SEC Filing | Nathan's Famous, Inc.

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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 25, 2017.

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
	For the transition period from to .

Commission file number 0-3189

NATHAN'S FAMOUS, INC.

(Exact name of registrant as specified in its charter)

	Delaware		11-3166443
	(State or other jurisdiction of		(I.R.S. Employer
	incorporation or organization)		Identification No.)

One Jericho Plaza, Second Floor – Wing A, Jericho, New York 11753

(Address of principal executive offices)

(Zip Code)

(516) 338-8500

(Registrant's telephone number, including area code)

________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer	Accelerated filer X
Non-accelerated filer (do not check if a smaller reporting company)
Emerging growth company	Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X

At August 4, 2017, an aggregate of 4,179,050 shares of the registrant's common stock, par value of $.01, were outstanding.

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

INDEX

		Page
		Number

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

	Consolidated Financial Statements
	Consolidated Balance Sheets – June 25, 2017 (Unaudited) and March 26, 2017	3

	Consolidated Statements of Earnings (Unaudited) – Thirteen Weeks Ended June 25, 2017 and June 26, 2016	4

	Consolidated Statement of Stockholders’ (Deficit) (Unaudited) – Thirteen Weeks Ended June 25, 2017	5

	Consolidated Statements of Cash Flows (Unaudited) – Thirteen Weeks Ended June 25, 2017 and June 26, 2016	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	25

Item 4.	Controls and Procedures.	25

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings.	27

Item 1A.	Risk Factors.	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	27

Item 3.	Defaults Upon Senior Securities.	27

Item 4.	Mine Safety Disclosures.	27

Item 5.	Other Information.	27

Item 6.	Exhibits.	28

SIGNATURES		29

Exhibit Index		30

-2-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

June 25, 2017 and March 26, 2017

(in thousands, except share and per share amounts)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

	June 25, 2017			March 26, 2017
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	60,817		$	56,915
Accounts and other receivables, net		13,861			8,948
Inventories		725			579
Prepaid expenses and other current assets (Note G)		782			1,093
Total current assets		76,185			67,535

Property and equipment, net of accumulated depreciation of $7,865 and $7,522, respectively		8,680			8,844
Goodwill		95			95
Intangible asset		1,353			1,353
Other assets		293			298

Total assets	$	86,606		$	78,125

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	6,022		$	4,809
Accrued expenses and other current liabilities (Note H)		9,885			5,865
Deferred franchise fees		219			98
Total current liabilities		16,126			10,772

Long-term debt, net of unamortized debt issuance costs of $3,225 and $3,525, respectively (Note N)		131,775			131,475
Other liabilities (Note H)		1,466			1,555
Deferred income taxes		866			814

Total liabilities		150,233			144,616

COMMITMENTS AND CONTINGENCIES (Note O)

STOCKHOLDERS’ (DEFICIT)
Common stock, $.01 par value; 30,000,000 shares authorized; 9,306,423 and 9,303,870 shares issued; and 4,179,050 and 4,176,497 shares outstanding at June 25, 2017 and March 26, 2017, respectively		93			93
Additional paid-in capital		60,524			60,582
(Accumulated deficit)		(46,941	)		(49,863	)
Stockholders’ equity before treasury stock		13,676			10,812

Treasury stock, at cost, 5,127,373 shares at June 25, 2017 and March 26, 2017		(77,303	)		(77,303	)
Total stockholders’ (deficit)		(63,627	)		(66,491	)

Total liabilities and stockholders’ (deficit)	$	86,606		$	78,125

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

-3-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

Thirteen weeks ended June 25, 2017 and June 26, 2016

(in thousands, except share and per share amounts)

(Unaudited)

	June 25, 2017			June 26, 2016

REVENUES
Sales	$	22,345		$	21,262
License royalties		7,401			6,824
Franchise fees and royalties		1,172			1,330
Total revenues		30,918			29,416

COSTS AND EXPENSES
Cost of sales		17,525			15,458
Restaurant operating expenses		904			938
Depreciation and amortization		368			347
General and administrative expenses		3,671			3,849
Total costs and expenses		22,468			20,592

Income from operations		8,450			8,824

Interest expense		(3,663	)		(3,676	)
Interest income		35			-
Other income, net		21			22

Income before provision for income taxes		4,843			5,170
Provision for income taxes		1,921			1,620
Net income	$	2,922		$	3,550

PER SHARE INFORMATION
Income per share:
Basic	$	.70		$	.85
Diluted	$	.69		$	.85

Weighted average shares used in computing income per share:
Basic		4,177,000			4,166,000
Diluted		4,215,000			4,191,000

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

-4-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT)

Thirteen weeks ended June 25, 2017

(in thousands, except share amounts)

(Unaudited)

					Additional											Total
	Common		Common		Paid-in			(Accumulated			Treasury Stock, at Cost					Stockholders’
	Shares		Stock		Capital			Deficit)			Shares		Amount			(Deficit)

Balance, March 26, 2017		9,303,870	$	93	$	60,582		$	(49,863	)		5,127,373	$	(77,303	)	$	(66,491	)

Shares issued in connection with share-based compensation plans		2,553		-		-											-

Withholding tax on net share settlement of share-based compensation plans						(157	)										(157	)

Share-based compensation						99											99

Net income		-		-		-			2,922			-		-			2,922
Balance, June 25, 2017		9,306,423	$	93	$	60,524		$	(46,941	)		5,127,373	$	(77,303	)	$	(63,627	)

The accompanying notes are an integral part of this financial statement.

-5-

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Thirteen weeks ended June 25, 2017 and June 26, 2016

(in thousands)

(Unaudited)

	June 25, 2017			June 26, 2016
Cash flows from operating activities:
Net income	$	2,922		$	3,550
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		368			347
Amortization of debt issuance costs		300			311
Share-based compensation expense		99			173
Income tax benefit on stock option exercises		78			621
Provision for doubtful accounts		16			-
Deferred income taxes		52			171
Changes in operating assets and liabilities:
Accounts and other receivables, net		(4,929	)		(4,169	)
Inventories		(146	)		(103	)
Prepaid expenses and other current assets		311			685
Other assets		5			15
Accounts payable, accrued expenses and other current liabilities		5,280			3,614
Deferred franchise fees		121			(50	)
Other liabilities		(89	)		(220	)

Net cash provided by operating activities		4,388			4,945

Cash flows from investing activities:
Purchase of property and equipment		(204	)		(277	)

Net cash (used in) investing activities		(204	)		(277	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		-			44
Dividends paid to stockholders		(125	)		(125	)
Payments of withholding tax on net share settlement of share-based compensation plans		(157	)		(705	)
Repurchase of treasury stock		-			(1,272	)

Net cash (used in) financing activities		(282	)		(2,058	)

Net increase in cash and cash equivalents		3,902			2,610

Cash and cash equivalents, beginning of period		56,915			50,228

Cash and cash equivalents, end of period	$	60,817		$	52,838

Cash paid during the period for:
Interest	$	-		$	-
Income taxes paid	$	208		$	453

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

-6-

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 25, 2017

(Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying consolidated financial statements of Nathan's Famous, Inc. and subsidiaries (collectively “Nathan’s,” the “Company,” “we,” “us” or “our”) as of and for the thirteen week periods ended June 25, 2017 and June 26, 2016 have been prepared in accordance with accounting principles generally accepted in the United States of America. The unaudited financial statements include all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of financial condition, results of operations and cash flows for the periods presented. However, our results of operations are seasonal in nature, and the results of any interim period are not necessarily indicative of results for any other interim period or the full fiscal year.

Certain information and footnote disclosures normally included in financial statements in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the requirements of the Securities and Exchange Commission. Management believes that the disclosures included in the accompanying consolidated interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the consolidated financial statements and notes thereto included in Nathan’s Annual Report on Form 10-K for the fiscal year ended March 26, 2017.

A summary of the Company’s significant accounting policies is identified in Note B of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 26, 2017. There have been no changes to the Company’s significant accounting policies subsequent to March 26, 2017.

NOTE B – ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

In July 2015, the Financial Accounting Standards Board (“FASB”) updated U.S. accounting guidance to simplify the ways businesses measure inventory. Companies that use the first-in, first-out (FIFO) method or the average cost method will measure inventory at the lower of its cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business, minus the cost of completion, disposal, and transportation. Companies will no longer consider replacement cost or net realizable value less a normal profit margin when measuring inventory. The guidance was effective for the Company beginning in the first quarter of fiscal 2018 and did not have a material impact on its results of operations or financial position.

