What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-06 compared with 2021-07-13 · 129 added, 236 removed, 166 unchanged (69% of the section changed)

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Effects of COVID-19 on Our Business

The negative effects of the COVID-19 pandemic on our 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 and financial markets and supply chains 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 the recent acceleration of the spread of the Delta and Omicron variants of COVID-19 in the areas in which we operate.

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 our previous two fiscal years.

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

Due to these government restrictions, the weighted average indoor dining capacities of our restaurants for the first quarter of fiscal 2021, second quarter of fiscal 2021 and third quarter of fiscal 2021 were 35%, 26% and 62%, respectively.

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

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

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

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

Subsequent to November 30, 2021, we 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 our 35 restaurants were operating at with no government restrictions on indoor dining capacity.

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 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 our restaurants have caused a substantial decline in our comparable restaurant sales in the three and nine months ended May 31, 2021 compared to pre-pandemic levels in the three and nine months ended May 31, 2019 of 19% and 39%, respectively.

In response to the ongoing challenges posed by the COVID-19 pandemic, we 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.

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

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.

The future sales levels of our restaurants and our ability to implement our 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 Our Financial Position

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

(“Kura Japan”), our majority stockholder, entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) whereby Kura Japan agreed to make available to us 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.

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 May 31, 2021, we had borrowings outstanding of $17.0 million under the Revolving Credit Agreements.

Related Party Transactions” and “Note 6.

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

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 $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 and recognized a $8.9 million employee retention credit and a $1.6 million 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 labor and related costs and $0.5 million is included in general 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 value of the employee retention credit was included in labor and related costs during the three and nine months ended May 31, 2020.

We have filed for refunds of the employee retention credits and as of the date of this Quarterly Report on Form 10-Q, we have not received any refunds and cannot reasonably estimate when we will receive any or all of the refunds.

We believe we became ineligible for further employee retention credits upon the lifting of indoor dining restrictions on our California restaurants effective June 15, 2021.

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 nine months ended May 31, 2021.

Due to the current staffing shortage, we 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 impact of COVID-19, we assessed our long-lived assets for potential impairment, which resulted in no impairment charges recorded as of May 31, 2021.

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

We also provide 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.

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, we were eligible for refundable employee retention credits subject to certain criteria through the fiscal year ended August 31, 2021.

We have 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, received $8.0 million in refunds and cannot reasonably estimate when we will receive any or all of the remaining $4.1 million in refunds.

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

Key Financial Definitions

Sales represent sales of food and beverages in restaurants.

Restaurant sales in a given period are directly impacted by the number of restaurants we operate and comparable restaurant sales growth.

Restaurant sales in a given period are directly impacted by the number of restaurants we operate and comparable restaurant sales performance.

Food and beverage costs.

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Other important factors causing fluctuations in food and beverage costs include seasonality and restaurant-level management of food waste.

Food and beverage costs are a substantial expense and are expected to grow proportionally as our sales grows.

Food and beverage costs are a substantial expense and are expected to grow proportionally as our sales grow.

Labor and related expenses.

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

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

Similar to the food and beverage costs that we incur, labor and related expenses are expected to grow proportionally as our sales grow.

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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Depreciation and amortization expenses.

Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation and amortization of fixed assets, including equipment and capitalized leasehold improvements.

Depreciation and amortization are determined using the straight-line method over the assets’ estimated useful lives, ranging from three to 20 years.

Other costs include utilities, repairs and maintenance, credit card fees, royalty payments to Kura Japan, stock-based compensation expenses for restaurant-level employees and other restaurant-level expenses.

Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including equipment and capitalized leasehold improvements.

Depreciation is determined using the straight-line method over the assets’ estimated useful lives, ranging from three to 20 years.

Other costs include credit card processing fees, repairs and maintenance, restaurant-level advertising and promotions, restaurant supplies, royalty payments to Kura Japan, stock-based compensation expenses for restaurant-level employees, utilities and other restaurant-level expenses .

General and administrative expenses.

General and administrative expenses include expenses associated with corporate and regional supervision functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, travel expenses, stock-based compensation expenses for corporate-level employees, legal and professional fees, marketing costs, information systems, corporate office rent and other related corporate costs.

General and administrative expenses are expected to grow as our unit base grows, including incremental legal, accounting, insurance and other expenses.

General and administrative expenses are expected to grow as our unit base grows.

Interest expense.

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Interest income includes income earned on our investments.

Income tax expense (benefit).

Income tax expense.

Provision for income taxes represents federal, state and local current and deferred income tax expense.

Results of Operations

The following tables present selected comparative results of operations for the three and nine months ended May 31, 2021 and May 31, 2020.

The following tables present selected comparative results of operations for the three months ended November 30, 2021 and 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 tables below may not sum to 100% due to rounding.

