krus-10q_20191130.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-39012

 

KURA SUSHI USA, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

26-3808434

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

17932 Sky Park Circle, Suite H

Irvine, California

92614

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (657) 333-4100

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, $0.001 par value per share

 

KRUS

 

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  

As of January 6, 2020, the registrant had 7,335,000 shares of Class A common stock, $0.001 par value per share, outstanding and 1,000,050 shares of Class B common stock, $0.001 par value per share, outstanding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations

2

 

Condensed Statements of Cash Flows

4

 

Notes to Condensed Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

25

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3.

Defaults Upon Senior Securities

25

Item 4.

Mine Safety Disclosures

25

Item 5.

Other Information

25

Item 6.

Exhibits

26

Signatures

27

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Kura Sushi USA, Inc.

Condensed Balance Sheets

(amounts in thousands, except par value)

(Unaudited)

 

 

 

November 30, 2019

 

 

August 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

33,010

 

 

$

38,044

 

Accounts receivable

 

 

1,048

 

 

 

948

 

Inventories

 

 

433

 

 

 

539

 

Due from affiliate

 

 

34

 

 

 

226

 

Prepaid expenses and other current assets

 

 

1,497

 

 

 

1,744

 

Total current assets

 

 

36,022

 

 

 

41,501

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment - net

 

 

34,604

 

 

 

31,917

 

Operating lease right-of-use assets

 

 

42,528

 

 

 

-

 

Deposits and other assets

 

 

1,423

 

 

 

1,865

 

Deferred tax assets

 

 

1,039

 

 

 

1,127

 

Total assets

 

$

115,616

 

 

$

76,410

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,678

 

 

$

3,684

 

Accrued expenses and other current liabilities

 

 

839

 

 

 

1,635

 

Salaries and wages payable

 

 

1,359

 

 

 

1,348

 

Finance leases - current

 

 

988

 

 

 

994

 

Operating lease liabilities - current

 

 

4,087

 

 

 

-

 

Due to affiliate

 

 

255

 

 

 

83

 

Sales tax payable

 

 

500

 

 

 

547

 

Total current liabilities

 

 

10,706

 

 

 

8,291

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Finance leases - non-current

 

 

2,178

 

 

 

2,424

 

Operating lease liabilities - non-current

 

 

41,387

 

 

 

-

 

Deferred rent

 

 

-

 

 

 

2,188

 

Tenant allowances

 

 

-

 

 

 

1,089

 

Other liabilities

 

 

267

 

 

 

237

 

Total liabilities

 

 

54,538

 

 

 

14,229

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class A common stock, $0.001 par value; 20,000 authorized, 7,335 issued

   and outstanding

 

 

7

 

 

 

7

 

Class B common stock, $0.001 par value; 10,000 authorized, 1,000 issued

   and outstanding

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

59,563

 

 

 

59,442

 

Retained earnings

 

 

1,507

 

 

 

2,731

 

Total stockholders' equity

 

 

61,078

 

 

 

62,181

 

Total liabilities and stockholders' equity

 

$

115,616

 

 

$

76,410

 

 

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 November 30,

 

 

 

2019

 

 

2018

 

Sales

 

$

17,440

 

 

$

13,420

 

Restaurant operating costs:

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

5,693

 

 

 

4,518

 

Labor and related costs

 

 

5,641

 

 

 

4,138

 

Occupancy and related expenses

 

 

1,439

 

 

 

920

 

Depreciation and amortization expenses

 

 

663

 

 

 

448

 

Other costs

 

 

2,047

 

 

 

1,645

 

Total restaurant operating costs

 

 

15,483

 

 

 

11,669

 

General and administrative expenses

 

 

3,326

 

 

 

2,148

 

Depreciation and amortization expenses

 

 

22

 

 

 

23

 

Total operating expenses

 

 

18,831

 

 

 

13,840

 

Operating loss

 

 

(1,391

)

 

 

(420

)

Other expense (income):

 

 

 

 

 

 

 

 

Interest expense

 

 

34

 

 

 

41

 

Interest income

 

 

(197

)

 

 

(5

)

Loss before income taxes

 

 

(1,228

)

 

 

(456

)

Income tax benefit

 

 

(4

)

 

 

(65

)

Net loss

 

$

(1,224

)

 

$

(391

)

Net loss per Class A and Class B shares

 

 

 

 

 

 

 

 

Basic

 

$

(0.15

)

 

$

(0.08

)

Diluted

 

$

(0.15

)

 

$

(0.08

)

Weighted average Class A and Class B shares

 

 

 

 

 

 

 

 

Basic

 

 

8,335

 

 

 

5,000

 

Diluted

 

 

8,335

 

 

 

5,000

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Class B

 

 

Additional

Paid-in

 

 

Retained

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance as of August 31, 2019

 

 

7,335

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

59,442

 

 

$

2,731

 

 

$

62,181

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

121

 

 

 

-

 

 

 

121

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,224

)

 

 

(1,224

)

Balances as of November 30, 2019

 

 

7,335

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

59,563

 

 

$

1,507

 

 

$

61,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Class B

 

 

Additional

Paid-in

 

 

Retained

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balances as of August 31, 2018

 

 

4,000

 

 

$

4

 

 

 

1,000

 

 

$

1

 

 

$

20,225

 

 

$

1,275

 

 

$

21,505

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

160

 

 

 

-

 

 

 

160

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(391

)

 

 

(391

)

Balances as of November 30, 2018

 

 

4,000

 

 

$

4

 

 

 

1,000

 

 

$

1

 

 

$

20,385

 

 

$

884

 

 

$

21,274

 

 

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)

 

 

 

Three Months Ended November 30,

 

 

 

2019

 

 

2018

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(1,224

)

 

$

(391

)

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

   operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

685

 

 

 

471

 

Stock-based compensation

 

 

121

 

 

 

160

 

Loss on disposal of property and equipment

 

 

4

 

 

 

 

Deferred income taxes

 

 

(4

)

 

 

(65

)

Noncash lease expense

 

 

586

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(100

)

 

 

256

 

Inventories

 

 

106

 

 

 

(21

)

Due from affiliate

 

 

192

 

 

 

(4

)

Prepaid expenses and other current assets

 

 

192

 

 

 

(171

)

Deposits and other assets

 

 

(38

)

 

 

(15

)

Accounts payable

 

 

(1,034

)

 

 

667

 

Accrued expenses and other current liabilities

 

 

(607

)

 

 

292

 

Sales tax payable

 

 

(47

)

 

 

20

 

Salary and wages payable

 

 

11

 

 

 

145

 

Due to affiliate

 

 

49

 

 

 

(57

)

Deferred rent and tenant allowances

 

 

 

 

 

134

 

Operating lease liabilities

 

 

(430

)

 

 

 

Net cash (used in) provided by operating activities

 

 

(1,538

)

 

 

1,421

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Payments for property and equipment

 

 

(3,194

)

 

 

(2,574

)

Payments for purchases of liquor licenses

 

 

(50

)

 

 

 

Net cash used in investing activities

 

 

(3,244

)

 

 

(2,574

)

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Repayment of principal on finance leases

 

 

(252

)

 

 

(291

)

Payments of costs related to the initial public offering

 

 

 

 

 

(254

)

Net cash used in financing activities

 

 

(252

)

 

 

(545

)

Decrease in cash and cash equivalents

 

 

(5,034

)

 

 

(1,698

)

Cash and cash equivalents, beginning of year

 

 

38,044

 

 

 

5,711

 

Cash and cash equivalents, end of year

 

$

33,010

 

 

$

4,013

 

Noncash investing activities

 

 

 

 

 

 

 

 

Amounts included in accounts payable and due to affiliate for purchases of

   property and equipment

 

$

293

 

 

$

59

 

 

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 fast-growing, technology-enabled Japanese restaurant concept that provides guests with a distinctive dining experience by serving authentic Japanese cuisine through an engaging revolving sushi service model, which we refer to as the “Kura Experience”. 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 our guests across the United States through affordable prices and an inviting atmosphere. “Kura Sushi USA,” “Kura Sushi,” “Kura,” “we,” “us,” “our,” “our company” and the “Company” refer to Kura Sushi USA, Inc. unless expressly indicated or the context otherwise requires.

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 the 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 our Annual Report on Form 10-K for the fiscal year ended August 31, 2019.  

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, 2019. 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 year ending August 31, 2020 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 2020,” “fiscal year 2019” and “fiscal year 2018” refer to the Company’s fiscal years ended August 31, 2020, August 31, 2019 and August 31, 2018, 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

Comprehensive income 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 is the same as net income for all periods presented. Therefore, a separate statement of comprehensive income is not included in the accompanying financial statements.

Recently Adopted Accounting Pronouncements

On September 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842),” along with related clarifications and improvements. This pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. We elected the optional transition method to apply the standard as of the effective date and therefore, prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under previous lease guidance, ASC Topic 840: Leases (Topic 840). The adoption of Topic 842 had a material impact on the balance sheets and an immaterial impact on the statements of operations, statements of equity and statements of cash flows.

5


 

 

Our practical expedients were as follows:

 

Practical expedients

 

We have not reassessed whether any expired or existing contracts are, or contain, leases.

 

 

We have not reassessed the lease classification for any expired or existing leases.

 

 

We have not reassessed initial direct costs for any expired or existing leases.

Hindsight Practical Expedient

 

We have elected the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets.

 

The impact on the balance sheet is as follows:

 

 

 

August 31,

2019

 

 

Adjustments Due

to the Adoption

of ASC 842

 

 

September 1,

2019

 

 

 

(amounts in thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,044

 

 

$

-

 

 

$

38,044

 

Accounts receivable

 

 

948

 

 

 

-

 

 

 

948

 

Inventories

 

 

539

 

 

 

-

 

 

 

539

 

Due from affiliate

 

 

226

 

 

 

-

 

 

 

226

 

Prepaid expenses and other current assets(1)

 

 

1,744

 

 

 

(54

)

 

 

1,690

 

Total current assets

 

 

41,501

 

 

 

(54

)

 

 

41,447

 

Non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment - net

 

 

31,917

 

 

 

 

 

 

 

31,917

 

Operating lease right-of-use assets

 

 

-

 

 

 

37,332

 

 

 

37,332

 

Deposits and other assets(1)

 

 

1,865

 

 

 

(530

)

 

 

1,335

 

Deferred tax assets

 

 

1,127

 

 

 

-

 

 

 

1,127

 

Total assets

 

$

76,410

 

 

$

36,748

 

 

$

113,158

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,684

 

 

$

-

 

 

$

3,684

 

Accrued expenses and other current liabilities(1)

 

 

1,635

 

 

 

(97

)

 

 

1,538

 

Salaries and wages payable

 

 

1,348

 

 

 

-

 

 

 

1,348

 

Finance leases - current

 

 

994

 

 

 

-

 

 

 

994

 

Operating lease liabilities - current

 

 

-

 

 

 

3,618

 

 

 

3,618

 

Due to affiliate

 

 

83

 

 

 

-

 

 

 

83

 

Sales tax payable

 

 

547

 

 

 

-

 

 

 

547

 

Total current liabilities

 

 

8,291

 

 

 

3,521

 

 

 

11,812

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases - non-current

 

 

2,424

 

 

 

-

 

 

 

2,424

 

Operating lease liabilities - non-current

 

 

-

 

 

 

36,504

 

 

 

36,504

 

Deferred rent(1)

 

 

2,188

 

 

 

(2,188

)

 

 

-

 

Tenant allowances(1)

 

 

1,089

 

 

 

(1,089

)

 

 

-

 

Other liabilities

 

 

237

 

 

 

-

 

 

 

237

 

Total liabilities

 

 

14,229

 

 

 

36,748

 

 

 

50,977

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock - Class A

 

 

7

 

 

 

-

 

 

 

7

 

Common stock - Class B

 

 

1

 

 

 

-

 

 

 

1

 

Additional paid-in capital

 

 

59,442

 

 

 

-

 

 

 

59,442

 

Retained earnings

 

 

2,731

 

 

 

-

 

 

 

2,731

 

Total stockholders' equity

 

 

62,181

 

 

 

-

 

 

 

62,181

 

Total liabilities and stockholders' equity

 

$

76,410

 

 

$

36,748

 

 

$

113,158

 

 

6


 

 

(1)

Adjustment to reclassify prepaid rent, initial direct costs, deferred rent and tenant allowance to right-of-use assets for operating leases upon the adoption of ASC 842.

 

 

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. ASU 2019-12 is effective for the Company beginning in fiscal 2022. We are currently in the process of evaluating the effects of this pronouncement on our financial statements.

