Item 1A.Risk Factors.
Our business is subject to various risks. Certain risks are specific to certain ways we do business, such as through Company-owned restaurants, franchised restaurants, virtual kitchens, branded products and retail, while other risks, such as health-related or economic risks, may affect all of the ways that we do business.
Investors should carefully consider all of the information set forth in this Annual Report on Form 10-K, including the following risk factors, before deciding to invest in any of the Company’s securities. The following risk factors are not exhaustive. Additional risks and uncertainties not presently known to the Company may also adversely impact its business. The Company’s business, financial condition, results of operations or prospects could be adversely affected by any of these risks. In that case, the trading price of the Company’s common stock could decline. This Form 10-K also contains forward-looking statements that involve risks and uncertainties. The Company’s results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks it faces described below and elsewhere. See “Forward-Looking Statements” above.
Risks Related to Our Business and Operations
Our results of operations could be adversely affected by disease epidemics, public health concerns or other catastrophic events.
A recurrence of coronavirus (“COVID-19”) or the emergence of other health epidemics or pandemics could substantially impact customer traffic at our Company-owned and franchised restaurants, as well as sales to our Branded Product Program customers and royalties earned from our licensing activities.
The Company cannot predict if new variants of COVID-19 will be discovered, other health epidemics or pandemics may arise, what restrictions may be enacted by local, state and the federal government, to what extent it can maintain off-premises sales volumes, whether it can maintain sufficient staffing levels at our Company-owned restaurants, or if individuals will be comfortable congregating in our dining rooms or public venues such as professional sports arenas, amusement parks, shopping malls or movie theaters, and what long-lasting effects COVID-19 or other health epidemics or pandemics may have on the Company as a whole.
Additionally, unforeseen or other catastrophic events including natural disasters, military conflicts, terrorism, labor unrest and other political unrest could have an adverse impact on our operations, disrupt the operations of franchisees, suppliers or customers. These events could negatively impact consumer discretionary spending, thereby reducing demand for our products and/or the ability to receive products from suppliers.
Our results of operations could be adversely affected by increases in the cost of food, commodities and paper.
General economic conditions, including increases in inflation, have adversely affected our food, commodity and paper costs and may continue to do so. Our success and profitability depends on our customers willingness to pay higher prices for our products across all channels of distribution and there is no assurance that they will do so.
Food and paper products represent approximately 25% to 30% of our cost of restaurant sales. We purchase large quantities of beef and beef trimmings and our beef costs represent approximately 80% to 90% of our cost of sales. The market for beef is particularly volatile and is subject to significant price fluctuations due to seasonal shifts, adverse weather conditions, including the impact of climate change, environmental regulations, industry demand, inflationary pressures, the potential impacts of tariffs and other macroeconomic factors beyond our control.
While inflationary pressures eased slightly during fiscal year 2025, we may continue to experience increases in the cost of food, commodity and paper products which, in turn, may adversely affect our business, results of operations and financial condition.
We cannot assure that our Company-owned restaurants or our franchised restaurants will be able to purchase its food, commodity or paper products at reasonable prices, or that the cost of such food, commodity or paper products will remain stable in the future.
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We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2026. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. If the price of beef, beef trimmings or other food products that we use in our operations significantly increases or remains elevated for a sustained period of time, particularly in the Branded Product Program, and we choose not to pass, or cannot pass, these increases on to our customers, our operating margins will decrease and such decrease in operating margins could have a material adverse effect on our business, results of operations or financial condition. We attempt to offset cost increases resulting from inflation by increasing prices and entering into sales agreements with our Branded Product Program customers that are correlated to our cost of beef and beef trimmings. However, if we are unable to continue to execute or to renew these sales agreements, our operating margins could be negatively affected and could have a material adverse effect on our business, results of operations or financial condition.
From time to time, we have sought to lock in the cost of a portion of our beef purchases by entering into various commitments to purchase hot dogs during certain periods in an effort to ensure supply of product at a fixed cost of product. However, we may be unable to enter into similar purchase commitments in the future. In addition, we do not have the ability to effectively hedge our beef purchases using futures or forward contracts without incurring undue financial cost and risk.
Price increases may impact customer visits.
The Company and our franchisees have increased prices on selected menu items in order to offset rising food and commodity costs. Although we have not experienced significant resistance to our past price increases, future price increases may deter customers from visiting our Company-owned and franchised restaurants, may decrease our ability to attract new customers, may decrease demand for our products at our Company-owned and franchised restaurants and may adversely affect our restaurant operations.
Our licensing revenue and overall profitability is substantially dependent on our agreement with Smithfield Foods, Inc. and the loss or a significant reduction of this revenue would have a material adverse effect on our financial condition and results of operations.
We earned license royalties from Smithfield Foods, Inc. of approximately $33,589,000 in fiscal 2025 and approximately $30,067,000 in fiscal 2024 representing 23% and 22% of total revenues, respectively. As a result of our agreement with Smithfield Foods, Inc. which expires in 2032, we expect that most of our license royalties will be earned from Smithfield Foods, Inc. for the foreseeable future. Accordingly, in the event that (i) Smithfield Foods, Inc. experiences financial or operational difficulties, (ii) there is a disruption or termination of the Smithfield Foods, Inc. agreement or (iii) there is a significant decrease in our license royalties from Smithfield Foods, Inc., it would have a material adverse effect on our business, results of operations and financial condition. We cannot assure you that we will be able to renew the license agreement with Smithfield Foods, Inc.
A significant amount of our Branded Product Program revenue is from a small number of accounts. The loss of any one or more of those accounts could harm our profitability and operating results.
A small number of our Branded Product Program customers account for a significant portion of our Branded Product Program revenues. Sales to our five largest Branded Product Program customers were 79% and 77% of our Branded Product Program revenues in fiscal 2025 and fiscal 2024, respectively. In the event that any one of these Branded Product Program customers experience financial difficulties or, upon the expiration of their existing agreements, if applicable, are not willing to do business with us in the future on terms acceptable to the Company, there could be a material adverse effect on our business, results of operations and financial condition.
Smithfield Foods, Inc. currently has two manufacturing facilities producing different Nathan’s products and a long-term significant interruption of a primary facility could potentially disrupt our operations.
Smithfield Foods, Inc. currently has two manufacturing facilities producing different Nathan’s products. A temporary closure at either of these plants could potentially cause a short-term disruption to the production or distribution of certain products to customers. A longer-term significant interruption at either of these production facilities, whether as a result of a natural disaster or other causes, could significantly impair our ability to operate our business on a day-to-day basis while Smithfield Foods, Inc. determines how to make up for any lost production capabilities, during which time we may not be able to secure sufficient alternative sources of supply on acceptable terms, if at all. In addition, a long-term disruption in supply to our customers could cause our customers to determine not to purchase some or all of their hot dogs from us in the future, which in turn would adversely affect our business, results of operations and financial condition. Furthermore, a supply disruption or other events might affect our brand in the eyes of consumers and the retail trade, which damage might negatively impact our overall business in general, which could result in a material adverse effect on our business, results of operations or financial condition.
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The loss of one or more of our key suppliers could lead to supply disruptions, increased costs and lower operating results.
We have historically relied on one supplier for the majority of our hot dogs and another supplier for a majority of our supply of frozen crinkle-cut French fries for our restaurant system. An interruption in the supply of product from either of these suppliers without our obtaining an alternative source of supply on comparable terms could lead to supply disruptions, increased costs and lower operating results. We have an agreement with a secondary hot dog manufacturer that continues to also supply natural casing hot dogs for our restaurant business.
In the event that the hot dog or French fry suppliers are unable to fulfill our requirements for any reason, including due to a significant interruption in its manufacturing operations, whether as a result of a natural disaster or for other reasons, such interruption could significantly impair our ability to operate our business on a day-to-day basis.
In the event that we are unable to find one or more alternative suppliers of hot dogs or French fries on a timely basis, there could be a disruption in the supply of product to our Company-owned restaurants, franchised restaurants and Branded Product Program customers, which would damage our business, our franchisees and our Branded Product Program customers and, in turn, negatively impact our financial results. In addition, any gap in supply to retail customers may result in lost license royalties to us, which could have a significant adverse financial impact on our results of operations. Furthermore, any gap in supply to retail customers may damage our brand in the eyes of consumers and the retail trade, which might negatively impact our overall business in general and impair our ability to continue our retail licensing program.
Additionally, there is no assurance that any supplemental sources of supply would be capable of meeting our specifications and quality standards on a timely and consistent basis or that the financial terms of such supply arrangement will be comparable to our present terms.
Our earnings and business growth strategy depend in large part on the success of our product licensees and product manufacturers. Our reputation and the reputation of our brand may be harmed by actions taken by our product licensees or product manufacturers that are otherwise outside of our control.
A significant portion of our earnings has come from royalties paid by our product licensees, such as Smithfield Foods, Inc., Saratoga Food Specialties, Inc., a wholly-owned subsidiary of Solina, and Lamb Weston Holdings, Inc. Although our agreements with these licensees contain numerous controls and safeguards, and we monitor the operations of our product licensees, our licensees are independent contractors, and their employees are not our employees. Accordingly, we cannot necessarily control the performance of our licensees under their license agreements, including without limitation, the licensee’s continued best efforts to manufacture our products for retail distribution and our foodservice businesses, to timely deliver the licensed products, to market the licensed products and to assure the quality of the licensed products produced and/or sold by a product licensee. Any shortcoming in the quality, quantity and/or timely delivery of a licensed product could cause reputational damage to us, potentially adversely affecting our business, results of operations and financial condition. In addition, a licensee’s failure to effectively market the licensed products may result in decreased sales, which would adversely affect our business, results of operations and financial condition. Also, to the extent that the terms and conditions of any of these license agreements change or we change any of our product licensees, our business, results of operations and financial condition could be materially affected.
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The quick-service restaurant business is highly competitive, and that competition could lower revenues, margins and market share.
The quick-service restaurant business of the foodservice industry is intensely competitive with respect to taste preferences, price, service, location, brand reputation, advertising and promotional initiatives, personnel, and the type and quality of menu offerings. We and our franchisees compete with international, national, regional and local restaurant chains. We also compete with non-traditional market participants including virtual kitchens, where meals are prepared at separate takeaway premises rather than a restaurant, and with food delivery services, which provide consumers with a convenient access to a broad range of competing restaurant chains. Other key competitive factors include the number and location of restaurants, quality and speed of service, attractiveness of facilities, effectiveness of digital and social media engagement, and new product development. We anticipate competition will continue to focus on quality, convenience and pricing. Many of our competitors have substantially larger marketing budgets which may provide them with a competitive advantage and some of these companies may be more innovative and be able to bring new products to market and more quickly capitalize on new consumer trends or preferences. Changes in pricing or other marketing strategies by these competitors can have an adverse impact on our sales, earnings and growth. For example, many of those competitors have adopted “value pricing” strategies intended to lure customers away from other companies, including our Company. Consequently, these strategies could have the effect of drawing customers away from companies which do not engage in discount pricing and could also negatively impact the operating margins of competitors which attempt to match their competitors’ price reductions. We may be unable to change our pricing strategies sufficiently to compete in such an environment.
In addition, if patrons have a poor experience at a Company-owned or a franchised restaurant, we may experience a decrease in customer counts which, in turn, may result in a decline in Company-owned restaurant sales or franchise royalties.
We and our franchisees compete within the foodservice market and the quick-service restaurant business not only for customers but also for management and hourly employees and qualified franchisees. If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.
All such competition may adversely affect our business, results of operations and financial condition.
Changes in economic, market and other conditions could adversely affect us and our franchisees, and thereby our operating results.
The quick-service restaurant business is affected by changes in international, national, regional, and local economic conditions, consumer preferences and spending patterns, demographic trends, consumer perceptions of food safety and health, diet and nutrition, weather, traffic patterns, the type, number and location of competing restaurants, and the effects of war or terrorist activities and any governmental responses thereto. Factors such as inflation, higher costs for each of food, labor, benefits and utilities, the availability and cost of suitable sites, rising insurance rates, state and local regulations and licensing requirements, legal claims, and the availability of an adequate number of qualified management and hourly employees also adversely affect restaurant operations and administrative expenses. Our ability and our franchisees’ ability to finance new restaurant development, to make improvements and additions to existing restaurants, and the acquisition of restaurants from, and sale of restaurants to, franchisees is affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds.
Further, we are dependent upon consumer discretionary spending and are subject to changes in or uncertainty regarding macroeconomic conditions in the United States and in other regions of the world. If the economy experiences a downturn or there are other uncertainties regarding economic prosperity, or other negative global and local macroeconomic conditions, consumer discretionary spending may be negatively impacted which may adversely affect our sales and operating profit.
Current restaurant locations may become unattractive, and attractive new locations may not be available for a reasonable price, if at all, which may reduce our revenue.
The success of any restaurant depends in substantial part on its location. There can be no assurance that current locations will continue to be attractive as demographic patterns change. Neighborhood or economic conditions where restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations. If we and our franchisees cannot obtain desirable additional and alternative locations at reasonable prices, our results of operations would be adversely affected.
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Additionally, we need to maintain the attractiveness of our Company-owned restaurants and our franchisees are responsible for the regular upkeep of their respective locations. If the costs associated with capital improvements and/or regular upkeep are higher than anticipated, restaurants are closed for remodeling for longer periods, the results of our restaurant operations segment would be adversely affected.
Further, the leases at our Company-owned restaurants located at Coney Island and at the Coney Island Boardwalk expire in December 2027 and November 2027, respectively. We may not be able to re-negotiate our current lease terms. If we cannot renew our leases on attractive terms, it could adversely affect our business, results of operations and financial condition.
Any perceived or real health risks related to the food industry could adversely affect our ability to sell our products.
We are subject to risks affecting the food industry, including risks posed by the following: food spoilage or food contamination; consumer product liability claims; product tampering; and the potential cost and disruption of a product recall.
Our products are susceptible to contamination by disease-producing organisms, or pathogens, such as salmonella, norovirus, hepatitis A, trichinosis and generic E. coli. In addition, our beef products are also subject to the risk of contamination from bovine spongiform encephalopathy. Because these pathogens are generally found in the environment, there is a risk that these pathogens could be introduced to our products as a result of improper handling at the manufacturing, processing, foodservice or consumer level. Our suppliers’ manufacturing facilities and products, as well as our franchisee and Company-owned restaurant operations, are subject to extensive laws and regulations relating to health, food preparation, sanitation and safety standards. Difficulties or failures in obtaining any required licenses or approvals or otherwise complying with such laws and regulations could adversely affect our revenue. Furthermore, we cannot assure you that compliance with governmental regulations by our suppliers or in connection with restaurant operations will eliminate the risks related to food safety.
Events reported in the media, orincidents involving food-borne illnesses or food tampering, whether or not accurate, can cause damage to our brand’s reputation and affect sales and profitability. Reports, whether true or not, of food-borne illnesses (such as e-coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have in the past severely injured the reputations of participants in the quick-service restaurant business and could in the future affect our business as well. Our brand’s reputation is an important asset to the business; as a result, anything that damages our brand’s reputation could immediately and severely hurt system-wide sales and, accordingly, revenue and profits. If customers become ill from food-borne illnesses or food tampering, we could also be forced to temporarily close some, or all, restaurants. In addition, instances of food-borne illnesses or food tampering, even those occurring solely at the restaurants of competitors, could, by resulting in negative publicity about the restaurant industry, adversely affect system sales on a local, regional or system-wide basis. A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a temporary closure of any of our Company-owned restaurants or our franchisees’ restaurants, could materially harm our business, results of operations and financial condition.
Additionally, we may be subject to liability if the consumption of any of our products causes injury, illness, or death. A significant product liability judgment or a widespread product recall may negatively impact our sales and profitability for a period of time depending on product availability, competitive reaction, and consumer attitudes. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. Injury to our brand’s reputation would likely reduce revenue and profits.
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Negative publicity, including complaints on social media platforms and other internet-based communications, could damage our reputation and harm our guest traffic, and in turn, negatively impact our business, financial condition, results of operations and prospects.
There has been an increase in the use of social media platforms and other forms of internet-based communications, including video sharing, blogs, chat platforms and instant messaging platforms, that allow individuals to access a broad audience of consumers and other interested persons. The availability of information on these social media platforms and internet-based communications is virtually immediate, as is its impact. The opportunity for dissemination of information, including inaccurate information, organizing collective actions such as boycotts and other brand-damaging behaviors is seemingly limitless and readily available. Information concerning our business and products may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity to investigate, respond to and address an issue. Such platforms could also be used for dissemination of trade secret information, compromising valuable Company assets. The dissemination of information online, regardless of its accuracy, could harm our business, results of operations and financial condition.
The use of social media has become a larger element of our advertising and promotional efforts. These marketing initiatives may not be successful, resulting in expenses incurred without a corresponding increase in sales, increased customer awareness or engagement or brand awareness. The laws and regulations governing the use of social media are evolving and changing. If the Company, our employees, our franchisees or business partners do not adhere to the laws and regulations regarding the use of social media, it may adversely affect our business, results of operations, and financial condition and may subject the Company to litigation, fines or penalties.
Changing health or dietary preferences may cause consumers to avoid products offered by us in favor of alternative foods.
The foodservice industry is affected by consumer preferences and perceptions, including calories, sodium, carbohydrates or fat. If prevailing health or dietary preferences, perceptions and governmental regulation cause consumers to avoid the products we offer in favor of alternative or healthier foods, demand for our products may be reduced and could materially adversely affect our business, results of operations and financial condition.
We may not be able to adequately protect our intellectual property, which could decrease the value of our business or the value of our brands and products.
The success of our business depends on the continued ability to use existing trademarks, domain names, service marks and other components of each of our brands in order to increase brand awareness and further develop branded products. We may not be able to adequately protect our trademarks, and the use of these trademarks may result in liability for trademark infringement, trademark dilution or unfair competition. All of the steps we have taken to protect our intellectual property may not be adequate.
We have registered or applied to register many of our trademarks and service marks both in the United States and in foreign countries. Due to the differences in foreign trademark laws, our trademark rights may not receive the same degree of protection in foreign countries as they would in the United States. We also cannot assure you that our trademark and service mark applications will be approved. In addition, third parties may oppose our trademark and service mark applications, or otherwise challenge our use of the trademarks or service marks. In the event that our trademarks or service marks are successfully challenged, we could be forced to rebrand our products and services, which could result in loss of brand recognition, and could require us to devote resources towards advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe upon our marks, or that we will have adequate resources to enforce our trademarks or service marks. We cannot ensure that all of the steps that we have taken to protect our intellectual property in the United States and foreign countries will be adequate. Furthermore, intellectual property disputes and trademark infringement claims may result in a distraction for management and significant expense, which may not be recoverable regardless of whether we are successful.
We also license third party franchisees and other licensees to use our trademarks and service marks. We enter into franchise agreements with our franchisees and license agreements with our licensees which govern the use of our trademarks and service marks. Although we make efforts to monitor the use of our trademarks and service marks by our franchisees and licensees, we cannot assure you that these efforts will be sufficient to ensure that our franchisees and licensees abide by the terms of the trademark licenses. In the event that our franchisees and licensees fail to do so, our trademark and service mark rights could be diluted.
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Our earnings and business growth strategy depend in large part on the success of our restaurant franchisees and on new restaurant openings. Our corporate reputation or brand reputation may be harmed by actions taken by restaurant franchisees that are otherwise outside of our control.
A portion of our earnings comes from royalties, fees and other amounts paid by our restaurant franchisees. These earnings are dependent upon the operational and financial success of our franchise operators. The opening and success of franchised restaurants depends on various factors, including the demand for our franchises and the selection of appropriate franchisee candidates, the availability of suitable restaurant sites, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to secure restaurant equipment, the ability to meet construction schedules, the availability of financing and the financial and other capabilities of our franchisees and area developers. We cannot assure you that area developers planning the opening of franchised restaurants will have the business abilities or sufficient access to financial resources necessary to open the restaurants required by their agreements. We cannot assure you that franchisees will successfully participate in our strategic initiatives or operate their restaurants in a manner consistent with our concept and standards. Our franchisees are independent contractors, and their employees are not our employees. Our franchisees are solely responsible for making their own hiring, firing and disciplinary decisions, scheduling hours, establishing wages and managing their day-to-day operations at their individual locations in accordance with local and state laws. We provide training and support to, and monitor the operations of, our franchisees, but the quality of their restaurant operations may be diminished by any number of factors beyond our control. Consequently, the franchisees may not successfully operate their restaurants in a manner consistent with our high standards and requirements, and franchisees may not hire and train qualified managers and other restaurant personnel. Any operational shortcoming of a franchised restaurant is likely to be attributed by consumers to an entire brand or our system, thus damaging our corporate or brand reputation, potentially adversely affecting our business, results of operations and financial condition.
We cannot assure you that franchisees will renew their franchise agreements or that franchised restaurants will remain open. Closings of franchised restaurants are expected in the ordinary course and may cause our royalty revenues and financial performance to decline. Our principal competitors may have greater influence over their respective restaurant systems than we do because of their significantly higher percentage of company restaurants and/or ownership of franchisee real estate and, as a result, may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs.
As our franchisees are independent operators, we have limited influence over their ability to invest in other businesses or incur excessive indebtedness. Some of our franchisees have invested in other businesses, including other restaurant concepts. Such franchisees may use the cash generated by their Nathan’s restaurants to expand their other businesses or to subsidize losses incurred by such businesses. Additionally, as independent operators, franchisees do not require our consent to incur indebtedness. Consequently, our franchisees have in the past, and may in the future, experience financial distress as a result of over-leveraging. To the extent that our franchisees use the cash from their Nathan’s restaurants to subsidize their other businesses or experience financial distress, due to over-leveraging, it could have a material adverse effect on our business, results of operations and financial condition.
We rely on the performance of major retailers, wholesalers, specialty distributors and mass merchants for the success of our business, and should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.
We sell our products to retail outlets and wholesale distributors including, traditional supermarkets, mass merchandisers, warehouse clubs, wholesalers, food service distributors and convenience stores. The replacement by or poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could materially and adversely affect our business, results of operations and financial condition. In addition, our customers offer branded and private label products that compete directly with our products for retail shelf space and consumer purchases. Accordingly, there is a risk that our customers may give higher priority to their own products or to the products of our competitors. In the future, our customers may not continue to purchase our products or provide our products with adequate levels of promotional support. A significant decline in the purchase of our products would have a material adverse effect on our business, results of operations and financial condition.
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The sophistication and buying power of our customers could have a negative impact on profits.
Our customers, such as supermarkets, warehouse clubs, and food distributors, have continued to consolidate, resulting in fewer customers with which to do business and increasing our exposure to loss of certain customers. These consolidations and the growth of supercenters have produced large, sophisticated customers with increased buying power and negotiating strength who are more capable of resisting price increases and can demand lower pricing, increased promotional programs, or specialty tailored products. In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own retailer brands. If the larger size of these customers results in additional negotiating strength and/or increased private label or store brand competition, our profitability could decline.
Consolidation also increases the risk that adverse changes in our customers’ business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases.
Our annual and quarterly financial results may fluctuate depending on various factors, many of which are beyond our control, and, if we fail to meet the expectations of investors, our share price may decline.
Our sales and operating results can vary from quarter to quarter and year to year depending on various factors, many of which are beyond our control. These events and factors include:
● variations in the price, availability and shipping costs of supplies;
● changes in customer demand and customer visits;
● increases in marketing or promotional expenses;
● tax expense, asset impairment charges and other non-operating costs;
● unexpected slowdowns in new store development efforts;
● changes in the number of franchises sold and franchise agreement renewals;
● weather and acts of God.
Our operations are influenced by adverse weather conditions.
Weather, which is unpredictable, can impact our sales. Harsh weather conditions that keep customers from dining out result in lost opportunities for our Company-owned restaurants and our franchisees’ restaurants. A heavy snowstorm or a tropical storm or hurricane in the Northeast can shut down an entire metropolitan area, resulting in a reduction in sales in that area at Company-owned and franchised restaurants. Our fourth quarter includes winter months and historically has a lower level of sales at Company-owned and franchised restaurants. Additionally, our Company-owned restaurants at Coney Island are heavily dependent on favorable weather conditions during the summer season. Rain during the weekends and/or unseasonably cold temperatures will negatively impact the number of patrons visiting the Coney Island beach locations. Because a significant portion of our restaurant operating costs is fixed or semi-fixed in nature, the loss of sales during these periods adversely impacts our operating margins and can result in restaurant operating losses. For these reasons, a quarter-to-quarter comparison may not be a good indication of our performance or how we may perform in the future.
Climate change could adversely affect our results of operation and financial condition.
We and our supply chain are subject to risks and costs arising from the effects of climate change, global warming and diminishing energy and water resources. Climate change may have a negative effect on agricultural productivity which may result in decreased availability or less favorable pricing for certain commodities used in our products, such as beef, chicken, produce and dairy. Climate change may also increase the frequency or severity of natural disasters and other extreme weather conditions, which could disrupt the business of our suppliers, cause temporary restaurant closures and negatively impact guest traffic at our restaurants. Concern over climate change and other environmental and social sustainable business practices may result in new or increased legal and regulatory requirements, which could significantly increase costs. Furthermore, any perception of a failure to act responsibly with respect to the environment or to effectively respond to regulatory requirements concerning climate change or other sustainable business practices could lead to adverse publicity and have a material adverse effect on our business, results of operations and financial condition.
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Due to the concentration of our restaurants in particular geographic regions, our business results could be impacted by the adverse economic conditions prevailing in those regions regardless of the state of the national economy as a whole.
As of March 30, 2025, we and our franchisees (including locations operated pursuant to our Branded Menu Program) operated Nathan’s restaurants in 17 states and 12 foreign countries. As of March 30, 2025, the highest concentration of operating units was in the Northeast, principally in New York and New Jersey. This geographic concentration in the Northeast can cause economic conditions in this area of the country to have a disproportionate impact on our overall results of operations. It is possible that adverse economic conditions in states or regions that contain a high concentration of Nathan’s restaurants could have a material adverse impact on our business, results of operations and financial condition.
We rely extensively on computer systems, our point-of-sales system and information technology to manage our business. Any disruption in our computer systems, our point-of-sales system or information technology may adversely affect our ability to run our business.
We are significantly dependent upon our computer systems, our point-of-sales system and information technology to properly conduct our business. A failure or interruption of computer systems, our point-of-sales system or information technology could result in the loss of data, business interruptions or delays in business operations. Many of these systems are provided and managed by third parties, and we are reliant on these third-party providers to implement protective measures that ensure the security, availability and integrity of their systems. Despite our considerable efforts to secure our computer systems and these third-party systems, security breaches, such as unauthorized access and computer viruses, phishing attacks, introduction of malware or ransomware may occur resulting in system disruptions, shutdowns or unauthorized disclosure of confidential information. Any security breach of our computer systems, and/or these third-party systems may result in adverse publicity, loss of sales and profits, penalties or loss resulting from misappropriation of information.
If any of our critical information technology systems were to become unreliable, unavailable, compromised or otherwise fail, and we were unable to recover in a timely manner, we could experience an interruption that could have a material adverse effect on our business, results of operations and financial condition.
Cyberattacks and breaches could cause operational disruptions, fraud or theft of sensitive information.
Aspects of our operations are reliant upon internet-based activities, such as ordering supplies and back-office functions such as accounting and transaction processing, making payments and accepting credit card payments in our restaurants, as well as at third party online ordering and delivery businesses, processing payroll and other administrative functions, etc. For instance, if we fail to comply with applicable rules or requirements for the payment methods we accept, or if payment-related data is compromised due to a breach or misuse of data, we may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired. In addition, our customers could lose confidence in certain payment types, which may result in a shift to other payment types or potential changes to our payment systems that may result in higher costs.
We also use third-party vendors. While we select third-party vendors carefully, we do not control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyberattacks and security breaches at a vendor could adversely affect our ability to deliver products and services to conduct our business.
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Although we have taken measures to protect our technology systems and infrastructure, including investing in our existing information technology systems and providing employee training around phishing, malware and other cyber risks, there can be no assurance that we will be successful and fully protected against cyber risks and security breaches. The techniques and sophistication used to conduct a cyberattack change frequently and the measures that we have taken do not guarantee that a cyberattack or security breach could not occur. The rapid evolution and increased adoption of artificial intelligence technologies to carry out more sophisticated attacks may intensify our cybersecurity risks. A cyberattack or security breach could result in operational disruptions, theft or fraud, or exposure of sensitive information to unauthorized parties. Such events could result in additional costs related to operational inefficiencies, damages, claims or fines and may adversely affect our business, results of operations and financial condition.
Our international operations are subject to various factors of uncertainty.
Our business outside of the United States is subject to a number of additional factors, including international economic and political conditions, differing cultures and consumer preferences, currency regulations and fluctuations, diverse government regulations and tax systems, uncertain or differing interpretations of rights (including intellectual property rights) and obligations in connection with international franchise agreements and the collection of royalties from international franchisees, the availability and cost of land and construction costs, and the availability of appropriate franchisees. In developing markets, we may face risks associated with new and untested laws and judicial systems. Although we believe we have developed the support structure required for international growth, there is no assurance that such growth will occur or that international operations will be profitable.
Our business operations and future development could be significantly disrupted if we lose key personnel.
The success of our business continues to depend to a significant degree upon the continued contributions of our senior officers and key employees, both individually and as a group. Our future performance will be substantially dependent, in particular, on our ability to retain and motivate our executive officers, for certain of whom we currently have employment agreements in place. The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition, results of operations and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all.
Additionally, our Company-owned and franchised restaurants are highly service-oriented, and our success depends in part upon the ability to attract, retain and motivate a sufficient number of qualified employees, including franchisee management, restaurant managers and other crew members. The market for qualified employees in the retail food industry is very competitive. We are experiencing and may continue to experience a shortage of labor for positions in our Company-owned and franchised restaurants, due to the current competitive labor market. We and our franchisees have experienced and may continue to experience challenges in hiring and retaining restaurant employees which may result in decreased employee and customer satisfaction. Anticipated changes in immigration laws and regulations may decrease the pool of candidates available for hire and may increase the costs, time and requirements to hire new employees.
We face risks of litigation and pressure tactics, such as strikes, boycotts and negative publicity from customers, franchisees, suppliers, employees and others, which could divert our financial, and management resources and which may negatively impact our financial condition and results of operations.
Class action lawsuits have been filed, and may continue to be filed, against various quick-service restaurants alleging, among other things, that quick-service restaurants have failed to disclose the health risks associated with high-fat foods and that quick-service restaurant marketing practices have targeted children and encouraged obesity.
In addition, activist groups, including animal rights activists and groups acting on behalf of franchisees, the workers who work for suppliers and others, have in the past, and may in the future, use pressure tactics to generate adverse publicity by alleging, for example, inhumane treatment of animals by our suppliers, poor working conditions or unfair purchasing policies. These groups may be able to coordinate their actions with other groups, threaten strikes or boycotts or enlist the support of well-known persons or organizations in order to increase the pressure on us to achieve their stated aims. In the future, these actions or the threat of these actions may force us to change our business practices or pricing policies, which may have a material adverse effect on our business, results of operations and financial condition.
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Further, we may be subject to employee, franchisee and other claims in the future based on, among other things, mismanagement of the system, unfair or unequal treatment, discrimination, harassment, wrongful termination and wage, rest break and meal break issues, including those relating to overtime compensation. We have been subject to these types of claims in the past, and if one or more of these claims were to be successful or if there is a significant increase in the number of these claims, our business, results of operations and financial condition could be harmed.
Risks Related to Regulatory Matters
Changes to minimum wage rates have increased our labor costs.
We must comply with the Fair Labor Standards Act and various federal and state laws governing minimum wages. Increases in the minimum wage and labor regulations have increased our labor costs. On January 1, 2025, the minimum wage increased from $16.00 to $16.50 in New York City, Long Island and Westchester which will be followed by an additional $0.50 increase in 2026. Further, beginning in 2027, the minimum wage across New York State will increase annually according to the Consumer Price Index. Additionally, the federal government and a number of other states are evaluating various proposals to increase their respective minimum wage. As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. As a result, we anticipate that our labor costs will continue to increase. If we are unable to pass on these higher costs through price increases, our margins and profitability as well as the profitability and margins of our franchisees will be adversely impacted which could have a material adverse effect on our business, results of operations or financial condition.
Changes in franchise regulations and laws could impact our ability to obtain or retain licenses or approvals and adversely affect our business, financial condition, results of operations and prospects.
We are subject to federal statutes and regulations, including the rules promulgated by the U.S. Federal Trade Commission, as well as certain state laws governing the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and on provisions concerning the termination or non-renewal of a franchise. Some states require that certain materials be filed in order for a franchisor to be registered and approved (or exempt from the applicable state franchise law) before a franchisor can offer or sell franchises in that state. The failure to obtain or retain licenses, exemptions or approvals (as applicable) to offer and award franchises could have a material adverse effect on our business, financial condition, results of operations and prospects.
We are subject to health, employment, environmental and other government regulations, and failure to comply with existing or future government regulations could expose us to litigation, damage our corporate reputation or the reputation of our brands and lower profits.
We and our franchisees are subject to various federal, state and local laws, rules or regulations affecting our businesses. To the extent that the standards imposed by local, state and federal authorities are inconsistent, they can adversely affect popular perceptions of our business and increase our exposure to litigation or governmental investigations or proceedings. We may be unable to manage effectively the impact of new, potential or changing regulations that affect or restrict elements of our business. The successful development and operation of restaurants depends to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use (including the placement of drive-thru windows), environmental (including litter), traffic and other regulations. There can be no assurance that we and our franchisees will not experience material difficulties or failures in obtaining the necessary licenses or approvals for new restaurants which could delay the opening of such restaurants in the future. Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, food preparation, sanitation and safety standards, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions and citizenship requirements), federal and state laws prohibiting discrimination and other laws regulating the design and operation of facilities. If we fail to comply with any of these laws, we may be subject to governmental action or litigation, and accordingly our reputation could be harmed.
Injury to us or our brand’s reputation would, in turn, likely reduce revenue and profits. In addition, difficulties or failures in obtaining any required licenses or approvals could delay or prevent the development or opening of a new restaurant or renovations to existing restaurants, which would adversely affect our revenue.
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Failure by third-party manufacturers or suppliers of raw materials to comply with food safety, environmental or other regulations may disrupt our supply of certain products and adversely affect our business.
We rely on third-party manufacturers to produce our products and on other suppliers to supply raw materials. Such manufacturers and other suppliers, whether in the United States or outside the United States, are subject to a number of regulations, including food safety and environmental regulations. Failure by any of our manufacturers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations. Disruption of the operations of a manufacturer or other suppliers could disrupt our supply of product or raw materials, which could have an adverse effect on our business, results of operations, and financial condition. Additionally, actions we may take to mitigate the impact of any such disruption or potential disruption, including increasing inventory in anticipation of a potential production or supply interruption, may adversely affect our business, results of operations, and financial condition.
Supply chain risk could increase our costs and limit the availability of ingredients and supplies that are critical to our operations. The markets for some of our ingredients, such as beef and beef trimmings are particularly volatile due to factors beyond our control such as limited sources, seasonal shifts, climate conditions and industry demand, including as a result of animal disease outbreaks, food safety concerns, product recalls and government regulation. In addition, we have a limited number of suppliers and distributors. We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, during fiscal 2025 the Company experienced increased costs for certain supplies and ingredients, such as packaging, beef and beef trimmings, and freight, which combined with inflationary pressures could continue. Such factors may have a material adverse effect on our business, results of operations and financial condition.
We are subject to many federal, state and local laws, as well as statutory and regulatory requirements. Failure to comply with, or changes in these laws or requirements, could have an adverse impact on our business.
There have been legislative and regulatory initiatives to adopt a more aggressive interpretation of when a franchisor may be deemed to be the “joint employer” of its franchisees’ staff. If those initiatives were adopted, some franchisors might be deemed the “joint employer” of their franchisees’ staff under certain fact patterns. The federal initiatives to reset those rules have ceased in the courts and are not presently being pursued. However, if Congress were to pass such legislation or if the federal government were to restore those regulatory requirements, that would potentially change the status quo. Similarly, state enforcement agencies have explored adopting changes to joint employment standards, some of which might be along the same lines as those considered at the federal level. Finally, in private litigation, franchisees’ employees may seek recovery against Nathan’s based on theories such as “joint employment” and other vicarious liability concepts. All of these possibilities could expose Nathan’s to being deemed a “joint employer” of our franchisees’ staff (together with our franchisees) which might adversely impact our results of operations and financial condition. Additionally, those legislative and regulatory proposals and private actions might result in some franchisees being reclassified as Nathan's “employees” which might adversely impact our results of operations and financial condition.
Among other things, a determination that Nathan's and its franchisees are joint employers of one or more franchisees’ staff may make it easier to organize our franchisees’ staff into unions, provide the staff and their union representatives with bargaining power to request that we have our franchisees raise wages, and make it more expensive and less profitable to operate a Nathan’s franchised restaurant. A decrease in profitability or the closing of a significant number of franchised restaurants could significantly impact our business (as well as our franchisees’ businesses), and we may also be impacted if a government agency or private party, successfully brought an action alleging that we are a “joint employer” of our franchisees’ staff, all of which might adversely impact our results of operations and financial condition.
Additionally, state and local laws (such as the California Fast Food Accountability and Standards Recovery Act, referred to as the “FAST Act”) require wage increases as well as working hours and working condition standards that may increase our costs and those of our franchisees. It is possible that other jurisdictions may pass similar laws.
California also adopted legislation to address data privacy. The California Consumer Privacy Act (“CCPA”) imposes stringent data security standards which might apply more broadly than only within the borders of that state (for example, if a California resident buys products or has them shipped into the state and pays with a credit or debit card). In total, 14 states have adopted laws that apply (or that will apply as of the effective date) to data and other biometric technology, which may be broadly interpreted. It remains uncertain whether the CCPA and the data privacy laws adopted in other states will have a material impact on our operations or that of our franchisees.
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Our business is subject to an increasing focus on Environmental, Social, and Governance (ESG) matters.
In recent years, there has been an increasing focus by investors, activists, the media, governmental and non-governmental organizations and stakeholders – including employees, franchisees, customers and suppliers on ESG matters. A failure, whether real or perceived, to address ESG could adversely affect our business, including by heightening other risks disclosed in this Item 1A, “Risk Factors.” In the restaurant industry, concerns have been expressed regarding energy management, water management, food and packaging waste management, supply chain management and labor practices. If we are perceived to have not responded appropriately to the growing concern of ESG issues, then our restaurant patrons and other customers may choose to patronize a competitor that they perceive to be more responsive, and this may adversely affect our business, results of operations and financial condition.
We may also face increased pressure to provide expanded disclosure and establish additional commitments, targets or goals, and take actions to meet them, which could expose us to additional market, operational, execution and reputational costs and risks.
Changes in tax laws and unfavorable resolution of tax contingencies could adversely affect our tax expense.
We are subject to federal, state, and local tax laws and regulations in the United States. Our future effective tax rates could be adversely affected by changes in tax laws. From time to time, federal, state and local governments consider legislation that could increase our effective tax rates. If changes to applicable tax laws are enacted, our results of operations could be negatively impacted. Our tax returns and positions are subject to review and audit by the Internal Revenue Service and other tax authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations.
In addition, the American Rescue Plan Act of 2021 (“ARPA”) provides for numerous tax and other stimulus measures, one of which will expand the limitation of compensation deductions for certain covered employees of publicly held corporations to also include the next five highly compensated employees. This limitation will be effective for us beginning March 29, 2027.
Risks Related to Our Common Stock and Organizational Structure
The market price of our common stock may be highly volatile or may decline regardless of our operating performance.
The trading price of our common stock may fluctuate substantially. The price of our common stock that will prevail in the market may be higher or lower than the price when you acquired our stock, depending on many factors, some of which are beyond our control. Broad market and industry factors may adversely affect the market price of our common stock, regardless of our actual operating performance. The fluctuations could cause a loss of all or part of an investment in our common stock.
Factors that could cause fluctuation in the trading price of our common stock may include, but are not limited to the following: price and volume fluctuations in the overall stock market from time to time; significant volatility in the market price and trading volume of companies generally or restaurant companies specifically; actual or anticipated variations in the earnings or operating results of our company or our competitors; actual or anticipated changes in financial estimates by us or by any securities analysts who might cover our stock or the stock of other companies in our industry; market conditions or trends in our industry and the economy as a whole; announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures and our ability to complete any such transaction; announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us; capital commitments; changes in accounting principles; additions or departures of key personnel; sales of our common stock, including sales of large blocks of our common stock or sales by our directors and officers; and events that affect any of our significant suppliers discussed above.
In addition, if the market for restaurant company stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry or related industries even if these events do not directly affect us.
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In the past, following periods of volatility in the market price of a company's securities, class action securities litigation has often been brought against that company. Due to the potential volatility of our stock price, we may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources from our business and could also require us to make substantial payments to satisfy judgments or to settle litigation.
Our certificate of incorporation and by-laws and other corporate documents include anti-takeover provisions which may deter or prevent a takeover attempt.
Some provisions of our certificate of incorporation, by-laws, other corporate documents, including the terms and conditions of our Credit Agreement (the “Credit Agreement”) dated as of July 10, 2024 among the Company, as borrower, direct and indirect subsidiaries of the Company, as guarantors, the lenders from time to time party thereto (the “Lenders”) and Citibank, N.A., as administrative agent, swing line lender, L/C issuer and a Lender, and provisions of Delaware law may discourage takeover attempts and hinder a merger, tender offer or proxy contest targeting us, including transactions in which stockholders might receive a premium for their shares. This may limit the ability of stockholders to approve a transaction that they may think is in their best interest.
The corporate documents include:
While we have approved a quarterly dividend policy, there can be no assurance as to the declaration of future dividends or the amount of such dividends.
Our declaration and payment of future cash dividends are subject to the final determination by our Board of Directors that (i) the dividend will be made in compliance with laws applicable to the declaration and payment of cash dividends, including Section 170 of the Delaware General Business Corporation Law, (ii) the dividend complies with the terms of our Credit Agreement, and (iii) the payment of dividends remains in our best interests, which determination will be based on a number of factors, including the impact of changing laws and regulations, economic conditions, our results of operations and/or financial condition, capital resources, the ability to satisfy financial covenants and other factors considered relevant by the Board of Directors. There can be no assurance our Board of Directors will approve the payment of cash dividends in the future or the amount of a cash dividend. Any discontinuance of the payment of a dividend or changes to the amount of a dividend compared to prior dividends could cause our stock price to decline.
Risks Related to our Indebtedness
Our significant amount of indebtedness makes us more sensitive to adverse economic conditions, may limit our ability to plan for or respond to significant changes in our business, and requires a significant amount of cash to service our debt payment obligations that we may be unable to generate or obtain.
As of March 30, 2025, we had total outstanding indebtedness of $50,800,000. Subject to the terms of our Credit Agreement, we and our subsidiaries may be able to incur additional indebtedness in the future, which would increase the risks related to our level of indebtedness. If new debt is added to our existing debt levels, the related risks that we face would intensify and we may not be able to meet all our debt obligations, including the repayment of the Credit Agreement which matures in July 2029.
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Specifically, our high level of indebtedness could have important potential consequences, including, but not limited to:
● make it more difficult for us to satisfy our other financial obligations;
There is no assurance that we will generate cash flow from operations or that future debt or equity financings will be available to us to enable us to pay our indebtedness or to fund other liquidity needs. If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in amounts sufficient to pay our indebtedness or to fund other liquidity needs, our financial condition and results of operations may be adversely affected. As a result, we may need to refinance all or a portion of our indebtedness on or before maturity. There is no assurance that we will be able to refinance any of our indebtedness on favorable terms, or at all. Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have a material adverse effect on our business and financial condition.
If drawn upon, our undrawn revolving credit facility would subject us to interest rate risk, which could cause our debt service obligations to increase.
Our undrawn revolving credit facility has, and indebtedness we incur in the future may have variable interest rates. Interest rates may increase in the future and as a result, variable rate debt may create higher debt service requirements, which would adversely affect our free cash flows and could have a material adverse effect on our business and financial condition.
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Item 1B.Unresolved Staff Comments.
None.
Item 1C.Cybersecurity.
Risk management and strategy
The Company is committed to securing our information technology systems, including accounting software, point-of-sale software, and back-of-house software, against cybersecurity threats and protecting the privacy of the data of our customers’, employees’, franchisees’, licensees’ and other business partners. However, as described in “Item 1A. Risk Factors –Cyberattacks and breaches could cause operational disruptions, fraud or theft of sensitive information” of this Form 10-K, we recognize that cybersecurity threats are an ongoing concern in today’s digital world and that, despite devoting resources to secure our information technology systems, cybersecurity incidents can occur and, if so, could negatively impact our brand, business, results of operations and financial condition. Cybersecurity threats include any potential unauthorized occurrence on or conducted through our information technology systems or information technology systems of a third party that we utilize in our business that may result in adverse effects on the confidentiality, integrity or access to our information technology systems.
Our cybersecurity risk management program includes a cybersecurity incident response plan. We design and assess our program primarily following the guidelines of the National Institute of Standards and Technology and Payment Card Industry Data Security Standard. This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use these frameworks as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business. The objectives of our programs are to protect the confidentiality, integrity, use and availability of the Company’s data; to protect against unauthorized access to the Company’s data, the Company’s network and information technology applications; and to maintain disaster recovery plans to prepare for and respond to the potential for a disruption in the Company’s informational technology. Our programs fall under the oversight of our Information Technology manager.
To supplement our internal controls and processes and to meet these objectives, the Company engages third-party consultants who work closely with the Company’s Information Technology manager to collectively manage our cybersecurity, information technology and data privacy programs, as well as perform application security reviews, scans and penetration tests. The Company’s senior management team, including its Chief Executive Officer and its Chief Financial Officer, reviews the assessments performed by its third-party consultants and determines the plans to be executed in collaboration with the Information Technology manager.
Our information technology infrastructure includes firewalls, modern endpoint protections, intrusion detection tools and alerts, as well as multi-factor authentication to provide a multi-layered approach to protecting our information technology systems from unauthorized access, use, disclosure, disruption, or destruction. Such applications are regularly monitored and reviewed for adequacy and potential enhancements.
We obtain System and Organizational Controls (“SOC”) 1 or SOC 2 reports on an annual basis from vendors that host our significant financial applications to aid in our assessment of information security risk amongst our relationships with the host vendors. We also perform quarterly access reviews for these systems that are subject to Sarbanes-Oxley oversight.
Over 98% of our restaurants are operated by franchisees who themselves are at risk of potential cybersecurity threats. There is no connectivity between the Company’s network and the networks on which our franchisees and licensees operate. Furthermore, there is no interface between the Company-owned restaurants point-of-sale system and the Company’s network and no interface between the Company’s primary manufacturer, Smithfield Foods, Inc. and the Company’s network.
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The Company routinely leads training exercises, at least annually, for its employees to reinforce the risk from common tactics and scams like email phishing campaigns, as well as more sophisticated descendants (i.e. spear phishing and smishing) to defend against potential business email and network compromise.
We have developed an incident response plan outlining immediate response actions, including internal and external communication protocols. The incident response plan is reviewed regularly by our third-party consultants in collaboration with our Information Technology manager evaluating our capabilities and our readiness. Under the plan, we have identified a management group comprised of our Chief Executive Officer, Chief Financial Officer, Corporate Controller and Information Technology manager. The plan provides that any cybersecurity incident will be reviewed by this group to determine whether any such incident is material for securities laws purposes and whether public disclosure is required, following consultation with outside counsel, the Audit Committee and/or Board of Directors.
We maintain cyber risk insurance coverage that is intended to mitigate the financial impact of cybersecurity and data privacy incidents experienced by the Company. There can be no assurance that our cyber insurance policies will be sufficient in scope or amount to cover the costs and expenses related to any future cybersecurity incidents and it does not remedy the reputational and future business impacts.
Governance
The full Board of Directors has overall responsibility for risk oversight, including cybersecurity matters. It is supported by the Audit Committee, which reports to the full Board of Directors. The Audit Committee receives updates from management, as necessary, on the cybersecurity landscape and cybersecurity risks impacting the Company. At least annually, the Board of Directors receives a cybersecurity update as part of our Company’s risk management program. Such updates are designed to ensure that the Company’s senior management team remain informed about and can monitor the prevention, detection, mitigation, and remediation of potential cybersecurity incidents.
At a management level, our cybersecurity program is led by our Information Technology manager, who reports to the Chief Financial Officer. Our Information Technology manager is supported by our third-party consultants. Our Information Technology manager along with the support of our third-party consultants, is equipped to help navigate the landscape of cybersecurity risks and challenges and to implement and to manage a comprehensive security strategy.
While cybersecurity threats have not materially affected our business strategy, results of operations or financial condition, future incidents may interrupt our operations and could materially adversely affect our business, results of operations and financial condition.
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Item 2.Properties.
We currently lease approximately 9,300 square feet of space for our executive offices in Jericho, New York for approximately $396,000 per year, under a lease agreement which expires on March 31, 2029.
At March 30, 2025, other Company-owned restaurants that were operating were located in leased space with terms expiring as shown in the following table:
Coney Island Brooklyn, NY December 2027 10,000
Coney Island Boardwalk (a) Brooklyn, NY November 2027 3,800
Long Beach Road Oceanside, NY April 2030 4,100
Central Park Avenue Yonkers, NY December 2028 3,500
(a) Seasonal satellite location.
At March 30, 2025, in addition to the leases listed above, we were the sub-lessor of one property to a franchisee located within the metropolitan New York area.
Aggregate rental expense, net of sublease income, under all current leases amounted to $1,873,000 in fiscal 2025.
Item 3.Legal Proceedings.
We and our subsidiaries are from time to time involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages and, in such event, could result in a material adverse impact on our results of operations for the period in which the ruling occurs.
Item 4.Mine Safety Disclosures.
Not applicable.
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PART II
Market Information and Dividend Policy
Our common stock is quoted on the NASDAQ Global Market (“Nasdaq”) under the symbol “NATH.” As of June 5, 2025 we had approximately 290shareholders of record, excluding shareholders whose shares were held by brokerage firms, depositories and other institutional firms in “street name” for their customers.
The Company paid quarterly cash dividends of $0.50 per share of common stock during each of the first, second, third and fourth quarters of fiscal 2024 and 2025. Effective June 10, 2025, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal year 2026 which is payable on July 1, 2025 to stockholders of record as of the close of business on June 23, 2025.
Our ability to pay future dividends is limited by the terms of our Credit Agreement. 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 and the terms of our Credit Agreement.
In addition to the terms of the Credit Agreement, the payment of any cash dividends in the future will be dependent upon our earnings and financial requirements and the terms of any other indebtedness that we may incur in the future and there can be no assurance that we will declare and pay any dividends subsequent to the July 1, 2025 dividend.
Issuer Purchases of Equity Securities
The Company did not repurchase any of its common stock during the quarter ended March 30, 2025.
Item 6.Reserved.
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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
Recent Events Affecting Our Results of Operations
Inflationary Pressures
Inflationary pressures impacted our consolidated results of operations during fiscal 2025, and we anticipate continued inflationary pressures on commodity prices, including beef and beef trimmings, as well as labor inflation during fiscal 2026. In general, we have been able to offset some of these cost increases resulting from inflation by increasing prices at our Company-owned restaurants and entering into sales agreements with our Branded Product Program customers that are correlated to our cost of beef and beef trimmings. We continue to monitor these inflationary pressures and will attempt to implement mitigation measures as needed. Inherent volatility in commodity markets, including beef and beef trimmings, could have a significant impact on our results of operations. Delays in implementing price increases, competitive pressures, recession fears, a decline in consumer spending levels and other factors may limit our ability to implement further price increases in the future.
Uncertainty in the current macroeconomic environment, including the impact of tariffs, may have an adverse impact on our sales or increase our cost of goods sold.
Refinancing of Senior Secured Notes due 2025
On July 10, 2024, the Company entered into a five-year unsecured Credit Agreement (the “Credit Agreement”) with Citibank, N.A. and borrowed $60,000,000 in Term Loan borrowings to refinance and redeem our outstanding 6.625% Senior Secured Notes due 2025 (the “2025 Notes”). See NOTE J – LONG TERM DEBT to the consolidated financial statements and “Liquidity and Capital Resources” for additional information on the Credit Agreement and refinancing. Our future results may be impacted by our debt service and repayment obligations under our Credit Agreement.
Business 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 fries, and a variety of other menu offerings. Our Company-owned and franchised restaurants operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant opened in 1916. Nathan’s product licensing program sells packaged hot dogs, frozen crinkle-cut French fries and additional products to retail customers through supermarkets, grocery channels and club stores for off-site consumption. Our Branded Product Program enables foodservice retailers and others to sell some of Nathan’s proprietary products outside of the realm of a traditional franchise relationship. In conjunction with this program, purchasers of Nathan’s products are granted a limited use of the Nathan’s Famous trademark with respect to the sale of the purchased products, including Nathan’s World Famous Beef Hot Dogs, certain other proprietary food items and paper goods. Our Branded Menu Program is a limited franchise program, under which foodservice operators may sell a greater variety of Nathan’s Famous menu items than under the Branded Product Program.
Our revenues are generated primarily from selling products under Nathan’s Branded Product Program, operating Company-owned restaurants, licensing agreements for the sale of Nathan’s products within supermarkets, grocery stores and club stores, the manufacture of certain proprietary spices by third parties and the royalties, fees and other sums we can earn from franchising the Nathan’s restaurant concept (including the Branded Menu Program and virtual kitchens).
