KURA SUSHI USA, INC. - FORM 10-Q

KURA SUSHI USA, INC. - FORM 10-Q - April 14, 2020

Attached files

Attached files

file	filename
EX-32.2 - EX-32.2 - KURA SUSHI USA, INC.	krus-ex322_102.htm
EX-32.1 - EX-32.1 - KURA SUSHI USA, INC.	krus-ex321_103.htm
EX-31.2 - EX-31.2 - KURA SUSHI USA, INC.	krus-ex312_104.htm
EX-31.1 - EX-31.1 - KURA SUSHI USA, INC.	krus-ex311_105.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 29, 2020

☐	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.

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 10, 2020, the registrant had 7,341,320 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	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
Signatures		31

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Kura Sushi USA, Inc.

Condensed Balance Sheets

(amounts in thousands, except par value)

(Unaudited)

	February 29, 2020		August 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	29,986	$	38,044
Accounts receivable		1,365		948
Inventories		449		539
Due from affiliate		12		226
Prepaid expenses and other current assets		1,699		1,744
Total current assets		33,511		41,501
Non-current assets:
Property and equipment - net		37,984		31,917
Operating lease right-of-use assets		50,965		—
Deposits and other assets		1,432		1,865
Deferred tax assets		1,132		1,127
Total assets	$	125,024	$	76,410
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	2,569	$	3,684
Accrued expenses and other current liabilities		1,061		1,635
Salaries and wages payable		1,478		1,348
Finance leases - current		1,010		994
Operating lease liabilities - current		4,545		—
Due to affiliate		277		83
Sales tax payable		545		547
Total current liabilities		11,485		8,291
Non-current liabilities:
Finance leases - non-current		1,975		2,424
Operating lease liabilities - non-current		50,074		—
Deferred rent		—		2,188
Tenant allowances		—		1,089
Other liabilities		319		237
Total liabilities		63,853		14,229
Commitments and contingencies (Note 8)
Stockholders' equity:
Class A common stock, $0.001 par value; 20,000 authorized, 7,338 and 7,335 issued and outstanding as of February 29, 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 February 29, 2020 and August 31, 2019		1		1
Additional paid-in capital		59,789		59,442
Retained earnings		1,374		2,731
Total stockholders' equity		61,171		62,181
Total liabilities and stockholders' equity	$	125,024	$	76,410

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						Six Months Ended
	February 29, 2020			February 28, 2019			February 29, 2020			February 28, 2019
Sales	$	19,388		$	15,117		$	36,828		$	28,537
Restaurant operating costs:
Food and beverage costs		6,106			4,853			11,799			9,371
Labor and related costs		6,144			4,869			11,785			9,007
Occupancy and related expenses		1,637			1,075			3,076			1,995
Depreciation and amortization expenses		712			492			1,375			940
Other costs		2,210			1,701			4,257			3,346
Total restaurant operating costs		16,809			12,990			32,292			24,659
General and administrative expenses		2,783			1,817			6,109			3,965
Depreciation and amortization expenses		36			28			58			51
Total operating expenses		19,628			14,835			38,459			28,675
Operating income (loss)		(240	)		282			(1,631	)		(138	)
Other expense (income):
Interest expense		33			40			67			81
Interest income		(170	)		(5	)		(367	)		(10	)
Income (loss) before income taxes		(103	)		247			(1,331	)		(209	)
Income tax expense (benefit)		30			35			26			(30	)
Net income (loss)	$	(133	)	$	212		$	(1,357	)	$	(179	)
Net income (loss) per Class A and Class B shares
Basic	$	(0.02	)	$	0.04		$	(0.16	)	$	(0.04	)
Diluted	$	(0.02	)	$	0.04		$	(0.16	)	$	(0.04	)
Weighted average Class A and Class B shares
Basic		8,336			5,000			8,335			5,000
Diluted		8,336			5,105			8,335			5,000

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
	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

	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

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 29, 2020			February 28, 2019
Cash flows from operating activities
Net loss	$	(1,357	)	$	(179	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization		1,433			991
Stock-based compensation		332			321
Loss on disposal of property and equipment		4			—
Deferred income taxes		(5	)		(30	)
Noncash lease expense		1,067			—
Changes in operating assets and liabilities:
Accounts receivable		131			(12	)
Inventories		90			29
Due from affiliate		214			(4	)
Prepaid expenses and other current assets		(9	)		(469	)
Deposits and other assets		(39	)		(87	)
Accounts payable		(1,245	)		(62	)
Accrued expenses and other current liabilities		(478	)		(61	)
Sales tax payable		(2	)		13
Salary and wages payable		131			95
Due to affiliate		46			(63	)
Deferred rent and tenant allowances		—			505
Operating lease liabilities		(585	)		—
Net cash (used in) provided by operating activities		(272	)		987
Cash flows from investing activities
Payments for property and equipment		(7,072	)		(4,867	)
Payments for initial direct costs		(165	)		—
Payments for purchases of liquor licenses		(58	)		(15	)
Net cash used in investing activities		(7,295	)		(4,882	)
Cash flows from financing activities
Repayment of principal on finance leases		(506	)		(537	)
Payments of costs related to the initial public offering		—			(1,206	)
Proceeds from stock option exercises		15			—
Net cash used in financing activities		(491	)		(1,743	)
Decrease in cash and cash equivalents		(8,058	)		(5,638	)
Cash and cash equivalents, beginning of year		38,044			5,711
Cash and cash equivalents, end of year	$	29,986		$	73
Noncash investing activities
Amounts included in accounts payable and due to affiliate for purchases of property and equipment	$	483		$	109

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 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 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.

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

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.

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		(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

⁽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 Topic 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 year 2022. The Company is currently in the process of evaluating the effects of this pronouncement on its financial statements.

Note 2. Balance Sheet Components

Accounts Receivable

	February 29,		August 31,
	2020		2019
	(amounts in thousands)
Tenant allowance receivable	$	548	$	215
Credit card receivable		817		733
Total accounts receivable	$	1,365	$	948

Property and Equipment, net

	February 29,		August 31,
	2020		2019
	(amounts in thousands)
Leasehold improvements	$	27,940	$	24,926
Lease assets		6,122		6,037
Furniture and fixtures		7,174		5,600
Computer equipment		680		599
Vehicles		75		75
Software

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company