krus-10q_20200531.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 May 31, 2020

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 July 9, 2020, the registrant had 7,341,934 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 Stockholders’ Equity

3

 

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

28

PART II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

Signatures

32

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Kura Sushi USA, Inc.

Condensed Balance Sheets

(amounts in thousands, except par value)

(Unaudited)

 

 

 

May 31, 2020

 

 

August 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,030

 

 

$

38,044

 

Accounts receivable

 

 

660

 

 

 

948

 

Inventories

 

 

407

 

 

 

539

 

Due from affiliate

 

 

5

 

 

 

226

 

Prepaid expenses and other current assets

 

 

2,929

 

 

 

1,744

 

Total current assets

 

 

21,031

 

 

 

41,501

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment - net

 

 

40,937

 

 

 

31,917

 

Operating lease right-of-use assets

 

 

50,362

 

 

 

 

Deposits and other assets

 

 

1,501

 

 

 

1,865

 

Deferred tax assets

 

 

 

 

 

1,127

 

Total assets

 

$

113,831

 

 

$

76,410

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,152

 

 

$

3,684

 

Accrued expenses and other current liabilities

 

 

881

 

 

 

1,635

 

Salaries and wages payable

 

 

1,008

 

 

 

1,348

 

Finance leases - current

 

 

1,007

 

 

 

994

 

Operating lease liabilities - current

 

 

4,656

 

 

 

 

Due to affiliate

 

 

123

 

 

 

83

 

Sales tax payable

 

 

14

 

 

 

547

 

Total current liabilities

 

 

9,841

 

 

 

8,291

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Finance leases - non-current

 

 

1,729

 

 

 

2,424

 

Operating lease liabilities - non-current

 

 

49,658

 

 

 

 

Deferred rent

 

 

 

 

 

2,188

 

Tenant allowances

 

 

 

 

 

1,089

 

Other liabilities

 

 

321

 

 

 

237

 

Total liabilities

 

 

61,549

 

 

 

14,229

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Class A common stock, $0.001 par value; 20,000 authorized, 7,342 and 7,335 issued and outstanding as of May 31, 2020 and August 31, 2019, respectively

 

 

7

 

 

 

7

 

Class B common stock, $0.001 par value; 10,000 authorized, 1,000 issued and outstanding as of May 31, 2020 and August 31, 2019

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

60,052

 

 

 

59,442

 

Retained earnings

 

 

(7,778

)

 

 

2,731

 

Total stockholders' equity

 

 

52,282

 

 

 

62,181

 

Total liabilities and stockholders' equity

 

$

113,831

 

 

$

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 May 31,

 

 

Nine Months Ended May 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Sales

 

$

2,812

 

 

$

16,955

 

 

$

39,640

 

 

$

45,492

 

Restaurant operating costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

1,069

 

 

 

5,509

 

 

 

12,868

 

 

 

14,880

 

Labor and related costs

 

 

3,551

 

 

 

5,279

 

 

 

15,336

 

 

 

14,286

 

Occupancy and related expenses

 

 

1,589

 

 

 

1,297

 

 

 

4,665

 

 

 

3,292

 

Depreciation and amortization expenses

 

 

743

 

 

 

517

 

 

 

2,118

 

 

 

1,457

 

Other costs

 

 

964

 

 

 

1,756

 

 

 

5,221

 

 

 

5,102

 

Total restaurant operating costs

 

 

7,916

 

 

 

14,358

 

 

 

40,208

 

 

 

39,017

 

General and administrative expenses

 

 

2,885

 

 

 

1,734

 

 

 

8,994

 

 

 

5,699

 

Depreciation and amortization expenses

 

 

39

 

 

 

29

 

 

 

97

 

 

 

80

 

Total operating expenses

 

 

10,840

 

 

 

16,121

 

 

 

49,299

 

 

 

44,796

 

Operating income (loss)

 

 

(8,028

)

 

 

834

 

 

 

(9,659

)

 

 

696

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

36

 

 

 

45

 

 

 

103

 

 

 

126

 

Interest income

 

 

(65

)

 

 

(1

)

 

 

(432

)

 

 

(11

)

Income (loss) before income taxes

 

 

(7,999

)

 

 

790

 

 

 

(9,330

)

 

 

581

 

Income tax expense

 

 

1,153

 

 

 

71

 

 

 

1,179

 

 

 

41

 

Net income (loss)

 

$

(9,152

)

 

$

719

 

 

$

(10,509

)

 

$

540

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.10

)

 

$

0.14

 

 

$

(1.26

)

 

$

0.11

 

Diluted

 

$

(1.10

)

 

$

0.14

 

 

$

(1.26

)

 

$

0.10

 

Weighted average Class A and Class B shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

8,341

 

 

 

5,000

 

 

 

8,337

 

 

 

5,000

 

Diluted

 

 

8,341

 

 

 

5,171

 

 

 

8,337

 

 

 

5,151

 

 

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

 

Balances 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

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

211

 

 

 

 

 

 

211

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(133

)

 

 

(133

)

Exercise of stock options

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Balances as of February 29, 2020

 

 

7,338

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

59,789

 

 

$

1,374

 

 

$

61,171

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

248

 

 

 

 

 

 

248

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,152

)

 

 

(9,152

)

Exercise of stock options

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Balances as of May 31, 2020

 

 

7,342

 

 

$

7

 

 

 

1,000

 

 

$

1

 

 

$

60,052

 

 

$

(7,778

)

 

$

52,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

161

 

 

 

 

 

 

161

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

212

 

 

 

212

 

Balances as of February 28, 2019

 

 

4,000

 

 

$

4

 

 

 

1,000

 

 

$

1

 

 

$

20,546

 

 

$

1,096

 

 

$

21,647

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

155

 

 

 

 

 

 

155

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

719

 

 

 

719

 

Balances as of May 31, 2019

 

 

4,000

 

 

$

4

 

 

 

1,000

 

 

$

1

 

 

$

20,701

 

 

$

1,815

 

 

$

22,521

 

 

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)

 

 

 

 

Nine Months Ended May 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(10,509

)

 

$

540

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,215

 

 

 

1,537

 

Stock-based compensation

 

 

580

 

 

 

476

 

Loss on disposal of property and equipment

 

 

4

 

 

 

 

Deferred income taxes

 

 

1,114

 

 

 

(24

)

Noncash lease expense

 

 

1,695

 

 

 

 

Inventory write-downs

 

 

50

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

836

 

 

 

(101

)

Inventories

 

 

82

 

 

 

(84

)

Due from affiliate

 

 

221

 

 

 

(5

)

Prepaid expenses and other current assets

 

 

(1,227

)

 

 

(358

)

Deposits and other assets

 

 

(108

)

 

 

(181

)

Accounts payable

 

 

(2,995

)

 

 

190

 

Accrued expenses and other current liabilities

 

 

(861

)

 

 

37

 

Sales tax payable

 

 

(533

)

 

 

117

 

Salary and wages payable

 

 

(340

)

 

 

380

 

Due to affiliate

 

 

(4

)

 

 

(46

)

Deferred rent and tenant allowances

 

 

 

 

 

960

 

Operating lease liabilities

 

 

(915

)

 

 

 

Net cash (used in) provided by operating activities

 

 

(10,695

)

 

 

3,438

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Payments for property and equipment

 

 

(9,348

)

 

 

(7,688

)

Payments for initial direct costs

 

 

(165

)

 

 

 

Payments for purchases of liquor licenses

 

 

(58

)

 

 

(20

)

Net cash used in investing activities

 

 

(9,571

)

 

 

(7,708

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from borrowings of debt

 

 

 

 

 

3,921

 

Repayment on debt

 

 

 

 

 

(866

)

Proceeds from PPP loan

 

 

5,983

 

 

 

 

Repayment of PPP loan

 

 

(5,983

)

 

 

 

Repayment of principal on finance leases

 

 

(778

)

 

 

(785

)

Payments of costs related to initial public offering

 

 

 

 

 

(2,446

)

Proceeds from stock option exercises

 

 

30

 

 

 

 

Net cash used in financing activities

 

 

(748

)

 

 

(176

)

Decrease in cash and cash equivalents

 

 

(21,014

)

 

 

(4,446

)

Cash and cash equivalents, beginning of year

 

 

38,044

 

 

 

5,711

 

Cash and cash equivalents, end of year

 

$

17,030

 

 

$

1,265

 

Noncash investing activities

 

 

 

 

 

 

 

 

Amounts unpaid for purchases of property and equipment

 

$

1,916

 

 

$

434

 

 

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 our 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

In March 2020, the World Health Organization declared the novel strain of coronavirus COVID-19 a global pandemic. This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and financial markets globally. In response to this outbreak, many state and local authorities mandated the temporary closure of non-essential businesses and dine-in restaurant activity. COVID-19 and the government measures taken to control it have caused a significant disruption to the Company’s business operation. On March 18, 2020, the Company announced the temporary closure of all of its 25 restaurants located across five states and has since furloughed certain of its employees.  As of May 31, 2020, the Company had reopened seven restaurants and as of the filing date of this Quarterly Report, has reopened all 25 restaurants, with 14 of them in California currently only providing takeout due to government restrictions on indoor dining. The reopened restaurants that allow indoor dining have been operating at reduced capacities of 25% or 50% depending on local requirements.   

To support the Company’s employees during this challenging time, the Company has maintained payroll for restaurant managers and key kitchen staff.  The Company maintained payroll for all employees through April 5, 2020 and all kitchen employees through May 9, 2020.  The Company also continued to pay the employees’ portion of health insurance for all furloughed employees.        

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. Currently, the restaurants are not utilizing the revolving conveyor belt and all food is ordered from the tableside touchscreen.  The food is delivered either by the express belt directly from the kitchen to the customers’ tables or by the restaurant employees.  The Company has increased cleaning and sanitizing protocols of its restaurants and has implemented additional training and operational manuals for its restaurant employees, as well as increased handwashing procedures.  The Company also provides each restaurant employee with face masks and gloves, and requires each employee to pass a health screening process, which includes a temperature check, before the start of each shift.

The temporary restaurant closure and the reduced capacities at the reopened restaurants have caused a substantial decline in the Company’s sales in the most recent fiscal quarter.  The future sales levels of the Company’s restaurants and the Company’s ability to implement its growth strategy remain highly uncertain, as the full impact and duration of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report.  The Company expects the current decreased restaurant sales levels and ongoing length and severity of the economic downturn caused by the pandemic will continue to have a material adverse impact on the future business, financial condition, liquidity and financial results of the Company.

 

Recent Events Concerning the Company’s Financial Position

On April 10, 2020, the Company and Kura Sushi, Inc. (“Kura Japan”), a majority stockholder, entered into a Revolving Credit Agreement establishing a $20 million revolving credit line with a termination date of March 31, 2024, to provide the Company with additional liquidity as may be necessary.  See “Note 4. Related Party Transactions” and “Note 6. Debt”.  

On April 14, 2020, the Company entered into a Promissory Note with Bank of the West, which provided for a loan in the amount of $6.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020. On April 29, 2020, the Company returned the proceeds received from the PPP Loan.

Under the provisions of the CARES Act, the Company is eligible for a refundable employee retention credit subject to certain criteria.  In connection with the CARES Act, the Company adopted a policy to recognize the employee retention credit when earned and to offset the credit against the related expenditure.  Accordingly, the Company recorded a $1.6 million employee retention credit during the three months ended May 31, 2020, which is included in Labor and related costs in the statements of operations.     

The Company has received rent concessions from its landlords for certain of its restaurants in the form of rent abatements and rent deferrals which were immaterial for the three months ended May 31, 2020.  The Company continues to have discussions with its landlords regarding potential future rent concessions.  

5


 

Due to the impact of COVID-19, the Company assessed its long-lived assets for potential impairment, which resulted in no impairment charges recorded as of May 31, 2020.  The Company also assessed the realizability of its deferred tax assets and recorded a valuation allowance of $1.1 million during the three months ended May 31, 2020.  See “Note 9. Income Taxes”.

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 its 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

In April 2020, the staff of the Financial Accounting Standards Board (FASB) issued a question-and-answer document that stated that entities may elect to account for lease concessions related to the effects of the COVID-19 pandemic as though the rights and obligations for those concessions existed as of the commencement of the contract rather than as a lease modification. Lessees may make the election for any lessor-provided lease concession related to the impact of the COVID-19 pandemic as long as the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. The Company has made such election. The Company has received immaterial rent concessions and has not entered into any lease modifications as of May 31, 2020. As such, this election did not have a material impact on the balance sheets, the statements of operations, statements of stockholders’ equity or statements of cash flows.

On September 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)” (“Topic 842” or “ASC 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. The Company 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.

6


 

The practical expedients were as follows:

 

Practical expedients

 

The Company has not reassessed whether any expired or existing contracts are, or contain, leases.

 

 

The Company has not reassessed the lease classification for any expired or existing leases.

 

 

The Company has not reassessed initial direct costs for any expired or existing leases.

Hindsight Practical Expedient

 

The Company has 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 Topic 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