10-Q 1 krus-10q_20201130.htm 10-Q krus-10q_20201130.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2020

OR

 

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: 001-39012

 

KURA SUSHI USA, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

26-3808434

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

17461 Derian Avenue, Suite 200

Irvine, California

92614

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (657) 333-4100

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, $0.001 par value per share

 

KRUS

 

Nasdaq Global Market

 

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  ☒    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).   Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth 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.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth 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  

As of January 5, 2021, the registrant had 7,371,636 shares of Class A common stock, $0.001 par value per share, outstanding and 1,000,050 shares of Class B common stock, $0.001 par value per share, outstanding.

 

 

 

 

 


 

Table of Contents

 

 

 

 

i


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Kura Sushi USA, Inc.

Condensed Balance Sheets

(amounts in thousands, except par value)

(Unaudited)

 

 

 

November 30, 2020

 

 

August 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,745

 

 

$

9,259

 

Accounts receivable

 

 

1,995

 

 

 

2,130

 

Inventories

 

 

454

 

 

 

367

 

Due from affiliate

 

 

239

 

 

 

12

 

Prepaid expenses and other current assets

 

 

3,074

 

 

 

3,010

 

Total current assets

 

 

8,507

 

 

 

14,778

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment - net

 

 

49,816

 

 

 

45,541

 

Operating lease right-of-use assets

 

 

55,028

 

 

 

56,119

 

Deposits and other assets

 

 

2,042

 

 

 

1,941

 

Total assets

 

$

115,393

 

 

$

118,379

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,890

 

 

$

4,919

 

Accrued expenses and other current liabilities

 

 

991

 

 

 

720

 

Salaries and wages payable

 

 

2,609

 

 

 

1,786

 

Finance leases - current

 

 

1,033

 

 

 

1,004

 

Operating lease liabilities - current

 

 

5,236

 

 

 

5,106

 

Due to affiliate

 

 

69

 

 

 

201

 

Sales tax payable

 

 

315

 

 

 

189

 

Total current liabilities

 

 

15,143

 

 

 

13,925

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Loan from affiliate

 

 

3,000

 

 

 

 

Finance leases - non-current

 

 

1,194

 

 

 

1,481

 

Operating lease liabilities - non-current

 

 

55,988

 

 

 

56,918

 

Other liabilities

 

 

345

 

 

 

342

 

Total liabilities

 

 

75,670

 

 

 

72,666

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 1,000 shares authorized, no shares

   issued or outstanding

 

 

 

 

 

 

Class A common stock, $0.001 par value; 50,000 shares authorized,

7,364 and 7,342 shares issued and outstanding as of November 30, 2020

and August 31, 2020, respectively

 

 

7

 

 

 

7

 

Class B common stock, $0.001 par value; 10,000 shares authorized,

1,000 shares issued and outstanding as of November 30, 2020

and August 31, 2020

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

60,692

 

 

 

60,332

 

Accumulated deficit

 

 

(20,977

)

 

 

(14,627

)

Total stockholders' equity

 

 

39,723

 

 

 

45,713

 

Total liabilities and stockholders' equity

 

$

115,393

 

 

$

118,379

 

 

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

1


 

Kura Sushi USA, Inc.

Condensed Statements of Operations

(amounts in thousands, except per share data)

(Unaudited)

 

 

 

 

Three Months Ended November 30,

 

 

 

2020

 

 

2019

 

Sales

 

$

9,414

 

 

$

17,440

 

Restaurant operating costs:

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

3,053

 

 

 

5,693

 

Labor and related costs

 

 

4,360

 

 

 

5,641

 

Occupancy and related expenses

 

 

1,690

 

 

 

1,439

 

Depreciation and amortization expenses

 

 

927

 

 

 

663

 

Other costs

 

 

2,079

 

 

 

2,047

 

Total restaurant operating costs

 

 

12,109

 

 

 

15,483

 

General and administrative expenses

 

 

3,521

 

 

 

3,326

 

Depreciation and amortization expenses

 

 

75

 

 

 

22

 

Total operating expenses

 

 

15,705

 

 

 

18,831

 

Operating loss

 

 

(6,291

)

 

 

(1,391

)

Other expense (income):

 

 

 

 

 

 

 

 

Interest expense

 

 

34

 

 

 

34

 

Interest income

 

 

(4

)

 

 

(197

)

Loss before income taxes

 

 

(6,321

)

 

 

(1,228

)

Income tax expense (benefit)

 

 

29

 

 

 

(4

)

Net loss

 

$

(6,350

)

 

$

(1,224

)

Net loss per Class A and Class B shares

 

 

 

 

 

 

 

 

Basic

 

$

(0.76

)

 

$

(0.15

)

Diluted

 

$

(0.76

)

 

$

(0.15

)

Weighted average Class A and Class B shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

8,348

 

 

 

8,335

 

Diluted

 

 

8,348

 

 

 

8,335

 

 

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

2


 

Kura Sushi USA, Inc.

Condensed Statements of Stockholders’ Equity

(amounts in thousands)

(Unaudited)

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Class A

 

 

Class B

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances as of August 31, 2020

 

 

7,342

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

60,332

 

 

$

(14,627

)

 

$

45,713

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

266

 

 

 

 

 

 

266

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,350

)

 

 

(6,350

)

Exercise of stock options

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

94

 

 

 

 

 

 

94

 

Balances as of November 30, 2020

 

 

7,364

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

60,692

 

 

$

(20,977

)

 

$

39,723

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Class A

 

 

Class B

 

 

Paid-in

 

 

Retained

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balances as of August 31, 2019

 

 

7,335

 

 

 

7

 

 

 

1,000

 

 

 

1

 

 

 

59,442

 

 

 

2,731

 

 

 

62,181

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

121

 

 

 

 

 

 

121

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,224

)

 

 

(1,224

)

Balances as of November 30, 2019

 

 

7,335

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

59,563

 

 

$

1,507

 

 

$

61,078

 

 

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

3


 

Kura Sushi USA, Inc.

Condensed Statements of Cash Flows

(amounts in thousands)

(Unaudited)

 

 

 

 

Three Months Ended November 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(6,350

)

 

$

(1,224

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,002

 

 

 

685

 

Stock-based compensation

 

 

266

 

 

 

121

 

Loss on disposal of property and equipment

 

 

29

 

 

 

4

 

Deferred income taxes

 

 

 

 

 

(4

)

Noncash lease expense

 

 

682

 

 

 

586

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(19

)

 

 

(100

)

Inventories

 

 

(87

)

 

 

106

 

Due from affiliate

 

 

(227

)

 

 

192

 

Prepaid expenses and other current assets

 

 

(64

)

 

 

192

 

Deposits and other assets

 

 

(1

)

 

 

(38

)

Accounts payable

 

 

801

 

 

 

(1,034

)

Accrued expenses and other current liabilities

 

 

482

 

 

 

(607

)

Salary and wages payable

 

 

823

 

 

 

11

 

Operating lease liabilities

 

 

(238

)

 

 

(430

)

Due to affiliate

 

 

44

 

 

 

49

 

Sales tax payable

 

 

126

 

 

 

(47

)

Net cash used in operating activities

 

 

(2,731

)

 

 

(1,538

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Payments for property and equipment

 

 

(6,519

)

 

 

(3,194

)

Payments for purchases of liquor licenses

 

 

(100

)

 

 

(50

)

Net cash used in investing activities

 

 

(6,619

)

 

 

(3,244

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from loan from affiliate

 

 

3,000

 

 

 

 

Repayment of principal on finance leases

 

 

(258

)

 

 

(252

)

Proceeds from exercise of stock options

 

 

94

 

 

 

 

Net cash provided by (used in) financing activities

 

 

2,836

 

 

 

(252

)

Decrease in cash and cash equivalents

 

 

(6,514

)

 

 

(5,034

)

Cash and cash equivalents, beginning of period

 

 

9,259

 

 

 

38,044

 

Cash and cash equivalents, end of period

 

$

2,745

 

 

$

33,010

 

 

 

 

 

 

 

 

 

 

Noncash investing activities

 

 

 

 

 

 

 

 

Amounts unpaid for purchases of property and equipment

 

$

1,214

 

 

$

293

 

 

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

4


 

Kura Sushi USA, Inc.

Notes to Condensed Financial Statements

(Unaudited)

Note 1. Organization and Basis of Presentation

Kura Sushi USA, Inc. is a technology-enabled Japanese restaurant concept that provides guests with a distinctive dining experience by serving authentic Japanese cuisine through an engaging revolving sushi service model, which the Company refers to as the “Kura Experience.” Kura Sushi encourages healthy lifestyles by serving freshly prepared Japanese cuisine using high-quality ingredients that are free from artificial seasonings, sweeteners, colorings, and preservatives. Kura Sushi aims to make quality Japanese cuisine accessible to its guests across the United States through affordable prices and an inviting atmosphere. “Kura Sushi USA,” “Kura Sushi,” “Kura,” and the “Company” refer to Kura Sushi USA, Inc. unless expressly indicated or the context otherwise requires.

 

Effects of COVID-19

In March 2020, the World Health Organization declared the novel strain of coronavirus COVID-19 a global pandemic. This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and financial markets globally. In response to this outbreak, many state and local authorities mandated the temporary closure of non-essential businesses and dine-in restaurant activity. COVID-19 and the government measures taken to control it have caused a significant disruption to the Company’s business operation. As of November 30, 2020, the Company had 27 of its 28 restaurants open in some capacity: indoor dining, outdoor dining or takeout only. Subsequent to November 30, 2020, the Company opened one new restaurant in Aventura, Florida and as of the filing date of this Quarterly Report on Form 10-Q, the Company had all 29 restaurants open, with 16 of them in California and Washington DC only providing takeout, one restaurant in Illinois providing outdoor dining only and the remaining 12 restaurants operating at reduced indoor capacities of 25% to 75% depending on local requirements.   

In response to the ongoing COVID-19 pandemic, the Company has prioritized taking steps to protect the health and safety of its employees and customers. The Company has increased cleaning and sanitizing protocols of its restaurants and has implemented additional training and operational manuals for its restaurant employees, as well as increased handwashing procedures.  The Company also provides each restaurant employee with face masks and gloves, and requires each employee to pass a health screening process, which includes a temperature check, before the start of each shift.

The reduced capacities at open restaurants and the temporary closure of one restaurant have caused a substantial decline in the Company’s sales in the most recent fiscal quarter compared to the same quarter last year.  In response to the challenges posed by the COVID-19 pandemic, the Company is focused on maximizing its in-restaurant dining capacity as permitted by the jurisdictions where it operates, mobile ordering and takeout, continuing to provide a safe environment for its employees and customers, maintaining its operational efficiencies as much as possible and preserving its liquidity.  In line with the Company’s long-term growth strategy, it expects to continue to open new restaurants at locations where it believes the restaurants have the potential to achieve profitability.  The future sales levels of the Company’s restaurants and its ability to implement its growth strategy, however, remain highly uncertain, as the full impact and duration of the COVID-19 pandemic continues to evolve as of the filing date of this Quarterly Report on Form 10-Q.

 

Recent Events Concerning the Company’s Financial Position

On April 10, 2020, the Company and Kura Sushi, Inc. (“Kura Japan”), a majority stockholder, entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) establishing a $20 million revolving credit line. On September 2, 2020, the Company and Kura Japan entered into a First Amendment to Revolving Credit Agreement (the “First Amendment”) to (i) increase the maximum credit amount under the credit line from $20 million to $35 million, (ii) extend the maturity date for each advance from 12 months to 60 months from the date of disbursement and (iii) extend the last day of the period of availability for the advances under the credit line from March 31, 2024 to April 10, 2025.  In connection with the First Amendment, the Revolving Credit Note under the Revolving Credit Agreement was also amended by incorporating the same amendments as provided under the First Amendment. For additional information, see “Note 4. Related Party Transactions” and “Note 6. Debt.”  

 The Company has received rent concessions from its landlords for certain of its restaurants in the form of rent abatements and rent deferrals which were immaterial for the three months ended November 30, 2020.  The Company continues to have discussions with its landlords regarding potential future rent concessions.  

Due to the ongoing impact of COVID-19, the Company assessed its long-lived assets for potential impairment, which resulted in no impairment charges recorded as of November 30, 2020.   

Basis of Presentation

The accompanying unaudited condensed financial statements (the “Condensed Financial Statements”) have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally

5


 

included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. As such, these Condensed Financial Statements should be read in conjunction with the Company’s audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended August 31, 2020.

The accounting policies followed by the Company are set forth in Part II, Item 8, Note 2, Basis of Presentation and Summary of Accounting Policies, of the Notes to Financial Statements included in the Company’s Annual Report on Form 10‑K for the fiscal year ended August 31, 2020. In the opinion of management, all adjustments necessary to fairly state the Condensed Financial Statements have been made. All such adjustments are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of results to be expected for the year ending August 31, 2021 or for any other future annual or interim period.

Fiscal Year

The Company’s fiscal year begins on September 1 and ends on August 31 and references made to “fiscal year 2021,” “fiscal year 2020” and “fiscal year 2019” refer to the Company’s fiscal years ending August 31, 2021, and ended August 31, 2020 and August 31, 2019, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented.

Significant items subject to such estimates include asset retirement obligations, stock-based compensation, the useful lives of assets, the assessment of the recoverability of long-lived assets, and income taxes. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss is the same as net loss for all periods presented. Therefore, a separate statement of comprehensive loss is not included in the accompanying financial statements.

 

 

 

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. ASU 2019-12 is effective for the Company beginning in fiscal year 2022. The Company is currently in the process of evaluating the effects of this pronouncement on its financial statements.

Note 2. Balance Sheet Components

 

Accounts Receivable

 

 

 

November 30,

 

 

August 31,

 

 

 

2020

 

 

2020

 

 

 

(amounts in thousands)

 

Lease receivable

 

$

1,651

 

 

$

1,811

 

Credit card receivable

 

 

316

 

 

 

281

 

Other receivables

 

 

28

 

 

 

38

 

Total accounts receivable

 

$

1,995

 

 

$

2,130

 

 

6


 

Property and Equipment - net

 

 

 

November 30,

 

 

August 31,

 

 

 

2020

 

 

2020

 

 

 

(amounts in thousands)

 

Leasehold improvements

 

$

36,228

 

 

$

30,497

 

Lease assets

 

 

6,102

 

 

 

6,117

 

Furniture and fixtures

 

 

10,008

 

 

 

7,908

 

Computer equipment

 

 

713

 

 

 

696

 

Vehicles

 

 

88

 

 

 

88

 

Software

 

 

787

 

 

 

689

 

Construction in progress

 

 

6,914

 

 

 

9,558

 

Property and equipment, gross

 

 

60,840

 

 

 

55,553

 

Less: accumulated depreciation and amortization

 

 

(11,024

)

 

 

(10,012

)

Total property and equipment - net

 

$

49,816

 

 

$

45,541

 

 

Depreciation and amortization expense for property and equipment was approximately $1.0 million and $0.7 million for the three months ended November 30, 2020 and November 30, 2019, respectively.

Note 3. Leases

At inception of a contract, the Company assesses whether the contract is a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification, measurement, and recognition are determined at lease commencement, which is the date the underlying asset is available for use by the Company. The accounting classification of a lease is based on whether the arrangement is effectively a financed purchase of the underlying asset (finance lease) or not (operating lease). The Company has operating and finance leases for its corporate office, restaurant locations, office equipment, kitchen equipment and automobiles. The Company’s leases have remaining lease terms of less than 1 year to 20 years, some of which include options to extend the leases. For leases with renewal periods at the Company’s option, the Company determines the expected lease period based on whether the renewal of any options is reasonably assured at the inception of the lease.

Operating leases are accounted for on the balance sheet within the right-of-use (“ROU”) assets and lease liabilities recognized in “Operating lease right-of-use assets,” “Operating lease liabilities - current" and "Operating lease liabilities – non-current," respectively. Finance leases are accounted for on the balance sheet within ROU assets and lease liabilities recognized in "Property and equipment - net”, “Finance lease - current" and "Finance lease – non-current," respectively.

Lease assets and liabilities are recognized at the lease commencement date. Lease liabilities are measured at the present value of the lease payments not yet paid. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates corresponding to the maturities of the leases based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. ROU assets, for both operating and finance leases, are initially measured based on the lease liability, adjusted for initial direct costs, prepaid or deferred rent, and lease incentives. The operating lease ROU assets are subsequently measured at the carrying amount of the lease liability adjusted for initial direct costs, prepaid or accrued lease payments, and lease incentives. Depreciation of the finance lease ROU assets are subsequently calculated using the straight-line method over the shorter of the estimated useful lives or the expected lease terms and recorded in "Depreciation and amortization expense" on the statement of operations.

 

The Company recognizes expense for these leases on a straight-line basis over the lease term. In addition to the fixed minimum payments required under the lease arrangements, certain leases require variable lease payments, such as common area maintenance, insurance and real estate taxes, which are recognized when the associated activity occurs. Additionally, contingent rental payments based on sales thresholds for certain of the Company’s restaurants are accrued based on estimated sales.

7


 

Lease related costs recognized in the statements of operations for the three months ended November 30, 2020 and November 30, 2019 are as follows:

 

 

 

Three months ended November 30,

 

 

 

2020

 

 

2019

 

 

 

(amounts in thousands)

 

Finance lease cost

Classification

 

 

 

 

 

 

 

Amortization of right-of-use assets

Depreciation and amortization expenses

$

151

 

 

$

133

 

Interest on lease liabilities

Interest expense

 

23

 

 

 

34

 

Total finance lease cost

 

$

174

 

 

$

167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended November 30,

 

 

 

2020

 

 

2019

 

 

 

(amounts in thousands)

 

Operating lease cost

Classification

 

 

 

 

 

 

 

Operating lease cost

Occupancy and related expenses, other costs and general and administrative expenses

$

1,567

 

 

$

1,161

 

Variable lease cost

Occupancy and related expenses, and general and administrative expenses

 

245

 

 

 

310

 

Total operating lease cost

 

$

1,812

 

 

$

1,471

 

 

Supplemental balance sheet information related to leases is as follows:

 

Operating Leases

 

 

 

November 30, 2020

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Right-of-use assets

 

$

55,028

 

 

$

56,119

 

 

 

 

 

 

 

 

 

 

Lease liabilities – current

 

$

5,236

 

 

$

5,106

 

Lease liabilities – non-current

 

 

55,988

 

 

 

56,918

 

Total lease liabilities

 

$

61,224

 

 

$

62,024

 

Finance Lease Assets - net

 

 

 

November 30, 2020

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Finance lease assets

 

$

6,102

 

 

$

6,117

 

Accumulated depreciation

 

 

(2,329

)

 

 

(2,178

)

Total finance lease assets - net

 

$

3,773

 

 

$

3,939

 

Finance Leases Liabilities

 

 

 

November 30, 2020

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Finance lease liabilities - current

 

$

1,033

 

 

$

1,004

 

Finance lease liabilities - non-current

 

 

1,194

 

 

 

1,481

 

Total finance lease liabilities

 

$

2,227

 

 

$

2,485

 

 

8


 

 

 

 

November 30,

 

 

 

2020

 

 

2019

 

Weighted Average Remaining Lease Term (Years)

 

 

 

 

 

 

 

 

Operating leases

 

 

16.2

 

 

 

15.7

 

Finance leases

 

 

2.2

 

 

 

3.1

 

 

 

 

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

 

 

 

 

Operating leases

 

 

6.4

%

 

 

5.8

%

Finance leases

 

 

4.4

%

 

 

4.4

%

 

Supplemental disclosures of cash flow information related to leases are as follows:

 

 

 

 

Three months ended November 30,

 

 

 

2020

 

 

2019

 

 

 

(amounts in thousands)

 

Operating cash flows paid for operating lease liabilities

 

$

907

 

 

$

881

 

Operating right-of-use assets obtained in exchange for new operating lease liabilities

 

$

 

 

$

5,556

 

 

As of November 30, 2020, the Company has additional operating lease liabilities related to restaurants of which the Company has not yet taken possession of $13.7 million. These operating leases are expected to commence in fiscal year 2021 with lease terms of 20 years.

