What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-07 compared with 2022-01-06 · 142 added, 71 removed, 224 unchanged (49% of the section changed)

16 unchanged sentences

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

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.

During the three months ended February 28, 2022, we opened three new restaurants in Phoenix, Arizona, Chandler, Arizona and San Antonio, Texas, and were able to operate all of our 36 restaurants with no government restrictions on indoor dining capacity.

Subsequent to February 28, 2022, we opened one new restaurant in Watertown, MA.

As of the filing date of this Quarterly Report on Form 10-Q, all of our 37 restaurants were operating 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.

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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.

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

As of August 31, 2021, we had recognized and filed for refunds of the amount of $12.1 million of employee retention credits.

During the six months ended February 28, 2022, and as of the date of this Quarterly Report on Form 10-Q, we 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.

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, including the recent acceleration of the spread of the Delta and Omicron variants of COVID-19.

It is possible that renewed outbreaks, increases in cases and/or new variants

of the disease, either as part of a national trend or on a more localized basis, could result in additional COVID-19 related restrictions including capacity restrictions , or otherwise limit our dine-in services, or negatively affect consumer demand.

Key Financial Definitions

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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 .

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 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 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 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.

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Interest income.

Interest income includes income earned on our investments.

Interest income includes income earned on our money market funds.

Income tax expense.

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Results of Operations

The following tables present selected comparative results of operations for the three months ended November 30, 2021 and 2020.

The following tables present selected comparative results of operations for the three and six months ended February 28, 2022 and February 28, 2021.

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 November 30,

Three Months Ended February 28,

(dollar amounts in thousands)

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Income tax expense

Three Months Ended November 30,

Six Months Ended February 28,

(dollar amounts in thousands)

Restaurant operating costs

Food and beverage costs

Labor and related costs

Occupancy and related expenses

Depreciation and amortization expenses

Total restaurant operating costs

General and administrative expenses

Depreciation and amortization expenses

Total operating expenses

Operating loss

Other expense (income):

Interest expense

Interest income

Loss before income taxes

Income tax expense

Three Months Ended February 28,

Six Months Ended February 28,

(as a percentage of sales)

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Income tax expense

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.

Three Months Ended February 28, 2022 Compared to Three Months Ended February 28, 2021

Sales were $31.3 million for the three months ended February 28, 2022 compared to $9.1 million for the three months ended February 28, 2021, representing an increase of $22.2 million, or 244.5%.

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 resulting from six new restaurants opened subsequent to February 28, 2021.

Food and beverage costs.

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.

Food and beverage costs were $9.4 million for the three months ended February 28, 2022 compared to $3.2 million for the three months ended February 28, 2021, representing an increase of $6.2 million, or 195.3%.

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 six new restaurants opened subsequent to February 28, 2021.

As a percentage of sales, food and beverage costs decreased to 30.0% in the three months ended February 28, 2022 as compared to 35.0% in the three months ended February 28, 2021, primarily due to an increase in menu prices, partially offset by food cost inflation, as well as higher inventory spoilage in the prior year.

Labor and related costs.

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.

Labor and related costs were $10.3 million for the three months ended February 28, 2022 compared to $2.1 million for the three months ended February 28, 2021, representing an increase of $8.2 million, or 401.8%.

Labor and related costs increased as a result of 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 additional labor costs incurred from six new restaurants opened subsequent to February 28, 2021.

As a percentage of sales, labor and related costs increased to 33.1% in the three months ended February 28, 2022 as compared to 22.7% in the three months ended February 28, 2021.

The increase in cost as a percentage of sales was primarily driven by $2.2 million in employee retention credits recognized under the CARES Act extension during the three months ended February 28, 2021.

Excluding the impact of the employee retention credit, the labor and related costs as a percentage of sales for the three months ended February 28, 2021 would have been 46.9%, primarily due to minimum staffing requirements to operate the restaurants at significantly reduced operating capacities in the prior year.

Occupancy and related expenses.

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.

Occupancy and related expenses were $ 2.3 million for the three months ended February 28, 2022 compared to $ 1.6 million for the three months ended February 28, 2021 , representing an increase of $ 0.7 million .

The increase was primarily a result of additional lease expense related to the opening of six new restaurants subsequent to February 28, 2021 , as well as incremental pre-opening lease expense .

As a percentage of sales, occupancy and related expenses decreased to 7.4 % in the three months ended February 28, 2022 as compared to 17.9 % in the three months ended February 28, 2021 , 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 $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.

Depreciation and amortization expenses incurred as part of restaurant operating costs were $1.3 million for the three months ended February 28, 2022 compared to $1.0 million for the three months ended February 28, 2021, representing an increase of $0.3 million, or 26.4%.

The increase was primarily due to depreciation of property and equipment related to the six new restaurants opened subsequent to February 28, 2021.

As a percentage of sales, depreciation and amortization expenses at the restaurant level decreased to 4.0% in the three months ended February 28, 2022 as compared to 11.0% in the three months ended February 28, 2021, 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 February 28, 2022 and 2021 and as a percentage of sales were 0.3% and 1.0%, respectively.

Other costs were $4.3 million for the three months ended February 28, 2022 compared to $2.1 million for the three months ended February 28, 2021, representing an increase of $2.2 million, or 111.8%.

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 six new restaurants opened subsequent to February 28, 2021.

As a percentage of sales, other costs decreased to 13.9% in the three months ended February 28, 2022 as compared to 22.6% in the three months ended February 28, 2021, primarily driven by leverage benefits from the increase in sales.

General and administrative expenses.

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.

General and administrative expenses were $5.5 million for the three months ended February 28, 2022 compared to $2.9 million for the three months ended February 28, 2021, representing an increase of $2.6 million, or 89.8%.

This increase was primarily due to an increase of $1.6 million in compensation-related expenses due to an increase in headcount, a $0.3 million increase in travel expenses, a $0.2 million increase in recruiting costs and a $0.1 increase in other costs, as well as $0.4 million in employee retention credits recognized under the CARES Act extension in the three months ended February 28, 2021.

As a percentage of sales, general and administrative expenses decreased to 17.4% in the three months ended February 28, 2022 from 31.6% in the three months ended February 28, 2021, primarily driven by leverage benefits from the increase in sales.

Interest expense.

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 expense was $22 thousand for the three months ended February 28, 2022 compared to $53 thousand for the three months ended February 28, 2021.

Interest income.

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 .

Interest income was $24 thousand for the three months ended February 28, 2022 compared to $3 thousand for the three months ended February 28, 2021.

Income tax expense.

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.

Income tax expense was $3 thousand for the three months ended February 28, 2022 compared to $29 thousand for the three months ended February 28, 2021.

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

Income Taxes” in the Notes to Condensed Financial Statements.

Six Months Ended February 28, 2022 Compared to Six Months Ended February 28, 2021

Sales were $61.1 million for the six months ended February 28, 2022 compared to $18.5 million for the six months ended February 28, 2021, representing an increase of $42.6 million, or 230.5%.

Food and beverage costs.

Food and beverage costs were $18.3 million for the six months ended February 28, 2022 compared to $6.2 million for the six months ended February 28, 2021, representing an increase of $12.1 million, or 194.4%.

As a percentage of sales, food and beverage costs decreased to 30.0% in the six months ended February 28, 2022 as compared to 33.7% in the six months ended February 28, 2021, primarily due to an increase in menu prices, partially offset by food cost inflation, as well as higher inventory spoilage in the prior year.

Labor and related costs.

Labor and related costs were $20.1 million for the six months ended February 28, 2022 compared to $6.4 million for the six months ended February 28, 2021, representing an increase of $13.7 million, or 212.3%.

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 , as well as additional labor costs incurred from six new restaurants opened subsequent to February 28, 2021 .

As a percentage of sales, labor and related costs decreased to 32.8 % in the six mont hs ended February 28, 2022 as compared to 34.7 % in the six months ended February 28, 2021 .

The six months ended February 28, 2021 included $2.2 million in employee retention credits recognized under the CARES Act extension.

Excluding the impact of the employee retention credit, the percentage of labor and related costs as a percentage of sales for the six months ended February 28, 2021 would have been 46.6%.

The decrease in cost as a percentage of sales was primarily driven by leverage benefits from the increase in sales .

Occupancy and related expenses.

Occupancy and related expenses were $4.5 million for the six months ended February 28, 2022 compared to $3.3 million for the six months ended February 28, 2021, representing an increase of $1.2 million, or 35.7%.

The increase was primarily a result of additional lease expense related to the opening of six new restaurants subsequent to February 28, 2021, as well as incremental pre-opening lease expense.

As a percentage of sales, occupancy and related expenses decreased to 7.4% in the six months ended February 28, 2022, compared to 17.9% in the six months ended February 28, 2021 , 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 $2.4 million for the six months ended February 28, 2022 compared to $1.9 million for the six months ended February 28, 2021, representing an increase of $0.5 million, or 26.4%.

The increase was primarily due to depreciation of property and equipment related to the six new restaurants opened subsequent to February 28, 2021 .

As a percentage of sales, depreciation and amortization expenses at the restaurant level decreased to 4.0% in the six months ended February 28, 2022 as compared to 10.4% in the six months ended February 28, 2021 , primarily driven by leverage benefits from the increase in sales.

Depreciation and amortization expenses incurred at the corporate level were $0.2 million for the six months ended February 28, 2022 and February 28, 2021, and as a percentage of sales were 0.3% and 0.9%, respectively.

Other costs were $8.0 million for the six months ended February 28, 2022 compared to $4.1 million for the six months ended February 28, 2021, representing an increase of $3.9 million, or 92.6%.

As a percentage of sales, other costs decreased to 13.0% in the six months ended February 28, 2022 from 22.3% in the six months ended February 28, 2021 , primarily driven by leverage benefits from the increase in sales.

General and administrative expenses.

General and administrative expenses were $10.8 million for the six months ended February 28, 2022 compared to $6.4 million for the six months ended February 28, 2021, representing an increase of $4.4 million, or 69.1%.

This increase was primarily due to an increase of $3.0 million in compensation-related expenses due to an increase in headcount, a $0.5 million increase in travel expenses, a $0.2 million increase in recruiting costs, a $0.2 million increase in legal and consulting fees and a $0.1 increase in other costs, as well as $0.4 million in employee retention credits recognized under the CARES Act extension in the six months ended February 28, 2021.

As a percentage of sales, general and administrative expenses decreased to 17.7% in the six months ended February 28, 2022 from 34.6% in the six months ended February 28, 2021, primarily driven by leverage benefits from the increase in sales .

Interest expense.

Interest expense was $47 thousand for the six months ended February 28, 2022 compared to $87 thousand for the six months ended February 28, 2021.

Interest income.

Interest income was $50 thousand for the six months ended February 28, 2022 compared to $7 thousand for the six months ended February 28, 2021.

Income tax expense.

Income tax expense was $15 thousand for the six months ended February 28, 2022 compared to $58 thousand for the six months ended February 28, 2021.

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

Income Taxes” in the Notes to Condensed Financial Statements.

Key Performance Indicators

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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,

The following table reconciles net loss to EBITDA and Adjusted EBITDA for the three and six months ended February 28, 2022 and February 28, 2021:

Three Months Ended February 28,

Six Months Ended February 28,

(amounts in thousands)

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Executive transition costs (c)

Employee retention credit (d)

Adjusted EBITDA

Adjusted EBITDA margin

Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in other costs in the statements of operations and of corporate-level stock-based compensation included in general and administrative expenses in the statements of operations.

Stock-based compensation expense includes non-cash stock-based compensation, which is comprised of restaurant-level stock-based compensation included in other costs and of corporate-level stock-based compensation included in general and administrative expenses in the statements of operations.

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

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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.

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

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

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

Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) Margin

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

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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 (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,

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 substitutes for analysis of our results as reported under GAAP.

The following table reconciles operating loss to Restaurant-level Operating Profit (Loss) and Restaurant-level Operating Profit (Loss) margin for the three and six months ended February 28, 2022 and February 28, 2021 :

Three Months Ended February 28,

Six Months Ended February 28,

(amounts in thousands)

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Non-cash lease expense (c)

Employee retention credit (d)

General and administrative expenses

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

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

Restaurant-level operating profit (loss)

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Restaurant-level operating profit (loss) margin

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

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Non-cash lease expense includes lease expense from the date of possession of our restaurants that did not require cash outlay in the respective periods .

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

Comparable Restaurant Sales Performance

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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.

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 .

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

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

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Since opening new restaurants will be a significant component of our sales growth, comparable restaurant sales performance is only one measure of how we evaluate our performance.

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

Three Months Ended November 30,

The following table shows the comparable restaurant sales performance for the three and six months ended February 28, 2022 and February 28, 2021:

Three Months Ended February 28,

Six Months Ended February 28,

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 months ended November 30, 2021 and 2020:

Three Months Ended November 30,

The following table shows the growth in our restaurant base for the three and six months ended February 28, 2022 and February 28, 2021:

Three Months Ended February 28,

Six Months Ended February 28,

Restaurant activity:

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End of period

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

Subsequent to February 28, 2022, we opened one new restaurant in Watertown, MA.

Liquidity and Capital Resources

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Effects of COVID-19 on our Business .”

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

During the six months ended February 28, 2022, we had no borrowings under the Revolving Credit Agreement and have $45.0 million of availability remaining.

During the six months ended February 28, 2021, we had borrowed $12.0 million under the Revolving Credit Agreement and had $33.0 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 longer payment terms with our vendors.

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.

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

Summary of Cash Flows

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

Three Months Ended November 30,

Six Months Ended February 28,

Statement of Cash Flow data:

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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.

Net cash provided by operating activities during the six months ended February 28, 2022 was $9.7 million, which results from a net loss of $3.2 million offset by non-cash charges of $2.6 million for depreciation and amortization, $1.0 million for stock-based compensation, and $1.4 million in non-cash lease expense, and net cash inflows of $7.8 million from changes in operating assets and liabilities.

The net cash inflows from changes in operating assets and liabilities were primarily the result of decreases of $7.7 million in prepaid expenses and other current assets, which was primarily due to collection of $8.0 million of our total of $12.0 million of employee retention credits.

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

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

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

The increases in 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 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.

Net cash used in investing activities during the six months ended February 28, 2022 was $13.2 million, primarily due to $12.3 million in purchases of property and equipment, $0.6 million in purchases of liquor licenses and $0.3 in payments for initial direct costs.

The purchases of property and equipment in the six months ended February 28, 2022 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 six months ended February 28, 2021 was $9.9 million, primarily due to purchases of property and equipment.

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

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.

Net cash used in financing activities during the six months ended February 28, 2022 was $0.6 million and is primarily due to $0.5 million in repayments of principal on finance leases.

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

Contractual Obligations

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.

As of February 28, 2022, we had $4.0 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 next 12 months.

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

23 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis