable and no impairment charge was recorded for the fiscal years ended March 28, 2021 and March 29, 2020.

Annual amortization of the intangible asset for the next five years and thereafter will approximate the following:

Estimate for fiscal year

8. 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.

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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. As a result of the impact of the COVID-19 pandemic on its business, the Company determined that sufficient indicators existed to trigger the performance of an impairment analysis as of March 28, 2021.

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 impairments in future periods and such impairments could be material. No long-lived assets were deemed to be permanently impaired during the fiscal years ended March 28, 2021 and March 29, 2020.

9. Leases

Determination of Whether a Contract Contains a Lease

We determine if an arrangement is a lease at inception or modification of a contract, and classify each lease as either an operating or finance lease at commencement. The Company only reassesses lease classifications subsequent to commencement upon a change to the expected lease term or the contract being modified. Operating leases represent the Company’s right to use an underlying asset as lessee for the lease term, and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

ROU Model and Determination of Lease Term

The Company uses the right-of-use (“ROU”) model to account for leases where the Company is the lessee, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, as both lessee and lessor, the Company includes option periods when it is reasonably certain that those options will be exercised.

F-

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Operating Leases

For operating leases, minimum lease payments or receipts, including minimum scheduled rent increases, are recognized as rent expense where the Company is a lessee, or income where the Company is a lessor, as applicable, on a straight-line basis (“Straight-Line Rent”) over the applicable lease terms. There is a period under certain lease agreements referred to as a rent holiday (“Rent Holiday”) that generally begins on the possession date and ends on the rent commencement date. During a Rent Holiday, no cash rent payments are typically due under the terms of the lease; however, rent expense is recorded for that period on a straight-line basis. The excess of the Straight-Line Rent over the minimum rents paid is included in the ROU asset where the Company is a lessee. The excess of the Straight-Line Rent over the minimum rents received is recorded as a deferred lease asset and is included in “Other Assets” where the Company is a lessor. The Company recorded $34 and $32 in Other Assets at March 28, 2021 and March 29, 2020, respectively. Certain leases contain provisions, referred to as contingent rent (“Contingent Rent”), that require additional rental payments based upon restaurant sales volume. Contingent Rent is recognized each period as the liability is incurred or the asset is earned.

Lease cost for operating leases is recognized on a straight-line basis and includes the amortization of the ROU asset and interest expense relating to the operating lease liability. Variable lease cost for operating leases include Contingent Rent and payments for executory costs such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability. Short-term lease cost for operating leases includes rental expense for leases with a term of less than 12 months. Leases with an initial expected term of 12 months or less are not recorded in the Consolidated Balance Sheets and the related lease expense is recognized on a straight-line basis over the lease term. Lease costs are recorded in the Consolidated Statements of Earnings based on the nature of the underlying leases as follows: (1) rental expense related to leases for Company-operated restaurants is recorded to “Restaurant Operating Expenses,” (2) rental expense for leased properties that are subsequently subleased to franchisees is recorded to “Other Income, net” and (3) rental expense related to leases for corporate offices and equipment is recorded to “General and administrative expenses.”

Rental income for operating leases on properties subleased to franchisees is recorded net of associated lease costs to “Other income, net.” At March 28, 2021, the Company leases one site which it in turn subleases to a franchisee, which expires in April 2027 exclusive of renewal options. The Company remains liable for all lease costs when property is subleased to a franchisee.

Significant Assumptions and Judgement

Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, property lives, discount rates and probable term, all of which can impact (1) the classification and accounting for a lease or sublease as operating or finance, (2) the Rent Holiday and escalations in payment that are taken into consideration when calculating Straight-Line Rent, (3) the term over which leasehold improvements for each restaurant are amortized and (4) the values and lives of adjustments to the initial ROU asset where the Company is the lessee, or favorable and unfavorable leases where the Company is the lessor. The amount of depreciation and amortization, interest and rent expense and income would vary if different estimates and assumptions were used.

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In April 2020, the FASB issued guidance allowing entities to make a policy election whether to account for lease concessions related to the COVID-19 pandemic as lease modifications. The election applies to any lessor – provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. During the fiscal year ended March 28, 2021, the Company received non-substantial concessions from certain landlords in the form of rent reductions. The Company elected to not account for these rent concessions as lease modifications. This election did not have a material impact on our Consolidated Financial Statements as of March 28, 2021.

10. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).

The fair value hierarchy, as outlined in the applicable accounting guidance, is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.

The fair value hierarchy consists of the following three levels:

The use of observable market inputs (quoted market prices) when measuring fair value and, specifically, the use of Level 1 quoted prices to measure fair value are required whenever possible. The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures quarterly and based on various factors, it is possible that an asset or liability may be classified differently from year to year.

At March 28, 2021 and March 29, 2020, we did not have any assets or liabilities that were recorded at fair value.

The Company’s long-term debt had a face value of $150,000 as of March 28, 2021 and a fair value of $154,420 as of March 28, 2021. 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.

F-

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

The majority of the Company’s non-financial assets and liabilities are not required to be carried at fair value on a recurring basis. However, the Company is required on a non-recurring basis to use fair value measurements when analyzing asset impairment as it relates to goodwill and other definite- lived assets and long-lived assets. The Company utilized the income approach (Level 3 inputs) which utilized projected undiscounted cash flows in performing its annual impairment testing of intangible assets.

11. Start-up Costs

Pre-opening and similar restaurant costs are expensed as incurred.

12. Revenue Recognition - Branded Product Program

The Company recognizes sales from the Branded Product Program and certain products sold from the Branded Menu Program upon delivery to Nathan’s customers via third party common carrier. Rebates provided to customers are classified as a reduction to sales.

13. Revenue Recognition - Company-owned Restaurants

Sales by Company-owned restaurants, which are typically paid in cash or credit card by the customer, are recognized at the point of sale. Sales are presented net of sales tax.

14. Revenue Recognition – License Royalties

The Company earns revenue from royalties on the licensing of the use of its intellectual property in connection with certain products produced and sold by outside vendors. The use of the Company’s intellectual property must be approved by the Company prior to each specific application to ensure proper quality and a consistent image. Revenue from license royalties is generally based on a percentage of sales, subject to certain annual minimum royalties, recognized on a monthly basis when it is earned and deemed collectible.

F-

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

15. Revenue Recognition - Franchising Operations

In connection with its franchising operations, the Company receives initial franchise fees, international development fees, royalties, and in certain cases, revenue from sub-leasing restaurant properties to franchisees.

The following services are typically provided by the Company prior to the opening of a franchised restaurant.

● Approval of all site selections to be developed.

● Provision of architectural plans suitable for restaurants to be developed.

● Provision of management training for the new franchisee and selected staff.

● Assistance with the initial operations of restaurants being developed.

The services provided in exchange for these upfront restaurant franchise fees do not contain separate and distinct performance obligations from the franchising right and these initial franchise fees, renewal fees and transfer fees are deferred and recognized over the term of each respective agreement, or upon termination of the franchise agreement.

The services provided in exchange for these international development fees do not contain separate and distinct performance obligations from the franchise right and these international development fees are deferred and recognized over the term of each respective agreement. Certain other costs, such as legal expenses, are expensed as incurred.

The Company recognizes franchise royalties on a monthly basis, which are generally based upon a percentage of sales made by the Company’s franchisees, when they are earned and deemed collectible. The Company recognizes royalty revenue from its Branded Menu Program directly from the sale of Nathan’s products by its primary distributor or directly from the manufacturers.

Franchise fees and royalties that are subsequently deemed to be not collectible are recorded as bad debts until paid by the franchisee or until collectability is deemed to be reasonably assured.

The following is a summary of franchise openings and closings for the Nathan’s franchise restaurant system for the fiscal years ended March 28, 2021 and March 29, 2020:

Franchised restaurants operating at the beginning of the period 216 255

New franchised restaurants opened during the period 7 16

Franchised restaurants closed during the period (10 ) (55 )

Franchised restaurants operating at the end of the period 213 216

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Contract balances

The following table provides information about contract liabilities (Deferred franchise fees) from contracts with customers:

Deferred franchise fees (a) $ 1,773 $ 1,917

Significant changes in Deferred franchise fees for the fiscal years ended March 28, 2021 and March 29, 2020 are as follows:

Deferred franchise fees at beginning of period $ 1,917 $ 3,005

New deferrals due to cash received and other 140 157

Revenue recognized during the period (284 ) (1,245 )

Deferred franchise fees at end of period $ 1,773 $ 1,917

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:

Estimate for fiscal year

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

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

16. Revenue Recognition – National Advertising Fund

The Company maintains a national advertising fund (the “Advertising Fund”) established to collect and administer funds contributed for use in advertising and promotional programs for Company-owned and franchised restaurants.

The revenue, expenses and cash flows of the Advertising Fund are fully consolidated into the Company’s Consolidated Statements of Earnings and Statements of Cash Flows.

While this treatment impacts the gross amount of reported advertising fund revenue and related expenses, the impact is expected to approximately offset the increase to both revenue and expense, with minimal impact to income from operations or net income because the Company attempts to manage the Advertising Fund to breakeven over the course of the fiscal year. However, any surplus or deficit in the Advertising Fund will impact income from operations and net income.

17. Business Concentrations and Geographical Information

The Company’s accounts receivable consists principally of receivables from franchisees for royalties and advertising contributions, from sales under the Branded Product Program, and from royalties from retail licensees. At March 28, 2021, three Branded Product customers represented 19%, 13% and 7%, of accounts receivable. At March 29, 2020, three Branded Product customers represented 24%, 11% and 10%, of accounts receivable. One Branded Products customer accounted for 9% and 12% of total revenue for the fiscal years ended March 28, 2021 and March 29, 2020, respectively. One retail licensee accounted for 39% and 24% of the total revenue for the fiscal years ended March 28, 2021 and March 29, 2020, respectively.

The Company’s primary supplier of hot dogs represented 92% of product purchases for each of the fiscal years ended March 28, 2021 and March 29, 2020. The Company’s primary distributor of products to its Company-owned restaurants represented 6% and 5% of product purchases for each of the fiscal years ended March 28, 2021 and March 29, 2020, respectively.

The Company’s revenues for the fiscal years ended March 28, 2021 and March 29, 2020 were derived from the following geographic areas:

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company’s sales for the fiscal years ended March 28, 2021 and March 29, 2020 were derived from the following:

Total franchise fees and royalties 1,601 4,572

18. Advertising

The Company administers an advertising fund on behalf of its restaurant system to coordinate the marketing efforts of the Company. Under this arrangement, the Company collects and disburses fees paid by manufacturers, franchisees and Company-owned stores for national and regional advertising, promotional and public relations programs. Contributions to the advertising fund are based on specified percentages of net sales, generally ranging up to 2%. Company-owned store advertising expense, which is expensed as incurred, was $72 and $145, for the fiscal years ended March 28, 2021 and March 29, 2020, respectively, and have been included within restaurant operating expenses in the accompanying Consolidated Statements of Earnings.

19. Stock-Based Compensation

At March 28, 2021, the Company had one stock-based compensation plan in effect which is more fully described in Note L.2.

The cost of all share-based payments, including grants of restricted stock and stock options, is recognized in the consolidated financial statements based on their fair values measured at the grant date, or the date of any later modification, over the requisite service period. The Company recognizes compensation cost for unvested stock awards on a straight-line basis over the requisite vesting period.

