KURA SUSHI USA, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited financial statements and the related notes included in this Quarterly Report on Form 10-Q and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2025 (the “Annual Report”). In addition to historical information, the following discussion and analysis contains forward-looking statements, such as statements about our plans, objectives, expectations, and intentions, which are based on current assumptions and involve risks, uncertainties and assumptions as set forth and described in the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of the Annual Report . You should review those sections in our Annual Report for a discussion of important factors, including the continuing development of our business and other factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q. “Kura Sushi USA,” “Kura Sushi,” “Kura,” “we,” “us,” “our,” “our company” and the “Company” refer to Kura Sushi USA, Inc. unless expressly indicated or the context otherwise requires. Overview Kura Sushi USA 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 we refer to as the “Kura Experience.” We encourage healthy lifestyles by serving freshly prepared Japanese cuisine using high-quality ingredients that are free from artificial seasonings, sweeteners, colorings, and preservatives. We aim to make quality Japanese cuisine accessible to our guests across the United States through affordable prices and an inviting atmosphere. Business Trends During the three months ended November 30, 2025, we opened four restaurants and expanded our restaurant base to 83 restaurants in 22 states and Washington, DC. We expect to open a total of 16 new restaurants in fiscal year 2026 and therefore, we expect our revenue and restaurant operating costs to increase in fiscal year 2026. We also expect our general and administrative expenses to increase on a dollar basis in fiscal 2026 to support the growth of the company. We have evaluated and will continue to evaluate the impact of import laws and tariffs on our operations. During the three months ended November 30, 2025, tariffs had a considerable impact on our business, financial condition, results of operations and cash flows. Based on the current economic environment, tariffs are expected to continue to have a considerable impact on our operations in certain areas, such as food and beverage costs, construction and equipment costs and other restaurant operating costs throughout fiscal year 2026. We have historically used menu price increases to manage profitability in times of inflation or tariff increases. During the three months ended November 30, 2025, we increased menu prices, which we expect will partially offset the impact on our operations in fiscal year 2026. See our Annual Report on Form 10-K “Part I, Item 1A, “Risk Factors — Risks Related to Our Operations and Growth Strategy”. Key Financial Definitions Sales. Sales represent sales of food and beverages in restaurants. Restaurant sales in a given period are directly impacted by the number of restaurants we operate and comparable restaurant sales performance. Food and beverage costs. Food and beverage costs are variable in nature, change with sales volume and are influenced by menu mix and subject to increases or decreases based on fluctuations in commodity costs. Other important factors causing fluctuations in food and beverage costs include seasonality and restaurant-level management of food waste. Food and beverage costs are a substantial expense and are expected to grow proportionally as our sales grow. Labor and related expenses. Labor and related expenses include all restaurant-level management and hourly labor costs, including wages, employee benefits, stock-based compensation for restaurant-level employees and payroll taxes. Similar to the food and beverage costs that we incur, labor and related expenses are expected to grow proportionally as our sales grow. Factors that influence fluctuations in our labor and related expenses include minimum wage and payroll tax legislation, the frequency and severity of workers’ compensation claims, healthcare costs and by the performance of our restaurants. 15 Occupancy and related expenses. Occupancy and related expenses include rent for all restaurant locations and related taxes. Depreciation and amortization expenses. Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including equipment and capitalized leasehold improvements. Depreciation is determined using the straight-line method over the assets’ estimated useful lives, which range from three to 20 years. Other costs. Other costs include credit card processing fees, repairs and maintenance, restaurant-level advertising and promotions, restaurant supplies, royalty payments to Kura Japan, utilities and other restaurant-level expenses. General and administrative expenses. General and administrative expenses include expenses associated with corporate and regional supervision functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, travel expenses, stock-based compensation for corporate-level employees, legal and professional fees, information systems, corporate office rent and other related corporate costs. General and administrative expenses are expected to grow as our unit base grows. Interest expense. Interest expense includes cash and non-cash charges related to our line of credit and finance lease obligations. Interest income. Interest income includes income earned on our money market funds and investments. Income tax expense (benefit). Provision for income taxes represents federal, state and local current and deferred income tax expense (benefit). Results of Operations The following tables present selected comparative results of operations for the three months ended November 30, 2025 and 2024. Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods. Certain totals for the tables below may not recalculate or sum up to 100% due to rounding. Three months ended November 30, 2025 2024 $ Change % Change (dollar amounts in thousands) Sales $ 73,455 $ 64,456 $ 8,999 14.0 % Restaurant operating costs Food and beverage costs 21,934 18,667 3,267 17.5 Labor and related costs 23,898 21,235 2,663 12.5 Occupancy and related expenses 5,838 4,754 1,084 22.8 Depreciation and amortization expenses 3,980 3,091 889 28.8 Other costs 11,805 9,341 2,464 26.4 Total restaurant operating costs 67,455 57,088 10,367 18.2 General and administrative expenses 9,551 8,733 818 9.4 Depreciation and amortization expenses 129 109 20 18.3 Total operating expenses 77,135 65,930 11,205 17.0 Operating loss (3,680 ) (1,474 ) (2,206 ) (149.6 ) Other expense (income): Interest expense 18 13 5 38.5 Interest income (674 ) (565 ) (109 ) 19.3 Loss before income taxes (3,024 ) (922 ) (2,102 ) 228.0 Income tax expense 36 39 (3 ) (7.7 ) Net loss $ (3,060 ) $ (961 ) $ (2,099 ) 218.4 % 16 Three months ended November 30, 2025 2024 (as a percentage of sales) Sales 100.0 % 100.0 % Restaurant operating costs Food and beverage costs 29.9 29.0 Labor and related costs 32.5 32.9 Occupancy and related expenses 7.9 7.4 Depreciation and amortization expenses 5.4 4.8 Other costs 16.1 14.5 Total restaurant operating costs 91.8 88.6 General and administrative expenses 13.0 13.5 Depreciation and amortization expenses 0.2 0.2 Total operating expenses 105.0 102.3 Operating loss (5.0 ) (2.3 ) Other expense (income): Interest expense — — Interest income (0.9 ) (0.9 ) Loss before income taxes (4.1 ) (1.4 ) Income tax expense — 0.1 Net loss (4.1 ) % (1.5 ) % Three Months Ended November 30, 2025 Compared to Three Months Ended November 30, 2024 Sales. Sales were $73.5 million for the three months ended November 30, 2025 compared to $64.5 million for the three months ended November 30, 2024, representing an increase of $9.0 million, or 14.0%. The increase in sales was primarily driven by the sales resulting from thirteen new restaurants that opened subsequent to November 30, 2024, as well as increases in menu prices during the same period. Comparable restaurant sales decreased 2.5%, consisting of negative traffic of 2.5% and flat price/mix, for the three months ended November 30, 2025, as compared to the three months ended November 30, 2024. The decrease in traffic is a result of lower consumer spending due to the macroeconomic environment. Food and beverage costs. Food and beverage costs were $21.9 million for the three months ended November 30, 2025 compared to $18.7 million for the three months ended November 30, 2024, representing an increase of $3.2 million, or 17.5%. The increase in food and beverage costs was primarily driven by costs associated with sales from thirteen new restaurants that opened subsequent to November 30, 2024. As a percentage of sales, food and beverage costs increased to 29.9% in the three months ended November 30, 2025 as compared to 29.0% in the three months ended November 30, 2024, primarily due to tariffs on imported ingredients, which was partially offset by increases in menu prices. Labor and related costs. Labor and related costs were $23.9 million for the three months ended November 30, 2025 compared to $21.2 million for the three months ended November 30, 2024, representing an increase of $2.7 million, or 12.5%. This increase in labor and related costs was primarily driven by additional labor costs incurred from thirteen new restaurants that opened subsequent to November 30, 2024. As a percentage of sales, labor and related costs decreased to 32.5% in the three months ended November 30, 2025 as compared to 32.9% in the three months ended November 30, 2024, primarily due to increases in menu prices and initiatives relating to operations, partially offset by sales deleverage as a result of a decrease in comparable restaurant sales and labor inflation. Occupancy and related expenses. Occupancy and related expenses were $5.8 million for the three months ended November 30, 2025 compared to $4.8 million for the three months ended November 30, 2024, representing an increase of $1.0 million, or 22.8%. The increase was primarily a result of additional lease expense related to the opening of thirteen new restaurants that opened subsequent to November 30, 2024. As a percentage of sales, occupancy and related expenses increased to 7.9% in the three months ended November 30, 2025 as compared to 7.4% in the three months ended November 30, 2024, primarily driven by sales deleverage as a result of a decrease in comparable restaurant sales. 17 Depreciation and amortization expenses. Depreciation and amortization expenses incurred as part of restaurant operating costs were $4.0 million for the three months ended November 30, 2025 compared to $3.1 million for the three months ended November 30, 2024, representing an increase of $0.9 million, or 28.8%. The increase consists of depreciation of property and equipment related to the thirteen new restaurants that opened subsequent to November 30, 2024. As a percentage of sales, depreciation and amortization expenses at the restaurant level was 5.4% for the three months ended November 30, 2025 as compared to 4.8% in the three months ended November 30, 2024, primarily driven by sales deleverage as a result of a decrease in comparable restaurant sales and remodel costs. Depreciation and amortization expenses incurred at the corporate level were $0.1 million for both the three months ended November 30, 2025 and November 30, 2024, and as a percentage of sales were both 0.2%. Other costs. Other costs were $11.8 million for the three months ended November 30, 2025 compared to $9.3 million for the three months ended November 30, 2024, representing an increase of $2.5 million, or 26.4%. The increase was primarily driven by an increase in costs related to the thirteen new restaurants that opened subsequent to November 30, 2024. As a percentage of sales, other costs increased to 16.1% in the three months ended November 30, 2025 as compared to 14.5% in the three months ended November 30, 2024, primarily driven by higher marketing expenses, repair and maintenance costs, utilities and travel expenses, as well as sales deleverage as a result of a decrease in comparable restaurant sales. General and administrative expenses. General and administrative expenses were $9.6 million for the three months ended November 30, 2025 compared to $8.7 million for the three months ended November 30, 2024, representing an increase of $0.9 million, or 9.4%. This increase was primarily due to litigation expenses of $0.2 million, professional fees of $0.2 million, travel expenses of $0.1 million and $0.4 million of other net increases. As a percentage of sales, general and administrative expenses decreased to 13.0% in the three months ended November 30, 2025 as compared to 13.5% in the three months ended November 30, 2024, primarily due to sales leverage. Interest expense. Interest expense was $18 thousand for the three months ended November 30, 2025 compared to $13 thousand for the three months ended November 30, 2024. Interest income. Interest income was $674 thousand for the three months ended November 30, 2025 compared to $565 thousand for the three months ended November 30, 2024. The increase was primarily driven by investing incremental cash from our follow-on offering completed in November 2024 into interest-bearing money market funds and investments, partially offset by lower interest rates and withdraws for cash operating needs. Income tax expense. Income tax expense was $36 thousand for the three months ended November 30, 2025 compared to an income tax expense of $39 thousand for the three months ended November 30, 2024. For further discussion of our income taxes, see “Note 9. Income Taxes” in the Notes to Condensed Financial Statements. Key Performance Indicators In assessing the performance of our business, we consider a variety of financial and performance measures. The key measures for determining how our business is performing include sales, EBITDA, Adjusted EBITDA, Restaurant-level Operating Profit, Restaurant-level Operating Profit margin, comparable restaurant sales performance, and the number of restaurant openings. Sales Sales represents sales of food and beverages in restaurants, as shown on our condensed statements of operations and comprehensive income (loss). Several factors affect our restaurant sales in any given period, including the number of restaurants in operation, guest traffic and average check. EBITDA and Adjusted EBITDA EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus stock-based compensation expense, non-cash lease expense and asset disposals, closure costs and restaurant impairments, as well as certain items, such as litigation that we believe are not indicative of our core operating results. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by sales. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP. We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. However, these measures may not provide a complete understanding of the operating results of the Company as a whole and such measures should be reviewed in conjunction with our GAAP financial results. 18 We believe that the use of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware when evaluating EBITDA, Adjusted EBITDA and Adjusted EBITDA margin that in the future we may incur expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA and Adjusted EBITDA margin in the same fashion. Because of these limitations, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA, Adjusted EBITDA and Adjusted EBITDA margin on a supplemental basis. You should review the reconciliation of net income (loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDA margin below and not rely on any single financial measure to evaluate our business. The following table reconciles net loss to EBITDA and Adjusted EBITDA: Three months ended November 30, 2025 2024 (amounts in thousands) Net loss $ (3,060 ) $ (961 ) Interest income, net (656 ) (552 ) Income tax expense 36 39 Depreciation and amortization expenses 4,109 3,200 EBITDA 429 1,726 Stock-based compensation expense (a) 1,099 1,126 Non-cash lease expense (b) 664 720 Litigation (c) 243 — Adjusted EBITDA $ 2,435 $ 3,572 Adjusted EBITDA margin 3.3 % 5.5 % (a) Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in labor and related costs and of corporate-level stock-based compensation included in general and administrative expenses in the condensed statements of operations and comprehensive loss. For further details of stock-based compensation, see “Note 5. Stock-based Compensation” in the notes to condensed financial statements included in this Quarterly Report on Form 10-Q. (b) Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods. (c) Litigation includes expenses related to legal claims or settlements. Restaurant-level Operating Profit and Restaurant-level Operating Profit Margin Restaurant-level Operating Profit (Loss) is defined as operating income (loss) plus depreciation and amortization; stock-based compensation expense; pre-opening costs and general and administrative expenses which are considered normal, recurring, cash operating expenses and are essential to support the development and operations of our restaurants; non-cash lease expense; asset disposals, closure costs and restaurant impairments; less corporate-level stock-based compensation expense recognized within general and administrative expenses. Restaurant-level Operating Profit (Loss) margin is defined as Restaurant-level Operating Profit (Loss) divided by sales. Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin are non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP. We believe that Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results, as this measure depicts normal, recurring cash operating expenses essential to supporting the development and operations of our restaurants. However, these measures may not provide a complete understanding of the operating results of the Company as a whole and such measures should be reviewed in conjunction with our GAAP financial results. We expect Restaurant-level Operating Profit (Loss) to increase in proportion to the number of new restaurants we open and our comparable restaurant sales growth. 19 We present Restaurant-level Operating Profit (Loss) because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant level. We also use Restaurant-level Operating Profit (Loss) to measure operating performance and returns from opening new restaurants. Restaurant-level Operating Profit (Loss) margin allows us to evaluate the level of Restaurant-level Operating Profit (Loss) generated from sales. However, you should be aware that Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin are financial measures that are not indicative of overall results for the Company, and Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin do not accrue directly to the benefit of stockholders because of corporate-level expenses excluded from such measures. In addition, when evaluating Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin, you should be aware that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will not be affected by unusual or non-recurring items. Our computation of Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin in the same fashion. Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. The following table reconciles operating loss to Restaurant-level Operating Profit and Restaurant-level Operating Profit margin: Three months ended November 30, 2025 2024 (amounts in thousands) Operating loss $ (3,680 ) $ (1,474 ) Depreciation and amortization expenses 4,109 3,200 Stock-based compensation expense (a) 1,099 1,126 Pre-opening costs (b) 263 356 Non-cash lease expense (c) 664 720 General and administrative expenses 9,551 8,733 Corporate-level stock-based compensation in general and administrative expenses (918 ) (947 ) Restaurant-level operating profit $ 11,088 $ 11,714 Operating loss margin (5.0 )% (2.3 )% Restaurant-level operating profit margin 15.1 % 18.2 % (a) Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in labor and related costs and of corporate-level stock-based compensation included in general and administrative expenses in the condensed statements of operations and comprehensive loss. For further details of stock-based compensation, see “Note 5. Stock-based Compensation” in the notes to condensed financial statements included in this Quarterly Report on Form 10-Q. (b) Pre-opening costs consist of labor costs and travel expenses for new employees and trainers during the training period, recruitment fees, legal fees, cash-based lease expenses incurred between the date of possession and the opening day of our restaurants, and other related pre-opening costs. (c) Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods. 20 Comparable Restaurant Sales Performance Comparable restaurant sales performance refers to the percent change in year-over-year sales for the comparable restaurant base. We include restaurants in the comparable restaurant base that have been in operation for at least 18 full calendar months by the end of the accounting period presented due to new restaurants experiencing a period of higher sales upon opening. For restaurants that were temporarily closed the comparative period was also adjusted accordingly. Measuring our comparable restaurant sales performance allows us to evaluate the performance of our existing restaurant base. Various factors impact comparable restaurant sales, including: • consumer recognition of our brand and our ability to respond to changing consumer preferences and spending behavior; • overall economic trends, particularly those related to consumer spending; • our ability to operate restaurants effectively and efficiently to meet consumer expectations; • pricing; • guest traffic; • per-guest spend and average check; • marketing and promotional efforts; • local competition; and • opening of new restaurants in the vicinity of existing locations. Since opening new restaurants will be a significant component of our sales growth, comparable restaurant sales performance is only one measure of how we evaluate our performance. The following table shows the comparable restaurant sales performance: Three months ended November 30, 2025 2024 Comparable restaurant sales performance (%) (2.5)% 1.8% Comparable restaurant base 62 45 Number of Restaurant Openings The number of restaurant openings reflects the number of restaurants opened during a particular reporting period. Before we open new restaurants, we incur pre-opening costs. New restaurants may not be profitable, and their sales performance may not follow historical patterns. The number and timing of restaurant openings have had, and is expected to continue to have, an impact on our results of operations. The following table shows the growth in our restaurant base: Three months ended November 30, 2025 2024 Restaurant activity: Beginning of period 79 64 Openings 4 6 End of period 83 70 Liquidity and Capital Resources Our primary sources of liquidity and cash flows are cash and cash equivalents on hand and cash provided by operating activities. Our primary uses of cash are for operational expenditures and capital investments, including new restaurants, costs incurred for restaurant remodels and restaurant fixtures. The significant components of our working capital are liquid assets such as cash, cash equivalents and receivables reduced by accounts payable and accrued expenses. Our working capital position benefits from the fact that we generally collect cash from sales to guests the same day or, in the case of credit or debit card transactions, within several days of the related sale, while we typically have longer payment terms with our vendors. We believe that cash provided by operating activities, cash on hand, cash equivalents and short-term investments will be sufficient to fund our lease obligations, capital expenditures and working capital needs for at least the next 12 months. We also maintain a Revolving Credit Agreement with Kura Japan, of which the maturity date has been extended to April 10, 2028 pursuant to the Third Amendment with Kura Japan. 21 During the three months ended November 30, 2025, we had no borrowings under the Revolving Credit Agreement and have $45.0 million of availability remaining. As of November 30, 2025, we did not have any material off-balance sheet arrangements. Summary of Cash Flows The following table summarizes our cash flows for the periods presented: Three months ended November 30, 2025 2024 Statement of Cash Flow data: (amounts in thousands) Net cash provided by operating activities $ 529 $ 4,362 Net cash used in investing activities $ (12,663 ) $ (12,500 ) Net cash provided by financing activities $ 1 $ 64,829 Cash Flows Provided by Operating Activities Net cash provided by operating activities during the three months ended November 30, 2025 was $0.5 million, primarily due to a net loss of $3.1 million, non-cash charges of $4.1 million for depreciation and amortization, $1.1 million for stock-based compensation, and net cash outflows of $1.7 million from changes in operating assets and liabilities. Net cash provided by operating activities during the three months ended November 30, 2024 was $4.4 million, primarily due to a net loss of $1.0 million, non-cash charges of $3.2 million for depreciation and amortization, $1.1 million for stock-based compensation, and $1.3 million in non-cash lease expense, and net cash outflows of $0.3 million from changes in operating assets and liabilities. Cash Flows Used in Investing Activities Net cash used in investing activities during the three months ended November 30, 2025 was $12.7 million, primarily due to $18.4 million in purchases of investments and $13.8 million in purchases of property and equipment and $0.1 million in purchases of liquor licenses offset by $19.7 million in maturities and redemptions of investments. The increase in purchases of property and equipment in the three months ended November 30, 2025 is primarily related to capital expenditures for the construction of future restaurant openings, maintaining our existing restaurants, renovations and other projects. Net cash used in investing activities during the three months ended November 30, 2024 was $12.5 million, primarily due to $11.6 million in purchases of property and equipment and $0.8 million in purchases of liquor licenses. The increase in purchases of property and equipment in the three months ended November 30, 2024 is primarily related to capital expenditures for the construction of future restaurant openings, maintaining our existing restaurants, renovations and other projects. Cash Flows Provided by Financing Activities Net cash provided by financing activities during the three months ended November 30, 2025 was $1 thousand and is primarily due to $23 thousand of proceeds from exercise of stock options offset by $22 thousand in repayment of principal on finance leases. Net cash provided by financing activities during the three months ended November 30, 2024 was $64.8 million and is primarily due to aggregate net proceeds from the issuance of stock of $64.4 million after deducting the underwriting discounts and commissions and offering expenses payable and $0.5 million of proceeds from exercise of stock options. Material Cash Requirements As of November 30, 2025, we had $25.7 million in contractual obligations which consisted of $13.5 million in purchase commitments for food related to restaurant operations and $12.2 million related to the construction of new restaurants. All contractual obligations are expected to be paid during the next 12 months utilizing cash and cash equivalents on hand and provided by operating activities. For operating lease obligations, see “Note 3. Leases” in the Notes to Condensed Financial Statements included in this Quarterly Report on Form 10-Q. Recent Accounting Pronouncements For a description of our recently issued or adopted accounting pronouncements, including the respective date of adoption and expected effect on our results of operations and financial condition, see “Note 1. Organization and Basis of Presentation” in the Notes to Condensed Financial Statements included in this Quarterly Report on Form 10-Q. 22 Critical Accounting Estimates Our discussion and analysis of operating results and financial condition is based on our financial statements. Preparing our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our financial statements. Our critical accounting estimates are those that involve subjective or complex judgments by management. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates. We believe the assessment of potential impairments of long-lived assets is affected by significant judgments and estimates used in the preparation of our financial statements and that the judgments and estimates are reasonable. There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10‑K for the fiscal year ended August 31, 2025. Please refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” of our Annual Report on Form 10‑K for the fiscal year ended August 31, 2025 for a discussion of our critical accounting policies and estimates. Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. There have been no material changes to our market risk during the three months ended November 30, 2025. For a discussion of our exposure to market risk, refer to our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended August 31, 2025.