What changed in this filing

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Item 1. Financial Statements

2020-07-14 compared with 2020-04-14 · 113 added, 87 removed, 384 unchanged (34% of the section changed)

3 unchanged sentences

(amounts in thousands, except par value)

February 29, 2020

August 31, 2019

30 unchanged sentences

Class A common stock, $0.001 par value;

20,000 authorized, 7,338 and 7,335 issued and outstanding as of February 29, 2020 and August 31, 2019, respectively

20,000 authorized, 7,342 and 7,335 issued and outstanding as of May 31, 2020 and August 31, 2019, respectively

Class B common stock, $0.001 par value;

10,000 authorized, 1,000 issued and outstanding as of February 29, 2020 and August 31, 2019

10,000 authorized, 1,000 issued and outstanding as of May 31, 2020 and August 31, 2019

Additional paid-in capital

6 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended

Six Months Ended

Three Months Ended May 31,

Nine Months Ended May 31,

Restaurant operating costs:

12 unchanged sentences

Income (loss) before income taxes

Income tax expense (benefit)

Income tax expense

Net income (loss)

12 unchanged sentences

Balances as of February 29, 2020

Stock-based compensation

Exercise of stock options

Balances as of May 31, 2020

Stockholders'

4 unchanged sentences

Balances as of February 28, 2019

Stock-based compensation

Balances as of May 31, 2019

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

2 unchanged sentences

(amounts in thousands)

Six Months Ended

Nine Months Ended May 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities

Depreciation and amortization

3 unchanged sentences

Noncash lease expense

Inventory write-downs

Changes in operating assets and liabilities:

17 unchanged sentences

Cash flows from financing activities

Proceeds from borrowings of debt

Repayment on debt

Proceeds from PPP loan

Repayment of PPP loan

Repayment of principal on finance leases

Payments of costs related to the initial public offering

Payments of costs related to initial public offering

Proceeds from stock option exercises

4 unchanged sentences

Noncash investing activities

Amounts included in accounts payable and due to affiliate for purchases of property and equipment

Amounts unpaid for purchases of property and equipment

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

3 unchanged sentences

Kura Sushi USA, Inc.

is a fast-growing, 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”.

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.

2 unchanged sentences

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.

On March 18, 2020, the Company announced the temporary closure of all of its 25 restaurants located across five states and has since furloughed certain of its employees.

As of May 31, 2020, the Company had reopened seven restaurants and as of the filing date of this Quarterly Report, has reopened all 25 restaurants, with 14 of them in California currently only providing takeout due to government restrictions on indoor dining.

The reopened restaurants that allow indoor dining have been operating at reduced capacities of 25% or 50% depending on local requirements.

To support the Company’s employees during this challenging time, the Company has maintained payroll for restaurant managers and key kitchen staff.

The Company maintained payroll for all employees through April 5, 2020 and all kitchen employees through May 9, 2020.

The Company also continued to pay the employees’ portion of health insurance for all furloughed employees.

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.

Currently, the restaurants are not utilizing the revolving conveyor belt and all food is ordered from the tableside touchscreen.

The food is delivered either by the express belt directly from the kitchen to the customers’ tables or by the restaurant employees.

The Company has increased cleaning and sanitizing protocols of its restaurants and has implemented additional training and operational manuals for its restaurant employees, as well as increased handwashing procedures.

The Company also provides each restaurant employee with face masks and gloves, and requires each employee to pass a health screening process, which includes a temperature check, before the start of each shift.

The temporary restaurant closure and the reduced capacities at the reopened restaurants have caused a substantial decline in the Company’s sales in the most recent fiscal quarter.

The future sales levels of the Company’s restaurants and the Company’s ability to implement its growth strategy remain highly uncertain, as the full impact and duration of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report.

The Company expects the current decreased restaurant sales levels and ongoing length and severity of the economic downturn caused by the pandemic will continue to have a material adverse impact on the future business, financial condition, liquidity and financial results of the Company.

Recent Events Concerning the Company’s Financial Position

On April 10, 2020, the Company and Kura Sushi, Inc.

(“Kura Japan”), a majority stockholder, entered into a Revolving Credit Agreement establishing a $20 million revolving credit line with a termination date of March 31, 2024, to provide the Company with additional liquidity as may be necessary.

Related Party Transactions” and “Note 6.

On April 14, 2020, the Company entered into a Promissory Note with Bank of the West, which provided for a loan in the amount of $6.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020.

On April 29, 2020, the Company returned the proceeds received from the PPP Loan.

Under the provisions of the CARES Act, the Company is eligible for a refundable employee retention credit subject to certain criteria.

In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credit when earned and to offset the credit against the related expenditure.

Accordingly, the Company recorded a $1.6 million employee retention credit during the three months ended May 31, 2020, which is included in Labor and related costs 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 months ended May 31, 2020.

The Company continues to have discussions with its landlords regarding potential future rent concessions.

Due to the 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, 2020.

The Company also assessed the realiza bility of its deferred tax assets and recorded a valuation allowance of $1.1 million during the three months ended May 31, 2020.

Income Taxes”.

Basis of Presentation

17 unchanged sentences

Recently Adopted Accounting Pronouncements

In April 2020, the staff of the Financial Accounting Standards Board (FASB) issued a question-and-answer document that stated that entities may elect to account for lease concessions related to the effects of the COVID-19 pandemic as though the rights and obligations for those concessions existed as of the commencement of the contract rather than as a lease modification.

Lessees may make the election for any lessor-provided lease concession related to the impact of the COVID-19 pandemic as long as the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee.

The Company has made such election.

The Company has received immaterial rent concessions and has not entered into any lease modifications as of May 31, 2020.

As such, this election did not have a material impact on the balance sheets, the statements of operations, statements of stockholders’ equity or statements of cash flows.

On September 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)” (“Topic 842” or “ASC 842”), along with related clarifications and improvements.

72 unchanged sentences

Total property and equipment - net

Depreciation and amortization expense for property and equipment was approximately $ 0.7 million and $ 0.5 million for the three months ended February 29, 2020 and February 28, 2019, respectively, and was $1.4 million and $1.0 million for the six months ended February 29, 2020 and February 28, 2019, respectively.

Depreciation and amortization expense for property and equipment was approximately $ 0.8 million and $ 0.5 million for the three months ended May 31, 2020 and May 31, 2019, respectively, and was $2.2 million and $1.5 million for the nine months ended May 31, 2020 and May 31, 2019, respectively.

Deposits and Other Assets

4 unchanged sentences

Total deposits and other assets

Prepaid Expenses and Other Current Assets

(amounts in thousands)

Prepaid expenses

Other current assets

Employee retention credit

Total prepaid expenses and other current assets

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.

23 unchanged sentences

Additionally, contingent rental payments based on sales thresholds for certain of our restaurants are accrued based on estimated sales.

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

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

Three Months Ended

Six Months Ended

February 29, 2020

Nine Months Ended

(amounts in thousands)

7 unchanged sentences

Three Months Ended

Six Months Ended

February 29, 2020

Nine Months Ended

(amounts in thousands)

8 unchanged sentences

Operating Leases

February 29, 2020

(amounts in thousands)

4 unchanged sentences

Finance Lease Assets, net

February 29, 2020

(amounts in thousands)

3 unchanged sentences

Finance Leases Liabilities

February 29, 2020

(amounts in thousands)

2 unchanged sentences

Total finance lease liabilities

February 29, 2020

Weighted Average Remaining Lease Term (Years)

5 unchanged sentences

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

Six Months Ended

February 29, 2020

Nine Months Ended

(amounts in thousands)

1 unchanged sentence

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

As of February 29, 2020, the Company has additional operating leases related to restaurants the Company has not yet taken possession of $18.0 million.

As of May 31, 2020, the Company has additional operating leases related to restaurants the Company has not yet taken possession of $18.0 million.

These operating leases will commence between fiscal years 2020 and 2021 with lease terms of 20 years.

Maturities of lease liabilities were as follows as of February 29, 2020:

Subsequent to May 31, 2020, the Company entered into two operating leases for an office space and a restaurant space commencing in fiscal 2021 with initial lease terms of five years and 10 years, respectively, and total minimum lease payments for both properties of $4.1 million.

In addition, the Company has options to extend the lease terms by five years and 10 years, respectively.

Maturities of lease liabilities were as follows as of May 31, 2020:

Operating Leases

19 unchanged sentences

In exchange for such services, supplies, parts and equipment, the parties will pay fees to each other as set forth under the Shared Services Agreement.

A right of setoff is not required;

from time to time, either party will net settle transactions as needed.

Purchases of supplies, expatriate salaries and travel and other administrative expenses from Kura Japan are included in general and administrative expenses in the accompanying statements of operations.

A right of setoff is not required, however, from time to time, either party will net settle transactions as needed.

Purchases of administrative supplies, expatriate salaries and travel and other administrative expenses from Kura Japan are included in general and administrative expenses in the accompanying statements of operations.

Purchases of equipment from Kura Japan are included in property and equipment in the accompanying balance sheets.

3 unchanged sentences

Royalty payments to Kura Japan are included in other costs at the restaurant-level in the accompanying statements of operations.

On March 18, 2020, the Company announced the temporary closure of all of its 25 restaurants located across five states in response to the n ovel strain of coronavirus (“ COVID-19”) pandemic and applicable state and local mandates regarding the temporary closure of dine-in restaurant activity.

As a result of the current restaurant closures and ongoing economic downturn caused by the pandemic, on April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement establishing a $20 million revolving credit line with a termination date of March 31, 2024, to provide the Company with additional liquidity.

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement establishing a $20 million revolving credit line with a termination date of March 31, 2024, to provide the Company with additional liquidity.

The maturity date for amounts borrowed under the Revolving Credit Agreement is twelve months after the disbursement date, unless renewed or extended by mutual agreement of both parties for an additional twelve months.

For further discussion, please see below under “Note 10.

Subsequent Events.”

Balances with Kura Japan as of February 29, 2020 and August 31, 2019 are as follows:

Balances with Kura Japan as of May 31, 2020 and August 31, 2019 are as follows:

(amounts in thousands)

1 unchanged sentence

Due to affiliate

Transactions with Kura Japan for the three months ended February 29, 2020 and February 28, 2019 and for the six months ended February 29, 2020 and February 28, 2019 are as follows:

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

Transactions with Kura Japan for the three months ended May 31, 2020 and May 31, 2019 and for the nine months ended May 31, 2020 and May 31, 2019 are as follows:

Three Months Ended May 31,

Nine Months Ended May 31,

(amounts in thousands)

7 unchanged sentences

S tock-based Compensation

The following table summarizes the stock option activity under the Company’s 2018 Incentive Compensation Plan (the “Stock Incentive Plan”) for the period from August 31, 2019 through February 29, 2020:

Activity under the Stock Incentive Plan is as follows:

8 unchanged sentences

Options canceled/forfeited

Outstanding—February 29, 2020

Stock-based compensation related to the stock options issued under the Stock Incentive Plan was $0.2 million for both the three months ended February 29, 2020 and February 28, 2019 and was $0.3 million for both the six months ended February 29, 2020 and February 28, 2019.

Outstanding—May 31, 2020

Stock-based compensation related to the stock options issued under the Stock Incentive Plan was $0.2 million for both the three months ended May 31, 2020 and May 31, 2019 and was $0.6 million and $0.5 million for the nine months ended May 31, 2020 and May 31, 2019, respectively.

Stock-based compensation for restaurant-level employees is included in other costs and stock-based compensation for corporate-level employees is included in general and administrative expenses in the statements of operations.

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

Three Months Ended

Six Months Ended

February 29, 2020

February 28, 2019

February 29, 2020

February 28, 2019

Three Months Ended May 31,

Nine Months Ended May 31,

(amounts in thousands)

10 unchanged sentences

Changes in the Company’s financial condition that cause a breach of any of these financial covenants could result in a default and an acceleration of the obligations under the Credit Facility, which could have an adverse effect on the Company’s liquidity, capital resources and results of operations.

The Company was in compliance with all financial-related covenants under the Credit Facility as of February 29, 2020.

As of February 29, 2020, the Company had no outstanding borrowings and had $1.1 million available under the Credit Facility.

As a result of the Company’s temporary closure of all of its 25 restaurants located across five states and the ongoing economic downturn caused by the COVID-19 pandemic, on April 10 , 2020, the Company and Kura Japan en tered into a Revolving Credit Agreement establishing a $ 20 million revolving credit line with a termination date of March 31, 2024 , to provide the Company with additional liquidity.

The Company was in compliance with all financial-related covenants under the Credit Facility as of May 31, 2020, except for the fixed charge coverage ratio covenant.

On June 29, 2020, the Company was issued a waiver for this covenant as of May 31, 2020.

As of May 31, 2020, the Company had no outstanding borrowings and had $1.1 million available under the Credit Facility.

On April 10 , 2020, the Company and Kura Japan entered into a Revolving Credit Agreement establishing a $ 20 million revolving credit line with a termination date of March 31, 2024 , to provide the Company with additional liquidity .

The maturity date for amounts borrowed under the Revolving Credit Agreement is twelve months after the disbursemen t date, unless renewed or extended by mutual agreement of both parties for an additional twelve months .

There are no financial covenants under the R evolving C redit Agreement with which the Company must comply.

As of May 31, 2020, the Company had not drawn on the a vailable revolving credit line.

For further discussion, please see “Note 1.

Related Part y Transactions” and “Note 10.

Subsequent Events .”

Organization and Basis of Presentation” and “Note 4.

Related Party Transactions .

On April 29, 2020, the Company returned the proceeds received from the PPP Loan.

Income (Loss) Per Share

2 unchanged sentences

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

Three Months Ended

Six Months Ended

Three Months Ended May 31,

Nine Months Ended May 31,

(amounts in thousands, except per share data)

10 unchanged sentences

Potentially dilutive common shares include dilutive outstanding employee stock options.

For the three months ended February 29, 2020, there were approximately 241 thousand potentially dilutive shares that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.

For the three months ended February 28, 2019, there were no potentially dilutive shares that were excluded from the calculation of diluted income per share because their inclusion would have been anti-dilutive.

For the six months ended February 29, 2020 and February 28, 2019, there were approximately 208 thousand and 75 thousand potentially dilutive shares, respectively, that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.

For the three months ended May 31, 2020, there were approximately 21 thousand potentially dilutive shares that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.

For the three months ended May 31, 2019, there were no potentially dilutive shares that were excluded from the calculation of diluted income per share because their inclusion would have been anti-dilutive.

For the nine months ended May 31, 2020, there were approximately 137 thousand potentially dilutive shares, respectively, that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.

For the nine months ended May 31, 2019, there were no potentially dilutive shares that were excluded from the calculation of diluted income per share because their inclusion would have been anti-dilutive.

Commitments and Contingencies

8 unchanged sentences

The Company records a liability when a loss is considered probable, and the amount can be reasonably estimated.

The Company recorded an income tax expense of $30 thousand and $35 thousand for the three months ended February 29, 2020 and February 28, 2019, respectively.

The Company recorded an income tax expense of $26 thousand and an income tax benefit of $30 thousand for the six months ended February 29, 2020 and February 28, 2019, respectively.

The difference between the effective rate and the federal statutory tax rate is primarily due to state tax expense and nondeductible stock-based compensation expense offset by tax benefits derived from the credit for certain employee tips.

The decrease in the income tax expense for the three months ended February 29, 2020 compared with the three months ended February 28, 2019 is primarily attributable to discrete stock-based compensation deductions recorded in the three months ended February 29, 2020.

The income tax expense for the six months ended February 29, 2020 compared to the income tax benefit for the six months ended February 28, 2019 is primarily attributable to discrete tax true-up adjustments from nondeductible stock-based compensation expense recorded in the three months ended November 30, 2019.

Subsequent Events

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.

It has also disrupted the normal operations of many businesses, including the Company’s.

In response to this outbreak, many state and local authorities have mandated the temporary closure of non-essential businesses and dine-in restaurant activity.

On March 18, 2020, the Company announced the temporary closure of all of its 25 restaurants located across five states and has since furloughed certain of its employees.

The duration of the Company’s restaurant closures and its ability to implement its growth strategy is highly uncertain, as the full impact and duration of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report.

The restaurant closures effectively eliminate the ability for the Company to generate restaurant sales during this closure period due to the fact that the Company has no take-out or delivery service offerings.

As a result, the Company expects the current restaurant closures and ongoing length and severity of the economic downturn caused by the pandemic will have a material adverse impact on the future business, financial condition, liquidity and financial results of the Company.

The Company is also assessing the potential impact on the impairment analysis of its long-lived assets and the realization of its deferred tax assets.

As a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act") signed into law on March 27, 2020, additional avenues of relief may be available to workers and families through enhanced unemployment insurance provisions and to small businesses through programs administered by the Small Business Administration (“SBA”).

The CARES Act includes, among other items, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property.

The Company is currently evaluating the impact of the provisions of the CARES Act.

The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.

The loan may be forgiven if the funds are used for payroll and other qualified expenses.

The Company has submitted its application for a PPP loan.

There is no certainty that its application will be approved or that, if granted, the loan will qualify for forgiveness, in whole or in part.

The Company is currently assessing the availability of assistance under these programs as well as other capital and liquidity options as may be necessary.

The Company recorded an income tax expense of $1.2 million and $71 thousand for the three months ended May 31, 2020 and May 31, 2019, respectively.

The Company recorded an income tax expense of $1.2 million and $41 thousand for the nine months ended May 31, 2020 and May 31, 2019, respectively.

The Company’s effective tax rate for the nine months ended May 31, 2020 substantially differed from the federal statutory tax rate of 21 percent primarily due to a one-time, non-cash charge to record a valuation allowance for the Company’s deferred tax assets as discussed below.

During the three months ended May 31, 2020, the adverse effects of the COVID-19 pandemic have caused the Company to reassess the need for valuation allowances against its deferred tax assets.

The Company performed an assessment of positive and negative evidence regarding the realization of its deferred tax assets.

The weight given to positive and negative evidence is commensurate with the extent to which it can be objectively verified.

Based on the weight of available evidence, it is more likely than not that the Company’s deferred tax assets will not be realized and therefore, the Company recorded a valuation allowance on its deferred tax assets.

The total amount of the valuation allowances recorded as a discrete item during the three months ended May 31, 2020 was approximately $1.1 million.

On March 27, 2020, the CARES Act was signed into law and includes certain business tax provisions.

However, the Company does not expect the CARES Act to have a material impact on the Company’s effective tax rate or income tax expense for the year.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements