10-Q 1 krus-10q_20210531.htm 10-Q krus-10q_20210531.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 May 31, 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 July 7, 2021, the registrant had 7,427,334 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)

 

 

 

May 31, 2021

 

 

August 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,701

 

 

$

9,259

 

Accounts and other receivables

 

 

3,258

 

 

 

2,130

 

Inventories

 

 

467

 

 

 

367

 

Due from affiliate

 

 

2

 

 

 

12

 

Prepaid expenses and other current assets

 

 

11,973

 

 

 

3,010

 

Total current assets

 

 

20,401

 

 

 

14,778

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment - net

 

 

51,783

 

 

 

45,541

 

Operating lease right-of-use assets

 

 

56,165

 

 

 

56,119

 

Deposits and other assets

 

 

2,085

 

 

 

1,941

 

Total assets

 

$

130,434

 

 

$

118,379

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,631

 

 

$

4,919

 

Accrued expenses and other current liabilities

 

 

1,638

 

 

 

720

 

Salaries and wages payable

 

 

4,755

 

 

 

1,786

 

Finance leases - current

 

 

1,011

 

 

 

1,004

 

Operating lease liabilities - current

 

 

5,159

 

 

 

5,106

 

Due to affiliate

 

 

60

 

 

 

201

 

Sales tax payable

 

 

687

 

 

 

189

 

Total current liabilities

 

 

16,941

 

 

 

13,925

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Loan from affiliate

 

 

17,000

 

 

 

 

Finance leases - non-current

 

 

696

 

 

 

1,481

 

Operating lease liabilities - non-current

 

 

57,777

 

 

 

56,918

 

Other liabilities

 

 

363

 

 

 

342

 

Total liabilities

 

 

92,777

 

 

 

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,

7,424 and 7,342 shares issued and outstanding as of May 31, 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 May 31, 2021

and August 31, 2020

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

61,737

 

 

 

60,332

 

Accumulated deficit

 

 

(24,088

)

 

 

(14,627

)

Total stockholders' equity

 

 

37,657

 

 

 

45,713

 

Total liabilities and stockholders' equity

 

$

130,434

 

 

$

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 May 31,

 

 

Nine Months Ended May 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Sales

 

$

18,471

 

 

$

2,812

 

 

$

36,967

 

 

$

39,640

 

Restaurant operating costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

5,850

 

 

 

1,069

 

 

 

12,078

 

 

 

12,868

 

Labor and related costs

 

 

1,649

 

 

 

3,551

 

 

 

8,070

 

 

 

15,336

 

Occupancy and related expenses

 

 

1,885

 

 

 

1,589

 

 

 

5,202

 

 

 

4,665

 

Depreciation and amortization expenses

 

 

1,086

 

 

 

743

 

 

 

3,015

 

 

 

2,118

 

Other costs

 

 

2,713

 

 

 

964

 

 

 

6,843

 

 

 

5,221

 

Total restaurant operating costs

 

 

13,183

 

 

 

7,916

 

 

 

35,208

 

 

 

40,208

 

General and administrative expenses

 

 

4,292

 

 

 

2,885

 

 

 

10,687

 

 

 

8,994

 

Depreciation and amortization expenses

 

 

130

 

 

 

39

 

 

 

299

 

 

 

97

 

Total operating expenses

 

 

17,605

 

 

 

10,840

 

 

 

46,194

 

 

 

49,299

 

Operating income (loss)

 

 

866

 

 

 

(8,028

)

 

 

(9,227

)

 

 

(9,659

)

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

67

 

 

 

36

 

 

 

154

 

 

 

103

 

Interest income

 

 

(1

)

 

 

(65

)

 

 

(8

)

 

 

(432

)

Income (loss) before income taxes

 

 

800

 

 

 

(7,999

)

 

 

(9,373

)

 

 

(9,330

)

Income tax expense

 

 

30

 

 

 

1,153

 

 

 

88

 

 

 

1,179

 

Net income (loss)

 

$

770

 

 

$

(9,152

)

 

$

(9,461

)

 

$

(10,509

)

Net income (loss) per Class A and Class B shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

(1.10

)

 

$

(1.13

)

 

$

(1.26

)

Diluted

 

$

0.09

 

 

$

(1.10

)

 

$

(1.13

)

 

$

(1.26

)

Weighted average Class A and Class B shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

8,383

 

 

 

8,341

 

 

 

8,381

 

 

 

8,337

 

Diluted

 

 

8,663

 

 

 

8,341

 

 

 

8,381

 

 

 

8,337

 

 

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

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

391

 

 

 

 

 

 

391

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

770

 

 

 

770

 

Exercise of stock options

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

 

 

 

73

 

Balances as of May 31, 2021

 

 

7,424

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

61,737

 

 

$

(24,088

)

 

$

37,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Retained

Earnings

 

 

Total

 

 

 

Class A

 

 

Class B

 

 

Paid-in

 

 

(Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

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

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

248

 

 

 

 

 

 

248

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,152

)

 

 

(9,152

)

Exercise of stock options

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Balances as of May 31, 2020

 

 

7,342

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

60,052

 

 

$

(7,778

)

 

$

52,282

 

 

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)

 

 

 

 

Nine Months Ended May 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(9,461

)

 

$

(10,509

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,314

 

 

 

2,215

 

Stock-based compensation

 

 

966

 

 

 

580

 

Loss on disposal of property and equipment

 

 

91

 

 

 

4

 

Deferred income taxes

 

 

 

 

 

1,114

 

Non-cash lease expense

 

 

1,975

 

 

 

1,695

 

Inventory write-downs

 

 

 

 

 

50

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts and other receivables

 

 

(1,227

)

 

 

836

 

Inventories

 

 

(100

)

 

 

82

 

Due from affiliate

 

 

10

 

 

 

221

 

Prepaid expenses and other current assets

 

 

(8,963

)

 

 

(1,227

)

Deposits and other assets

 

 

(34

)

 

 

(108

)

Accounts payable

 

 

71

 

 

 

(2,995

)

Accrued expenses and other current liabilities

 

 

1,129

 

 

 

(861

)

Salaries and wages payable

 

 

2,969

 

 

 

(340

)

Operating lease liabilities

 

 

(1,011

)

 

 

(915

)

Due to affiliate

 

 

76

 

 

 

(4

)

Sales tax payable

 

 

498

 

 

 

(533

)

Net cash used in operating activities

 

 

(9,697

)

 

 

(10,695

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Payments for property and equipment

 

 

(11,412

)

 

 

(9,348

)

Payments for initial direct costs

 

 

 

 

 

(165

)

Payments for purchases of liquor licenses

 

 

(111

)

 

 

(58

)

Net cash used in investing activities

 

 

(11,523

)

 

 

(9,571

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from PPP loan

 

 

 

 

 

5,983

 

Repayment of PPP loan

 

 

 

 

 

(5,983

)

Proceeds from loan from affiliate

 

 

17,000

 

 

 

 

Repayment of principal on finance leases

 

 

(777

)

 

 

(778

)

Proceeds from exercise of stock options

 

 

439

 

 

 

30

 

Net cash provided by (used in) financing activities

 

 

16,662

 

 

 

(748

)

Decrease in cash, cash equivalents and restricted cash

 

 

(4,558

)

 

 

(21,014

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

9,259

 

 

 

38,044

 

Cash, cash equivalents and restricted cash, end of period

 

$

4,701

 

 

$

17,030

 

Noncash investing activities

 

 

 

 

 

 

 

 

Amounts included in accounts payable for purchases of property and equipment

 

$

641

 

 

$

1,916

 

 

 

 

 

 

 

 

 

 

 

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, supply chains and financial markets globally. In response to this outbreak, many state and local authorities had mandated the temporary closure of non-essential businesses and dine-in restaurant activity or limited indoor dining capacities. COVID-19 and the government measures taken to control it have caused a significant disruption to the Company’s business operation. As of May 31, 2021, the Company had all of its 31 restaurants operating at indoor dining capacities ranging from 50% to 100%. In June 2021, the Company opened one new restaurant in Bellevue, Washington. As of the filing date of this Quarterly Report on Form 10-Q, the Company had all of its 32 restaurants operating at 100% indoor capacity with no restrictions in place.          

In response to the ongoing COVID-19 pandemic, the Company 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 its restaurants have caused a substantial decline in the Company’s comparable restaurant sales in the most recently completed fiscal quarter and year-to-date period compared to pre-pandemic levels. In response to the challenges posed by the COVID-19 pandemic, the Company 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. Currently, with the lift of all indoor dining restrictions at all of its restaurants, the Company has experienced a staffing shortage and has provided certain employee retention and new hire bonuses. 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.”

5


 

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 $6.3 million employee retention credit and a $1.6 million employee retention credit during the three months ended May 31, 2021 and May 31, 2020, respectively, and recognized an $8.9 million employee retention credit and a $1.6 million employee retention credit during the nine months ended May 31, 2021 and May 31, 2020, respectively. For the three months ended May 31, 2021, $ 5.8 million is included in labor and related costs and $0.5 million is included in general and administrative expenses in the statements of operations and for the nine months ended May 31, 2021, $8.0 million is included in labor and related costs and $0.9 million is included in general and administrative expenses in the statement of operations. The entire amount of the employee retention credit was included in labor and related costs during the three and nine months ended May 31, 2020.  The Company has filed for refunds of the employee retention credits and as of the date of this Quarterly Report on Form 10-Q, it has not received any refunds and cannot reasonably estimate when it will receive any or all of the refunds.  

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 nine months ended May 31, 2021. Due to the current staffing shortage, the Company provided certain employee retention and new hire bonuses totaling $0.7 million in the three and nine months ended May 31, 2021.  

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 May 31, 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 2022”, “fiscal year 2021,” “fiscal year 2020” and “fiscal year 2019” refer to the Company’s fiscal years ending August 31, 2022 and 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 Income (Loss)

Comprehensive income (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 income (loss) is the same as net income (loss) for all periods presented. Therefore, a separate statement of comprehensive income (loss) is not included in the accompanying financial statements.

6


 

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 and Other Receivables

 

 

 

May 31, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Lease receivable

 

$

1,694

 

 

$

1,811

 

Credit card receivable

 

 

1,491

 

 

 

281

 

Other receivables

 

 

73

 

 

 

38

 

Total accounts and other receivables

 

$

3,258

 

 

$

2,130

 

 

 

Prepaid Expenses and Other Current Assets

 

 

 

May 31, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Employee retention credit

 

$

10,697

 

 

$

1,750

 

Prepaid expenses

 

 

1,046

 

 

 

885

 

Other current assets

 

 

230

 

 

 

375

 

Total prepaid expenses and other current assets

 

$

11,973

 

 

$

3,010

 

 

Property and Equipment - net

 

 

 

May 31, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Leasehold improvements

 

$

41,239

 

 

$

30,497

 

Lease assets

 

 

6,102

 

 

 

6,117

 

Furniture and fixtures

 

 

12,359

 

 

 

7,908

 

Computer equipment

 

 

800

 

 

 

696

 

Vehicles

 

 

110

 

 

 

88

 

Software

 

 

761

 

 

 

689

 

Construction in progress

 

 

3,647

 

 

 

9,558

 

Property and equipment – gross

 

 

65,018

 

 

 

55,553

 

Less: accumulated depreciation and amortization

 

 

(13,235

)

 

 

(10,012

)

Total property and equipment – net

 

$

51,783

 

 

$

45,541

 

 

Depreciation and amortization expense for property and equipment was approximately $1.2 million and $0.8 million for the three months ended May 31, 2021 and May 31, 2020, respectively, and was approximately $3.3 million and $2.2 million for the nine months ended May 31, 2021 and May 31, 2020, respectively.

 

7


 

 

Accrued Expenses and Other Current Liabilities

 

 

 

May 31, 2021

 

 

August 31, 2020

 

 

 

(amounts in thousands)

 

Credit card payable

 

$

135

 

 

$

84

 

Income taxes payable

 

 

143

 

 

 

56

 

Other current liabilities

 

 

1,360

 

 

 

580

 

Total accrued expenses and other current liabilities

 

$

1,638

 

 

$

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.

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.

8


 

Lease related costs recognized in the statements of operations for the three and nine months ended May 31, 2021 and May 31, 2020 are as follows:

 

 

 

Three Months Ended May 31,

 

 

Nine Months Ended May 31,

 

 

 

May 31, 2021

 

 

May 31, 2020

 

 

May 31, 2021

 

 

May 31, 2020

 

 

 

(amounts in thousands)

 

Finance lease cost