<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[x ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Act of 1934 for the quarterly period ended SEPTEMBER 27,
1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Act of 1934 for the transition period from ______________
to ___________ .
Commission File Number 1-3189
NATHAN'S FAMOUS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3166443
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
1400 OLD COUNTRY ROAD,
WESTBURY, NEW YORK 11590
(Address of principal executive
offices including zip code)
(516) 338-8500
(Registrant's telephone number, including area code)
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 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
--- ---
At September 27, 1998, an aggregate of 4,722,216 shares of the registrant's
common stock, par value of $.01, were outstanding.
<PAGE> 2
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - September 27, 1998 and
March 29, 1998 3
Consolidated Statements of Earnings - Thirteen Weeks
Ended September 27, 1998 and September 28, 1997 4
Consolidated Statements of Earnings - Twenty-six Weeks
Ended September 27, 1998 and September 28, 1997 5
Consolidated Statements of Stockholders' Equity -
Twenty-six Weeks Ended September 27, 1998 6
Consolidated Statements of Cash Flows - Twenty-six Weeks
Ended September 27, 1998 and September 28, 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Sept. March
27, 1998 29, 1998
-------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents including restricted cash of
$84 and $273, respectively $ 490 $ 1,306
Marketable investment securities 9,261 8,514
Franchise and other receivables, net 1,798 976
Inventory 328 356
Prepaid expenses and other current assets 226 276
Deferred income taxes 566 478
-------- --------
Total current assets 12,669 11,906
Property and equipment, net 6,562 6,171
Intangible assets, net 11,076 11,270
Other assets, net 194 192
-------- --------
$ 30,501 $ 29,539
======== ========
Current liabilities:
Accounts payable $ 887 $ 956
Accrued expenses and other current liabilities 4,168 4,708
Deferred franchise fees 315 125
Current installments of obligations under capital leases 13 12
-------- --------
Total current liabilities 5,383 5,801
Obligations under capital leases, net of current installments 3 9
Other liabilities 181 143
-------- --------
Total liabilities 5,567 5,953
-------- --------
Stockholders' equity:
Common stock, $.01 par value - 20,000,000 shares
authorized, 4,722,216 issued and outstanding 47 47
Additional paid-in-capital 32,412 32,389
Accumulated deficit (7,525) (8,850)
-------- --------
Total stockholders' equity 24,934 23,586
-------- --------
$ 30,501 $ 29,539
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 4
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THIRTEEN WEEKS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Sales $ 6,789 $ 6,592
Franchise fees and royalties 936 803
License royalties 456 537
Investment and other income (loss) (15) 166
------- -------
Total revenues 8,166 8,098
------- -------
Costs and expenses:
Cost of sales 4,139 3,893
Restaurant operating expenses 1,457 1,680
Depreciation and amortization 268 260
Amortization of intangible assets 96 103
General and administrative 1,218 1,150
Interest expense -- 3
------- -------
Total costs and expenses 7,178 7,089
------- -------
Earnings before income taxes 988 1,009
Provision for income taxes 237 400
------- -------
Net earnings $ 751 $ 609
======= =======
PER SHARE INFORMATION
Net earnings per share
Basic $ 0.16 $ 0.13
======= =======
Diluted $ 0.16 $ 0.13
======= =======
Shares used in computing net income
Basic 4,722 4,722
======= =======
Diluted 4,754 4,782
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
TWENTY-SIX WEEKS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Sales $13,357 $12,499
Franchise fees and royalties 1,674 1,474
License royalties 837 942
Investment and other income 119 545
------- -------
Total revenues 15,987 15,460
------- -------
Costs and expenses:
Cost of sales 8,147 7,396
Restaurant operating expenses 2,908 3,293
Depreciation and amortization 522 512
Amortization of intangible assets 192 199
General and administrative 2,466 2,253
Interest expense 1 4
------- -------
Total costs and expenses 14,236 13,657
------- -------
Earnings before income taxes 1,751 1,803
Provision for income taxes 426 720
------- -------
Net earnings $ 1,325 $ 1,083
======= =======
PER SHARE INFORMATION
Net earnings per share
Basic $ 0.28 $ 0.23
======= =======
Diluted $ 0.28 $ 0.23
======= =======
Shares used in computing net income
Basic 4,722 4,722
======= =======
Diluted 4,756 4,774
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWENTY-SIX WEEKS ENDED SEPTEMBER 27, 1998
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Total
Additional Deferred Accum- Stock-
Common Common Paid in- Compen- ulated holders'
Shares Stock Capital sation Deficit Equity
---------- ---------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, March
29, 1998 4,722,216 $ 47 $ 32,423 $ (34) $(8,850) $23,586
Amortization
of deferred
compensation
relating to
restricted stock 23 23
Net earnings 1,325 1,325
---------- ---------- ---------- ------- ------- -------
Balance, Sept
27, 1998 4,722,216 $ 47 $ 32,423 $ (11) $(7,525) $24,934
========== ========== ========== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 7
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-SIX WEEKS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,325 $ 1,083
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 522 512
Amortization of intangible assets 192 199
Provision for doubtful accounts 30 30
Amortization of deferred compensation 23 24
Gain on the sale of restaurant -- (130)
Deferred income taxes (88) --
Changes in assets and liabilities:
Marketable investment securities (747) (459)
Franchise and other receivables (852) (297)
Inventory 28 (10)
Prepaid and other current assets 50 244
Accounts payable and accrued expenses (609) (145)
Deferred franchise fees 190 (99)
Other assets -- 27
Other non current liabilities 38 7
------- -------
Net cash provided by operating activities 102 986
------- -------
Cash flows from investing activities:
Purchase of property and equipment (913) (1,181)
Proceeds from the sale of property and equipment -- 130
------- -------
Net cash used in investing activities (913) (1,051)
------- -------
Cash flows from financing activities:
Principal repayment of obligations under capital leases (5) (5)
------- -------
Net cash used in financing activities (5) (5)
------- -------
Net decrease in cash and cash equivalents (816) (70)
Cash and cash equivalents, beginning of period 1,306 647
------- -------
Cash and cash equivalents, end of period $ 490 $ 577
======= =======
Cash paid during the period for:
Interest $ 1 $ 4
Income taxes 426 359
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE> 8
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 27, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Nathan's Famous, Inc. and
subsidiaries (the "Company") for the thirteen and twenty-six week periods ended
September 27, 1998 and September 28, 1997 have been prepared in accordance with
generally accepted accounting principles. The unaudited financial statements
include all adjustments (consisting of normal recurring adjustments) which, in
the opinion of management, were necessary for a fair presentation of financial
condition, results of operations and cash flows for such periods presented.
However, these results are not necessarily indicative of results for any other
interim period or the full year.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to the requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying 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 the Company's Annual Report on Form
10-K for the fiscal year ended March 29, 1998.
NOTE B - RECLASSIFICATIONS
Certain reclassifications of prior period items have been made to conform to the
September 27, 1998 presentation.
NOTE C - EARNINGS PER SHARE
The following chart provides a reconciliation of information used in calculating
the per share amounts for the thirteen and twenty-six week periods ended
September 27, 1998 and September 28, 1997, respectively.
<TABLE>
<CAPTION>
Thirteen weeks Net Income
- -------------- ----------
Net Income Number of Shares Per Share
---------- ---------------- ---------
1998 1997 1998 1997 1998 1997
----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Basic calculation $ 751 $ 609 4,722 4,722 $.16 $.13
Effect of dilutive employee stock
Options and warrants -- -- 32 60 -- --
----- ----- ----- ----- ---- ----
Diluted EPS
Diluted calculation $ 751 $ 609 4,754 4,782 $.16 $.13
</TABLE>
-8-
<PAGE> 9
<TABLE>
<CAPTION>
Twenty-six weeks Net Income
- ---------------- ----------
Net Income Number of Shares Per Share
---------- ---------------- ---------
1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Basic calculation $1,325 $1,083 4,722 4,722 $ .28 $ .23
Effect of dilutive employee stock
Options and warrants -- -- 34 52 -- --
------ ------ ------ ------ ------ ------
Diluted EPS
Diluted calculation $1,325 $1,083 4,756 4,774 $ .28 $ 23
</TABLE>
NOTE D - INCOME TAXES
In the fourth quarter fiscal 1998, management of the Company determined that,
more likely than not, a portion of its previously-reserved deferred tax assets
would be realized and, accordingly, reduced the related valuation allowance.