NOTE C – NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In May 2014, the FASB issued a new accounting standard that attempts to establish a uniform basis for recording revenue to virtually all industries’ financial statements, under U.S. GAAP as further amended during 2016. The FASB issued certain updates to the standard, including clarifying reporting revenue between Principle versus Agent and clarification in determining performance obligations and licenses guidance. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. In order to accomplish this objective, companies must evaluate the following five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

There are two basic transition methods that are available – full retrospective, or modified retrospective transition methods. Early adoption is prohibited. Public companies were originally expected to apply the new standard for annual periods beginning after December 15, 2016, including interim periods therein, which for Nathan’s would have been its first quarter of fiscal 2018, beginning on March 27, 2017. On July 9, 2015, the FASB agreed to delay the standard’s effective date to annual reporting periods beginning after December 15, 2017 which will now be our first quarter (June 2018) of our fiscal year ending March 31, 2019.

The Company does not believe that the standard will impact its recognition of revenue for its Branded Product Program, Company-operated restaurants or its recognition of royalties from its franchised restaurants or retail licenses, which are based on a percentage of sales. The Company is still assessing the impact of decisions reached by the FASB Transition Resource Group in November 2016 on the treatment of minimum guarantees in licensing arrangements, which may affect the timing of the Company’s recognition of royalty revenues. Currently, franchise and international development fees are recognized when the Company has performed substantially all initial services required by the agreements, which is generally when the franchisee begins operations. Under the new guidance, these fees may be recognized over the term of the agreements. The Company plans to adopt this standard in the first quarter of fiscal 2019 using the modified retrospective method. The Company anticipates assigning internal resources to assist with the evaluation and implementation of the new standard, and will continue to provide updates during fiscal year 2018.

-7-

In February 2016, the FASB issued a new accounting standard on leases. The new standard, among other changes, will require lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present value of the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. This standard is required to take effect in Nathan’s first quarter (June 2019) of our fiscal year ending March 29, 2020. The adoption will require a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented. The Company is currently evaluating the standard to determine the impact of the adoption on its consolidated financial statements but expects that the standard will result in a significant increase to its other assets and other liabilities.

In January 2017, the FASB issued a new accounting standard that narrows the definition of a business. The concept is fundamental in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU revised the definition of a business to consist of the following key concepts:

●

A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants.

●

To be capable of being conducted and managed for the purposes described above, an integrated set of activities and assets requires two essential elements–inputs and a substantive process(es) applied to those inputs.

The amendments are effective prospectively for public business entities for annual reporting periods beginning after December 15, 2017. This standard is required to take effect in Nathan’s first quarter (June 2018) of our fiscal year ending March 31, 2019. The Company does not expect this new accounting standard will have a material effect on the Company’s results of operations, cash flows or financial position. Early adoption is permitted when certain criteria are met.

In January 2017, the FASB issued an update to the accounting guidance to simplify the testing for goodwill impairment. The update removes the requirement to determine the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. A company will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The guidance is effective prospectively for public business entities for annual reporting periods beginning after December 15, 2019. This standard is required to take effect in Nathan’s first quarter (June 2020) of our fiscal year ending March 28, 2021. Nathan’s does not expect the adoption of this new guidance to have a material impact on its results of operations or financial position.

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

NOTE D – INCOME PER SHARE

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

The following chart provides a reconciliation of information used in calculating the per-share amounts for the thirteen-week periods ended June 25, 2017 and June 26, 2016, respectively.

Thirteen weeks
									Net Income
	Net Income				Number of Shares				Per Share
	2017		2016		2017		2016		2017			2016
	(in thousands)				(in thousands)
Basic EPS
Basic calculation	$	2,922	$	3,550		4,177		4,166	$	0.70		$	0.85
Effect of dilutive employee stock options		-		-		38		25		(0.01	)		-
Diluted EPS
Diluted calculation	$	2,922	$	3,550		4,215		4,191	$	0.69		$	0.85

-8-

There were no options to purchase shares of common stock for the thirteen week periods ended June 25, 2017 and June 26, 2016 that were excluded from the computation of diluted earnings per share.

NOTE E – FAIR VALUE MEASUREMENTS

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

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

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

● Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability

The Company’s long-term debt had a face value of $135,000,000 as of June 25, 2017 and a fair value of $144,112,500 as of June 25, 2017. The Company estimates the fair value of its long-term debt based upon review of observable pricing in secondary markets as of the last trading day of the fiscal period, which we classify as Level 2.

The carrying amounts of accounts receivable and accounts payable approximate fair value due to the short-term maturity of the instruments.

Certain non-financial assets and liabilities are measured at fair value on a non-recurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances, such as when evidence of impairment exists. At June 25, 2017, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.

NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET

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

	June 25,		March 26,
	2017		2017

Branded product sales	$	9,052	$	6,037
Franchise and license royalties		3,718		2,746
Other		1,561		622
		14,331		9,405

Less: allowance for doubtful accounts		470		457
Accounts and other receivables, net	$	13,861	$	8,948

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

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

-9-

Changes in the Company’s allowance for doubtful accounts for the thirteen-week period ended June 25, 2017 and the fiscal year ended March 26, 2017 are as follows (in thousands):

	June 25, 2017			March 26, 2017

Beginning balance	$	457		$	471
Bad debt expense		16			53
Accounts written off		(3	)		(67	)
Ending balance	$	470		$	457

NOTE G – PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

	June 25,		March 26,
	2017		2017

Insurance	$	309	$	319
Other		473		774
Total prepaid expenses and other current assets	$	782	$	1,093

NOTE H – ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES

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

	June 25,		March 26,
	2017		2017
Payroll and other benefits	$	1,248	$	2,708
Accrued rebates		1,562		1,050
Rent and occupancy costs		227		215
Deferred revenue		447		723
Construction costs		149		160
Interest		3,826		463
Professional fees		132		109
Income taxes		1,937		143
Dividend payable		125		125
Other		232		169
Total accrued expenses and other current liabilities	$	9,885	$	5,865

Other liabilities consist of the following (in thousands):

	June 25,		March 26,
	2017		2017
Deferred development fees	$	119	$	67
Reserve for uncertain tax positions		381		366
Deferred rental liability		755		786
Dividend payable		-		125
Other		211		211
Total other liabilities	$	1,466	$	1,555

-10-

NOTE I – SALES

The Company’s sales for the thirteen weeks ended June 25, 2017 and June 26, 2016 are as follows (in thousands):

	Thirteen weeks ended
	June 25, 2017		June 26, 2016

Branded Products	$	17,937	$	16,254
Company-operated restaurants		4,408		4,843
Other		-		165
Total sales	$	22,345	$	21,262

NOTE J – INCOME TAXES

The income tax provisions for the thirteen-week periods ended June 25, 2017 and June 26, 2016 reflect effective tax rates of 39.7% and 31.3%, respectively. Nathan’s effective tax rates for the thirteen-week periods ended June 25, 2017 and June 26, 2016 were reduced by 1.6% and 12%, respectively, as a result of the tax benefits associated with stock compensation guidance. For the thirteen-week periods ended June 25, 2017 and June 26, 2016, excess tax benefits of $78,000 and $621,000, respectively, were reflected in the Consolidated Statements of Earnings as a component of the provision for income taxes.

The amount of unrecognized tax benefits at June 25, 2017 was $183,000, all of which would impact Nathan’s effective tax rate, if recognized. As of June 25, 2017, Nathan’s had $192,000 of accrued interest and penalties in connection with unrecognized tax benefits.

During the fiscal year ending March 25, 2018, Nathan’s will seek to settle additional uncertain tax positions with the tax authorities. As a result, it is reasonably possible the amount of unrecognized tax benefits, excluding the related accrued interest and penalties, could be reduced by up to $5,000, which would favorably impact Nathan’s effective tax rate, although no assurances can be given in this regard.

Nathan’s estimates that its annual tax rate for the fiscal year ending March 25, 2018 will be in the range of approximately 40.8% to 42.3%, excluding the impact of the excess tax benefit associated with stock compensation and the potential impact of any reduction to the Company’s unrecognized tax benefits. The final annual tax rate is subject to many variables, including the ultimate determination of revenue and income tax by state, among other factors, and therefore cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from our current estimates.

NOTE K – SEGMENT INFORMATION

Nathan’s considers itself to be a brand marketer of the Nathan’s Famous signature products to the foodservice industry pursuant to its various business structures. Nathan’s sells its products directly to consumers through its restaurant system of Company-operated and franchised restaurants, to distributors that resell our products to the foodservice industry through the Branded Product Program (“BPP”) and by third party manufacturers pursuant to license agreements that sell our products to club stores and grocery stores nationwide. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”) who evaluates performance and allocates resources for the Branded Product Program, Product Licensing and Restaurant Operations segments based upon a number of factors, the primary profit measure being income from operations. Certain costs are not allocated to the segments and are reported within Corporate.

Branded Product Program – This segment derives revenue principally from the sale of hot dog products either directly to foodservice operators or to various foodservice distributors who resell the products to foodservice operators.

Product licensing – This segment derives revenue, primarily in the form of royalties, from licensing a broad variety of Nathan’s Famous branded products, including our hotdogs, sausage and corned beef products, frozen French fries and additional products through retail grocery channels and club stores throughout the United States.

Restaurant operations – This segment derives revenue from sale of our products at Company-owned and earns fees and royalties from its franchised restaurants.

Revenues from operating segments are from transactions with unaffiliated third parties and do not include any intersegment revenues.

Income from operations attributable to corporate consists principally of administrative expenses not allocated to the operating segments such as executive management, finance, information technology, legal, insurance, corporate office costs, corporate incentive compensation and compliance costs.

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

-11-

NOTE K – SEGMENT INFORMATION (continued)

Operating segment information is as follows (in thousands):

	Thirteen weeks ended
	June 25, 2017			June 26, 2016

Revenues
Branded Product Program	$	17,937		$	16,419
Product licensing		7,401			6,824
Restaurant operations		5,580			6,173
Corporate		-			-
Total revenues	$	30,918		$	29,416

Income from operations
Branded Product Program	$	2,272		$	2,953
Product licensing		7,356			6,778
Restaurant operations		895			1,433
Corporate		(2,073	)		(2,340	)
Income from operations	$	8,450		$	8,824
Interest expense		(3,663	)		(3,676	)
Interest income		35			-
Other income, net		21			22
Income before provision for income taxes	$	4,843		$	5,170

NOTE L– SHARE-BASED COMPENSATION

Total share-based compensation during the thirteen-week periods ended June 25, 2017 and June 26, 2016 was $99,000 and $173,000, respectively. Total share-based compensation is included in general and administrative expense in our accompanying Consolidated Statements of Earnings. As of June 25, 2017, there was $399,000 of unamortized compensation expense related to share-based incentive awards. We expect to recognize this expense over approximately one year and one month, which represents the weighted average remaining requisite service periods for such awards.

There were no new share-based awards granted during the thirteen-week period ended June 25, 2017.

The Company recognizes compensation cost for unvested stock-based incentive awards on a straight-line basis over the requisite service period. Compensation cost charged to expense under all stock-based incentive awards is as follows (in thousands):

	Thirteen weeks ended
	June 25, 2017		June 26, 2016

Stock options	$	38	$	38
Restricted stock		61		135
Total compensation cost	$	99	$	173

Stock options outstanding:

During the fiscal year ended March 29, 2015, the Company granted options to purchase 50,000 shares at an exercise price of $53.89 per share, all of which expire five years from the date of grant. All such stock options vest ratably over a four-year period which commenced August 6, 2015.

In connection with the Company’s special cash dividend, paid on March 27, 2015, to stockholders of record as of March 20, 2015, the Company performed an analysis, pursuant to the anti-dilution provisions of the Company’s 2010 Stock Incentive Plan, and issued replacement options to purchase 75,745 shares at an exercise price of $35.576 for the unvested stock options that were outstanding as of March 29, 2015. Nathan’s performed its evaluation based on the closing price of its common stock on Friday, March 27, 2015 of $73.56 per share, or $48.56 per share excluding the dividend of $25.00 per share. No other terms or conditions of the outstanding options were modified. The anti-dilution provisions of the original award were structured to equalize the award’s fair value before and after the modification.

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Transactions with respect to stock options for the thirteen weeks ended June 25, 2017 are as follows:

			Weighted-		Weighted-		Aggregate
			Average		Average		Intrinsic
			Exercise		Remaining		Value
	Shares		Price		Contractual Life		(in thousands)

Options outstanding at the beginning of the fiscal year (A)		75,745	$	35.58		2.36	$	1,899

Granted		-		-		-		-

Expired		-		-		-		-

Exercised		-		-		-		-

Options outstanding at June 25, 2017		75,745	$	35.58		2.11	$	2,214

Options exercisable at June 25, 2017		37,873	$	35.58		2.11	$	1,107

A- Represents outstanding options after giving effect to the replacement options issued in connection with the Company’s special dividend.

Restricted stock:

Transactions with respect to restricted stock for the thirteen weeks ended June 25, 2017 are as follows:

				Weighted-
				Average
				Grant-date Fair value
	Shares			Per share
Unvested restricted stock at March 26, 2017		10,000		$	49.80

Granted		-			-
Vested		(5,000	)	$	49.80

Unvested restricted stock at June 25, 2017		5,000		$	49.80

NOTE M– STOCKHOLDERS’ EQUITY

1. Dividend

On March 10, 2015, the Company’s Board of Directors declared a special cash dividend of $25.00 per share payable to stockholders of record as of March 20, 2015 of which approximately $115,100,000 was paid on March 27, 2015 to the stockholders. The Company accrued $1,000,000 for the expected dividends payable on unvested shares pursuant to the terms of the restricted stock agreements. As unvested restricted stock vests, the declared dividend is paid. We have paid $875,000 of the accrued dividend and estimate that the remaining $125,000 will be paid during our fiscal year ending March 31, 2019.

2. Common Stock Purchase Rights

On June 5, 2013, Nathan’s adopted a new stockholder rights plan (the “2013 Rights Plan”) under which all stockholders of record as of June 17, 2013 received rights to purchase shares of common stock (the “2013 Rights”) and the previously existing “New Rights Plan” was terminated.

The 2013 Rights were distributed as a dividend. Initially, the 2013 Rights will attach to, and trade with, the Company’s common stock. Subject to the terms, conditions and limitations of the 2013 Rights Plan, the 2013 Rights will become exercisable if (among other things) a person or group acquires 15% or more of the Company’s common stock. Upon such an event and payment of the purchase price of $100.00 (the “2013 Right Purchase Price”), each 2013 Right (except those held by the acquiring person or group) will entitle the holder to acquire one share of the Company’s common stock (or the economic equivalent thereof) or, if the then-current market price is less than the then current 2013 Right Purchase Price, a number of shares of the Company’s common stock which at the time of the transaction has a market value equal to the then current 2013 Right Purchase Price at a purchase price per share equal to the then current market price of the Company’s Common Stock.

The Company’s Board of Directors may redeem the 2013 Rights prior to the time they are triggered. Upon adoption of the 2013 Rights Plan, the Company initially reserved 10,188,600 shares of common stock for issuance upon exercise of the 2013 Rights. The 2013 Rights will expire on June 17, 2018 unless earlier redeemed or exchanged by the Company.

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At June 25, 2017, the Company has reserved 6,918,971 shares of common stock for issuance upon exercise of the Common Stock Purchase Rights approved by the Board of Directors on June 5, 2013.

3. Stock Repurchase Programs

During the period from October 2001 through June 25, 2017, Nathan’s purchased 5,127,373 shares of its common stock at a cost of approximately $77,303,000 pursuant to various stock repurchase plans previously authorized by the Board of Directors. During the thirteen-week period ended June 25, 2017, we did not repurchase any shares of common stock.

On September 9, 2016, the Company and Mutual Securities, Inc. (“MSI”) entered into an agreement (the “Agreement”) pursuant to which MSI was authorized on the Company’s behalf to purchase up to 100,000 shares of the Company’s common stock, $.01 par value, commencing September 19, 2016. The Agreement was adopted under the safe harbor provided by Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, as amended, to assist the Company in implementing its stock purchase plans.

As of June 25, 2017, an aggregate of 260,258 shares can still be purchased under Nathan’s existing stock buy-back program.

Purchases 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 to be made under these stock-repurchase plans.

NOTE N – LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

	June 25,			March 26,
	2017			2017

10.000% Senior secured notes due 2020	$	135,000		$	135,000
Less: unamortized debt issuance costs		(3,225	)		(3,525	)
Long-term debt, net	$	131,775		$	131,475

On March 10, 2015, the Company completed the issuance of $135,000,000 of 10.000% Senior Secured Notes due 2020 (“the Notes”) in a Rule 144A transaction. The Notes were issued pursuant to an indenture, dated March 10, 2015 (the “Indenture”), by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, a national banking association, as trustee and collateral trustee. The Company used the proceeds to pay a special cash dividend of approximately $116,100,000 (see Note M.1) with the remaining net proceeds for general corporate purposes, including working capital. Debt issuance costs of approximately $5,985,000 were incurred, which will be amortized into interest expense over the remaining 5-year term of the Notes.

The Notes bear interest at 10.000% per annum, payable semi-annually on March 15^th and September 15^th. The Notes have no scheduled principal amortization payments prior to its final maturity on March 10, 2020.

There are no financial maintenance covenants associated with the Notes. As of June 25, 2017, Nathan’s was in compliance with all

covenants associated with the Notes.

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

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

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

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

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

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

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

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

●

senior in right of payment to all of the Company and the guarantors’ future subordinated indebtedness;

●

effectively senior to all unsecured senior indebtedness to the extent of the value of the collateral securing the Notes and the guarantees;

●

pari passu with all of the Company and the guarantors’ other senior indebtedness;

●

effectively junior to any future credit facility to the extent of the value of the collateral securing any future credit facility and the Notes and the guarantees and certain other assets;

●

effectively junior to any of the Company and the guarantors’ existing and future indebtedness that is secured by assets other than the collateral securing the Notes and the guarantees to the extent of the value of any such assets; and

●

structurally subordinated to the indebtedness of any of the Company’s current and future subsidiaries that do not guarantee the Notes.

The Company may redeem the Notes in whole or in part prior to September 15, 2017, at a redemption price of 100% of the principal amount of the Notes plus the Applicable Premium, plus accrued and unpaid interest. An Applicable Premium is the greater of 1% of the principal amount of the Notes; or the excess of the present value at such redemption date of (i) the redemption price of the Notes at September 15, 2017 plus (ii) all required interest payments due on the Notes through September 15, 2017 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over the then outstanding principal amount of the Notes.

Prior to September 15, 2017, if using the net cash proceeds of certain equity offerings, the Company has the option to redeem up to 35% of the aggregate principal amount of the Notes at a redemption price equal to 110% of the principal amount of the Notes redeemed, plus accrued and unpaid interest and any additional interest.

On or after September 15, 2017, the Company may redeem some or all of the Notes at a decreasing premium over time, plus accrued and unpaid interest as follows:

YEAR	PERCENTAGE
On or after September 15, 2017 and prior to March 15, 2018		105.000	%
On or after March 15, 2018 and prior to March 15, 2019		102.500	%
On or after March 15, 2019		100.000	%

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

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

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The Notes may be traded between qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933. We have recorded the Notes at cost.

NOTE O – COMMITMENTS AND CONTINGENCIES

1. Commitments

On February 27, 2017, a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the “Brooklyn Guaranty”) in connection with its re-franchising of a restaurant located in Brooklyn, New York. The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. Nathan’s has recorded a liability of $204,000 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees.

2. Contingencies

The Company and its subsidiaries are from time to time involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include money damages and, in such event, could result in a material adverse impact on the Company’s results of operations for the period in which the ruling occurs.

On May 19, 2017, our hot dog manufacturer, John Morrell and Co. announced a voluntary recall of approximately 200,000 pounds of hot dogs, including Nathan's hot dogs, after a small number of consumers reported seeing visible metal flakes between the hot dogs and the packaging film. The amount represents a miniscule percentage of the billions of pounds of products annually produced by John Morrell and Co. John Morrell and Co. has communicated with their customers and consumers asking that anyone that purchased the affected product to discard it and contact John Morrell and Co. for a refund. John Morrell and Co. notified the United States Department of Agriculture which has designated the recall as a Class II Recall.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Statements in this Form 10-Q quarterly report may be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties, many of which are not within our control, include but are not limited to: economic, weather (including the affects on the supply of cattle and the impact of weather on sales at our restaurants, particularly during Summer months), and change in the price of beef trimmings; our ability to pass on the cost of any price increases in beef and beef trimmings, or labor costs; legislative and business conditions; the collectibility of receivables; changes in consumer tastes; the status of our licensing and supply agreements, including the impact of our supply agreement for hot dogs with John Morrell & Co., the impact of our debt service and repayment obligations under the Notes; the continued viability of Coney Island as a destination location for visitors; the ability to continue to attract franchisees; the impact of the new minimum wage legislation in New York State or other changes in labor laws, including regulations which could render a franchisor as a “joint employee” or the impact of our new union contract; our ability to attract competent restaurant and managerial personnel; the enforceability of international franchising agreements and the future effects of any food borne illness; such as bovine spongiform encephalopathy, BSE or e-coli; as well as those risks discussed from time to time in this Form 10-Q and our Form 10-K annual report for the year ended March 26, 2017, and in other documents we file with the Securities and Exchange Commission. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements. We generally identify forward-looking statements with the words “believe,” “intend,” “plan,” “expect,” “anticipate,” “estimate,” “will,” “should” and similar expressions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q.

Introduction

As used in this Report, the terms “we”, “us”, “our”, “Nathan’s” or the “Company” mean Nathan’s Famous, Inc. and its subsidiaries (unless the context indicates a different meaning).

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

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

At June 25, 2017, our restaurant system consisted of 279 Nathan’s franchised units, including 118 Branded Menu units, and five Company-owned units (including one seasonal unit), located in 19 states, and 12 foreign countries. At June 26, 2016, our restaurant system consisted of 261 Nathan’s franchised units, including 103 Branded Menu units, and five Company-owned units (including one seasonal unit), located in 20 states, and 11 foreign countries.

In addition to plans for expansion through our Branded Product Program, licensing and franchising, Nathan’s continues to seek to co-brand within its restaurant system. Nathan’s is also the owner of the Arthur Treacher’s brand. Currently there are also eight locations operating under our Arthur Treacher’s Branded Menu Program agreement.

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As described in our Annual Report on Form 10-K for the year ended March 26, 2017, our future results could be materially impacted by many developments including our dependence on John Morrell & Co. as our principal supplier and the dependence of our licensing revenue and overall profitability on our agreement with John Morrell & Co. In addition, our future operating results could be impacted by supply constraints on beef or by increased costs of beef compared to earlier periods.

On March 10, 2015, we consummated a $135,000,000 offering of 10.000% Senior Secured Notes due 2020 (“the Notes”) and paid a dividend of $25.00 per share (or approximately $116,100,000 in the aggregate). Our future results could also be impacted by our obligations under the Notes. As a result of the issuance of the Notes, Nathan’s expects to incur interest expense of $13,500,000 per annum and annual amortization of debt issuance costs of approximately $1,200,000. The impact of interest expense on net income has been reflected in our results for the thirteen week periods ended June 25, 2017 and June 26, 2016. Accordingly, as described below we are also including information relating to EBITDA and Adjusted EBITDA in this Form 10-Q quarterly report.

Critical Accounting Policies and Estimates

As discussed in our Form 10-K for the fiscal year ended March 26, 2017, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; impairment of goodwill and other intangible assets; impairment of long-lived assets; share-based compensation and income taxes (including uncertain tax positions). Except for the adoption discussed in Note B – simplifying the measurement of inventory; there have been no changes to the Company’s significant accounting policies subsequent to March 26, 2017.

Adoption of New Accounting Pronouncements

Please refer to Note B of the preceding consolidated financial statements for our discussion of the Adoption of New Accounting Pronouncement.

New Accounting Pronouncements Not Yet Adopted

Please refer to Note C of the preceding consolidated financial statements for our discussion of New Accounting Pronouncements Not Yet Adopted.

EBITDA and Adjusted EBITDA

The Company believes that EBITDA and Adjusted EBITDA are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure.

Reconciliation of GAAP and Non-GAAP Measures

The following is provided to supplement certain Non-GAAP financial measures.

In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP"), the Company has provided EBITDA which excludes (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense. The Company has also provided Adjusted EBITDA excluding stock-based compensation that the Company believes will impact the comparability of its results of operations.

