10-Q 1 krus-10q_20210228.htm 10-Q krus-10q_20210228.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 February 28, 2021

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 April 7, 2021, the registrant had 7,417,556 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)

 

 

 

February 28, 2021

 

 

August 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,747

 

 

$

9,259

 

Accounts receivable

 

 

2,457

 

 

 

2,130

 

Inventories

 

 

427

 

 

 

367

 

Due from affiliate

 

 

239

 

 

 

12

 

Prepaid expenses and other current assets

 

 

6,408

 

 

 

3,010

 

Total current assets

 

 

11,278

 

 

 

14,778

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment - net

 

 

50,944

 

 

 

45,541

 

Operating lease right-of-use assets

 

 

54,188

 

 

 

56,119

 

Deposits and other assets

 

 

1,999

 

 

 

1,941

 

Total assets

 

$

118,409

 

 

$

118,379

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,968

 

 

$

4,919

 

Accrued expenses and other current liabilities

 

 

748

 

 

 

720

 

Salaries and wages payable

 

 

2,692

 

 

 

1,786

 

Finance leases - current

 

 

1,028

 

 

 

1,004

 

Operating lease liabilities - current

 

 

5,402

 

 

 

5,106

 

Due to affiliate

 

 

219

 

 

 

201

 

Sales tax payable

 

 

295

 

 

 

189

 

Total current liabilities

 

 

13,352

 

 

 

13,925

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Loan from affiliate

 

 

12,000

 

 

 

 

Finance leases - non-current

 

 

939

 

 

 

1,481

 

Operating lease liabilities - non-current

 

 

55,347

 

 

 

56,918

 

Other liabilities

 

 

348

 

 

 

342

 

Total liabilities

 

 

81,986

 

 

 

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,

7,413 and 7,342 shares issued and outstanding as of February 28, 2021

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 February 28, 2021

and August 31, 2020

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

61,273

 

 

 

60,332

 

Accumulated deficit

 

 

(24,858

)

 

 

(14,627

)

Total stockholders' equity

 

 

36,423

 

 

 

45,713

 

Total liabilities and stockholders' equity

 

$

118,409

 

 

$

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

 

 

Six Months Ended

 

 

 

February 28, 2021

 

 

February 29, 2020

 

 

February 28, 2021

 

 

February 29, 2020

 

Sales

 

$

9,082

 

 

$

19,388

 

 

$

18,496

 

 

$

36,828

 

Restaurant operating costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

3,175

 

 

 

6,106

 

 

 

6,228

 

 

 

11,799

 

Labor and related costs

 

 

2,061

 

 

 

6,144

 

 

 

6,421

 

 

 

11,785

 

Occupancy and related expenses

 

 

1,627

 

 

 

1,637

 

 

 

3,317

 

 

 

3,076

 

Depreciation and amortization expenses

 

 

1,002

 

 

 

712

 

 

 

1,929

 

 

 

1,375

 

Other costs

 

 

2,051

 

 

 

2,210

 

 

 

4,130

 

 

 

4,257

 

Total restaurant operating costs

 

 

9,916

 

 

 

16,809

 

 

 

22,025

 

 

 

32,292

 

General and administrative expenses

 

 

2,874

 

 

 

2,783

 

 

 

6,395

 

 

 

6,109

 

Depreciation and amortization expenses

 

 

94

 

 

 

36

 

 

 

169

 

 

 

58

 

Total operating expenses

 

 

12,884

 

 

 

19,628

 

 

 

28,589

 

 

 

38,459

 

Operating loss

 

 

(3,802

)

 

 

(240

)

 

 

(10,093

)

 

 

(1,631

)

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

53

 

 

 

33

 

 

 

87

 

 

 

67

 

Interest income

 

 

(3

)

 

 

(170

)

 

 

(7

)

 

 

(367

)

Loss before income taxes

 

 

(3,852

)

 

 

(103

)

 

 

(10,173

)

 

 

(1,331

)

Income tax expense

 

 

29

 

 

 

30

 

 

 

58

 

 

 

26

 

Net loss

 

$

(3,881

)

 

$

(133

)

 

$

(10,231

)

 

$

(1,357

)

Net loss per Class A and Class B shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.46

)

 

$

(0.02

)

 

$

(1.22

)

 

$

(0.16

)

Diluted

 

$

(0.46

)

 

$

(0.02

)

 

$

(1.22

)

 

$

(0.16

)

Weighted average Class A and Class B shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

8,379

 

 

 

8,336

 

 

 

8,363

 

 

 

8,335

 

Diluted

 

 

8,379

 

 

 

8,336

 