Note 2. Balance Sheet Components

Property and Equipment, net

 

 

 

November 30,

 

 

August 31,

 

 

 

2019

 

 

2019

 

 

 

(amounts in thousands)

 

Leasehold improvements

 

$

25,343

 

 

$

24,926

 

Lease assets

 

 

6,037

 

 

 

6,037

 

Furniture and fixtures

 

 

5,878

 

 

 

5,600

 

Computer equipment

 

 

618

 

 

 

599

 

Vehicles

 

 

75

 

 

 

75

 

Software

 

 

503

 

 

 

428

 

Construction in progress

 

 

3,710

 

 

 

1,127

 

Property and equipment, gross

 

 

42,164

 

 

 

38,792

 

Less: accumulated depreciation and amortization

 

 

(7,560

)

 

 

(6,875

)

Total property and equipment, net

 

$

34,604

 

 

$

31,917

 

 

Depreciation and amortization expense for property and equipment was approximately $0.7 million and $0.5 million for the three months ended November 30, 2019 and 2018, respectively. Amortization expense related to leased assets for the three months ended November 30, 2019 and 2018 was immaterial.

 

Deposits and Other Assets

 

 

 

November 30,

 

 

August 31,

 

 

 

2019

 

 

2019

 

 

 

(amounts in thousands)

 

Liquor License

 

$

688

 

 

$

638

 

Initial Direct Costs

 

 

-

 

 

 

530

 

Security Deposits

 

735

 

 

 

697

 

Total deposits and other assets

 

$

1,423

 

 

$

1,865

 

 

Note 3. Leases

At inception of the contract, the Company assesses whether a contract is, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification, measurement, and recognition are determined at lease commencement, which is the date the underlying asset is available for use by the Company. The accounting classification of a lease is based on whether the arrangement is effectively a financed purchase of the underlying asset (finance lease) or not (operating lease). The Company has operating and finance leases for its corporate office, restaurant locations, office equipment, kitchen equipment and automobiles. Our leases have remaining lease terms of less than 1 year to 20 years, some of which include options to extend the leases. For leases with renewal periods at the Company’s option, the Company determines the expected lease period based on whether the renewal of any options are reasonably assured at the inception of the lease.

7


 

Operating leases are accounted for on the balance sheet with the Right-of-Use (“ROU”) assets and lease liabilities recognized in “Operating lease right-of-use assets”, “Operating lease liabilities - current" and "Operating lease liabilities - noncurrent" on the balance sheet, respectively. Finance leases are accounted for on the balance sheet with ROU assets and lease liabilities recognized in "Property and equipment – net”, “Finance lease - current" and "Finance lease - noncurrent" on the balance sheet, respectively.

Lease assets and liabilities are recognized at the lease commencement date. All lease liabilities are measured at the present value of the lease payments not yet paid. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the maturities of the leases. As we have no outstanding debt, we estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. ROU assets, for both operating and finance leases, are initially measured based on the lease liability, adjusted for initial direct costs, prepaid or deferred rent, and lease incentives. The operating lease ROU assets are subsequently measured at the carrying amount of the lease liability adjusted for initial direct costs, prepaid or accrued lease payments, and lease incentives. Depreciation of the finance lease ROU assets are subsequently calculated using the straight-line method over the shorter of the estimated useful lives or the expected lease terms and recorded in "Depreciation and amortization expense" on the Statement of Operations.

Related to the adoption of Topic 842, our policy elections were as follows:

 

Separation of lease and non-lease components

 

We elected this expedient to account for lease and non-lease components as a single component for our entire population of operating lease assets.

Short-term policy

 

We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet.

 

We recognize expense for these leases on a straight-line basis over the lease term. In addition to the fixed minimum payments required under the lease arrangements, certain leases require variable lease payments, such as common area maintenance, insurance and real estate taxes, as well as contingent rental payments based on sales thresholds for certain of our restaurants. Variable lease payments are recognized when the associated activity occurs and contingency is resolved.

Lease related costs recognized in the statements of operations for the three months ended November 30, 2019 are as follows:

 

 

 

Three Months Ended

 

 

 

November 30, 2019

 

 

 

(amounts in thousands)

 

Finance lease cost

Classification

 

 

 

Amortization of right-of-use assets

Depreciation and amortization expense

$

133

 

Interest on lease liabilities

Interest expense

 

34

 

Total finance lease cost

 

$

167

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

November 30, 2019

 

 

 

(amounts in thousands)

 

Operating lease cost

Classification

 

 

 

Operating lease cost

Occupancy and related expenses, and General and administrative expenses

$

1,161

 

Variable lease cost

Occupancy and related expenses, and General and administrative expenses

 

310

 

Total operating lease cost

 

$

1,471

 

 

Supplemental balance sheet information related to leases was as follows:

 

8


 

Operating Leases

 

 

 

November 30, 2019

 

 

 

(amounts in thousands)

 

Right-of-use assets

 

$

42,528

 

Lease liabilities - current

 

 

4,087

 

Lease liabilities - non-current

 

 

41,387

 

Total lease liabilities

 

$

45,474

 

Finance Lease Assets, net

 

 

 

November 30, 2019

 

 

 

(amounts in thousands)

 

Property and equipment

 

$

6,037

 

Accumulated depreciation

 

 

(1,759

)

Property and equipment - net

 

$

4,278

 

Finance Leases Liabilities

 

 

 

November 30, 2019

 

 

 

(amounts in thousands)

 

Finance lease - current

 

$

988

 

Finance lease - non-current

 

 

2,178

 

Total finance lease liabilities

 

$

3,166

 

 

 

 

 

November 30, 2019

 

Weighted Average Remaining Lease Term (Years)

 

 

 

 

Operating leases

 

 

15.7

 

Finance leases

 

 

3.1

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

Operating leases

 

 

5.8

%

Finance leases

 

 

4.4

%

 

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

 

 

 

 

Three Months Ended

 

 

 

November 30, 2019

 

 

 

(amounts in thousands)

 

Operating cash flows paid for operating lease

   liabilities

 

$

881

 

Operating right-of-use assets obtained in exchange for

   new operating lease liabilities

 

$

5,556

 

 

As of November 30, 2019, the Company has additional operating leases related to restaurants the Company has not yet taken possession of $17.8 million. These operating leases will commence between fiscal years 2020 and 2021 with lease terms of 20 years.

 

9


 

Maturities of lease liabilities were as follows as of November 30, 2019:

 

 

 

Operating Leases

 

 

Finance Leases

 

Remainder of 2020

 

$

3,120

 

 

$

828

 

2021

 

 

4,048

 

 

 

1,075

 

2022

 

 

4,086

 

 

 

972

 

2023

 

 

4,075

 

 

 

476

 

2024

 

 

4,216

 

 

 

13

 

Thereafter

 

 

51,294

 

 

 

-

 

Total lease payments

 

 

70,839

 

 

 

3,364

 

Less: imputed interest

 

 

(25,365

)

 

 

(198

)

Present value of lease liabilities

 

$

45,474

 

 

$

3,166

 

 

As previously disclosed in our fiscal year 2019 Annual Report on Form 10-K and under the previous lease accounting, maturities of lease liabilities were as follows as of August 31, 2019:

 

Fiscal Years Ending August 31,

 

Operating Lease

Payments

 

 

Capital Lease

Payments

 

 

 

(amounts in thousands)

 

2020

 

$

4,256

 

 

$

1,113

 

2021

 

 

4,435

 

 

 

1,075

 

2022

 

 

4,477

 

 

 

972

 

2023

 

 

4,465

 

 

 

476

 

2024

 

 

4,607

 

 

 

13

 

Thereafter

 

 

58,714

 

 

 

 

Total

 

$

80,954

 

 

$

3,649

 

Less interest

 

 

 

 

 

 

(231

)

Total capital lease obligation

 

 

 

 

 

 

3,418

 

Less current portion of capital lease obligation

 

 

 

 

 

 

(994

)

Non-current portion of capital lease obligation

 

 

 

 

 

$

2,424

 

 

Note 4. Related Party Transactions

Kura Sushi, Inc. (“Kura Japan”) is a majority stakeholder 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 analyses. In exchange for such services, supplies, parts and equipment, the parties will pay fees to each other as set forth under the Shared Services Agreement. The Company reimburses Kura Japan for purchases of supplies, expatriate salaries and travel and other administrative expenses. These expenses 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.

10


 

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.

Balances with Kura Japan as of November 30, 2019 and August 31, 2019 are as follows:

 

 

 

November 30,

 

 

August 31,