KURA SUSHI USA, INC. 10-Q

Item 1A. Risk Factors. A description of the risk factors associated with our business is contained in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended August 31, 2019. There have been no material changes to our Risk Factors as previously reported, except for the addition of the Risk Factors below. The recent and ongoing COVID-19 pandemic has adversely affected, and will continue to adversely affect, our operations and measures that limit our ability to operate will continue to adversely affect our business, financial condition, liquidity and financial results. Our business has been significantly adversely affected by the COVID-19 outbreak in the United States. In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and financial markets globally as well as the markets in which we operate. It has also disrupted the normal operations of many businesses, including ours. In response to this outbreak, many state and local authorities in the markets in which we operate have either mandated the temporary closure or imposed capacity limits to 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. As of the filing date of this Quarterly Report, the Company had 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 operated at reduced capacities of 25% or 50% depending on local requirements. Approximately 90% of our restaurants are located in California and Texas. As a result of our concentration in these markets, we may be disproportionately affected by any increased severity of the pandemic and heightened regulatory measures in either of these states compared to other chain restaurants with a national footprint. For example, a recent surge of COVID-19 cases in California has caused all of our 14 reopened restaurants in California to suspend dine-in service and provide only takeout due to re-imposed government restrictions on indoor dining. 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 and we expect will continue to result in substantial declines in sales for so long as the pandemic continues to impact the communities in which we operate. The future sales levels of our restaurants and our ability to implement our growth strategy is highly uncertain, and it will continue to adversely impact our future sales growth as the full impact and duration of the COVID-19 outbreak continues to evolve. Management expects the current 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 our future business, financial condition, liquidity and financial results. A prolonged occurrence of COVID-19 may result in restaurant re-closures, prohibition on indoor dining, as well as further restrictions, including possible travel restrictions and additional restrictions on the restaurant industry. Our efforts to mitigate the effect of COVID-19 on our business or the economic downturn that is expected may be unsuccessful, and we may not be able to commence operations in a timeframe that is sufficient or otherwise take actions in response to developments with regard to the pandemic. To date these events have resulted in a sustained, significant drop in restaurant traffic and are likely to continue to occur during this pandemic, which will continue to have a material adverse effect on our business, financial condition, liquidity and financial results. 29 S ocial distancing measures and c hanges in consumer behavior as a result of COVID-19 may materially and adversely affect our business. Social distancing measures due to the COVID-19 pandemic may impact our current service and business models, as customers choose to avoid public gathering places, which actions could result in a loss of sales and profit. Additionally, consumer behavior may fundamentally change as a result of COVID-19 in both the near and long term and such change may pose significant challenges to our current service and business models. The regulatory authorities and customers’ altered requirements for the sanitary and safety conditions for restaurants have caused the Company to suspend one of its hallmark service features, the revolving conveyor belt. We currently do not offer delivery services. Traffic in restaurants, including ours, may be materially and adversely affected with more consumers relying on off-premises orders. Consumer spending may also be negatively impacted by general macroeconomic conditions and consumer confidence, including the impacts of any recession, resulting from the COVID-19 pandemic. All of this could materially and adversely impact sales at our restaurants and our growth prospects. We have made adjustments to our restaurant operations due to the COVID-19 pandemic and may have to re-design our service and business models to accommodate consumers’ changed behavior pattern. Any such attempted effort could result in capital expenditures, business disruption, lower margin sales and may not be successful in growing our profitability. Item 2. Unregist ered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable.