What changed in this filing

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Item 1. Financial Statements

2021-01-11 compared with 2020-07-14 · 130 added, 254 removed, 243 unchanged (61% of the section changed)

3 unchanged sentences

(amounts in thousands, except par value)

November 30, 2020

August 31, 2020

9 unchanged sentences

Deposits and other assets

Deferred tax assets

Liabilities and stockholders' equity

9 unchanged sentences

Non-current liabilities:

Loan from affiliate

Finance leases - non-current

Operating lease liabilities - non-current

Deferred rent

Tenant allowances

Other liabilities

2 unchanged sentences

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;

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

50,000 shares authorized,

7,364 and 7,342 shares issued and outstanding as of November 30, 2020

and August 31, 2020, respectively

Class B common stock, $0.001 par value;

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

10,000 shares authorized,

1,000 shares issued and outstanding as of November 30, 2020

and August 31, 2020

Additional paid-in capital

Retained earnings

Accumulated deficit

Total stockholders' equity

4 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

Restaurant operating costs:

7 unchanged sentences

Total operating expenses

Operating income (loss)

Operating loss

Other expense (income):

1 unchanged sentence

Interest income

Income (loss) before income taxes

Income tax expense

Net income (loss)

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

Weighted average Class A and Class B shares

Loss before income taxes

Income tax expense (benefit)

Net loss per Class A and Class B shares

Weighted average Class A and Class B shares outstanding

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

5 unchanged sentences

Stock-based compensation

Balances as of November 30, 2019

Stock-based compensation

Exercise of stock options

Balances as of February 29, 2020

Stock-based compensation

Exercise of stock options

Balances as of May 31, 2020

Balances as of November 30, 2020

Stockholders'

2 unchanged sentences

Balances as of November 30, 2019

Stock-based compensation

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)

Nine Months Ended May 31,

Three Months Ended November 30,

Cash flows from operating activities

Net income (loss)

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

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

Depreciation and amortization

3 unchanged sentences

Noncash lease expense

Inventory write-downs

Changes in operating assets and liabilities:

5 unchanged sentences

Accrued expenses and other current liabilities

Sales tax payable

Salary and wages payable

Due to affiliate

Deferred rent and tenant allowances

Operating lease liabilities

Net cash (used in) provided by operating activities

Due to affiliate

Sales tax payable

Net cash used in operating activities

Cash flows from investing activities

Payments for property and equipment

Payments for initial direct costs

Payments for purchases of liquor licenses

1 unchanged sentence

Cash flows from financing activities

Proceeds from borrowings of debt

Repayment on debt

Proceeds from PPP loan

Repayment of PPP loan

Proceeds from loan from affiliate

Repayment of principal on finance leases

Payments of costs related to initial public offering

Proceeds from stock option exercises

Net cash used in financing activities

Proceeds from exercise of stock options

Net cash provided by (used in) financing activities

Decrease in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Noncash investing activities

5 unchanged sentences

Kura Sushi USA, Inc.

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 our guests across the United States through affordable prices and an inviting atmosphere.

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.

5 unchanged sentences

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.

As of November 30, 2020, the Company had 27 of its 28 restaurants open in some capacity:

indoor dining, outdoor dining or takeout only.

Subsequent to November 30, 2020, the Company opened one new restaurant in Aventura, Florida and as of the filing date of this Quarterly Report on Form 10-Q, the Company had all 29 restaurants open, with 16 of them in California and Washington DC only providing takeout, one restaurant in Illinois providing outdoor dining only and the remaining 12 restaurants operating at reduced indoor capacities of 25% to 75% depending on local requirements.

In response to the ongoing COVID-19 pandemic, the Company has prioritized taking steps to protect the health and safety of its employees and customers.

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.

The reduced capacities at open restaurants and the temporary closure of one restaurant have caused a substantial decline in the Company’s sales in the most recent fiscal quarter compared to the same quarter last year.

In response to the challenges posed by the COVID-19 pandemic, the Company is focused on maximizing its in-restaurant dining capacity as permitted by the jurisdictions where it operates, mobile ordering and takeout, continuing to provide a safe environment for its employees and customers, maintaining its operational efficiencies as much as possible and preserving its liquidity.

In line with the Company’s long-term growth strategy, it expects to continue to open new restaurants at locations where it believes the restaurants have the potential to achieve profitability.

The future sales levels of the Company’s restaurants and its ability to implement its growth strategy, however, remain highly uncertain, as the full impact and duration of the COVID-19 pandemic continues to evolve as of the filing date of this Quarterly Report on Form 10-Q.

Recent Events Concerning the Company’s Financial Position

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

(“Kura Japan”), 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.

(“Kura Japan”), a majority stockholder, entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) establishing a $20 million revolving credit line.

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.

In connection with the First Amendment, the Revolving Credit Note under the Revolving Credit Agreement was also amended by incorporating the same amendments as provided under the First Amendment.

For additional information, s ee “Note 4.

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”.

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 November 30, 2020.

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 the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of 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 .

3 unchanged sentences

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.

The Company’s fiscal year begins on September 1 and ends on August 31 and references made to “fiscal year 2020,” “fiscal year 2019” and “fiscal year 2018” refer to the Company’s fiscal years ended August 31, 2020, August 31, 2019 and August 31, 2018, respectively.

The Company’s fiscal year begins on September 1 and ends on August 31 and references made to “fiscal year 2021,” “fiscal year 2020” and “fiscal year 2019” refer to the Company’s fiscal years ending August 31, 2021, and ended August 31, 2020 and August 31, 2019, respectively.

Use of Estimates

3 unchanged sentences

Actual results could differ materially from those estimates and assumptions.

Comprehensive Income

Comprehensive income 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 is the same as net income for all periods presented.

Therefore, a separate statement of comprehensive income is not included in the accompanying financial statements.

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.

This pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet.

The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases.

The Company elected the optional transition method to apply the standard as of the effective date and therefore, prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under previous lease guidance, ASC Topic 840:

Leases (Topic 840).

The adoption of Topic 842 had a material impact on the balance sheets and an immaterial impact on the statements of operations, statements of equity and statements of cash flows.

The practical expedients were as follows:

Practical expedients

The Company has not reassessed whether any expired or existing contracts are, or contain, leases.

The Company has not reassessed the lease classification for any expired or existing leases.

The Company has not reassessed initial direct costs for any expired or existing leases.

Hindsight Practical Expedient

The Company has elected the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets.

The impact on the balance sheet is as follows:

Adjustments Due

to the Adoption

(amounts in thousands)

Current assets:

Cash and cash equivalents

Accounts receivable

Due from affiliate

Prepaid expenses and other current assets (1)

Total current assets

Non-current assets:

Property and equipment - net

Operating lease right-of-use assets

Deposits and other assets (1)

Deferred tax assets

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities (1)

Salaries and wages payable

Finance leases - current

Operating lease liabilities - current

Due to affiliate

Sales tax payable

Total current liabilities

Non-current liabilities:

Finance leases - non-current

Operating lease liabilities - non-current

Deferred rent (1)

Tenant allowances (1)

Other liabilities

Total liabilities

Stockholders' equity:

Common stock - Class A

Common stock - Class B

Additional paid-in capital

Retained earnings

Total stockholders' equity

Total liabilities and stockholders' equity

Adjustment to reclassify prepaid rent, initial direct costs, deferred rent and tenant allowance to right-of-use assets for operating leases upon the adoption of Topic 842.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

Comprehensive loss is the same as net loss for all periods presented.

Therefore, a separate statement of comprehensive loss is not included in the accompanying financial statements.

Recently Issued Accounting Pronouncements

7 unchanged sentences

(amounts in thousands)

Tenant allowance receivable

Lease receivable

Credit card receivable

Other receivables

Total accounts receivable

8 unchanged sentences

Total property and equipment - net

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

(amounts in thousands)

Liquor license

Initial direct costs

Security deposits

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

Depreciation and amortization expense for property and equipment was approximately $ 1.0 million and $ 0.7 million for the three months ended November 30, 2020 and November 30, 2019, respectively.

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.

2 unchanged sentences

The Company has operating and finance leases for its corporate office, restaurant locations, office equipment, kitchen equipment and automobiles.

Our leases have remaining lease terms of less than 1 year to 20 years, some of which include options to extend the leases.

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 with 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 - noncurrent" on the balance sheet, respectively.

Finance leases are accounted for on the balance sheet with ROU assets and lease liabilities recognized in "Property and equipment - net”, “Finance lease - current" and "Finance lease - noncurrent" on the balance sheet, respectively.

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.

All 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.

As the Company has no outstanding debt, it estimates this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment.

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.

1 unchanged sentence

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 statement of operations.

Related to the adoption of Topic 842, the Company’s policy elections were as follows:

Separation of lease and non-lease components

The Company has elected a policy to account for lease and non-lease components as a single component for our entire population of operating lease assets.

Short-term policy

The Company has elected the short-term lease recognition exemption for all applicable classes of underlying assets.

Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise, are not recorded on the balance sheet.

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 our restaurants are accrued based on estimated sales.

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

Nine Months Ended

Additionally, contingent rental payments based on sales thresholds for certain of the Company’s restaurants are accrued based on estimated sales.

Lease related costs recognized in the statements of operations for the three months ended November 30, 2020 and November 30, 2019 are as follows:

Three months ended November 30,

(amounts in thousands)

2 unchanged sentences

Amortization of right-of-use assets

Depreciation and amortization expense

Depreciation and amortization expenses

Interest on lease liabilities

1 unchanged sentence

Total finance lease cost

Three Months Ended

Nine Months Ended

Three months ended November 30,

(amounts in thousands)

6 unchanged sentences

Total operating lease cost

Supplemental balance sheet information related to leases was as follows:

Supplemental balance sheet information related to leases is as follows:

Operating Leases

November 30, 2020

August 31, 2020

(amounts in thousands)

4 unchanged sentences

Finance Lease Assets - net

November 30, 2020

August 31, 2020

(amounts in thousands)

Property and equipment

Finance lease assets

Accumulated depreciation

Total property and equipment - net

Total finance lease assets - net

Finance Leases Liabilities

November 30, 2020

August 31, 2020

(amounts in thousands)

Finance lease - current

Finance lease - non-current

Finance lease liabilities - current

Finance lease liabilities - non-current

Total finance lease liabilities

5 unchanged sentences

Finance leases

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

Nine Months Ended

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

Three months ended November 30,

(amounts in thousands)

1 unchanged sentence

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

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.

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:

As of November 30, 2020, the Company has additional operating lease liabilities related to restaurants of which the Company has not yet taken possession of $13.7 million.

These operating leases are expected to commence in fiscal year 2021 with lease terms of 20 years.

Maturities of lease liabilities were as follows as of November 30, 2020:

Operating Leases

5 unchanged sentences

Present value of lease liabilities

As previously disclosed in our fiscal year 2019 Annual Report on Form 10-K and under the previous lease accounting, maturities of lease liabilities were as follows as of August 31, 2019:

Operating Lease

Capital Lease

(amounts in thousands)

Less interest

Total capital lease obligation

Less current portion of capital lease obligation

Non-current portion of capital lease obligation

Related Party Transactions

Kura Sushi, Inc.

(“Kura Japan”) is a majority stakeholder of the Company, and is incorporated and headquartered in Japan.

(“Kura Japan”) is the majority stockholder of the Company, and is incorporated and headquartered in Japan.

In August 2019 the Company entered into a Shared Services Agreement with Kura Japan, pursuant to which Kura Japan provides the Company with certain strategic, operational and other support services, including assigning certain employees to work for the Company as expatriates to provide support to the Company’s operations, sending its employees to the Company on a short-term basis to provide support for the opening of new restaurants or renovation of existing restaurants, and providing the Company with certain supplies, parts and equipment for use in the Company’s restaurants.

5 unchanged sentences

In August 2019, the Company entered into an Amended and Restated Exclusive License Agreement (the “License Agreement”) with Kura Japan.

Pursuant to the License Agreement, the Company pays Kura Japan a royalty fee of 0.5% of the Company’s net sales in exchange for an exclusive, royalty-bearing license for use of certain of Kura Japan’s intellectual property rights, including, but not limited to, Kura Japan’s trademarks “Kura Sushi” and “Kura Revolving Sushi Bar,” and patents for a food management system and the Mr.

Pursuant to the Lice nse Agreement, the Company pays Kura Japan a royalty fee of 0.5 % of the Company’s net sales in exchange for an exclusive, royalty-bearing license for use of certain of Kura Japan’s intellectual property rights, including, but not limited to, Kura Japan’s trademarks “Kura Sushi” and “Kura Revolving Sushi Bar,” and patents for a food management system and the Mr.

Fresh protective dome, among other intellectual property rights necessary to continue operation of the Company’s restaurants.

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

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.

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

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement, which was subsequently amended on September 2, 2020, to provide the Company a credit line of $35 million.

For additional information, see “Note 6.

Balances with Kura Japan as of November 30, 2020 and August 31, 2020 are as follows:

(amounts in thousands)

1 unchanged sentence

Due to affiliate

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,

Loan from affiliate

Reimbursements by the Company to Kura Japan for the three months ended November 30, 2020 and November 30, 2019 were as follows:

Three Months Ended November 30,

(amounts in thousands)

6 unchanged sentences

Total related party transactions

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 May 31, 2020:

Activity under the Stock Incentive Plan is as follows:

Reimbursements by Kura Japan to the Company for the three months ended November 30, 2020 and November 30, 2019 were $5 thousand and $34 thousand, respectively.

The reimbursements were for travel and translation expenses.

Stock-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, 2020 through November 30, 2020:

Options Outstanding

4 unchanged sentences

Outstanding—August 31, 2020

Options granted

Options exercised

Options canceled/forfeited

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.

Outstanding—November 30, 2020

Subsequent to November 30, 2020 and as of the filing date of this Quarterly Report on Form 10-Q, the Company granted 50 thousand options and 7 thousand restricted stock awards.

Stock-based compensation for stock options issued under the Stock Incentive Plan was $0.3 million and $0.1 million for the three months ended November 30, 2020 and November 30, 2019 respectively.

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

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands)

2 unchanged sentences

Total stock-based compensation

On January 31, 2019, the Company secured a non-revolving line of credit in the amount of up to $5 million (the “Credit Facility”) that matures on July 31, 2020.

All borrowings under the Credit Facility will bear interest at the Company’s option at either (a) the prime lending rate of the lender less one-half of one percent (0.5%), or (b) one-month LIBOR plus one and one-half percent (1.5%).

At any time the Company has an aggregate principal balance of at least $300,000 outstanding, that had not previously been converted to a term loan, the aggregate principal balance outstanding shall be converted to be payable on a term loan basis.

The Company also has the option to convert the principal balance outstanding to a term loan by providing written notice to the lender at least 30 days prior to the maturity date.

Each term loan will have a maturity of not more than 36 months.

The obligations of the Company under the Credit Facility are collateralized by substantially all assets of the Company.

The Credit Facility also requires the Company to comply with certain financial covenants regarding the Company’s liquidity, fixed charge coverage ratio and tangible net worth ratio.

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 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.

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

The net income (loss) per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the earnings for the period has been distributed.

As the liquidation and dividend rights for Class A and Class B common stock are identical, the net income (loss) attributable to common stockholders is allocated on a proportionate basis.

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

Three Months Ended May 31,

Nine Months Ended May 31,

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement establishing a $20 million revolving credit line for the Company.

In connection with the First Amendment, the Revolving Credit Note under the Revolving Credit Agreement was also amended by incorporating the same amendments as provided under the First Amendment.

There are no financial covenants under the Revolving Credit Agreement with which the Company must comply.

As of November 30, 2020, the Company had borrowed $3.0 million under the Revolving Credit Agreement at a fixed interest rate of 1.1%.

Interest expense for the three months ended November 30, 2020 was immaterial.

Subsequent to November 30, 2020 and as of the filing date of this Quarterly Report on Form 10-Q, the Company borrowed an additional $6.0 million and has $26 million of availability remaining under the Revolving Credit Agreement.

Loss Per Share

The net loss per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock.

As the liquidation and dividend rights for Class A and Class B common stock are identical, the net loss attributable to common stockholders is allocated on a proportionate basis.