 

 

Maturities of lease liabilities were as follows as of November 30, 2020:

 

 

 

Operating Leases

 

 

Finance Leases

 

 

 

(amounts in thousands)

 

Remainder of 2021

 

$

2,167

 

 

$

821

 

2022

 

 

4,715

 

 

 

1,005

 

2023

 

 

5,721

 

 

 

483

 

2024

 

 

5,847

 

 

 

17

 

2025

 

 

5,977

 

 

 

2

 

Thereafter

 

 

73,014

 

 

 

 

Total lease payments

 

 

97,441

 

 

 

2,328

 

Less: imputed interest

 

 

(36,217

)

 

 

(101

)

Present value of lease liabilities

 

$

61,224

 

 

$

2,227

 

 

 

Note 4. Related Party Transactions

Kura Sushi, Inc. (“Kura Japan”) is the majority stockholder of the Company, and is incorporated and headquartered in Japan. In August 2019 the Company entered into a Shared Services Agreement with Kura Japan, pursuant to which Kura Japan provides the Company with certain strategic, operational and other support services, including assigning certain employees to work for the Company as expatriates to provide support to the Company’s operations, sending its employees to the Company on a short-term basis to provide support for the opening of new restaurants or renovation of existing restaurants, and providing the Company with certain supplies, parts and equipment for use in the Company’s restaurants. In addition, the Company has agreed to continue to provide Kura Japan with certain translational support services and market research analyses. In exchange for such services, supplies, parts and equipment, the parties will pay fees to each other as set forth under the Shared Services Agreement. A right of setoff is not required, however, from time to time, either party will net settle transactions as needed. Purchases of administrative supplies, expatriate salaries and travel and other administrative expenses from Kura Japan are included in general and administrative expenses in the accompanying statements of operations. Purchases of equipment from Kura Japan are included in property and equipment in the accompanying balance sheets.

9


 

In August 2019, the Company entered into an Amended and Restated Exclusive License Agreement (the “License Agreement”) with Kura Japan. Pursuant to the License Agreement, the Company pays Kura Japan a royalty fee of 0.5% of the Company’s net sales in exchange for an exclusive, royalty-bearing license for use of certain of Kura Japan’s intellectual property rights, including, but not limited to, Kura Japan’s trademarks “Kura Sushi” and “Kura Revolving Sushi Bar,” and patents for a food management system and the Mr. Fresh protective dome, among other intellectual property rights necessary to continue operation of the Company’s restaurants. Royalty payments to Kura Japan are included in other costs at the restaurant-level in the accompanying statements of operations.

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement, which was subsequently amended on September 2, 2020, to provide the Company a credit line of $35 million. For additional information, see “Note 6. Debt.”           

Balances with Kura Japan as of November 30, 2020 and August 31, 2020 are as follows:

 

 

 

November 30,

 

 

August 31,

 

 

 

2020

 

 

2020

 

 

 

(amounts in thousands)

 

Due from affiliate

 

$

239

 

 

$

12

 

Due to affiliate

 

 

69

 

 

 

201

 

Loan from affiliate

 

 

3,000

 

 

 

 

 

Reimbursements by the Company to Kura Japan for the three months ended November 30, 2020 and November 30, 2019 were as follows:

 

 

 

Three Months Ended November 30,

 

 

 

 

2020

 

 

2019

 

 

 

 

(amounts in thousands)

Related party transactions:

 

 

 

 

 

 

 

 

 

Purchases of administrative supplies

 

$

65

 

 

$

7

 

 

Expatriate salaries expense

 

 

31

 

 

 

39

 

 

Royalty payments

 

 

47

 

 

 

87

 

 

Travel and other administrative expenses

 

 

13

 

 

 

35

 

 

Purchases of equipment

 

 

366

 

 

 

343

 

 

Total related party transactions

 

$

522

 

 

$

511

 

 


Reimbursements by Kura Japan to the Company for the three months ended November 30, 2020 and November 30, 2019 were $5 thousand and $34 thousand, respectively. The reimbursements were for travel and translation expenses.

