SEC Filing | Kura Sushi USA

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krus-10q_20220228.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 February 28, 2022

☐	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.)
17461 Derian Avenue, Suite 200 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, a 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.

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 April 4, 2022, the registrant had 8,719,421 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	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
Signatures		29

PART I—FINANCIAL INFORMATION

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.

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.

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.

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.

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.

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, 2021. 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, 2022 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)