EBITDA and Adjusted EBITDA are not recognized terms under US GAAP and should not be viewed as alternatives to net income (loss) 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.

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The following is a reconciliation of Net income to Adjusted EBITDA (in thousands):

	Thirteen weeks ended
	June 25, 2017		June 26, 2016
	(unaudited)

Net income	$	2,922	$	3,550
Interest expense		3,663		3,676
Income taxes		1,921		1,620
Depreciation and amortization		368		347
EBITDA		8,874		9,193

Stock-based compensation		99		173
Adjusted EBITDA	$	8,973	$	9,366

Results of Operations

Thirteen weeks ended June 25, 2017 compared to thirteen weeks ended June 26, 2016

Revenues

Total sales increased by 5.1% to $22,345,000 for the thirteen weeks ended June 25, 2017 (“fiscal 2018 period”) as compared to $21,262,000 for the thirteen weeks ended June 26, 2016 (“fiscal 2017 period”). Foodservice sales from the Branded Product Program increased by 10.4% to $17,937,000 for the fiscal 2018 period as compared to sales of $16,254,000 in the fiscal 2017 period. During the fiscal 2018 period, the volume of business increased by approximately 8.3%. Our average selling prices increased by approximately 1.3% as a result of our pricing strategy, which is more closely correlated to the cost of beef which increased by approximately 9.3%, during the fiscal 2018 period as compared to the fiscal 2017 period. Total Company-owned restaurant sales were $4,408,000 during the fiscal 2018 period compared to $4,843,000 during the fiscal 2017 period. Sales at our five Company-owned restaurants were unfavorably affected during the fiscal 2018 period due primarily to unfavorable weather conditions during the fiscal 2018 period. Direct retail sales also decreased by $165,000 during the fiscal 2018 period as compared to the fiscal 2017 period as we transitioned this business into our Branded Product Program during fiscal 2017.

License royalties were $7,401,000 in the fiscal 2018 period as compared to $6,824,000 in the fiscal 2017 period. Total royalties earned on sales of hot dogs from our license agreement with John Morrell & Co. at retail and foodservice, substantially from sales of hot dogs to Sam’s Club, increased 8.2% to $6,885,000 for the 2018 fiscal period as compared to $6,362,000 in the fiscal 2017 period. The increase is due to a 4.0% increase in volume during the fiscal 2018 period as compared to the fiscal 2017 period, in addition to a 5.3% increase in average selling prices, on which our royalties are calculated. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $54,000 during the fiscal 2018 period as compared to the fiscal 2017 period.

Franchise fees and royalties were $1,172,000 in the fiscal 2018 period as compared to $1,330,000 in the fiscal 2017 period. Total royalties were $1,112,000 in the fiscal 2018 period as compared to $1,152,000 in the fiscal 2017 period. Royalties earned under the Branded Menu program were $291,000 in the fiscal 2018 period as compared to $262,000 in the fiscal 2017 period due principally to the new carts opened primarily in New York City over the last year. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases. Traditional franchise royalties were $821,000 in the fiscal 2018 period as compared to $890,000 in the fiscal 2017 period. Franchise restaurant sales decreased to $18,846,000 in the fiscal 2018 period as compared to $19,830,000 in the fiscal 2017 period primarily due to the decline in comparable domestic sales and the impact of units closed in the previous fiscal year. Comparable domestic franchise sales (consisting of 91 Nathan’s outlets, excluding sales under the Branded Menu Program) were $13,946,000 in the fiscal 2018 period as compared to $14,472,000 in the fiscal 2017 period, a decrease of 3.6%.

At June 25, 2017, 279 domestic and international franchised or Branded Menu Program franchise outlets were operating compared to 261 domestic and international franchised or Branded Menu Program franchise outlets at June 26, 2016. Total franchise fee income was $60,000 in the fiscal 2018 period compared to $178,000 in the fiscal 2017 period. Domestic franchise fee income was $31,000 in the fiscal 2018 period compared to $54,000 in the fiscal 2017 period due primarily to the different types of locations opened, and associated fees earned, between the two periods. International franchise fee income was $29,000 in the fiscal 2018 period compared to $99,000 during the fiscal 2017 period primarily due to the timing of new international development international fees. We also recognized $25,000 in forfeited fees in the fiscal 2017 period. During the fiscal 2018 period, ten new franchised outlets opened including two international locations and seven new Branded Menu Program outlets opened. During the fiscal 2017 period, four new franchised outlets opened and four new Branded Menu Program outlets opened.

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Costs and Expenses

Overall, our cost of sales increased by 13.4% to $17,525,000 in the fiscal 2018 period as compared to $15,458,000 in the fiscal 2017 period. Our gross profit (representing the difference between sales and cost of sales) was $4,820,000 or 21.6% of sales during the fiscal 2018 period as compared to $5,804,000 or 27.3% of sales during the fiscal 2017 period. The margin reduction was primarily due to the higher cost of beef in the Branded Product Program and in the Company-operated restaurants in addition to the higher labor costs at the Company-owned restaurants.

Cost of sales in the Branded Product Program increased by approximately $2,280,000 during the fiscal 2018 period as compared to the fiscal 2017 period, primarily due to the 9.3% increase in the average cost per pound of our hot dogs in addition to the higher volume of product sold. During the fiscal 2017 period, we completed our purchase of approximately 662,000 lbs. of hot dogs pursuant to the open purchase commitment, representing approximately 11.3% of volume, which reduced our overall cost of hot dogs by approximately 110 BPS. We did not make any purchases during the fiscal 2018 period pursuant to any purchase commitments. 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 2018 period was $2,585,000 or 58.6% of restaurant sales, as compared to $2,648,000 or 54.7% of restaurant sales in the fiscal 2017 period due primarily to the impact of lower revenues and higher labor costs principally associated with the effects of the New York State minimum wage increase. We expect that our labor costs going forward will continue to be impacted by the multi-year new increase in minimum wage requirements in New York State and any increase in food costs from higher commodity costs.

Restaurant operating expenses were $904,000 in the fiscal 2018 period as compared to $938,000 in the fiscal 2017 period. The decrease in restaurant operating costs results primarily from lower marketing expenditures.

Depreciation and amortization was $368,000 in the fiscal 2018 period as compared to $347,000 in the fiscal 2017 period.

General and administrative expenses decreased by $178,000 or 4.6% to $3,671,000 in the fiscal 2018 period as compared to $3,849,000 in the fiscal 2017 period. The decrease in general and administrative expenses was primarily attributable to the $207,000 expended on marketing and promotional activities during the fiscal 2017 period in commemoration of our 100^th anniversary, partly offset by higher compensation expenses during the fiscal 2018 period.

Other Items

Interest income was $35,000 in the fiscal 2018 period. Nathan’s established its interest bearing money market account during the second quarter of fiscal 2017.

Other income, which primarily relates to a sublease of a franchised restaurant, was $21,000 in the fiscal 2018 period as compared to $22,000 in the fiscal 2017 period.

Interest expense was $3,663,000 in the fiscal 2018 period representing accrued interest of $3,364,000 on the Notes and amortization of debt issuance costs of $299,000 during the same period. Interest expense of $3,676,000 in the fiscal 2017 period represents accrued interest of $3,364,000 on the Notes and amortization of issuance costs of $312,000 during the same period. As a result of the issuance of the Notes, Nathan’s expects to incur interest expense of $13,500,000 per annum and annual amortization of debt issuance costs of approximately $1,200,000.

Provision for Income Taxes

In the fiscal 2018 period, the income tax provision was $1,921,000 or 39.7% of earnings before income taxes as compared to $1,620,000 or 31.3% of income before income taxes in the fiscal 2017 period. Nathan’s recognized excess income tax benefits of $78,000 and $621,000 during the fiscal 2018 and fiscal 2017 periods, respectively, which reduced the effective tax rate by 1.6% and 12.0% respectively, as a result of the tax benefit associated with stock compensation guidance that Nathan’s adopted in the first quarter of fiscal 2017. Nathan’s effective tax rates without these adjustments would have been 41.3% for the fiscal 2018 period and 43.3% for the fiscal 2017 period. Nathan’s estimates that its unrecognized tax benefits including the related accrued interest and penalties could be further reduced by up to $11,000 during the remainder of fiscal 2018. As described under Note J to the Consolidated Financial Statements, Nathan’s estimates that its annual tax rate for the fiscal year ending March 25, 2018 will be in the range of approximately 40.8% to 42.3% excluding the impact of the excess tax benefits associated with stock compensation and the potential impact of any reduction to the Company’s unrecognized tax benefits.

Off-Balance Sheet Arrangements

Nathan’s did not have any open purchase commitments for hot dogs outstanding as of June 25, 2017. Nathan’s may enter into purchase commitments in the future as favorable market conditions become available.

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Liquidity and Capital Resources

Cash and cash equivalents at June 25, 2017 aggregated $60,817,000, a $3,902,000 increase during the fiscal 2018 period as compared to cash and cash equivalents of $56,915,000 at March 26, 2017. Net working capital increased to $60,059,000 from $56,763,000 at March 26, 2017.

On March 10, 2015, the Company completed an offering of $135,000,000 aggregate principal amount of the Notes. The Company used the net proceeds of the Notes offering to pay a special dividend of $25.00 per share (approximately $116,100,000 in the aggregate) to Company stockholders of record and used the remaining net proceeds for general corporate purposes, including working capital.

The Notes were issued pursuant to an indenture, dated as of March 10, 2015 (the “Indenture”), by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, a national banking association, as trustee and collateral trustee.

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

As of June 25, 2017, Nathan’s was in compliance with all covenants associated with the Notes.

The Notes mature on March 15, 2020 and bear interest at a rate of 10.000% per annum, payable semi-annually in cash in arrears on March 15 and September 15 of each year. The Notes are redeemable under certain circumstances.

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

●

senior in right of payment to all of the Company and the guarantors’ future subordinated indebtedness;

●

effectively senior to all unsecured senior indebtedness to the extent of the value of the collateral securing the Notes and the guarantees;

●

pari passu with all of the Company and the guarantors’ other senior indebtedness;

●

effectively junior to any future credit facility to the extent of the value of the collateral securing any future credit facility and the Notes and the guarantees and certain other assets;

●

structurally subordinated to the indebtedness of any of the Company’s current and future subsidiaries that do not guarantee the Notes.

Cash provided by operations of $4,388,000 in the fiscal 2018 period is primarily attributable to net income of $2,922,000 in addition to other non-cash operating items of $913,000, and increased changes in other operating assets and liabilities of $553,000. Non-cash operating items include $78,000 of excess income tax benefits from stock-based compensation arrangements as a result of the accounting for certain aspects of its share-based payments to employees. In the fiscal 2018 period, accounts and other receivables increased by $4,929,000 compared to the fiscal 2017 period due primarily to higher receivables from Branded Product Program sales of $3,015,000, and seasonally higher royalty receivables of $972,000, and increased seasonal advances to the Advertising Fund of $1,004,000. In the fiscal 2018 period, prepaid expenses and other current assets decreased by $311,000 due principally to the utilization of prepaid marketing expense, partly offset by higher property taxes. The increase in accounts payable, accrued expenses and other current liabilities of $5,280,000 is primarily due to increased accrued interest of $3,364,000, accrued income taxes of $1,794,000, higher accounts payable of $1,213,000 arising from seasonally higher product purchases for the Branded Product Program partially offset by a reduction in accrued payroll and other benefits of $1,460,000 due primarily to the payment of prior year incentive compensation. The decrease in other liabilities of $89,000 is primarily due to dividend payments of $125,000 on vested restricted stock, offset by an increase in deferred revenue of $53,000.

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Cash used in investing activities was $204,000 in the fiscal 2018 period in connection with capital expenditures incurred for our Branded Product Program and select restaurant improvements.

Cash used in financing activities of $282,000 in the fiscal 2018 period relates to the Company’s payment of $157,000 for withholding taxes on the net share vesting of employee restricted stock. Additionally, we paid dividends of $125,000 relating to the previously declared special cash dividend in connection with the vesting of 5,000 shares of the Company’s restricted stock.

During the period from October 2001 through June 25, 2017, Nathan’s purchased 5,127,373 shares of its common stock at a cost of approximately $77,303,000 pursuant to its stock repurchase plans previously authorized by the Board of Directors. Since March 26, 2007, we have repurchased 3,236,273 shares at a total cost of approximately $70,145,000, reducing the number of shares then-outstanding by 53.8%.

On February 1, 2016 and March 11, 2016, the Company’s Board of Directors authorized increases to the sixth stock repurchase plan for the purchase of up to 1,200,000 shares of its common stock on behalf of the Company. As of June 25, 2017, Nathan’s has repurchased 939,742 shares at a cost of $29,641,000 under the sixth stock repurchase plan. At June 25, 2017, there were 260,258 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.

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

As discussed above, we had cash and cash equivalents at June 25, 2017 aggregating $60,817,000. Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. In March 2015, we completed a dividend recapitalization, to return approximately $116,100,000 to our shareholders and we may continue to return capital to our shareholders through stock repurchases, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock-repurchase plan.

We expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the outstanding debt and continue our stock repurchase programs, funding those investments from our operating cash flow. We may also incur capital and other expenditures or engage in investing activities in connection with opportunistic situations that may arise on a case-by-case basis. In the fiscal year ending March 25, 2018, we will be required to make interest payments of approximately $13,500,000.

At June 25, 2017, 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.

The following schedule represents Nathan’s cash contractual obligations and commitments by maturity as of June 25, 2017 (in thousands):

	Payments Due by Period
Cash Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long term debt (a)	$	135,000	$	-	$	135,000	$	-	$	-
Employment Agreements		1,852		1,002		650		200		-
Dividends Payable		125		125		-		-		-
Operating Leases		12,362		1,647		3,012		2,131		5,572
Gross Cash Contractual Obligations		149,339		2,774		138,662		2,331		5,572
Sublease Income		2,336		328		648		544		816
Net Cash Contractual Obligations	$	147,003	$	2,446	$	138,014	$	1,787	$	4,756

Represents 10.000% Senior Secured Notes due March 2020.

At June 25, 2017, the Company had unrecognized tax benefits of $183,000. The Company believes that it is reasonably possible that the unrecognized tax benefits may decrease by $5,000 within the next year. A reasonable estimate of the timing of the remaining liabilities is not practicable.

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On February 27, 2017, a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the “Brooklyn Guaranty”) in connection with its re-franchising of a restaurant located in Brooklyn, New York. The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. Nathan’s has recorded a liability of $204,015 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees.

Inflationary Impact

We do not believe that general inflation has materially impacted earnings since 2006. However, we have experienced significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities. Our commodity costs for beef have been especially volatile since fiscal 2004. From 2011 through 2014, we experienced unprecedented increases in the cost of beef. Beginning March 2015, the beef markets stabilized through June 2015 before subsequently declining by approximately 30%. As a result of the decline through March 2016, the market price of hot dogs during the fiscal 2016 period was approximately 7.1% lower than the fiscal 2015 period. During the fiscal 2017 period, beef prices remained favorable, and as such, our market price for hot dogs was 13.9% lower than during the fiscal 2016 period. Despite the favorable pricing of fiscal 2017, prices began escalating in January 2017 and continued through June 2017 before beginning to slightly decline. As such, our market price for hot dogs during our fiscal 2018 period was approximately 9.3% higher than the fiscal 2017 period. We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2018. 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. Most recently, we concluded a purchase commitment for approximately 2,600,000 pounds of hot dogs at approximately $2.01 per pound which we purchased between February and May 2016. We may attempt to enter into similar purchase arrangements for hot dogs and other products in the future. Additionally, we expect to continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants and volatile insurance costs resulting from the uncertainty of the insurance markets.

In March 2010, the Federal government passed new legislation to reform the U.S. health care system. As part of the plan, employers will be expected to provide their employees that work more than 30 hours per week with minimum levels of healthcare coverage or incur certain financial penalties. As Nathan’s workforce includes numerous part-time workers that typically are not offered healthcare coverage, we may be forced to expand healthcare coverage or potentially incur new penalties which may increase our health care costs.

New York State recently passed legislation increasing the minimum hourly wage for fast food workers of restaurant chains with 30 or more locations nationwide. The future increases will be phased in differently between New York City and the rest of New York State. Effective December 31, 2016, the minimum wage increased to $12.00 and $10.75 in New York City and outside of New York City, respectively.

In New York City, the hourly rate of pay will increase to:

$13.50 on Dec. 31, 2017; and $15.00 on Dec. 31, 2018.

The minimum hourly rate of pay for the remainder of New York State will increase to:

$11.75 on Dec. 31, 2017; $12.75 on Dec. 31, 2018; $13.75 on Dec. 31, 2019; $14.50 on Dec. 31, 2020; and $15.00 on July 1, 2021.

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

The Company is further studying the impact on the Company’s operations and is developing strategies and tactics, including pricing and potential operating efficiencies, to minimize the effects of these increases and future increases. We have recently increased certain selling prices to pass on recent cost of sales increases. However, if we are unable to fully offset these and future increases through pricing and operating efficiencies, our margins and profits will be negatively affected. We believe that these increases in the minimum wage could have a significant financial impact on our financial results and the results of our franchisees that operate in New York State. Our business could be negatively impacted if the decrease in margin for our franchisees results in the potential loss of new franchisees or the closing of a significant number of franchised restaurants.

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Effective April 1, 2014, the City of New York, passed legislation requiring employers to offer paid sick leave to all employees, including part-time employees, who work more than 80 hours for the employer. Nathan’s operates three restaurants that have been affected by this new legislation.

Effective December 1, 2016, changes to the Fair Labor Standards Act were to take effect until nationwide implementation was enjoined by a Federal Distict Court. The legislation would have increased the minimum salary threshold for overtime exemption from $23,660 to $47,476 per annum. Nathan’s performed its evaluation of its workforce and determined that the proposed legislation is not expected to have a significant impact on our results of operations.

On May 30, 2017, New York City Mayor Bill de Blasio signed into law the Fair Work Week Legislation package of bills that the city estimates will cover some 65,000 fast food workers by giving them more predictable work schedules. A key component of the the package is a requirement that fast food restaurants schedule their workers at least two weeks in advance or pay employees between $10 to $75 per change, depending on the situation. The legislation is scheduled to take effect on November 27, 2017. Due to Nathan's dependency on weather conditions at our two beach locations during the summer, we are unable to determine the potential impact on our results of operations.

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

The Company’s business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in “Forward-Looking Statements” and “Notes to Consolidated Financial Statements” in this Form 10-Q and “Risk Factors” in this Form 10-Q and our Form 10-K for our fiscal year ended March 26, 2017.

-24-

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Cash and Cash Equivalents

We have historically invested our cash and cash equivalents in money market funds or short-term, fixed rate, highly rated and highly liquid instruments which are generally reinvested when they mature. Although these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of June 25, 2017, Nathan’s cash and cash equivalents aggregated $60,817,000. Earnings on these cash and cash equivalents would increase or decrease by approximately $152,000 per annum for each 0.25% change in interest rates.

Borrowings

At June 25, 2017, we had $135,000,000 of Notes outstanding which are due in March 2020. Upon maturity, we anticipate having to refinance a significant portion of the Notes and such refinancing would be based upon the then-prevailing interest rates. Interest expense on these borrowings would increase or decrease by approximately $338,000 per annum for each 0.25% change in interest rates. We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings.

Commodity Costs

With the exception of purchase commitments, we have not attempted to hedge against fluctuations in the prices of the commodities we purchase using future, forward, option or other instruments. As a result, we expect that the majority of our future commodity purchases will be subject to market changes in the prices of such commodities. We have attempted to enter sales agreements with our customers that are correlated to our cost of beef, thus reducing our market volatility, or have passed through permanent increases in our commodity prices to our customers that are not on formula pricing, thereby reducing the impact of long-term increases on our financial results. A short-term increase or decrease of 10.0% in the cost of our food and paper products for the thirteen weeks ended June 25, 2017 would have increased or decreased our cost of sales by approximately $1,567,000.

Foreign Currencies

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

Item 4. 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 required by Exchange Act Rule 13a-15. 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.

-25-

Changes in Internal Controls

There were no changes in our internal controls over financial reporting that occurred during the thirteen weeks ended June 25, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended March 26, 2017, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing Nathan's. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

The Company’s Annual Report on Form 10-K for the fiscal year ended March 26, 2017 and its Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders stated that the Company paid Grant Thornton LLP $244,000 for audit fees related to the audit of the Company’s financial statements for the fiscal year ended March 26, 2017. Subsequent to the filing of these documents, the Company and Grant Thornton LLP agreed to increase the audit fee payable to Grant Thornton LLP to $307,000.

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Item 6. Exhibits.

3.1		Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 No. 33- 56976.)

3.2		Amendment to the Certificate of Incorporation, filed December 15, 1992. (Incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 No. 33-56976.)

3.3		By-Laws, as amended. (Incorporated by reference to Exhibit 3.1 to Form 8-K dated November 1, 2006.)

4.1		Specimen Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1 No. 33-56976.)

4.2		Rights Agreement, dated as of June 5, 2013, between Nathan’s Famous, Inc. and American Stock Transfer and Trust Company, LLC, as Rights Agent, which includes form of Rights Certificate as Exhibit A and the Summary of Rights to Purchase as Exhibit B. (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report filed on Form 8-K dated June 11, 2013.)

4.3		Indenture, dated as of March 10, 2015, by and among Nathan’s Famous, Inc., certain of its wholly owned subsidiaries, as guarantors, and U.S. Bank National Association, a National Banking Association, as trustee and collateral trustee (including the form of Note) (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report filed on Form 8-K dated March 10, 2015.)

10.1		Amendment, dated June 7, 2017, to the Consulting Agreement dated as of June 10, 2015, as amended August 4, 2016, by and between Nathan’s Famous, Inc. and Wayne Norbitz. (Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended March 26, 2017.) (1)

10.2		*2018 Management Incentive Plan for the fiscal year ending March 25, 2018. (1)

31.1		*Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		*Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		*Certification by Eric Gatoff, CEO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		*Certification by Ronald G. DeVos, CFO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		*The following materials from the Nathan’s Famous, Inc., Quarterly Report on Form 10-Q for the quarter ended June 25, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statement of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) related notes.

*Filed herewith.

(1) Indicates a management plan or arrangement.

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SIGNATURES

Pursuant to the requirements 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.

	NATHAN'S FAMOUS, INC.

Date: August 4, 2017	By:	/s/ Eric Gatoff
		Eric Gatoff
		Chief Executive Officer
		(Principal Executive Officer)

Date: August 4, 2017	By:	/s/ Ronald G. DeVos
		Ronald G. DeVos
		Vice President - Finance and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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Exhibit Index.

3.1		Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 No. 33- 56976.)

3.2		Amendment to the Certificate of Incorporation, filed December 15, 1992. (Incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 No. 33-56976.)

3.3		By-Laws, as amended. (Incorporated by reference to Exhibit 3.1 to Form 8-K dated November 1, 2006.)

4.1		Specimen Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1 No. 33-56976.)

4.2		Rights Agreement, dated as of June 5, 2013, between Nathan’s Famous, Inc. and American Stock Transfer and Trust Company, LLC, as Rights Agent, which includes form of Rights Certificate as Exhibit A and the Summary of Rights to Purchase as Exhibit B. (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report filed on Form 8-K dated June 11, 2013.)

4.3		Indenture, dated as of March 10, 2015, by and among Nathan’s Famous, Inc., certain of its wholly owned subsidiaries, as guarantors, and U.S. Bank National Association, a National Banking Association, as trustee and collateral trustee (including the form of Note) (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report filed on Form 8-K dated March 10, 2015.)

10.1		Amendment, dated June 7, 2017, to the Consulting Agreement dated as of June 10, 2015, as amended August 4, 2016, by and between Nathan’s Famous, Inc. and Wayne Norbitz. (Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended March 26, 2017.) (1)

10.2		*2018 Management Incentive Plan for the fiscal year ending March 25, 2018. (1)

31.1		*Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		*Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		*Certification by Eric Gatoff, CEO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		*Certification by Ronald G. DeVos, CFO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		*The following materials from the Nathan’s Famous, Inc., Quarterly Report on Form 10-Q for the quarter ended June 25, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statement of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) related notes.



		*Filed herewith.
		(1) Indicates a management plan or arrangement.

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ex10-2.htm

Exhibit 10.2

NATHAN’S FAMOUS, INC.

2018 MANAGEMENT INCENTIVE PLAN
Fiscal Year Ending March 25, 2018

Plan Purpose

The Nathan’s Famous, Inc. 2018 Management Incentive Plan (“Plan”) provides for certain employees of Nathan’s Famous, Inc. (the “Company”) and its subsidiaries who are executive officers and are designated (the “Covered Employees”) to receive annual incentive awards (“Awards”) based on the achievement of specific goals and objectives as established by the Compensation Committee of the Board of Directors of the Company (the “Board”). The Compensation Committee has delegated the authority with respect to the Plan to its Performance-Based Compensation Subcommittee (the “Committee”). The Plan has been adopted pursuant to the authority granted to the Committee under the Nathan’s Famous, Inc. Code Section 162(m) Bonus Plan and accordingly no stockholder approval is required to approve the Plan.

Plan Administration

By virtue of the authority delegated to the Committee, the Committee shall have the exclusive power and authority, in its discretion, to: (i) interpret the Plan; (ii) approve the designation of Covered Employees eligible to participate in the Plan; (iii) set the performance criteria and performance period for Awards within the Plan guidelines; (iv) certify attainment of performance goals and other material terms; (v) reduce Awards as provided herein; (vi) authorize the payment of all benefits and expenses of the Plan as they become payable under the Plan; (vii) adopt, amend and rescind rules and regulations relating to the Plan; and (viii) make all other determinations and take all other actions necessary or desirable for the Plan’s administration including, without limitation, correcting any defect, supplying any omission or reconciling any inconsistency in the Plan in the manner and to the extent it shall deem necessary to carry the Plan into effect, but only to the extent any such action would be permitted under Section 162(m) of the Internal Revenue Code of 1986, as amended. The Committee’s determinations under the Plan need not be uniform and may be made selectively among Covered Employees whether or not such Covered Employees are similarly situated.

All decisions of the Committee on any question concerning the designation of Covered Employees and the interpretation and administration of the Plan shall be final, conclusive and binding upon all parties. The Committee may rely on information, and consider recommendations, provided by the Board or the executive officers of the Company. The Plan is intended to comply with Code Section 162(m), and all provisions contained herein shall be limited, construed and interpreted in a manner to comply therewith.

In addition to such other rights of indemnification as they may have as members of the Board, members of the Committee who administer the Plan shall be defended and indemnified by the Company, to the extent permitted by law, on an after-tax basis against (i) all reasonable expenses (including attorneys’ fees) actually and necessarily incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Award awarded hereunder and (ii) all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such claim, investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such claim, investigation, action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct; provided, however, that within 30 days after the institution of such claim, investigation, action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at the Company’s expense to defend the same.

Eligible Executives

For the fiscal year ending March 25, 2018 the Covered Employees will include Eric Gatoff, Chief Executive Officer (“Covered Employee 1”), Ron DeVos, Chief Financial Officer (“Covered Employee 2”), Scott Harvey, Executive Vice President (“Covered Employee 3”), and Leigh Platte, Vice President, Food Service (“Covered Employee 4”). Additional executive officers of the Company may be added to the Plan at the discretion of the Committee.

Determination of Incentive Awards

Performance Criteria

Annual Awards will be established based on the following performance criteria:

	(i)	Modified EBITDA Net of Restaurant Contribution – Modified EBITDA less Company-Owned Restaurant Operating Profit and Franchising Revenue. The performance measures for the year ending March 25, 2018 are set forth on Exhibit A, and the target Modified EBTIDA Net of Restaurant Contribution is as established by separate resolution of the Committee on June 21, 2017.

	(ii)	Modified EBITDA – Earnings before interest expense, income taxes, depreciation and amortization and modified to exclude FASB 123R expenses, bonus expenses for Plan participants, litigation or claim judgments or settlements, non-operating items and expenses for restructuring, productivity initiatives or new business initiatives. The performance measures for the year ending March 25, 2018 are set forth on Exhibit B, and the target Modified EBITDA is as established by separate resolution of the Committee on June 21, 2017.

	(iii)	Company-Owned Restaurant Operating Profit. Operating profit derived from Company-owned restaurants. The performance measures for the year ending March 25, 2018 are set forth on Exhibits A and C, and the target Company-Owned Restaurant Operating Profit is as established by separate resolution of the Committee on June 21, 2017.

	(iv)	Franchising Revenue – Total franchise fees, royalties and rebates earned from franchising activities. The performance measures for the year ending March 25, 2018 are set forth on Exhibits A and C, and the target Franchising Revenue is as established by separate resolution of the Committee on June 21, 2017.

	(v)	Foodservice Operating Profit – Operating profit derived from the Branded Products Program. The performance measures for the year ending March 25, 2018 are set forth on Exhibit D and the target Foodservice Operating Profit is as established by separate resolution of the Committee on June 21, 2017.

The aforementioned criteria may be adjusted by the Committee to exclude the effects of the following items: extraordinary, unusual or non-recurring items; effects of changes in tax law, accounting principles or other such laws or provisions affecting reported results; effects of currency fluctuations; effects of financing activities (e.g., effect on earnings per share of issuing convertible debt securities); expenses for restructuring, productivity initiatives or new business initiatives; impairment of tangible or intangible assets; litigation or claim judgments or settlements; non-operating items; acquisition expenses; and effects of assets sales or divestitures.

Individual Awards – Performance Criteria:

Target

Bonus (% of

Salary)

Modified

EBITDA Net of

Restaurant

Contribution

(Weight %)

Company-

Owned

Restaurant

Operating Profit

(Weight %)

Franchising

Revenue

(Weight %)

Covered Employee 1

150%

75%

12.5%

	Target Bonus (% of Salary)	Modified EBITDA (Weight %)
Covered Employee 2	100%	100%

Target Bonus

(% of Salary)

Company-Owned

Restaurant Operating

Profit (Weight %)

Franchising Revenue

(Weight %)

Covered Employee 3

40%

35%

65%

Target Bonus (% of Salary)

Foodservice Operating Profit

(Weight %)

Covered Employee 4

50%

100%

The amount of individual Awards will be determined by the Committee upon attainment of the performance goals based on the aforementioned criteria (the “Performance Goals”). The Committee may exercise negative discretion with respect to any Award to reduce any amount that would otherwise be payable under the Plan.

Payment of Awards

Awards will be paid in cash no later than 2½ months after the year ending March 25, 2018. Payment of the Awards shall be contingent upon the Committee certifying in writing that the Performance Goals and any other material terms applicable to such Award were satisfied.

Limitation on Awards

The maximum annual Award payable for the fiscal year ending March 25, 2018 to any Covered Employee under the Plan is $1,125,000.

Effective Date

The Plan is effective as of March 27, 2017.

Amendment, Suspension or Termination of the Plan. The Committee may at any time amend, suspend or terminate the Plan. However, any amendment or modification of the Plan shall be subject to stockholder approval to the extent required under Code Section 162(m) or other applicable law or regulation.

Adopted by the Performance-Based Subcommittee on June 21, 2017 for the fiscal year ending March 25, 2018.

ex31-1.htm

Exhibit 31.1

CERTIFICATION

I, Eric Gatoff, certify that:

I have reviewed this quarterly report on Form 10-Q for the quarter ended June 25, 2017 of Nathan’s Famous, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 4, 2017		/s/ Eric Gatoff
		Eric Gatoff
		Chief Executive Officer
		(Principal Executive Officer)

ex31-2.htm

Exhibit 31.2

CERTIFICATION

I, Ronald G. DeVos, certify that:

I have reviewed this quarterly report on Form 10-Q for the quarter ended June 25, 2017 of Nathan’s Famous, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 4, 2017		/s/ Ronald G. DeVos
		Ronald G. DeVos
		Chief Financial Officer
		(Principal Financial Officer and
		Principle Accounting Officer)

ex32-1.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Eric Gatoff, Chief Executive Officer of Nathan’s Famous, Inc., certify that:

The quarterly report on Form 10-Q of Nathan’s Famous, Inc. for the period ended June 25, 2017 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Nathan’s Famous, Inc.

		/s/ Eric Gatoff
		Chief Executive Officer
		(Principal Executive Officer)
		Date: August 4, 2017

A signed original of this written statement required by Section 906 has been provided to Nathan’s Famous, Inc. and will be retained by Nathan’s Famous, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

ex32-2.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald G. DeVos, Chief Financial Officer of Nathan’s Famous, Inc., certify that:

The quarterly report on Form 10-Q of Nathan’s Famous, Inc. for the period ended June 25, 2017 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Nathan’s Famous, Inc.

		/s/ Ronald G. DeVos
		Ronald G. DeVos
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)
		Date: August 4, 2017