What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-04-13 compared with 2021-01-11 · 184 added, 85 removed, 223 unchanged (55% of the section changed)

6 unchanged sentences

Kura Sushi USA, Inc.

We encourage healthy lifestyles by serving freshly prepared Japanese cuisine using high-quality ingredients that are free from artificial seasonings, sweeteners, colorings, and preservatives.

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.

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COVID-19 and the government measures taken to control it have caused a significant disruption to our business operation.

As of November 30, 2020, we had 27 of our 28 restaurants open in some capacity:

As of February 28, 2021, we had 28 of our 30 restaurants open in some capacity:

indoor dining, outdoor dining or takeout only.

Subsequent to November 30, 2020, we opened one new restaurant in Aventura, Florida and as of the filing date of this Quarterly Report on Form 10-Q, we 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 April 2021, we opened one new restaurant in Sherman Oaks, California.

As of the filing date of this Quarterly Report on Form 10-Q, we had all 31 restaurants operating at indoor capacities ranging from 25% to 100%, depending on local requirements.

In response to the ongoing COVID-19 pandemic, we have prioritized taking steps to protect the health and safety of our employees and customers.

We have increased cleaning and sanitizing protocols of our restaurants and have implemented additional training and operational manuals for our restaurant employees, as well as increased handwashing procedures.

We have maintained cleaning and sanitizing protocols of our restaurants and have implemented additional training and operational manuals for our restaurant employees, as well as increased handwashing procedures.

We have also provided each restaurant employee with face masks and gloves, and require each employee to pass a health screening process, which includes a temperature check, before the start of each shift.

The reduced capacities at open restaurants and temporary closure of one restaurant have caused a substantial decline in our 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, we have focused on maximizing our in-restaurant dining capacity as permitted by the jurisdictions where we operate, mobile ordering and takeout, continuing to provide a safe environment for our employees and customers, maintaining our operational efficiencies as much as possible and preserving our liquidity.

The reduced capacities at open restaurants and temporary closure of two restaurants during the quarter have caused a substantial decline in our sales in the most recently completed fiscal quarter and year-to-date period compared to the same quarter and year-to-date period last year.

In response to the ongoing challenges posed by the COVID-19 pandemic, we have focused on maximizing our in-restaurant dining capacity as permitted by the jurisdictions where we operate, emphasizing mobile ordering and takeout, continuing to provide a safe environment for our employees and customers, maintaining our operational efficiencies as much as possible and preserving our liquidity.

In line with our long-term growth strategy, we expect to continue to open new restaurants at locations where we believe the restaurants have the potential to achieve profitability.

1 unchanged sentence

Recent Events Concerning Our Financial Position

On April 10, 2020, we and Kura Japan, entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) establishing a $20 million revolving credit line for us.

On April 10, 2020, we and Kura Sushi, Inc.

(“Kura Japan”), a majority stockholder, entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) whereby Kura Japan agreed to make available to the Company loans on a revolving credit basis in the principal amount of up to $20 million as evidenced by that certain Promissory Note dated as of the same date with us as maker and made payable to Kura Japan (the “Revolving Credit Note”).

On September 2, 2020, we 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.

In November 2020, we borrowed $3.0 million under the Revolving Credit Agreement.

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

On April 9, 2021, we and Kura Japan entered into a Second Amendment to Revolving Credit Agreement (the “Second Amendment”) to increase the maximum credit amount under the credit line from $35 million to $45 million.

In connection with the First Amendment and Second Amendment, the Revolving Credit Note under the Revolving Credit Agreement was also amended by incorporating the same amendments as provided under the First Amendment and Second Amendment, as well as amendments to the interest rate.

As of February 28, 2021, we had borrowings of $12.0 million under the Revolving Credit Agreements.

Subsequent to February 28, 2021 and as of the filing date of this Quarterly Report on Form 10-Q, we borrowed an additional $ 2 .0 million under the Revolving Credit Agreement.

Related Party Transactions” and “Note 6.

Debt” in the Notes to Condensed Financial Statements for further discussion.

We have received rent concessions from our landlords for certain of our restaurants in the form of rent abatements and rent deferrals which were immaterial for the three months ended November 30 , 2020.

We continue to have discussions with our landlords regarding potential future rent concessions.

Due to the impact of COVID-19, we assessed our long-lived assets for potential impairment which resulted in no impairment charges recorded as of November 30, 2020.

Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), we are eligible for a refundable employee retention credit subject to certain criteria.

We recognized a $2.6 million employee retention credit during the three months ended February 28, 2021, of which $2.2 million is included in labor and related costs and $0.4 million is included in general and administrative expenses in the statements of operations.

We expect to continue to recognize credits for as long as we remain eligible and as of the date of this Quarterly Report on Form 10-Q, we continued to be eligible for such credits.

We have received rent concessions from our landlords for certain of our restaurants in the form of rent abatements and rent deferrals which were immaterial for the three and six months ended February 28, 2021.

Due to the impact of COVID-19, we assessed our long-lived assets for potential impairment, which resulted in no impairment charges recorded as of February 28, 2021.

Key Financial Definitions

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Labor and related expenses include all restaurant-level management and hourly labor costs, including wages, employee benefits 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 grows.

Labor and related expenses are expected to grow as our sales grows.

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 the performance of our restaurants.

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Results of Operations

The following tables present selected comparative results of operations for the three months ended November 30, 2020 and November 30, 2019.

The following tables present selected comparative results of operations for the three and six months ended February 28, 2021 and February 29, 2020.

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 table below may not sum to 100% due to rounding.

Three Months Ended November 30,

Increase / (Decrease)

Three Months Ended

February 28, 2021

February 29, 2020

(dollar amounts in thousands)

13 unchanged sentences

Loss before income taxes

Income tax expense (benefit)

Three Months Ended November 30,

Income tax expense

Six Months Ended

February 28, 2021

February 29, 2020

(dollar amounts in thousands)

Restaurant operating costs

Food and beverage costs

Labor and related costs

Occupancy and related expenses

Depreciation and amortization expenses

Total restaurant operating costs

General and administrative expenses

Depreciation and amortization expenses

Total operating expenses

Operating loss

Other expense (income):

Interest expense

Interest income

Loss before income taxes

Income tax expense

Three Months Ended

Six Months Ended

February 28, 2021

February 29, 2020

February 28, 2021

February 29, 2020

(as a percentage of sales)

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Loss before income taxes

Income tax expense (benefit)

Three Months Ended November 30, 2020 Compared to Three Months Ended November 30, 2019

Sales were $9.4 million for the three months ended November 30, 2020 compared to $17.4 million for the three months ended November 30, 2019, representing a decrease of approximately $8.0 million or 46.0%.

The decrease in sales was primarily driven by reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended November 30, 2020, partially offset by sales from the opening of five new restaurants subsequent to November 30, 2019.

Income tax expense

Three Months Ended February 28, 2021 Compared to Three Months Ended February 29, 2020

Sales were $9.1 million for the three months ended February 28, 2021 compared to $19.4 million for the three months ended February 29, 2020, representing a decrease of approximately $10.3 million, or 53.2%.

The decrease in sales is partially offset by sales from the opening of five new restaurants subsequent to February 29, 2020, and increased sales from mobile ordering and takeout.

Food and beverage costs.

Food and beverage costs were $3.1 million for the three months ended November 30, 2020 compared to $5.7 million for the three months ended November 30, 2019, representing a decrease of approximately $2.6 million or 46.4%.

The decrease in food and beverage costs was primarily driven by reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended November 30, 2020, partially offset by the costs associated with sales from the opening of five new restaurants subsequent to November 30, 2019.

As a percentage of sales, food and beverage costs was 32.4% in the three months ended November 30, 2020, compared to 32.6% in the three months ended November 30, 2019.

Food and beverage costs were $3.2 million for the three months ended February 28, 2021 compared to $6.1 million for the three months ended February 29, 2020, representing a decrease of approximately $2.9 million or 48.0%.

The decrease in food and beverage costs was primarily driven by a reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended February 28, 2021, partially offset by the costs associated with sales from the opening of five new restaurants subsequent to February 29, 2020.

As a percentage of sales, food and beverage costs was 35.0% in the three months ended February 28, 2021, compared to 31.5% in the three months ended February 29, 2020.

The increase in percentage of sales is primarily due to increased inventory spoilage, as well as a geographical sales mix shift towards Texas restaurants, which have lower sushi plate prices, during the three months ended February 28, 2021 as compared to the three months ended February 29, 2020.

Labor and related costs.

Labor and related costs were $4.4 million for the three months ended November 30, 2020 compared to $5.6 million for the three months ended November 30, 2019, representing a decrease of approximately $1.2 million, or 22.7%.

Labor and related costs decreased as a result of reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended November 30, 2020, partially offset by additional labor costs incurred from the opening of five new restaurants subsequent to November 30, 2019.

As a percentage of sales, labor and related costs increased to 46.3% in the three months ended November 30, 2020, compared to 32.3% in the three months ended November 30, 2019.

The increase in labor and related costs as a percentage of sales was primarily due to minimum staffing requirements to operate the restaurants, particularly at reduced operating capacities.

Labor and related costs were $2.1 million for the three months ended February 28, 2021 compared to $6.1 million for the three months ended February 29, 2020, representing a decrease of approximately $4.0 million, or 66.5%.

Labor and related costs decreased as a result of a $2.2 million employee retention credit recognized under the CARES Act extension and a reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended February 28, 2021, partially offset by additional labor costs incurred from the opening of five new restaurants subsequent to February 29, 2020.

As a percentage of sales, labor and related costs decreased to 22.7% in the three months ended February 28, 2021, compared to 31.7% in the three months ended February 29, 2020.

The decrease in labor and related costs as a percentage of sales was primarily due to the employee retention credit, partially offset by minimum staffing requirements to operate the restaurants at reduced operating capacities.

Occupancy and related expenses.

Occupancy and related expenses were $1.7 million for the three months ended November 30, 2020 compared to $1.4 million for the three months ended November 30, 2019, representing an increase of approximately $0.3 million, or 17.4%.

The increase was primarily a result of additional lease expense incurred with respect to the opening of five new restaurants subsequent to November 30, 2019.

As a percentage of sales, occupancy and other operating expenses increased to 18.0% in the three months ended November 30, 2020, compared to 8.3% in the three months ended November 30, 2019.

The increase as a percentage of sales was primarily driven by the decrease in sales due to the reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended November 30, 2020.

Occupancy and related expenses were $ 1.6 million for the three months ended February 28, 2021 and February 29, 2020 .

As a percentage of sales, occupancy and related expenses increased to 17.9 % in the three months ended February 28, 2021 , compared to 8.4 % in the three months ended February 29, 2020 .

The increase as a percentage of sales was primarily driven by the decrease in sales due to the reduced level of operating capacit ies of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended February 28 , 202 1 .

Depreciation and amortization expenses.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $0.9 million for the three months ended November 30, 2020 compared to $0.7 million for the three months ended November 30, 2019, representing an increase of approximately $0.2 million, or 39.8%.

The increase was primarily due to depreciation of property and equipment related to the opening of five new restaurants subsequent to November 30, 2019.

As a percentage of sales, depreciation and amortization expenses at the restaurant-level increased to 9.8% in the three months ended November 30, 2020 as compared to 3.8% in the three months ended November 30, 2019.

The increase as a percentage of sales is primarily due to the decrease in sales due to the reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended November 30, 2020.

Depreciation and amortization expenses incurred at the corporate-level were immaterial for the three months ended November 30, 2020 and November 30, 2019, and as a percentage of sales were 0.8% and 0.1%, respectively.

Other costs were $2.1 million for the three months ended November 30, 2020 compared to $2.0 million for the three months ended November 30, 2019, representing an increase of approximately $32 thousand, or 1.6%.

The increase was primarily due to the opening of five new restaurants subsequent to November 30, 2019.

As a percentage of sales, other costs increased to 22.1% in the three months ended November 30, 2020 from 11.7% in the three months ended November 30, 2019 primarily due to costs that are not directly variable with the decrease in sales such as maintenance services, utilities and business insurance, as well as smallware for three new restaurants that opened within the quarter and supplies related to incremental takeout orders.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $1.0 million for the three months ended February 28, 2021 compared to $0.7 million for the three months ended February 29, 2020, representing an increase of approximately $0.3 million, or 40.7%.

The increase was primarily due to depreciation of property and equipment related to the opening of five new restaurants subsequent to February 29, 2020.

As a percentage of sales, depreciation and amortization expenses at the restaurant level increased to 11.0% in the three months ended February 28, 2021 as compared to 3.7% in the three months ended February 29, 2020.

Depreciation and amortization expenses incurred at the corporate level were immaterial for the three months ended February 28, 2021 and February 29, 2020, and as a percentage of sales were 1.0% and 0.2%, respectively.

Other costs were $2.1 million for the three months ended February 28, 2021 compared to $2.2 million for the three months ended February 29, 2020, representing a decrease of approximately $0.1 million, or 7.2%.

The decrease was primarily driven by a decrease in credit card fees due to lower sales and a decrease in advertising costs during three months ended February 28, 2021, partially offset by costs related to the opening of five new restaurants subsequent to February 29, 2020.

As a percentage of sales, other costs increased to 22.6% in the three months ended February 28, 2021 from 11.4% in the three months ended February 29, 2020, primarily due to costs that are not directly variable with the decrease in sales such as maintenance, utilities and business insurance.

General and administrative expenses.

General and administrative expenses were $3.5 million for the three months ended November 30, 2020 compared to $3.3 million for the three months ended November 30, 2019, representing an increase of approximately $0.2 million, or 5.9%.

This increase in general and administrative expenses was primarily due to $0.4 million in executive transition costs, $0.2 million in compensation-related expenses and $0.1 million of various other costs, partially offset by $0.5 million in reduced legal and audit fees.

As a percentage of sales, general and administrative expenses increased to 37.4% in the three months ended November 30, 2020 from 19.1% in three months ended November 30, 2019, primarily due to the decrease in sales from the reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended November 30, 2020.

General and administrative expenses were $2.9 million for the three months ended February 28, 2021 compared to $2.8 million for the three months ended February 29, 2020, representing an increase of approximately $0.1 million, or 3.3%.

This increase in general and administrative expenses was primarily due to $0.4 million in compensation expenses and $0.1 million of various other costs, partially offset by a $0.4 million employee retention credit recognized under the CARES Act extension.

As a percentage of sales, general and administrative expenses increased to 31.6% in the three months ended February 28, 2021 from 14.4% in the three months ended February 29, 2020, primarily due to the decrease in sales from the reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the three months ended February 28, 2021.

Interest expense.

Interest expense was insignificant in both the three months ended November 30, 2020 and November 30, 2019 .

Interest expense was insignificant in both the three months ended February 28, 2021 and February 29, 2020.

Interest income.

Interest income was $4 thousand for the three months ended November 30, 2020 compared to $197 thousand for the three months ended November 30, 2019, due to a decrease in our cash equivalents balance.

Interest income was $3 thousand for the three months ended February 28, 2021 compared to $170 thousand for the three months ended February 29, 2020, due to a decrease in our cash and cash equivalents balance.

Income tax expense.

Income tax expense was $29 thousand for the three months ended November 30, 2020 compared to a tax benefit of $4 thousand for the three months ended November 30, 2019.

Income tax expense was $29 thousand for the three months ended February 28, 2021 compared to $30 thousand for the three months ended February 29, 2020.

For further discussion of our income taxes, see “Note 9.

Income Taxes” in the Notes to Condensed Financial Statements.

Six Months Ended February 28, 2021 Compared to Six Months Ended February 29, 2020

Sales were $18.5 million for the six months ended February 28, 2021 compared to $36.8 million for the six months ended February 29, 2020, representing a decrease of approximately $18.3 million or 49.8%.

The decrease in sales was primarily driven by a reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the six months ended February 28, 2021, and was partially offset by sales from the opening of five new restaurants subsequent to February 29, 2020, and increased sales from mobile ordering and takeout.

Food and beverage costs.

Food and beverage costs were $6.2 million for the six months ended February 28, 2021 compared to $11.8 million for the six months ended February 29, 2020, representing a decrease of approximately $5.6 million, or 47.2%.

The decrease in food and beverage costs was primarily driven by a reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the six months ended February 28, 2021, partially offset by the costs associated with sales from the opening of five new restaurants subsequent to February 29, 2020.

As a percentage of sales, food and beverage costs was 33.7% in the six months ended February 28, 2021, compared to 32.0% in the six months ended February 29, 2020.

The increase was primarily due to inventory spoilage during the six months ended February 28, 2021.

Labor and related costs.

Labor and related costs were $ 6.4 million for the six months ended February 28, 2021 compared to $ 11.8 million for the six months ended February 29, 2020 , representing a decrease of approximately $ 5.4 million , or 45.5 %.

Labor and related costs decreased as a result of a $2.2 million employee retention credit recognized under the CARES Act extension and a reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the six months ended February 28, 2021 , partially offset by additional labor costs incurred from the opening of five new restaurants subsequent to February 29, 2020 .

As a percentage of sales, labor and related costs in creased to 34.7 % in the six months ended February 28, 2021 , compared to 32.0 % in the six months ended February 29, 2020 .

The increase in labor and related costs as a percentage of sales w as primarily due to minimum staffing requirements to operate the restaurants at reduced operating capacities, partially offset by the employee retention credit .

Occupancy and related expenses.

Occupancy and related expenses were $3.3 million for the six months ended February 28, 2021 compared to $3.1 million for the six months ended February 29, 2020, representing an increase of approximately $0.2 million, or 7.8%.

The increase was primarily a result of additional lease expense incurred with respect to the opening of five new restaurants subsequent to February 29, 2020.

As a percentage of sales, occupancy and related expenses increased to 17.9% in the six months ended February 28, 2021, compared to 8.4% in the six months ended February 29, 2020.

The increase as a percentage of sales was primarily driven by the decline in sales due to the reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the six months ended February 28, 2021.

Depreciation and amortization expenses.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $1.9 million for the six months ended February 28, 2021 compared to $1.4 million for the six months ended February 29, 2020, representing an increase of approximately $0.5 million, or 40.3%.

The increase was primarily due to depreciation of property and equipment related to the opening of five new restaurants subsequent to February 29, 2020.

As a percentage of sales, depreciation and amortization expenses at the restaurant level increased to 10.4% in the six months ended February 28, 2021 as compared to 3.7% in the six months ended February 29, 2020.

Depreciation and amortization expenses incurred at the corporate level were immaterial for the six months ended February 28, 2021 and February 29, 2020, and as a percentage of sales were 0.9% and 0.2%, respectively.

Other costs were $4.1 million for the six months ended February 28, 2021 compared to $4.3 million for the six months ended February 29, 2020, representing a decrease of approximately $0.2 million, or 3.0%.

The decrease was primarily driven by a decrease in credit card fees due to lower sales and a decrease in advertising costs during the six months ended February 28, 2021, partially offset by the costs related to the opening of five new restaurants subsequent to February 29, 2020.

As a percentage of sales, other costs increased to 22.3% in the six months ended February 28, 2021 from 11.6% in the six months ended February 29, 2020.

The increase was primarily due to costs that are not directly variable with the decrease in sales, such as maintenance, utilities and business insurance.

General and administrative expenses.

General and administrative expenses were $6.4 million for the six months ended February 28, 2021 compared to $6.1 million for the six months ended February 29, 2020, representing an increase of approximately $0.3 million, or 4.7%.

This increase in general and administrative expenses was primarily due to $0.6 million in compensation expenses, $0.4 million in executive transition costs and $0.2 million of various other costs, partially offset by $0.5 million in reduced legal and audit fees and a $0.4 million employee retention credit recognized under the CARES Act extension.

As a percentage of sales, general and administrative expenses increased to 34.6% in the six months ended February 28, 2021 from 16.6% in the six months ended February 29, 2020, primarily due to the decrease in sales from the reduced level of operating capacities of our restaurants due to local government restrictions in response to the COVID-19 pandemic during the six months ended February 28, 2021.

Interest expense.

Interest expense was insignificant in both the six months ended February 28, 2021 and February 29, 2020.

Interest income.

Interest income was $7 thousand for the six months ended February 28, 2021 compared to $367 thousand for the six months ended February 29, 2020, due to a decrease in our cash and cash equivalents balance.

Income tax expense.

Income tax expense was $58 thousand for the six months ended February 28, 2021 compared to $26 thousand for the six months ended February 29, 2020.

For further discussion of our income taxes, see “Note 9.

Income Taxes” in the Notes to Condensed Financial Statements.

Key Performance Indicators

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EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization expenses.

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 certain executive transition costs, that are not indicative of core operating results.

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 employee retention credit and certain executive transition costs, that are not indicative of core operating results.

EBITDA and Adjusted EBITDA are non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP.

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We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA on a supplemental basis.

You should review the reconciliation of net income to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the three months ended November 30, 2020 and November 30, 2019 :

Three Months Ended November 30,

You should review the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table reconciles net loss to EBITDA and Adjusted EBITDA for the three and six months ended February 28, 2021 and February 29, 2020:

Three Months Ended

Six Months Ended

February 28, 2021

February 29, 2020

February 28, 2021

February 29, 2020

(amounts in thousands)

Interest expense (income), net

Income tax expense (benefit)

Income tax expense

Depreciation and amortization expenses

2 unchanged sentences

Executive transition costs (c)

Employee retention credit (d)

Adjusted EBITDA

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Executive transition costs include severance and search fees associated with the transition of our Chief Financial Officer.

Employee retention credit includes a refundable credit recognized under the provisions of the CARES Act extension.

Restaurant-level Operating Profit and Restaurant-level Operating Profit Margin

1 unchanged sentence

stock-based compensation expense;

employee retention credit;

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 ;

1 unchanged sentence

asset disposals, closure costs and restaurant impairments;

less corporate-level stock-based compensation expense recognized within general and administrative expenses.

less corporate-level stock-based compensation expense and employee retention credit recognized within general and administrative expenses.

Restaurant-level Operating Profit margin is defined as Restaurant-level Operating Profit divided by sales.

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Our computation of Restaurant-level Operating Profit and Restaurant-level Operating Profit margin may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Restaurant-level Operating Profit and Restaurant-level Operating Profit margin in the same fashion.

Restaurant-level Operating Profit and Restaurant-level Operating

Profit margin have limitations as analytical tools, and you should not consider those measures in isolation or as a substitute 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 for the three months ended November 30, 2020 and November 30, 2019:

Three Months Ended November 30,

Restaurant-level Operating Profit and Restaurant-level Operating Profit margin have limitations as analytical tools, and you should not consider those measures in isolation or as a substitute for analysis of our results as reported under GAAP.

The following table reconciles operating loss to Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin for the three and six months ended February 28, 2021 and February 29, 2020 :

Three Months Ended

Six Months Ended

February 28, 2021

February 29, 2020

February 28, 2021

February 29, 2020

(amounts in thousands)

4 unchanged sentences

Non-cash lease expense (c)

Employee retention credit (d)

General and administrative expenses

Corporate-level stock-based compensation included in General and administrative expenses

Corporate-level stock-based compensation and employee retention credit included in general and administrative expenses

Restaurant-level operating (loss) profit

6 unchanged sentences

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 .

Employee retention credit includes a refundable credit recognized under the provisions of the CARES Act extension.

Comparable Restaurant Sales Performance

2 unchanged sentences

For restaurants that were temporarily closed for renovations during the year, we make fractional adjustments to sales such that sales are annualized in the associated period.

We did not make any adjustments for the temporary restaurant closures due to COVID-19 during the three months ended November 30, 2020.

We did not make any adjustments for the temporary restaurant closures due to COVID-19 during the three and six months ended February 28, 2021.

Measuring our comparable restaurant sales performance allows us to evaluate the performance of our existing restaurant base.

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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 for the three months ended November 30, 2020 and November 30, 2019:

Three Months Ended November 30,

The following table shows the comparable restaurant sales performance for the three and six months ended February 28, 2021 and February 29, 2020:

Three Months Ended

Six Months Ended

February 28, 2021

February 29, 2020

February 28, 2021

February 29, 2020

Comparable restaurant sales performance (%)

5 unchanged sentences

The number and timing of restaurant openings has 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 for the three months ended November 30, 2020 and November 30, 2019:

Three Months Ended November 30,

The following table shows the growth in our restaurant base for the three and six months ended February 28, 2021 and February 29, 2020:

Three Months Ended

Six Months Ended

February 28, 2021

February 29, 2020

February 28, 2021

February 29, 2020

Restaurant activity:

1 unchanged sentence

End of period

Subsequent to November 30, 2020 and as of the filing date of this Quarterly Report on Form 10-Q, we opened one new restaurant in Aventura, Florida.

Subsequent to February 28, 2021, we opened one new restaurant in Sherman Oaks, California.

Liquidity and Capital Resources

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In November 2020, we borrowed $3.0 million under the Revolving Credit Agreement.

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

During the three months ended February 28, 2021, we borrowed an additional $9.0 million.

As of February 28, 2021, we had borrowed $12.0 million under the Revolving Credit Agreement.

Subsequent to February 28, 2021 and as of the filing date of this Quarterly Report on Form 10-Q, we borrowed an additional $2.0 million and have $31.0 million of availability remaining under the Revolving Credit Agreement.

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 at least 30 days to pay vendors.

We believe that cash provided by operating activities, cash on hand and availability under our Revolving Credit Agreement provided by Kura Japan, will be sufficient to fund our lease obligations, capital expenditures and working capital needs for at least the next 12 months.

We believe that cash provided by operating activities, cash on hand and availability under our Revolving Credit Agreement will be sufficient to fund our lease obligations, capital expenditures and working capital needs for at least the next 12 months.

Summary of Cash Flows

Our primary sources of liquidity and cash flows are operating cash flows, cash on hand and proceeds from our Revolving Credit Agreement.

We use this to fund investing expenditures for new restaurant openings, reinvest in our existing restaurants, and increase our working capital.

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, and we typically have at least 30 days to pay our vendors.

We use this to fund investing expenditures for new restaurant openings, reinvest in our existing restaurants, and contribute to our working capital.

Our working capital position is impacted by collecting 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, and we typically have at least 30 days to pay our vendors.

The following table summarizes our cash flows for the periods presented:

Three Months Ended November 30,

Six Months Ended

February 28, 2021

February 29, 2020

Statement of Cash Flow data:

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Cash Flows Used in Operating Activities

Net cash used in operating activities during the three months ended November 30, 2020 was $2.7 million, which results from net loss of $6.4 million, non-cash charges of $1.0 million for depreciation and amortization, $0.3 million for stock-based compensation, $0.7 million in noncash lease expense, and net cash inflows of approximately $1.6 million from changes in operating assets and liabilities.

The net cash inflows from changes in operating assets and liabilities were primarily the result of increases of $0.8 million for accounts payable, $0.5 million for accrued expenses and other current liabilities, $0.1 million for sales tax payable, and $0.8 million for salary and wages payable, partially offset by increases in $0.1 million for prepaid expenses and other current assets, $0.1 million for inventories and $0.2 million for amounts due from affiliate.

The increases in accounts payable and accrued expenses and other current liabilities were primarily driven by timing of payment for certain liabilities.

Net cash used in operating activities during the three months ended November 30, 2019 was $1.5 million, which resulted from net loss of $1.2 million, non-cash charges of $0.7 million for depreciation and amortization, $0.1 million for stock-based compensation, $0.6 million in noncash lease expense, and net cash outflows of approximately $1.7 million from changes in operating assets and liabilities.

The net cash outflows from changes in operating assets and liabilities were primarily the result of decreases of $1.0 million for accounts payable and $0.6 million for accrued expenses and other current liabilities, driven by timing of payment for certain liabilities.

Net cash used in operating activities during the six months ended February 28, 2021 was $8.9 million, which results from net loss of $10.2 million, non-cash charges of $2.1 million for depreciation and amortization, $0.6 million for stock-based compensation, $1.4 million in non-cash lease expense, and net cash outflows of approximately $2.8 million from changes in operating assets and liabilities.

The net cash outflows from changes in operating assets and liabilities were primarily the result of increases of $2.9 million in prepaid expenses and other current assets, $0.4 million in accounts receivable, $0.2 million due from affiliate, and a decrease of $0.6 million in operating lease liabilities.

The cash outflow is partially offset by increases of $0.9 million in salary and wages payable, $0.2 million in accrued expenses and other current liabilities and $0.2 million due to affiliate.

The increases in accrued expenses and other current liabilities were primarily driven by timing of payment for certain liabilities.

Net cash used in operating activities during the six months ended February 29, 2020 was $0.3 million, which resulted from net loss of $1.4 million, non-cash charges of $1.4 million for depreciation and amortization, $0.3 million for stock-based compensation, $1.1 million in non-cash lease expense and net cash outflows of approximately $1.7 million from changes in operating assets and liabilities.

The net cash outflows from changes in operating assets and liabilities were primarily the result of decreases of $1.2 million in accounts payable and $0.5 million in accrued expenses and other current liabilities, driven by timing of payment for certain liabilities.

Cash Flows Used in Investing Activities

Net cash used in investing activities during the three months ended November 30, 2020 was $6.6 million, primarily due to purchases of property and equipment.

The purchases of property and equipment in the three months ended November 30, 2020 are primarily related to capital expenditures for current and future restaurant openings, renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the three months ended November 30, 2019 was $3.2 million, primarily due to purchases of property and equipment.

The increase in purchases of property and equipment in the three months ended November 30, 2019 is primarily related to capital expenditures for current and future restaurant openings, renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the six months ended February 28, 2021 was $9.9 million, primarily due to purchases of property and equipment.

The increase in purchases of property and equipment in the six months ended February 28, 2021 is primarily related to capital expenditures for current and future restaurant openings, renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the six months ended February 29, 2020 was $7.3 million, primarily due to purchases of property and equipment.

The increase in purchases of property and equipment in the six months ended February 29, 2020 is primarily related to capital expenditures for current and future restaurant openings, renovations, maintaining our existing restaurants and other projects.

Cash Flows Provided by (Used in) Financing Activities

Net cash provided by financing activities during the three months ended November 30, 2020 was $2.8 million and is primarily due to $3.0 million in loan proceeds from our Revolving Credit Agreement.

Net cash used in financing activities during the three months ended November 30, 2019 was $0.3 million primarily due to repayment of principal on financing leases.

Net cash provided by financing activities during the six months ended February 28, 2021 was $11.8 million and is primarily due to $12.0 million in loan proceeds from our Revolving Credit Agreement.

Net cash used in financing activities during the six months ended February 29, 2020 was $0.5 million primarily due to repayment of principal on financing leases.

Contractual Obligations

As of November 30, 2020, we had $1.5 million in contractual obligations relating to purchase commitments for goods related to restaurant operations and commitments for construction of new restaurants.

As of February 28, 2021, we had $0.7 million in contractual obligations relating to purchase commitments for goods related to restaurant operations and commitments for construction of new restaurants.

All purchase commitments are expected to be paid during the current fiscal year.

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Off-Balance Sheet Arrangements

As of November 30, 2020, we did not have any material off-balance sheet arrangements.

As of February 28, 2021, we did not have any material off-balance sheet arrangements.

Recent Accounting Pronouncements

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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.

There have been no other 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, 2020.

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, 2020.

Please refer to “Part II, Item 7.

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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 2. Management’s Discussion and Analysis