KURA SUSHI USA, INC. 10-Q

Item 1. Financial Statements. Kura Sushi USA, Inc. Condensed Balance Sheets (amounts in thousands, except par value) (Unaudited) February 28, 2022 August 31, 2021 Assets Current assets: Cash and cash equivalents $ 36,350 $ 40,430 Accounts and other receivables 2,522 2,019 Inventories 880 733 Due from affiliate 11 329 Prepaid expenses and other current assets 6,278 13,957 Total current assets 46,041 57,468 Non-current assets: Property and equipment – net 62,867 53,885 Operating lease right-of-use assets 72,341 64,158 Deposits and other assets 2,799 2,158 Total assets $ 184,048 $ 177,669 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 4,770 $ 4,920 Accrued expenses and other current liabilities 2,402 2,820 Salaries and wages payable 4,973 4,612 Finance leases – current 768 932 Operating lease liabilities – current 6,830 5,650 Due to affiliate 98 244 Sales tax payable 917 869 Total current liabilities 20,758 20,047 Non-current liabilities: Finance leases – non-current 221 546 Operating lease liabilities – non-current 74,001 65,834 Other liabilities 445 398 Total liabilities 95,425 86,825 Commitments and contingencies (Note 8) Stockholders' equity: Preferred stock, $ 0.001 par value; 1,000 shares authorized, no shares issued or outstanding — — Class A common stock, $ 0.001 par value; 50,000 shares authorized, 8,716 and 8,700 shares issued and outstanding as of February 28, 2022 and August 31, 2021, respectively 9 9 Class B common stock, $ 0.001 par value; 10,000 shares authorized, 1,000 shares issued and outstanding as of February 28, 2022 and August 31, 2021 1 1 Additional paid-in capital 116,689 115,756 Accumulated deficit ( 28,076 ) ( 24,922 ) Total stockholders' equity 88,623 90,844 Total liabilities and stockholders' equity $ 184,048 $ 177,669 The accompanying notes are an integral part of these condensed financial statements. 1 Kura Sushi USA, Inc. Condensed Statements of Operations (amounts in thousands, except per share data) (Unaudited) Three Months Ended February 28, Six Months Ended February 28, 2022 2021 2022 2021 Sales $ 31,290 $ 9,082 $ 61,122 $ 18,496 Restaurant operating costs: Food and beverage costs 9,376 3,175 18,333 6,228 Labor and related costs 10,342 2,061 20,052 6,421 Occupancy and related expenses 2,302 1,627 4,502 3,317 Depreciation and amortization expenses 1,267 1,002 2,438 1,929 Other costs 4,344 2,051 7,954 4,130 Total restaurant operating costs 27,631 9,916 53,279 22,025 General and administrative expenses 5,454 2,874 10,814 6,395 Depreciation and amortization expenses 83 94 171 169 Total operating expenses 33,168 12,884 64,264 28,589 Operating loss ( 1,878 ) ( 3,802 ) ( 3,142 ) ( 10,093 ) Other expense (income): Interest expense 22 53 47 87 Interest income ( 24 ) ( 3 ) ( 50 ) ( 7 ) Loss before income taxes ( 1,876 ) ( 3,852 ) ( 3,139 ) ( 10,173 ) Income tax expense 3 29 15 58 Net loss $ ( 1,879 ) $ ( 3,881 ) $ ( 3,154 ) $ ( 10,231 ) Net loss per Class A and Class B shares Basic $ ( 0.19 ) $ ( 0.46 ) $ ( 0.32 ) $ ( 1.22 ) Diluted $ ( 0.19 ) $ ( 0.46 ) $ ( 0.32 ) $ ( 1.22 ) Weighted average Class A and Class B shares outstanding Basic 9,712 8,379 9,711 8,363 Diluted 9,712 8,379 9,711 8,363 The accompanying notes are an integral part of these condensed financial statements. 2 Kura Sushi USA, Inc. Condensed Statements of Stockholders’ Equity (amounts in thousands) (Unaudited) Common Stock Additional Total Class A Class B Paid-in Accumulated Stockholders' Shares Amount Shares Amount Capital Deficit Equity Balances as of August 31, 2021 8,700 $ 9 1,000 $ 1 $ 115,756 $ ( 24,922 ) $ 90,844 Stock-based compensation — — — — 443 — 443 Employee stock plan 13 — — — 19 — 19 Net loss — — — — — ( 1,275 ) ( 1,275 ) Balances as of November 30, 2021 8,713 $ 9 1,000 $ 1 $ 116,218 $ ( 26,197 ) $ 90,031 Stock-based compensation — — — — 596 — 596 Employee stock plan 5 — — — 29 — 29 Taxes paid on vested restricted stock awards ( 2 ) — — — ( 154 ) — ( 154 ) Net loss — — — — — ( 1,879 ) ( 1,879 ) Balances as of February 28, 2022 8,716 $ 9 1,000 $ 1 $ 116,689 $ ( 28,076 ) $ 88,623 Common Stock Additional Total Class A Class B Paid-in Accumulated Stockholders' Shares Amount Shares Amount Capital Deficit Equity Balances as of August 31, 2020 7,342 $ 7 1,000 $ 1 $ 60,332 $ ( 14,627 ) $ 45,713 Stock-based compensation — — — — 266 — 266 Exercise of stock options 22 — — — 94 — 94 Net loss — — — — — ( 6,350 ) ( 6,350 ) Balances as of November 30, 2020 7,364 7 1,000 1 60,692 ( 20,977 ) 39,723 Stock-based compensation — — — — 309 — 309 Exercise of stock options 49 — — — 272 — 272 Net loss — — — — — ( 3,881 ) ( 3,881 ) Balances as of February 28, 2021 7,413 $ 7 1,000 $ 1 $ 61,273 $ ( 24,858 ) $ 36,423 The accompanying notes are an integral part of these condensed financial statements. 3 Kura Sushi USA, Inc. Condensed Statements of Cash Flows (amounts in thousands) (Unaudited) Six Months Ended February 28, 2022 2021 Cash flows from operating activities Net loss $ ( 3,154 ) $ ( 10,231 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization 2,609 2,098 Stock-based compensation 1,039 575 Loss on disposal of property and equipment — 29 Non-cash lease expense 1,420 1,380 Changes in operating assets and liabilities: Accounts and other receivables ( 224 ) ( 408 ) Inventories ( 147 ) ( 60 ) Due from affiliate 318 ( 227 ) Prepaid expenses and other current assets 7,679 ( 2,872 ) Deposits and other assets ( 81 ) 53 Accounts payable 201 ( 67 ) Accrued expenses and other current liabilities ( 123 ) 240 Salaries and wages payable 361 906 Operating lease liabilities ( 221 ) ( 646 ) Due to affiliate ( 3 ) 192 Sales tax payable 48 106 Net cash provided by (used in) operating activities 9,722 ( 8,932 ) Cash flows from investing activities Payments for property and equipment ( 12,298 ) ( 9,793 ) Payments for initial direct costs ( 315 ) — Payments for purchases of liquor licenses ( 559 ) ( 111 ) Net cash used in investing activities ( 13,172 ) ( 9,904 ) Cash flows from financing activities Proceeds from loan from affiliate — 12,000 Repayment of principal on finance leases ( 524 ) ( 518 ) Taxes paid on vested restricted stock awards ( 154 ) — Proceeds from exercise of stock options 48 366 Net cash (used in) provided by financing activities ( 630 ) 11,848 Decrease in cash and cash equivalents ( 4,080 ) ( 6,988 ) Cash and cash equivalents, beginning of period 40,430 9,259 Cash and cash equivalents, end of period $ 36,350 $ 2,271 Supplemental disclosures of cash flow information Cash paid for income taxes $ 88 $ — Noncash investing activities Acquisition of finance leases $ 34 $ — Amounts unpaid for purchases of property and equipment $ 779 $ 160 The accompanying notes are an integral part of these condensed financial statements. 4 Kura Sushi USA, Inc. Notes to Condensed Financial Statements (Unaudited) Note 1. Organization and Basis of Presentation Kura Sushi USA, Inc. is a technology-enabled Japanese restaurant concept that provides guests with a distinctive dining experience by serving authentic Japanese cuisine through an engaging revolving sushi service model, which the Company refers to as the “Kura Experience.” Kura Sushi encourages healthy lifestyles by serving freshly prepared Japanese cuisine using high-quality ingredients that are free from artificial seasonings, sweeteners, colorings, and preservatives. Kura Sushi aims to make quality Japanese cuisine accessible to its guests across the United States through affordable prices and an inviting atmosphere. “Kura Sushi USA,” “Kura Sushi,” “Kura,” and the “Company” refer to Kura Sushi USA, Inc. unless expressly indicated or the context otherwise requires. Effects of COVID-19 The negative effects of the COVID-19 pandemic on the Company’s business have been significant. In March 2020, the World Health Organization declared the novel strain of coronavirus COVID-19 a global pandemic. This contagious virus continues to spread, including recent acceleration of the spread of the Delta and Omicron variants of COVID-19 in the areas in which the Company operates. This has adversely affected workforces, customers, economies and financial markets globally. In response to this outbreak, many state and local authorities mandated the temporary closure of non-essential businesses and dine-in restaurant activity or limited indoor dining capacities during the Company’s previous two fiscal years. COVID-19 and the government measures taken to control it have caused a significant disruption to the Company’s business operation. During the three months ended February 28, 2022, the Company opened three new restaurants in Phoenix, Arizona, Chandler, Arizona, and San Antonio, Texas, and was able to operate all of its 36 restaurants with no government restrictions on indoor dining capacity. Subsequent to February 28, 2022, the Company opened one new restaurant in Watertown, MA. As of the filing date of this Quarterly Report on Form 10-Q, all of the Company’s 37 restaurants were operating with no government restrictions on indoor dining capacity. In response to the ongoing COVID-19 pandemic, the Company has prioritized taking steps to protect the health and safety of its employees and customers. The Company has maintained cleaning and sanitizing protocols for its restaurants and has implemented additional training and operational manuals for its restaurant employees, as well as increased handwashing procedures. The Company also provides each restaurant employee with face masks and gloves, and requires each employee to pass a health screening process, which includes a temperature check, before the start of each shift. Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, and the subsequent extension of the CARES Act, the Company was eligible for refundable employee retention credits subject to certain criteria through the fiscal year ended August 31, 2021. The Company 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, the Company had recognized and filed for refunds of the amount of $ 12.1 million employee retention credits. During the six months ended February 28, 2022, and as of the date of this Quarterly Report on Form 10-Q, the Company has received $ 8.0 million in refunds, and cannot reasonably estimate when it will receive any or all of the remaining $ 4.1 million in refunds. Consistent with the Company’s long-term growth strategy, the Company expects to continue to open new restaurants in locations where it believes such restaurants have the potential to achieve profitability. The future sales levels of the Company’s restaurants and its ability to implement its growth strategy, however, remain highly uncertain, as the full impact and duration of the COVID-19 pandemic continues to evolve as of the filing date of this Quarterly Report on Form 10-Q. 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 the Company’s dine-in services, or negatively affect consumer demand. Basis of Presentation The accompanying unaudited condensed financial statements (the “Condensed Financial Statements”) have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. As such, these Condensed Financial Statements should be read in conjunction with the Company’s audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended August 31, 2021. 5 The accounting policies followed by the Company are set forth in Part II, Item 8, Note 2, Basis of Presentation and Summary of Accounting Policies, of the Notes to Financial Statements included in the Company’s Annual Report on Form 10‑ K for the fiscal year ended August 31, 202 1 . In the opinion of management, all adjustments necessary to fairly state the Condensed Financial Statements have been made . All such adjustments are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of results to be expected for the fiscal year ending August 31, 202 2 or for any other future annual or interim period . Fiscal Year The Company’s fiscal year begins on September 1 and ends on August 31, and references made to “fiscal year 2022” and “fiscal year 2021” refer to the Company’s fiscal years ending August 31, 2022 and ended August 31, 2021, respectively. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Significant items subject to such estimates include asset retirement obligations, stock-based compensation, the useful lives of assets, the assessment of the recoverability of long-lived assets, and income taxes. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates and assumptions. Comprehensive Income (Loss) Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) is the same as net income (loss) for all periods presented. Therefore, a separate statement of comprehensive income (loss) is not included in the accompanying financial statements . Recently Issued Accounting Pronouncements In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,” which provides guidance on disclosures for transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. ASU 2021-10 is effective for the Company beginning in fiscal year 2023. The Company is currently in the process of evaluating the effects of this pronouncement on its financial statements. Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The Company adopted this update effective September 1, 2021. The adoption of this update did not impact the consolidated financial statements. Note 2. Balance Sheet Components Accounts and Other Receivables February 28, 2022 August 31, 2021 (amounts in thousands) Lease receivables $ 1,710 $ 1,431 Credit card receivables 798 575 Other receivables 14 13 Total accounts and other receivables $ 2,522 $ 2,019 6 Prepaid Expenses and Other Current Assets February 28, 2022 August 31, 2021 (amounts in thousands) Employee retention credit $ 4,056 $ 12,007 Prepaid expenses 2,046 1,732 Other current assets 176 218 Total prepaid expenses and other current assets $ 6,278 $ 13,957 Property and Equipment - net February 28, 2022 August 31, 2021 (amounts in thousands) Leasehold improvements $ 49,805 $ 43,181 Lease assets 6,166 6,128 Furniture and fixtures 16,774 13,324 Computer equipment 1,067 905 Vehicles 110 110 Software 837 773 Construction in progress 5,158 3,907 Property and equipment – gross 79,917 68,328 Less: accumulated depreciation and amortization ( 17,050 ) ( 14,443 ) Total property and equipment – net $ 62,867 $ 53,885 Depreciation and amortization expense for property and equipment was $ 1.4 million and $ 1.1 million for the three months ended February 28, 2022 and February 28, 2021, respectively, and was $ 2.6 million and $ 2.1 million for the six months ended February 28, 2022 and February 28, 2021, respectively. Note 3. Leases The Company has operating and finance leases for its corporate office, restaurant locations, office equipment, kitchen equipment and automobiles. The Company’s leases have remaining lease terms of less than 1 year to 20 years, some of which include options to extend the leases. 7 Lease related costs recognized in the statements of operations for the three and six months ended February 28, 2022 and February 28, 2021 are as follows: Three Months Ended February 28, Six Months Ended February 28, 2022 2021 2022 2021 (amounts in thousands) Finance lease cost Classification Amortization of right-of-use assets Depreciation and amortization expenses $ 143 $ 157 $ 279 $ 308 Interest on lease liabilities Interest expense 11 26 24 49 Total finance lease cost $ 154 $ 183 $ 303 $ 357 Three Months Ended February 28, Six Months Ended February 28, 2022 2021 2022 2021 (amounts in thousands) Operating lease cost Classification Operating lease cost Occupancy and related expenses, other costs and general and administrative expenses $ 1,915 $ 1,549 $ 3,747 $ 3,116 Variable lease cost Occupancy and related expenses, and general and administrative expenses 453 252 889 497 Total operating lease cost $ 2,368 $ 1,801 $ 4,636 $ 3,613 Supplemental balance sheet information related to leases is as follows: Operating Leases February 28, 2022 August 31, 2021 (amounts in thousands) Right-of-use assets $ 72,341 $ 64,158 Lease liabilities – current $ 6,830 $ 5,650 Lease liabilities – non-current 74,001 65,834 Total lease liabilities $ 80,831 $ 71,484 Finance Lease Assets – net February 28, 2022 August 31, 2021 (amounts in thousands) Property and equipment $ 6,166 $ 6,128 Accumulated depreciation ( 3,058 ) ( 2,778 ) Total property and equipment – net $ 3,108 $ 3,350 Finance Leases Liabilities February 28, 2022 August 31, 2021 (amounts in thousands) Finance lease – current $ 768 $ 932 Finance lease – non-current 221 546 Total finance lease liabilities $ 989 $ 1,478 8 Six months ended February 28, 2022 2021 Weighted Average Remaining Lease Term (Years) Operating leases 16.2 15.9 Finance leases 1.1 2.0 Weighted Average Discount Rate Operating leases 6.4 % 6.4 % Finance leases 4.6 % 4.5 % Supplemental disclosures of cash flow information related to leases are as follows: Six Months Ended February 28, 2022 2021 (amounts in thousands) Operating cash flows paid for operating lease liabilities $ 3,111 $ 1,918 Operating right-of-use assets obtained in exchange for new operating lease liabilities $ 9,243 $ — As of February 28, 2022, the Company had additional operating lease liabilities of $ 28.6 million related to restaurants of which the Company has not yet taken possession. These operating leases are expected to commence in fiscal years 2022 and 2023, with lease terms of 20 years. Subsequent to February 28, 2022, the Company entered into additional operating leases related to restaurants for which the Company has not yet taken possession. The lease liabilities associated with these leases are $ 12.4 million. The operating leases are expected to commence in fiscal year 2023, with lease terms of 20 years. Maturities of lease liabilities, net of lease receivables, were as follows as of February 28, 2022: Operating Leases Finance Leases (amounts in thousands) Remainder of 2022 $ 1,653 $ 468 2023 6,086 512 2024 7,590 36 2025 7,730 7 2026 7,645 — Thereafter 98,780 — Total lease payments 129,484 1,023 Less: imputed interest ( 48,653 ) ( 34 ) Present value of lease liabilities $ 80,831 $ 989 9 Note 4. Related Party Transactions Kura Sushi, Inc. (“Kura Japan”) is the majority shareholder of the Company, and is incorporated and headquartered in Japan. In August 2019, the Company entered into a Shared Services Agreement with Kura Japan, pursuant to which Kura Japan provides the Company with certain strategic, operational and other support services, including assigning certain employees to work for the Company as expatriates to provide support to the Company’s operations, sending its employees to the Company on a short-term basis to provide support for the opening of new restaurants or renovation of existing restaurants, and providing the Company with certain supplies, parts and equipment for use in the Company’s restaurants. In addition, the Company has agreed to continue to provide Kura Japan with certain translational support services and market research. In exchange for such services, supplies, parts and equipment, the parties pay fees to each other as set forth under the Shared Services Agreement. A right of setoff is not required; however, from time to time, either party will net settle transactions as needed. Purchases of administrative supplies, expatriate salaries and travel and other administrative expenses payable to Kura Japan are included in general and administrative expenses in the accompanying statements of operations. Purchases of equipment from Kura Japan are included in property and equipment in the accompanying balance sheets. In August 2019, the Company entered into an Amended and Restated Exclusive License Agreement (the “License Agreement”) with Kura Japan. Pursuant to the License Agreement, the Company pays Kura Japan a royalty fee of 0.5 % of the Company’s net sales in exchange for an exclusive, royalty-bearing license for use of certain of Kura Japan’s intellectual property rights, including, but not limited to, Kura Japan’s trademarks “Kura Sushi” and “Kura Revolving Sushi Bar,” and patents for a food management system and the Mr. Fresh protective dome, among other intellectual property rights necessary to continue operation of the Company’s restaurants. Royalty payments to Kura Japan are included in other costs at the restaurant-level in the accompanying statements of operations. On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement, as amended, to provide the Company a revolving credit line of $ 45 million. For additional information, see “Note 6. Debt.” Balances with Kura Japan as of February 28, 2022 and August 31, 2021 are as follows: February 28, 2022 August 31, 2021 (amounts in thousands) Due from affiliate $ 11 $ 329 Due to affiliate $ 98 $ 244 Reimbursements and other payments by the Company to Kura Japan for the three and six months ended February 28, 2022 and February 28, 2021 were as follows: Three Months Ended February 28, Six Months Ended February 28, 2022 2021 2022 2021 (amounts in thousands) Related party transactions: Purchases of administrative supplies $ — $ 7 $ — $ 72 Expatriate salaries expense 41 31 83 62 Royalty payments 157 45 306 92 Travel and other administrative expenses 17 4 19 17 Purchases of equipment 223 35 503 401 Interest expense — 27 — 27 Total related party transactions $ 438 $ 149 $ 911 $ 671 Reimbursements by Kura Japan to the Company were $ 11 thousand and $ 20 thousand for the three months ended February 28, 2022 and February 28, 2021, respectively, and were $ 28 thousand and $ 25 thousand for the six months ended February 28, 2022 and February 28, 2021, respectively. The reimbursements were for travel and other administrative expenses. 10 Note 5. Stock-based Compensation The following table summarizes the stock option activity under the Company’s 2018 Incentive Compensation Plan, as amended and restated (the “Stock Incentive Plan”): Options Outstanding Number of Shares Underlying Outstanding Options Weighted Average Exercise Price Per Share Outstanding — August 31, 2021 625,378 $ 17.13 Options granted 20,000 $ 45.75 Options exercised ( 4,330 ) $ 4.35 Options canceled/forfeited ( 18,449 ) $ 32.80 Outstanding — November 30, 2021 622,599 $ 17.68 Options granted 151,970 $ 50.20 Options exercised ( 5,151 ) $ 5.70 Options canceled/forfeited ( 7,620 ) $ 33.09 Outstanding — February 28, 2022 761,798 $ 24.05 During the six months ended February 28, 2022, nine thousand restricted stock awards were issued under the Stock Incentive Plan, in addition to the option grants stated above, for which the Company incurred stock-based compensation of $ 17 thousand and $ 55 thousand for the three and six months ended February 28, 2022, respectively. Stock-based compensation for stock options issued under the Stock Incentive Plan was $ 0.6 million and $ 0.3 million for the three months ended February 28, 2022 and February 28, 2021, respectively, and was $ 1.0 million and $ 0.6 million for the six months ended February 28, 2022 and February 28, 2021, respectively. The total stock-based compensation recognized under the Stock Incentive Plan in the statements of operations is as follows: Three Months Ended February 28, Six Months Ended February 28, 2022 2021 2022 2021 (amounts in thousands) Restaurant-level stock-based compensation included in other costs $ 72 $ 26 $ 107 $ 49 Corporate-level stock-based compensation included in general and administrative expenses 524 283 932 526 Total stock-based compensation $ 596 $ 309 $ 1,039 $ 575 Note 6. Debt On April 10, 2020, the Company and Kura Japan entered into a Revolving Credit Agreement, as amended, establishing a $ 45 million revolving credit line for the Company. The maturity date for each advance is 60 months from the date of disbursement and the last day of the period of availability for the advances is April 10, 2025. The Revolving Credit Note under the Revolving Credit Agreement has an interest rate for advances fixed at 130% of the Annual Compounding Long-Term Applicable Federal Rate (“AFR”) on the date such advance is made. There are no financial covenants under the Revolving Credit Agreement with which the Company must comply. As of February 28, 2022, the Company had no outstanding balance and $ 45.0 million of availability remaining under the Revolving Credit Agreement. During the three and six months ended February 28, 2021 , the Company had borrowed $ 9.0 million and $ 12.0 million, respectively, under the Revolving Credit Agreement at a fixed interest rate of 1.1 %. Interest expense for the three and six months ended February 28, 2021 was immaterial. For additional information, see “Note 4. Related Party Transactions.” Note 7. Loss Per Share The net loss per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the income for the year has been distributed. As the liquidation and dividend rights for Class A and Class B common stock are identical, the net loss attributable to all common stockholders is allocated on a proportionate basis . 