Management continues to monitor the likelihood of the realizability of its
deferred tax asset and based upon the current facts and circumstances, has
recognized during fiscal 1999, further adjustment to its deferred tax valuation
allowance in accordance with Financial Accounting Standards Board Statement No.
109 "Accounting for Income Taxes".
NOTE E - COMPREHENSIVE INCOME
In the first quarter of fiscal 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income", which requires companies to report all changes
in equity during a period, except those resulting from investment by owners and
distribution to owners, in a financial statement for the period in which they
are recognized. Comprehensive income is the total of net income and all nonowner
changes in equity (or other comprehensive income) such as unrealized gains /
losses on securities available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments. Comprehensive and other
comprehensive income must be reported on the face of the annual financial
statements or in the case of interim reporting, in the footnotes to the
financial statements. For the fiscal periods ended September 27, 1998 and
September 28, 1997 and for the quarters ended September 27, 1998 and September
28, 1997, the Company's operations did not give rise to items includible in
comprehensive income which were not already included in net income. Therefore,
the Company's comprehensive income is the same as its net income for all periods
presented.
-9-
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED SEPTEMBER 27, 1998 COMPARED TO SEPTEMBER 28, 1997
Revenues
Total sales increased 3.0% or $197,000 to $6,789,000 for the thirteen weeks
ended September 27, 1998 ("second quarter fiscal 1999") from $6,592,000 for the
thirteen weeks ended September 28, 1997 ("second quarter fiscal 1998").
Company-owned restaurant sales were $6,105,000 in the second quarter fiscal 1999
compared to $6,109,000 in the second quarter fiscal 1998. Comparable unit sales
(units operating for 18 months or longer as of the beginning of the fiscal year)
increased by approximately 2.7% in the second quarter fiscal 1999 versus the
second quarter fiscal 1998. The Company continues to emphasize local store
marketing activities and value pricing strategies. The Company supplemented
these efforts with a radio and billboard campaign during the summer of 1998. In
September 1998, the Company completed the renovation of its restaurant in the
Kings Plaza Shopping Center in Brooklyn, NY. Plans are currently being
considered to renovate and modernize the appearance and design of certain other
Company-owned units. On August 31, 1998, the Company lost its lease for its
restaurant located in Hicksville, New York. The Company is presently looking for
a replacement site within the same geographic area. At September 27, 1998 and
September 28, 1997, there were 26 and 25 Company-owned units, respectively.
Sales from the Branded Product Program were $684,000 for the second quarter
fiscal 1999, compared to sales of $483,000 in the second quarter fiscal 1998.
Franchise fees and royalties increased by $133,000 or 16.6% to $936,000 in the
second quarter fiscal 1999 compared to $803,000 in the second quarter fiscal
1998. Franchise royalties increased by $84,000 or 13.5% to $705,000 in the
second quarter fiscal 1999 compared to $621,000 in the second quarter fiscal
1998. Franchise restaurant sales, upon which royalties are based, increased by
$1,980,000, to $16,995,000 in the second quarter fiscal 1999 as compared to
$15,015,000 in the second quarter fiscal 1998. The majority of the sales
increase can be attributed to the new franchised and licensed units operating
during the second quarter fiscal 1999. Franchise fee income was $231,000 in the
second quarter fiscal 1999 compared to $182,000 in the second quarter fiscal
1998. During the second quarter fiscal 1999, 8 new franchised or licensed units
opened and the Company executed an agreement for international development
within Egypt.
License royalties decreased by $81,000 or 15.1% to $456,000 in the second
quarter fiscal 1999, as compared to $537,000 in the second quarter fiscal 1998.
This decrease is partially attributable to lower sales by the Company's
licensee, SMG, Inc., for the sale of Nathan's frankfurters in supermarkets which
was in part offset by royalties of approximately $25,000 earned under a new
license agreement for the sale of Nathan's home meal replacements in
supermarkets. Additionally, during the second quarter fiscal 1998, the Company
recognized income of $60,000 from the amortization of the deferred fee received
from SMG, Inc. which was fully amortized in March 1998.
-10-
<PAGE> 11
Investment and other income was $166,000 in the second quarter fiscal 1998
versus a loss of $15,000 in the second quarter fiscal 1999. As a result of the
overall decline in the performance of the United States financial markets since
August 1998, the Company experienced a $119,000 decline in the value of its
investment portfolio for the second quarter fiscal 1999, compared to an increase
of $105,000 during the second quarter fiscal 1998.
Costs and Expenses
Cost of sales increased by $246,000 from $3,893,000 in the second quarter fiscal
1998 to $4,139,000 in the second quarter fiscal 1999. Higher costs were incurred
in conjunction with the growth of the Branded Product Program, the additional
restaurant operating during the second quarter fiscal 1999 and higher costs of
restaurant sales. The cost of restaurant sales was 58.7% of restaurant sales in
the second quarter fiscal 1999 as compared to 57.5% of restaurant sales in the
second quarter fiscal 1998. This increase is due primarily to higher food and
labor costs associated with the Company's ongoing promotional activities and the
impact of the minimum wage increase which took effect in September 1997. The
Company continues to seek to operate more efficiently and expects to make
selective price adjustments wherever available to minimize the margin pressures
which have become an integral part of competing in the current value conscious
marketplace.
Restaurant operating expenses decreased by $223,000 from $1,680,000 in the
second quarter fiscal 1998 to $1,457,000 in the second quarter fiscal 1999. This
decrease can be primarily attributed to a cost hiatus during the renovation of
the Kings Plaza restaurant, reduced costs of property taxes arising from
successful tax certiorari proceedings, overall lower costs of insurance and
utilities and the change in restaurants operated between the two periods. As a
percentage of restaurant sales, restaurant operating expenses were 23.9% in the
second quarter fiscal 1999, compared to 27.5% in the second quarter fiscal 1998.
Depreciation and amortization increased by $8,000 or 3.1% from $260,000 in the
second quarter fiscal 1998 to $268,000 in the second quarter fiscal 1999.
Amortization of intangibles was $96,000 in the second quarter fiscal 1999,
compared to $103,000 in the second quarter fiscal 1998.
General and administrative expenses increased by $68,000 or 5.9% to $1,218,000
in the second quarter fiscal 1999, as compared to $1,150,000 in the second
quarter fiscal 1998. Approximately $28,000 of the increase relates to salaries
of additional personnel hired primarily to support the Company's new growth
initiatives, $31,000 relates to international development efforts and $19,000 is
associated with management incentive plans based upon the achievement of
predetermined financial targets.
Income Tax Provision
In the second quarter fiscal 1999, the income tax provision was $237,000 or
24.0% of earnings before income taxes. In the second quarter fiscal 1999, the
Company reduced its valuation allowance by $185,000. The second quarter fiscal
1999 provision before adjustment for the valuation allowance was $422,000 or
42.7% of income before income taxes. In the second quarter fiscal 1998, the
income tax provision was $400,000 or 39.6% of income before income taxes.
-11-
<PAGE> 12
TWENTY-SIX WEEKS ENDED SEPTEMBER 27, 1998 COMPARED TO SEPTEMBER 28, 1997
Revenues
Total sales increased 6.9% or $858,000 to $13,357,000 for the twenty-six weeks
ended September 27, 1998 ("fiscal 1999") from $12,499,000 for the twenty-six
weeks ended September 28, 1997 ("fiscal 1998"). Company-owned restaurant sales
increased 1.4% or $164,000 to $12,097,000 from $11,933,000. Comparable unit
sales (units operating for 18 months or longer as of the beginning of the fiscal
year), increased by approximately 1.5% in fiscal 1999 versus fiscal 1998. The
Company continues to emphasize local store marketing activities and value
pricing strategies. The Company supplemented these activities with a radio and
billboard campaign during the summer 1998. In fiscal 1999, the Company completed
the renovation of the 86th Street restaurant in Brooklyn, NY, which included a
drive thru operation and its restaurant in the Kings Plaza Shopping Center.
Plans are currently being considered to renovate and modernize the appearance
and design of certain other Company-owned units. At September 27, 1998 and
September 28, 1997, there were 26 and 25 Company-owned units, respectively.
Sales from the Branded Product Program were $1,260,000 for fiscal 1999 as
compared to sales of $566,000 in fiscal 1998.
Franchise fees and royalties increased by $200,000 or 13.6% to $1,674,000 in
fiscal 1999 compared to $1,474,000 in fiscal 1998. Franchise royalties increased
by $153,000 or 12.9% to $1,343,000 in fiscal 1999 as compared to $1,190,000 in
fiscal 1998. Franchise restaurant sales, upon which royalties are based,
increased by 12.5% or $3,620,000, to $32,593,000 in fiscal 1999, compared to
$28,973,000 in fiscal 1998. The majority of the sales increase can be attributed
to the new franchised and licensed units operating during fiscal 1999.
Franchise fee income was $331,000 in fiscal 1999, compared to $284,000 in
fiscal 1998. During fiscal 1999, 11 new franchised or licensed units opened and
the Company executed an agreement for international development within Egypt.
At September 27, 1998, there were 164 franchised or licensed restaurants as
compared to 154 at September 28, 1997.
License royalties decreased by $105,000 or 11.1% to $837,000 in fiscal 1999,
compared to $942,000 in fiscal 1998. This decrease is partially attributable to
lower sales by the Company's licensee, SMG, Inc., for the sale of Nathan's
frankfurters in supermarkets which was in part offset by royalties of
approximately $75,000 earned under a new license agreement for the sale of
Nathan's home meal replacements in supermarkets. Additionally, during fiscal
1998 the Company recognized income of $120,000 from the amortization of the
deferred fee received from SMG, Inc., which was fully amortized in March 1998.
Investment and other income was $119,000 in fiscal 1999 versus $545,000 in
fiscal 1998. Approximately $347,000 of the decrease is the result of lower
earnings on the Company's marketable investment securities as a result of the
decline since August 1998 in the performance of the United States financial
markets. During fiscal 1998, the Company also recognized a gain of approximately
$130,000 from the sale of an underperforming restaurant.
-12-
<PAGE> 13
Costs and Expenses
Cost of sales increased by $751,000 from $7,396,000 in fiscal 1998 to $8,147,000
in fiscal 1999. Higher costs were incurred in conjunction with the growth of the
Branded Product Program, the additional restaurants operating during fiscal 1999
and the higher costs of restaurant sales. The cost of restaurant sales was 59.1%
of restaurant sales in fiscal 1999 as compared to 58.2% of restaurant sales in
fiscal 1998. This increase is due primarily to higher food and labor costs
associated with the Company's ongoing promotional activities and the impact of
the minimum wage increase which took effect in September 1997. The Company
continues to seek to operate more efficiently and expects to seek selective
price adjustments wherever available to minimize the margin pressures which have
become an integral part of competing in the current value conscious marketplace.
Restaurant operating expenses decreased by $385,000 from $3,293,000 in fiscal
1998 to $2,908,000 in fiscal 1999. This decrease can be primarily attributed to
a four month cost hiatus during the renovation of the Kings Plaza restaurant,
reduced costs of property taxes arising from successful tax certiorari
proceedings, overall lower costs of insurance and utilities and the change in
restaurants operated between the two periods. As a percentage of restaurant
sales, restaurant operating expenses were 24.0% in fiscal 1999 as compared to
27.6% in fiscal 1998.
Depreciation and amortization increased by $10,000 or 2.0% from $512,000 in
fiscal 1998 to $522,000 in fiscal 1999. Amortization of intangibles was $192,000
in fiscal 1999 as compared to $199,000 in fiscal 1998.
General and administrative expenses increased by $213,000 or 9.5% to $2,466,000
in fiscal 1999, compared to $2,253,000 in fiscal 1998. Approximately $99,000 of
the increase relates to salaries of additional personnel primarily to support
the Company's new growth initiatives, $60,000 relates to international
development efforts and $43,000 is associated with management incentive plans
based upon the achievement of predetermined financial targets.
Income Tax Provision
In fiscal 1999, the income tax provision was $426,000 or 24.3% of earnings
before income taxes. In fiscal 1999 the Company reduced its valuation allowance
by $311,000. The fiscal 1999 provision before adjustment for the valuation
allowance was $737,000 or 42.1% of income before taxes. In fiscal 1998, the
income tax provision was $720,000 or 39.9% of income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 27, 1998 aggregated $490,000, decreasing
by $816,000 during the fiscal 1999 period. At September 27, 1998, marketable
investment securities totalled $9,261,000 and net working capital increased to
$7,286,000 from $6,105,000 at March 29, 1998.
Cash provided by operations of $102,000 in the fiscal 1999 period is primarily
attributable to net income of $1,325,000, non-cash charges of $767,000,
including depreciation and amortization of $714,000, increases in
-13-
<PAGE> 14
marketable investment securities of $747,000 and franchise and other receivables
of $852,000, a decrease in accounts payable and accrued expenses of $609,000,
and an increase in deferred franchise fees of $190,000.
Cash used in investing activities of $913,000 represents capital acquisitions
relating to the renovations of two Company-owned restaurants and other fixed
asset additions.
Management believes that available cash, marketable investment securities, and
internally generated funds should provide sufficient capital for its planned
operations and expansion program through fiscal 1999. The Company maintains a
$5,000,000 uncommitted bank line of credit. The Company has not borrowed any
funds to date under its line of credit.
YEAR 2000
The Company has undergone an internal evaluation of its computer systems and has
determined that its existing computer systems would require a significant amount
of effort and cost in order to make them Year 2000 compliant. Accordingly, in
order to meet its growing business requirements and assure Year 2000 compliance,
the Company decided to replace its existing accounting systems. In July 1998,
the Company entered into a contract to license Lawson Accounting software which
has been certified to be Year 2000 compliant. A consultant is currently
implementing the Lawson software and will assist in the conversion of the
Company's old accounting information. The Company believes that the
implementation can be accomplished in a timely manner. The Company estimates the
capital cost associated with this effort to be approximately $350,000, however,
there can be no assurance to this effect. Additionally, the Company has
addressed the Year 2000 issue with its Point of Sale provider and has been
assured that their systems will be Year 2000 compliant. The Company cannot
predict the effect of the Year 2000 problem on the vendors and others with which
the Company transacts business and there can be no assurance that the effect of
the Year 2000 problem on such entities will not have a material adverse effect
on the Company's business, operating results and financial position.
FORWARD LOOKING STATEMENT
Certain statements contained in this report are forward-looking statements which
are subject to a number of known and unknown risks and uncertainties that could
cause the Company's actual results and performance to differ materially from
those described or implied in the forward looking statements. These risks and
uncertainties, many of which are not within the Company's control, include, but
are not limited to economic, weather, legislative and business conditions; the
availability of suitable restaurant sites on reasonable rental terms; changes in
consumer tastes; ability to continue to attract franchisees; the ability to
purchase our primary food and paper products at reasonable prices; no material
increases in the minimum wage; and the Company's ability to attract competent
restaurant, and managerial personnel.
-14-
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) No reports on Form 8-K were filed during the quarter ended
September 27, 1998.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and 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: November 6, 1998 By: /s/ Wayne Norbitz
--------------------------------------------
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: November 6, 1998 By: /s/ Ronald G. DeVos
--------------------------------------------
Ronald G. DeVos
Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-28-1999 MAR-28-1999
<PERIOD-START> JUN-29-1998 MAR-30-1998
<PERIOD-END> SEP-27-1998 SEP-27-1998
<CASH> 0 490
<SECURITIES> 0 9261
<RECEIVABLES> 0 2344
<ALLOWANCES> 0 546
<INVENTORY> 0 328
<CURRENT-ASSETS> 0 12669
<PP&E> 0 14698
<DEPRECIATION> 0 8136
<TOTAL-ASSETS> 0 30501
<CURRENT-LIABILITIES> 0 5383
<BONDS> 0 0
0 0
0 0
<COMMON> 0 47
<OTHER-SE> 0 24887
<TOTAL-LIABILITY-AND-EQUITY> 0 30501
<SALES> 6789 13357
<TOTAL-REVENUES> 8166 15987
<CGS> 4139 8147
<TOTAL-COSTS> 1821 3622
<OTHER-EXPENSES> 1203 2436
<LOSS-PROVISION> 15 30
<INTEREST-EXPENSE> 0 1
<INCOME-PRETAX> 988 1751
<INCOME-TAX> 237 426
<INCOME-CONTINUING> 751 1325
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 751 1325
<EPS-PRIMARY> 0.16 0.28
<EPS-DILUTED> 0.16 0.28
</TABLE>