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

20. Classification of Operating Expenses

Cost of sales consists of the following:

o The cost of paper products used in Company-operated restaurants.

o Other direct costs such as fulfillment, commissions, freight and samples.

Restaurant operating expenses consist of the following:

o Occupancy costs of Company-operated restaurants.

o Utility costs of Company-operated restaurants.

o Repair and maintenance expenses of Company-operated restaurant facilities.

o Insurance costs directly related to Company-operated restaurants.

21. Income Taxes

Uncertain Tax Positions

See Note H for a further discussion of our income taxes.

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NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

22. Adoption of New Accounting Standard

23. New Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under this standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. In November 2019, the FASB deferred the effective date for smaller reporting companies for annual reporting periods beginning after December 15, 2022. This standard is required to take effect in Nathan’s first quarter ( June 2023) of our fiscal year ending March 31, 2024. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. This standard is required to take effect in Nathan’s first quarter ( June 2021) of our fiscal year ending March 27, 2022. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

NOTE C - INCOME PER SHARE

Basic income per common share is calculated by dividing income by the weighted-average number of common shares outstanding and excludes any dilutive effect of stock options. Diluted income per common share gives effect to all potentially dilutive common shares that were outstanding during the period. Dilutive common shares used in the computation of diluted income per common share result from the assumed exercise of stock options and warrants, as determined using the treasury stock method.

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NOTE C - INCOME PER SHARE (continued)

The following chart provides a reconciliation of information used in calculating the per-share amounts for the fiscal years ended March 28, 2021 and March 29, 2020, respectively:

Net Income Shares Net income per share

Basic EPS

Effect of dilutive employee stock options - - - - - -

Diluted EPS

Options to purchase 10,000 shares of common stock for the fiscal years ended March 28, 2021 and March 29, 2020 were excluded from the computation of diluted earnings per share because the exercise price exceeded the average market price.

NOTE D - ACCOUNTS AND OTHER RECEIVABLES, NET

Accounts and other receivables, net, consist of the following:

Franchise and license royalties 5,224 4,299

Less: allowance for doubtful accounts 345 237

Accounts and other receivables, net $ 11,652 $ 11,108

Accounts receivable are due within 30 days and are stated at amounts due from franchisees, retail licensees and Branded Product Program customers, net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are generally considered past due. The Company does not recognize franchise and license royalties that are not deemed to be realizable.

The Company individually reviews each past due account and determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the customer’s current and expected future ability to pay its obligation to the Company, the condition of the general economy and the industry as a whole. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings. After the Company has used reasonable collection efforts, it writes off accounts receivable through a charge to the allowance for doubtful accounts.

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NOTE D - ACCOUNTS AND OTHER RECEIVABLES, NET (continued)

Changes in the Company’s allowance for doubtful accounts for the fiscal years ended March 28, 2021 and March 29, 2020 are as follows:

NATH US Equity

NATH · 10-K · period ended 2021-03-28

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8.Financial Statements and Supplementary Data.

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Item 9A.Controls and Procedures.

Item 9B. Other Information.

Item 10.Directors, Executive Officers and Corporate Governance.

Item 11.Executive Compensation.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13.Certain Relationships and Related Transactions, and Director Independence.

Item 14.Principal Accountant Fees and Services.

Item 15.Exhibits and Financial Statement Schedules.

Item 16.Form 10-K Summary.

NATH US Equity☆

NATH · 10-K · period ended 2021-03-28

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8.Financial Statements and Supplementary Data.

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Item 9A.Controls and Procedures.

Item 9B. Other Information.

Item 10.Directors, Executive Officers and Corporate Governance.

Item 11.Executive Compensation.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13.Certain Relationships and Related Transactions, and Director Independence.

Item 14.Principal Accountant Fees and Services.

Item 15.Exhibits and Financial Statement Schedules.

Item 16.Form 10-K Summary.

NATH US Equity