Kura Sushi USA(KRUS) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed financial statements and management's discussion and analysis for Kura Sushi USA, Inc. for the three months ended November 30, 2023 Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed financial statements for Kura Sushi USA, Inc. for the period ended November 30, 2023, including balance sheets, statements of operations and comprehensive income (loss), statements of stockholders' equity, and statements of cash flows, along with their accompanying notes. The financial statements are prepared in accordance with GAAP and SEC regulations, with certain disclosures condensed or omitted Condensed Balance Sheets The condensed balance sheets provide a snapshot of the company's financial position as of November 30, 2023, compared to August 31, 2023, showing a slight increase in total assets and liabilities, while total stockholders' equity experienced a minor decrease Condensed Balance Sheets | Metric | Nov 30, 2023 (in thousands) | Aug 31, 2023 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Total current assets | $82,048 | $89,371 | | Total assets | $309,297 | $304,659 | | Total current liabilities | $31,109 | $29,138 | | Total liabilities | $145,556 | $140,018 | | Total stockholders' equity | $163,741 | $164,641 | Condensed Statements of Operations and Comprehensive Income (Loss) The condensed statements of operations show a significant increase in sales for the three months ended November 30, 2023, compared to the same period in 2022, driven by new restaurant openings and menu price increases. Despite higher operating costs, the net loss slightly decreased due to a substantial increase in interest income Condensed Statements of Operations and Comprehensive Income (Loss) | Metric | Three Months Ended Nov 30, 2023 (in thousands) | Three Months Ended Nov 30, 2022 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Sales | $51,475 | $39,318 | | Total restaurant operating costs | $45,603 | $34,747 | | Total operating expenses | $54,316 | $41,474 | | Operating loss | $(2,841) | $(2,156) | | Interest income | $(840) | $(94) | | Net loss | $(2,047) | $(2,088) | | Basic Net loss per share | $(0.18) | $(0.21) | Condensed Statements of Stockholders' Equity The condensed statements of stockholders' equity detail the changes in equity for the three months ended November 30, 2023, and 2022. Key movements include stock-based compensation, employee stock plan activities, net loss, and other comprehensive income Condensed Statements of Stockholders' Equity (Nov 30, 2023) | Metric | Nov 30, 2023 (in thousands) | Aug 31, 2023 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Stockholders' Equity | $163,741 | $164,641 | | Stock-based compensation | $1,034 | — | | Employee stock plan | $110 | — | | Net loss | $(2,047) | — | | Other comprehensive income | $3 | — | Condensed Statements of Stockholders' Equity (Nov 30, 2022) | Metric | Nov 30, 2022 (in thousands) | Aug 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Stockholders' Equity | $91,907 | $93,294 | | Stock-based compensation | $650 | — | | Employee stock plan | $51 | — | | Net loss | $(2,088) | — | Condensed Statements of Cash Flows The condensed statements of cash flows highlight the company's cash generation and usage across operating, investing, and financing activities. Operating cash flow significantly increased, while investing activities continued to be a net use of cash, primarily for property and equipment and short-term investments Condensed Statements of Cash Flows | Cash Flow Activity | Three Months Ended Nov 30, 2023 (in thousands) | Three Months Ended Nov 30, 2022 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | $2,428 | $529 | | Net cash used in investing activities | $(8,020) | $(9,250) | | Net cash provided by (used in) financing activities | $56 | $(127) | | Increase (decrease) in cash and cash equivalents | $(5,536) | $(8,848) | | Cash and cash equivalents, end of period | $64,161 | $26,934 | Notes to Condensed Financial Statements These notes provide detailed information and explanations for the figures presented in the condensed financial statements, covering organizational details, accounting policies, balance sheet components, lease obligations, related party transactions, stock-based compensation, debt, income per share, commitments, income taxes, and fair value measurements Note 1. Organization and Basis of Presentation This note describes Kura Sushi USA, Inc. as a technology-enabled Japanese restaurant concept, outlines the basis of financial statement presentation in accordance with GAAP and SEC rules, defines the fiscal year, and details the use of estimates in financial reporting. It also provides information on short-term investments and comprehensive income (loss), and discusses recently issued accounting pronouncements - Kura Sushi USA, Inc. operates as a technology-enabled Japanese restaurant concept, offering authentic cuisine through a revolving sushi service model, emphasizing fresh, high-quality ingredients free from artificial additives[17] - The company's fiscal year runs from September 1 to August 31[20] Short-Term Investments (in thousands) | Short-Term Investments (in thousands) | Nov 30, 2023 | Aug 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Short-term investments | $7,046 | $8,542 | | Unrealized gains on short-term investments (Nov 30, 2023) | $46 | | | Realized gains reclassified from AOCI | $106 | | - The company is evaluating the effects of new FASB ASUs 2023-09 (Income Tax Disclosures) and 2023-07 (Segment Reporting Disclosures), expecting additional disclosures[26][27] Note 2. Balance Sheet Components This note provides a breakdown of specific balance sheet accounts, including accounts and other receivables, and property and equipment, net of accumulated depreciation Accounts and Other Receivables (in thousands) | Accounts and Other Receivables (in thousands) | Nov 30, 2023 | Aug 31, 2023 | | :-------------------------------------------- | :----------- | :----------- | | Lease receivables | $3,863 | $3,973 | | Credit card and other receivables | $1,002 | $1,075 | | Total accounts and other receivables | $4,865 | $5,048 | Property and Equipment - Net (in thousands) | Property and Equipment - net (in thousands) | Nov 30, 2023 | Aug 31, 2023 | | :------------------------------------------ | :----------- | :----------- | | Property and equipment – gross | $144,828 | $134,329 | | Less: accumulated depreciation and amortization | $(30,482) | $(27,902) | | Total property and equipment – net | $114,346 | $106,427 | | Depreciation and amortization expense (3 months ended Nov 30, 2023) | $2,600 | | | Depreciation and amortization expense (3 months ended Nov 30, 2022) | | $1,700 | Note 3. Leases This note details the company's operating and finance lease arrangements, including lease terms, associated costs recognized in the statements of operations, and supplemental balance sheet information related to lease assets and liabilities. It also provides weighted average lease terms and discount rates, and future lease maturities Lease Related Costs (in thousands) | Lease Related Costs (in thousands) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Total finance lease cost | $149 | $239 | | Total operating lease cost | $3,912 | $2,907 | Operating Leases (in thousands) | Operating Leases (in thousands) | Nov 30, 2023 | Aug 31, 2023 | | :------------------------------ | :----------- | :----------- | | Right-of-use assets | $107,853 | $103,884 | | Lease liabilities – current | $10,457 | $9,225 | | Lease liabilities – non-current | $113,773 | $110,234 | | Total lease liabilities | $124,230 | $119,459 | Weighted Average Lease Terms and Discount Rates | Weighted Average Lease Term (Years) | Nov 30, 2023 | Nov 30, 2022 | | :---------------------------------- | :----------- | :----------- | | Operating leases | 16.1 | 16.0 | | Finance leases | 1.4 | 0.6 | | Weighted Average Discount Rate | | | | Operating leases | 7.0% | 6.6% | | Finance leases | 4.3% | 4.7% | - As of November 30, 2023, the Company had an additional $43.3 million of operating leases for restaurants not yet in possession, with an additional $6.7 million entered into subsequent to November 30, 2023, expected to commence in fiscal year 2024 with 20-year terms[35] Note 4. Related Party Transactions This note outlines the company's transactions with its majority stockholder, Kura Sushi, Inc. (Kura Japan), including a Shared Services Agreement for operational support, an Exclusive License Agreement for intellectual property use, and a Revolving Credit Agreement. It details the financial impact of these relationships - Kura Sushi USA, Inc. has a Shared Services Agreement with Kura Japan for strategic, operational, and support services, including expatriate employees and supplies[37] - 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[38] Related Party Balances (in thousands) | Related Party Balances (in thousands) | Nov 30, 2023 | Aug 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Due from affiliate | $1 | $104 | | Due to affiliate | $359 | $555 | Reimbursements and Other Payments to Kura Japan (in thousands) | Reimbursements and Other Payments to Kura Japan (in thousands) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :------------------------------------------------------------- | :------------------------------ | :------------------------------ | | Expatriate salaries expense | $43 | $21 | | Royalty payments | $258 | $197 | | Travel and other administrative expenses | $5 | $0 | | Purchases of equipment | $640 | $738 | | Total related party transactions | $946 | $956 | Note 5. Stock-based Compensation This note summarizes the activity and expense related to the company's stock option and restricted stock unit (RSU) plans under the Stock Incentive Plan, detailing grants, exercises, cancellations, and the total compensation recognized Stock Option Activity | Stock Option Activity | Nov 30, 2023 | Aug 31, 2023 | | :-------------------- | :----------- | :----------- | | Outstanding shares | 658,698 | 653,395 | | Weighted Average Exercise Price | $35.27 | $34.25 | | Options granted | 16,360 | — | | Options exercised | (7,241) | — | | Options cancelled/forfeited | (3,816) | — | RSU Activity | RSU Activity | Nov 30, 2023 | Aug 31, 2023 | | :------------- | :----------- | :----------- | | Outstanding RSU | 29,395 | 31,105 | | Weighted Average Grant Date Fair Value | $69.80 | $69.88 | | RSUs vested | (1,359) | — | | RSUs cancelled/forfeited | (351) | — | Stock-based Compensation (in thousands) | Stock-based Compensation (in thousands) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Total stock-based compensation, net of amounts capitalized | $1,006 | $650 | Note 6. Debt This note details the Revolving Credit Agreement with Kura Japan, establishing a $45.0 million revolving credit line. As of November 30, 2023, the company had no outstanding balance and full availability remaining under this agreement - The company has a $45.0 million revolving credit line with Kura Japan, maturing on April 10, 2025[42] - As of November 30, 2023, there was no outstanding balance and $45.0 million of availability remaining under the Revolving Credit Agreement[43] Note 7. Income (Loss) Per Share This note provides the computation of basic and diluted net income (loss) per share for Class A and Class B common stock, which have identical liquidation and dividend rights, resulting in proportionate allocation of net loss Net Loss Per Share | Net Loss Per Share | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :----------------- | :------------------------------ | :------------------------------ | | Basic (Class A) | $(0.18) | $(0.21) | | Basic (Class B) | $(0.18) | $(0.21) | | Diluted (Class A) | $(0.18) | $(0.21) | | Diluted (Class B) | $(0.18) | $(0.21) | Weighted Average Common Shares Outstanding (in thousands) | Weighted Average Common Shares Outstanding (in thousands) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :-------------------------------------------------------- | :------------------------------ | :------------------------------ | | Basic (Class A) | 10,150 | 8,789 | | Basic (Class B) | 1,000 | 1,000 | | Diluted (Class A) | 10,150 | 8,789 | | Diluted (Class B) | 1,000 | 1,000 | - 688 thousand and 708 thousand shares subject to outstanding employee stock options and RSUs were excluded from diluted EPS calculation for the three months ended November 30, 2023 and 2022, respectively, as their inclusion would have been anti-dilutive[45] Note 8. Commitments and Contingencies This note discusses the company's legal proceedings, including a resolved class action lawsuit related to California wage and hour laws, for which a settlement of $1.75 million was agreed upon and disbursed. The company generally believes other ongoing litigation will not have a material adverse effect - A putative class action lawsuit alleging California wage and hour law violations was settled for $1.75 million, with final court approval granted on November 18, 2022, and funds disbursed in December 2022[46] - Management believes other legal proceedings arising in the ordinary course of business will not have a material adverse effect on the company's financial position, results of operations, or cash flows[46] Note 9. Income Taxes This note details the income tax expense and the company's effective tax rate, which substantially differed from the federal statutory rate primarily due to a full valuation allowance against deferred tax assets Income Tax Expense (in thousands) | Income Tax Expense (in thousands) | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Income tax expense | $38 | $10 | - The effective tax rate for the three months ended November 30, 2023, differed from the federal statutory rate of 21% primarily due to a full valuation allowance against the company's net deferred tax assets[47][48] Note 10. Fair Value Measurements This note presents the company's assets measured at fair value on a recurring basis, categorizing them by fair value hierarchy levels. It primarily includes certificates of deposits and Treasury bills Assets at Fair Value (in thousands) | Assets at Fair Value (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :---------------------------------- | :------ | :------ | :------ | :---- | | Certificates of deposits | $0 | $4,998 | $0 | $4,998 | | Treasury bills | $2,048 | $0 | $0 | $2,048 | | Total assets at fair value | $2,048 | $4,998 | $0 | $7,046 | - Certificates of deposits are valued using Level 2 inputs, while Treasury bills are valued using Level 1 inputs[50] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended November 30, 2023. It covers an overview of the business, key trends, detailed analysis of financial performance, key performance indicators, liquidity, and capital resources, as well as accounting policies and regulatory compliance Overview Kura Sushi USA is a technology-enabled Japanese restaurant concept offering an engaging revolving sushi service model, known as the 'Kura Experience.' The company focuses on serving freshly prepared, high-quality Japanese cuisine free from artificial additives at affordable prices in an inviting atmosphere across the United States - Kura Sushi USA is a technology-enabled Japanese restaurant concept providing an engaging revolving sushi service model, the 'Kura Experience'[55] - The company emphasizes healthy lifestyles by serving freshly prepared Japanese cuisine with high-quality ingredients, free from artificial seasonings, sweeteners, colorings, and preservatives[55] Business Trends The company has faced inflationary pressures on food and beverage, labor, construction, and energy costs. These pressures have been partially mitigated through menu price increases, productivity improvements, and supply chain initiatives, with expectations for these pressures to stabilize in fiscal year 2024 - Experienced inflationary pressures in food and beverage, labor, construction, and energy costs[56] - Offset inflationary pressures through menu price increases, productivity improvements, and supply chain initiatives[56] - Expects inflationary and other cost pressures to level out in fiscal year 2024[56] Key Financial Definitions This section defines key financial terms used in the report, including Sales, Food and beverage costs, Labor and related expenses, Occupancy and related expenses, Depreciation and amortization expenses, Other costs, General and administrative expenses, Interest expense, Interest income, and Income tax expense (benefit), providing context for understanding the financial results Results of Operations For the three months ended November 30, 2023, sales increased by 30.9% to $51.5 million, primarily due to twelve new restaurant openings and menu price increases. While total operating expenses rose by 31.0%, the net loss slightly decreased by 2.0% to $(2.0) million, largely due to a significant increase in interest income Results of Operations | Metric | 3 Months Ended Nov 30, 2023 (in thousands) | 3 Months Ended Nov 30, 2022 (in thousands) | $ Change (in thousands) | % Change | | :--------------------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | :------- | | Sales | $51,475 | $39,318 | $12,157 | 30.9% | | Food and beverage costs | $15,365 | $12,430 | $2,935 | 23.6% | | Labor and related costs | $16,263 | $12,535 | $3,728 | 29.7% | | Occupancy and related expenses | $3,908 | $2,885 | $1,023 | 35.5% | | Depreciation and amortization expenses | $2,476 | $1,576 | $900 | 57.1% | | Other costs | $7,591 | $5,321 | $2,270 | 42.7% | | Total restaurant operating costs | $45,603 | $34,747 | $10,856 | 31.2% | | General and administrative expenses | $8,609 | $6,642 | $1,967 | 29.6% | | Total operating expenses | $54,316 | $41,474 | $12,842 | 31.0% | | Operating loss | $(2,841) | $(2,156) | $(685) | (31.8)% | | Interest income | $(840) | $(94) | $(746) | 793.6% | | Net loss | $(2,047) | $(2,088) | $41 | (2.0)% | Results of Operations (as a percentage of sales) | Metric (as a percentage of sales) | 3 Months Ended Nov 30, 2023 | 3 Months Ended Nov 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Sales | 100.0% | 100.0% | | Food and beverage costs | 29.8% | 31.6% | | Labor and related costs | 31.6% | 31.9% | | Occupancy and related expenses | 7.6% | 7.3% | | Depreciation and amortization expenses | 4.8% | 4.0% | | Other costs | 14.7% | 13.5% | | Total restaurant operating costs | 88.6% | 88.4% | | General and administrative expenses | 16.7% | 16.9% | | Total operating expenses | 105.5% | 105.5% | | Operating loss | (5.5)% | (5.5)% | | Interest income | (1.6)% | (0.2)% | | Net loss | (4.0)% | (5.3)% | - Comparable restaurant sales increased 3.8% for the three months ended November 30, 2023, driven by new restaurant openings and menu price increases[68] Key Performance Indicators This section defines and presents key performance indicators used to assess business performance, including Sales, EBITDA, Adjusted EBITDA, Restaurant-level Operating Profit, Comparable Restaurant Sales Performance, and Number of Restaurant Openings. These non-GAAP measures provide insights into operational trends and profitability Non-GAAP Financial Measures (in thousands) | Non-GAAP Financial Measures (in thousands) | 3 Months Ended Nov 30, 2023 | 3 Months Ended Nov 30, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(2,047) | $(2,088) | | EBITDA | $(261) | $(495) | | Adjusted EBITDA | $1,767 | $637 | | Adjusted EBITDA margin | 3.4% | 1.6% | Restaurant-level Operating Profit (in thousands) | Restaurant-level Operating Profit (in thousands) | 3 Months Ended Nov 30, 2023 | 3 Months Ended Nov 30, 2022 | | :----------------------------------------------- | :-------------------------- | :-------------------------- | | Operating loss | $(2,841) | $(2,156) | | Restaurant-level operating profit | $10,061 | $7,160 | | Restaurant-level operating profit margin | 19.5% | 18.2% | Restaurant Performance | Restaurant Performance | 3 Months Ended Nov 30, 2023 | 3 Months Ended Nov 30, 2022 | | :--------------------- | :-------------------------- | :-------------------------- | | Comparable restaurant sales performance (%) | 3.8% | 6.9% | | Comparable restaurant base | 36 | 30 | | Restaurant activity: Beginning of period | 50 | 40 | | Openings | 4 | 2 | | End of period | 54 | 42 | Liquidity and Capital Resources The company's primary cash uses are operational expenditures and capital investments for new and existing restaurants. It completed a public offering in April 2023, raising $64.3 million for general corporate purposes. The company believes its cash from operations, cash on hand, short-term investments, and available credit will be sufficient for the next 12 months - Primary uses of cash are operational expenditures and capital investments for new restaurants, remodels, and fixtures[95] - Completed a public offering in April 2023, selling 1,265,000 shares of Class A common stock for net proceeds of $64.3 million, intended for general corporate purposes[96] - As of November 30, 2023, the company had no borrowings under its $45.0 million Revolving Credit Agreement and full availability remaining[97] - Management believes current liquidity sources (operating cash, cash on hand, short-term investments, and credit availability) are sufficient for the next 12 months[99] Summary of Cash Flows This section summarizes the cash flow activities for the three months ended November 30, 2023, and 2022. Operating activities provided significantly more cash in 2023, while investing activities continued to use cash for property, equipment, and short-term investments. Financing activities provided a small amount of cash in 2023, contrasting with a net use in 2022 Summary of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | 3 Months Ended Nov 30, 2023 | 3 Months Ended Nov 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $2,428 | $529 | | Net cash used in investing activities | $(8,020) | $(9,250) | | Net cash provided by (used in) financing activities | $56 | $(127) | - Net cash provided by operating activities increased from $0.5 million in 2022 to $2.4 million in 2023, primarily due to non-cash adjustments and changes in operating assets and liabilities[102][103] - Net cash used in investing activities was $8.0 million in 2023, mainly for purchases of property and equipment ($9.4 million) and short-term investments ($3.0 million), partially offset by redemptions of short-term investments ($4.5 million)[104] Material Cash Requirements As of November 30, 2023, the company had $9.1 million in contractual obligations for new restaurant construction and operational goods, all expected to be paid within the next 12 months using existing cash and operating cash flows - As of November 30, 2023, contractual obligations totaled $9.1 million for new restaurant construction and goods for operations[107] - All contractual obligations are expected to be paid within the next 12 months using cash on hand and cash provided by operations[107] Recent Accounting Pronouncements This section refers to Note 1 for a description of recently adopted accounting pronouncements, their adoption dates, and expected effects on the company's financial statements Critical Accounting Policies and Estimates The company's financial statements rely on estimates and assumptions, particularly for asset retirement obligations, stock-based compensation, asset useful lives, recoverability of long-lived assets, and income taxes. There have been no material changes to these critical accounting policies and estimates since the fiscal year ended August 31, 2023 - Significant estimates include asset retirement obligations, stock-based compensation, useful lives of assets, recoverability of long-lived assets, and income taxes[22] - No material changes in critical accounting policies and estimates from those disclosed in the Annual Report on Form 10-K for the fiscal year ended August 31, 2023[111] Jumpstart Our Business Startups Act of 2012 The company qualifies as an 'emerging growth company' under the JOBS Act but has irrevocably elected not to use the extended transition period for new accounting standards. It intends to take advantage of other exemptions available to emerging growth companies until it no longer meets the criteria, which could be as early as August 31, 2024 - The company qualifies as an 'emerging growth company' under the JOBS Act[112] - Irrevocably elected not to use the extended transition period for complying with new or revised financial accounting standards[112] - Intends to take advantage of other exemptions for emerging growth companies, such as auditor attestation requirements and reduced executive compensation disclosures, until it no longer qualifies (e.g., market value exceeds $700 million, annual gross revenues exceed $1.235 billion, or after August 31, 2024)[114] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, specifically commodity and food price risks, and inflation risk. It highlights the impact of fluctuating costs on profitability and the strategies employed to mitigate these risks, such as menu price adjustments and operational efficiencies Commodity and Food Price Risks The company's profitability is sensitive to changes in food and beverage costs and other commodities. While it has partially offset cost increases through menu price adjustments and productivity improvements, substantial increases could negatively impact operating results if not fully mitigated - Profitability is dependent on anticipating and reacting to changes in costs of key operating resources, including food and beverages[115] - Cost increases have been partially offset by increasing menu prices and operational adjustments, but substantial increases could still impact operating results[115] Inflation Risk Inflationary factors, particularly food and beverage, labor, construction, and energy costs, affect the company's operations. Increases in minimum wage directly impact labor costs. The company has historically mitigated these through menu price increases and efficiencies, but competitive conditions and macroeconomic factors could limit future flexibility - Primary inflationary factors include food and beverage costs, labor costs, construction costs, and energy costs[116] - Increases in minimum wage directly raise labor costs[116] - Mitigated increased costs by increasing menu prices and improving purchasing practices and productivity, but future ability to do so is not assured due to competitive and macroeconomic conditions[116][117] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of November 30, 2023, based on management's evaluation. It also states that there have been no material changes in internal control over financial reporting during the most recent fiscal quarter - Management concluded that disclosure controls and procedures were effective as of November 30, 2023[119] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[120] PART II. OTHER INFORMATION This section covers other information including legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and a list of exhibits Item 1. Legal Proceedings This section refers to Note 8 of the Condensed Financial Statements for a description of the company's legal proceedings, including a resolved class action lawsuit - Legal proceedings are described in Part I, Item 1, Note 8 – Commitments and Contingencies[122] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously reported in the company's Annual Report on Form 10-K for the fiscal year ended August 31, 2023 - No material changes to risk factors as previously reported in the Annual Report on Form 10-K for the fiscal year ended August 31, 2023[123] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Securities This item reports that there were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the period - No unregistered sales of equity securities, use of proceeds, or issuer purchases of securities[124] Item 3. Defaults Upon Senior Securities This item indicates that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities[125] Item 4. Mine Safety Disclosures This item states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[126] Item 5. Other Information This item confirms that during the three months ended November 30, 2023, neither the company nor any of its directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by the company, its directors, or officers during the three months ended November 30, 2023[127] Item 6. Exhibits This section provides a list of exhibits filed with the Quarterly Report on Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file Exhibits Filed | Exhibit Number | Description | | :------------- | :---------- | | 31.1* | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2* | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.1* | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 32.2* | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS | Inline XBRL Instance Document | | 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | Cover Page Interactive Data File | Signatures This section contains the required signatures, confirming that the registrant has duly caused the report to be signed on its behalf by the undersigned authorized officer, Jeffrey Uttz, Chief Financial Officer, on January 4, 2024 - The report was signed by Jeffrey Uttz, Chief Financial Officer, on January 4, 2024[132]