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The following summary reflects the openings and closings of the Nathan’s franchise system (including the Branded Menu Program) for the fiscal years ended March 30, 2025 and March 31, 2024.
At March 30, 2025, our franchise system consisted of 230 Nathan’s franchised locations, including 121 Branded Menu locations located in 17states, and 12foreign countries. We also operate four Company-owned restaurants (including one seasonal unit), within the New York metropolitan area.
Our primary focus is to expand the market penetration of the Nathan’s Famous brand by increasing the number of distribution points for our products across all of our business platforms, including our Licensing Program for distribution of Nathan’s Famous branded consumer packaged goods, our Branded Products Program for distribution of Nathan’s Famous branded bulk products to the foodservice industry, and our namesake restaurant system comprised of both Company-owned and franchised restaurants, including virtual kitchens. The primary drivers of our growth have been our Licensing and Branded Product Programs, which are the largest contributors to the Company’s revenues and profits.
While we do not expect to significantly increase the number of Company-owned restaurants, we may opportunistically and strategically invest in a small number of new units as showcase locations for prospective franchisees and master developers as we seek to grow our franchise system.
As described in Item 1A. “Risk Factors” and other sections in this Annual Report on Form 10-K for the year ended March 30, 2025, our future results could be impacted by many developments including the impact of the inflationary pressures on our business, as well as our dependence on Smithfield Foods, Inc. as our principal supplier, and the dependence of our licensing revenue and overall profitability on our agreement with Smithfield Foods, Inc. Our future operating results could be impacted by supply constraints on beef or by increased costs of beef, beef trimmings and other commodities due to inflationary pressures compared to earlier periods.
Critical Accounting 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. These estimates and assumptions are inherently uncertain and require additional management judgment. Results can materially differ when varying assumptions are applied. We consider the following estimates to be the most critical in understanding the assumptions used by management in preparing the consolidated financial statements due to the subjectivity and sensitivity of the methods used in determining the related estimates. The following discussion should be read in conjunction with the consolidated financial statements included in Part IV, Item 15 of this Form 10-K.
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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 considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. 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 generated by our individual Company-owned restaurants. If the projected undiscounted future cash flows are less than the carrying value of the assets, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the assets. The Company generally measures fair value by considering discounted estimated future cash flows from such assets. Key inputs to determine estimated future cash flows include forecasted sales growth at individual Company-owned restaurants and a discount rate. We use a weighted average cost of capital discount rate to calculate future cash flows. During recent years, we have faced periods of inflation, led by labor inflation and commodity inflation. Some of the impacts of inflation have been offset by menu price increases. Whether we are able and/or choose to offset the effects of inflation may affect our forecasted sales growth at individual Company-owned restaurants. No long-lived assets were deemed impaired during the fiscal years ended March 30, 2025 and March 31, 2024. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairment charges in future periods and such impairments could be material.
Impairment of Intangible Asset
The Company’s intangible asset consists of the trademarks, and the trade name and other intellectual property in connection with the Arthur Treacher’s Fish & Chips brand.
The Company determined its intangible asset to have a finite useful life based on the expected future use of this intangible asset. Based upon the review of its Arthur Treacher’s Fish & Chips co-branding agreements, the Company determined that the remaining useful lives of these agreements is three years concluding in fiscal 2028 and the intangible asset is subject to annual amortization. The Company’s definite-lived intangible asset is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. 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. Assumptions used to determine projected undiscounted cash flows include future trends and projected sales. 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 30, 2025 and March 31, 2024. Cash flow and sales projections require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record an impairment charge in future periods and such impairment could be material.
Current Expected Credit Losses (“CECL”)
The CECL reserve methodology requires companies to measure expected credit losses on financial instruments based on the total estimated amount to be collected over the lifetime of the instrument. Under CECL, reserves may be established against financial asset balances even if the risk of loss is remote. The Company is exposed to credit losses through its trade accounts receivable.
The Company calculates an allowance for credit losses by pooling its trade accounts receivable based on similar risk characteristics and delinquency status under an aging method at the measurement date. The risk characteristics the Company generally reviews when analyzing its trade accounts receivable pools include the type of receivable (for example, franchise receivable, license receivable, Branded Product Program receivable), payment terms, the Company’s previous loss history, current and future economic conditions and the length of time accounts receivables are past due. For those trade accounts receivable that no longer share similar risk characteristics with its pool and potential loss is evident, a specific reserve is recorded.
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Reserves can be subject to a degree of judgment and can be subject to macroeconomic factors, including inflation and forecasts of future economic conditions. A change in these factors could have a material impact on the allowance for credit losses.
Customer Rebates
The Company recognizes Branded Product Program revenue at the net sales price, which includes certain estimates for customer rebates. The provision for Branded Product Program rebates is recorded as a reduction from gross sales and reserves for customer rebates are shown as an increase in accrued customer rebates, which is included in current liabilities. Our estimates are based on historical experience, contractual provisions and other factors that we believe are reasonable under the circumstances. Historically, actual customer rebates have not differed materially from estimated amounts.
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. 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. We believe that the judgments and estimates made are reasonable. However, if actual results differ from estimated amounts recorded, such differences will impact the income tax provision in the period in which the determination is 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 consolidated 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 consolidated 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.
New Accounting Standards Not Yet Adopted
See Note B item 24 to the consolidated financial statements included in Part IV, Item 15 of this Form 10-K for a summary of new accounting standards applicable to us.
Results of Operations
Fiscal year ended March 30, 2025 compared to fiscal year ended March 31, 2024
Revenues
Total revenues increased by approximately 7% to $148,182,000 for the fifty-two weeks ended March 30, 2025 (“fiscal 2025”) as compared to $138,610,000 for the fifty-three weeks ended March 31, 2024 (“fiscal 2024”).
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Foodservice sales from the Branded Product Program increased by approximately 6% to $91,828,000 for the fiscal 2025 period as compared to $86,489,000 for the fiscal 2024 period. We estimate that the additional week of operations during fiscal 2024 represented approximately $1,202,000 of additional Branded Product Program sales. During the fiscal 2025 period, the total volume of hot dogs sold in the Branded Product Program increased by approximately 1.2% as compared to the fiscal 2024 period. Our average selling prices increasedby approximately 5% as compared to the fiscal 2024 period.
Total Company-owned restaurant sales increased by approximately 5% to $12,714,000 during the fiscal 2025 period as compared to $12,103,000 during the fiscal 2024 period. We estimate that the additional week of operations during fiscal 2024 represented approximately $120,000 of additional sales. Restaurant sales were primarily impacted by higher sales at our Coney Island locations due to an increase in our average check.
License royalties increased by approximately 11% to $37,418,000 in the fiscal 2025 period as compared to $33,581,000 in the fiscal 2024 period. We do not believe that the additional week of operations during fiscal 2024 had a significant impact on license royalties as our licensees continued to report based upon their fiscal reporting periods. Total royalties earned on sales of hot dogs from our license agreement with Smithfield Foods, Inc. at retail and foodservice, increased to $33,589,000 for the fiscal 2025 period as compared to $30,068,000 for the fiscal 2024 period. The increase is due to an 11% increase in retail volume.The net selling price at retail was comparable year over year. The foodservice business earned higher royalties of $109,000 as compared to the fiscal 2024 period. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increasedby $316,000 during the fiscal 2025 period as compared to the fiscal 2024 period primarily due to higher royalties earned on sales of French fries, onion rings, proprietary spices, franks-in-a-blanket, mozzarella sticks and bottled mustard offset, in part, by lower royalties earned on sales of pickles.
Franchise fees and royalties decreased by $208,000 to $4,148,000 in the fiscal 2025 period as compared to $4,356,000 in the fiscal 2024 period. Total royalties were $3,767,000 in the fiscal 2025 period as compared to $3,886,000 in the fiscal 2024 period. Royalties earned under the Branded Menu Program were $744,000 in the fiscal 2025 and 2024 periods. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases. Virtual kitchen royalties were $61,000 in the fiscal 2025 period as compared to $81,000 in the fiscal 2024 period. Traditional franchise royalties were $2,962,000 in the fiscal 2025 period as compared to $3,061,000 in the fiscal 2024 period. Franchise restaurant sales declined to $66,905,000 in the fiscal 2025 period as compared to $68,417,000 in the fiscal 2024 period. We estimate that the additional week of operations during fiscal 2024 resulted in $1,215,000 of additional franchise restaurant sales or royalties of approximately $60,000. Comparable domestic franchise sales (consisting of 58 Nathan’s locations, excluding sales under the Branded Menu Program) were $51,250,000 during the fiscal 2025 period as compared to $53,108,000 during the fiscal 2024 period.
At March 30, 2025, 230 franchised locations, including domestic, international and Branded Menu Program units were operating. Total franchise fee income was $381,000 in the fiscal 2025 period as compared to $470,000 in the fiscal 2024 period. Domestic franchise fee income was $108,000 in the fiscal 2025 period as compared to $106,000 in the fiscal 2024 period. International franchise fee income was $237,000 in the fiscal 2025 period as compared to $241,000 in the fiscal 2024 period. We recognized $36,000 and $123,000 of forfeited fees in the fiscal 2025 and fiscal 2024 periods, respectively. During the fiscal 2025 period, 25 franchise locations opened and 25 franchised locations closed. During the fiscal 2024 period, 17 franchised locations opened and 19 franchised locations closed.
Advertising fund revenue, after eliminating Company contributions, was $2,074,000 in the fiscal 2025 period as compared to $2,081,000 during the fiscal 2024 period.
Costs and Expenses
Overall, our cost of sales increased by approximately 8% to $89,707,000 in the fiscal 2025 period as compared to $83,182,000 in the fiscal 2024 period. Our gross profit (calculated as total Branded Product sales plus total Company-owned restaurants sales less cost of sales) was $14,835,000 or 14% of sales during the fiscal 2025 period as compared to $15,410,000 or 16% of sales during the fiscal 2024 period.
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Cost of sales in the Branded Product Program increased by 9% to $82,462,000 during the fiscal 2025 period as compared to $75,966,000 in the fiscal 2024 period, primarily due to the 1.2% increase in the volume of hot dogs sold, as well as a 7% increase in the average cost per pound of our hot dogs. A shrinking supply of cattle, combined with industry demand and inflationary pressures have resulted in higher commodity prices, including beef and beef trimmings, contributing to the increase in the average cost per pound of our hot dogs. We did not make any purchase commitments for beef during the fiscal 2025 and 2024 periods. If the cost of beef and beef trimmings increases and we are unable to pass on these higher costs through price increases or otherwise reduce any increase in our costs through the use of purchase commitments, our margins will be adversely impacted. With respect to Company-owned restaurants, our cost of sales during the fiscal 2025 period was $7,245,000 or 57% of restaurant sales, as compared to $7,216,000 or 60% of restaurant sales in the fiscal 2024 period. Food and paper costs as a percentage of Company-owned restaurant sales were 25%, down from 28% in the fiscal 2024 period driven, in part, by price increases across most menu offerings. Labor and related expenses as a percentage of Company-owned restaurant sales were 32%, which was comparable to the fiscal 2024 period. Higher wage rates during fiscal 2025 as a result of legislative increases in the New York State minimum wage were offset by price increases across most menu offerings.
Restaurant operating expenses increased by $202,000 to $4,379,000 in the fiscal 2025 period as compared to $4,177,000 in the fiscal 2024 period. The increase is due primarily to higher occupancy expenses of $203,000, higher repairs and maintenance expenses of $41,000, and higher insurance costs of $31,000which were offset, in part, by lower delivery charges of $62,000.
Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, and the amortization of a definite-lived intangible asset, was $957,000 in the fiscal 2025 period as compared to $1,135,000 in the fiscal 2024 period.
General and administrative expenses decreased by $1,082,000 to $14,530,000 in the fiscal 2025 period as compared to $15,612,000 in the fiscal 2024 period. The reduction in general and administrative expenses was primarily attributable to higher share-based compensation expense of $259,000, and a higher provision for credit losses of $119,000 which were offset by lower professional fees of $291,000 and a cash bonus payout of $1,000,000 to the Company’s Executive Chairman of the Board in fiscal 2024.
Advertising fund expense, after eliminating Company contributions, was $2,112,000 in the fiscal 2025 period as compared to $1,998,000 in the fiscal 2024 period.
Other Items
Interest expense of $4,106,000 in the fiscal 2025 period represented interest expense of $1,449,000 and $2,504,000 on the 2025 Notes and the Term Loan borrowings under the Credit Agreement, respectively, and amortization of debt issuance costs of $104,000 and $49,000 on the 2025 Notes and the Term Loan borrowings, respectively.
Interest expense of $5,355,000 in the fiscal 2024 period represented interest expense of $5,010,000 on the 2025 Notes and amortization of debt issuance costs of $345,000.
The reduction in interest expense of $1,249,000 is due primarily to lower outstanding long-term debt and a lower interest rate associated with our Credit Agreement.
During fiscal 2025, the Company refinanced and redeemed the 2025 Notes. In connection with the refinancing, the Company recorded a loss on extinguishment of debt of $334,000 that reflected the write-off of the remainder of the debt issuance costs on the 2025 Notes.
Additionally, the Company made a voluntary principal prepayment of $8,000,000 of its Term Loan borrowings under the Credit Agreement and recorded a loss on debt extinguishment of $55,000 related to the write-off of a portion of previously recorded debt issuance costs on the Term Loan borrowings.
During fiscal 2024, the Company completed the partial redemption, in the principal amount of $20,000,000 of the 2025 Notes. In connection with this transaction, the Company recorded a loss on extinguishment of debt of $169,000 that reflected the write-off of a portion of previously recorded debt issuance costs. See NOTE J – LONG-TERM DEBT in the accompanying consolidated financial statements for further information.
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Interest and dividend income of $672,000in the fiscal 2025 period represented amounts earned by the Company on its interest bearing bank and money market accounts and money market funds as compared to$383,000 in the fiscal 2024 period. The increase is due to higher levels of invested cash earning interest at higher rates in the fiscal 2025 period as compared to the fiscal 2024 period.
Other income, net was $87,000 in the fiscal 2025 period, which primarily relates to sublease income from a franchised restaurant as compared to $86,000 in the fiscal 2024 period.
Provision for Income Taxes
The effective income tax rate for the fiscal 2025 period was 26.7% compared to 28.5% for the fiscal 2024 period. The effective income tax rate for the fiscal 2025 period reflected income tax expense of $8,735,000 recorded on $32,761,000 of pre-tax income. The effective income tax rate for the fiscal 2024 period reflected income tax expense of $7,835,000 recorded on $27,451,000 of pre-tax income. The effective tax rates are higher than the U.S. Federal statutory rates primarily due to state and local taxes, as well as non-deductible executive compensation under the Internal Revenue Code Section 162(m).
The American Rescue Plan Act of 2021 (“ARPA”), among other things, includes provisions to expand the IRC Section 162(m) disallowance for deduction of certain compensation paid by publicly held corporations. Effective for tax years starting after December 31, 2026 (March 29, 2027 for the Company), ARPA expands the limitations to cover the next five most highly compensated employees. We continue to evaluate the potential impact ARPA may have on our operations and consolidated financial statements in future periods.
The amount of unrecognized tax benefits at March 30, 2025 was $532,000 all of which would impact Nathan’s effective tax rate, if recognized. As of March 30, 2025, Nathan’s had $395,000 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 $55,000 during the fiscal year ending March 29, 2026, due primarily to the lapse of statutes of limitations which would favorably impact the Company’s effective tax rate, although no assurances can be given in this regard.
Reconciliation of GAAP and Non-GAAP Measures
In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP"), the Company has provided EBITDA, a non-GAAP financial measure, which is defined as net income excluding (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense. The Company has also provided Adjusted EBITDA, a non-GAAP financial measure, which is defined as EBITDA, excluding (i) loss on debt extinguishment; and (ii) share-based compensation that the Company believes will impact the comparability of its results of operations.
The Company believes that EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure.
EBITDA and Adjusted EBITDA are not recognized terms under US GAAP and should not be viewed as alternatives to net income or other measures of financial performance or liquidity in conformity with US GAAP. Additionally, our definitions of EBITDA and Adjusted EBITDA may differ from other companies. Analysis of results and outlook on a non-US GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with US GAAP.
Fiscal Year
Depreciation and amortization 957 1,135
Loss on debt extinguishment 389 169
Share-based compensation 993 733
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Liquidity and Capital Resources
Sources and uses of cash
Cash and cash equivalents at March 30, 2025 aggregated $27,802,000, a $6,775,000 increase during the fiscal 2025 period as compared to cash and cash equivalents of $21,027,000 at March 31, 2024. Net working capital increased to $28,371,000 at March 30, 2025 as compared to $23,203,000 at March 31, 2024.
Our primary sources of liquidity are cash flows from operations. Our primary cash requirements are to fund our quarterly dividends, to satisfy the debt service under our credit facility, capital expenditures, working capital and general corporate needs.
2025 Notes
On May 1, 2024, we paid our first semi-annual interest payment on the 2025 Notes of $1,987,500 for the fiscal 2025 period. On August 13, 2024, in connection with the redemption of all of the outstanding $60,000,000 principal amount of its 2025 Notes, the Company paid its final required interest payment of $1,137,000 on the redeemed 2025 Notes.
Credit Agreement
On September 30, 2024 and December 31, 2024, we paid our quarterly mandatory debt principal repayments of $600,000 each, or $1,200,000 in the aggregate, on our Term Loan borrowings under the Credit Agreement. On October 10, 2024, we made a voluntary principal prepayment of $8,000,000 on our outstanding Term Loan borrowings under the Credit Agreement. The prepayment was primarily funded by operating cash flows. As of March 30, 2025, the Company has made cash interest payments of approximately $2,356,000 on the Term Loan borrowings under the Credit Agreement. Subsequent to the year ending March 30, 2025, on March 31, 2025, the Company paid its next quarterly mandatory debt principal repayment of $600,000.
Summary of Cash Flows
The following table presents a summary of our cash flows from operating, investing and financing activities:
(In thousands) Fiscal year
Net cash provided by operating activities $ 25,240 $ 20,002
Net cash used in investing activities (225 ) (313 )
Net cash used in financing activities (18,240 ) (28,523 )
Net increase (decrease) in cash and cash equivalents $ 6,775 $ ( 8,834 )
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Operating activities
Cash provided by operations is primarily attributable to net income of $24,026,000 in addition to other non-cash operating items of $2,532,000, offset by changes in other operating assets and liabilities of $1,318,000. Non-cash operating expenses consist principally of a loss on debt extinguishment of $389,000, depreciation and amortization of $957,000, amortization of debt issuance costs of $153,000, share-based compensation expense of $993,000 and a provision for credit losses of $275,000. In the fiscal 2025 period, inventories increased by $379,000 due to timing and Branded Product Program inventory in transit. Prepaid expenses and other current assets decreased by $128,000 due primarily to a decrease in prepaid income taxes of $365,000 which were offset, in part, by an increase in prepaid marketing and insurance expenses of $347,000. Accounts payable, accrued expenses and other current liabilities decreased by $1,227,000 due principally to lower incentive compensation accruals of $253,000 as well as a decrease in accrued interest expense of $1,528,000 resulting from the timing of our debt service payments under our Credit Agreement. Accounts payable increased by $419,000 due to the timing of product purchases for our Branded Product Program and Company-owned restaurants.
Investing activities
Cash used in investing activities of $225,000 is primarily attributable to capital expenditures incurred for our Branded Product Program and our Coney Island restaurants.
Financing activities
In connection with the Company’s refinancing of the 2025 Notes, the Company borrowed $60,000,000 in Term Loan borrowings pursuant to the Credit Agreement and simultaneously redeemed the 2025 Notes. We incurred $431,000 of debt issuance costs in connection with this refinancing. During fiscal 2025, we made $1,200,000 of mandatory principal repayments, as well as an $8,000,000 voluntary principal repayment on our Term Loan borrowings under the Credit Agreement. Further, the Company paid its four quarterly cash dividends of $0.50 per share totaling $8,172,000. The Company also paid $437,000 for withholding taxes on the net share vesting of 10,000 restricted stock units.
Credit Agreement
On July 10, 2024 (the “Effective Date”), the Company entered into a five-year unsecured Credit Agreement among the Company, as borrower, direct and indirect subsidiaries of the Company, as guarantors, the lenders from time to time party thereto (the “Lenders”) and Citibank, N.A., as administrative agent, swing line lender, L/C issuer and a Lender.
The Credit Agreement provides for a term loan facility (“Term Loan”) of $60,000,000 and a revolving credit facility (“Revolving Loan”) of up to $10,000,000. The Credit Agreement also provides that the Company has the right from time to time during the term of the Credit Agreement to request the Lenders for incremental revolving loan borrowing increases of up to an additional $10,000,000 in the aggregate, subject to, among other items, the Lenders agreeing to lend any such additional amounts and compliance with terms specified in the Credit Agreement. The Credit Agreement matures on July 10, 2029.
The Company borrowed $60,000,000 in Term Loan borrowings under the Credit Agreement on the Effective Date to refinance and redeem its 2025 Notes. The Company will use any Revolving Loan borrowings under the Credit Agreement for working capital and general corporate purposes. As of March 30, 2025, there were no outstanding borrowings under the Revolving Loan. See NOTE J – LONG TERM DEBT in the accompanying consolidated financial statements for additional information on the Credit Agreement.
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Share Repurchases
In 2016, the Board 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 30, 2025, Nathan’s has repurchased 1,101,884 shares at a cost of approximately $39,000,000 under the sixth stock repurchase plan. At March 30, 2025, there were 98,116 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s stock repurchase program may be made from time to time, depending on market conditions, in open market or privately negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases. There were no stock repurchases during the fiscal 2025 period. We may return capital to our stockholders through stock repurchases, subject to any restrictions in our Credit Agreement, although there is no assurance that the Company will make any repurchases under its existing stock repurchase plan.
Common Stock Dividends
As discussed above, we had cash and cash equivalents at March 30, 2025 aggregating $27,802,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. During the fiscal 2025 period, the Company declared and paid four quarterly dividends of $0.50 per share aggregating $8,172,000.
Effective June 10, 2025, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal 2026 which is payable on July 1, 2025 to stockholders of record as of the close of business on June 23, 2025.
If the Company pays regular quarterly cash dividends for fiscal 2026 at the same rate as declared in the first quarter of fiscal 2026, the Company’s total cash requirement for dividends for all of fiscal 2026 would be approximately $8,179,000 based on the number of shares of common stock outstanding at June 5, 2025. The Company intends to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid or of the amount or timing of such dividends, if any.
Our ability to pay future dividends is limited by the terms of our Credit Agreement. 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 and the terms of our Credit Agreement.
Purchase Commitments
At March 30, 2025 and March 31, 2024, Nathan’s did not have any open purchase commitments to purchase hot dogs. Nathan’s may enter into purchase commitments in the future as favorable market conditions become available.
Cash Flow Outlook
We expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the principal and interest obligations under the Credit Agreement, 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. While our Credit Agreement bears interest at a fluctuating interest rate based on SOFR plus a spread adjustment, if the Company makes its fiscal year 2026 cash interest payments on its outstanding Term Loan borrowings at the interest rate effective at March 30, 2025, then during the fiscal year ended March 29, 2026, we expect to make cash interest payments of approximately $2,895,000 on the Term Loan borrowings.
We may from time to time seek to make voluntary principal prepayments of Term Loan borrowings under our Credit Agreement. Such voluntary prepayments, if any, will depend on market conditions, our liquidity requirements, satisfactory compliance of covenants and conditions pursuant to our Credit Agreement and other factors.
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Management believes that available cash and cash equivalents and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements, fund dividend distributions and, if any, stock repurchases for at least the next 12 months.
Contractual Obligations
At March 30, 2025, 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.
At March 30, 2025, our contractual obligations primarily consist of the Term Loan borrowings under our Credit Agreement and the mandatory debt principal repayments and the related interest payments, operating leases, and employment agreements with certain executive officers. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. See NOTE J – LONG TERM DEBT and NOTE L – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT PLANS in the accompanying consolidated financial statements for further information.
Inflationary Pressures
Inflationary pressures on labor and rising commodity prices, most notably for beef and beef trimmings, have impacted our consolidated results of operations during the fiscal 2025 period, and this trend may continue into fiscal 2026. Our average cost of hot dogs during the fiscal 2025 period was approximately 7% higher than during the fiscal 2024 period. Our average cost of hot dogs during the fiscal 2024 period was approximately 10% higher than during the fiscal 2023 period. Inherent volatility experienced in certain commodity markets, such as those for beef and beef trimmings due to seasonal shifts, climate conditions, industry demand, inflationary pressures and other macroeconomic factors could have an adverse effect on our results of operations. This impact will depend on our ability to manage such volatility through price increases and product mix. We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2026. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. We may attempt to enter into similar purchase arrangements for hot dogs and other products in the future.
We have experienced competitive pressure on labor rates as a result of the increase in the minimum hourly wage for fast food workers where our Company-owned restaurants are located. On January 1, 2025, the minimum wage increased from $16.00 to $16.50 in New York City, Long Island and Westchester which will be followed by an additional $0.50 increase in 2026. Further, beginning in 2027, the minimum wage across New York State will increase annually according to the Consumer Price Index. There has also been an increased demand for labor at all levels which has resulted in greater challenges retaining adequate staffing levels at our Company-owned restaurants; our franchised restaurants and Branded Menu Program locations; as well as for certain vendors in our supply chain that we depend on for our commodities. We remain in contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain.
We believe that these increases in the minimum wage and other changes in employment laws have had a significant financial impact on our financial results and the results of our franchisees that operate in New York State. Our business could be negatively impacted if the decrease in margins for our franchisees results in the potential loss of new franchisees or the closing of a significant number of franchised restaurants.
We expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from rising rates.
Continued increases in labor costs, commodity prices and other operating expenses, including health care, could adversely affect our operations. We attempt to manage inflationary pressure, and rising commodity costs, at least in part, through raising prices. Delays in implementing price increases, competitive pressures, consumer spending levels and other factors may limit our ability to offset these rising costs. Volatility in commodity prices, including beef and beef trimmings, could have a significant adverse effect on our results of operations.
The Company’s business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in “Forward-Looking Statements”, “Risk Factors”, and “Notes to Consolidated Financial Statements” in this Form 10-K.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Cash and Cash Equivalents
We have historically invested our cash in money market accounts, 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 30, 2025, Nathan’s cash and cash equivalents balanceaggregated $27,802,000. Earnings on this cash would increase or decrease by approximately $70,000 per annum for each 0.25% change in interest rates.
Borrowings
On July 10, 2024, we entered into the Credit Agreement and borrowed $60,000,000 in Term Loan borrowings to refinance and redeem the 2025 Notes. Borrowings under our Credit Agreement bear interest at a fluctuating interest rate based on SOFR or a base rate plus a spread adjustment. Accordingly, a rising interest rate environment would result in higher interest expense due on borrowings. A hypothetical 100 bps increase in the interest rate on our $50,800,000 of outstanding unsecured Term Loan borrowings at March 30, 2025 would lead to an increase of approximately $508,000 in cash interest costs over the next twelve months. We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings.
Commodity Costs
We are exposed to market price fluctuations in commodities, most notably beef and beef trimmings. Inflationary pressures on commodity prices have directly impacted our consolidated results of operations during fiscal 2025, most notably within our Restaurant Operations and Branded Product Program segments. We expect this trend to continue into fiscal 2026. Our average cost of hot dogs during fiscal 2025 was approximately 7% higher than during fiscal 2024.
We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2026. Factors that affect beef prices are outside of our control and include foreign and domestic supply and demand, inflation, weather and seasonality. 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. We may attempt to enter into 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 rising rates.
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 Branded Product Program 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 Branded Product Program 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 30, 2025 would have increased or decreased our cost of sales by approximately $8,338,000.
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.
50
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) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 30, 2025. 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 30, 2025. 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 30, 2025. The effectiveness of our internal control over financial reporting as of March 30, 2025, has been audited by CBIZ CPAs P.C., 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 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
51
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 $0.50 per share dividend payable on July 1, 2025 to shareholders of record at the close of business on June 23, 2025.
During the quarter ended March 30, 2025, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S-K.
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
52
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 30, 2025, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. In our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of March 30, 2025, based on criteria established in COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet as of March 30, 2025 and the related consolidated statements of earnings, changes in stockholders’ deficit, and cash flows and the related notes (collectively referred to as the “financial statements”) for the fifty-two week period ended March 30, 2025 of the Company, and our report dated June 10, 2025expressed an unqualifiedopinion 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’s 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/ CBIZ CPAs P.C.
CBIZ CPAs P.C.
New York New York
June 10, 2025
53
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 2025 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.
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.
54
Item 14.Principal Accountant Fees and Services.
Audit Fees
We were billed by CBIZ CPAs P.C. and Marcum LLP the aggregate amount of approximately $327,000 and $70,000for fiscal 2025for 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 Marcum LLP the aggregate amount of approximately $381,000 for fiscal 2024 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.
Audit-Related Fees
CBIZ CPAs P.C. or Marcum LLP did not render any audit-related services for fiscal 2025 and 2024, respectively and, accordingly, did not bill for any such services.
Tax Fees
CBIZ CPAs P.C. or Marcum LLP did not render any tax compliance, tax advice or tax planning services for fiscal 2025 and 2024, respectively and, accordingly, did not bill for any such services.
All Other Fees
CBIZ CPAs P.C. or Marcum LLP did not render any other services for fiscal 2025 and 2024, 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 CBIZ CPAs P.C. of all audit and non-audit services.
Our Audit Committee approved all of the audit services provided by CBIZ CPAs P.C. and Marcum LLP during fiscal 2025 and 2024, respectively.
55
PART IV
Item 15.Exhibits and Financial Statement Schedules.
(a) (1) Consolidated Financial Statements
(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
56
21 (1) List of Subsidiaries of the Registrant.
57
23.1 (1) Consent of CBIZ CPAs P.C. dated June 10, 2025.
23.2 (1) Consent of Marcum LLP dated June 10, 2025.
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.
58
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 10th day of June, 2025.
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 10th day of June, 2025.
/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
/s/ JOANNE PODELL
Joanne Podell, Director
Nathan’s Famous, Inc. and Subsidiaries
TABLE OF CONTENTS
Page
Consolidated Balance Sheets F-4
Consolidated Statements of Earnings F-5
Consolidated Statements of Changes in Stockholders’ Deficit F-6 – F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9
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 sheet of Nathan’s Famous, Inc. and Subsidiaries (the “Company”) as of March 30, 2025, the related consolidated statements of earnings, changes in stockholders’ deficit and cash flows for the fifty-two week period ended March 30, 2025, 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 30, 2025, and the results of its operations and its cash flows for the fifty-two week period ended March 30, 2025, 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 30, 2025, based oncriteria 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 10, 2025, 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 our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ CBIZ CPAs P.C.
CBIZ CPAs P.C.
We have served as the Company’s auditor since 2018 (such date takes into account the acquisition of the attest business of Marcum LLP by CBIZ CPAs P.C. effective November 1, 2024.)
New York, NY
June 10, 2025
F-2
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 sheet of Nathan’s Famous, Inc. and Subsidiaries (the “Company”) as of March 31, 2024, the related consolidated statements of earnings, changes in stockholders’ deficit and cash flows for the fifty-three week period ended March 31, 2024, 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 31, 2024, and the results of its operations and its cash flows for the fifty-three week period ended March 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
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.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor from 2018 through 2025.
New York, NY
June 12, 2024
F-3
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) 14,064 14,731
Prepaid expenses and other current assets (Note E) 2,048 2,176
Operating lease right-of-use assets (Note K) 4,987 6,203
Deferred income taxes (Note H) 510 275
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Current portion of long-term debt (Note J) $ 2,400 $ -
Accrued expenses and other current liabilities (Note G) 5,969 7,615
Current portion of operating lease liabilities (Note K) 1,923 1,887
Deferred franchise fees 309 327
Long-term portion of operating lease liabilities (Note K) 3,528 4,937
Deferred franchise fees 697 899
COMMITMENTS AND CONTINGENCIES (Note M)
STOCKHOLDERS’ DEFICIT
Retained earnings (Accumulated deficit) 6,563 (9,291 )
Stockholders’ equity before treasury stock 70,149 53,739
Total liabilities and stockholders’ deficit $ 53,476 $ 48,858
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Nathan’s Famous, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS