PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The company's Q3 2021 financials show a significant sales recovery and return to profitability amid growing assets and liabilities [Condensed Balance Sheets](index=3&type=section&id=Condensed%20Balance%20Sheets) Total assets grew to $130.4 million and liabilities to $92.8 million, driven by a large tax receivable and a new affiliate loan Condensed Balance Sheet Highlights (in thousands) | Account | May 31, 2021 | August 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $4,701 | $9,259 | | Total current assets | $20,401 | $14,778 | | Property and equipment - net | $51,783 | $45,541 | | **Total assets** | **$130,434** | **$118,379** | | **Liabilities & Equity** | | | | Total current liabilities | $16,941 | $13,925 | | Loan from affiliate | $17,000 | $— | | **Total liabilities** | **$92,777** | **$72,666** | | **Total stockholders' equity** | **$37,657** | **$45,713** | - Prepaid expenses and other current assets significantly increased to **$12.0 million** from $3.0 million, primarily due to a **$10.7 million employee retention credit receivable** as of May 31, 2021[8](index=8&type=chunk)[34](index=34&type=chunk) [Condensed Statements of Operations](index=4&type=section&id=Condensed%20Statements%20of%20Operations) Third-quarter sales surged to $18.5 million, leading to a net income of $770,000, a sharp reversal from the prior year's pandemic-driven loss Quarterly Performance (Three Months Ended May 31, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Sales | $18,471 | $2,812 | | Operating income (loss) | $866 | $(8,028) | | Net income (loss) | $770 | $(9,152) | | Diluted EPS | $0.09 | $(1.10) | Year-to-Date Performance (Nine Months Ended May 31, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Sales | $36,967 | $39,640 | | Operating income (loss) | $(9,227) | $(9,659) | | Net income (loss) | $(9,461) | $(10,509) | | Diluted EPS | $(1.13) | $(1.26) | [Condensed Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity declined to $37.7 million from $45.7 million, primarily due to the cumulative net loss for the nine-month period - The accumulated deficit increased from **$(14.6) million** at August 31, 2020, to **$(24.1) million** at May 31, 2021, driven by the net loss for the period[13](index=13&type=chunk) [Condensed Statements of Cash Flows](index=6&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) The company used $9.7 million in operating cash, funded primarily by a $17.0 million loan from its parent company Cash Flow Summary (Nine Months Ended May 31, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,697) | $(10,695) | | Net cash used in investing activities | $(11,523) | $(9,571) | | Net cash provided by (used in) financing activities | $16,662 | $(748) | | **Decrease in cash** | **$(4,558)** | **$(21,014)** | | Cash at end of period | $4,701 | $17,030 | - Financing activities were the primary source of cash, with the company drawing **$17.0 million** from a revolving credit agreement with its parent, Kura Japan[16](index=16&type=chunk) [Notes to Condensed Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) Key notes detail the COVID-19 impact, an $8.9 million employee retention credit, an expanded credit line, and a $1.0 million litigation accrual - As of the filing date, all **32 restaurants were operating at 100% indoor capacity**, a significant improvement from the weighted average capacities of 35%, 26%, and 62% in the first three quarters of fiscal 2021, respectively[19](index=19&type=chunk)[69](index=69&type=chunk) - The company recognized an **$8.9 million employee retention credit** under the CARES Act for the nine months ended May 31, 2021, which significantly reduced labor costs[23](index=23&type=chunk) - The revolving credit line with parent company Kura Japan was increased to **$45 million**, with **$17.0 million borrowed** and $28.0 million available as of May 31, 2021[53](index=53&type=chunk)[55](index=55&type=chunk) - The company recorded an accrued liability of **$1.0 million** related to a putative class action complaint alleging violations of California wage and hour laws[58](index=58&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Q3 2021 sales recovery driven by eased dining restrictions, ongoing staffing challenges, and liquidity supported by its parent company [Overview and Business Trends](index=17&type=section&id=Overview%20and%20Business%20Trends) The business is recovering from COVID-19 capacity restrictions but now faces staffing shortages while continuing its restaurant expansion strategy - Due to government restrictions, the weighted average indoor dining capacities were **35%**, **26%**, and **62%** for the first, second, and third quarters of fiscal 2021, respectively[69](index=69&type=chunk) - Comparable restaurant sales for the three and nine months ended May 31, 2021, were down **19%** and **39%**, respectively, compared to pre-pandemic levels in 2019[71](index=71&type=chunk) - The company is currently experiencing a staffing shortage and has provided **employee retention and new hire bonuses** to address it[71](index=71&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Q3 2021 sales grew 556.9% year-over-year to $18.5 million, resulting in net income of $0.8 million aided by a large employee retention credit Q3 Results of Operations (Three Months Ended May 31, in thousands) | Line Item | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales | $18,471 | $2,812 | $15,659 | 556.9% | | Labor and related costs | $1,649 | $3,551 | $(1,902) | (53.6)% | | Operating income (loss) | $866 | $(8,028) | $8,894 | 110.8% | | Net income (loss) | $770 | $(9,152) | $9,922 | 108.4% | - The decrease in Q3 labor costs was primarily driven by **$5.8 million in employee retention credits**, which offset increased staffing levels and $0.7 million in retention/new hire bonuses[92](index=92&type=chunk) - General and administrative expenses for Q3 increased by $1.4 million, mainly due to a **$1.0 million accrual for pending litigation** and increased compensation[96](index=96&type=chunk) YTD Results of Operations (Nine Months Ended May 31, in thousands) | Line Item | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales | $36,967 | $39,640 | $(2,673) | (6.7)% | | Labor and related costs | $8,070 | $15,336 | $(7,266) | (47.4)% | | Operating income (loss) | $(9,227) | $(9,659) | $432 | 4.5% | | Net income (loss) | $(9,461) | $(10,509) | $1,048 | 10.0% | [Key Performance Indicators](index=24&type=section&id=Key%20Performance%20Indicators) Q3 comparable sales grew 455.6% year-over-year, though Adjusted EBITDA remained negative, while six new restaurants opened in the nine-month period Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended May 31, 2021 | Nine Months Ended May 31, 2021 | | :--- | :--- | :--- | | Net income (loss) | $770 | $(9,461) | | EBITDA | $2,082 | $(5,913) | | Employee retention credit | $(6,296) | $(8,931) | | Litigation accrual | $1,000 | $1,000 | | **Adjusted EBITDA** | **$(2,592)** | **$(11,553)** | Restaurant-Level Operating Profit (Loss) Reconciliation (in thousands) | Metric | Three Months Ended May 31, 2021 | Nine Months Ended May 31, 2021 | | :--- | :--- | :--- | | Operating income (loss) | $866 | $(9,227) | | **Restaurant-level operating profit (loss)** | **$1,064** | **$(1,423)** | | Restaurant-level operating profit (loss) margin | 5.8% | (3.8)% | Comparable Restaurant Sales Performance | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended May 31 | 455.6% | (85.4)% | | Nine Months Ended May 31 | (20.5)% | (24.5)% | - The company opened 1 restaurant in Q3 2021 and a total of **6 restaurants** in the nine months ended May 31, 2021, ending the period with 31 restaurants[124](index=124&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is maintained through a revolving credit line, with a $17.0 million draw funding operations and investments, and a new $50 million shelf registration - On May 7, 2021, the company filed a universal shelf registration statement on Form S-3 for a maximum aggregate offering price of up to **$50 million**[125](index=125&type=chunk) - As of May 31, 2021, the company had **$17.0 million in outstanding borrowings** under its Revolving Credit Agreement with Kura Japan, with **$28.0 million of availability remaining**[126](index=126&type=chunk) Summary of Cash Flows (Nine Months Ended May 31, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,697) | $(10,695) | | Net cash used in investing activities | $(11,523) | $(9,571) | | Net cash provided by (used in) financing activities | $16,662 | $(748) | [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are commodity price volatility and inflation, particularly in food, beverage, and labor costs - The company's profitability is dependent on its ability to manage changes in the costs of key operating resources, including **food, beverage, and other commodities**[144](index=144&type=chunk) - Primary inflationary factors affecting operations are **food and beverage costs, labor costs, and energy costs**, with minimum wage increases being a key driver[145](index=145&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of May 31, 2021, with no material changes during the quarter - Based on an evaluation, the principal executive officer and principal financial officer concluded that the company's **disclosure controls and procedures were effective** as of the end of the period covered by the report[148](index=148&type=chunk) - **No material changes** to the company's internal control over financial reporting occurred during the most recent fiscal quarter[150](index=150&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company has accrued a $1.0 million liability for a potential settlement in a class action lawsuit related to California wage and hour laws - The company is subject to a putative class action complaint regarding California wage and hour laws and has recorded an accrued liability of **$1.0 million** for a potential settlement[58](index=58&type=chunk)[153](index=153&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) No material changes have been made to the risk factors previously disclosed in the company's most recent Form 10-K annual report - There have been **no material changes** to the company's Risk Factors as previously reported in its Annual Report on Form 10-K[154](index=154&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities or specific use of proceeds during the period - None[155](index=155&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) Filed exhibits include an amendment to the credit agreement with its parent company and required officer certifications - Key exhibits filed include **amendments to the revolving credit agreement** and officer certifications[160](index=160&type=chunk)

Financial Data and Key Metrics Changes - For the fiscal second quarter, total sales were $9.1 million compared to $19.4 million in the same period last year, resulting in a comparable sales decline of 60% [16] - Food and beverage costs as a percentage of sales increased to 35.0% from 31.5% in the prior year quarter, while labor and related costs as a percentage of sales decreased to 22.7% from 31.7% due to a $2.2 million employee retention credit [16][18] - The net loss was $3.9 million or negative $0.46 per diluted share compared to a net loss of $100,000 or negative $0.02 per diluted share in the second quarter of 2020 [18] Business Line Data and Key Metrics Changes - Off-premises revenue was $2.4 million, representing significant growth from approximately $1.3 million in the previous quarter, with off-premises sales accounting for 26% of total sales during the fiscal second quarter [13][14] - The company opened two new restaurants during the fiscal second quarter and has plans for additional openings, maintaining development momentum despite the pandemic [10][11] Market Data and Key Metrics Changes - Sales in California began to recover in February with the resumption of outdoor dining, although this was partially offset by severe winter weather in Texas [6][7] - March revenue exceeded $5 million, a significant improvement from February's revenue of $3.1 million, driven by relaxed dining restrictions [9] Company Strategy and Development Direction - The company aims for a 20% unit growth CAGR over a five-year period starting in fiscal 2019, with a strong pipeline for fiscal 2022 [11] - The new Kura Sushi app was launched to enhance online ordering and rewards integration, with over 100,000 combined reward members and app users [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovery as COVID-19 cases decline and vaccinations increase, indicating readiness to capitalize on pent-up demand [15] - The company is transitioning from a defensive to a more aggressive strategy regarding capital expenditures and growth plans for fiscal 2022 [20] Other Important Information - The company has $2.3 million in cash and $12 million in debt, having borrowed an additional $9 million to meet planned capital expenditures [19] - General and administrative expenses increased to $2.9 million compared to $2.8 million in the prior year, primarily due to compensation-related expenses [17] Q&A Session Summary Question: Can you provide more color on Texas comping positively? - Management confirmed that Texas comping positively refers to the period in March after the seating capacity was increased to 100% [25] Question: What impact did outdoor dining have on off-premises sales? - Management noted that off-premises sales decreased from $860,000 in January to $650,000 in February due to the reopening of outdoor dining, but increased to $680,000 in March [27] Question: What is the real estate environment like for new store openings? - Management indicated a strong pool of real estate opportunities and substantial leases signed for the fiscal 2022 pipeline [31] Question: How are labor market conditions affecting hiring? - Management acknowledged industry-wide hiring challenges but stated that they are ramping up recruitment efforts to prepare for growth [56] Question: What are the average tickets for off-premises versus in-store dining? - The off-premises ticket averages in the low $30s, while in-store dining averages in the low $20s [61] Question: How does the company view menu pricing in the future? - Management stated that pricing adjustments have historically been tied to minimum wage increases, but they are open to reevaluating pricing strategies moving forward [76][77]

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, 2021 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) (State or other jurisd ...

Kura Sushi USA, Inc. (NASDAQ:KRUS) Q1 2021 Earnings Conference Call January 11, 2021 5:00 PM ET Company Participants Benjamin Porten - Investor Relations Director Hajime Jimmy Uba - Chairman, President, Chief Executive Officer Steven Benrubi - CFO Conference Call Participants James Rutherford - Stephens, Inc Peter Saleh - BTIG Jeremy Hamblin - Craig-Hallum Andrew Strelzik - BMO Capital Markets George Kelly - ROTH Capital Partners Operator Good afternoon, ladies and gentlemen, and thank you for standing by ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents unaudited condensed financial statements and notes, highlighting the COVID-19 pandemic's impact on operations and financial position [Condensed Balance Sheets](index=3&type=section&id=Condensed%20Balance%20Sheets) Condensed Balance Sheet Highlights (Amounts in thousands) | Metric | November 30, 2020 | August 31, 2020 | | :-------------------------- | :------------------ | :------------------ | | Cash and cash equivalents | $2,745 | $9,259 | | Total current assets | $8,507 | $14,778 | | Total assets | $115,393 | $118,379 | | Total current liabilities | $15,143 | $13,925 | | Loan from affiliate | $3,000 | — | | Total liabilities | $75,670 | $72,666 | | Total stockholders' equity | $39,723 | $45,713 | - Total assets decreased from **$118,379 thousand** to **$115,393 thousand**[10](index=10&type=chunk) - Cash and cash equivalents significantly decreased from **$9,259 thousand** to **$2,745 thousand**[10](index=10&type=chunk) [Condensed Statements of Operations](index=4&type=section&id=Condensed%20Statements%20of%20Operations) Condensed Statements of Operations Highlights (Three Months Ended November 30, amounts in thousands) | Metric | 2020 | 2019 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :---------- | :---------- | | Sales | $9,414 | $17,440 | $(8,026) | (46.0)% | | Total restaurant operating costs | $12,109 | $15,483 | $(3,374) | (21.8)% | | Operating loss | $(6,291) | $(1,391) | $(4,900) | (352.3)% | | Net loss | $(6,350) | $(1,224) | $(5,126) | (418.8)% | | Net loss per Class A and B shares | $(0.76) | $(0.15) | $(0.61) | (406.7)% | - Sales decreased by **46.0%** year-over-year, primarily due to reduced operating capacities from the COVID-19 pandemic[12](index=12&type=chunk) - Net loss increased significantly by **418.8%** year-over-year, from **$(1,224) thousand** in 2019 to **$(6,350) thousand** in 2020[12](index=12&type=chunk) [Condensed Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Statements%20of%20Stockholders'%20Equity) Condensed Statements of Stockholders' Equity Highlights (Amounts in thousands) | Metric | August 31, 2020 | November 30, 2020 | | :------------------------ | :---------------- | :------------------ | | Total Stockholders' Equity | $45,713 | $39,723 | | Stock-based compensation | — | $266 | | Net loss | — | $(6,350) | - Total stockholders' equity decreased from **$45,713 thousand** as of August 31, 2020, to **$39,723 thousand** as of November 30, 2020[15](index=15&type=chunk) - The decrease was primarily driven by a net loss of **$(6,350) thousand** for the period[15](index=15&type=chunk) [Condensed Statements of Cash Flows](index=6&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Condensed Statements of Cash Flows Highlights (Three Months Ended November 30, amounts in thousands) | Cash Flow Activity | 2020 | 2019 | | :-------------------------------- | :---------- | :---------- | | Net cash used in operating activities | $(2,731) | $(1,538) | | Net cash used in investing activities | $(6,619) | $(3,244) | | Net cash provided by (used in) financing activities | $2,836 | $(252) | | Decrease in cash and cash equivalents | $(6,514) | $(5,034) | | Cash and cash equivalents, end of period | $2,745 | $33,010 | - Net cash used in operating activities increased to **$(2,731) thousand** in 2020 from **$(1,538) thousand** in 2019[18](index=18&type=chunk) - Net cash provided by financing activities was **$2,836 thousand** in 2020, primarily due to a **$3,000 thousand** loan from an affiliate, a significant change from cash used in 2019[18](index=18&type=chunk) [Notes to Condensed Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) [Note 1. Organization and Basis of Presentation](index=7&type=section&id=Note%201.%20Organization%20and%20Basis%20of%20Presentation) - Kura Sushi USA, Inc. operates a technology-enabled Japanese restaurant concept with a revolving sushi service model[21](index=21&type=chunk) - The COVID-19 pandemic significantly disrupted operations, causing a substantial decline in sales due to reduced operating capacities and temporary closures. As of the filing date, all **29 restaurants** are open, but many operate with restrictions (takeout only, outdoor dining, or reduced indoor capacity)[22](index=22&type=chunk)[24](index=24&type=chunk) - The company increased its revolving credit line with Kura Japan from **$20 million** to **$35 million** and extended its maturity and availability dates to preserve liquidity[25](index=25&type=chunk) [Note 2. Balance Sheet Components](index=9&type=section&id=Note%202.%20Balance%20Sheet%20Components) Accounts Receivable (Amounts in thousands) | Type of Receivable | November 30, 2020 | August 31, 2020 | | :----------------- | :---------------- | :---------------- | | Lease receivable | $1,651 | $1,811 | | Credit card receivable | $316 | $281 | | Other receivables | $28 | $38 | | Total | $1,995 | $2,130 | Property and Equipment - net (Amounts in thousands) | Asset Category | November 30, 2020 | August 31, 2020 | | :------------------------- | :---------------- | :---------------- | | Leasehold improvements | $36,228 | $30,497 | | Furniture and fixtures | $10,008 | $7,908 | | Construction in progress | $6,914 | $9,558 | | Total property and equipment - net | $49,816 | $45,541 | - Depreciation and amortization expense for property and equipment increased to approximately **$1.0 million** for the three months ended November 30, 2020, from **$0.7 million** in the prior year[36](index=36&type=chunk) [Note 3. Leases](index=10&type=section&id=Note%203.%20Leases) Lease Liabilities (Amounts in thousands) | Lease Type | November 30, 2020 | August 31, 2020 | | :-------------------------- | :---------------- | :---------------- | | Operating lease liabilities – current | $5,236 | $5,106 | | Operating lease liabilities – non-current | $55,988 | $56,918 | | Total operating lease liabilities | $61,224 | $62,024 | | Finance lease liabilities – current | $1,033 | $1,004 | | Finance lease liabilities – non-current | $1,194 | $1,481 | | Total finance lease liabilities | $2,227 | $2,485 | Weighted Average Lease Terms and Discount Rates (November 30, 2020) | Lease Type | Remaining Lease Term (Years) | Discount Rate | | :----------- | :--------------------------- | :------------ | | Operating | 16.2 | 6.4% | | Finance | 2.2 | 4.4% | - The company has additional operating lease liabilities of **$13.7 million** for restaurants not yet taken possession of, expected to commence in fiscal year 2021 with **20-year terms**[46](index=46&type=chunk) [Note 4. Related Party Transactions](index=12&type=section&id=Note%204.%20Related%20Party%20Transactions) - Kura Sushi, Inc. ('Kura Japan'), the majority stockholder, provides strategic, operational, and support services to the Company under a Shared Services Agreement[48](index=48&type=chunk) - The Company pays Kura Japan a royalty fee of **0.5%** of net sales for an exclusive license to use Kura Japan's intellectual property, including trademarks and food management systems[49](index=49&type=chunk) Balances with Kura Japan (Amounts in thousands) | Account | November 30, 2020 | August 31, 2020 | | :---------------- | :---------------- | :---------------- | | Due from affiliate | $239 | $12 | | Due to affiliate | $69 | $201 | | Loan from affiliate | $3,000 | — | [Note 5. Stock-based Compensation](index=13&type=section&id=Note%205.%20Stock-based%20Compensation) Stock Option Activity (August 31, 2020 to November 30, 2020) | Activity | Number of Shares Underlying Outstanding Options | | :----------------------- | :---------------------------------------------- | | Outstanding—August 31, 2020 | 531,747 | | Options exercised | (21,979) | | Options canceled/forfeited | (4,265) | | Outstanding—November 30, 2020 | 505,503 | - Stock-based compensation expense was **$0.3 million** for the three months ended November 30, 2020, an increase from **$0.1 million** in the prior year[52](index=52&type=chunk) - Subsequent to November 30, 2020, the Company granted an additional **50 thousand options** and **7 thousand restricted stock awards**[51](index=51&type=chunk) [Note 6. Debt](index=14&type=section&id=Note%206.%20Debt) - The Revolving Credit Agreement with Kura Japan was amended to increase the credit line from **$20 million** to **$35 million**, extend the maturity date to **60 months**, and extend the availability period to **April 10, 2025**[54](index=54&type=chunk) - As of November 30, 2020, the Company had borrowed **$3.0 million** under the Revolving Credit Agreement at a fixed interest rate of **1.1%**[55](index=55&type=chunk) - Subsequent to November 30, 2020, an additional **$6.0 million** was borrowed, leaving **$26 million** of availability[55](index=55&type=chunk) [Note 7. Loss Per Share](index=14&type=section&id=Note%207.%20Loss%20Per%20Share) Net Loss Per Share (Three Months Ended November 30, amounts in thousands, except per share data) | Metric | 2020 | 2019 | | :-------------------------------- | :---------- | :---------- | | Net loss attributable to common stockholders - basic | $(5,589) | $(1,077) | | Weighted average common shares outstanding - basic | 7,348 | 7,335 | | Net loss per share attributable to common stockholders - basic | $(0.76) | $(0.15) | | Net loss per share attributable to common stockholders - diluted | $(0.76) | $(0.15) | - Basic and diluted net loss per share for both Class A and Class B shares was **$(0.76)** for the three months ended November 30, 2020, compared to **$(0.15)** in the prior year[57](index=57&type=chunk) - Approximately **506 thousand shares** subject to outstanding employee stock options were excluded from diluted loss per share calculation for the three months ended November 30, 2020, as their inclusion would have been anti-dilutive[58](index=58&type=chunk) [Note 8. Commitments and Contingencies](index=15&type=section&id=Note%208.%20Commitments%20and%20Contingencies) - A putative class action complaint was filed on May 31, 2019, alleging violations of California wage and hour laws, later amended to include new plaintiffs and causes of action[59](index=59&type=chunk) - Management believes that current legal proceedings, including the class action, will not have a material adverse effect on the company's business, financial position, results of operations, or cash flows, though the range of possible losses cannot be estimated[59](index=59&type=chunk)[60](index=60&type=chunk) [Note 9. Income Taxes](index=15&type=section&id=Note%209.%20Income%20Taxes) - The Company recorded income tax expense of **$29 thousand** for the three months ended November 30, 2020, compared to an income tax benefit of **$4 thousand** in the prior year[61](index=61&type=chunk) - The effective tax rate significantly differed from the federal statutory rate of **21%** primarily due to a full valuation allowance against the Company's net deferred tax assets[61](index=61&type=chunk)[62](index=62&type=chunk) - The Consolidated Appropriations Act, 2021, is not expected to have a material impact on the Company's effective tax rate or income tax expense for the fiscal year ending August 31, 2021[63](index=63&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations)) Management discusses financial performance, COVID-19 impact, operational responses, liquidity, and key indicators [Overview](index=16&type=section&id=Overview) - Kura Sushi USA, Inc. is a technology-enabled Japanese restaurant concept offering a distinctive revolving sushi service model, known as the 'Kura Experience'[68](index=68&type=chunk) - The company focuses on serving freshly prepared Japanese cuisine using high-quality ingredients free from artificial additives, aiming for accessibility through affordable prices and an inviting atmosphere[68](index=68&type=chunk) [Business Trends; Effects of COVID-19 on Our Business](index=16&type=section&id=Business%20Trends%3B%20Effects%20of%20COVID-19%20on%20Our%20Business) - The COVID-19 pandemic caused significant disruption, leading to temporary closures and reduced operating capacities across the company's restaurants[69](index=69&type=chunk) - As of the filing date, all **29 restaurants** are open, but **16** in California and Washington D.C. are takeout-only, one in Illinois offers outdoor dining only, and the remaining **12** operate at reduced indoor capacities (**25% to 75%**)[69](index=69&type=chunk) - The company's response includes prioritizing health and safety, maximizing in-restaurant dining capacity, mobile ordering, and takeout, while continuing its long-term growth strategy of opening new restaurants[70](index=70&type=chunk)[71](index=71&type=chunk) [Recent Events Concerning Our Financial Position](index=16&type=section&id=Recent%20Events%20Concerning%20Our%20Financial%20Position) - The Revolving Credit Agreement with Kura Japan was amended to increase the credit line from **$20 million** to **$35 million** and extend the maturity and availability dates[72](index=72&type=chunk) - The company borrowed **$3.0 million** by November 30, 2020, and an additional **$6.0 million** subsequently, with **$26 million** remaining available under the credit line[72](index=72&type=chunk) - Rent concessions (abatements and deferrals) received from landlords were immaterial for the three months ended November 30, 2020, with ongoing discussions for future concessions[73](index=73&type=chunk) [Key Financial Definitions](index=17&type=section&id=Key%20Financial%20Definitions) - Sales represent food and beverage sales, influenced by restaurant count and comparable restaurant sales growth[74](index=74&type=chunk) - Food and beverage costs are variable, affected by sales volume, menu mix, commodity costs, seasonality, and food waste management[75](index=75&type=chunk) - Labor and related expenses include restaurant-level management and hourly labor costs, influenced by minimum wage, payroll taxes, and healthcare costs[76](index=76&type=chunk) - General and administrative expenses cover corporate and regional support functions, including compensation, travel, stock-based compensation, legal fees, and marketing[79](index=79&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Comparative Results of Operations (Three Months Ended November 30, amounts in thousands) | Metric | 2020 | 2019 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :---------- | :---------- | | Sales | $9,414 | $17,440 | $(8,026) | (46.0)% | | Food and beverage costs | $3,053 | $5,693 | $(2,640) | (46.4)% | | Labor and related costs | $4,360 | $5,641 | $(1,281) | (22.7)% | | Occupancy and related expenses | $1,690 | $1,439 | $251 | 17.4% | | Operating loss | $(6,291) | $(1,391) | $(4,900) | (352.3)% | | Net loss | $(6,350) | $(1,224) | $(5,126) | (418.8)% | Key Operating Costs as a Percentage of Sales (Three Months Ended November 30) | Cost Category | 2020 | 2019 | | :-------------------------------- | :------ | :------ | | Food and beverage costs | 32.4% | 32.6% | | Labor and related costs | 46.3% | 32.3% | | Occupancy and related expenses | 18.0% | 8.3% | | Depreciation and amortization expenses | 9.8% | 3.8% | | Other costs | 22.1% | 11.7% | | General and administrative expenses | 37.4% | 19.1% | - The significant increase in labor, occupancy, depreciation, and other costs as a percentage of sales was primarily driven by the substantial decrease in sales due to COVID-19 related operating restrictions, while certain costs remained relatively fixed or increased[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) [Key Performance Indicators](index=20&type=section&id=Key%20Performance%20Indicators) [Sales](index=20&type=section&id=Sales) - Sales represent the revenue generated from food and beverages in restaurants, influenced by the number of operating restaurants, guest traffic, and average check size[96](index=96&type=chunk) [EBITDA and Adjusted EBITDA](index=20&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) EBITDA and Adjusted EBITDA Reconciliation (Three Months Ended November 30, amounts in thousands) | Metric | 2020 | 2019 | | :-------------------------------- | :---------- | :---------- | | Net loss | $(6,350) | $(1,224) | | EBITDA | $(5,289) | $(706) | | Adjusted EBITDA | $(4,057) | $(342) | | Adjusted EBITDA margin | (43.1)% | (2.0)% | - Adjusted EBITDA includes adjustments for stock-based compensation expense, non-cash lease expense, and executive transition costs, providing a supplemental view of core operating results[101](index=101&type=chunk)[102](index=102&type=chunk) - Adjusted EBITDA margin significantly declined from **(2.0)%** in 2019 to **(43.1)%** in 2020, reflecting the severe impact on profitability[101](index=101&type=chunk) [Restaurant-level Operating Profit and Restaurant-level Operating Profit Margin](index=21&type=section&id=Restaurant-level%20Operating%20Profit%20and%20Restaurant-level%20Operating%20Profit%20Margin) Restaurant-level Operating Profit Reconciliation (Three Months Ended November 30, amounts in thousands) | Metric | 2020 | 2019 | | :-------------------------------- | :---------- | :---------- | | Operating loss | $(6,291) | $(1,391) | | Restaurant-level operating (loss) profit | $(934) | $3,024 | | Restaurant-level operating (loss) profit margin | (9.9)% | 17.3% | - Restaurant-level Operating Profit turned into a loss of **$(934) thousand** in 2020 from a profit of **$3,024 thousand** in 2019, with the margin decreasing from **17.3%** to **(9.9)%**[107](index=107&type=chunk) - This non-GAAP measure excludes general and administrative expenses and corporate-level stock-based compensation to assess restaurant-specific performance[103](index=103&type=chunk) [Comparable Restaurant Sales Performance](index=22&type=section&id=Comparable%20Restaurant%20Sales%20Performance) Comparable Restaurant Sales Performance (Three Months Ended November 30) | Metric | 2020 | 2019 | | :-------------------------------- | :------ | :------ | | Comparable restaurant sales performance (%) | (50.8)% | 7.9% | | Comparable restaurant base | 20 | 14 | - Comparable restaurant sales performance decreased by **50.8%** for the three months ended November 30, 2020, compared to a **7.9%** increase in the prior year, primarily due to government restrictions on indoor dining capacity from COVID-19[110](index=110&type=chunk)[111](index=111&type=chunk) - The comparable restaurant base increased to **20 restaurants** in 2020 from **14** in 2019[111](index=111&type=chunk) [Number of Restaurant Openings](index=23&type=section&id=Number%20of%20Restaurant%20Openings) Restaurant Activity (Three Months Ended November 30) | Metric | 2020 | 2019 | | :---------------- | :--- | :--- | | Beginning of period | 25 | 23 | | Openings | 3 | — | | End of period | 28 | 23 | - The company opened **3 new restaurants** during the three months ended November 30, 2020, increasing the total restaurant count to **28**[112](index=112&type=chunk) - Subsequent to November 30, 2020, **one new restaurant** was opened in Aventura, Florida, bringing the total to **29**[112](index=112&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary uses of cash include operational expenditures and capital investments for new restaurants, remodels, and fixtures[113](index=113&type=chunk) - Main sources of liquidity are operating cash flows, cash on hand, and the Revolving Credit Agreement with Kura Japan[113](index=113&type=chunk)[116](index=116&type=chunk) - The company believes its current liquidity sources will be sufficient to fund lease obligations, capital expenditures, and working capital needs for at least the **next 12 months**[115](index=115&type=chunk) [Summary of Cash Flows](index=24&type=section&id=Summary%20of%20Cash%20Flows) Summary of Cash Flow Data (Three Months Ended November 30, amounts in thousands) | Cash Flow Activity | 2020 | 2019 | | :-------------------------------- | :---------- | :---------- | | Net cash used in operating activities | $(2,731) | $(1,538) | | Net cash used in investing activities | $(6,619) | $(3,244) | | Net cash provided by (used in) financing activities | $2,836 | $(252) | [Cash Flows Used in Operating Activities](index=24&type=section&id=Cash%20Flows%20Used%20in%20Operating%20Activities) - Net cash used in operating activities was **$2.7 million** for the three months ended November 30, 2020, primarily due to a net loss of **$6.4 million**, partially offset by non-cash charges and net cash inflows from changes in operating assets and liabilities[118](index=118&type=chunk) - Key changes in operating assets and liabilities included increases in accounts payable, accrued expenses, sales tax payable, and salaries and wages payable, partially offset by increases in prepaid expenses, inventories, and amounts due from affiliate[118](index=118&type=chunk) [Cash Flows Used in Investing Activities](index=24&type=section&id=Cash%20Flows%20Used%20in%20Investing%20Activities) - Net cash used in investing activities was **$6.6 million** for the three months ended November 30, 2020, primarily driven by purchases of property and equipment for current and future restaurant openings, renovations, and maintenance[120](index=120&type=chunk) [Cash Flows Provided by (Used in) Financing Activities](index=24&type=section&id=Cash%20Flows%20Provided%20by%20(Used%20in)%20Financing%20Activities) - Net cash provided by financing activities was **$2.8 million** for the three months ended November 30, 2020, primarily due to **$3.0 million** in loan proceeds from the Revolving Credit Agreement[122](index=122&type=chunk) [Contractual Obligations](index=25&type=section&id=Contractual%20Obligations) - As of November 30, 2020, the company had **$1.5 million** in contractual obligations related to purchase commitments for restaurant operations goods and new restaurant construction, all expected to be paid within the current fiscal year[123](index=123&type=chunk) - Operating and finance lease obligations are detailed in Note 3 to the financial statements[123](index=123&type=chunk) [Off-Balance Sheet Arrangements](index=25&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of November 30, 2020, the company did not have any material off-balance sheet arrangements[124](index=124&type=chunk) [Recent Accounting Pronouncements](index=25&type=section&id=Recent%20Accounting%20Pronouncements) - For a description of recently issued accounting pronouncements, including adoption dates and expected effects, refer to Part I, Item 1, Note 1 of the Notes to Condensed Financial Statements[125](index=125&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There have been no material changes to the company's critical accounting policies and estimates from those disclosed in its Annual Report on Form 10-K for the fiscal year ended August 31, 2020[128](index=128&type=chunk) [Jumpstart Our Business Startups Act of 2012](index=25&type=section&id=Jumpstart%20Our%20Business%20Startups%20Act%20of%202012) - The company qualifies as an 'emerging growth company' under the JOBS Act[129](index=129&type=chunk) - It has irrevocably elected not to use the extended transition period for complying with new or revised accounting standards, adopting them on the same dates as other public companies[129](index=129&type=chunk) - The company intends to take advantage of other JOBS Act exemptions, such as those related to auditor attestation for internal control and reduced executive compensation disclosure[130](index=130&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk)) This section details the company's market risk exposure, including commodity, food price, and inflation, and mitigation strategies [Commodity and Food Price Risks](index=27&type=section&id=Commodity%20and%20Food%20Price%20Risks) - The company's profitability is dependent on its ability to anticipate and react to changes in the costs of key operating resources, including food, beverages, and other commodities[131](index=131&type=chunk) - Cost increases, driven by market conditions, supply shortages, or regulations, are partially offset by increasing menu prices and operational adjustments[131](index=131&type=chunk) - Substantial increases in costs and expenses could adversely impact operating results if they cannot be offset by menu price increases or operational adjustments[132](index=132&type=chunk) [Inflation Risk](index=27&type=section&id=Inflation%20Risk) - Primary inflationary factors affecting operations include food and beverage costs, labor costs (especially minimum wage increases), and energy costs[133](index=133&type=chunk) - The company mitigates increased costs by gradually increasing menu prices, implementing efficient purchasing practices, and improving productivity, though competitive conditions may limit flexibility[133](index=133&type=chunk)[134](index=134&type=chunk) - There is no assurance that future cost increases can be fully offset by menu price increases or that guests will fully absorb such increases without impacting visit frequencies or purchasing patterns[134](index=134&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures)) This section confirms effective disclosure controls and procedures, with no material changes in internal control over financial reporting [Disclosure Controls and Procedures](index=27&type=section&id=Disclosure%20Controls%20and%20Procedures) - Management, under the supervision of the principal executive and financial officers, evaluated and concluded that the disclosure controls and procedures were effective as of November 30, 2020[135](index=135&type=chunk) - The design of any control system has inherent limitations, providing only reasonable assurance of achieving its objectives[136](index=136&type=chunk) [Changes in Internal Control over Financial Reporting](index=27&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There have been no changes in internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[137](index=137&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed description of the company's legal proceedings in the Notes to Condensed Financial Statements - For a description of legal proceedings, refer to Part I, Item 1, Note 8 – Commitments and Contingencies, of the Notes to Condensed Financial Statements[140](index=140&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to risk factors previously reported in the Annual Report on Form 10-K - There have been no material changes to the risk factors associated with the business as previously reported in the Annual Report on Form 10-K for the fiscal year ended August 31, 2020[141](index=141&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities or use of proceeds during the period - None[142](index=142&type=chunk) [Item 3. Defaults Upon Senior Securities](index=28&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates no defaults upon senior securities during the reporting period - None[143](index=143&type=chunk) [Item 4. Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - Not applicable[144](index=144&type=chunk) [Item 5. Other Information](index=28&type=section&id=Item%205.%20Other%20Information) This section reports no other information to disclose - None[145](index=145&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including agreements, awards, and various certifications - Exhibits include employment agreements (Steven H. Benrubi), restricted stock award forms, a confidential separation agreement (Koji Shinohara), Section 302 and 906 certifications, and XBRL instance and taxonomy documents[147](index=147&type=chunk) [Signatures](index=30&type=section&id=Signatures) This section contains the required signatures for the Form 10-Q, confirming its due authorization and filing - The report was signed on January 11, 2021, by Steven Benrubi, Chief Financial Officer, Treasurer, and Secretary[151](index=151&type=chunk)

Part I [Business](index=5&type=section&id=Item%201.%20Business) Kura Sushi USA, a tech-enabled Japanese restaurant chain, navigates COVID-19 impacts with a focus on growth and proprietary technology - Kura Sushi USA is a subsidiary of **Kura Sushi, Inc.** ("Kura Japan"), a Japanese revolving sushi chain with over **450 restaurants**. As of the filing date, Kura Sushi USA operates **28 restaurants** across **six states**[24](index=24&type=chunk)[25](index=25&type=chunk) - The **COVID-19 pandemic** significantly disrupted business operations, leading to the **temporary closure of all 25 restaurants** on **March 18, 2020**. Reopenings occurred at reduced capacities, causing a **substantial decline in sales** for fiscal year 2020[25](index=25&type=chunk)[28](index=28&type=chunk) - The company's growth strategy aims for a **20% average annual restaurant growth rate** over the next five years, with a long-term potential for over **290 restaurants** in the U.S. This will be pursued by expanding in existing markets and entering new ones[36](index=36&type=chunk) - The company relies heavily on two main distributors, **JFC International Inc.** and **Wismettac Asian Foods, Inc.**, which accounted for approximately **59%** and **27%** of total food and beverage costs in fiscal year 2020, respectively[60](index=60&type=chunk)[61](index=61&type=chunk) [Company Overview and COVID-19 Impact](index=5&type=section&id=Item%201.%20Business-Company%20Overview) Kura Sushi USA, a technology-enabled Japanese restaurant concept, faced significant negative impacts from the COVID-19 pandemic - On **March 18, 2020**, the company temporarily closed all **25** of its restaurants due to the COVID-19 pandemic[25](index=25&type=chunk) - As of the filing date, out of **28 restaurants**, **12** were operating with reduced indoor dining (**25-75% capacity**), **15** with outdoor dining or takeout only, and one was temporarily closed[25](index=25&type=chunk) - In response to COVID-19, safety measures were enhanced, including increased sanitation, employee health screenings, and the temporary suspension of the revolving conveyor belt in California restaurants[27](index=27&type=chunk) [Our Strengths and Growth Strategies](index=6&type=section&id=Item%201.%20Business-Our%20Strengths%20and%20Growth%20Strategies) The company leverages its unique dining experience and disciplined expansion to drive growth and profitability - The "Kura Experience" is a key strength, featuring a revolving conveyor belt, on-demand ordering via touch screen, and a Bikkura-Pon rewards system that dispenses toys after a certain number of plates are consumed[33](index=33&type=chunk) - The company aims for a **20% average annual restaurant growth rate** over the next five years, with a long-term potential of over **290 restaurants** in the U.S[36](index=36&type=chunk) - To drive comparable sales, the company is focusing on increasing brand awareness, offering new menu items, enhancing its rewards program, and growing off-premises sales through online ordering and third-party delivery[36](index=36&type=chunk) [Site Development, Expansion, and Design](index=8&type=section&id=Item%201.%20Business-Site%20Development%2C%20Expansion%2C%20and%20Design) The company employs a disciplined site selection process and remote management system to support its expansion strategy - The real estate strategy targets high-traffic retail centers, considering factors like population density, visibility, and proximity to shopping areas and office parks[41](index=41&type=chunk) - The company utilizes a remote management system with **20-30 cameras** per restaurant to monitor operations in real-time from its headquarters, which helps maintain quality during expansion into new markets[44](index=44&type=chunk) - The average cash build-out cost for new restaurants opened since fiscal year 2019 is approximately **$1.8 million** per restaurant, net of landlord allowances[48](index=48&type=chunk) [Operations and Human Capital](index=9&type=section&id=Item%201.%20Business-Operations%20and%20Human%20Capital) Restaurant operations are supported by proprietary technology and a Shared Services Agreement with Kura Japan, with a focus on food safety and employee management - The company utilizes a proprietary kitchen and back-office system to analyze customer traffic, order demand, and inventory, which helps manage labor and food costs[63](index=63&type=chunk) - A Shared Services Agreement with Kura Japan provides strategic and operational support, including expatriate employees, support for new restaurant openings, and procurement of certain supplies and equipment[54](index=54&type=chunk) - As of **August 31, 2020**, the company had approximately **1,030 employees**. Many were furloughed during the pandemic but were brought back as restaurants reopened[67](index=67&type=chunk) [Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including COVID-19 impacts, geographic concentration, reliance on its parent, and its dual-class stock structure - The **COVID-19 pandemic** is a primary risk, having already caused temporary closure of all restaurants, a substantial decline in sales, and ongoing uncertainty regarding future operations and growth[93](index=93&type=chunk)[95](index=95&type=chunk) - The company's geographic concentration is a key risk, with approximately **85%** of its restaurants located in California and Texas, making it vulnerable to adverse conditions in these states[94](index=94&type=chunk)[110](index=110&type=chunk) - Significant reliance on parent company **Kura Japan** for strategic support, supplies, intellectual property (via a license agreement), and a **$35 million** credit facility presents a risk if this relationship changes[113](index=113&type=chunk)[114](index=114&type=chunk)[117](index=117&type=chunk) - The dual-class stock structure makes the company a "controlled company," with **Kura Japan** holding approximately **81%** of the combined voting power, allowing it to control corporate matters and potentially creating conflicts of interest[199](index=199&type=chunk)[200](index=200&type=chunk) [Unresolved Staff Comments](index=38&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments - None[207](index=207&type=chunk) [Properties](index=39&type=section&id=Item%202.%20Properties) As of August 31, 2020, the company operated 25 leased restaurants across five states, with an average size of 3,400 square feet | City | State | Opened | | :--- | :--- | :--- | | Irvine | California | Sep-2009 | | Los Angeles (Little Tokyo) | California | Jan-2012 | | Torrance | California | Apr-2012 | | Brea | California | May-2012 | | Rancho Cucamonga | California | Aug-2012 | | Los Angeles (Sawtelle) | California | Aug-2013 | | San Diego | California | Mar-2015 | | Cupertino | California | Feb-2016 | | Plano | Texas | May-2016 | | Carrollton | Texas | Jul-2016 | | Austin | Texas | May-2017 | | Doraville | Georgia | Jul-2017 | | Houston (Westheimer) | Texas | Aug-2017 | | Sugar Land | Texas | Jan-2018 | | Houston (Midtown) | Texas | Mar-2018 | | Pleasanton | California | Apr-2018 | | Frisco | Texas | May-2018 | | Cerritos | California | Oct-2018 | | Schaumburg | Illinois | Nov-2018 | | Cypress | California | Jan-2019 | | Sacramento | California | Mar-2019 | | Las Vegas | Nevada | Jul-2019 | | Garden Grove | California | Aug-2019 | | Katy | Texas | Dec-2019 | | Glendale | California | Feb-2020 | - All restaurant and corporate office properties are **leased**. The majority of restaurant leases have terms of **twenty years**, including optional extensions, and are generally "**net**" leases requiring the company to pay for insurance, taxes, and maintenance[210](index=210&type=chunk)[212](index=212&type=chunk) [Legal Proceedings](index=39&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in a putative class action lawsuit regarding California wage and hour laws, which it intends to vigorously defend - The company is facing a **putative class action complaint** filed on **May 31, 2019**, by former employees alleging violations of **California wage and hour laws**. The company intends to defend itself vigorously[213](index=213&type=chunk)[433](index=433&type=chunk) [Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[214](index=214&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=40&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Kura Sushi's Class A common stock trades on Nasdaq, with no planned dividends, and IPO proceeds were used for debt repayment and growth - The company's common stock began trading on the **Nasdaq Global Market** under the symbol "**KRUS**" on **August 1, 2019**[217](index=217&type=chunk) - The company does **not currently plan to declare dividends**, anticipating that all future earnings will be used for business operations and growth[219](index=219&type=chunk) - The company received net proceeds of approximately **$39 million** from its IPO, which were used to repay a **$3.1 million** credit facility, with the remainder allocated to new unit growth, working capital, and general corporate purposes[224](index=224&type=chunk) [Selected Financial and Operating Data](index=42&type=section&id=Item%206.%20Selected%20Financial%20and%20Operating%20Data) This section presents selected historical financial and operating data, highlighting a significant downturn in fiscal 2020 due to COVID-19 | Fiscal Year Ended August 31, (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Sales | $45,168 | $64,245 | | Operating income (loss) | $(16,498) | $1,661 | | Net income (loss) | $(17,358) | $1,456 | | Basic Net income (loss) per share | $(2.08) | $0.28 | | Diluted Net income (loss) per share | $(2.08) | $0.26 | | As of August 31, (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $9,259 | $38,044 | | Total assets | $118,379 | $76,410 | | Total liabilities | $72,666 | $14,229 | | Total stockholders' equity | $45,713 | $62,181 | | Fiscal Year Ended August 31, | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Restaurants at end of period | 25 | 23 | 17 | | Average Unit Volumes (AUVs, in thousands) | $1,942 | $3,498 | $3,457 | | Comparable restaurant sales growth | (37.8)% | 6.2% | 2.9% | | Adjusted EBITDA (in thousands) | $(12,995) | $5,195 | $4,284 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the severe COVID-19 impact on fiscal 2020, leading to significant sales decline, net loss, and liquidity preservation measures [Results of Operations (Fiscal 2020 vs. 2019)](index=47&type=section&id=Item%207.%20MD%26A-Results%20of%20Operations) Fiscal 2020 results show a significant sales decline and net loss due to COVID-19, with labor costs increasing as a percentage of sales | Metric (in millions) | FY 2020 | FY 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $45.2M | $64.2M | (29.7)% | | Food & Beverage Costs | $14.7M | $21.0M | (30.1)% | | Labor & Related Costs | $18.7M | $19.9M | (6.4)% | | General & Admin Expenses | $12.1M | $7.7M | 55.7% | | Operating Income (Loss) | $(16.5M) | $1.7M | (1,093.3)% | | Net Income (Loss) | $(17.4M) | $1.5M | (1,292.2)% | - Labor costs as a percentage of sales increased from **31.0%** in FY 2019 to **41.3%** in FY 2020, primarily due to the decline in sales and the decision to maintain payroll for certain employees during temporary restaurant closures. This was partially offset by a **$1.8 million** employee retention credit from the CARES Act[258](index=258&type=chunk)[242](index=242&type=chunk) - General and administrative expenses increased by **$4.4 million**, primarily due to **$2.2 million** in public company costs (insurance, legal, accounting), **$1.4 million** in employee compensation for growth support, and **$0.8 million** in other legal and consulting costs[263](index=263&type=chunk) [Key Performance Indicators](index=49&type=section&id=Item%207.%20MD%26A-Key%20Performance%20Indicators) Key performance indicators for fiscal 2020, including AUVs and comparable sales, significantly declined due to the pandemic | Indicator | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Average Unit Volumes (AUVs, in thousands) | $1,942K | $3,498K | $3,457K | | Comparable Restaurant Sales Growth | (37.8)% | 6.2% | 2.9% | | Restaurant Openings | 2 | 6 | 4 | | (in thousands) | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Net income (loss) | $(17,358) | $1,456 | $1,742 | | EBITDA | $(13,338) | $3,826 | $3,538 | | Adjusted EBITDA | $(12,995) | $5,195 | $4,284 | [Liquidity and Capital Resources](index=54&type=section&id=Item%207.%20MD%26A-Liquidity%20and%20Capital%20Resources) The company's liquidity was impacted by COVID-19, leading to a $35 million credit line from Kura Japan to ensure sufficient funding | (in thousands) | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(13,004) | $5,993 | | Net cash used in investing activities | $(14,777) | $(11,255) | | Net cash (used in) provided by financing activities | $(1,004) | $37,595 | - To ensure liquidity during the pandemic, the company entered into a Revolving Credit Agreement with parent Kura Japan, which was amended to provide a **$35 million** credit line available until **April 10, 2025**[287](index=287&type=chunk)[240](index=240&type=chunk) - As of **August 31, 2020**, the company had **$9.3 million** in cash and cash equivalents, down from **$38.0 million** at the end of fiscal 2019[230](index=230&type=chunk)[332](index=332&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=58&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from commodity, food, labor, and energy price fluctuations, impacting profitability - The company's profitability is dependent on its ability to anticipate and react to changes in the costs of food, beverage, and other commodities[312](index=312&type=chunk) - Primary inflationary factors affecting operations are food and beverage costs, labor costs (including minimum wage increases), and energy costs[313](index=313&type=chunk) [Financial Statements and Supplementary Data](index=59&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited financial statements for fiscal 2020, reflecting COVID-19 impacts, new lease accounting, and related-party transactions [Financial Statements](index=62&type=section&id=Item%208.%20Financial%20Statements-Financial%20Statements) Fiscal 2020 financial statements show a net loss of $17.4 million, with significant balance sheet changes due to new lease accounting standards Balance Sheet Highlights (as of Aug 31, in thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $9,259 | $38,044 | | Total current assets | $14,778 | $41,501 | | Property and equipment - net | $45,541 | $31,917 | | Operating lease right-of-use assets | $56,119 | $— | | **Total assets** | **$118,379** | **$76,410** | | **Liabilities & Equity** | | | | Total current liabilities | $13,925 | $8,291 | | Operating lease liabilities - non-current | $56,918 | $— | | **Total liabilities** | **$72,666** | **$14,229** | | **Total stockholders' equity** | **$45,713** | **$62,181** | Statement of Operations Highlights (Year ended Aug 31, in thousands) | | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Sales | $45,168 | $64,245 | $51,744 | | Total operating expenses | $61,666 | $62,584 | $49,881 | | Operating income (loss) | $(16,498) | $1,661 | $1,863 | | **Net income (loss)** | **$(17,358)** | **$1,456** | **$1,742** | [Notes to Financial Statements](index=66&type=section&id=Item%208.%20Financial%20Statements-Notes%20to%20Financial%20Statements) Notes detail COVID-19 impacts, adoption of ASC 842, supplier concentration, related-party transactions, and a $5.6 million deferred tax asset valuation allowance - The company adopted the new lease accounting standard (Topic 842) on **September 1, 2019**, resulting in the recognition of operating lease right-of-use assets of **$35.9 million** and operating lease liabilities of **$38.7 million** on the balance sheet[389](index=389&type=chunk)[392](index=392&type=chunk) - The company has significant supplier concentration, with **JFC International Inc.** and **Wismettac Asian Foods, Inc.** accounting for **59%** and **27%** of total food and beverage costs, respectively, in fiscal 2020[358](index=358&type=chunk) - Due to the adverse effects of the COVID-19 pandemic, the company determined it was no longer more likely than not that it would realize its deferred tax assets, and therefore recorded a valuation allowance of approximately **$5.6 million**[443](index=443&type=chunk) Selected Quarterly Financial Data for Fiscal 2020 (unaudited, in thousands) | | First | Second | Third | Fourth | | :--- | :--- | :--- | :--- | :--- | | Sales | $17,440 | $19,388 | $2,812 | $5,528 | | Operating income (loss) | $(1,391) | $(240) | $(8,028) | $(6,839) | | Net income (loss) | $(1,224) | $(133) | $(9,152) | $(6,849) | [Controls and Procedures](index=88&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of August 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[449](index=449&type=chunk) - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of **August 31, 2020**[452](index=452&type=chunk) Part III [Directors, Executive Officers, Compensation, Security Ownership, and Accountant Fees](index=89&type=section&id=Items%2010%2C%2011%2C%2012%2C%2013%20and%2014) Information for these items is incorporated by reference from the company's definitive proxy statement for the 2021 annual meeting - Information for Items 10 through 14 is not included in this report and is incorporated by reference from the registrant's definitive proxy statement for the 2021 annual meeting of stockholders[7](index=7&type=chunk)[457](index=457&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=90&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements and exhibits, noting that schedules are omitted as information is included elsewhere - All financial statement schedules are omitted because they are not required, not applicable, or the necessary information is included in the financial statements or notes[458](index=458&type=chunk) [Form 10-K Summary](index=92&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that there is no Form 10-K summary - None[461](index=461&type=chunk)

Kura Sushi USA, Inc. (NASDAQ:KRUS) Q4 2020 Results Earnings Conference Call November 16, 2020 5:00 PM ET Company Participants Benjamin Porten - Investor Relations Director Hajime Jimmy Uba - Chairman, President, Chief Executive Officer Conference Call Participants James Rutherford - Stephens Inc. Peter Saleh - BTIG Jeremy Hamblin - Craig-Hallum Andrew Strelzik - BMO Capital Markets George Kelly - ROTH Capital Partners Operator Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to th ...

Kura Sushi USA, Inc. (KRUS) Q3 2020 Earnings Conference Call July 14, 2020 4:30 PM ET Company Participants Jimmy Uba - President and Chief Executive Officer Koji Shinohara - Chief Financial Officer Benjamin Porten - Investor Relations Manager Conference Call Participants Andrew Strelzik - BMO James Rutherford - Stephens Inc. Peter Saleh - BTIG Jeremy Hamblin - Craig-Hallum George Kelly - ROTH Capital Operator Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Kura Sushi USA, Inc. ...

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) ( State or other jurisdicti ...

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 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) ( State or other juris ...