11 The following table sets forth the computation of the Company’s basic and diluted net loss per share: Three Months Ended February 28, Six Months Ended February 28, 2022 2021 2022 2021 Class A Class B Class A Class B Class A Class B Class A Class B (amounts in thousands, except per share data) Net loss attributable to common stockholders – basic $ ( 1,686 ) $ ( 193 ) $ ( 3,418 ) $ ( 463 ) $ ( 2,829 ) $ ( 325 ) $ ( 9,008 ) $ ( 1,223 ) Weighted average common shares outstanding – basic 8,712 1,000 7,379 1,000 8,711 1,000 7,363 1,000 Dilutive effect of stock-based awards — — — — — — — — Weighted average common shares outstanding – diluted 8,712 1,000 7,379 1,000 8,711 1,000 7,363 1,000 Net loss per share attributable to common stockholders – basic $ ( 0.19 ) $ ( 0.19 ) $ ( 0.46 ) $ ( 0.46 ) $ ( 0.32 ) $ ( 0.32 ) $ ( 1.22 ) $ ( 1.22 ) Net loss per share attributable to common stockholders – diluted $ ( 0.19 ) $ ( 0.19 ) $ ( 0.46 ) $ ( 0.46 ) $ ( 0.32 ) $ ( 0.32 ) $ ( 1.22 ) $ ( 1.22 ) The Company computes basic loss per common share using net income and the weighted average number of common shares outstanding during the period, and computes diluted loss per common share using net loss and the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include dilutive outstanding employee stock options. For the three and six months ended February 28, 2022 and February 28, 2021, there were 762 thousand and 600 thousand shares of common stock subject to outstanding employee stock options that were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive. 12 Note 8. Commitments and Contingencies On May 31, 2019, a putative class action complaint was filed by a former employee, Brandy Gomes, in Los Angeles County Superior Court, alleging violations of California wage and hour laws. On July 9, 2020, plaintiff’s counsel filed a first amended class action complaint to add Jamar Spencer, another former employee, as a plaintiff to this action. In addition, the first amended class action complaint added new causes of action alleging violations of California wage and hour laws including a cause of action brought under the California Private Attorney General Act. On August 7, 2020, the Company filed its answer to the first amended complaint, generally denying the allegations in the complaint. In May 2021, a joint stipulation was filed requesting a delay in the class certification hearing date to March 3, 2022, and a mediation was scheduled for September 24, 2021. During the mediation, a settlement was agreed upon in the amount of $ 1.75 million. The Company recorded an accrued liability of $ 1.78 million, including an estimated $ 30 thousand in employer payroll taxes, related to this settlement within general and administrative expenses in the statements of operations during the fiscal year ended August 31, 2021. A court hearing to seek preliminary approval of the settlement has been scheduled for May 9, 2022. The Company is involved from time to time in various legal proceedings that arise in the ordinary course of business, including but not limited to commercial disputes, environmental matters, employee-related claims, intellectual property disputes and litigation in connection with transactions including acquisitions and divestitures. In the opinion of management, the Company does not believe that such litigation, claims, and administrative proceedings, excluding the putative class action matter referenced above, will have a material adverse effect on its business, financial position, results of operations or cash flows. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims, including the putative class action referenced above, could materially and adversely affect its business, financial condition, results of operations or cash flows. The Company records a liability when a loss is considered probable, and the amount can be reasonably estimated. Note 9. Income Taxes The Company recorded income tax expense of $ 3 thousand and $ 29 thousand for the three months ended February 28, 2022 and February 28, 2021, respectively, and of $ 15 thousand and $ 58 thousand for the six months ended February 28, 2022 and February 28, 2021, respectively. The Company’s effective tax rates for the three and six months ended February 28, 2022 substantially differed from the federal statutory tax rate of 21 % primarily due to a valuation allowance for the Company’s deferred tax assets. The Company continually monitors and performs an assessment of the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets using a “more likely than not” standard. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Based on the Company’s review of this evidence, management determined that a full valuation allowance against all of the Company’s net deferred tax assets at February 28, 2022 was appropriate. 13