Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 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 September 30, 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 001-37379

THE ONE GROUP HOSPITALITY, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

14-1961545

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1624 Market Street, Suite 311, Denver, Colorado

 

80202

(Address of principal executive offices)

 

Zip Code

646-624-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

STKS

 

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

 

Emerging growth company  

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

Number of shares of common stock outstanding as of October 31, 2020:  29,068,007


Table of Contents

TABLE OF CONTENTS

 

Page

PART I – Financial Information

 

Item 1. Financial Statements

3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

29

Item 4. Controls and Procedures

30

 

 

PART II – Other Information

 

Item 1. Legal Proceedings

30

Item 1A Risk Factors

30

Item 6. Exhibits

31

 

 

Signatures

32

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)

September 30, 

December 31, 

    

2020

2019

ASSETS

(Unaudited)

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

26,565

$

12,344

Accounts receivable

 

5,487

 

10,351

Inventory

 

2,256

 

3,058

Other current assets

 

1,346

 

1,047

Due from related parties

 

376

 

341

Total current assets

 

36,030

 

27,141

 

  

 

  

Property and equipment, net

 

66,641

 

70,483

Operating lease right-of-use assets

82,156

81,097

Deferred tax assets, net

 

12,023

 

7,751

Intangibles, net

16,530

17,183

Other assets

 

2,607

 

1,622

Security deposits

 

992

 

1,308

Total assets

$

216,979

$

206,585

 

  

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

7,722

$

8,274

Accrued expenses

 

11,410

 

11,198

Deferred license revenue

 

207

 

332

Deferred gift card revenue and other

 

2,081

 

3,183

Current portion of operating lease liabilities

4,596

4,397

Current portion of long-term debt

 

628

 

749

Total current liabilities

 

26,644

 

28,133

 

  

 

  

Deferred license revenue, long-term

 

1,005

 

1,036

Operating lease liabilities, net of current portion

99,849

98,278

CARES Act Loans

 

18,314

 

Long-term debt, net of current portion

 

45,060

 

45,226

Total liabilities

 

190,872

 

172,673

 

  

 

  

Commitments and contingencies

 

  

 

  

 

  

 

  

Stockholders’ equity:

 

  

 

  

Common stock, $0.0001 par value, 75,000,000 shares authorized; 29,030,846 and 28,603,829 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

3

 

3

Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

Additional paid-in capital

 

46,104

 

44,853

Accumulated deficit

 

(16,237)

 

(7,891)

Accumulated other comprehensive loss

 

(2,674)

 

(2,651)

Total stockholders’ equity

 

27,196

 

34,314

Noncontrolling interests

 

(1,089)

 

(402)

Total equity

 

26,107

 

33,912

Total liabilities and equity

$

216,979

$

206,585

See notes to the condensed consolidated financial statements.

3


Table of Contents

THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited, in thousands, except (loss) earnings per share and related share information)

For the three months ended September 30, 

For the nine months ended September 30, 

  

2020

    

2019

    

2020

    

2019

Revenues:

 

  

 

  

 

  

 

  

Owned restaurant net revenue

$

37,822

$

19,185

$

92,908

$

60,221

Management, license and incentive fee revenue

 

1,745

2,921

 

4,042

8,260

Total revenues

 

39,567

 

22,106

 

96,950

 

68,481

Cost and expenses:

 

  

 

  

 

  

 

  

Owned operating expenses:

 

  

 

  

 

  

 

  

Owned restaurant cost of sales

 

9,091

4,921

 

23,378

15,466

Owned restaurant operating expenses

 

22,454

12,305

 

60,991

38,652

Total owned operating expenses

 

31,545

 

17,226

 

84,369

 

54,118

General and administrative (including stock-based compensation of $496, $338, $1,316, and $975 for the three and nine months ended September 30, 2020 and 2019 respectively)

 

3,400

2,352

 

9,235

7,706

Depreciation and amortization

 

2,655

1,103

 

7,605

3,049

Transaction and integration costs

 

358

 

1,109

510

COVID-19 related expenses

1,716

3,759

Lease termination expenses

 

185

252

 

453

393

Pre-opening expenses

 

45

 

45

545

Other income, net

 

1

40

 

(11)

(226)

Total costs and expenses

 

39,547

 

21,331

 

106,564

 

66,095

Operating income (loss)

 

20

 

775

 

(9,614)

 

2,386

Other expenses, net:

 

  

 

  

 

  

 

  

Interest expense, net of interest income

 

1,280

230

 

3,650

717

Loss on early debt extinguishment

 

 

437

Total other expenses, net

 

1,280

 

230

 

3,650

 

1,154

(Loss) income before (benefit) provision for income taxes

 

(1,260)

 

545

 

(13,264)

 

1,232

(Benefit) provision for income taxes

 

(350)

76

 

(4,231)

157

Net (loss) income

 

(910)

 

469

 

(9,033)

 

1,075

Less: net (loss) income attributable to noncontrolling interest

 

(35)

9

 

(687)

83

Net (loss) income attributable to The ONE Group Hospitality, Inc.

$

(875)

$

460

$

(8,346)

$

992

Currency translation gain (loss)

 

19

(40)

 

(23)

(329)

Comprehensive (loss) income attributable to The ONE Group Hospitality, Inc.

$

(856)

$

420

$

(8,369)

$

663

 

  

 

  

 

  

 

  

Net (loss) income attributable to The ONE Group Hospitality, Inc. per share:

 

  

 

  

 

  

 

  

Basic net (loss) earnings per share

$

(0.03)

$

0.02

$

(0.29)

$

0.03

Diluted net (loss) earnings per share

$

(0.03)

$

0.02

$

(0.29)

$

0.03

 

  

 

  

 

  

 

  

Shares used in computing basic (loss) earnings per share

 

29,010,348

 

28,537,477

 

28,857,990

 

28,429,074

Shares used in computing diluted (loss) earnings per share

 

29,010,348

 

29,901,144

 

28,857,990

 

29,642,926

See notes to the condensed consolidated financial statements.

4


Table of Contents

THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except share information)

Accumulated

Additional

other

Common stock

paid-in

Accumulated

comprehensive

Stockholders’

Noncontrolling

    

Shares

    

Par value

    

capital

    

deficit

    

loss

    

equity

    

interests

    

Total

Balance at December 31, 2019

 

28,603,829

$

3

$

44,853

$

(7,891)

$

(2,651)

$

34,314

$

(402)

$

33,912

Stock-based compensation

 

69,327

 

 

338

 

 

 

338

 

 

338

Exercise of stock options

 

18,000

 

 

38

 

 

 

38

 

 

38

Issuance of common shares, net of tax withholding

 

116,644

 

 

 

 

 

 

 

Loss on foreign currency translation, net

 

 

 

 

 

(44)

 

(44)

 

 

(44)

Net loss

 

 

 

 

(4,599)

 

 

(4,599)

 

(274)

 

(4,873)

Balance at March 31, 2020

 

28,807,800

$

3

$

45,229

$

(12,490)

$

(2,695)

$

30,047

$

(676)

$

29,371

Stock-based compensation

 

58,929

 

 

482

 

 

 

482

 

 

482

Issuance of common shares, net of tax withholding

 

93,418

 

 

(90)

 

 

 

(90)

 

 

(90)

Gain on foreign currency translation, net

 

 

 

 

 

2

 

2

 

 

2

Net loss

 

 

 

 

(2,872)

 

(2,872)

 

(378)

 

(3,250)

Balance at June 30, 2020

 

28,960,147

$

3

$

45,621

$

(15,362)

$

(2,693)

$

27,569

$

(1,054)

$

26,515

Stock-based compensation

 

61,566

 

 

496

 

 

 

496

 

 

496

Issuance of common shares, net of tax withholding

 

9,133

 

 

(13)

 

 

 

(13)

 

 

(13)

Gain on foreign currency translation, net

 

 

 

 

 

19

 

19

 

 

19

Net loss

 

 

 

 

(875)

 

 

(875)

 

(35)

 

(910)

Balance at September 30, 2020

 

29,030,846

$

3

$

46,104

$

(16,237)

$

(2,674)

$

27,196

$

(1,089)

$

26,107

Balance at December 31, 2018

 

28,313,017

$

3

$

43,543

$

(28,722)

$

(2,310)

$

12,514

$

(452)

$

12,062

Stock-based compensation

 

 

 

181

 

 

 

181

 

 

181

Issuance of common shares, net of tax withholding

 

20,544

 

 

 

 

 

 

 

Loss on foreign currency translation, net

 

 

 

 

 

(160)

 

(160)

 

 

(160)

Net income (loss)

 

 

 

 

854

 

 

854

 

(85)

 

769

Balance at March 31, 2019

 

28,333,561

$

3

$

43,724

$

(27,868)

$

(2,470)

$

13,389

$

(537)

$

12,852

Stock-based compensation

 

 

 

456

 

 

 

456

 

 

456

Loss on foreign currency translation, net

 

 

 

 

 

(120)

 

(120)

 

 

(120)

Net loss (income)

 

 

 

 

(322)

 

 

(322)

 

159

 

(163)

Balance at June 30, 2019

 

28,333,561

$

3

$

44,180

$

(28,190)

$

(2,590)

$

13,403

$

(378)

$

13,025

Stock-based compensation

 

47,469

 

 

338

 

 

 

338

 

 

338

Exercise of stock options

 

30,000

 

 

66

 

 

 

66

 

 

66

Issuance of common shares, net of tax withholding

 

166,457

 

 

 

 

 

 

 

Loss on foreign currency translation, net

 

 

 

 

 

(49)

 

(49)

 

 

(49)

Net income

 

 

 

 

460

 

 

460

 

9

 

469

Balance at September 30, 2019

 

28,577,487

$

3

$

44,584

$

(27,730)

$

(2,639)

$

14,218

$

(369)

$

13,849

See notes to the condensed consolidated financial statements.

5


Table of Contents

THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

For the nine months ended September 30, 

    

2020

    

2019

Operating activities:

 

  

 

  

Net (loss) income

$

(9,033)

$

1,075

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

 

  

 

  

Depreciation and amortization

 

7,605

 

3,049

Stock-based compensation

 

1,316

 

975

Loss on early debt extinguishment

 

 

437

Amortization of discount on warrants and debt issuance costs

 

356

 

103

Deferred taxes

 

(4,272)

 

27

Changes in operating assets and liabilities:

 

 

  

Accounts receivable

 

4,567

 

908

Inventory

 

802

 

(198)

Other current assets

 

(299)

 

(332)

Due from related parties

 

(35)

 

(291)

Security deposits

 

315

 

1,271

Other assets

 

(986)

 

(13)

Accounts payable

 

(706)

 

(441)

Accrued expenses

 

241

 

(3,951)

Operating lease liabilities and right-of-use assets

710

489

Deferred gift card and license revenue

 

(1,256)

 

(130)

Net cash (used in) provided by operating activities

 

(675)

 

2,978

 

  

 

  

Investing activities:

 

  

 

  

Purchase of property and equipment

 

(2,660)

 

(3,509)

Net cash used in investing activities

 

(2,660)

 

(3,509)

 

  

 

  

Financing activities:

 

  

 

  

Proceeds from CARES Act Loans

 

18,314

 

Borrowings of long-term debt

 

 

14,750

Repayments of long-term debt

(592)

(11,543)

Repayments to related parties

(1,197)

Debt issuance costs

(50)

(734)

Exercise of stock options

 

38

 

66

Tax-withholding obligation on stock based compensation

 

(103)

 

Net cash provided by financing activities

 

17,607

 

1,342

Effect of exchange rate changes on cash

 

(51)

 

(357)

Net increase (decrease) in cash and cash equivalents

 

14,221

 

454

Cash and cash equivalents, beginning of period

 

12,344

 

1,592

Cash and cash equivalents, end of period

$

26,565

$

2,046

Supplemental disclosure of cash flow data:

 

  

 

  

Interest paid

$

2,871

$

779

Income taxes paid

 

253

 

193

Non-cash property and equipment additions

303

See notes to the condensed consolidated financial statements.

6


Table of Contents

THE ONE GROUP HOSPITALITY, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Summary of Business and Significant Accounting Policies

Summary of Business

The ONE Group Hospitality, Inc. and its subsidiaries (collectively, the “Company”) is a global hospitality company that develops, owns and operates, manages and licenses upscale and polished casual, high-energy restaurants and lounges and provides turn-key food and beverage (“F&B”) services for hospitality venues including hotels, casinos and other high-end locations. Turn-key F&B services are food and beverage services that can be scaled, customized and implemented by the Company for the client at a particular hospitality venue. The Company’s primary restaurant brands are STK, a multi-unit steakhouse concept that combines a high-energy, social atmosphere with the quality and service of a traditional upscale steakhouse, and Kona Grill, a bar-centric grill concept featuring American favorites, award-winning sushi, and specialty cocktails in a polished casual atmosphere.

As of September 30, 2020, the Company owned, operated, managed or licensed 55 venues, including 20 STKs and 24 Kona Grills in major metropolitan cities in North America, Europe and the Middle East and 11 F&B venues including 10 in five hotels and casinos in the United States and Europe.

On October 4, 2019, the Company acquired substantially all of the assets of Kona Grill Inc. and its affiliates (“Kona Grill”), which was composed of 24 domestic restaurants. The Company purchased the assets for a contractual price of $25.0 million plus approximately $1.5 million of consideration paid primarily for the apportionment of rent and utilities. The Company also assumed approximately $7.7 million in current liabilities. The Company has integrated Kona Grill by leveraging its corporate infrastructure, bar-business knowledge and unique Vibe Dining program, elevating the brand experience and driving improved performance. The results of operations of these restaurants are included in the Company’s condensed consolidated financial statements from the date of acquisition.

The following pro forma results of operations for the three and nine months ended September 30, 2019 have been prepared as though the acquisition occurred as of January 1, 2019. The pro forma financial information is not indicative of the results of operations that the Company would have attained had the acquisition occurred at the beginning of the periods presented, nor is the pro forma financial information indicative of the results of operations that may occur in the future. Amounts are in thousands, except earnings per share data.

Three months ended

Nine months ended

    

September 30, 2019

    

September 30, 2019

Total revenues

$

46,625

$

143,721

Net income attributable to The ONE Group Hospitality, Inc.

$

1,306

$

1,560

Net income attributable to The ONE Group Hospitality, Inc. per share:

Basic net earnings per share

$

0.04

$

0.05

Diluted net earnings per share

$

0.04

$

0.05

COVID-19

The novel coronavirus (“COVID-19”) pandemic has significantly impacted the Company’s business, and public concerns about the spread of COVID-19 continue to be widespread. The Company experienced a significant reduction in guest traffic at its restaurants as a result of restrictions mandated by state and local governments and temporary closure of several restaurants and the shift in operations to provide only take-out and delivery service. Starting in May 2020, state and local governments began easing restrictions on stay-at-home orders. Currently, 34 of 36 domestic restaurants are open for outdoor dining or in-person dining with seating capacity restrictions. The Company has taken significant steps to adapt its business to increase sales while providing a safe environment for guests and employees, which resulted in a significant increase in revenues in the third quarter of 2020 compared to the second quarter of 2020.

In response to these conditions, and out of concern for its customers and partners, the Company has implemented enhanced safety measures and sanitation procedures to allow for in-person dining at its restaurants. As the Company navigates through the pandemic, it has also implemented measures to reduce its costs including the deferral of capital projects and negotiations with suppliers and landlords regarding deferral or abatement of payments.

7


Table of Contents

Given the ongoing uncertainty surrounding the effects of the COVID-19 pandemic, the Company cannot reasonably predict when its restaurants will be able to return to normal dining room operations. The Company expects that its results of operations could be materially and negatively affected by COVID-19 for the remainder of 2020. The Company’s resumption of normal dining operations is subject to events beyond its control, including the effectiveness of governmental efforts to halt the spread of COVID-19.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain information and footnote disclosures normally included in annual audited financial statements have been omitted pursuant to SEC rules and regulations. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

In the Company’s opinion, the accompanying unaudited interim financial statements reflect all adjustments (consisting only of normal recurring accruals and adjustments) necessary for a fair presentation of the results for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results expected for the full year. Additionally, the Company believes that the disclosures are sufficient for interim financial reporting purposes.

Prior Period Reclassifications

Certain reclassifications of the 2019 financial statements amounts have been made to conform to the current year presentation. The Company has combined owned restaurant net revenues and owned food, beverage and other net revenues to be presented in total as owned restaurant net revenue. Additionally, the Company reclassified $0.5 million and $1.4 million of owned food, beverage and other expenses to owned restaurant cost of sales and $1.5 million and $5.1 million of owned food, beverage and other expenses to owned restaurant expenses on the accompanying condensed consolidated statements of operations and comprehensive (loss) income for the three and nine months ended September 30, 2019, respectively. Certain reclassifications were also made to conform the prior period segment reporting to the current year segment presentation. Refer to Note 13 – Segment Reporting for additional information regarding the Company’s reportable operating segments.

Recent Accounting Pronouncements

In June 2020, the American Institute of Certified Public Accountants in conjunction with the Financial Accounting Standards Board (“FASB”) developed Technical Question and Answer (“TQA”) 3200.18, “Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program”, which is intended to provide clarification on how to account for loans received from the Paycheck Protection Program (“PPP”). TQA 3200.18 states that an entity may account for PPP loans under ASC 470, “Debt” or, if the entity is expected to meet PPP eligibility criteria and the PPP loan is expected to be forgiven, the entity may account for the loans under IAS 20, “Accounting for Government Grants and Disclosure of Government Assistance”. Although the Company anticipates forgiveness of the entire amount of the CARES Act Loans, no assurances can be provided that the Company will obtain forgiveness of the CARES Act Loans in whole or in part. Therefore, the Company has elected to account for PPP loan proceeds under ASC 470 as allowed by TQA 3200.18.

In December 2019, FASB issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” (“ASU 2019-12”) which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Accounting Standard Codification Topic 740, Income Taxes, and it clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020. The Company is evaluating the impact of the adoption of ASU 2019-12 on its financial statements but does not expect the adoption of ASU 2019-12 to be material.

In October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018-17”). ASU 2018-17 states that indirect interests held through related parties in common control arrangements should be considered on a proportional basis to determine whether fees paid to decision makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a variable interest entity. ASU 2018-17 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Entities are required to adopt the new guidance retrospectively with a cumulative adjustment to retained earnings at the beginning of the earliest period presented. The adoption of ASU 2018-17 did not have a material impact on the Company’s financial position, results of operations or cash flows.

8


Table of Contents

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Entities can choose to adopt the new guidance prospectively or retrospectively. The adoption of ASU 2018-15 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 eliminates, modifies and adds disclosure requirements for fair value measurements. The amendments in ASU 2018-13 are effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2018-3 did not have a material impact on the Company’s disclosures of fair value measurement, which are included in Note 6 – Fair Value of Financial Instruments.

Note 2 – Property and Equipment, net

Property and equipment, net consist of the following (in thousands):

September 30, 

December 31, 

2020

2019

Furniture, fixtures and equipment

$

21,573

$

20,512

Leasehold improvements

 

71,269

 

69,925

Less: accumulated depreciation

 

(28,742)

 

(21,997)

Subtotal

 

64,100

 

68,440

Construction in progress

 

595

 

97

Restaurant smallwares

 

1,946

 

1,946

Total

$

66,641

$

70,483

Depreciation related to property and equipment was $2.5 million and $1.1 million for the three months ended September 30, 2020 and 2019, respectively, and $6.9 million and $3.0 million for the nine months ended September 30, 2020 and 2019, respectively. The Company does not depreciate construction in progress, assets not yet put into service or restaurant smallwares.

Note 3 – Intangibles, net

Intangibles, net consists of the following (in thousands):

September 30, 

December 31, 

    

2020

    

2019

Kona Grill tradename

$

17,400

$

17,400

Less: accumulated amortization

 

(870)

 

(217)

Total intangibles, net

$

16,530

$

17,183

The Kona Grill trade name is amortized using the straight-line method over its estimated useful life of 20 years. Amortization expense was $0.2 million and $0.7 million for the three and nine months ending September 30, 2020. The Company’s estimated aggregate amortization expense for each of the five succeeding fiscal years is approximately $0.9 million annually.

9


Table of Contents

Note 4 – Accrued Expenses

Accrued expenses consist of the following (in thousands):

September 30, 

December 31, 

2020

2019

Payroll and related

$

4,517

 

$

4,519

Amounts due to landlords, including disputed rent amounts

2,727

1,956

VAT, sales and other taxes

1,075

 

1,488

Income taxes and related

489

547

Legal, professional and other services

 

459

1,103

Interest

428

2

Insurance

 

205

 

100

Other

 

1,510

 

1,483

Total

$

11,410

$

11,198

Note 5 – Long-Term Debt and CARES Act Loans

Long-term debt consists of the following (in thousands):

September 30, 

December 31, 

2020

2019

Term loan agreements

$

47,520

$

47,880

Revolving credit facility

Equipment financing agreements

 

148

 

380

Total long-term debt

 

47,668

 

48,260

Less: current portion of long-term debt

 

(628)

 

(749)

Less: debt issuance costs

 

(1,980)

 

(2,285)

Total long-term debt, net of current portion

$

45,060

$

45,226

Interest expense for all the Company’s debt arrangements, excluding the amortization of debt issuance costs and other discounts and fees, was approximately $1.2 million and $0.2 million for the three months ended September 30, 2020 and 2019 and $3.3 million and $0.6 million for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, the Company had $1.3 million in standby letters of credit outstanding for certain restaurants and $10.7 million available in its revolving credit facility, subject to certain conditions. As of December 31, 2019, the Company had $0.4 million of cash collateralized letters of credit, which are recorded as a component of security deposits on the condensed consolidated balance sheet.

Credit and Guaranty Agreement

On October 4, 2019, in conjunction with the acquisition of Kona Grill, the Company entered into a credit and guaranty agreement with Goldman Sachs Bank USA (“Credit Agreement”). The Credit Agreement provides for a secured revolving credit facility of $12.0 million and a $48.0 million term loan. The term loan is payable in quarterly installments, with the final payment due in October 2024. The revolving credit facility also matures in October 2024. Additionally, the Company’s consolidated adjusted EBITDA as defined by the Credit Agreement for determining covenant compliance includes pro forma adjustments for the annualization of the Kona Grill restaurant performance which includes results before the acquisition date.

On May 4, 2020, Goldman Sachs Bank USA (“GSB”), as administrative agent, collateral agent and lead arranger under the Credit Agreement, (1) consented to the CARES Act Loans described below and (2) agreed that the amount of the CARES Act Loans will not be counted toward the permitted amount of Consolidated Total Debt, as defined under the Credit Agreement, to the extent the amounts are retained as cash during the term of the CARES Act Loans in a segregated deposit account or used for purposes that are forgivable under the CARES Act, provided that the proceeds of the CARES Act Loans must be used only for “allowable uses” under the CARES Act (with at least 75% of the utilized proceeds to be used for purposes that result in the CARES Act Loans being eligible for forgiveness) or used for the repayment of the CARES Act Loans.

10


Table of Contents

On May 8, 2020 and August 10, 2020, GSB and the Company and certain of its subsidiaries amended the Credit Agreement to:

Eliminate testing of the fixed charge coverage ratio for the balance of 2020 and 2021;
For the purpose of testing, replace maximum “Leverage Ratio” with maximum “Net Leverage Ratio”. The maximum Net Leverage Ratio is (i) 2.85 to 1.00 as of the fiscal quarter ending September 30, 2020, (ii) 3.60 to 1.00 as of the fiscal quarter ending December 31, 2020, (iii) 3.10 to 1.00 as of the fiscal quarter ending March 31, 2021, (iv) 2.10 to 1.00 as of the fiscal quarters ending June 30, 2021 and September 30, 2021, and (v) 1.90 to 1.00 as of the fiscal quarter ending December 31, 2021. The Credit Agreement provides for a pro forma adjustment to reflect one full year of Kona Grill operations;
Reduce the maximum consolidated capital expenditures to $7,000,000 for 2020 and $7,000,000 for 2021; and
Require minimum “Consolidated Liquidity” of not less than $4,000,000 for the balance of 2020 and 2021 (from $1,500,000 for 2021).

A summary of the financial covenants under the Credit Agreement, as amended, is as follows:

The minimum consolidated fixed charge coverage ratio is (i) eliminated for the balance of 2020 and 2021; and (ii) 1.50 to 1.00 as of any fiscal quarter thereafter;
A maximum consolidated Net Leverage Ratio of (i) 2.85 to 1.00 as of the fiscal quarter ending September 30, 2020, (ii) 3.60 to 1.00 as of the fiscal quarter ending December 31, 2020, (iii) 3.10 to 1.00 as of the fiscal quarter ending March 31, 2021, (iv) 2.10 to 1.00 as of the fiscal quarters ending June 30, 2021 and September 30, 2021, (v) 1.90 to 1.00 as of the fiscal quarter ending December 31, 2021, and (vi) maximum consolidated Leverage Ratio of 1.50 to 1.00 as of the end of any fiscal quarter thereafter. For purposes of calculating this ratio for the first four quarters, the agreement provides for a pro forma adjustment to reflect one full year of Kona Grill operations. In addition, the consolidated net leverage ratio reduces the Company’s debt by its cash and cash equivalents. The consolidated leverage ratio has no such reductions;
Maximum consolidated capital expenditures not to exceed (i) $7,000,000 in each of 2020 and 2021, and (ii) $8,000,000 in every fiscal year thereafter; and,
Minimum consolidated liquidity of not less than (i) $4,000,000 for the remainder of 2020 and 2021, and (ii) $1,500,000 at any time thereafter.

The Company’s ability to borrow under its revolving credit facility is dependent on several factors. The Company’s total borrowings cannot exceed a leverage incurrence multiple of (i) 2.25 to 1.00 as of the fiscal quarters ending September 30, 2020 and December 31, 2020, (ii) 2.00 to 1.00 as of the fiscal quarter ending March 31, 2021, (iii) 1.75 to 1.00 as of the fiscal quarter ending June 30, 2021, (iv) 1.70 to 1.00 as of the fiscal quarter ending September 30, 2021, (v) 1.65 to 1.00 as of the fiscal quarter ending December 31, 2021, and (vi) 1.50 to 1.00 as of the end of any fiscal quarter thereafter. In addition, after giving effect to any new borrowings under the revolving credit facility, the Company’s cash and cash equivalents cannot exceed $4,000,000.

The Credit Agreement has several borrowing and interest rate options, including the following: (a) a LIBOR rate (or a comparable successor rate) subject to a 1.75% floor; or (b) a base rate equal to the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50%, (iii) the LIBOR rate for a one-month period plus 1.00%, or (iv) 4.75%. Loans under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of between 5.75% and 6.75% (for LIBOR rate loans) and 4.75% and 5.75% (for base rate loans). The Company’s weighted average interest rate on the borrowings under the Credit Agreement as of September 30, 2020 and December 31, 2019 was 8.50% and 8.55%, respectively.

The Credit Agreement contains customary representations, warranties and conditions to borrowing including customary affirmative and negative covenants, which include covenants that limit or restrict the Company’s ability to incur indebtedness and other obligations, grant liens to secure obligations, make investments, merge or consolidate, alter the organizational structure of the Company and its subsidiaries, and dispose of assets outside the ordinary course of business, in each case subject to customary exceptions for credit facilities of this size and type.

The Company and certain operating subsidiaries of the Company guarantee the obligations under the Credit Agreement, which also are secured by liens on substantially all of the assets of the Company and its subsidiaries.

The Company has incurred approximately $2.5 million of debt issuance costs related to the Credit Agreement, which were capitalized and are recorded as a direct deduction to the long-term debt, net of current portion, on the condensed consolidated balance sheets. As of September 30, 2020, the Company was in compliance with the covenants required by the Credit Agreement.

11


Table of Contents

CARES Act Loans

On May 4, 2020, two subsidiaries of the Company entered into promissory notes (“CARES Act Loans”) with BBVA USA under the Paycheck Protection Program (“PPP”) created by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Repayment of the CARES Act Loans is guaranteed by the U.S. Small Business Administration (“SBA”). The ONE Group, LLC received a loan of $9.8 million related to the operations of STK restaurants, and Kona Grill Acquisition, LLC received a loan of $8.5 million related to the operation of Kona Grill restaurants.

The CARES Act Loans are scheduled to mature on April 28, 2022 and have a 1.00% interest rate and are subject to the terms and conditions applicable to PPP loans. Among other terms, BBVA USA may declare a default of the CARES Act Loans if the SBA disputes the validity of the guaranty of indebtedness, if a material adverse change occurs in the Company’s financial condition, or if BBVA USA believes the prospect of repayment of the CARES Act Loans or performance of obligations under the promissory notes is impaired. On an event of default, BBVA USA may declare principal and unpaid interest immediately due and payable, and it may charge default interest of 10%.

The CARES Act Loans are eligible for forgiveness if the proceeds are used for qualified purposes within a specified period and if at least 60% is spent on payroll costs. As of September 30, 2020, the Company has used all of the proceeds from the CARES Act Loans for qualified purposes in accordance with the CARES Act and SBA regulations, and these funds have supported the re-opening of in person dining and the return of approximately 3,000 furloughed employees to work. The Company anticipates forgiveness of the entire amount of the CARES Act Loans; however, no assurance can be provided that the Company will obtain forgiveness of the CARES Act Loans in whole or in part. Therefore, the Company has elected to classify the entire principal amount of the CARES Act Loans as long-term debt on the condensed consolidated balance sheet as of September 30, 2020.

Equipment Financing Agreements

On June 5, 2015 and August 16, 2016, the Company entered into financing agreements with Sterling National Bank for $1.0 million and $0.7 million, respectively, to purchase equipment for the STKs in Orlando, Chicago, San Diego, and Denver. Each of these financing agreements have five- year terms and bear interest at a rate of 5% per annum, payable in equal monthly installments.

Note 6 – Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued expenses are carried at cost, which approximates fair value due to their short maturities. Long-lived assets are measured and disclosed at fair value on a nonrecurring basis if an impairment is identified. There were no long-lived assets measured at fair value as of September 30, 2020.

The Company’s long-term debt, including the current portion, is carried at cost on the condensed consolidated balance sheets. Fair value of long-term debt, including the current portion, is estimated based on Level 2 inputs, except the amount outstanding on the revolving credit facility for which the carrying value approximates fair value. Fair value is determined by discounting future cash flows using interest rates available for issuers with similar terms and maturities.

Note 7 – Investments in Bagatelle NY

As of September 30, 2020 and December 31, 2019, the Company owned interests in the following companies, which directly or indirectly operate a restaurant:

31.24% interest in Bagatelle NY LA Investors, LLC (“Bagatelle Investors”)
51.13% aggregate interest, held directly and indirectly through other entities, in Bagatelle Little West 12th, LLC (“Bagatelle NY”)

Bagatelle Investors is a holding company that has an interest in Bagatelle NY. The Company records its retained interests in Bagatelle Investors and Bagatelle NY as investments as the Company has determined that it does not have the ability to exercise significant influence over its investees, Bagatelle Investors and Bagatelle NY. As of September 30, 2020 and December 31, 2019, the Company has zero carrying value in these investments.

12


Table of Contents

Additionally, the Company has a management agreement with Bagatelle NY. Under this agreement, the Company did not record management fee revenue for the three months ended September 30, 2020 because the restaurant has remained closed since March 2020 and recorded less than $0.1 million of management fee revenue in the nine months ended September 30, 2020. The Company recorded $0.1 million of management fee revenue in the three months ended September 30, 2019, and $0.3 million for the nine months ended September 30, 2019.

Note 8 – Income taxes

The Company’s effective income tax rate was 32% for the nine months ended September 30, 2020 compared to 12.7% for the nine months ended September 30, 2019. The Company’s projected annual effective tax rate differs from the statutory U.S. tax rate of 21% primarily due to the following: (i) tax credits for FICA taxes on certain employees’ tips (ii) taxes owed in foreign jurisdictions such as the United Kingdom, Canada and Italy; and, (iii) taxes owed in state and local jurisdictions.

The CARES Act includes provisions allowing for the carryback of net operating losses generated for specific periods and technical amendments regarding the expensing of qualified improvement property. The CARES Act also allows for the deferral of the employer-paid portion of social security taxes, which the Company has elected to defer. The Company continues to evaluate the tax-related provisions under the CARES Act.

The Company is subject to income taxes in the U.S. federal jurisdiction, and the various states and local jurisdictions in which it operates. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In the normal course of business, the Company is subject to examination by the federal, state, local and foreign taxing authorities.

Note 9 – Revenue from contracts with customers

The following table provides information about contract receivables and liabilities from contracts with customers, which include deferred license revenue, deferred gift card revenue and the Konavore rewards program (in thousands):

    

September 30, 

    

December 31, 

2020

2019

Receivables (1)

$

125

$

250

Deferred license revenue (2)

$

1,212

$

1,368

Deferred gift card and gift certificate revenue (3)

$

2,244

$

3,210

Konavore rewards program (4)

$

95

$

84


(1)Receivables are included in accounts receivable on the condensed consolidated balance sheets.
(2)Includes the current and long-term portion of deferred license revenue.
(3)Deferred gift card revenue is included in deferred gift card revenue and other on the condensed consolidated balance sheets.
(4)Konavore rewards program is included in accrued expenses on the condensed consolidated balance sheets.

Significant changes in deferred license revenue and deferred gift card revenue for the nine months ended September 30, 2020 and 2019 are as follows (in thousands):

    

September 30, 

    

September 30, 

2020

2019

Revenue recognized from deferred license revenue

$

154

$

148

Revenue recognized from deferred gift card revenue

$

1,173

$

707

13


Table of Contents

The estimated deferred license revenue to be recognized in the future related to performance obligations that are unsatisfied as of September 30, 2020 were as follows for each year ending (in thousands):

2020, three months remaining

    

$

52

2021

 

207

2022

 

180

2023

 

169

2024

 

134

Thereafter

 

470

Total future estimated deferred license revenue

$

1,212

Note 10 – Leases

The components of lease expense for the period were as follows (in thousands):

September 30, 

 

September 30, 

 

2020

 

2019

 

Lease cost

Operating lease cost

 

$

9,950

 

$

5,040

Variable lease cost

(415)

1,811

Short-term lease cost

315

273

Sublease income

(404)

(582)

Total lease cost

 

$

9,446

 

$

6,542

Weighted average remaining lease term – operating leases

12 years

14 years

Weighted average discount rate – operating leases

8.10

%

8.22

%

Due to the negative effects of COVID-19, the Company implemented measures to reduce its costs, including negotiations with landlords regarding rent concessions. The Company is in ongoing discussions with landlords regarding rent obligations, including deferrals, abatements, and/or restructuring of rent. As the rent concessions received and currently being contemplated do not result in a significant increase in cash payments, the Company has elected to account for these concessions as a variable lease payment in accordance with ASC Topic 842. The Company’s right-of-use assets and operating lease liabilities have not been remeasured for lease concessions received. Variable lease cost is comprised of percentage rent and common area maintenance, offset by rent concessions received as a result of COVID-19.

The Company has entered into an operating lease for a future restaurant in Bellevue, Washington that had not commenced as of September 30, 2020. The aggregate future commitment related to this lease totals $4.8 million. The Company expects this lease, which will have a lease term of 11 years, to commence within the next twelve months.

Supplemental cash flow information related to leases for the period was as follows (in thousands):

September 30, 

September 30, 

2020

2019

Cash paid for amounts included in the measurement of operating lease liabilities

 

$

6,263

 

$

5,212

Right-of-use assets obtained in exchange for operating lease obligations

 

$

4,968

 

$

1,076

14


Table of Contents

As of September 30, 2020, maturities of the Company’s operating lease liabilities are as follows (in thousands):

2020, three months remaining

$

3,315

2021

13,220

2022

13,228

2023

13,524

2024

12,927

Thereafter

124,760

Total lease payments

180,974

Less: imputed interest

(76,529)

Present value of operating lease liabilities

 

$

104,445

For the three months remaining in 2020, the Company’s operating lease liabilities does not include future rent abatements that have been or will be negotiated with landlords.

Note 11 – (Loss) earnings per share

Basic (loss) earnings per share is computed using the weighted average number of common shares outstanding during the period and income available to common stockholders. Diluted (loss) earnings per share is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of all potential shares of common stock including common stock issuable pursuant to stock options, warrants, and restricted stock units.

For the three and nine months ended September 30, 2020 and 2019, the (loss) earnings per share was calculated as follows (in thousands, except earnings per share and related share data):

Three months ended September 30, 

Nine months ended September 30, 

    

2020

    

2019

    

2020

    

2019

Net (loss) income attributable to The ONE Group Hospitality, Inc.

$

(875)

$

460

$

(8,346)

$

992

 

  

 

  

 

  

 

Basic weighted average shares outstanding

 

29,010,348

 

28,537,477

 

28,857,990

 

28,429,074

Dilutive effect of stock options, warrants and restricted share units

 

 

1,363,667

 

 

1,213,852

Diluted weighted average shares outstanding

 

29,010,348

 

29,901,144

 

28,857,990

 

29,642,926

 

  

 

  

 

  

 

  

Net (loss) earnings available to common stockholders per share - Basic

$

(0.03)

 

0.02

$

(0.29)

$

0.03

Net (loss) earnings available to common stockholders per share - Diluted

$

(0.03)

$

0.02

$

(0.29)

$

0.03

For the nine months ended September 30, 2020 and 2019, 1.4 million and 1.0 million stock options, warrants and restricted share units were determined to be anti-dilutive and were therefore excluded from the calculation of diluted earnings per share, respectively.

Note 12 – Stock-Based Compensation

As of September 30, 2020, the Company had 1,204,428 remaining shares available for issuance under the 2019 Equity Incentive Plan (“2019 Equity Plan”).

Stock-based compensation cost for the three months ended September 30, 2020 and 2019 was $0.5 million and $0.3 million, respectively, and $1.3 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively. Stock-based compensation is included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive (loss) income. Included in stock-based compensation cost was $0.1 million and $0.3 million of stock granted to directors for the three and nine months ended September 30, 2020, respectively. Such grants were awarded consistent with the Board of Director’s compensation practices.

15


Table of Contents

Stock Option Activity

Changes in outstanding stock options during the nine months ended September 30, 2020 were as follows:

Weighted

Weighted

average

Intrinsic

average exercise

remaining

value

    

Shares

    

price

    

contractual life

    

(thousands)

Outstanding at December 31, 2019

 

1,806,508

$

3.37

 

5.87 years

$

1,428

Exercisable at December 31, 2019

 

1,270,508

$

3.93

 

5.10 years

$

665

Exercised

 

(18,000)

 

2.13

 

  

 

  

Cancelled, expired or forfeited

 

(81,500)

 

3.75

 

  

 

  

Outstanding at September 30, 2020

 

1,707,008

$

3.37

 

5.24 years

$

174

Exercisable at September 30, 2020

 

1,343,675

$

3.73

 

4.77 years

$

116

A summary of the status of the Company’s non-vested stock options as of December 31, 2019 and September 30, 2020 and changes during the nine months then ended, is presented below:

Weighted average

    

Shares

    

grant date fair value

Non-vested stock options at December 31, 2019

 

536,000

$

0.87

Vested

 

(172,667)

 

0.88

Non-vested stock options at September 30, 2020

 

363,333

$

0.86

The fair value of options that vested in the nine months ended September 30, 2020 was $0.2 million. As of September 30, 2020, there are 579,402 milestone-based options outstanding and $0.7 million of unrecognized compensation cost related to these milestone-based options. These options vest based on the achievement of Company and individual objectives as set by the Board of Directors. As of September 30, 2020, there is $0.2 million of total unrecognized compensation cost related to non-vested awards, which will be recognized over a weighted-average period of 2.1 years.

Restricted Stock Unit Activity

The Company issues restricted stock units (“RSUs”) under the 2019 Equity Plan. The fair value of these RSUs is determined based upon the closing fair market value of the Company’s common stock on the grant date.

A summary of the status of RSUs and changes during the nine months ended September 30, 2020 is presented below:

Weighted average

    

Shares

    

grant date fair value

Non-vested RSUs at December 31, 2019

 

955,011

$

2.69

Granted

 

1,309,099

 

1.21

Vested

 

(281,027)

 

2.75

Cancelled, expired or forfeited

 

(38,566)

 

2.71

Non-vested RSUs at September 30, 2020

 

1,944,517

$

1.68

As of September 30, 2020, 150,000 RSUs subject to performance-based vesting were outstanding with unrecognized compensation cost of $0.4 million related to these milestone-based awards. As of September 30, 2020, the Company had approximately $2.2 million of total unrecognized compensation costs related to RSUs, which will be recognized over a weighted average period of 2.1 years.

16


Table of Contents

Note 13 – Segment Reporting

In the fourth quarter of 2019, in conjunction with the Kona Grill acquisition, the Company implemented certain organizational changes, including the reorganization of the Company’s internal reporting structure to better facilitate its strategy for growth and operational efficiency. As a result of these organizational changes, the Company has identified its reportable operating segments as follows:

STK. The STK segment consists of the results of operations from STK restaurant locations, competing in the full-service dining industry, as well as management, license and incentive fee revenue generated from the STK brand and operations of STK restaurant locations.
Kona Grill. The Kona Grill segment includes the results of operations of Kona Grill restaurant locations.
ONE Hospitality. The ONE Hospitality segment is composed of the management, license and incentive fee revenue and results of operations generated from the Company’s other brands and venue concepts, which include ANGEL, Bagatelle, Heliot, Hideout, Marconi, and Radio. Additionally, this segment includes the results of operations generated from F&B hospitality management agreements with hotels, casinos and other high-end locations.
Corporate. The Corporate segment consists of the following: general and administrative costs, stock-based compensation, depreciation and amortization, acquisition related gains and losses, lease termination expenses, transaction costs, COVID-19 related expenses and other income and expenses. This segment also includes STK Meat Market, an e-commerce platform that offers signature steak cuts nationwide, and the Company’s major off-site events group, which supports all brands and venue concepts, and revenue generated from gift card programs.

The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business and allocates resources via a combination of restaurant sales reports and operating segment profit information, defined as revenues less operating expenses, related to the Company’s four operating segments.

Certain financial information relating to the three and nine months ended September 30, 2020 and 2019 for each segment is provided below (in thousands). Prior year amounts have been revised to conform to the current year segment presentation.

    

STK

    

Kona Grill

    

ONE Hospitality

    

Corporate

    

Total

For the three months ended September 30, 2020

Total revenues

 

$

16,475

 

$

22,794

 

$

169

 

$

129

$

39,567

Operating income (loss)

$

2,406

$

2,215

$

(116)

$

(4,485)

$

20

Capital asset additions

$

528

$

398

$

7

$

46

$

979

For the nine months ended September 30, 2020

Total revenues

 

$

39,740

 

$

55,831

 

$

1,105

 

$

274

$

96,950

Operating income (loss)

$

3,335

$

1,816

$

(209)

$

(14,556)

$

(9,614)

Capital asset additions

$

1,056

$

1,141

$

184

$

279

$

2,660

As of September 30, 2020

Total assets

$

80,780

$

97,053

$

5,590

$

33,556

$

216,979

STK

    

Kona Grill

    

ONE Hospitality

    

Corporate

    

Total

For the three months ended September 30, 2019

Total revenues

$

20,227

$

$

1,762

$

117

$

22,106

Operating income (loss)

$

3,059

$

$

625

$

(2,909)

$

775

Capital asset additions

$

490

$

$

2

$

100

$

592

For the nine months ended September 30, 2019

Total revenues

$

63,451

$

$

4,074

$

956

$

68,481

Operating income (loss)

$

9,412

$

$

1,170

$

(8,196)

$

2,386

Capital asset additions

$

3,000

$

$

40

$

469

$

3,509

As of December 31, 2019

Total assets

$

82,691

$

93,829

$

8,252

$

21,813

$

206,585

17


Table of Contents

Note 14 – Geographic Information

Certain financial information by geographic location is provided below (in thousands).

For the three months ended September 30, 

For the nine months ended September 30, 

    

2020

    

2019

    

2020

    

2019

Domestic revenues

 

38,745

 

20,730

 

$

95,304

 

$

65,048

International revenues

 

822

 

1,376

 

1,646

 

3,433

Total revenues

$

39,567

$

22,106

$

96,950

$

68,481

September 30, 

December 31, 

2020

2019

Domestic long-lived assets

 

$

180,670

 

$

179,143

International long-lived assets

 

279

 

301

Total long-lived assets

$

180,949

$

179,444

Note 15 – Commitments and Contingencies

The Company is party to claims in lawsuits incidental to its business, including lease disputes and employee-related matters. The Company is confident in its defenses and is vigorously defending these disputes. The Company has not recorded any liabilities for these unfounded claims, and the range of possible losses is zero to $2.2 million. In the opinion of management, the ultimate outcome of such matters, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Forward-looking statements speak only as of the date thereof and involve risks and uncertainties that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. These risk and uncertainties include the risk factors discussed under Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q. Factors that might cause actual events or results to differ materially from those indicated by these forward-looking statements include matters such as the effect and duration of the COVID-19 pandemic and related stay at home orders and other government actions and restrictions, the effect of COVID-19 on customer behavior, general economic conditions, consumer preferences and spending, costs, competition, restaurant openings or closings, operating margins, the availability of acceptable real estate locations, the sufficiency of our cash balances and cash generated from operations and financing activities for our future liquidity and capital resource needs, the impact on our business of Federal and State legislation, litigation, the execution of our growth strategy and other matters. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “ongoing,” “could,” “estimates,” “expects,” “intends,” “may,” “appears,” “suggests,” “future,” “likely,” “goal,” “plans,” “potential,” “projects,” “predicts,” “should,” “targets,” “would,” “will” and similar expressions that convey the uncertainty of future events or outcomes.  You should not place undue reliance on any forward-looking statement. We do not undertake any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required under applicable law.

General

This information should be read in conjunction with the condensed consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

As used in this report, the terms “Company,” “we,” “our,” or “us,” refer to The ONE Group Hospitality, Inc. and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.

18


Table of Contents

Business Summary

We are a global hospitality company that develops, owns and operates, manages and licenses upscale and polished casual, high-energy restaurants and lounges and provides turn-key food and beverage (“F&B”) services for hospitality venues including hotels, casinos and other high-end locations. Turn-key F&B services are food and beverage services that can be scaled, customized and implemented by us for the client at a particular hospitality venue. Our vision is to be a global market leader in the hospitality industry by melding high-quality service, ambiance, high-energy and cuisine into one great experience that we refer to as “Vibe Dining”. We design all our restaurants, lounges and F&B services to create a social dining and high-energy entertainment experience within a destination location. We believe that this design and operating philosophy separates us from more traditional restaurant and foodservice competitors.

Our primary restaurant brands are STK, a multi-unit steakhouse concept that combines a high-energy, social atmosphere with the quality and service of a traditional upscale steakhouse, and Kona Grill, a bar-centric grill concept featuring American favorites, award-winning sushi, and specialty cocktails in a polished casual atmosphere. Our F&B hospitality management services include developing, managing and operating restaurants, bars, rooftop lounges, pools, banqueting and catering facilities, private dining rooms, room service and mini bars tailored to the specific needs of high-end hotels and casinos. Our F&B hospitality clients operate global hospitality brands such as the W Hotel, Hippodrome Casino, and ME Hotels.

We opened our first restaurant in January 2004 in New York, New York, and, as of September 30, 2020, we owned, operated, managed or licensed 55 venues including 20 STKs and 24 Kona Grills in major metropolitan cities in North America, Europe and the Middle East and 11 F&B venues, including 10 in five hotels and casinos in the United States and Europe. For those restaurants and venues that are managed or licensed, we generate management and incentive fee revenue based on a percentage of the location’s revenues and net profits.

The table below reflects our venues by restaurant brand and geographic location as of September 30, 2020:

Venues

    

STK(1)

    

Kona Grill

    

ONE Hospitality(2)

    

Total

Domestic

 

  

 

  

 

  

 

  

Owned

 

10

 

24

 

2

 

36

Managed

 

1

 

 

1

 

2

Licensed

 

1

 

 

 

1

Total domestic

 

12

 

24

 

3

 

39

International

 

  

 

  

 

  

 

  

Owned

 

 

 

 

Managed

 

3

 

 

8

 

11

Licensed

 

5

 

 

 

5

Total international

 

8

 

 

8

 

16

Total venues

 

20

 

24

 

11

 

55

(1)Locations with an STK and STK Rooftop are considered one venue location. This includes the STK Rooftop in San Diego, CA, which is a licensed location.
(2)Includes concepts under the Company’s F&B hospitality management agreements and other venue brands such as ANGEL, Bagatelle, Heliot, Hideout, Marconi and Radio.

COVID-19

The novel coronavirus (“COVID-19”) pandemic has significantly impacted the Company’s business, and public concerns about the spread of COVID-19 continue to be widespread. The Company experienced a significant reduction in guest traffic at its restaurants as a result of restrictions mandated by state and local governments, temporary closure of several restaurants and the shift in operations to provide only take-out and delivery service. Starting in May 2020, state and local governments began easing restrictions on stay-at-home orders. Currently, 34 of 36 domestic restaurants are open for outdoor dining or in-person dining with seating capacity restrictions. The Company has taken significant steps to adapt its business to increase sales while providing a safe environment for guests and employees, which resulted in a significant increase in revenues in the third quarter of 2020 compared to the second quarter of 2020.

In response to the COVID-19 pandemic, and out of concern for its customers and partners, the Company has implemented enhanced safety measures and sanitation procedures to allow for in-person dining at its restaurants. As the Company navigates through the pandemic, it has also implemented measures to reduce its costs including the deferral of capital projects and negotiations with suppliers and landlords regarding deferral or abatement of payments.

19


Table of Contents

Given the ongoing uncertainty surrounding the effects of the COVID-19 pandemic, the Company cannot reasonably predict when its restaurants will be able to return to normal dining room operations. The Company expects that its results of operations could be materially and negatively affected by COVID-19 for the remainder of 2020. The Company’s resumption of normal dining operations is subject to events beyond its control, including the effectiveness of governmental efforts to halt the spread of COVID-19.

Acquisitions

On October 4, 2019, we acquired substantially all of the assets of Kona Grill Inc. and its affiliates (“Kona Grill”) comprising 24 domestic restaurants. We purchased the assets for a contractual price of $25.0 million plus approximately $1.5 million of consideration paid primarily for the apportionment of rent and utilities. We also assumed approximately $7.7 million in current liabilities. The purchase was financed with proceeds from the credit and guaranty agreement we entered into with Goldman Sachs Bank USA in conjunction with the acquisition (“Credit Agreement”). We have integrated Kona Grill by leveraging our corporate infrastructure, our bar-business knowledge and unique Vibe Dining program, elevating the brand experience and driving improved performance.

Executive Summary

Total revenue increased $17.5 million, or 79.0% to $39.6 million for the three months ended September 30, 2020 compared to $22.1 million for the three months ended September 30, 2019 primarily due to the addition of the Kona Grill restaurants, partly offset by the effects of the COVID-19 pandemic. Same-store sales decreased 15.6% in the third quarter of 2020 compared to the third quarter of 2019 as restaurants were temporarily closed or operated on a limited basis due to state and local seating capacity restrictions. Approximately $22.8 million of the total revenue for the quarter ended September 30, 2020 was attributable to the addition of the Kona Grill restaurants. Same-store sales improved sequentially each month in the third quarter of 2020. STK same-store sales for the months of July, August, and September 2020 decreased 34.9%, 28.2% and 10.4%, respectively. Kona Grill same-store sales decreased 16.2% and 6.7% for the months of July and August 2020, respectively, and increased 2.3% for the month of September 2020.

We generated a slight operating income for the three months ended September 30, 2020 and operating income of $0.8 million for the three months ended September 30, 2019. The decrease was primarily driven by temporary closures or limited operations due to the COVID-19 pandemic and COVID-19 related costs. For the nine months ended September 30, 2020, we incurred an operating loss of $9.6 million compared to operating income of $2.4 million for the nine months ended September 30, 2019. Funds from the CARES Act Loans were used to support operations and bring workforce back from furlough during the COVID-19 pandemic. Additionally, we incurred $1.7 million and $3.8 million of costs related to COVID-19 in the three and nine months ended September 30, 2020, respectively, composed primarily of costs for electrostatic cleaning of our venues, personal protective equipment, and sanitation supplies to prevent the spread of COVID-19; payments to employees for paid-time off during restaurant closures; rent and rent-related costs for closed and limited-operations restaurants from the day that the dining room closed; and inventory waste.

20


Table of Contents

Results of Operations

The following table sets forth certain statements of operations data for the periods indicated (in thousands):

For the three months ended September 30, 

For the nine months ended September 30, 

    

2020

    

2019

    

2020

    

2019

Revenues:

 

  

 

  

 

  

 

  

Owned restaurant net revenue

$

37,822

$

19,185

$

92,908

$

60,221

Management, license and incentive fee revenue

 

1,745

 

2,921

 

4,042

 

8,260

Total revenues

 

39,567

 

22,106

 

96,950

 

68,481

Cost and expenses:

 

  

 

  

 

  

 

  

Owned operating expenses:

 

  

 

  

 

  

 

  

Owned restaurant cost of sales

 

9,091

 

4,921

 

23,378

15,466

Owned restaurant operating expenses

 

22,454

 

12,305

 

60,991

 

38,652

Total owned operating expenses

 

31,545

 

17,226

 

84,369

 

54,118

General and administrative (including stock-based compensation of $496, $338, $1,316, and $975 for the three and nine months ended September 30, 2020 and 2019 respectively)

 

3,400

 

2,352

 

9,235

7,706

Depreciation and amortization

 

2,655

 

1,103

 

7,605

3,049

Transaction and integration costs

 

 

358

 

1,109

510

COVID-19 related expenses

1,716

 

3,759

Lease termination expenses

 

185

 

252

 

453

393

Pre-opening expenses

 

45

 

 

45

545

Other income, net

 

1

 

40

 

(11)

(226)

Total costs and expenses

 

39,547

 

21,331

 

106,564

 

66,095

Operating income (loss)

 

20

 

775

 

(9,614)

 

2,386

Other expenses, net:

 

  

 

  

 

  

 

  

Interest expense, net of interest income

 

1,280

 

230

 

3,650

717

Loss on early debt extinguishment

 

 

437

Total other expenses, net

 

1,280

 

230

 

3,650

 

1,154

(Loss) income before (benefit) provision for income taxes

 

(1,260)

 

545

 

(13,264)

 

1,232

(Benefit) provision for income taxes

 

(350)

 

76

 

(4,231)

 

157

Net (loss) income

 

(910)

 

469

 

(9,033)

 

1,075

Less: net (loss) income attributable to noncontrolling interest

 

(35)

 

9

 

(687)

 

83

Net (loss) income attributable to The ONE Group Hospitality, Inc.

$

(875)

$

460

$

(8,346)

$

992

21


Table of Contents

The following table sets forth certain statements of operations data as a percentage of total revenues for the periods indicated. Certain percentage amounts may not sum to total due to rounding.

For the three months ended September 30, 

For the nine months ended September 30, 

    

2020

2019

    

2020

2019

Revenues:

  

  

Owned restaurant net revenue

 

95.6 %

86.8 %

 

95.8 %

87.9 %

Management, license and incentive fee revenue

 

4.4 %

13.2 %

 

4.2 %

12.1 %

Total revenues

 

100.0 %

100.0 %

 

100.0 %

100.0 %

Cost and expenses:

 

 

Owned operating expenses:

 

 

Owned restaurant cost of sales (1)

24.0 %

25.7 %

25.2 %

25.7 %

Owned restaurant operating expenses (1)

59.4 %

64.1 %

65.6 %

64.2 %

Total owned operating expenses (1)

83.4 %

89.8 %

90.8 %

89.9 %

General and administrative (including stock-based compensation of 1.3%, 1.5%, 1.4%, and 1.4% for the three and nine months ended September 30, 2020 and 2019 respectively)

 

8.6 %

10.6 %

 

9.5 %

11.3 %

Depreciation and amortization

 

6.7 %

5.0 %

 

7.8 %

4.5 %

Transaction and integration costs

 

—%

1.6 %

 

1.1 %

0.7 %

COVID-19 related expenses

 

4.3 %

—%

 

3.9 %

—%

Lease termination expenses

 

0.5 %

1.1 %

 

0.5 %

0.6 %

Pre-opening expenses

 

0.1 %

—%

 

—%

0.8 %

Other income, net

 

—%

0.2 %

 

—%

(0.3)%

Total costs and expenses

 

99.9 %

96.5 %

 

109.9 %

96.5 %

Operating income (loss)

 

0.1 %

3.5 %

 

(9.9)%

3.5 %

Other expenses, net:

 

 

Interest expense, net of interest income

 

3.2 %

1.0 %

 

3.8 %

1.0 %

Loss on early debt extinguishment

 

—%

—%

 

—%

0.6 %

Total other expenses, net

3.2 %

1.0 %

3.8 %

1.7 %

(Loss) income before (benefit) provision for income taxes

 

(3.2)%

2.5 %

 

(13.7)%

1.8 %

(Benefit) provision for income taxes

(0.9)%

0.3 %

 

(4.4)%

0.2 %

Net (loss) income

(2.3)%

2.1 %

 

(9.3)%

1.6 %

Less: net (loss) income attributable to noncontrolling interest

 

(0.1)%

—%

 

(0.7)%

0.1 %

Net (loss) income attributable to The ONE Group Hospitality, Inc.

 

(2.2)%

2.1 %

 

(8.6)%

1.4 %


(1)These expenses are being shown as a percentage of owned restaurant net revenue.

22


Table of Contents

The following tables show our operating results by segment for the periods indicated (in thousands). Prior year amounts have been revised to conform to the current year segment presentation.

    

STK

    

Kona Grill

    

ONE Hospitality

    

Corporate

    

Total

For the three months ended September 30, 2020

Total revenues

 

$

16,475

 

$

22,794

 

$

169

 

$

129

$

39,567

Operating income (loss)

$

2,406

$

2,215

$

(116)

$

(4,485)

$

20

Capital asset additions

$

528

$

398

$

7

$

46

$

979

For the nine months ended September 30, 2020

Total revenues

 

$

39,740

 

$

55,831

 

$

1,105

 

$

274

$

96,950

Operating income (loss)

$

3,335

$

1,816

$

(209)

$

(14,556)

$

(9,614)

Capital asset additions

$

1,056

$

1,141

$

184

$

279

$

2,660

As of September 30, 2020

Total assets

$

80,780

$

97,053

$

5,590

$

33,556

$

216,979

STK

    

Kona Grill

    

ONE Hospitality

    

Corporate

    

Total

For the three months ended September 30, 2019

Total revenues

$

20,227

$

$

1,762

$

117

$

22,106

Operating income (loss)

$

3,059

$

$

625

$

(2,909)

$

775

Capital asset additions

$

490

$

$

2

$

100

$

592

For the nine months ended September 30, 2019

Total revenues

$

63,451

$

$

4,074

$

956

$

68,481

Operating income (loss)

$

9,412

$

$

1,170

$

(8,196)

$

2,386

Capital asset additions

$

3,000

$

$

40

$

469

$

3,509

As of December 31, 2019

Total assets

$

82,691

$

93,829

$

8,252

$

21,813

$

206,585

EBITDA, Adjusted EBITDA and Restaurant Operating Profit are presented in this Quarterly Report on Form 10-Q to supplement other measures of financial performance. EBITDA, Adjusted EBITDA and Restaurant Operating Profit are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America (“GAAP”). We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization. We define Adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization, non-cash impairment loss, non-cash rent expense, pre-opening expenses, lease termination expenses, stock-based compensation and non-recurring gains and losses. Not all of the items defining Adjusted EBITDA occur in each reporting period but have been included in our definitions of these terms based on our historical activity. We define Restaurant Operating Profit as owned restaurant net revenue minus owned restaurant cost of sales and owned restaurant operating expenses.

We believe that EBITDA and Adjusted EBITDA are appropriate measures of our operating performance because they eliminate non-cash or non-recurring expenses that do not reflect our underlying business performance. We believe Restaurant Operating Profit is an important component of financial results because: (i) it is a widely used metric within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance, and (ii) we use Restaurant Operating Profit as a key metric to evaluate our restaurant financial performance compared to our competitors. We use these metrics to facilitate a comparison of our operating performance on a consistent basis from period to period, to analyze the factors and trends affecting our business and to evaluate the performance of our restaurants. Adjusted EBITDA has limitations as an analytical tool and our calculation of Adjusted EBITDA may not be comparable to that reported by other companies; accordingly, you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Adjusted EBITDA is a key measure used by management. Additionally, Adjusted EBITDA and Restaurant Operating Profit are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use Adjusted EBITDA and Restaurant Operating Profit, alongside other GAAP measures such as net income, to measure profitability, as a key profitability target in our budgets, and to compare our performance against that of peer companies despite possible differences in calculation.

23


Table of Contents

The following table presents a reconciliation of net (loss) income to EBITDA and Adjusted EBITDA for the periods indicated (in thousands):

For the three months ended September 30, 

For the nine months ended September 30, 

    

2020

    

2019

    

2020

    

2019

Net (loss) income attributable to The ONE Group Hospitality, Inc.

$

(875)

$

460

$

(8,346)

$

992

Net (loss) income attributable to noncontrolling interest

 

(35)

 

9

 

(687)

 

83

Net (loss) income

 

(910)

 

469

 

(9,033)

 

1,075

Interest expense, net of interest income

 

1,280

 

230

 

3,650

 

717

(Benefit) provision for income taxes

 

(350)

 

76

 

(4,231)

 

157

Depreciation and amortization

 

2,655

 

1,103

 

7,605

 

3,049

EBITDA

 

2,675

 

1,878

 

(2,009)

 

4,998

COVID-19 related expenses

 

1,716

 

 

3,759

 

Transaction and integration costs (1)

 

 

358

 

1,109

 

510

Stock-based compensation

 

496

 

338

 

1,316

 

975

Lease termination expense (2)

 

185

 

252

 

453

 

393

Non-cash rent expense (3)

 

58

 

3

268

 

(86)

Pre-opening expenses

45

45

545

Loss on debt extinguishment

 

 

 

 

437

Adjusted EBITDA

 

5,175

 

2,829

 

4,941

 

7,772

Adjusted EBITDA attributable to noncontrolling interest

 

511

 

192

 

(475)

 

361

Adjusted EBITDA attributable to The ONE Group Hospitality, Inc.

$

4,664

$

2,637

$

5,416

$

7,411


(1)Primarily transaction and integration costs incurred with the Kona Grill acquisition and subsequent integration activities and internal costs associated with capital raising activities, most recently the Credit Agreement.
(2)Lease termination expense are costs associated with closed, abandoned and disputed locations or leases.
(3)Non-cash rent expense is included in owned restaurant operating expenses and general and administrative expense on the consolidated statements of operations and comprehensive (loss) income.

The following table presents a reconciliation of Operating income (loss) to Restaurant Operating Profit for the periods indicated (in thousands):

For the three months ended September 30, 

For the nine months ended September 30, 

    

2020

    

2019

    

2020

    

2019

Operating income (loss) as reported

$

20

$

775

$

(9,614)

$

2,386

Management, license and incentive fee revenue

 

(1,745)

 

(2,921)

 

(4,042)

 

(8,260)

General and administrative

 

3,400

 

2,352

 

9,235

 

7,706

Depreciation and amortization

 

2,655

 

1,103

 

7,605

 

3,049

Transaction and integration costs

358

1,109

510

COVID-19 related expenses

 

1,716

 

 

3,759

 

Lease termination expense

 

185

 

252

 

453

 

393

Pre-opening expenses

45

45

545

Other income, net

 

1

 

40

 

(11)

 

(226)

Restaurant Operating Profit

$

6,277

$

1,959

$

8,539

$

6,103

Restaurant Operating Profit as a Percentage of Owned Restaurant Net Revenue

16.6%

10.2%

9.2%

10.1%

24


Table of Contents

Results of Operations for the Three Months Ended September 30, 2020 and 2019

Revenues

Owned restaurant net revenue. Owned restaurant net revenue increased $18.6 million to $37.8 million for the three months ended September 30, 2020 from $19.2 million for the three months ended September 30, 2019. The increase in revenue is primarily attributable to the addition of the Kona Grill restaurants, which had revenues of $22.8 million in the third quarter of 2020, partially offset by limited in-person seating due to state and local mandates. Comparable restaurant sales decreased 15.6% in the third quarter of 2020.

Management and license fee revenue. Management and license fee revenues decreased $1.2 million to $1.7 million for the three months ended September 30, 2020 from $2.9 million for the three months ended September 30, 2019. Management and license fee revenue decreased primarily as a result of temporary closures and limited in-person seating at our managed locations due to COVID-19 prevention measures.

Cost and Expenses

Owned restaurant cost of sales. Food and beverage costs for owned restaurants increased $4.2 million, or 84.7% to $9.1 million for the three months ended September 30, 2020 from $4.9 million for the three months ended September 30, 2019. The increase in owned restaurant cost of sales was due to the addition of the Kona Grill restaurants. As a percentage of revenues, cost of sales decreased 170 basis points to 24.0% for the three months ended September 30, 2020 from 25.7% for the three months ended September 30, 2019 due to purchasing synergies across the Company.

Owned restaurant operating expenses. Owned restaurant operating expenses increased $10.2 million to $22.5 million for the three months ended September 30, 2020 from $12.3 million for the three months ended September 30, 2019. Approximately $13.9 million of the restaurant operating expenses are attributable to the addition of the Kona Grill restaurants. Owned restaurant operating costs decreased 470 basis points as a percentage of revenue from 64.1% in the three months ended September 30, 2019 to 59.4% for the three months ended September 30, 2020 due to actively managing operating costs and implementing cost saving measures.

General and administrative. General and administrative costs increased $1.0 million, or 44.6%, to $3.4 million for the three months ended September 30, 2020 from $2.4 million for the three months ended September 30, 2019. However, general and administrative expenses as a percent of revenue decreased to 8.6% of revenue for the three months ended September 30, 2020 from 10.6% for the three months ended September 30, 2019. We have implemented measures to reduce our costs while our operations are affected by COVID-19, including the furlough of certain employees, deferral of capital projects, and reduction of third-party professional services.

Depreciation and amortization. Depreciation and amortization expense increased $1.6 million to $2.7 million for the three months ended September 30, 2020 from $1.1 million for the three months ended September 30, 2019 due to the addition of the Kona Grill restaurants.

Pre-opening expenses. In the three months ended September 30, 2020, we incurred less than $0.1 million of pre-opening expenses related to the amortization of the right-of-use asset and liability for our upcoming Bellevue location.

Interest expense, net of interest income. Interest expense, net of interest income was $1.3 million and $0.2 million for the three months ending September 30, 2020 and 2019, respectively. The Company refinanced its debt in October 2019 in conjunction with the Kona Grill acquisition.

(Benefit) provision for income taxes. The benefit for income taxes for the three months ended September 30, 2020 was $0.4 million compared to a tax expense of $0.1 million for the three months ended September 30, 2019. Our annualized effective tax rate is estimated at 32% for 2020 compared to 12.7% for the nine months ended September 30, 2019. Our projected annual effective tax rate differs from the statutory U.S. tax rate of 21% primarily due to the following: (i) tax credits for FICA taxes on certain employees’ tips (ii) taxes owed in foreign jurisdictions such as the United Kingdom, Canada and Italy; and, (iii) taxes owed in state and local jurisdictions.

Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest was less than $0.1 million for the three months ended September 30, 2020 compared to net income of less than $0.1 million for the three months ended September 30 2019.

25


Table of Contents

Results of Operations for the Nine Months Ended September 30, 2020 and 2019

Revenues

Owned restaurant net revenue. Owned restaurant net revenue increased $32.7 million, or 54.3% to $92.9 million for the nine months ended September 30, 2020 from $60.2 million for the nine months ended September 30, 2019. Approximately $55.8 million of the increase in owned restaurant revenue is attributable to the addition of the Kona Grill restaurants. The increase in total revenue was partially offset by the temporarily closures and limited operations of our restaurants beginning in March 2020 as a result of COVID-19. Comparable restaurant sales decreased 32.6% in the first nine months of 2020.

Management and license fee revenue. Management and license fee revenues decreased $4.3 million to $4.0 million for the nine months ended September 30, 2020 from $8.3 million for the nine months ended September 30, 2019. Management and license fee revenue decreased primarily as a result of temporary closures for our managed locations due to COVID-19.

Cost and Expenses

Owned restaurant cost of sales. Food and beverage costs for owned restaurants increased $7.9 million to $23.4 million for the nine months ended September 30, 2020 from $15.5 million for the nine months ended September 30, 2019. Approximately $13.8 million of the increase in owned restaurant cost of sales is attributable to the addition of the Kona Grill restaurants. The increase in owned restaurant cost of sales was partially offset by the temporary closures and limited operations of our restaurants beginning in March 2020 as a result of COVID-19.

Owned restaurant operating expenses. Owned restaurant operating expenses increased $22.3 million to $61.0 million for the nine months ended September 30, 2020 from $38.7 million for the nine months ended September 30, 2019. Approximately $36.6 million of the owned restaurant operating expenses for the period is attributable to the addition of the Kona Grill restaurants. The Company began reducing operating costs in March due to the business impact of COVID-19. As restaurant sale volumes increase with the resumption of in-person dining, restaurant operating costs are expected to increase.

General and administrative. General and administrative costs increased $1.5 million, or 19.8%, to $9.2 million for the nine months ended September 30, 2020 from $7.7 million for the nine months ended September 30, 2019. However, general and administrative costs as a percentage of total revenues decreased to 9.5% for the nine months ended September 30, 2020 from 11.3% for the nine months ended September 30, 2019. We have leveraged our general and administrative costs with the acquisition of Kona Grill along with implemented measures to reduce our costs while our operations are affected by COVID-19, including furlough of certain employees, deferral of capital projects, and reduction of third-party professional services.

Depreciation and amortization. Depreciation and amortization expense increased $4.6 million to $7.6 million for the nine months ended September 30, 2020 from $3.0 million for the nine months ended September 30, 2019 due to the addition of the Kona Grill restaurants.

Transaction and integration costs. In the nine months ended September 30, 2020 and 2019, we incurred transaction and integration costs of $1.1 million and $0.5 million, respectively, related to the Kona Grill acquisition. Over the remainder of 2020, we intend to continue to integrate Kona Grill by leveraging our corporate infrastructure, our bar-business knowledge and unique Vibe Dining program, to elevate the brand experience and drive improved performance.

Lease termination expenses. Lease termination expense was approximately $0.5 million and $0.4 million in the nine months ended September 30, 2020 and 2019, respectively. Lease termination expenses are costs associated with closed, abandoned and disputed locations or disputed leases.

Pre-opening expenses. Pre-opening expenses for the nine months ended September 30, 2020 were less than $0.1 million, related to the amortization of the right-of-use asset and liability for our upcoming Bellevue location. Pre-opening expenses for the nine months ended September 30, 2019 were $0.5 million related to the development of our owned STK restaurant in Nashville, Tennessee which opened in March 2019.

Interest expense, net of interest income. Interest expense, net of interest income was approximately $3.7 million and $0.7 million for the nine months ending September 30, 2020 and 2019, respectively. The Company refinanced its debt in October 2019 in conjunction with the Kona Grill acquisition.

26


Table of Contents

(Benefit) provision for income taxes. The benefit for income taxes for the nine months ended September 30, 2020 was a tax benefit of $4.2 million compared to tax expense of $0.2 million for the nine months ended September 30, 2019. Our annualized effective tax rate is estimated at 32% for 2020 compared to 12.7% for the nine months ended September 30, 2019.

Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest was $0.7 million compared to net income of $0.1 million for the nine months ended September 30, 2020 and 2019, respectively, due to the impact of COVID-19.

Liquidity and Capital Resources

Executive Summary

Our principal liquidity requirements are to meet our lease obligations, our working capital and capital expenditure needs and to pay principal and interest on our outstanding indebtedness. Subject to our operating performance, which, if significantly adversely affected, would adversely affect the availability of funds, we expect to finance our operations for at least the next 12 months, including the costs of opening currently planned new restaurants, through cash provided by operations, borrowings on our Credit Agreement and construction allowances provided by landlords of certain locations. We believe the combination of the aforementioned items are adequate to support our immediate business operations and plans. As of September 30, 2020, we had cash and cash equivalents of approximately $26.6 million. We had $47.7 million in long-term debt, which consisted of our Credit Agreement and an equipment financing agreement, and $18.3 million in CARES Act Loans as of September 30, 2020. As of September 30, 2020, the availability on our revolving credit facility was $10.7 million, subject to the restrictions described in Note 5.

In the nine months ended September 30, 2020, our capital expenditures were $2.7 million. Our future cash requirements will depend on many factors, including the pace of our expansion, conditions in the retail property development market, construction costs, the nature of the specific sites selected for new restaurants, and the nature of the specific leases and associated tenant improvement allowances available, if any, as negotiated with landlords. Additionally, under our current capital light strategy, we plan to enter into management and license agreements for the operation of future STK restaurants where we are not required to contribute significant capital upfront.

Our operations have not required significant working capital, and, like many restaurant companies, we may have negative working capital during the year. Revenues are received primarily in credit card or cash receipts, and restaurant operations do not require significant receivables or inventories, other than our wine inventory. In addition, we receive trade credit for the purchase of food, beverages and supplies, thereby reducing the need for incremental working capital to support growth.

In the event the Company needs to temporarily suspend all operations due to COVID-19 restrictions, the ongoing operating costs per month are expected to be as follows:

Minimum rent

$

1,200

Insurance payments

200

Interest payments

400

Minimum general & administrative costs

500

Total

$

2,300

Credit Agreement

On October 4, 2019, in conjunction with the acquisition of Kona Grill, we entered into the Credit Agreement, which replaced the credit agreement with Bank of America and provides for a secured revolving credit facility of $12.0 million and a $48.0 million term loan. The term loan is payable in quarterly installments, with the final payment due in October 2024. The revolving credit facility also matures in October 2024.

On May 4, 2020, Goldman Sachs Bank USA (“GSB”), as administrative agent, collateral agent and lead arranger under the Credit Agreement, (1) consented to the CARES Act Loans described below and (2) agreed that the amount of the CARES Act Loans will not be counted toward the permitted amount of Consolidated Total Debt, as defined under the Credit Agreement, to the extent the amounts are retained as cash during the term of the CARES Act Loans in a segregated deposit account or used for purposes that are forgivable under the CARES Act, provided that the proceeds of the CARES Act Loans must be used only for “allowable uses” under the CARES Act (with at least 75% of the utilized proceeds to be used for purposes that result in the CARES Act Loans being eligible for forgiveness) or used for the repayment of the CARES Act Loans.

27


Table of Contents

On May 8, 2020 and August 10, 2020, we amended the Credit Agreement with GSB to:

Eliminate testing of the fixed charge coverage ratio for the balance of 2020 and 2021;
For the purpose of testing, replace maximum “Leverage Ratio” with maximum “Net Leverage Ratio”. The maximum Net Leverage Ratio is (i) 2.85 to 1.00 as of the fiscal quarter ending September 30, 2020, (ii) 3.60 to 1.00 as of the fiscal quarter ending December 31, 2020, (iii) 3.10 to 1.00 as of the fiscal quarter ending March 31, 2021, (iv) 2.10 to 1.00 as of the fiscal quarters ending June 30, 2021 and September 30, 2021, and (v) 1.90 to 1.00 as of the fiscal quarter ending December 31, 2021. The agreement provides for a pro forma adjustment to reflect one full year of Kona Grill operations;
Reduce the maximum consolidated capital expenditures to $7,000,000 for 2020 and $7,000,000 for 2021; and
Require minimum “Consolidated Liquidity” of not less than $4,000,000 for the balance of 2020 and 2021 (from $1,500,000 for 2021).

As of September 30, 2020, we were compliant with the covenants required by the Credit Agreement. Based on current projections, we believe that we would continue to comply with the covenants in the Credit Agreement, as amended, throughout the twelve months following the issuance of the financial statements. Additionally, our consolidated adjusted EBITDA as defined by the Credit Agreement for determining covenant compliance includes pro forma adjustments for the annualization of the Kona Grill restaurant performance which includes results before the acquisition date.

Refer to Note 5 and Note 15 to our condensed consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the terms of our long-term debt arrangements and information regarding our commitments and contingencies.

CARES Act Loans

On May 4, 2020, two subsidiaries of the Company obtained CARES Act Loans from BBVA USA under the Paycheck Protection Program (“PPP”) created by the CARES Act. Repayment of the CARES Act Loans is guaranteed by the SBA. The ONE Group, LLC received a loan of $9.8 million related to the operations of STK restaurants, and Kona Grill Acquisition, LLC received a loan of $8.5 million related to the operation of Kona Grill restaurants.

The CARES Act Loans are scheduled to mature on April 28, 2022 and have a 1.00% interest rate and are subject to the terms and conditions applicable to PPP loans. Among other terms, BBVA USA may declare a default of the CARES Act Loans if the SBA disputes the validity of the guaranty of indebtedness, if a material adverse change occurs in our financial condition, or if BBVA USA believes the prospect of repayment of the CARES Act Loans or performance of obligations under the promissory notes is impaired. On an event of default, BBVA USA may declare principal and unpaid interest immediately due and payable, and it may charge default interest of 10%.

The CARES Act Loans are eligible for forgiveness if the proceeds are used for qualified purposes within a specified period and if at least 60% is spent on payroll costs. As of September 30, 2020, the Company has used all of the proceeds from the CARES Act Loans for qualified purposes in accordance with the CARES Act and SBA regulations, and these funds have supported the re-opening of in person dining and the return of approximately 3,000 furloughed employees to work. The Company anticipates forgiveness of the entire amount of the CARES Act Loans; however, no assurance can be provided that the Company will obtain forgiveness of the CARES Act loans in whole or in part. Therefore, the Company has elected to classify the entire principal amount of the CARES Act Loans as long-term debt on the condensed consolidated balance sheet as of September 30, 2020.

Capital Expenditures and Lease Arrangements

Given the present uncertainty due to the COVID-19 pandemic, the Company has deferred capital expenditures. To the extent we open new company-owned restaurants, we anticipate capital expenditures would increase related to the construction of new restaurants compared to general capital expenditures of existing restaurants. Although we are committed to our capital light strategy, in which our capital investment is expected to be limited, we are willing to consider opening owned restaurants as opportunities arise. For owned restaurants, where we build from a shell state, we have typically targeted an average cash investment of approximately $3.8 million for a 10,000 square-foot STK restaurant, net of landlord contributions and equipment financing and excluding pre-opening costs. For locations where we may be the successor restaurant tenant, and currently our preference, total cash investment will be significantly less and in the $1.0 million to $1.5 million range. Typical pre-opening costs will be in the $0.3 million to $0.5 million range. In addition, some of our existing restaurants will require capital improvements to either maintain or improve the facilities. We may add seating or provide enclosures for outdoor space in the next twelve months for some of our locations, which we expect will increase revenues for those locations. As the impact of COVID-19 persists, the Company will evaluate the timing of opening new locations.

28


Table of Contents

Our hospitality F&B services projects typically require limited capital investment from us. Capital expenditures for these projects will primarily be funded by cash flows from operations and equipment financing, depending upon the timing of these expenditures and cash availability.

We typically seek to lease our restaurant locations for periods of 10 to 20 years under operating lease arrangements, with a limited number of renewal options. Our rent structure varies, but our leases generally provide for the payment of both minimum and contingent rent based on sales, as well as other expenses related to the leases such as our pro-rata share of common area maintenance, property tax and insurance expenses. Many of our lease arrangements include the opportunity to secure tenant improvement allowances to partially offset the cost of developing and opening the related restaurants. Generally, landlords recover the cost of such allowances from increased minimum rents. However, there can be no assurance that such allowances will be available to us on each project that we select for development.

For the nine months ended September 30, 2020, we spent a total of $2.7 million in capital expenditures compared to $3.5 million spent for the same period in the prior year. We expect to keep capital expenditures at a low level as long as the uncertainty related to COVID-19 continues.

Cash Flows

The following table summarizes the statement of cash flows for the nine months ended September 30, 2020 and 2019 (in thousands):

For the nine months ended September 30, 

    

2020

    

2019

Net cash provided by (used in):

 

  

 

  

Operating activities

$

(675)

$

2,978

Investing activities

 

(2,660)

 

(3,509)

Financing activities

 

17,607

 

1,342

Effect of exchange rate changes on cash

 

(51)

 

(357)

Net increase (decrease) in cash and cash equivalents

$

14,221

$

454

Operating Activities. Net cash used by operating activities was $0.7 million for the nine months ended September 30, 2020 compared to $3.0 million of net cash generated from operating activities for the nine months ended September 30, 2019. The decrease was primarily attributable to the net loss for the nine months ended September 30, 2020 as a result of the temporary closure and limited seating capacity at our restaurants due to the COVID-19 pandemic, including $3.8 million in costs directly attributable to COVID-19, and $1.1 million in transaction and integration expenses related to the Kona Grill acquisition.

Investing Activities. Net cash used in investing activities for the nine months ended September 30, 2020 was $2.7 million compared to $3.5 million for the nine months ended September 30, 2019. We have implemented measures to reduce our costs for the foreseeable future due to COVID-19, including the deferral of most non-safety related capital projects.

Financing Activities. Net cash provided by financing activities for the nine months ended September 30, 2020 was $17.6 million compared to $1.3 million in the nine months ended September 30, 2019. In May of 2020, we received $18.3 million in proceeds from the CARES Act Loans.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recent Accounting Pronouncements

See Note 1 to our condensed consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for a detailed description of recent accounting pronouncements. We do not expect the recent accounting pronouncements discussed in Note 1 to have a significant impact on our consolidated financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

29


Table of Contents

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation as of the last day of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the third quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to claims common to our industry and in the ordinary course of our business. Companies in our industry, including us, have been and are subject to class action lawsuits, primarily regarding compliance with labor laws and regulations. Defending lawsuits requires significant management attention and financial resources and the outcome of any litigation is inherently uncertain. We believe that accrual and disclosure for these matters are adequately provided for in our consolidated financial statements. We do not believe the ultimate resolutions of these matters will have a material adverse effect on our consolidated financial position and results of operations. However, the resolution of lawsuits is difficult to predict. A significant increase in the number of these claims, or one or more successful claims under which we incur greater liabilities than is currently anticipated, could materially and adversely affect our consolidated financial statements.

Item 1A. Risk Factors.

The risk factors below update the risks factors contained in Item 1A of our Form 10-K for the year ended December 31, 2019.

The outbreak of COVID-19 has, and will continue to, significantly affect our restaurant traffic and our business, financial condition and results of operations.

The outbreak of COVID-19 and government actions to contain COVID-19 have, and may continue for an extended period of time to, materially and adversely affected our restaurant traffic and our business, and may continue to materially and adversely affect us for an extended period. In response to the COVID-19 pandemic, in March 2020 government agencies declared a state of emergency in the U.S. and in foreign jurisdictions where we operate, and some government agencies restricted movement, required restaurant and bar closures, and advised people not to visit restaurants or bars. In some jurisdictions, people were instructed to stay at home to reduce the spread of COVID-19. In response to these conditions, we temporarily closed several restaurants and shifted operations at others to provide only take-out and delivery service. Although most of our restaurants have been allowed to open for outdoor dining or in-person dining they are subject to seating capacity restrictions to allow for social distancing.

A prolonged occurrence and resurgence of COVID-19 cases may result in state or local governments implementing further guidelines, including travel restrictions, social distancing requirements and additional restrictions on the restaurant industry, including closures or partial closures. We are unable to predict how long the pandemic will last, what additional restrictions may be enacted, the extent to which our restaurants may be impacted if a significant number of our employees are diagnosed with COVID-19, or if an outbreak of COVID-19 is traced to one of our restaurants.

We have made operational changes to adhere to government requirements on safety and sanitation in our restaurants. However, we cannot guarantee that changes to our operational policies and training will be effective to keep our employees and customers safe from COVID-19. COVID-19 may impact the willingness of customers to dine outside of the home. While it is not possible at this time

30


Table of Contents

to estimate the full impact that COVID-19 could have on our business going forward, the continued spread of the virus and the measures taken by governments or by us in response could adversely impact our business, financial condition and results of operations.

In response to the challenging business environment, we obtained CARES Act Loans as described in Note 5 to our condensed consolidated financial statements. At this time, we anticipate forgiveness of the entire amount of the CARES Act Loans; however, no assurance can be provided that we will obtain forgiveness of the CARES Act Loans in whole or in part.

The COVID-19 pandemic may also have the effect of heightening other risks disclosed in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2019, including, but not limited to, those related to cybersecurity, supply chain, and liquidity.

Item 6. Exhibits.

(a) Exhibits required by Item 601 of Regulation S-K.

Exhibit

 

Description

3.1

 

Amended and Restated Certificate of Incorporation (Incorporated by reference to Form 8-K filed on June 5, 2014).

3.2

 

Amended and Restated Bylaws (Incorporated by reference to Form 8-K filed on October 25, 2011).

10.1

Second Amendment to Credit and Guaranty Agreement dated August 10, 2020 between The ONE Group, LLC, certain other credit parties, and Goldman Sachs Bank USA, as administrative agent for the lenders (Incorporated by reference to Form 8-K filed on August 12, 2020).

31.1*

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

31.2*

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

32.1*

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350.

32.2*

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350.

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

101.INS*

 

XBRL Instance Document

101.SCH*

 

XBRL Taxonomy Extension Schema Document


*Filed herewith.

31


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: November 5, 2020

 

THE ONE GROUP HOSPITALITY, INC.

 

 

 

 

By:

/s/ Tyler Loy

 

 

Tyler Loy, Chief Financial Officer

32


Exhibit 31.1

CERTIFICATIONS UNDER SECTION 302

I, Emanuel Hilario, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The ONE Group Hospitality, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2020

/s/ Emanuel Hilario

Emanuel Hilario

Title: Chief Executive Officer

(Principal Executive Officer)


Exhibit 31.2

CERTIFICATIONS UNDER SECTION 302

I, Tyler Loy, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The ONE Group Hospitality, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2020

/s/ Tyler Loy

Tyler Loy

Title: Chief Financial Officer

(Principal Financial Officer)


Exhibit 32.1

CERTIFICATIONS UNDER SECTION 906

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of The ONE Group Hospitality, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report for the three months ended September 30, 2020 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 5, 2020

/s/ Emanuel Hilario

 

Emanuel Hilario

 

Title: Chief Executive Officer

 

(Principal Executive Officer)


Exhibit 32.2

CERTIFICATIONS UNDER SECTION 906

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of The ONE Group Hospitality, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report for the three months ended September 30, 2020 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 5, 2020

/s/ Tyler Loy

 

Tyler Loy

 

Title: Chief Financial Officer

 

(Principal Financial Officer)


v3.20.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Oct. 31, 2020
Document and Entity Information [Abstract]    
Document Type 10-Q  
Document Period End Date Sep. 30, 2020  
Entity Registrant Name ONE GROUP HOSPITALITY, INC.  
Title of 12(b) Security Common Stock  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   29,068,007
Entity Central Index Key 0001399520  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Trading Symbol stks  
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 26,565 $ 12,344
Accounts receivable 5,487 10,351
Inventory 2,256 3,058
Other current assets 1,346 1,047
Due from related parties 376 341
Total current assets 36,030 27,141
Property and equipment, net 66,641 70,483
Operating lease right-of-use assets 82,156 81,097
Deferred tax assets, net 12,023 7,751
Intangibles, net 16,530 17,183
Other assets 2,607 1,622
Security deposits 992 1,308
Total assets 216,979 206,585
Current liabilities:    
Accounts payable 7,722 8,274
Accrued expenses 11,410 11,198
Deferred license revenue 207 332
Deferred gift card revenue and other 2,081 3,183
Current portion of operating lease liabilities 4,596 4,397
Current portion of long-term debt 628 749
Total current liabilities 26,644 28,133
Deferred license revenue, long-term 1,005 1,036
Operating lease liabilities, net of current portion 99,849 98,278
CARES Act Loans 18,314  
Long-term debt, net of current portion 45,060 45,226
Total liabilities 190,872 172,673
Commitments and contingencies
Stockholders’ equity:    
Common stock, $0.0001 par value, 75,000,000 shares authorized; 29,030,846 and 28,603,829 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 3 3
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
Additional paid-in capital 46,104 44,853
Accumulated deficit (16,237) (7,891)
Accumulated other comprehensive loss (2,674) (2,651)
Total stockholders’ equity 27,196 34,314
Noncontrolling interests (1,089) (402)
Total equity 26,107 33,912
Total liabilities and equity $ 216,979 $ 206,585
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Sep. 30, 2020
Dec. 31, 2019
CONDENSED CONSOLIDATED BALANCE SHEETS    
Common stock, par value per share (in dollars per share) $ 0.0001 $ 0.0001
Common stock, shares authorized 75,000,000 75,000,000
Common stock, shares issued 29,030,846 28,603,829
Common stock, shares outstanding 29,030,846 28,603,829
Preferred stock, par value per share (in dollars per share) $ 0.0001 $ 0.0001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenues:        
Owned restaurant net revenue $ 37,822 $ 19,185 $ 92,908 $ 60,221
Management, license and incentive fee revenue 1,745 2,921 4,042 8,260
Total revenues 39,567 22,106 96,950 68,481
Owned operating expenses:        
Owned restaurant cost of sales 9,091 4,921 23,378 15,466
Owned restaurant operating expenses 22,454 12,305 60,991 38,652
Total owned operating expenses 31,545 17,226 84,369 54,118
General and administrative (including stock-based compensation of $496, $338, $1,316, and $975 for the three and nine months ended September 30, 2020 and 2019 respectively) 3,400 2,352 9,235 7,706
Depreciation and amortization 2,655 1,103 7,605 3,049
Transaction and integration costs   358 1,109 510
COVID-19 related expenses 1,716   3,759  
Lease termination expenses 185 252 453 393
Pre-opening expenses 45   45 545
Other income, net 1 40 (11) (226)
Total costs and expenses 39,547 21,331 106,564 66,095
Operating income (loss) 20 775 (9,614) 2,386
Other expenses, net:        
Interest expense, net of interest income 1,280 230 3,650 717
Loss on early debt extinguishment       437
Total other expenses, net 1,280 230 3,650 1,154
(Loss) income before (benefit) provision for income taxes (1,260) 545 (13,264) 1,232
(Benefit) provision for income taxes (350) 76 (4,231) 157
Net (loss) income (910) 469 (9,033) 1,075
Less: net (loss) income attributable to noncontrolling interest (35) 9 (687) 83
Net (loss) income attributable to The ONE Group Hospitality, Inc. (875) 460 (8,346) 992
Currency translation gain (loss) 19 (40) (23) (329)
Comprehensive (loss) income attributable to The ONE Group Hospitality, Inc. $ (856) $ 420 $ (8,369) $ 663
Net (loss) income attributable to The ONE Group Hospitality, Inc. per share:        
Basic net (loss) earnings per share $ (0.03) $ 0.02 $ (0.29) $ 0.03
Diluted net (loss) earnings per share $ (0.03) $ 0.02 $ (0.29) $ 0.03
Shares used in computing basic (loss) earnings per share 29,010,348 28,537,477 28,857,990 28,429,074
Shares used in computing diluted (loss) earnings per share 29,010,348 29,901,144 28,857,990 29,642,926
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME        
Stock-based compensation $ 496 $ 338 $ 1,316 $ 975
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Common stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Noncontrolling interests
Stockholders' equity
Total
Balance at Dec. 31, 2018 $ 3 $ 43,543 $ (28,722) $ (2,310) $ (452) $ 12,062 $ 12,514
Balance (in shares) at Dec. 31, 2018 28,313,017            
Stock-based compensation   181       181 181
Issuance of vested restricted shares, net of tax withholding (in shares) 20,544            
Gain (loss) on foreign currency translation, net       (160)   (160) (160)
Net income (loss)     854   (85) 769 854
Balance at Mar. 31, 2019 $ 3 43,724 (27,868) (2,470) (537) 12,852 13,389
Balance (in shares) at Mar. 31, 2019 28,333,561            
Balance at Dec. 31, 2018 $ 3 43,543 (28,722) (2,310) (452) 12,062 12,514
Balance (in shares) at Dec. 31, 2018 28,313,017            
Net income (loss)             992
Balance at Sep. 30, 2019 $ 3 44,584 (27,730) (2,639) (369) 13,849 14,218
Balance (in shares) at Sep. 30, 2019 28,577,487            
Balance at Mar. 31, 2019 $ 3 43,724 (27,868) (2,470) (537) 12,852 13,389
Balance (in shares) at Mar. 31, 2019 28,333,561            
Stock-based compensation   456       456 456
Gain (loss) on foreign currency translation, net       (120)   (120) (120)
Net income (loss)     (322)   159 (163) (322)
Balance at Jun. 30, 2019 $ 3 44,180 (28,190) (2,590) (378) 13,025 13,403
Balance (in shares) at Jun. 30, 2019 28,333,561            
Stock-based compensation   338       338 338
Stock-based compensation, in shares 47,469            
Exercise of stock options   66       66 66
Exercise of stock options (in shares) 30,000            
Issuance of vested restricted shares, net of tax withholding (in shares) 166,457            
Gain (loss) on foreign currency translation, net       (49)   (49) (49)
Net income (loss)     460   9 469 460
Balance at Sep. 30, 2019 $ 3 44,584 (27,730) (2,639) (369) 13,849 14,218
Balance (in shares) at Sep. 30, 2019 28,577,487            
Balance at Dec. 31, 2019 $ 3 44,853 (7,891) (2,651) (402) 33,912 34,314
Balance (in shares) at Dec. 31, 2019 28,603,829            
Stock-based compensation   338       338 338
Stock-based compensation, in shares 69,327            
Exercise of stock options   38       38 38
Exercise of stock options (in shares) 18,000            
Issuance of vested restricted shares, net of tax withholding (in shares) 116,644            
Gain (loss) on foreign currency translation, net       (44)   (44) (44)
Net income (loss)     (4,599)   (274) (4,873) (4,599)
Balance at Mar. 31, 2020 $ 3 45,229 (12,490) (2,695) (676) 29,371 30,047
Balance (in shares) at Mar. 31, 2020 28,807,800            
Balance at Dec. 31, 2019 $ 3 44,853 (7,891) (2,651) (402) 33,912 $ 34,314
Balance (in shares) at Dec. 31, 2019 28,603,829            
Exercise of stock options (in shares)             18,000
Net income (loss)             $ (8,346)
Balance at Sep. 30, 2020 $ 3 46,104 (16,237) (2,674) (1,089) 26,107 27,196
Balance (in shares) at Sep. 30, 2020 29,030,846            
Balance at Mar. 31, 2020 $ 3 45,229 (12,490) (2,695) (676) 29,371 30,047
Balance (in shares) at Mar. 31, 2020 28,807,800            
Stock-based compensation, net of tax withholding   482       482 482
Stock-based compensation, net of tax withholding (in shares) 58,929            
Issuance of vested restricted shares, net of tax withholding   (90)       (90) (90)
Issuance of vested restricted shares, net of tax withholding (in shares) 93,418            
Gain (loss) on foreign currency translation, net       2   2 2
Net income (loss)     (2,872)   (378) (3,250) (2,872)
Balance at Jun. 30, 2020 $ 3 45,621 (15,362) (2,693) (1,054) 26,515 27,569
Balance (in shares) at Jun. 30, 2020 28,960,147            
Stock-based compensation   496       496 496
Stock-based compensation, in shares 61,566            
Issuance of vested restricted shares, net of tax withholding   (13)       (13) (13)
Issuance of vested restricted shares, net of tax withholding (in shares) 9,133            
Gain (loss) on foreign currency translation, net       19   19 19
Net income (loss)     (875)   (35) (910) (875)
Balance at Sep. 30, 2020 $ 3 $ 46,104 $ (16,237) $ (2,674) $ (1,089) $ 26,107 $ 27,196
Balance (in shares) at Sep. 30, 2020 29,030,846            
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Operating activities:    
Net (loss) income $ (9,033) $ 1,075
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:    
Depreciation and amortization 7,605 3,049
Stock-based compensation 1,316 975
Loss on early debt extinguishment   437
Amortization of discount on warrants and debt issuance costs 356 103
Deferred taxes (4,272) 27
Changes in operating assets and liabilities:    
Accounts receivable 4,567 908
Inventory 802 (198)
Other current assets (299) (332)
Due from related parties (35) (291)
Security deposits 315 1,271
Other assets (986) (13)
Accounts payable (706) (441)
Accrued expenses 241 (3,951)
Operating lease liabilities and right-of-use assets 710 489
Deferred gift card and license revenue (1,256) (130)
Net cash (used in) provided by operating activities (675) 2,978
Investing activities:    
Purchase of property and equipment (2,660) (3,509)
Net cash used in investing activities (2,660) (3,509)
Financing activities:    
Proceeds from CARES Act Loans 18,314  
Borrowings of long-term debt   14,750
Repayments of long-term debt (592) (11,543)
Repayments to related parties   (1,197)
Debt issuance costs (50) (734)
Exercise of stock options 38 66
Tax-withholding obligation on stock based compensation (103)  
Net cash provided by financing activities 17,607 1,342
Effect of exchange rate changes on cash (51) (357)
Net increase (decrease) in cash and cash equivalents 14,221 454
Cash and cash equivalents, beginning of period 12,344 1,592
Cash and cash equivalents, end of period 26,565 2,046
Supplemental disclosure of cash flow data:    
Interest paid 2,871 779
Income taxes paid 253 $ 193
Non-cash property and equipment additions $ 303  
v3.20.2
Summary of Business and Significant Accounting Policies
9 Months Ended
Sep. 30, 2020
Summary of Business and Significant Accounting Policies  
Summary of Business and Significant Accounting Policies

Note 1 – Summary of Business and Significant Accounting Policies

Summary of Business

The ONE Group Hospitality, Inc. and its subsidiaries (collectively, the “Company”) is a global hospitality company that develops, owns and operates, manages and licenses upscale and polished casual, high-energy restaurants and lounges and provides turn-key food and beverage (“F&B”) services for hospitality venues including hotels, casinos and other high-end locations. Turn-key F&B services are food and beverage services that can be scaled, customized and implemented by the Company for the client at a particular hospitality venue. The Company’s primary restaurant brands are STK, a multi-unit steakhouse concept that combines a high-energy, social atmosphere with the quality and service of a traditional upscale steakhouse, and Kona Grill, a bar-centric grill concept featuring American favorites, award-winning sushi, and specialty cocktails in a polished casual atmosphere.

As of September 30, 2020, the Company owned, operated, managed or licensed 55 venues, including 20 STKs and 24 Kona Grills in major metropolitan cities in North America, Europe and the Middle East and 11 F&B venues including 10 in five hotels and casinos in the United States and Europe.

On October 4, 2019, the Company acquired substantially all of the assets of Kona Grill Inc. and its affiliates (“Kona Grill”), which was composed of 24 domestic restaurants. The Company purchased the assets for a contractual price of $25.0 million plus approximately $1.5 million of consideration paid primarily for the apportionment of rent and utilities. The Company also assumed approximately $7.7 million in current liabilities. The Company has integrated Kona Grill by leveraging its corporate infrastructure, bar-business knowledge and unique Vibe Dining program, elevating the brand experience and driving improved performance. The results of operations of these restaurants are included in the Company’s condensed consolidated financial statements from the date of acquisition.

The following pro forma results of operations for the three and nine months ended September 30, 2019 have been prepared as though the acquisition occurred as of January 1, 2019. The pro forma financial information is not indicative of the results of operations that the Company would have attained had the acquisition occurred at the beginning of the periods presented, nor is the pro forma financial information indicative of the results of operations that may occur in the future. Amounts are in thousands, except earnings per share data.

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

    

September 30, 2019

    

September 30, 2019

Total revenues

 

$

46,625

 

$

143,721

Net income attributable to The ONE Group Hospitality, Inc.

 

$

1,306

 

$

1,560

Net income attributable to The ONE Group Hospitality, Inc. per share:

 

 

 

 

 

 

Basic net earnings per share

 

$

0.04

 

$

0.05

Diluted net earnings per share

 

$

0.04

 

$

0.05

 

COVID-19

The novel coronavirus (“COVID-19”) pandemic has significantly impacted the Company’s business, and public concerns about the spread of COVID-19 continue to be widespread. The Company experienced a significant reduction in guest traffic at its restaurants as a result of restrictions mandated by state and local governments and temporary closure of several restaurants and the shift in operations to provide only take-out and delivery service. Starting in May 2020, state and local governments began easing restrictions on stay-at-home orders. Currently, 34 of 36 domestic restaurants are open for outdoor dining or in-person dining with seating capacity restrictions. The Company has taken significant steps to adapt its business to increase sales while providing a safe environment for guests and employees, which resulted in a significant increase in revenues in the third quarter of 2020 compared to the second quarter of 2020.    

In response to these conditions, and out of concern for its customers and partners, the Company has implemented enhanced safety measures and sanitation procedures to allow for in-person dining at its restaurants. As the Company navigates through the pandemic, it has also implemented measures to reduce its costs including the deferral of capital projects and negotiations with suppliers and landlords regarding deferral or abatement of payments.

Given the ongoing uncertainty surrounding the effects of the COVID-19 pandemic, the Company cannot reasonably predict when its restaurants will be able to return to normal dining room operations. The Company expects that its results of operations could be materially and negatively affected by COVID-19 for the remainder of 2020. The Company’s resumption of normal dining operations is subject to events beyond its control, including the effectiveness of governmental efforts to halt the spread of COVID-19. 

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain information and footnote disclosures normally included in annual audited financial statements have been omitted pursuant to SEC rules and regulations. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019.

In the Company’s opinion, the accompanying unaudited interim financial statements reflect all adjustments (consisting only of normal recurring accruals and adjustments) necessary for a fair presentation of the results for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results expected for the full year. Additionally, the Company believes that the disclosures are sufficient for interim financial reporting purposes.

Prior Period Reclassifications

Certain reclassifications of the 2019 financial statements amounts have been made to conform to the current year presentation. The Company has combined owned restaurant net revenues and owned food, beverage and other net revenues to be presented in total as owned restaurant net revenue. Additionally, the Company reclassified $0.5 million and $1.4 million of owned food, beverage and other expenses to owned restaurant cost of sales and $1.5 million and $5.1 million of owned food, beverage and other expenses to owned restaurant expenses on the accompanying condensed consolidated statements of operations and comprehensive (loss) income for the three and nine months ended September 30, 2019, respectively. Certain reclassifications were also made to conform the prior period segment reporting to the current year segment presentation. Refer to Note 13 – Segment Reporting for additional information regarding the Company’s reportable operating segments.

Recent Accounting Pronouncements

In June 2020, the American Institute of Certified Public Accountants in conjunction with the Financial Accounting Standards Board (“FASB”) developed Technical Question and Answer (“TQA”) 3200.18, “Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program”, which is intended to provide clarification on how to account for loans received from the Paycheck Protection Program (“PPP”). TQA 3200.18 states that an entity may account for PPP loans under ASC 470, “Debt” or, if the entity is expected to meet PPP eligibility criteria and the PPP loan is expected to be forgiven, the entity may account for the loans under IAS 20, “Accounting for Government Grants and Disclosure of Government Assistance”. Although the Company anticipates forgiveness of the entire amount of the CARES Act Loans, no assurances can be provided that the Company will obtain forgiveness of the CARES Act Loans in whole or in part. Therefore, the Company has elected to account for PPP loan proceeds under ASC 470 as allowed by TQA 3200.18.

In December 2019, FASB issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” (“ASU 2019-12”) which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Accounting Standard Codification Topic 740, Income Taxes, and it clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020. The Company is evaluating the impact of the adoption of ASU 2019-12 on its financial statements but does not expect the adoption of ASU 2019-12 to be material.

In October 2018, the FASB issued ASU No. 2018‑17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018‑17”). ASU 2018‑17 states that indirect interests held through related parties in common control arrangements should be considered on a proportional basis to determine whether fees paid to decision makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a variable interest entity. ASU 2018‑17 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Entities are required to adopt the new guidance retrospectively with a cumulative adjustment to retained earnings at the beginning of the earliest period presented. The adoption of ASU 2018-17 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018‑15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract” (“ASU 2018‑15”). ASU 2018‑15 aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018‑15 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Entities can choose to adopt the new guidance prospectively or retrospectively. The adoption of ASU 2018-15 did not have a material impact on the Company’s financial position, results of operations or cash flows.

 

In August 2018, the FASB issued ASU No. 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018‑13”). ASU 2018‑13 eliminates, modifies and adds disclosure requirements for fair value measurements. The amendments in ASU 2018‑13 are effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2018-3 did not have a material impact on the Company’s disclosures of fair value measurement, which are included in Note 6 – Fair Value of Financial Instruments.

v3.20.2
Property and Equipment, net
9 Months Ended
Sep. 30, 2020
Property and Equipment, net  
Property and Equipment, net

Note 2 – Property and Equipment, net

Property and equipment, net consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2020

 

2019

Furniture, fixtures and equipment

 

$

21,573

 

$

20,512

Leasehold improvements

 

 

71,269

 

 

69,925

Less: accumulated depreciation

 

 

(28,742)

 

 

(21,997)

Subtotal

 

 

64,100

 

 

68,440

Construction in progress

 

 

595

 

 

97

Restaurant smallwares

 

 

1,946

 

 

1,946

Total

 

$

66,641

 

$

70,483

 

Depreciation related to property and equipment was $2.5 million and $1.1 million for the three months ended September 30, 2020 and 2019, respectively, and $6.9 million and $3.0 million for the nine months ended September 30, 2020 and 2019, respectively. The Company does not depreciate construction in progress, assets not yet put into service or restaurant smallwares.

v3.20.2
Intangibles, net
9 Months Ended
Sep. 30, 2020
Intangibles, net  
Intangibles, net

Note 3 – Intangibles, net

Intangibles, net consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2020

    

2019

Kona Grill tradename

 

$

17,400

 

$

17,400

Less: accumulated amortization

 

 

(870)

 

 

(217)

Total intangibles, net

 

$

16,530

 

$

17,183

 

The Kona Grill trade name is amortized using the straight-line method over its estimated useful life of 20 years. Amortization expense was $0.2 million and $0.7 million for the three and nine months ending September 30, 2020. The Company’s estimated aggregate amortization expense for each of the five succeeding fiscal years is approximately $0.9 million annually.

v3.20.2
Accrued Expenses
9 Months Ended
Sep. 30, 2020
Accrued Expenses  
Accrued Expenses

Note 4 – Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2020

 

2019

Payroll and related

 

$

4,517

 

$

4,519

Amounts due to landlords, including disputed rent amounts

 

 

2,727

 

 

1,956

VAT, sales and other taxes

 

 

1,075

 

 

1,488

Income taxes and related

 

 

489

 

 

547

Legal, professional and other services

 

 

459

 

 

1,103

Interest

 

 

428

 

 

 2

Insurance

 

 

205

 

 

100

Other

 

 

1,510

 

 

1,483

Total

 

$

11,410

 

$

11,198

 

v3.20.2
Long-Term Debt and CARES Act Loans
9 Months Ended
Sep. 30, 2020
Long-Term Debt and CARES Act Loans  
Long-Term Debt and CARES Act Loans

Note 5 – Long-Term Debt and CARES Act Loans

Long-term debt consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2020

 

2019

Term loan agreements

 

$

47,520

 

$

47,880

Revolving credit facility

 

 

 —

 

 

 —

Equipment financing agreements

 

 

148

 

 

380

Total long-term debt

 

 

47,668

 

 

48,260

Less: current portion of long-term debt

 

 

(628)

 

 

(749)

Less: debt issuance costs

 

 

(1,980)

 

 

(2,285)

Total long-term debt, net of current portion

 

$

45,060

 

$

45,226

 

Interest expense for all the Company’s debt arrangements, excluding the amortization of debt issuance costs and other discounts and fees, was approximately $1.2 million and $0.2 million for the three months ended September 30, 2020 and 2019 and $3.3 million and $0.6 million for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, the Company had $1.3 million in standby letters of credit outstanding for certain restaurants and $10.7 million available in its revolving credit facility, subject to certain conditions. As of December 31, 2019, the Company had $0.4 million of cash collateralized letters of credit, which are recorded as a component of security deposits on the condensed consolidated balance sheet.

Credit and Guaranty Agreement

 

On October 4, 2019, in conjunction with the acquisition of Kona Grill, the Company entered into a credit and guaranty agreement with Goldman Sachs Bank USA (“Credit Agreement”). The Credit Agreement provides for a secured revolving credit facility of $12.0 million and a $48.0 million term loan. The term loan is payable in quarterly installments, with the final payment due in October 2024. The revolving credit facility also matures in October 2024. Additionally, the Company’s consolidated adjusted EBITDA as defined by the Credit Agreement for determining covenant compliance includes pro forma adjustments for the annualization of the Kona Grill restaurant performance which includes results before the acquisition date.

 

On May 4, 2020, Goldman Sachs Bank USA (“GSB”), as administrative agent, collateral agent and lead arranger under the Credit Agreement, (1) consented to the CARES Act Loans described below and (2) agreed that the amount of the CARES Act Loans will not be counted toward the permitted amount of Consolidated Total Debt, as defined under the Credit Agreement, to the extent the amounts are retained as cash during the term of the CARES Act Loans in a segregated deposit account or used for purposes that are forgivable under the CARES Act, provided that the proceeds of the CARES Act Loans must be used only for “allowable uses” under the CARES Act (with at least 75% of the utilized proceeds to be used for purposes that result in the CARES Act Loans being eligible for forgiveness) or used for the repayment of the CARES Act Loans.

 

 

On May 8, 2020 and August 10, 2020, GSB and the Company and certain of its subsidiaries amended the Credit Agreement to:

 

·

Eliminate testing of the fixed charge coverage ratio for the balance of 2020 and 2021;

·

For the purpose of testing, replace maximum “Leverage Ratio” with maximum “Net Leverage Ratio”. The maximum Net Leverage Ratio is (i) 2.85 to 1.00 as of the fiscal quarter ending September 30, 2020, (ii) 3.60 to 1.00 as of the fiscal quarter ending December 31, 2020, (iii) 3.10 to 1.00 as of the fiscal quarter ending March 31, 2021, (iv) 2.10 to 1.00 as of the fiscal quarters ending June 30, 2021 and September 30, 2021, and (v) 1.90 to 1.00 as of the fiscal quarter ending December 31, 2021. The Credit Agreement provides for a pro forma adjustment to reflect one full year of Kona Grill operations;

·

Reduce the maximum consolidated capital expenditures to $7,000,000 for 2020 and $7,000,000 for 2021; and

·

Require minimum “Consolidated Liquidity” of not less than $4,000,000 for the balance of 2020 and 2021 (from $1,500,000 for 2021).

 

A summary of the financial covenants under the Credit Agreement, as amended, is as follows:

·

The minimum consolidated fixed charge coverage ratio is (i) eliminated for the balance of 2020 and 2021; and (ii) 1.50 to 1.00 as of any fiscal quarter thereafter;

·

A maximum consolidated Net Leverage Ratio of (i) 2.85 to 1.00 as of the fiscal quarter ending September 30, 2020, (ii) 3.60 to 1.00 as of the fiscal quarter ending December 31, 2020, (iii) 3.10 to 1.00 as of the fiscal quarter ending March 31, 2021, (iv) 2.10 to 1.00 as of the fiscal quarters ending June 30, 2021 and September 30, 2021, (v) 1.90 to 1.00 as of the fiscal quarter ending December 31, 2021, and (vi) maximum consolidated Leverage Ratio of 1.50 to 1.00 as of the end of any fiscal quarter thereafter. For purposes of calculating this ratio for the first four quarters, the agreement provides for a pro forma adjustment to reflect one full year of Kona Grill operations. In addition, the consolidated net leverage ratio reduces the Companys debt by its cash and cash equivalents. The consolidated leverage ratio has no such reductions;

·

Maximum consolidated capital expenditures not to exceed (i) $7,000,000 in each of 2020 and 2021, and (ii) $8,000,000 in every fiscal year thereafter; and,

·

Minimum consolidated liquidity of not less than (i) $4,000,000 for the remainder of 2020 and 2021, and (ii) $1,500,000 at any time thereafter.

 

The Company’s ability to borrow under its revolving credit facility is dependent on several factors. The Company’s total borrowings cannot exceed a leverage incurrence multiple of (i) 2.25 to 1.00 as of the fiscal quarters ending September 30, 2020 and December 31, 2020, (ii) 2.00 to 1.00 as of the fiscal quarter ending March 31, 2021, (iii) 1.75 to 1.00 as of the fiscal quarter ending June 30, 2021, (iv) 1.70 to 1.00 as of the fiscal quarter ending September 30, 2021, (v) 1.65 to 1.00 as of the fiscal quarter ending December 31, 2021, and (vi) 1.50 to 1.00 as of the end of any fiscal quarter thereafter. In addition, after giving effect to any new borrowings under the revolving credit facility, the Company’s cash and cash equivalents cannot exceed $4,000,000.

 

The Credit Agreement has several borrowing and interest rate options, including the following: (a) a LIBOR rate (or a comparable successor rate) subject to a 1.75% floor; or (b) a base rate equal to the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50%, (iii) the LIBOR rate for a one-month period plus 1.00%, or (iv) 4.75%. Loans under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of between 5.75% and 6.75% (for LIBOR rate loans) and 4.75% and 5.75% (for base rate loans). The Company’s weighted average interest rate on the borrowings under the Credit Agreement as of September 30, 2020 and December 31, 2019 was 8.50% and 8.55%, respectively.

The Credit Agreement contains customary representations, warranties and conditions to borrowing including customary affirmative and negative covenants, which include covenants that limit or restrict the Company’s ability to incur indebtedness and other obligations, grant liens to secure obligations, make investments, merge or consolidate, alter the organizational structure of the Company and its subsidiaries, and dispose of assets outside the ordinary course of business, in each case subject to customary exceptions for credit facilities of this size and type.

The Company and certain operating subsidiaries of the Company guarantee the obligations under the Credit Agreement, which also are secured by liens on substantially all of the assets of the Company and its subsidiaries.

 

The Company has incurred approximately $2.5 million of debt issuance costs related to the Credit Agreement, which were capitalized and are recorded as a direct deduction to the long-term debt, net of current portion, on the condensed consolidated balance sheets. As of September 30, 2020, the Company was in compliance with the covenants required by the Credit Agreement.

 

 

 

 

CARES Act Loans

 

On May 4, 2020, two subsidiaries of the Company entered into promissory notes (“CARES Act Loans”) with BBVA USA under the Paycheck Protection Program (“PPP”) created by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Repayment of the CARES Act Loans is guaranteed by the U.S. Small Business Administration (“SBA”). The ONE Group, LLC received a loan of $9.8 million related to the operations of STK restaurants, and Kona Grill Acquisition, LLC received a loan of $8.5  million related to the operation of Kona Grill restaurants.

 

The CARES Act Loans are scheduled to mature on April 28, 2022 and have a 1.00% interest rate and are subject to the terms and conditions applicable to PPP loans. Among other terms, BBVA USA may declare a default of the CARES Act Loans if the SBA disputes the validity of the guaranty of indebtedness, if a material adverse change occurs in the Company’s financial condition, or if BBVA USA believes the prospect of repayment of the CARES Act Loans or performance of obligations under the promissory notes is impaired. On an event of default, BBVA USA may declare principal and unpaid interest immediately due and payable, and it may charge default interest of 10%.

 

The CARES Act Loans are eligible for forgiveness if the proceeds are used for qualified purposes within a specified period and if at least 60% is spent on payroll costs. As of September 30, 2020, the Company has used all of the proceeds from the CARES Act Loans for qualified purposes in accordance with the CARES Act and SBA regulations, and these funds have supported the re-opening of in person dining and the return of approximately 3,000 furloughed employees to work. The Company anticipates forgiveness of the entire amount of the CARES Act Loans; however, no assurance can be provided that the Company will obtain forgiveness of the CARES Act Loans in whole or in part. Therefore, the Company has elected to classify the entire principal amount of the CARES Act Loans as long-term debt on the condensed consolidated balance sheet as of September 30, 2020.  

 

Equipment Financing Agreements

 

On June 5, 2015 and August 16, 2016, the Company entered into financing agreements with Sterling National Bank for $1.0 million and $0.7 million, respectively, to purchase equipment for the STKs in Orlando, Chicago, San Diego, and Denver. Each of these financing agreements have five- year terms and bear interest at a rate of 5% per annum, payable in equal monthly installments. 

v3.20.2
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2020
Fair Value of Financial Instruments  
Fair Value of Financial Instruments

Note 6 – Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued expenses are carried at cost, which approximates fair value due to their short maturities. Long-lived assets are measured and disclosed at fair value on a nonrecurring basis if an impairment is identified. There were no long-lived assets measured at fair value as of September 30, 2020.

The Company’s long-term debt, including the current portion, is carried at cost on the condensed consolidated balance sheets. Fair value of long-term debt, including the current portion, is estimated based on Level 2 inputs, except the amount outstanding on the revolving credit facility for which the carrying value approximates fair value. Fair value is determined by discounting future cash flows using interest rates available for issuers with similar terms and maturities.

v3.20.2
Investments in Bagatelle NY
9 Months Ended
Sep. 30, 2020
Investments in Bagatelle NY  
Investments in Bagatelle NY

Note 7 – Investments in Bagatelle NY

As of September 30, 2020 and December 31, 2019, the Company owned interests in the following companies, which directly or indirectly operate a restaurant:

·

31.24% interest in Bagatelle NY LA Investors, LLC (“Bagatelle Investors”)

·

51.13% aggregate interest, held directly and indirectly through other entities, in Bagatelle Little West 12th, LLC (“Bagatelle NY”)

Bagatelle Investors is a holding company that has an interest in Bagatelle NY. The Company records its retained interests in Bagatelle Investors and Bagatelle NY as investments as the Company has determined that it does not have the ability to exercise significant influence over its investees, Bagatelle Investors and Bagatelle NY. As of September 30, 2020 and December 31, 2019, the Company has zero carrying value in these investments.    

Additionally, the Company has a management agreement with Bagatelle NY. Under this agreement, the Company did not record management fee revenue for the three months ended September 30, 2020 because the restaurant has remained closed since March 2020 and recorded less than $0.1 million of management fee revenue in the nine months ended September 30, 2020. The Company recorded $0.1 million of management fee revenue in the three months ended September 30, 2019, and $0.3 million for the nine months ended September 30, 2019.

v3.20.2
Income taxes
9 Months Ended
Sep. 30, 2020
Income taxes  
Income taxes

Note 8 – Income taxes

The Company’s effective income tax rate was 32% for the nine months ended September 30, 2020 compared to 12.7% for the nine months ended September 30, 2019. The Company’s projected annual effective tax rate differs from the statutory U.S. tax rate of 21% primarily due to the following: (i) tax credits for FICA taxes on certain employees’ tips (ii) taxes owed in foreign jurisdictions such as the United Kingdom, Canada and Italy; and, (iii) taxes owed in state and local jurisdictions.

The CARES Act includes provisions allowing for the carryback of net operating losses generated for specific periods and technical amendments regarding the expensing of qualified improvement property. The CARES Act also allows for the deferral of the employer-paid portion of social security taxes, which the Company has elected to defer. The Company continues to evaluate the tax-related provisions under the CARES Act.

The Company is subject to income taxes in the U.S. federal jurisdiction, and the various states and local jurisdictions in which it operates. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In the normal course of business, the Company is subject to examination by the federal, state, local and foreign taxing authorities.

v3.20.2
Revenue from contracts with customers
9 Months Ended
Sep. 30, 2020
Revenue from contracts with customers  
Revenue from contracts with customers

Note 9 – Revenue from contracts with customers

The following table provides information about contract receivables and liabilities from contracts with customers, which include deferred license revenue, deferred gift card revenue and the Konavore rewards program (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2020

 

2019

Receivables (1)

 

$

125

 

$

250

Deferred license revenue (2)

 

$

1,212

 

$

1,368

Deferred gift card and gift certificate revenue (3)

 

$

2,244

 

$

3,210

Konavore rewards program (4)

 

$

95

 

$

84


(1)

Receivables are included in accounts receivable on the condensed consolidated balance sheets.

(2)

Includes the current and long-term portion of deferred license revenue.

(3)

Deferred gift card revenue is included in deferred gift card revenue and other on the condensed consolidated balance sheets.

(4)

Konavore rewards program is included in accrued expenses on the condensed consolidated balance sheets.

 

Significant changes in deferred license revenue and deferred gift card revenue for the nine months ended September 30, 2020 and 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30, 

    

September 30, 

 

 

2020

 

2019

Revenue recognized from deferred license revenue

 

$

154

 

$

148

Revenue recognized from deferred gift card revenue

 

$

1,173

 

$

707

 

The estimated deferred license revenue to be recognized in the future related to performance obligations that are unsatisfied as of September 30, 2020 were as follows for each year ending (in thousands):

 

 

 

 

 

2020, three months remaining

    

$

52

2021

 

 

207

2022

 

 

180

2023

 

 

169

2024

 

 

134

Thereafter

 

 

470

Total future estimated deferred license revenue

 

$

1,212

 

v3.20.2
Leases
9 Months Ended
Sep. 30, 2020
Leases  
Leases

Note 10 – Leases

The components of lease expense for the period were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

 

September 30, 

 

 

 

2020

 

 

2019

 

Lease cost

 

 

 

 

 

 

 

 

Operating lease cost

 

$

9,950

 

 

$

5,040

 

Variable lease cost

 

 

(415)

 

 

 

1,811

 

Short-term lease cost

 

 

315

 

 

 

273

 

Sublease income

 

 

(404)

 

 

 

(582)

 

Total lease cost

 

$

9,446

 

 

$

6,542

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term – operating leases

 

 

12 years

 

 

 

14 years

 

Weighted average discount rate – operating leases

 

 

8.10

%

 

 

8.22

%

 

Due to the negative effects of COVID-19, the Company implemented measures to reduce its costs, including negotiations with landlords regarding rent concessions. The Company is in ongoing discussions with landlords regarding rent obligations, including deferrals, abatements, and/or restructuring of rent. As the rent concessions received and currently being contemplated do not result in a significant increase in cash payments, the Company has elected to account for these concessions as a variable lease payment in accordance with ASC Topic 842. The Company’s right-of-use assets and operating lease liabilities have not been remeasured for lease concessions received. Variable lease cost is comprised of percentage rent and common area maintenance, offset by rent concessions received as a result of COVID-19.

The Company has entered into an operating lease for a future restaurant in Bellevue, Washington that had not commenced as of September 30, 2020. The aggregate future commitment related to this lease totals $4.8 million. The Company expects this lease, which will have a lease term of  11 years, to commence within the next twelve months.

Supplemental cash flow information related to leases for the period was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

September 30, 

 

 

2020

 

2019

Cash paid for amounts included in the measurement of operating lease liabilities

 

$

6,263

 

$

5,212

Right-of-use assets obtained in exchange for operating lease obligations

 

$

4,968

 

$

1,076

 

As of September 30, 2020, maturities of the Company’s operating lease liabilities are as follows (in thousands):

 

 

 

 

 

2020, three months remaining

 

$

3,315

2021

 

 

13,220

2022

 

 

13,228

2023

 

 

13,524

2024

 

 

12,927

Thereafter

 

 

124,760

Total lease payments

 

 

180,974

Less: imputed interest

 

 

(76,529)

Present value of operating lease liabilities

 

$

104,445

 

For the three months remaining in 2020, the Company’s operating lease liabilities does not include future rent abatements that have been or will be negotiated with landlords.

v3.20.2
(Loss) earnings per share
9 Months Ended
Sep. 30, 2020
(Loss) earnings per share  
(Loss) earnings per share

Note 11 – (Loss) earnings per share

Basic (loss) earnings per share is computed using the weighted average number of common shares outstanding during the period and income available to common stockholders. Diluted (loss) earnings per share is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of all potential shares of common stock including common stock issuable pursuant to stock options, warrants, and restricted stock units.

For the three and nine months ended September 30, 2020 and 2019, the (loss) earnings per share was calculated as follows (in thousands, except earnings per share and related share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2020

    

2019

    

2020

    

2019

Net (loss) income attributable to The ONE Group Hospitality, Inc.

 

$

(875)

 

$

460

 

$

(8,346)

 

$

992

 

 

 

  

 

 

  

 

 

  

 

 

 

Basic weighted average shares outstanding

 

 

29,010,348

 

 

28,537,477

 

 

28,857,990

 

 

28,429,074

Dilutive effect of stock options, warrants and restricted share units

 

 

 —

 

 

1,363,667

 

 

 —

 

 

1,213,852

Diluted weighted average shares outstanding

 

 

29,010,348

 

 

29,901,144

 

 

28,857,990

 

 

29,642,926

 

 

 

  

 

 

  

 

 

  

 

 

  

Net (loss) earnings available to common stockholders per share - Basic

 

$

(0.03)

 

 

0.02

 

$

(0.29)

 

$

0.03

Net (loss) earnings available to common stockholders per share - Diluted

 

$

(0.03)

 

$

0.02

 

$

(0.29)

 

$

0.03

 

For the nine months ended September 30, 2020 and 2019, 1.4 million and 1.0 million stock options, warrants and restricted share units were determined to be anti-dilutive and were therefore excluded from the calculation of diluted earnings per share, respectively.

v3.20.2
Stock-Based Compensation
9 Months Ended
Sep. 30, 2020
Stock-Based Compensation  
Stock-Based Compensation

Note 12 – Stock-Based Compensation

As of September 30, 2020, the Company had 1,204,428 remaining shares available for issuance under the 2019 Equity Incentive Plan (“2019 Equity Plan”).

Stock-based compensation cost for the three months ended September 30, 2020 and 2019 was $0.5 million and $0.3 million, respectively, and $1.3 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively. Stock-based compensation is included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive (loss) income. Included in stock-based compensation cost was $0.1 million and $0.3 million of stock granted to directors for the three and nine months ended September 30, 2020, respectively. Such grants were awarded consistent with the Board of Director’s compensation practices.

Stock Option Activity

Changes in outstanding stock options during the nine months ended September 30, 2020 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

average

 

Intrinsic

 

 

 

 

average exercise

 

remaining

 

value

 

    

Shares

    

price

    

contractual life

    

(thousands)

Outstanding at December 31, 2019

 

1,806,508

 

$

3.37

 

5.87 years

 

$

1,428

Exercisable at December 31, 2019

 

1,270,508

 

$

3.93

 

5.10 years

 

$

665

Exercised

 

(18,000)

 

 

2.13

 

  

 

 

  

Cancelled, expired or forfeited

 

(81,500)

 

 

3.75

 

  

 

 

  

Outstanding at September 30, 2020

 

1,707,008

 

$

3.37

 

5.24 years

 

$

174

Exercisable at September 30, 2020

 

1,343,675

 

$

3.73

 

4.77 years

 

$

116

 

A summary of the status of the Company’s non-vested stock options as of December 31, 2019 and September 30, 2020 and changes during the nine months then ended, is presented below:

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

    

Shares

    

grant date fair value

Non-vested stock options at December 31, 2019

 

536,000

 

$

0.87

Vested

 

(172,667)

 

 

0.88

Non-vested stock options at September 30, 2020

 

363,333

 

$

0.86

 

The fair value of options that vested in the nine months ended September 30, 2020 was $0.2 million. As of September 30, 2020, there are 579,402 milestone-based options outstanding and $0.7 million of unrecognized compensation cost related to these milestone-based options. These options vest based on the achievement of Company and individual objectives as set by the Board of Directors. As of September 30, 2020, there is $0.2 million of total unrecognized compensation cost related to non-vested awards, which will be recognized over a weighted-average period of 2.1 years.

Restricted Stock Unit Activity

The Company issues restricted stock units (“RSUs”) under the 2019 Equity Plan. The fair value of these RSUs is determined based upon the closing fair market value of the Company’s common stock on the grant date.

A summary of the status of RSUs and changes during the nine months ended September 30, 2020 is presented below:

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

    

Shares

    

grant date fair value

Non-vested RSUs at December 31, 2019

 

955,011

 

$

2.69

Granted

 

1,309,099

 

 

1.21

Vested

 

(281,027)

 

 

2.75

Cancelled, expired or forfeited

 

(38,566)

 

 

2.71

Non-vested RSUs at September 30, 2020

 

1,944,517

 

$

1.68

 

As of September 30, 2020, 150,000 RSUs subject to performance-based vesting were outstanding with unrecognized compensation cost of $0.4 million related to these milestone-based awards. As of September 30, 2020, the Company had approximately $2.2 million of total unrecognized compensation costs related to RSUs, which will be recognized over a weighted average period of 2.1 years.

v3.20.2
Segment Reporting
9 Months Ended
Sep. 30, 2020
Segment Reporting  
Segment Reporting

Note 13 – Segment Reporting

In the fourth quarter of 2019, in conjunction with the Kona Grill acquisition, the Company implemented certain organizational changes, including the reorganization of the Company’s internal reporting structure to better facilitate its strategy for growth and operational efficiency. As a result of these organizational changes, the Company has identified its reportable operating segments as follows:

·

STK. The STK segment consists of the results of operations from STK restaurant locations, competing in the full-service dining industry, as well as management, license and incentive fee revenue generated from the STK brand and operations of STK restaurant locations.

·

Kona Grill. The Kona Grill segment includes the results of operations of Kona Grill restaurant locations.

·

ONE Hospitality. The ONE Hospitality segment is composed of the management, license and incentive fee revenue and results of operations generated from the Company’s other brands and venue concepts, which include ANGEL, Bagatelle, Heliot, Hideout, Marconi, and Radio. Additionally, this segment includes the results of operations generated from F&B hospitality management agreements with hotels, casinos and other high-end locations.

·

Corporate. The Corporate segment consists of the following: general and administrative costs, stock-based compensation, depreciation and amortization, acquisition related gains and losses, lease termination expenses, transaction costs, COVID-19 related expenses and other income and expenses. This segment also includes STK Meat Market, an e-commerce platform that offers signature steak cuts nationwide, and the Company’s major off-site events group, which supports all brands and venue concepts, and revenue generated from gift card programs.

 

The Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business and allocates resources via a combination of restaurant sales reports and operating segment profit information, defined as revenues less operating expenses, related to the Company’s four operating segments.

Certain financial information relating to the three and nine months ended September 30, 2020 and 2019 for each segment is provided below (in thousands). Prior year amounts have been revised to conform to the current year segment presentation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

STK

    

Kona Grill

    

ONE Hospitality

    

Corporate

    

Total

For the three months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

16,475

 

$

22,794

 

$

169

 

$

129

 

$

39,567

Operating income (loss)

 

$

2,406

 

$

2,215

 

$

(116)

 

$

(4,485)

 

$

20

Capital asset additions

 

$

528

 

$

398

 

$

 7

 

$

46

 

$

979

For the nine months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

39,740

 

$

55,831

 

$

1,105

 

$

274

 

$

96,950

Operating income (loss)

 

$

3,335

 

$

1,816

 

$

(209)

 

$

(14,556)

 

$

(9,614)

Capital asset additions

 

$

1,056

 

$

1,141

 

$

184

 

$

279

 

$

2,660

As of September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

80,780

 

$

97,053

 

$

5,590

 

$

33,556

 

$

216,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STK

    

Kona Grill

    

ONE Hospitality

    

Corporate

    

Total

For the three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

20,227

 

$

 —

 

$

1,762

 

$

117

 

$

22,106

Operating income (loss)

 

$

3,059

 

$

 —

 

$

625

 

$

(2,909)

 

$

775

Capital asset additions

 

$

490

 

$

 —

 

$

 2

 

$

100

 

$

592

For the nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

63,451

 

$

 —

 

$

4,074

 

$

956

 

$

68,481

Operating income (loss)

 

$

9,412

 

$

 —

 

$

1,170

 

$

(8,196)

 

$

2,386

Capital asset additions

 

$

3,000

 

$

 —

 

$

40

 

$

469

 

$

3,509

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

82,691

 

$

93,829

 

$

8,252

 

$

21,813

 

$

206,585

 

v3.20.2
Geographic Information
9 Months Ended
Sep. 30, 2020
Geographic Information  
Geographic Information

Note 14 – Geographic Information

Certain financial information by geographic location is provided below (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 

 

For the nine months ended September 30, 

 

    

2020

    

2019

    

2020

    

2019

Domestic revenues

 

 

38,745

 

 

20,730

 

$

95,304

 

$

65,048

International revenues

 

 

822

 

 

1,376

 

 

1,646

 

 

3,433

Total revenues

 

$

39,567

 

$

22,106

 

$

96,950

 

$

68,481

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2020

 

2019

Domestic long-lived assets

 

$

180,670

 

$

179,143

International long-lived assets

 

 

279

 

 

301

Total long-lived assets

 

$

180,949

 

$

179,444

 

v3.20.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies.  
Commitments and Contingencies

Note 15 – Commitments and Contingencies

The Company is party to claims in lawsuits incidental to its business, including lease disputes and employee-related matters. The Company is confident in its defenses and is vigorously defending these disputes. The Company has not recorded any liabilities for these unfounded claims, and the range of possible losses is zero to $2.2 million. In the opinion of management, the ultimate outcome of such matters, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

 

 

v3.20.2
Summary of Business and Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2020
Summary of Business and Significant Accounting Policies  
COVID-19

COVID-19

The novel coronavirus (“COVID-19”) pandemic has significantly impacted the Company’s business, and public concerns about the spread of COVID-19 continue to be widespread. The Company experienced a significant reduction in guest traffic at its restaurants as a result of restrictions mandated by state and local governments and temporary closure of several restaurants and the shift in operations to provide only take-out and delivery service. Starting in May 2020, state and local governments began easing restrictions on stay-at-home orders. Currently, 34 of 36 domestic restaurants are open for outdoor dining or in-person dining with seating capacity restrictions. The Company has taken significant steps to adapt its business to increase sales while providing a safe environment for guests and employees, which resulted in a significant increase in revenues in the third quarter of 2020 compared to the second quarter of 2020.    

In response to these conditions, and out of concern for its customers and partners, the Company has implemented enhanced safety measures and sanitation procedures to allow for in-person dining at its restaurants. As the Company navigates through the pandemic, it has also implemented measures to reduce its costs including the deferral of capital projects and negotiations with suppliers and landlords regarding deferral or abatement of payments.

Given the ongoing uncertainty surrounding the effects of the COVID-19 pandemic, the Company cannot reasonably predict when its restaurants will be able to return to normal dining room operations. The Company expects that its results of operations could be materially and negatively affected by COVID-19 for the remainder of 2020. The Company’s resumption of normal dining operations is subject to events beyond its control, including the effectiveness of governmental efforts to halt the spread of COVID-19.

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain information and footnote disclosures normally included in annual audited financial statements have been omitted pursuant to SEC rules and regulations. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019.

In the Company’s opinion, the accompanying unaudited interim financial statements reflect all adjustments (consisting only of normal recurring accruals and adjustments) necessary for a fair presentation of the results for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results expected for the full year. Additionally, the Company believes that the disclosures are sufficient for interim financial reporting purposes.

Prior Period Reclassifications

Prior Period Reclassifications

Certain reclassifications of the 2019 financial statements amounts have been made to conform to the current year presentation. The Company has combined owned restaurant net revenues and owned food, beverage and other net revenues to be presented in total as owned restaurant net revenue. Additionally, the Company reclassified $0.5 million and $1.4 million of owned food, beverage and other expenses to owned restaurant cost of sales and $1.5 million and $5.1 million of owned food, beverage and other expenses to owned restaurant expenses on the accompanying condensed consolidated statements of operations and comprehensive (loss) income for the three and nine months ended September 30, 2019, respectively. Certain reclassifications were also made to conform the prior period segment reporting to the current year segment presentation. Refer to Note 13 – Segment Reporting for additional information regarding the Company’s reportable operating segments.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In June 2020, the American Institute of Certified Public Accountants in conjunction with the Financial Accounting Standards Board (“FASB”) developed Technical Question and Answer (“TQA”) 3200.18, “Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program”, which is intended to provide clarification on how to account for loans received from the Paycheck Protection Program (“PPP”). TQA 3200.18 states that an entity may account for PPP loans under ASC 470, “Debt” or, if the entity is expected to meet PPP eligibility criteria and the PPP loan is expected to be forgiven, the entity may account for the loans under IAS 20, “Accounting for Government Grants and Disclosure of Government Assistance”. Although the Company anticipates forgiveness of the entire amount of the CARES Act Loans, no assurances can be provided that the Company will obtain forgiveness of the CARES Act Loans in whole or in part. Therefore, the Company has elected to account for PPP loan proceeds under ASC 470 as allowed by TQA 3200.18.

In December 2019, FASB issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” (“ASU 2019-12”) which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Accounting Standard Codification Topic 740, Income Taxes, and it clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020. The Company is evaluating the impact of the adoption of ASU 2019-12 on its financial statements but does not expect the adoption of ASU 2019-12 to be material.

In October 2018, the FASB issued ASU No. 2018‑17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018‑17”). ASU 2018‑17 states that indirect interests held through related parties in common control arrangements should be considered on a proportional basis to determine whether fees paid to decision makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a variable interest entity. ASU 2018‑17 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Entities are required to adopt the new guidance retrospectively with a cumulative adjustment to retained earnings at the beginning of the earliest period presented. The adoption of ASU 2018-17 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018‑15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract” (“ASU 2018‑15”). ASU 2018‑15 aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018‑15 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Entities can choose to adopt the new guidance prospectively or retrospectively. The adoption of ASU 2018-15 did not have a material impact on the Company’s financial position, results of operations or cash flows.

 

In August 2018, the FASB issued ASU No. 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018‑13”). ASU 2018‑13 eliminates, modifies and adds disclosure requirements for fair value measurements. The amendments in ASU 2018‑13 are effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2018-3 did not have a material impact on the Company’s disclosures of fair value measurement, which are included in Note 6 – Fair Value of Financial Instruments.    

v3.20.2
Summary of Business and Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2020
Summary of Business and Significant Accounting Policies  
Schedule of pro forma results of operations

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

    

September 30, 2019

    

September 30, 2019

Total revenues

 

$

46,625

 

$

143,721

Net income attributable to The ONE Group Hospitality, Inc.

 

$

1,306

 

$

1,560

Net income attributable to The ONE Group Hospitality, Inc. per share:

 

 

 

 

 

 

Basic net earnings per share

 

$

0.04

 

$

0.05

Diluted net earnings per share

 

$

0.04

 

$

0.05

 

v3.20.2
Property and Equipment, net (Tables)
9 Months Ended
Sep. 30, 2020
Property and Equipment, net  
Schedule of property and equipment, net

Property and equipment, net consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2020

 

2019

Furniture, fixtures and equipment

 

$

21,573

 

$

20,512

Leasehold improvements

 

 

71,269

 

 

69,925

Less: accumulated depreciation

 

 

(28,742)

 

 

(21,997)

Subtotal

 

 

64,100

 

 

68,440

Construction in progress

 

 

595

 

 

97

Restaurant smallwares

 

 

1,946

 

 

1,946

Total

 

$

66,641

 

$

70,483

 

v3.20.2
Intangibles, net (Tables)
9 Months Ended
Sep. 30, 2020
Intangibles, net  
Schedule of intangibles, net

Intangibles, net consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2020

    

2019

Kona Grill tradename

 

$

17,400

 

$

17,400

Less: accumulated amortization

 

 

(870)

 

 

(217)

Total intangibles, net

 

$

16,530

 

$

17,183

 

v3.20.2
Accrued Expenses (Tables)
9 Months Ended
Sep. 30, 2020
Accrued Expenses  
Schedule of accrued expenses

Accrued expenses consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2020

 

2019

Payroll and related

 

$

4,517

 

$

4,519

Amounts due to landlords, including disputed rent amounts

 

 

2,727

 

 

1,956

VAT, sales and other taxes

 

 

1,075

 

 

1,488

Income taxes and related

 

 

489

 

 

547

Legal, professional and other services

 

 

459

 

 

1,103

Interest

 

 

428

 

 

 2

Insurance

 

 

205

 

 

100

Other

 

 

1,510

 

 

1,483

Total

 

$

11,410

 

$

11,198

 

v3.20.2
Long-Term Debt and CARES Act Loans (Tables)
9 Months Ended
Sep. 30, 2020
Long-Term Debt and CARES Act Loans  
Schedule of long-term debt

Long-term debt consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2020

 

2019

Term loan agreements

 

$

47,520

 

$

47,880

Revolving credit facility

 

 

 —

 

 

 —

Equipment financing agreements

 

 

148

 

 

380

Total long-term debt

 

 

47,668

 

 

48,260

Less: current portion of long-term debt

 

 

(628)

 

 

(749)

Less: debt issuance costs

 

 

(1,980)

 

 

(2,285)

Total long-term debt, net of current portion

 

$

45,060

 

$

45,226

 

v3.20.2
Revenue from contracts with customers (Tables)
9 Months Ended
Sep. 30, 2020
Revenue from contracts with customers  
Schedule of contract receivables and liabilities

The following table provides information about contract receivables and liabilities from contracts with customers, which include deferred license revenue, deferred gift card revenue and the Konavore rewards program (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2020

 

2019

Receivables (1)

 

$

125

 

$

250

Deferred license revenue (2)

 

$

1,212

 

$

1,368

Deferred gift card and gift certificate revenue (3)

 

$

2,244

 

$

3,210

Konavore rewards program (4)

 

$

95

 

$

84


(1)

Receivables are included in accounts receivable on the condensed consolidated balance sheets.

(2)

Includes the current and long-term portion of deferred license revenue.

(3)

Deferred gift card revenue is included in deferred gift card revenue and other on the condensed consolidated balance sheets.

(4)

Konavore rewards program is included in accrued expenses on the condensed consolidated balance sheets.

Schedule of changes in deferred license revenue and deferred gift card revenue

Significant changes in deferred license revenue and deferred gift card revenue for the nine months ended September 30, 2020 and 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

September 30, 

    

September 30, 

 

 

2020

 

2019

Revenue recognized from deferred license revenue

 

$

154

 

$

148

Revenue recognized from deferred gift card revenue

 

$

1,173

 

$

707

 

Schedule of estimated deferred license revenue to be recognized in the future related to performance obligations

The estimated deferred license revenue to be recognized in the future related to performance obligations that are unsatisfied as of September 30, 2020 were as follows for each year ending (in thousands):

 

 

 

 

 

2020, three months remaining

    

$

52

2021

 

 

207

2022

 

 

180

2023

 

 

169

2024

 

 

134

Thereafter

 

 

470

Total future estimated deferred license revenue

 

$

1,212

 

v3.20.2
Leases (Tables)
9 Months Ended
Sep. 30, 2020
Leases  
Schedule of components of lease expense

The components of lease expense for the period were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

 

September 30, 

 

 

 

2020

 

 

2019

 

Lease cost

 

 

 

 

 

 

 

 

Operating lease cost

 

$

9,950

 

 

$

5,040

 

Variable lease cost

 

 

(415)

 

 

 

1,811

 

Short-term lease cost

 

 

315

 

 

 

273

 

Sublease income

 

 

(404)

 

 

 

(582)

 

Total lease cost

 

$

9,446

 

 

$

6,542

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term – operating leases

 

 

12 years

 

 

 

14 years

 

Weighted average discount rate – operating leases

 

 

8.10

%

 

 

8.22

%

 

Schedule of supplemental cash flow information related to leases

Supplemental cash flow information related to leases for the period was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30, 

 

September 30, 

 

 

2020

 

2019

Cash paid for amounts included in the measurement of operating lease liabilities

 

$

6,263

 

$

5,212

Right-of-use assets obtained in exchange for operating lease obligations

 

$

4,968

 

$

1,076

 

Schedule of maturities of operating lease liabilities

As of September 30, 2020, maturities of the Company’s operating lease liabilities are as follows (in thousands):

 

 

 

 

 

2020, three months remaining

 

$

3,315

2021

 

 

13,220

2022

 

 

13,228

2023

 

 

13,524

2024

 

 

12,927

Thereafter

 

 

124,760

Total lease payments

 

 

180,974

Less: imputed interest

 

 

(76,529)

Present value of operating lease liabilities

 

$

104,445

 

v3.20.2
(Loss) earnings per share (Tables)
9 Months Ended
Sep. 30, 2020
(Loss) earnings per share  
Schedule of earnings per share, basic and diluted

For the three and nine months ended September 30, 2020 and 2019, the (loss) earnings per share was calculated as follows (in thousands, except earnings per share and related share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

    

2020

    

2019

    

2020

    

2019

Net (loss) income attributable to The ONE Group Hospitality, Inc.

 

$

(875)

 

$

460

 

$

(8,346)

 

$

992

 

 

 

  

 

 

  

 

 

  

 

 

 

Basic weighted average shares outstanding

 

 

29,010,348

 

 

28,537,477

 

 

28,857,990

 

 

28,429,074

Dilutive effect of stock options, warrants and restricted share units

 

 

 —

 

 

1,363,667

 

 

 —

 

 

1,213,852

Diluted weighted average shares outstanding

 

 

29,010,348

 

 

29,901,144

 

 

28,857,990

 

 

29,642,926

 

 

 

  

 

 

  

 

 

  

 

 

  

Net (loss) earnings available to common stockholders per share - Basic

 

$

(0.03)

 

 

0.02

 

$

(0.29)

 

$

0.03

Net (loss) earnings available to common stockholders per share - Diluted

 

$

(0.03)

 

$

0.02

 

$

(0.29)

 

$

0.03

 

v3.20.2
Stock-Based Compensation (Tables)
9 Months Ended
Sep. 30, 2020
Stock-Based Compensation  
Schedule of stock option activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

average

 

Intrinsic

 

 

 

 

average exercise

 

remaining

 

value

 

    

Shares

    

price

    

contractual life

    

(thousands)

Outstanding at December 31, 2019

 

1,806,508

 

$

3.37

 

5.87 years

 

$

1,428

Exercisable at December 31, 2019

 

1,270,508

 

$

3.93

 

5.10 years

 

$

665

Exercised

 

(18,000)

 

 

2.13

 

  

 

 

  

Cancelled, expired or forfeited

 

(81,500)

 

 

3.75

 

  

 

 

  

Outstanding at September 30, 2020

 

1,707,008

 

$

3.37

 

5.24 years

 

$

174

Exercisable at September 30, 2020

 

1,343,675

 

$

3.73

 

4.77 years

 

$

116

 

Schedule of non-vested stock options

 

 

 

 

 

 

 

 

 

 

Weighted average

 

    

Shares

    

grant date fair value

Non-vested stock options at December 31, 2019

 

536,000

 

$

0.87

Vested

 

(172,667)

 

 

0.88

Non-vested stock options at September 30, 2020

 

363,333

 

$

0.86

 

Schedule of restricted stock awards and changes

 

 

 

 

 

 

 

 

 

 

Weighted average

 

    

Shares

    

grant date fair value

Non-vested RSUs at December 31, 2019

 

955,011

 

$

2.69

Granted

 

1,309,099

 

 

1.21

Vested

 

(281,027)

 

 

2.75

Cancelled, expired or forfeited

 

(38,566)

 

 

2.71

Non-vested RSUs at September 30, 2020

 

1,944,517

 

$

1.68

 

v3.20.2
Segment Reporting (Tables)
9 Months Ended
Sep. 30, 2020
Segment Reporting  
Schedule of segment information

Certain financial information relating to the three and nine months ended September 30, 2020 and 2019 for each segment is provided below (in thousands). Prior year amounts have been revised to conform to the current year segment presentation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

STK

    

Kona Grill

    

ONE Hospitality

    

Corporate

    

Total

For the three months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

16,475

 

$

22,794

 

$

169

 

$

129

 

$

39,567

Operating income (loss)

 

$

2,406

 

$

2,215

 

$

(116)

 

$

(4,485)

 

$

20

Capital asset additions

 

$

528

 

$

398

 

$

 7

 

$

46

 

$

979

For the nine months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

39,740

 

$

55,831

 

$

1,105

 

$

274

 

$

96,950

Operating income (loss)

 

$

3,335

 

$

1,816

 

$

(209)

 

$

(14,556)

 

$

(9,614)

Capital asset additions

 

$

1,056

 

$

1,141

 

$

184

 

$

279

 

$

2,660

As of September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

80,780

 

$

97,053

 

$

5,590

 

$

33,556

 

$

216,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STK

    

Kona Grill

    

ONE Hospitality

    

Corporate

    

Total

For the three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

20,227

 

$

 —

 

$

1,762

 

$

117

 

$

22,106

Operating income (loss)

 

$

3,059

 

$

 —

 

$

625

 

$

(2,909)

 

$

775

Capital asset additions

 

$

490

 

$

 —

 

$

 2

 

$

100

 

$

592

For the nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

63,451

 

$

 —

 

$

4,074

 

$

956

 

$

68,481

Operating income (loss)

 

$

9,412

 

$

 —

 

$

1,170

 

$

(8,196)

 

$

2,386

Capital asset additions

 

$

3,000

 

$

 —

 

$

40

 

$

469

 

$

3,509

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

82,691

 

$

93,829

 

$

8,252

 

$

21,813

 

$

206,585

 

v3.20.2
Geographic Information (Tables)
9 Months Ended
Sep. 30, 2020
Geographic Information  
Schedule of revenues by geographic location

Certain financial information by geographic location is provided below (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 

 

For the nine months ended September 30, 

 

    

2020

    

2019

    

2020

    

2019

Domestic revenues

 

 

38,745

 

 

20,730

 

$

95,304

 

$

65,048

International revenues

 

 

822

 

 

1,376

 

 

1,646

 

 

3,433

Total revenues

 

$

39,567

 

$

22,106

 

$

96,950

 

$

68,481

 

Schedule of long-lived assets by geographic location

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2020

 

2019

Domestic long-lived assets

 

$

180,670

 

$

179,143

International long-lived assets

 

 

279

 

 

301

Total long-lived assets

 

$

180,949

 

$

179,444

 

v3.20.2
Summary of Business and Significant Accounting Policies (Details)
$ in Thousands
3 Months Ended 9 Months Ended
Oct. 04, 2019
USD ($)
restaurant
Sep. 30, 2020
USD ($)
item
restaurant
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
item
restaurant
Sep. 30, 2019
USD ($)
Number of venues | restaurant   55   55  
Number of domestic restaurants open with modified operations | restaurant   34   34  
Number of domestic restaurants | restaurant   36   36  
Owned restaurant cost of sales | $   $ 9,091 $ 4,921 $ 23,378 $ 15,466
Owned restaurant operating expenses | $   $ 22,454 12,305 $ 60,991 38,652
Number of hotels provided F&B services | item   5   5  
Adjustments | Reclassification of expenses          
Owned restaurant cost of sales | $     500   1,400
Owned restaurant operating expenses | $     $ 1,500   $ 5,100
STK          
Number of venues | restaurant   20   20  
Kona Grill          
Number of venues | restaurant   24   24  
F&B Venues          
Number of venues | restaurant   11   11  
Kona Grill Inc.          
Number of domestic restaurants acquired | restaurant 24        
Contractual purchase price | $ $ 25,000        
Current liabilities | $ 7,700        
Apportionment of rent and utilities | $ $ 1,500        
v3.20.2
Summary of Business and Significant Accounting Policies - Pro Forma Results of Operations (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2019
Business Acquisition, Pro Forma Information [Abstract]    
Total revenues $ 46,625 $ 143,721
Net income attributable to The ONE Group Hospitality, Inc. $ 1,306 $ 1,560
Basic net earnings per share (in dollars per share) $ 0.04 $ 0.05
Diluted net earnings per share (in dollars per share) $ 0.04 $ 0.05
v3.20.2
Property and Equipment, net - Total PPE (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Property, Plant and Equipment [Line Items]    
Less: accumulated depreciation and amortization $ (28,742) $ (21,997)
Property and equipment, net 66,641 70,483
Furniture, fixtures and equipment    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross 21,573 20,512
Leasehold improvements    
Property, Plant and Equipment [Line Items]    
Property and equipment, gross 71,269 69,925
Total amount net of accumulated depreciation and amortization    
Property, Plant and Equipment [Line Items]    
Property and equipment, net 64,100 68,440
Construction in progress    
Property, Plant and Equipment [Line Items]    
Property and equipment, net 595 97
Restaurant smallwares    
Property, Plant and Equipment [Line Items]    
Property and equipment, net $ 1,946 $ 1,946
v3.20.2
Property and Equipment, net - Narrative (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Property and Equipment, net        
Depreciation $ 2.5 $ 1.1 $ 6.9 $ 3.0
v3.20.2
Intangibles, net (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Intangibles, net    
Kona Grill tradename $ 17,400 $ 17,400
Less: accumulated amortization (870) (217)
Total intangible, net $ 16,530 $ 17,183
v3.20.2
Intangibles, net - Narrative (Details)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
USD ($)
Sep. 30, 2020
USD ($)
Intangibles, net    
Useful life   20 years
Amortization expense $ 0.2 $ 0.7
2020 0.9 0.9
2021 0.9 0.9
2022 0.9 0.9
2023 0.9 0.9
2024 $ 0.9 $ 0.9
v3.20.2
Accrued Expenses (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Accrued Expenses    
Payroll and related $ 4,517 $ 4,519
Amounts due to landlords, including disputed rent amounts 2,727 1,956
VAT, sales and other taxes 1,075 1,488
Income taxes and related 489 547
Legal, professional and other services 459 1,103
Interest 428 2
Insurance 205 100
Other 1,510 1,483
Total $ 11,410 $ 11,198
v3.20.2
Long-Term Debt and CARES Act Loans - Debt and Maturities (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Debt Instrument [Line Items]    
Long-term debt $ 47,668 $ 48,260
Less: current portion of long-term debt (628) (749)
Less: debt issuance costs (1,980) (2,285)
Long-term debt, net of current portion 45,060 45,226
Medium-term Notes | Term Loan Agreements    
Debt Instrument [Line Items]    
Long-term debt 47,520 47,880
Construction Loans | Equipment Financing Agreements    
Debt Instrument [Line Items]    
Long-term debt $ 148 $ 380
v3.20.2
Long-Term Debt and CARES Act Loans - Narrative (Details)
3 Months Ended 9 Months Ended
Aug. 10, 2020
USD ($)
May 08, 2020
USD ($)
May 04, 2020
USD ($)
subsidiary
Oct. 04, 2019
USD ($)
Aug. 16, 2016
USD ($)
Jun. 05, 2015
USD ($)
Sep. 30, 2020
USD ($)
employee
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
employee
Sep. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
Debt Instrument [Line Items]                      
Interest expense             $ 1,200,000 $ 200,000 $ 3,300,000 $ 600,000  
Weighted average interest rate             8.50%   8.50%   8.55%
Standby letters of credit outstanding             $ 1,300,000   $ 1,300,000    
Cash collateral letter of credit                     $ 400,000
Debt issuance costs             1,980,000   1,980,000   2,285,000
Debt instrument, term         5 years 5 years          
Debt interest rate         5.00% 5.00%          
Loss on early debt extinguishment                   $ (437,000)  
Goldman Sachs Credit Agreement                      
Debt Instrument [Line Items]                      
Maximum cash and cash equivalents amount       $ 4,000,000              
Basis spread on variable rate       4.75%              
Debt issuance costs             2,500,000   2,500,000   $ 2,500,000
Goldman Sachs Credit Agreement | Minimum                      
Debt Instrument [Line Items]                      
Minimum consolidated liquidity       $ 1,500,000              
Goldman Sachs Credit Agreement | Fiscal quarter ending September 30, 2020                      
Debt Instrument [Line Items]                      
Consolidated leverage ratio 2.85     2.85              
Goldman Sachs Credit Agreement | Fiscal quarters ending September 30, 2020 and December 31, 2020,                      
Debt Instrument [Line Items]                      
Consolidated leverage ratio   2.25                  
Goldman Sachs Credit Agreement | Fiscal quarter ending December 31, 2020                      
Debt Instrument [Line Items]                      
Consolidated leverage ratio 3.60     3.60              
Goldman Sachs Credit Agreement | Fiscal quarter ending March 31, 2021                      
Debt Instrument [Line Items]                      
Consolidated leverage ratio 3.10 2.00   3.10              
Goldman Sachs Credit Agreement | Fiscal quarter ending June 30, 2021                      
Debt Instrument [Line Items]                      
Consolidated leverage ratio   1.75                  
Goldman Sachs Credit Agreement | Fiscal quarters ending June 30, 2021 and September 30, 2021                      
Debt Instrument [Line Items]                      
Consolidated leverage ratio 2.10     2.10              
Goldman Sachs Credit Agreement | Fiscal quarter ending September 30, 2021                      
Debt Instrument [Line Items]                      
Consolidated leverage ratio   1.70                  
Goldman Sachs Credit Agreement | Fiscal quarter ending December 31, 2021                      
Debt Instrument [Line Items]                      
Consolidated leverage ratio 1.90 1.65   1.90              
Goldman Sachs Credit Agreement | Fiscal quarter thereafter                      
Debt Instrument [Line Items]                      
Fixed charge coverage ratio   1.50   1.50              
Consolidated leverage ratio   1.50                  
Goldman Sachs Credit Agreement | Fiscal year 2020 | Maximum                      
Debt Instrument [Line Items]                      
Maximum consolidated capital expenditures $ 7,000,000                    
Goldman Sachs Credit Agreement | Fiscal year 2021 | Minimum                      
Debt Instrument [Line Items]                      
Minimum consolidated liquidity       $ 1,500,000              
Goldman Sachs Credit Agreement | Fiscal year 2021 | Maximum                      
Debt Instrument [Line Items]                      
Maximum consolidated capital expenditures       7,000,000              
Goldman Sachs Credit Agreement | Fiscal year 2020 and 2021 | Minimum                      
Debt Instrument [Line Items]                      
Minimum consolidated liquidity $ 4,000,000 $ 4,000,000                  
Goldman Sachs Credit Agreement | Fiscal year 2020 and 2021 | Maximum                      
Debt Instrument [Line Items]                      
Maximum consolidated capital expenditures       $ 7,000,000              
Goldman Sachs Credit Agreement | Fiscal year 2021 and every fiscal year thereafter                      
Debt Instrument [Line Items]                      
Consolidated leverage ratio       1.50              
Goldman Sachs Credit Agreement | Fiscal year 2021 and every fiscal year thereafter | Maximum                      
Debt Instrument [Line Items]                      
Maximum consolidated capital expenditures       $ 8,000,000              
Goldman Sachs Credit Agreement | LIBOR                      
Debt Instrument [Line Items]                      
Basis spread on variable rate       1.75%              
Goldman Sachs Credit Agreement | Base Rate                      
Debt Instrument [Line Items]                      
Basis spread on variable rate       0.50%              
Goldman Sachs Credit Agreement | One Month LIBOR                      
Debt Instrument [Line Items]                      
Basis spread on variable rate       1.00%              
Revolving Credit Facility                      
Debt Instrument [Line Items]                      
Available amount             $ 10,700,000   $ 10,700,000    
Secured revolving credit facility       $ 12,000,000              
Term Loans                      
Debt Instrument [Line Items]                      
Face value of debt       $ 48,000,000              
Term Loans | LIBOR | Minimum                      
Debt Instrument [Line Items]                      
Basis spread on variable rate       5.75%              
Term Loans | LIBOR | Maximum                      
Debt Instrument [Line Items]                      
Basis spread on variable rate       6.75%              
Term Loans | Base Rate | Minimum                      
Debt Instrument [Line Items]                      
Basis spread on variable rate       4.75%              
Term Loans | Base Rate | Maximum                      
Debt Instrument [Line Items]                      
Basis spread on variable rate       5.75%              
First Sterling Agreement | Construction Loans | Sterling National Bank                      
Debt Instrument [Line Items]                      
Face value of debt           $ 1,000,000          
Second Sterling Agreement | Construction Loans | Sterling National Bank                      
Debt Instrument [Line Items]                      
Face value of debt         $ 700,000            
CARES ACT Loans                      
Debt Instrument [Line Items]                      
Number of employees return to work from furlough | employee             3,000   3,000    
Number of subsidiaries | subsidiary     2                
Debt instrument default percentage     10.00%                
Eligibility percentage for loan forgiveness     60.00%                
CARES ACT Loans | STK                      
Debt Instrument [Line Items]                      
Loan received     $ 9,800,000                
CARES ACT Loans | Kona Grill                      
Debt Instrument [Line Items]                      
Loan received     $ 8,500,000                
v3.20.2
Fair Value of Financial Instruments (Details)
Sep. 30, 2020
USD ($)
Fair Value of Financial Instruments  
Long-lived assets measured at fair value $ 0
v3.20.2
Investments in Bagatelle NY - Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Schedule of Equity Method Investments [Line Items]        
Due from related parties, net   $ 376   $ 341
Bagatelle NY LA Investors, LLC (Bagatelle Investors)        
Schedule of Equity Method Investments [Line Items]        
Ownership percentage equity method investment   31.24%   31.24%
Management fee revenue     $ 300  
Bagatelle NY LA Investors, LLC (Bagatelle Investors) | Maximum        
Schedule of Equity Method Investments [Line Items]        
Management fee revenue $ 100      
Bagatelle Little West 12th, LLC (Bagatelle NY)        
Schedule of Equity Method Investments [Line Items]        
Ownership percentage equity method investment   51.13%   51.13%
Bagatelle Little West 12th, LLC (Bagatelle NY) | Maximum        
Schedule of Equity Method Investments [Line Items]        
Management fee revenue   $ 100    
v3.20.2
Income taxes - Narrative (Details)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Income taxes    
Effective income tax rate 32.00% 12.70%
U.S. statutory tax rate 21.00%  
v3.20.2
Revenue from contracts with customers - Contract Receivables and Liabilities (Details) - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Receivables $ 125 $ 250
Deferred license revenue    
Deferred revenue 1,212 1,368
Deferred gift card and gift certificate revenue    
Deferred revenue 2,244 3,210
Konavore rewards program    
Deferred revenue $ 95 $ 84
v3.20.2
Revenue from contracts with customers - Changes in Deferred Gift Card and Gift Certificate Revenue (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Deferred license revenue    
Revenue recognized $ 154 $ 148
Deferred gift card and gift certificate revenue    
Revenue recognized $ 1,173 $ 707
v3.20.2
Revenue from contracts with customers - Future Estimated Deferred License Revenue (Details) - Deferred license revenue
$ in Thousands
Sep. 30, 2020
USD ($)
2020, three months remaining $ 52
2021 207
2022 180
2023 169
2024 134
Thereafter 470
Total future estimated deferred license revenue $ 1,212
v3.20.2
Leases - Lease Expense (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Lease cost    
Operating lease cost $ 9,950 $ 5,040
Variable lease cost   1,811
Variable lease cost (415)  
Short-term lease cost 315 273
Sublease income (404) (582)
Total lease cost $ 9,446 $ 6,542
Weighted average remaining lease term - operating leases 12 years 14 years
Weighted average discount rate - operating leases 8.10% 8.22%
v3.20.2
Leases - Supplemental Cash Flow Information (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Leases    
Cash paid for amounts included in the measurement of operating lease liabilities $ 6,263 $ 5,212
Right-of-use assets obtained in exchange for operating lease obligations $ 4,968 $ 1,076
v3.20.2
Leases - Operating Lease Liabilities (Details)
$ in Thousands
Sep. 30, 2020
USD ($)
Operating Lease Liabilities, Payments Due [Abstract]  
2020, three months remaining $ 3,315
2021 13,220
2022 13,228
2023 13,524
2024 12,927
Thereafter 124,760
Total lease payments 180,974
Less: imputed interest (76,529)
Present value of operating lease liabilities $ 104,445
v3.20.2
Leases - Narrative (Details) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Leases      
Operating lease right-of-use assets $ 82,156   $ 81,097
Operating lease liability 104,445    
Sublease income 404 $ 582  
Aggregate future commitment $ 4,800    
Lease term 11 years    
v3.20.2
(Loss) earnings per share - Calculation (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Jun. 30, 2020
Mar. 31, 2020
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Sep. 30, 2020
Sep. 30, 2019
(Loss) earnings per share                
Net (loss) income attributable to The ONE Group Hospitality, Inc. $ (875) $ (2,872) $ (4,599) $ 460 $ (322) $ 854 $ (8,346) $ 992
Basic weighted average shares outstanding 29,010,348     28,537,477     28,857,990 28,429,074
Dilutive effect of stock options, warrants and restricted share units       1,363,667       1,213,852
Diluted weighted average shares outstanding 29,010,348     29,901,144     28,857,990 29,642,926
Net (loss) earnings available to common stockholders per share - Basic $ (0.03)     $ 0.02     $ (0.29) $ 0.03
Net (loss) earnings available to common stockholders per share - Diluted $ (0.03)     $ 0.02     $ (0.29) $ 0.03
v3.20.2
(Loss) earnings per share - Narrative (Details) - shares
shares in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Stock Options    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive securities excluded from the calculation of diluted earnings per share 1.4 1.0
Warrants    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive securities excluded from the calculation of diluted earnings per share 1.4 1.0
Restricted Share Units    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive securities excluded from the calculation of diluted earnings per share 1.4 1.0
v3.20.2
Stock-Based Compensation - Summary of Status of Company's Stock Option Activity (Details) - USD ($)
$ / shares in Units, $ in Thousands
9 Months Ended 12 Months Ended
Sep. 30, 2020
Dec. 31, 2019
Shares    
Outstanding at the beginning (in shares) 1,806,508  
Exercisable (in shares) 1,270,508  
Exercised (in shares) (18,000)  
Cancelled, expired or forfeited (in shares) (81,500)  
Outstanding at the ending (in shares) 1,707,008 1,806,508
Exercisable (in shares) 1,343,675 1,270,508
Weighted average exercise price    
Outstanding at the beginning (in dollars per share) $ 3.37  
Exercisable (in dollars per share) 3.93  
Exercised (in dollars per share) 2.13  
Cancelled, expired or forfeited (in dollars per share) 3.75  
Outstanding at the ending (in dollars per share) 3.37 $ 3.37
Exercisable (in dollars per share) $ 3.73 $ 3.93
Weighted average remaining contractual life (Years)    
Weighted average remaining contractual life 5 years 2 months 27 days 5 years 10 months 13 days
Exercisable weighted average remaining contractual life 4 years 9 months 7 days 5 years 1 month 6 days
Intrinsic value    
Intrinsic Value Outstanding $ 174 $ 1,428
Intrinsic Value Exercisable $ 116 $ 665
v3.20.2
Stock-Based Compensation - Summary of Non-Vested Stock Options (Details)
9 Months Ended
Sep. 30, 2020
$ / shares
shares
Shares  
Non-vested stock options (in shares) | shares 536,000
Vested (in shares) | shares (172,667)
Non-vested stock options (in shares) | shares 363,333
Weighted average grant date fair value  
Non-vested stock options (in dollars per share) | $ / shares $ 0.87
Vested (in dollars per share) | $ / shares 0.88
Non-vested stock options (in dollars per share) | $ / shares $ 0.86
v3.20.2
Stock-Based Compensation - Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Stock-based compensation $ 496 $ 338 $ 1,316 $ 975  
Options outstanding (in shares) 1,707,008   1,707,008   1,806,508
Maximum          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Fair value of options vested     $ 200    
General and Administrative Expense.          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Stock-based compensation $ 500 $ 300 $ 1,300 $ 1,000  
Restricted Stock          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Restricted shares outstanding 150,000   150,000    
Unrecognized compensation cost related to milestone based options $ 400   $ 400    
Unrecognized compensation cost related to non-vested awards 2,200   $ 2,200    
Unrecognized compensation cost, recognition period     2 years 1 month 6 days    
Stock Options          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Unrecognized compensation cost related to non-vested awards $ 200   $ 200    
Unrecognized compensation cost, recognition period     2 years 1 month 6 days    
Milestone-Based Options          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Options outstanding (in shares) 579,402   579,402    
Unrecognized compensation cost related to milestone based options $ 700   $ 700    
Equity Incentive Plan 2019 [Member]          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Remaining shares available for issuance 1,204,428   1,204,428    
Director | Restricted Stock          
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]          
Stock-based compensation $ 100   $ 300    
v3.20.2
Stock-Based Compensation - Summary of Status of Company's Restricted Stock Option Activity (Details)
9 Months Ended
Sep. 30, 2020
$ / shares
shares
Shares  
Non-vested RSUs at December 31, 2019 (in shares) | shares 955,011
Granted (in shares) | shares 1,309,099
Vested (in shares) | shares (281,027)
Cancelled, expired or forfeited (in shares) | shares (38,566)
Non-vested RSUs at September 30, 2020 (in shares) | shares 1,944,517
Weighted Average Grant Date Fair Value  
Non-vested RSUs at December 31, 2019 (in dollars per share) | $ / shares $ 2.69
Granted (in dollars per share) | $ / shares 1.21
Vested (in dollars per share) | $ / shares 2.75
Cancelled, expired or forfeited (in dollars per share) | $ / shares 2.71
Non-vested RSUs at September 30, 2020 (in dollars per share) | $ / shares $ 1.68
v3.20.2
Segment Reporting (Details)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
USD ($)
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
segment
Sep. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
Segment Reporting Information [Line Items]          
Number of reportable segments | segment     4    
Total revenues $ 39,567 $ 22,106 $ 96,950 $ 68,481  
Operating income (loss) 20 775 (9,614) 2,386  
Capital asset additions 979 592 2,660 3,509  
Total assets 216,979   216,979   $ 206,585
STK          
Segment Reporting Information [Line Items]          
Total revenues 16,475 20,227 39,740 63,451  
Operating income (loss) 2,406 3,059 3,335 9,412  
Capital asset additions 528 490 1,056 3,000  
Total assets 80,780   80,780   82,691
Kona Grill          
Segment Reporting Information [Line Items]          
Total revenues 22,794   55,831    
Operating income (loss) 2,215   1,816    
Capital asset additions 398   1,141    
Total assets 97,053   97,053   93,829
ONE Hospitality          
Segment Reporting Information [Line Items]          
Total revenues 169 1,762 1,105 4,074  
Operating income (loss) (116) 625 (209) 1,170  
Capital asset additions 7 2 184 40  
Total assets 5,590   5,590   8,252
Corporate          
Segment Reporting Information [Line Items]          
Total revenues 129 117 274 956  
Operating income (loss) (4,485) (2,909) (14,556) (8,196)  
Capital asset additions 46 $ 100 279 $ 469  
Total assets $ 33,556   $ 33,556   $ 21,813
v3.20.2
Geographic Information (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Revenues from External Customers and Long-Lived Assets [Line Items]          
Revenues $ 39,567 $ 22,106 $ 96,950 $ 68,481  
Long-lived assets 180,949   180,949   $ 179,444
Domestic          
Revenues from External Customers and Long-Lived Assets [Line Items]          
Revenues 38,745 20,730 95,304 65,048  
Long-lived assets 180,670   180,670   179,143
International          
Revenues from External Customers and Long-Lived Assets [Line Items]          
Revenues 822 $ 1,376 1,646 $ 3,433  
Long-lived assets $ 279   $ 279   $ 301
v3.20.2
Commitments and Contingencies (Details)
$ in Millions
Sep. 30, 2020
USD ($)
Minimum  
Loss Contingencies [Line Items]  
Possible loss $ 0.0
Maximum  
Loss Contingencies [Line Items]  
Possible loss $ 2.2