What changed in this filing

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Item 1. Financial Statements

2022-01-06 compared with 2021-07-13 · 112 added, 168 removed, 262 unchanged (52% of the section changed)

3 unchanged sentences

(amounts in thousands, except par value)

November 30, 2021

August 31, 2021

20 unchanged sentences

Non-current liabilities:

Loan from affiliate

Finance leases – non-current

9 unchanged sentences

50,000 shares authorized,

7,424 and 7,342 shares issued and outstanding as of May 31, 2021

8,713 and 8,700 shares issued and outstanding as of November 30, 2021

and August 31, 2021, respectively

1 unchanged sentence

10,000 shares authorized,

1,000 shares issued and outstanding as of May 31, 2021

1,000 shares issued and outstanding as of November 30, 2021

and August 31, 2021

7 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

Loss before income taxes

Income tax expense

Net income (loss)

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

Net loss per Class A and Class B shares

Weighted average Class A and Class B shares outstanding

6 unchanged sentences

Stock-based compensation

Exercise of stock options

Employee stock plan

Balances as of November 30, 2021

Stock-based compensation

Exercise of stock options

Balances as of February 28, 2021

Stock-based compensation

Exercise of stock options

Balances as of May 31, 2021

Stockholders'

1 unchanged sentence

Stock-based compensation

Employee stock plan

Balances as of November 30, 2020

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

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

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

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

Depreciation and amortization

1 unchanged sentence

Loss on disposal of property and equipment

Deferred income taxes

Non-cash lease expense

Inventory write-downs

Changes in operating assets and liabilities:

9 unchanged sentences

Sales tax payable

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities

4 unchanged sentences

Cash flows from financing activities

Proceeds from PPP loan

Repayment of PPP loan

Proceeds from loan from affiliate

1 unchanged sentence

Proceeds from exercise of stock options

Net cash provided by (used in) financing activities

Decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Net cash (used in) provided by financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosures of cash flow information

Cash paid for income taxes

Noncash investing activities

Amounts included in accounts payable for purchases of property and equipment

Amounts unpaid for purchases of property and equipment

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

8 unchanged sentences

Effects of COVID-19

The negative effects of the COVID-19 pandemic on the Company’s business have been significant.

In March 2020, the World Health Organization declared the novel strain of coronavirus COVID-19 a global pandemic.

This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies, supply chains and financial markets globally.

In response to this outbreak, many state and local authorities had mandated the temporary closure of non-essential businesses and dine-in restaurant activity or limited indoor dining capacities.

This contagious virus continues to spread, including recent acceleration of the spread of the Delta and Omicron variants of COVID-19 in the areas in which the Company operates.

This has adversely affected workforces, customers, economies and financial markets globally.

In response to this outbreak, many state and local authorities mandated the temporary closure of non-essential businesses and dine-in restaurant activity or limited indoor dining capacities during the Company’s previous two fiscal years.

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

As of May 31, 2021, the Company had all of its 31 restaurants operating at indoor dining capacities ranging from 50% to 100%.

In June 2021, the Company opened one new restaurant in Bellevue, Washington.

As of the filing date of this Quarterly Report on Form 10-Q, the Company had all of its 32 restaurants operating at 100% indoor capacity with no restrictions in place.

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

The Company has maintained its 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.

During the three months ended November 30, 2021, the Company opened one new restaurant in San Francisco, California, and was able to operate all of its 33 restaurants with no government restrictions on indoor dining capacity.

Subsequent to November 30, 2021, the Company opened two new restaurants in Phoenix, Arizona and Chandler, Arizona.

As of the filing date of this Quarterly Report on Form 10-Q, all of the Company’s 35 restaurants were operating with no government restrictions on indoor dining capacity.

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.

The Company has maintained cleaning and sanitizing protocols for 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 reduced capacities at its restaurants have caused a substantial decline in the Company’s comparable restaurant sales in the most recently completed fiscal quarter and year-to-date period compared to pre-pandemic levels.

In response to the challenges posed by the COVID-19 pandemic, the Company focused on maximizing its in-restaurant dining capacity as permitted by the jurisdictions where it operates, emphasizing 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.

Currently, with the lift of all indoor dining restrictions at all of its restaurants, the Company has experienced a staffing shortage and has provided certain employee retention and new hire bonuses.

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”), the majority stockholder of the Company, 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 the Company as maker and made payable to Kura Japan (the “Revolving Credit Note”).

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.

On April 9, 2021, the Company 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.

For additional information, s ee “Note 4.

Related Party Transactions” and “Note 6.

Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed by the United States Congress and signed by the President , the Company is eligible for a refundable employee retention credit subject to certain criteria.

The Company recognized a $ 6.3 million employee retention credit and a $ 1.6 million employee retention credit during the three months ended May 31, 2021 and May 31, 2020 , respectively, and recognized a n $ 8.9 million employee retention credit and a $ 1.6 million employee retention credit during the nine months ended May 31, 2021 and May 31, 2020 , respectively.

For the three months ended May 31, 2021, $ 5.8 million is included in l abor and related costs and $ 0.5 million is included in g eneral and administrative expenses in the statements of operations and for the nine months ended May 31, 2021, $ 8.0 million is included in labor and related costs and $ 0.9 million is included in general and administrative expenses in the statement of operations .

The entire amount of the employee retention credit was included in labor and related costs during the three and nine months ended May 31, 2020 .

The Company has filed for refund s of the employee retention credits and as of the date of this Quarterly Report on Form 10-Q, it has not received any refunds and cannot reasonably estimate when it will receive any or all of the refunds.

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 and nine months ended May 31, 2021.

Due to the current staffing shortage, the Company provided certain employee retention and new hire bonuses totaling $0.7 million in the three and nine months ended May 31, 2021.

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 May 31, 2021.

Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, and the subsequent extension of the CARES Act, the Company was eligible for refundable employee retention credits subject to certain criteria through the fiscal year ended August 31, 2021.

The Company has filed for refunds of the employee retention credits and during the three months ended November 30, 2021, and as of the date of this Quarterly Report on Form 10-Q, has received $ 8.0 million in refunds and cannot reasonably estimate when it will receive any or all of the remaining $ 4.1 million in refunds.

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

Basis of Presentation

6 unchanged sentences

The results of operations for interim periods are not necessarily indicative of results to be expected for the year ending August 31, 2022 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 2022”, “fiscal year 2021,” “fiscal year 2020” and “fiscal year 2019” refer to the Company’s fiscal years ending August 31, 2022 and August 31, 2021, and ended August 31, 2020 and August 31, 2019, respectively.

The Company’s fiscal year begins on September 1 and ends on August 31, and references made to “fiscal year 2022” and “fiscal year 2021” refer to the Company’s fiscal years ending August 31, 2022 and August 31, 2021, respectively.

Use of Estimates

8 unchanged sentences

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes.

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance,” which provides guidance on disclosures for transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.

The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted.

1 unchanged sentence

The Company is currently in the process of evaluating the effects of this pronouncement on its financial statements.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The Company adopted this update effective September 1, 2021.

The adoption of this update did not impact the consolidated financial statements.

Balance Sheet Components

Accounts and Other Receivables

November 30, 2021

August 31, 2021

(amounts in thousands)

Lease receivable

Credit card receivable

Lease receivables

Credit card receivables

Other receivables

1 unchanged sentence

Prepaid Expenses and Other Current Assets

November 30, 2021

August 31, 2021

5 unchanged sentences

Property and Equipment - net

November 30, 2021

August 31, 2021

7 unchanged sentences

Total property and equipment – net

Depreciation and amortization expense for property and equipment was approximately $1.2 million and $0.8 million for the three months ended May 31, 2021 and May 31, 2020, respectively, and was approximately $3.3 million and $2.2 million for the nine months ended May 31, 2021 and May 31, 2020, respectively.

Accrued Expenses and Other Current Liabilities

August 31, 2020

(amounts in thousands)

Credit card payable

Income taxes payable

Other current liabilities

Total accrued expenses and other current liabilities

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.

Lease classification, measurement, and recognition are determined at lease commencement, which is the date the underlying asset is available for use by the Company.

The accounting classification of a lease is based on whether the arrangement is effectively a financed purchase of the underlying asset (finance lease) or not (operating lease).

Depreciation and amortization expense for property and equipment was approximately $ 1.3 million and $ 1.0 million for the three months ended November 30, 2021 and November 30, 2020, respectively.

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

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 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.

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.

The operating lease ROU assets are subsequently measured at the carrying amount of the lease liability adjusted for initial direct costs, prepaid or accrued lease payments, and lease incentives.

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 statements of operations.

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 the Company’s 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, 2021 and May 31, 2020 are as follows:

Three Months Ended May 31,

Nine Months Ended May 31,

Lease related costs recognized in the statements of operations for the three months ended November 30, 2021 and 2020 are as follows:

Three Months Ended November 30,

(amounts in thousands)

6 unchanged sentences

Total finance lease cost

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(amounts in thousands)

8 unchanged sentences

Operating Leases

November 30, 2021

August 31, 2021

(amounts in thousands)

Operating lease right-of-use assets

Operating lease liabilities – current

Operating lease liabilities – non-current

Total operating lease liabilities

Right-of-use assets

Lease liabilities – current

Lease liabilities – non-current

Total lease liabilities

Finance Lease Assets – net

November 30, 2021

August 31, 2021

(amounts in thousands)

Finance lease assets

Property and equipment

Accumulated depreciation

Total finance lease assets - net

Total property and equipment – net

Finance Leases Liabilities

November 30, 2021

August 31, 2021

(amounts in thousands)

Finance lease liabilities - current

Finance lease liabilities - non-current

Finance lease – current

Finance lease – non-current

Total finance lease liabilities

Three months ended November 30,

Weighted Average Remaining Lease Term (Years)

5 unchanged sentences

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

Nine Months Ended May 31,

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, 2021, the Company had additional operating leases liabilities related to restaurants of which the Company has not yet taken possession of $22.8 million.

As of November 30, 2021, the Company had additional operating lease liabilities related to restaurants of which the Company has not yet taken possession of $ 30.8 million.

These operating leases are expected to commence in fiscal years 2022 and 2023, with lease terms of 20 years.

Subsequent to May 31, 2021, the Company entered into an additional operating lease related to a restaurant of which the Company has not yet taken possession.

The lease liabilities associated with the lease are $5.5 million.

The operating lease is expected to commence in fiscal year 2022 with a lease term of 20 years.

Maturities of lease liabilities, net of lease receivables, were as follows as of May 31, 2021:

Subsequent to November 30, 2021, the Company entered into additional operating leases related to restaurants of which the Company has not yet taken possession.

The lease liabilities associated with these leases are $ 8.6 million.

The operating leases are expected to commence in fiscal years 2022 and 2023, with lease terms of 15 years.

Maturities of lease liabilities, net of lease receivables, were as follows as of November 30, 2021:

Operating Leases

7 unchanged sentences

Kura Sushi, Inc.

(“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 certain employees to work for 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.

In addition, the Company has agreed to continue to provide Kura Japan with certain translational support services and market research analyses.

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

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

(“Kura Japan”) is the majority shareholder 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.

In addition, the Company has agreed to continue to provide Kura Japan with certain translational support services and market research.

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

A right of setoff is not required;

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

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

1 unchanged sentence

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

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.

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.

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, which was subsequently amended on September 2, 2020 and April 9, 2021, to provide the Company a credit line of $45 million.

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement, as amended, to provide the Company a revolving credit line of $ 45 million.

For additional information, see “Note 6.

Balances with Kura Japan as of May 31, 2021 and August 31, 2020 are as follows:

Balances with Kura Japan as of November 30, 2021 and August 31, 2021 are as follows:

November 30, 2021

August 31, 2021

2 unchanged sentences

Due to affiliate

Loan from affiliate

Reimbursements and other payments by the Company to Kura Japan for the three and nine months ended May 31, 2021 and May 31, 2020 were as follows:

Three Months Ended May 31,

Nine Months Ended May 31,

Reimbursements and other payments by the Company to Kura Japan for the three months ended November 30, 2021 and 2020 were as follows:

Three Months Ended November 30,

(amounts in thousands)

5 unchanged sentences

Purchases of equipment

Interest expense

Total related party transactions

Reimbursements by Kura Japan to the Company were $2 thousand and $17 thousand for the three months ended May 31, 2021 and May 31, 2020, respectively, and were $27 thousand and $86 thousand for the nine months ended May 31, 2021 and May 31, 2020, respectively.

The reimbursements were for travel and audit expenses.

Reimbursements by Kura Japan to the Company were $ 17 thousand and $ 5 thousand for the three months ended November 30, 2021 and November 30, 2020, respectively.

The reimbursements were for travel and other administrative expenses.

Stock-based Compensation

The following table summarizes the stock option activity under the Company’s 2018 Incentive Compensation Plan, as amended and restated (the “Stock Incentive Plan”) for the period from August 31, 2020 through May 31, 2021:

The following table summarizes the stock option activity under the Company’s 2018 Incentive Compensation Plan, as amended and restated (the “Stock Incentive Plan”):

Options Outstanding

7 unchanged sentences

Options canceled/forfeited

Outstanding— May 31, 2021

The Company issued seven thousand restricted stock awards during the nine months ended May 31, 2021 in addition to the option awards stated above, amounting to an expense of $32 thousand for the three months ended May 31, 2021 and $60 thousand for the nine months ended May 31, 2021.

No restricted stock awards were issued during the three months ended May 31, 2021 and the three and nine months ended May 31, 2020.

Outstanding — November 30, 2021

During the three months ended November 30, 2021, nine thousand restricted stock awards were issued, in addition to the option grants stated above, for which the Company incurred an expense of $ 38 thousand for the three months ended November 30, 2021.

Stock-based compensation for stock options issued under the Stock Incentive Plan was $ 0.4 million and $ 0.3 million for the three months ended November 30, 2021 and November 30, 2020, 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 April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement establishing a $20 million revolving credit line for the Company.

On April 9, 2021, the Company 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, and additionally, amending the interest rate for advances disbursed prior to April 10, 2021 to be fixed at 1.1% and the interest rate for advances disbursed on or after April 10, 2021 to be fixed at 130% of the Annual Compounding Long-Term Applicable Federal Rate (“AFR”) on the date such advance is made.

The AFR as of May 31, 2021 was 2.82%.

On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement, as amended, establishing a $ 45 million revolving credit line for the Company.

The maturity date for each advance is 60 months from the date of disbursement and the last day of the period of availability for the advances is April 10, 2025.

The Revolving Credit Note under the Revolving Credit Agreement has an interest rate for advances fixed at 130% of the Annual Compounding Long-Term Applicable Federal Rate (“AFR”) on the date such advance is made.

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

As of May 31, 2021, the Company had borrowed $14.0 million at a fixed interest rate of 1.1% and $3.0 million at a fixed interest rate of 2.8% under the Revolving Credit Agreement.

Interest expense for the three and nine months ended May 31, 2021 was immaterial.

As of May 31, 2021, the Company had $28.0 million of availability remaining under the Revolving Credit Agreement.

As of November 30, 2021, the Company had no outstanding balance and $ 45.0 million of availability remaining under the Revolving Credit Agreement.

For additional information, see “Note 4.

Related Party Transactions.”

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 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,

Loss Per Share

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

As the liquidation and dividend rights for Class A and Class B common stock are identical, the net loss attributable to all 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

Weighted average shares outstanding - basic

Net loss per share attributable to common stockholders – basic

Net loss attributable to common stockholders – diluted

Weighted average common shares outstanding – basic

Dilutive effect of stock-based awards

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.

Potentially dilutive common shares include dilutive outstanding employee stock options and restricted stock awards.

For the three months ended May 31, 2021 and May 31, 2020, there were 87 thousand and 21 thousand shares of common stock subject to outstanding employee stock options that were excluded from the calculation of diluted income (loss) per share because their inclusion would have been anti-dilutive.

For the nine months ended May 31, 2021 and May 31, 2020, there were approximately 586 thousand and 137 thousand shares of common stock subject to outstanding employee stock options and restricted stock awards, respectively, that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.

Weighted average common shares outstanding – diluted

Net loss per share attributable to common stockholders – diluted

The Company computes basic loss per common share using net income and the weighted average number of common shares outstanding during the period, and computes diluted loss per common share 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 November 30, 2021 and November 30, 2020, there were 623 thousand and 506 thousand shares of common stock subject to outstanding employee stock options that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive.

Commitments and Contingencies

3 unchanged sentences

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

During the three months ended May 31, 2021, a joint stipulation was filed requesting a delay in the class certification hearing date to March 3, 2022 and a mediation was scheduled for September 24, 2021.

Based on research conducted by the Company in preparation for the mediation, the Company recorded an accrued liability of $1.0 million related to this complaint within general and administrative expenses in the statements of operations during the three months ended May 31, 2021, as the liability associated with a potential settlement became probable and reasonably estimable.

The Company is unable to reasonably estimate the upper end of the range of possible loss.

There can be no assurance of the actual liability associated with this complaint, which may be higher than the estimated amount accrued during the three months ended May 31, 2021.

As the Company receives new information, it will reevaluate its estimated liability and the estimated liability may change significantly.

In May 2021, a joint stipulation was filed requesting a delay in the class certification hearing date to March 3, 2022, and a mediation was scheduled for September 24, 2021.

During the mediation, a settlement was agreed upon in the amount of $ 1.75 million.

The Company recorded an accrued liability of $ 1.78 million, including an estimated $ 30 thousand in employer payroll taxes, related to this settlement within general and administrative expenses in the statements of operations during the fiscal year ended August 31, 2021.

A court hearing to seek preliminary approval of the settlement has been scheduled for May 9, 2022.

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.

2 unchanged sentences

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

The Company recorded income tax expense of $30 thousand and $1.2 million for the three months ended May 31, 2021 and May 31, 2020, respectively, and of $88 thousand and $1.2 million for the nine months ended May 31, 2021 and May 31, 2020, respectively.

The Company’s effective tax rates for the three and nine months ended May 31, 2021 substantially differed from the federal statutory tax rate of 21% primarily due to a valuation allowance for the Company’s deferred tax assets.

The Company recorded income tax expense of $ 12 thousand and $ 29 thousand for the three months ended November 30, 2021 and November 30, 2020, respectively.

The Company’s effective tax rates for the three months ended November 30, 2021 substantially differed from the federal statutory tax rate of 21 % 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 its deferred tax assets using a “more likely than not” standard.

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 May 31, 2021 was appropriate.

On December 27, 2020, Congress passed, and the President 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.

On March 11, 2021, Congress passed, and the President signed into law, the American Rescue Plan Act, 2021 (the “ARP”), which includes certain business tax provisions.

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

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, 2021 was appropriate.

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