Three Months Ended May 31,

(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 income (loss)

Other expense (income):

Interest expense

Interest income

Income (loss) before income taxes

Income tax expense

Net income (loss)

Nine Months Ended May 31,

Three Months Ended November 30,

(dollar amounts in thousands)

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Total operating expenses

Operating income (loss)

Operating loss

Other expense (income):

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Interest income

Income (loss) before income taxes

Loss before income taxes

Income tax expense

Net income (loss)

Three Months Ended May 31,

Nine Months Ended May 31,

Three Months Ended November 30,

(as a percentage of sales)

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Total operating expenses

Operating income (loss)

Operating loss

Other expense (income):

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Interest income

Income (loss) before income taxes

Income tax expense

Net income (loss)

Three Months Ended May 31, 2021 Compared to Three Months Ended May 31, 2020

Sales were $18.5 million for the three months ended May 31, 2021 compared to $2.8 million for the three months ended May 31, 2020, representing an increase of approximately $15.7 million, or 556.9%.

The increase in sales was primarily driven by an increased level of operating capacities of our restaurants as the prior year sales were impacted by the temporary closure of our restaurants as mandated by local government restrictions during the three months ended May 31, 2020 in response to the COVID-19 pandemic, as well as the sales from six new restaurants opened subsequent to May 31, 2020 and an increase in off-premises sales.

As of May 31, 2021, all 31 of our restaurants were open with at least 50% indoor dining capacity.

Food and beverage costs.

Food and beverage costs were $5.9 million for the three months ended May 31, 2021 compared to $1.1 million for the three months ended May 31, 2020, representing an increase of approximately $4.8 million or 447.2%.

The increase in food and beverage costs was primarily driven by an increased level of operating capacities of our restaurants as the prior year was impacted by the temporary closure of our restaurants as mandated by local government restrictions during the three months ended May 31, 2020 in response to the COVID-19 pandemic, as well as costs associated with sales from six new restaurants opened subsequent to May 31, 2020.

As a percentage of sales, food and beverage costs was 31.7% in the three months ended May 31, 2021, compared to 38.0% in the three months ended May 31, 2020.

The decrease in percentage of sales is primarily due to higher inventory spoilage during the three months ended May 31, 2020 as compared to the three months ended May 31, 2021.

Labor and related costs.

Labor and related costs were $1.6 million for the three months ended May 31, 2021 compared to $3.6 million for the three months ended May 31, 2020, representing a decrease of approximately $2.0 million, or 53.6%.

Labor and related costs decreased as a result of $5.8 million of employee retention credits recognized under the CARES Act extension during the three months ended May 31, 2021, compared to $1.6 million of employee retention credits recognized during the three months ended May 31, 2020.

This was partially offset by an increased level of operating capacities of our restaurants as the prior year was impacted by the temporary closure of our restaurants as mandated by local government restrictions during the three months ended May 31, 2020 in response to the COVID-19 pandemic, $0.7 million in employee retention and new hire bonuses during the three months ended May 31, 2021, as well as additional labor costs incurred from six new restaurants opened subsequent to May 31, 2020.

As a percentage of sales, labor and related costs decreased to 8.9% in the three months ended May 31, 2021, compared to 126.3% in the three months ended May 31, 2020.

The decrease in labor and related costs as a percentage of sales was primarily due to the recognition of the employee retention credits and the prior year retention of certain restaurant employees during the temporary restaurant closures, partially offset by employee bonuses.

Occupancy and related expenses.

Occupancy and related expenses were $ 1.9 million for the three months ended May 31, 2021 compared to $ 1.6 million for the three months ended May 31, 2020 , representing an increase of $ 0.3 million .

As a percentage of sales, occupancy and related expenses decreased to 10.2 % in the three months ended May 31, 2021 , compared to 56.5 % in the three months ended May 31, 2020 .

The decrease as a percentage of sales was primarily driven by the increase in sales due to the increased level of operating capacit ies of our restaurants as the prior year sales were impacted by the temporary closure of our restaurants as mandated by local government restrictions during the three months ended May 31, 2020 in response to the COVID-19 pandemic.

Depreciation and amortization expenses.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $1.1 million for the three months ended May 31, 2021 compared to $0.7 million for the three months ended May 31, 2020, representing an increase of approximately $0.4 million, or 46.2%.

The increase was primarily due to depreciation of property and equipment related to the six new restaurants opened subsequent to May 31, 2020.

As a percentage of sales, depreciation and amortization expenses at the restaurant level decreased to 5.9% in the three months ended May 31, 2021 as compared to 26.4% in the three months ended May 31, 2020.

The decrease as a percentage of sales was primarily driven by the increase in sales due to the increased level of operating capacities of our restaurants as the prior year sales were impacted by the temporary closure of our restaurants as mandated by local government restrictions during the three months ended May 31, 2020 in response to the COVID-19 pandemic.

Depreciation and amortization expenses incurred at the corporate level were $0.1 million for the three months ended May 31, 2021 and were immaterial for the three months ended May 31, 2020, and as a percentage of sales were 0.7% and 1.4%, respectively.

Other costs were $2.7 million for the three months ended May 31, 2021 compared to $1.0 million for the three months ended May 31, 2020, representing an increase of approximately $1.7 million, or 181.4%.

The increase was primarily driven by an increase in credit card fees due to higher sales during three months ended May 31, 2021, as well as costs related to six new restaurants opened subsequent to May 31, 2020.

As a percentage of sales, other costs decreased to 14.7% in the three months ended May 31, 2021 from 34.3% in the three months ended May 31, 2020, primarily driven by the increase in sales due to the increased level of operating capacities of our restaurants as the prior year was impacted by costs that are not directly variable with the decrease in sales due to the temporary closure of our restaurants as mandated by local government restrictions during the three months ended May 31, 2020 in response to the COVID-19 pandemic.

General and administrative expenses.

General and administrative expenses were $4.3 million for the three months ended May 31, 2021 compared to $2.9 million for the three months ended May 31, 2020, representing an increase of approximately $1.4 million, or 48.8%.

This increase in general and administrative expenses was primarily due to an accrued estimated liability of $1.0 million associated with pending litigation and $1.1 million in increased compensation expenses, which was partially offset by a $0.5 million employee retention credit recognized under the CARES Act extension.

As a percentage of sales, general and administrative expenses decreased to 23.2% in the three months ended May 31, 2021 from 102.6% in the three months ended May 31, 2020, primarily driven by the increase in sales due to the increased level of operating capacities of our restaurants as the prior year sales were impacted by the temporary closure of our restaurants as mandated by local government restrictions during the three months ended May 31, 2020 in response to the COVID-19 pandemic.

Interest expense.

Interest expense was $67 thousand for the three months ended May 31, 2021 and was $36 thousand for the three months ended May 31, 2020.

Interest income.

Interest income was $1 thousand for the three months ended May 31, 2021 compared to $65 thousand for the three months ended May 31, 2020, due to a decrease in our cash and cash equivalents balance.

Loss before income taxes

Income tax expense

Income tax expense was $30 thousand for the three months ended May 31, 2021 compared to $1.2 million for the three months ended May 31, 2020.

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

Income Taxes” in the Notes to Condensed Financial Statements.

Nine Months Ended May 31, 2021 Compared to Nine Months Ended May 31, 2020

Sales were $37.0 million for the nine months ended May 31, 2021 compared to $39.6 million for the nine months ended May 31, 2020, representing a decrease of approximately $2.6 million or 6.7%.

The decrease in sales was primarily driven by local government restrictions in response to the COVID-19 pandemic limiting operating capacities of our restaurants during the nine months ended May 31, 2021, which had a greater impact than the temporary closure of our restaurants that occurred during the nine months ended May 31, 2020.

The decrease was partially offset by the sales of six new restaurants opened subsequent to May 31, 2020 and an increase in off-premises sales.

Three Months Ended November 30, 2021 Compared to Three Months Ended November 30, 2020

Sales were $29.8 million for the three months ended November 30, 2021 compared to $9.4 million for the three months ended November 30, 2020, representing an increase of approximately $20.4 million, or 216.9%.

The increase in sales was primarily driven by all of our restaurants operating with no government restrictions on indoor dining capacity whereas the prior year sales were impacted by indoor dining capacity restrictions mandated by local government regulations in response to the COVID-19 pandemic, as well as the sales from five new restaurants opened subsequent to November 30, 2020, and an increase in off-premises sales.

Food and beverage costs.

Food and beverage costs were $ 12.1 million for the nine months ended May 31, 2021 compared to $ 12.9 million for the nine months ended May 31, 2020 , representing a decrease of approximately $ 0.8 million , or 6.1 %.

The decrease in food and beverage costs was primarily driven by local government restrictions in response to the COVID-19 pandemic limiting operating capacities of our restaurants during the nine months ended May 31, 2021 , which had a greater impact than the temporary closure of our restaurants that occurred during the nine months ended May 31, 2020 .

The decrease was partially offset by the costs related to sales from six new restaurants opened subsequent to May 31, 2020 .

As a percentage of sales, food and beverage costs was 32.7 % in the nine months ended May 31, 2021 , compared to 32.5 % in the nine months ended May 31, 2020 .

Food and beverage costs were $9.0 million for the three months ended November 30, 2021 compared to $3.1 million for the three months ended November 30, 2020, representing an increase of approximately $5.9 million, or 193.4%.

The increase in food and beverage costs was primarily driven by all of our restaurants operating with no government restrictions on indoor dining capacity whereas the prior year was impacted by indoor dining capacity restrictions mandated by local government regulations in response to the COVID-19 pandemic, as well as costs associated with sales from five new restaurants opened subsequent to November 30, 2020.

As a percentage of sales, food and beverage costs decreased to 30.0% in the three months ended November 30, 2021 as compared to 32.4% in the three months ended November 30, 2020, primarily due to an increase in menu prices, as well as higher inventory spoilage in the prior year.

Labor and related costs.

Labor and related costs were $8.1 million for the nine months ended May 31, 2021 compared to $15.3 million for the nine months ended May 31, 2020, representing a decrease of approximately $7.2 million, or 47.4%.

Labor and related costs decreased as a result of a $8.0 million of employee retention credits recognized under the CARES Act extension during the nine months ended May 31, 2021, compared to $1.6 million of employee retention credits recognized during the nine months ended May 31, 2020, and local government restrictions in response to the COVID-19 pandemic limiting operating capacities of our restaurants during the nine months ended May 31, 2021, which had a greater impact than the temporary closure of our restaurants that occurred during nine months ended May 31, 2020.

The decrease was partially offset by $0.7 million in employee retention and new hire bonuses during the nine months ended May 31, 2021, and additional labor costs incurred from six new restaurants opened subsequent to May 31, 2020.

As a percentage of sales, labor and related costs decreased to 21.8% in the nine months ended May 31, 2021, compared to 38.7% in the nine months ended May 31, 2020.

The decrease in labor and related costs as a percentage of sales was primarily due to the employee retention credits, partially offset by the employee bonuses.

Labor and related costs were $9.7 million for the three months ended November 30, 2021 compared to $4.4 million for the three months ended November 30, 2020, representing an increase of approximately $5.3 million, or 122.7%.

Labor and related costs increased as a result of all of our restaurants operating with no government restrictions on indoor dining capacity as the prior year was impacted by indoor dining capacity restrictions mandated by local government regulations in response to the COVID-19 pandemic, whereas well as additional labor costs incurred from five new restaurants opened subsequent to November 30, 2020.

As a percentage of sales, labor and related costs decreased to 32.5% in the three months ended November 30, 2021 as compared to 46.3% in the three months ended November 30, 2020, primarily due to minimum staffing requirements to operate the restaurants at reduced operating capacities in the prior year.

Occupancy and related expenses.

Occupancy and related expenses were $5.2 million for the nine months ended May 31, 2021 compared to $4.7 million for the nine months ended May 31, 2020, representing an increase of approximately $0.5 million, or 11.5%.

The increase was primarily a result of additional lease expense incurred with respect to six new restaurants opened subsequent to May 31, 2020.

As a percentage of sales, occupancy and related expenses increased to 14.1% in the nine months ended May 31, 2021, compared to 11.8% in the nine months ended May 31, 2020.

The increase as a percentage of sales was primarily driven by local government restrictions in response to the COVID-19 limiting our operating capacities of our restaurants during the nine months ended May 31, 2021, which had a greater impact than the temporary closure of our restaurants that occurred during the nine months ended May 31, 2020.

Occupancy and related expenses were $2.2 million for the three months ended November 30, 2021 compared to $1.7 million for the three months ended November 30, 2020, representing an increase of $0.5 million.

The increase was primarily a result of additional lease expense related to the opening of five new restaurants subsequent to November 30, 2020.

As a percentage of sales, occupancy and related expenses decreased to 7.4% in the three months ended November 30, 2021 as compared to 18.0% in the three months ended November 30, 2020, primarily driven by leverage benefits from the increase in sales.

Depreciation and amortization expenses.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $3.0 million for the nine months ended May 31, 2021 compared to $2.1 million for the nine months ended May 31, 2020, representing an increase of approximately $0.9 million, or 42.4%.

The increase was primarily due to depreciation of property and equipment related to six new restaurants opened subsequent to May 31, 2020.

As a percentage of sales, depreciation and amortization expenses at the restaurant level increased to 8.2% in the nine months ended May 31, 2021 as compared to 5.3% in the nine months ended May 31, 2020.

The increase as a percentage of sales is primarily due to local government restrictions in response to the COVID-19 limiting our operating capacities of our restaurants during the nine months ended May 31, 2021, which had a greater impact than the temporary closure of our restaurants during the nine months ended May 31, 2020.

Depreciation and amortization expenses incurred at the corporate level were $0.3 million for the nine months ended May 31, 2021 and were $0.1 million for the nine months ended May 31, 2020.

As a percentage of sales, depreciation and amortization expenses incurred at the corporate level were 0.8% and 0.2%, respectively.

Other costs were $6.8 million for the nine months ended May 31, 2021 compared to $5.2 million for the nine months ended May 31, 2020, representing an increase of approximately $1.6 million, or 31.1%.

The increase was primarily driven by an increase in small tools expense during the nine months ended May 31, 2021, as well as costs related to six new restaurants opened subsequent to May 31, 2020.

As a percentage of sales, other costs increased to 18.5% in the nine months ended May 31, 2021 from 13.2% in the nine months ended May 31, 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.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $1.2 million for the three months ended November 30, 2021 compared to $0.9 million for the three months ended November 30, 2020, representing an increase of approximately $0.3 million, or 26.3%.

The increase was primarily due to depreciation of property and equipment related to the five new restaurants opened subsequent to November 30, 2020.

As a percentage of sales, depreciation and amortization expenses at the restaurant level decreased to 3.9% in the three months ended November 30, 2021 as compared to 9.8% in the three months ended November 30, 2020, primarily driven by leverage benefits from the increase in sales.

Depreciation and amortization expenses incurred at the corporate level were $0.1 million for the three months ended November 30, 2021 and 2020 and as a percentage of sales were 0.3% and 0.8%, respectively.

Other costs were $3.6 million for the three months ended November 30, 2021 compared to $2.1 million for the three months ended November 30, 2020, representing an increase of approximately $1.5 million, or 73.6%.

The increase was primarily driven by an increase in credit card fees, utilities and supplies due to higher sales, as well as costs related to five new restaurants opened subsequent to November 30, 2020.

As a percentage of sales, other costs decreased to 12.1% in the three months ended November 30, 2021 as compared to 22.1% in the three months ended November 30, 2020, primarily driven by leverage benefits from the increase in sales.

General and administrative expenses.

General and administrative expenses were $10.7 million for the nine months ended May 31, 2021 compared to $9.0 million for the nine months ended May 31, 2020, representing an increase of approximately $1.7 million, or 18.8%.

This increase in general and administrative expenses was primarily due to an accrued estimated liability of $1.0 million associated with pending litigation and $1.7 million in increased compensation expenses, partially offset by a $0.9 million employee retention credit recognized under the CARES Act extension.

As a percentage of sales, general and administrative expenses increased to 28.9% in the nine months ended May 31, 2021 from 22.7% in the nine months ended May 31, 2020, primarily due to local government restrictions in response to the COVID-19 pandemic limiting our operating capacities of our restaurants during the nine months ended May 31, 2021, which had a greater impact than the temporary closure of our restaurants during nine months ended May 31, 2020.

General and administrative expenses were $5.4 million for the three months ended November 30, 2021 compared to $3.5 million for the three months ended November 30, 2020, representing an increase of approximately $1.9 million, or 52.2%.

This increase in general and administrative expenses was primarily due to $1.4 million in compensation-related expenses, $0.4 million in legal and consulting fees, $0.2 million in travel costs and $0.3 million in other costs, partially offset by $0.4 million in executive transition costs in the prior year.

As a percentage of sales, general and administrative expenses decreased to 18.0% in the three months ended November 30, 2021 from 37.4% in the three months ended November 30, 2020, primarily driven by leverage benefits from the increase in sales.

Interest expense.

Interest expense was $ 0.2 million for the nine months ended May 31, 2021 and was $ 0.1 million for the nine months ended May 31, 2020 .

Interest expense was $25 thousand for the three months ended November 30, 2021 compared to $34 thousand for the three months ended November 30, 2020.

Interest income .

Interest income was $8 thousand for the nine months ended May 31, 2021 compared to $432 thousand for the nine months ended May 31, 2020, due to a decrease in our cash and cash equivalents balance during the nine months ended May 31, 2021.

Interest income was $ 26 thousand for the three months ended November 30, 2021 compared to $ 4 thousand for the three months ended November 30, 2020 .

Income tax expense.

Income tax expense was $88 thousand for the nine months ended May 31, 2021 compared to $1.2 million for the nine months ended May 31, 2020.

Income tax expense was $12 thousand for the three months ended November 30, 2021 compared to $29 thousand for the three months ended November 30, 2020.

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

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In assessing the performance of our business, we consider a variety of financial and performance measures.

The key measures for determining how our business is performing include sales, EBITDA, Adjusted EBITDA, Restaurant-level Operating Profit, Restaurant-level Operating Profit margin, comparable restaurant sales performance, and number of restaurant openings.

The key measures for determining how our business is performing include sales, EBITDA, Adjusted EBITDA, Restaurant-level Operating Profit, Restaurant-level Operating Profit margin, Average Unit Volumes (“AUVs”), comparable restaurant sales performance, and the number of restaurant openings.

Sales represents sales of food and beverages in restaurants, as shown on our statements of operations.

Several factors affect our restaurant sales in any given period including the number of restaurants in operation, guest traffic and average check amount.

Several factors affect our restaurant sales in any given period, including the number of restaurants in operation, guest traffic and average check.

EBITDA and Adjusted EBITDA

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 employee retention credit, litigation accrual and certain executive transition costs, that we believe are not indicative of our 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.

We believe that EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results.

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

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 credits, litigation accrual, and certain executive transition costs, that we believe are not indicative of our core operating results.

Adjusted EBITDA margin is defined as Adjusted EBITDA divided by sales.

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

We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results.

However, these measures may not provide a complete understanding of the operating results of the Company as a whole and such measures should be reviewed in conjunction with our GAAP financial results.

We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors.

However, you should be aware when evaluating EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures.

We believe that the use of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors.

However, you should be aware when evaluating EBITDA, Adjusted EBITDA and Adjusted EBITDA margin that in the future we may incur expenses similar to those excluded when calculating these measures.

In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

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 (loss) to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table reconciles net income ( loss ) to EBITDA and Adjusted EBITDA for the three and nine months ended May 31, 2021 and May 31, 2020 :

Three Months Ended May 31,

Nine Months Ended May 31,

Our computation of Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA and Adjusted EBITDA margin in the same fashion.

Because of these limitations, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

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

You should review the reconciliation of net loss to EBITDA, Adjusted EBITDA and Adjusted EBITDA margin 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 months ended November 30, 2021 and 2020 :

Three Months Ended November 30,

(amounts in thousands)

Net income (loss)

Interest expense (income), net

Interest (income) expense, net

Income tax expense

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Executive transition costs (c)

Employee retention credit (d)

Litigation accrual (e)

Adjusted EBITDA

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For further details of stock-based compensation, see “Note 5.

Stock-based Compensation” to the financial statements included in this Quarterly Report on Form 10-Q.

Stock-based Compensation” in the notes to condensed financial statements included in this Quarterly Report on Form 10-Q.

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.

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 and extension thereof.

Accrual related to a litigation claim.

Commitments and Contingencies” to the financial statements includes in this Quarterly Report on Form 10-Q.

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

Restaurant-level Operating Profit is defined as operating income (loss) plus depreciation and amortization expenses;

Restaurant-level Operating Profit (Loss) is defined as operating income (loss) plus depreciation and amortization;

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 ;

non-cash lease expense;

asset disposals, closure costs and restaurant impairments;

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.

Restaurant-level Operating Profit and Restaurant-level Operating Profit margin are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP.

We believe that Restaurant-level Operating Profit and Restaurant-level Operating Profit margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results.

and asset disposals, closure costs and restaurant impairments;

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

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

Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP.

We believe that Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results, as these measures depict normal, recurring cash operating expenses essential to supporting the development and operations of our restaurants .

We expect Restaurant-level Operating Profit to increase in proportion to the number of new restaurants we open and our comparable restaurant sales growth, if any.

We present Restaurant-level Operating Profit because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant level.

We also use Restaurant-level Operating Profit to measure operating performance and returns from opening new restaurants.

Restaurant-level Operating Profit margin allows us to evaluate the level of Restaurant-level Operating Profit generated from sales.

However, you should be aware that Restaurant-level Operating Profit and Restaurant-level Operating Profit margin are financial measures which are not indicative of overall results for the Company, and Restaurant-level Operating Profit and Restaurant-level Operating Profit margin do not accrue directly to the benefit of stockholders because of corporate-level expenses excluded from such measures.

In addition, when evaluating Restaurant-level Operating Profit and Restaurant-level Operating Profit margin, you should be aware that in the future we may incur expenses similar to those excluded when calculating these measures.

We expect Restaurant-level Operating Profit (Loss) to increase in proportion to the number of new restaurants we open and upon comparable restaurant sales growth, if any.

We present Restaurant-level Operating Profit (Loss) because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant-level.

We also use Restaurant-level Operating Profit (Loss) to measure operating performance and returns from opening new restaurants.

Restaurant-level Operating Profit (Loss) margin allows us to evaluate the level of Restaurant-level Operating Profit (Loss) generated from sales.

However, you should be aware that Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin are financial measures which are not indicative of overall results for the Company, and Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin do not accrue directly to the benefit of stockholders because of corporate-level expenses excluded from such measures.

In addition, when evaluating Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin, you should be aware that in the future we may incur expenses similar to those excluded when calculating these measures.

Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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 income (loss) to Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin for the three and nine months ended May 31, 2021 and May 31, 2020:

Three Months Ended May 31,

Nine Months Ended May 31,

Our computation of Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin may not be

comparable to other similarly titled measures computed by other companies, because all companies may not calculate Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin in the same fashion.

Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin have limitations as analytical tools, and you should not consider them in isolation or as substitute s 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 months ended November 30, 2021 and 2020:

Three Months Ended November 30,

(amounts in thousands)

Operating income (loss)

Operating loss

Depreciation and amortization expenses

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Non-cash lease expense (c)

Employee retention credit (d)

General and administrative expenses

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

Corporate-level stock-based compensation in general and administrative expenses

Restaurant-level operating profit (loss)

Operating profit (loss) margin

Operating loss margin

Restaurant-level operating profit (loss) margin

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For further details of stock-based compensation, see “Note 5.

Stock-based Compensation” to the financial statements included in this Quarterly Report on Form 10-Q.

Stock-based Compensation” in the notes to condensed financial statements included in this Quarterly Report on Form 10-Q.

Pre-opening costs consist of labor costs and travel expenses for new employees and trainers during the training period, recruitment fees, legal fees, cash-based lease expenses incurred between the date of possession and opening day of our restaurants, and other related pre-opening costs.

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 and extension thereof.

Comparable Restaurant Sales Performance

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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.

Performance in comparable restaurant sales represents the percent change in sales from the same period in the prior year for the comparable restaurant base.

We did not make any adjustments for the temporary restaurant closures due to COVID-19 during the three and nine months ended May 31, 2021 and May 31, 2020 .

We did not make any adjustments for the temporary restaurant closures due to COVID-19 during the three months ended November 30, 2021 and 2020 .

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

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guest traffic;

per-guest spend and average check amount;

per-guest spend and average check;

marketing and promotional efforts;

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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 and nine months ended May 31, 2021 and May 31, 2020:

Three Months Ended May 31,

Nine Months Ended May 31,

The following table shows the comparable restaurant sales performance for the three months ended November 30, 2021 and 2020:

Three Months Ended November 30,

Comparable restaurant sales performance (%)

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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 and nine months ended May 31, 2021 and May 31, 2020:

Three Months Ended May 31,

Nine Months Ended May 31,

The following table shows the growth in our restaurant base for the three months ended November 30, 2021 and 2020:

Three Months Ended November 30,

Restaurant activity:

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End of period

Subsequent to May 31, 2021, we opened one new restaurant in Bellevue, Washington.

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

Liquidity and Capital Resources

Our primary uses of cash are for operational expenditures and capital investments, including new restaurants, costs incurred for restaurant remodels and restaurant fixtures.

Historically, our main sources of liquidity have been cash flows from operations, cash proceeds from our initial public offering in fiscal 2019 and proceeds under our Revolving Credit Agreement.

The continuing impact of the COVID-19 pandemic is highly uncertain and management expects that the current restaurant sales levels and ongoing length and severity of the economic downturn may have a material adverse impact on our business, financial condition, liquidity and financial results.

For further discussion, see above under “—Business Trends;

Historically, our main sources of liquidity have been cash flows from operations, cash proceeds from our initial public offering in fiscal 2019 and our secondary offering in fiscal 2021 and availability under our Revolving Credit Agreement.

T he ongoing impact of the COVID-19 pandemic remains highly uncertain and may have a material adverse impact on our business, financial condition, liquidity and financial results.

For further discussion, see above “Business Trends;

Effects of COVID-19 on our Business .”

On May 7, 2021, we filed a universal shelf registration statement on Form S-3 (the “Registration Statement”) with the SEC in accordance with the Securities Act of 1933, as amended (the “Securities Act”).

The Registration Statement was declared effective on May 17, 2021 and registers Class A common stock, preferred stock, depositary shares, warrants, subscription rights, share purchase contracts, share purchase units, and any combination of the foregoing, for a maximum aggregate offering price of up to $50 million, which may be sold from time to time.

The terms of any securities offered under the Registration Statement and intended use of proceeds will be established at the times of the offerings and will be described in prospectus supplements filed with the SEC at the times of the offerings.

The Registration Statement has a three-year term from May 17, 2021, the date of effectiveness.

During the three months ended May 31, 2021, we borrowed $5.0 million under the Revolving Credit Agreement.

As of May 31, 2021, we had outstanding borrowings of $17.0 million under the Revolving Credit Agreement and have $28.0 million of availability remaining.

During the three months ended November 30, 2021, we had no borrowings under the Revolving Credit Agreement and have $45 million of availability remaining.

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 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 existing line of credit 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

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

Nine Months Ended May 31,

Three Months Ended November 30,

Statement of Cash Flow data:

(amounts in thousands)

Net cash used in operating activities

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Cash Flows Used in Operating Activities

Net cash used in operating activities during the nine months ended May 31, 2021 was $9.7 million, which results from net loss of $9.5 million, non-cash charges of $3.3 million for depreciation and amortization, $1.0 million for stock-based compensation, and $2.0 million in non-cash lease expense, and net cash outflows of approximately $6.6 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 $9.0 million in prepaid expenses and other current assets, and $1.2 million in accounts and other receivables, and a decrease of $1.0 million in operating lease liabilities.

The cash outflow is partially offset by increases of $3.0 million in salaries and wages payable, $1.1 million in accrued expenses and other current liabilities and $0.5 million sales tax payable.

The increases in prepaid expenses and other current assets was primarily due to the employee retention credit recognized under the CARES Act extension.

Net cash used in operating activities during the nine months ended May 31, 2020 was $10.7 million, which results from net loss of $10.5 million, non-cash charges of $2.2 million for depreciation and amortization, $0.6 million for stock-based compensation, $1.7 million in noncash lease expense, and $1.1 million for deferred income taxes, and net cash outflows of approximately $5.8 million from changes in operating assets and liabilities.

The net cash outflows from changes in operating assets and liabilities were primarily the result of decreases of $3.0 million for accounts payable, $0.9 million for operating lease liabilities, $0.9 million for accrued expenses and other current liabilities, $0.5 million for sales tax payable, and $0.3 million for salaries and wages payable, as well as increases of $0.8 million for accounts and other receivables, $1.2 million for prepaid expenses and other current assets, and $0.2 million for amounts due from affiliate.

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

The increase in accounts and other receivables was due to the timing of tenant allowance receivables as well as lower credit card receivable balances at May 31, 2020 due to the temporary restaurant closures.

Net cash (used in) provided by financing activities

Cash Flows Provided by (Used in) Operating Activities

Net cash provided by operating activities during the three months ended November 30, 2021 was $10.6 million, which results from a net loss of $1.3 million offset by non-cash charges of $1.3 million for depreciation and amortization, $0.4 million for stock-based compensation, and $0.7 million in non-cash lease expense, and net cash inflows of approximately $9.4 million from changes in operating assets and liabilities.

The net cash inflows from changes in operating assets and liabilities were primarily the result of $8.3 million in prepaid expenses and other current assets, $0.1 million in accounts and other receivables, an increase of $0.2 million in operating lease liabilities and $0.3 million in due from our affiliate Kura Japan.

The change in prepaid expenses and other current assets was primarily due to the receipt of employee retention credits under the CARES Act extension during the three months ended November 30, 2021.

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 our affiliate Kura Japan.

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

Cash Flows Used in Investing Activities

Net cash used in investing activities during the nine months ended May 31, 2021 was $11.5 million, primarily due to purchases of property and equipment.

The increase in purchases of property and equipment in the nine months ended May 31, 2021 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects.

Net cash used in investing activities during the nine months ended May 31, 2020 was $ 9.6 million , primarily due to purchases of property and equipment.

The increase in purchases of property and equipment in the nine months ended May 31, 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 nine months ended May 31, 2021 was $16.7 million and is primarily due to $17.0 million in loan proceeds from our Revolving Credit Agreement.

Net cash used in financing activities during the nine months ended May 31, 2020 was $0.7 million primarily due to repayment of principal on financing leases.

Net cash used in investing activities during the three months ended November 30, 2021 was $6.3 million, primarily due to purchases of property and equipment.

The purchases of property and equipment in the three months ended November 30, 2021 is primarily related to capital expenditures for current and future restaurant openings and renovations, maintaining our existing restaurants and other projects.

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 is primarily related to capital expenditures for current and future restaurant openings, renovations, maintaining our existing restaurants and other projects.

Cash Flows (Used in) Provided by Financing Activities

Net cash used in financing activities during the three months ended November 30, 2021 was $0.2 million and is primarily due to $0.3 million in repayments of principal on finance leases.

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

Contractual Obligations

As of May 31, 2021, we had $2.1 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 fiscal years 2021 and 2022.

As of November 30, 2021, we had $3.4 million in contractual obligations relating to the construction of new restaurants and purchase commitments for goods related to restaurant operations.

All contractual obligations are expected to be paid during the fiscal year 2022.

For operating and finance lease obligations, see “Note 3.

Leases” to the financial statements included in this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

As of May 31, 2021, we did not have any material off-balance sheet arrangements.

Leases” in the Notes to Condensed Financial Statements included in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

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We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

Our critical accounting policies are those that materially affect our financial statements and involve subjective or complex judgments by management.

Our critical accounting policies are those that materially affect our financial statements.

Our critical accounting estimates are those that involve subjective or complex judgments by management.

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.

We believe the impairment of long-lived assets estimate is affected by significant judgments and estimates used in the preparation of our financial statements and that the judgments and estimates are reasonable.

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, 2021.

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Jumpstart Our Business Startups Act of 2012

We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

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We may take advantage of these exemptions until we are no longer an emerging growth company.

We will continue to be an emerging growth company until the earliest to occur of ( i ) the last day of the fiscal year in which the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we had total annual gross revenue of $1 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering .

We will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we had total annual gross revenue of $1 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO.

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