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

Three Months Ended November 30,

(amounts in thousands, except per share data)

Net income (loss) attributable to common stockholders - basic

Net loss attributable to common stockholders - basic

Weighted average common shares outstanding - basic

Net income (loss) per share attributable to common stockholders - basic

Net income (loss) attributable to common stockholders - diluted

Net loss per share attributable to common stockholders - basic

Net loss attributable to common stockholders - diluted

Weighted average shares outstanding - basic

1 unchanged sentence

Weighted average shares outstanding - diluted

Net income (loss) per share attributable to common stockholders - diluted

The Company computes basic income (loss) per common share using net income (loss) and the weighted average number of common shares outstanding during the period.

Diluted income (loss) per common share is computed using net income (loss) and the weighted average number of common shares and potentially dilutive common shares outstanding during the period.

Net loss per share attributable to common stockholders - diluted

The Company computes basic loss per common share using net loss and the weighted average number of common shares outstanding during the period.

Diluted loss per common share is computed using net loss and the weighted average number of common shares and potentially dilutive common shares outstanding during the period.

Potentially dilutive common shares include dilutive outstanding employee stock options.

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.

For the three months ended November 30, 2020 and November 30, 2019 , there were approximately 506 thousand and 404 thousand shares of common stock subject to outstanding employee stock options , respectively, that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive .

Commitments and Contingencies

Contingencies .

On May 31, 2019, a putative class action complaint was filed by a former employee, Brandy Gomes, in Los Angeles County Superior Court, alleging violations of California wage and hour laws.

The Company was served with this complaint on June 28, 2019.

The Company disputes any allegations of wrongdoing and intends to defend itself vigorously in this matter.

On July 9, 2020, plaintiff’s counsel filed a first amended class action complaint to add Jamar Spencer, another former employee, as a plaintiff to this action.

In addition, the first amended class action complaint added new causes of action alleging violations of California wage and hour laws including a cause of action brought under the California Private Attorney General Act.

On August 7, 2020, the Company filed its answer to the first amended complaint, generally denying the allegations in the complaint.

The Company intends to defend itself vigorously in this matter.

The Company is currently unable to estimate the range of possible losses associated with this proceeding.

The Company is involved from time to time in various legal proceedings that arise in the ordinary course of our business, including but not limited to commercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation in connection with transactions including acquisitions and divestitures.

In the opinion of management, the Company does not believe that such litigation, claims, and administrative proceedings, including the putative class action matter referenced above, will have a material adverse effect on our business, financial position, results of operations or cash flows.

However, a significant increase in the number of these claims or an increase in amounts owing under successful claims, including the putative class action referenced above, could materially and adversely affect our business, financial condition, results of operations or cash flows.

The Company is involved from time to time in various legal proceedings that arise in the ordinary course of business, including but not limited to commercial disputes, environmental matters, employee related claims, intellectual property disputes and litigation in connection with transactions including acquisitions and divestitures.

In the opinion of management, the Company does not believe that such litigation, claims, and administrative proceedings, including the putative class action matter referenced above, will have a material adverse effect on its business, financial position, results of operations or cash flows.

However, a significant increase in the number of these claims or an increase in amounts owing under successful claims, including the putative class action referenced above, could materially and adversely affect its business, financial condition, results of operations or cash flows.

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 $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.

The Company recorded income tax expense of $29 thousand and income tax benefit of $4 thousand for the three months ended November 30, 2020 and November 30, 2019, respectively.

The Company’s effective tax rate for the three months ended November 30, 2020 substantially differed from the federal statutory tax rate of 21 percent primarily due to a valuation allowance for the Company’s deferred tax assets.

The Company continually monitors and performs an assessment of the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies.

In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets using a “more likely than not” standard.

In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses.

Based on the Company’s review of this evidence, management determined that a full valuation allowance against all of the Company’s net deferred tax assets at November 30, 2020 was appropriate.

On December 27, 2020, Congress passed, and President Trump signed into law, the Consolidated Appropriations Act, 2021 (the “Act”), which includes certain business tax provisions.

The Company does not expect the Act to have a material impact on the Company’s effective tax rate or income tax expense for the fiscal year ending August 31, 2021.

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