Note 5. Stock-based Compensation

The following table summarizes the stock option activity under the Company’s 2018 Incentive Compensation Plan (the “Stock Incentive Plan”) for the period from August 31, 2020 through November 30, 2020:

 

 

 

Options Outstanding

 

 

 

Number of shares

underlying

outstanding options

 

 

Weighted Average

Exercise

Price Per Share

 

 

 

 

 

 

 

 

 

 

Outstanding—August 31, 2020

 

 

531,747

 

 

$

9.51

 

Options exercised

 

 

(21,979

)

 

 

4.26

 

Options canceled/forfeited

 

 

(4,265

)

 

 

14.43

 

Outstanding—November 30, 2020

 

 

505,503

 

 

$

9.70

 

 

Subsequent to November 30, 2020 and as of the filing date of this Quarterly Report on Form 10-Q, the Company granted 50 thousand options and 7 thousand restricted stock awards.  

 

Stock-based compensation for stock options issued under the Stock Incentive Plan was $0.3 million and $0.1 million for the three months ended November 30, 2020 and November 30, 2019 respectively.

10


 

The total stock-based compensation expense recognized under the Stock Incentive Plan in the statements of operations is as follows:

 

 

Three Months Ended November 30,

 

 

 

2020

 

 

 

 

2019

 

 

 

(amounts in thousands)

Restaurant-level stock-based compensation included in other costs

$

23

 

 

 

 

$

16

 

 

Corporate-level stock-based compensation included in general and administrative expenses

$

243

 

 

 

 

 

105

 

 

Total stock-based compensation

$

266

 

 

 

 

$

121

 

 

 

Note 6. Debt

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement establishing a $20 million revolving credit line for the Company. On September 2, 2020, the Company and Kura Japan entered into a First Amendment to Revolving Credit Agreement (the “First Amendment”) to (i) increase the maximum credit amount under the credit line from $20 million to $35 million, (ii) extend the maturity date for each advance from 12 months to 60 months from the date of disbursement and (iii) extend the last day of the period of availability for the advances under the credit line from March 31, 2024 to April 10, 2025.  In connection with the First Amendment, the Revolving Credit Note under the Revolving Credit Agreement was also amended by incorporating the same amendments as provided under the First Amendment. There are no financial covenants under the Revolving Credit Agreement with which the Company must comply.

As of November 30, 2020, the Company had borrowed $3.0 million under the Revolving Credit Agreement at a fixed interest rate of 1.1%. Interest expense for the three months ended November 30, 2020 was immaterial. Subsequent to November 30, 2020 and as of the filing date of this Quarterly Report on Form 10-Q, the Company borrowed an additional $6.0 million and has $26 million of availability remaining under the Revolving Credit Agreement.

 

Note 7. Loss Per Share

The net loss per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock. As the liquidation and dividend rights for Class A and Class B common stock are identical, the net loss attributable to common stockholders is allocated on a proportionate basis.

The following table sets forth the computation of the Company’s basic and diluted net loss per share:

 

 

 

Three Months Ended November 30,

 

 

 

2020

 

 

2019

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

 

 

(amounts in thousands, except per share data)

 

Net loss attributable to common stockholders - basic

 

$

(5,589

)

 

$

(761

)

 

$

(1,077

)

 

$

(147

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

7,348

 

 

 

1,000

 

 

 

7,335

 

 

 

1,000

 

Net loss per share attributable to common stockholders - basic

 

$

(0.76

)

 

$

(0.76

)

 

$

(0.15

)

 

$

(0.15

)

Net loss attributable to common stockholders - diluted

 

$

(5,589

)