 

 

8,363

 

 

 

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

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

309

 

 

 

 

 

 

309

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,881

)

 

 

(3,881

)

Exercise of stock options

 

 

49

 

 

 

 

 

 

 

 

 

 

 

 

272

 

 

 

 

 

 

272

 

Balances as of February 28, 2021

 

 

7,413

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

61,273

 

 

$

(24,858

)

 

$

36,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

211

 

 

 

 

 

 

211

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(133

)

 

 

(133

)

Exercise of stock options

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Balances as of February 29, 2020

 

 

7,338

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

59,789

 

 

$

1,374

 

 

$

61,171

 

 

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)

 

 

 

 

Six Months Ended

 

 

 

February 28, 2021

 

 

February 29, 2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(10,231

)

 

$

(1,357

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,098

 

 

 

1,433

 

Stock-based compensation

 

 

575

 

 

 

332

 

Loss on disposal of property and equipment

 

 

29

 

 

 

4

 

Deferred income taxes

 

 

 

 

 

(5

)

Non-cash lease expense

 

 

1,380

 

 

 

1,067

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(408

)

 

 

131

 

Inventories

 

 

(60

)

 

 

90

 

Due from affiliate

 

 

(227

)

 

 

214

 

Prepaid expenses and other current assets

 

 

(2,872

)

 

 

(9

)

Deposits and other assets

 

 

53

 

 

 

(39

)

Accounts payable

 

 

(67

)

 

 

(1,245

)

Accrued expenses and other current liabilities

 

 

240

 

 

 

(478

)

Salary and wages payable

 

 

906

 

 

 

131

 

Operating lease liabilities

 

 

(646

)

 

 

(585

)

Due to affiliate

 

 

192

 

 

 

46

 

Sales tax payable

 

 

106

 

 

 

(2

)

Net cash used in operating activities

 

 

(8,932

)

 

 

(272

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Payments for property and equipment

 

 

(9,793

)

 

 

(7,072

)

Payments for initial direct costs

 

 

 

 

 

(165

)

Payments for purchase of liquor license

 

 

(111

)

 

 

(58

)

Net cash used in investing activities

 

 

(9,904

)

 

 

(7,295

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from loan from affiliate

 

 

12,000

 

 

 

 

Repayment of principal on finance leases

 

 

(518

)

 

 

(506

)

Proceeds from exercise of stock options

 

 

366

 

 

 

15

 

Net cash provided by (used in) financing activities

 

 

11,848

 

 

 

(491

)

Decrease in cash, cash equivalents and restricted cash

 

 

(6,988

)

 

 

(8,058

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

9,259

 

 

 

38,044

 

Cash, cash equivalents and restricted cash, end of period

 

$

2,271

 

 

$

29,986

 

 

 

 

 

 

 

 

 

 

Noncash investing activities

 

 

 

 

 

 

 

 

Amounts included in accounts payable for purchases of property and equipment

 

$

160

 

 

$

483

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash within the condensed balance sheets to the amounts shown in the statements of cash flows above:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,747

 

 

$

29,986

 

Restricted cash included in prepaid expenses and other current assets

 

 

524

 

 

 

 

Total cash, cash equivalents and restricted cash

 

$

2,271

 

 

$

29,986

 

 

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 February 28, 2021, the Company had 28 of its 30 restaurants open in some capacity: indoor dining, outdoor dining or takeout only. In April 2021, the Company opened one new restaurant in Sherman Oaks, California. As of the filing date of this Quarterly Report on Form 10-Q, the Company had all 31 restaurants operating at indoor capacities ranging from 25% to 100%, 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 maintained its 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 two restaurants during the quarter have caused a substantial decline in the Company’s sales in the most recently completed fiscal quarter and year-to-date period compared to the same quarter and year-to-date period last year. In response to the ongoing 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, emphasizing 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”), the majority stockholder of the Company, entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) whereby Kura Japan agreed to make available to the Company loans on a revolving credit basis in the principal amount of up to $20 million as evidenced by that certain Promissory Note dated as of the same date with the Company as maker and made payable to Kura Japan (the “Revolving Credit Note”). 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. On April 9, 2021, the Company and Kura Japan entered into a Second Amendment to Revolving Credit Agreement (the “Second Amendment”) to increase the maximum credit amount under the credit line from $35 million to $45 million. In connection with the First Amendment and Second Amendment, the Revolving Credit Note under the Revolving Credit Agreement was also amended by incorporating the same amendments as provided under the First Amendment and Second Amendment, as well as amendments to the interest rate. For additional information, see “Note 4. Related Party Transactions” and “Note 6. Debt.”

Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed by the United States Congress and signed by the President, the Company is eligible for a refundable employee retention credit subject to certain criteria. The Company recognized a $2.6 million employee retention credit during the three months ended February 28, 2021, of which $2.2 million is included in labor and related costs and $0.4 million is included in general and administrative expenses in the statements of operations.

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 and six months ended February 28, 2021.

5


 

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 February 28, 2021.

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 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 year ending August 31, 2021, and fiscal years 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

 

 

 

February 28, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Lease receivable

 

$

1,731

 

 

$

1,811

 

Credit card receivable

 

 

644

 

 

 

281

 

Other receivables

 

 

82

 

 

 

38

 

Total accounts receivable

 

$

2,457

 

 

$

2,130

 

 

 

6


 

 

 

Prepaid Expenses and Other Current Assets

 

 

 

February 28, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Employee retention credit

 

$

4,385

 

 

$

1,750

 

Prepaid expenses

 

 

1,083

 

 

 

885

 

Restricted cash(a)

 

 

524

 

 

 

 

Other current assets

 

 

416

 

 

 

375

 

Total prepaid expenses and other current assets

 

$

6,408

 

 

$

3,010

 

 

(a)

The restricted cash was pledged as a collateral for a standby letter of credit with Mizuho Bank, Ltd. related to one of the Company’s leased properties. For additional information, see “Note 4. Related Party Transactions.”

 

Property and Equipment - net

 

 

 

February 28, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Leasehold improvements

 

$

38,555

 

 

$

30,497

 

Lease assets

 

 

6,102

 

 

 

6,117

 

Furniture and fixtures

 

 

11,665

 

 

 

7,908

 

Computer equipment

 

 

768

 

 

 

696

 

Vehicles

 

 

100

 

 

 

88

 

Software

 

 

819

 

 

 

689

 

Construction in progress

 

 

5,030

 

 

 

9,558

 

Property and equipment – gross

 

 

63,039

 

 

 

55,553

 

Less: accumulated depreciation and amortization

 

 

(12,095

)

 

 

(10,012

)

Total property and equipment – net

 

$

50,944

 

 

$

45,541

 

 

Depreciation and amortization expense for property and equipment was approximately $1.1 million and $0.7 million for the three months ended February 28, 2021 and February 29, 2020, respectively, and was approximately $2.1 million and $1.4 million for the six months ended February 28, 2021 and February 29, 2020, respectively.

 

Accrued Expenses and Other Current Liabilities

 

 

 

February 28, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Credit card payable

 

$

86

 

 

$

84

 

Income taxes payable

 

 

114

 

 

 

56

 

Other current liabilities

 

 

548

 

 

 

580

 

Total accrued expenses and other current liabilities

 

$

748

 

 

$

720

 

 

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.

7


 

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 statements 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.

Lease related costs recognized in the statements of operations for the three and six months ended February 28, 2021 and February 29, 2020 are as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

February 28, 2021

 

 

February 29, 2020

 

 

February 28, 2021

 

 

February 29, 2020

 

 

 

(amounts in thousands)

 

 

(amounts in thousands)

 

Finance lease cost

Classification

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

Depreciation and amortization expenses

$

157

 

 

$

145

 

 

$

308

 

 

$

278

 

Interest on lease liabilities

Interest expense

 

26

 

 

 

33

 

 

 

49

 

 

 

67

 

Total finance lease cost

 

$

183

 

 

$

178

 

 

$

357

 

 

$

345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

February 28, 2021

 

 

February 29, 2020

 

 

February 28, 2021

 

 

February 29, 2020

 

 

 

(amounts in thousands)

 

 

(amounts in thousands)

 

Operating lease cost

Classification

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost

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

$

1,549

 

 

$

1,283

 

 

$

3,116

 

 

$

2,444

 

Variable lease cost

Occupancy and related expenses, and general and administrative expenses

 

252

 

 

 

386

 

 

 

497

 

 

 

700

 

Total operating lease cost

 

$

1,801

 

 

$

1,669

 

 

$

3,613

 

 

$

3,144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8


 

 

Supplemental balance sheet information related to leases is as follows:

 

Operating Leases

 

 

 

February 28, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Right-of-use assets

 

$

54,188

 

 

$

56,119

 

 

 

 

 

 

 

 

 

 

Lease liabilities – current

 

$

5,402

 

 

$

5,106

 

Lease liabilities – non-current

 

 

55,347

 

 

 

56,918

 

Total lease liabilities

 

$

60,749

 

 

$

62,024

 

Finance Lease Assets – net

 

 

February 28, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)