ONE GROUP HOSPITALITY, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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,
2021. A number of factors could cause actual results or outcomes to differ
materially from those indicated by such forward-looking statements, including
but not limited to: (1) the effects of the COVID-19 pandemic on our business,
including government restrictions on our ability to operate our restaurants and
changes in customer behavior; (2) our ability to open new restaurants and food
and beverage locations in current and additional markets, grow and manage growth
profitably, maintain relationships with suppliers and obtain adequate supply of
products and retain our key employees; (3) factors beyond our control that
affect the number and timing of new restaurant openings, including weather
conditions and factors under the control of landlords, contractors and
regulatory and/or licensing authorities; (4) our ability to successfully improve
performance and cost, realize the benefits of our marketing efforts and achieve
improved results as we focus on developing new management and license deals; (5)
changes in applicable laws or regulations; (6) the possibility that The ONE
Group may be adversely affected by other economic, business, and/or competitive
factors; and (7) other risks and uncertainties. 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, 2021.

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.

Company Summary

We are a global restaurant 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 and consulting service 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 polished casual bar-centric
grill concept featuring American favorites, award-winning sushi, and specialty
cocktails in a polished casual atmosphere. Our F&B hospitality management
services are marketed as ONE Hospitality and 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. We also provide hospitality
advisory and consulting services to certain clients. Our F&B hospitality clients
operate global hospitality brands such as the W Hotel, ME Hotels, Hippodrome
Casino, and Curio Collection by Hilton.

We opened our first restaurant in January 2004 in New York, New York, and, as of
September 30, 2022, we owned, operated, managed or licensed 61 venues including
23 STKs and 24 Kona Grills in major metropolitan cities in North America, Europe
and the Middle East and 14 F&B venues operated under ONE Hospitality in seven
hotels and casinos throughout the United States and Europe. In August 2022, we
opened an owned STK restaurant in San Francisco, California and a licensed
virtual location in

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conjunction with REEF Kitchens in Austin, Texas that features offerings from
Kona Grill and Bao Yum. In November 2022, we opened an owned STK restaurant in
Dallas, Texas. For those restaurants and venues that are managed or licensed, we
generate management fee revenue based on top-line revenues and incentive fee
revenue based on a percentage of the location's revenues and net profits.

The table below reflects our locations by restaurant brand and geographic location in September 30, 2022:

                                             Venues
                       STK(1)    Kona Grill    ONE Hospitality(2)    Total
Domestic
Owned                      12            24                     2       38
Managed                     2             -                     1        3
Licensed                    1             -                     1        2
Total domestic             15            24                     4       43
International
Owned                       -             -                     -        -
Managed                     4             -                    10       14
Licensed                    4             -                     -        4
Total international         8             -                    10       18
Total venues               23            24                    14       61

(1) Pitches with an STK and an STK Rooftop are considered as one pitch. This

includes STK roof in San Diego, Californiawhich is a licensed location.

Includes concepts under the company’s F&B hotel management agreements (2) and other site brands such as ANGEL, Bao YumHeliot, Cachette, Marconi,

Radio and Bar and grill by the river.

Our growth strategies and outlook

Our growth model is mainly based on the following elements:

? Expansion of our STK Restaurants and Kona Grill

? Expansion through new F&B hospitality projects

? Increase comparable store sales and increase our operational efficiency

? Acquisitions

We intend to open at least nine new venues in 2022 and the first quarter of
2023, of which three are currently open. We have opened Company-owned STK
restaurants in San Francisco, CA and Dallas, TX and a licensed virtual location
in conjunction with REEF Kitchens in Austin, Texas that features offerings from
Kona Grill and Bao Yum. There are currently three Company-owned Kona Grill
restaurants (Riverton, UT, Columbus, OH, and Phoenix, AZ) and one managed STK
restaurant (Stratford, UK) under development. In addition, in conjunction with
REEF Kitchens, we plan to test and open two additional licensed units in Texas
for takeout and delivery only. These units will feature offerings from our Kona
Grill and Bao Yum concepts. As our footprint increases, we expect to benefit by
leveraging system-wide operating efficiencies and best practices through the
management of our general and administrative expenses as a percentage of overall
revenue.

COVID-19

In response to COVID-19, we have taken significant steps to adapt our business
to increase sales while providing a safe environment for guests and employees.
COVID-19 related expenses were zero and $2.5 million for the three and nine
months ended September 30, 2022 compared to $1.1 million and $3.8 million for
the three and nine months ended September 30, 2021, respectively, composed
primarily of sanitation, supplies and safety precautions taken to prevent the
spread of COVID-19.

In the first quarter of 2022, one of our licensees permanently closed an STK restaurant in Mexico City following COVID-19.

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Executive Summary

Total revenues increased $1.2 million, or 1.6% to $73.0 million for the three
months ended September 30, 2022 compared to $71.9 million for the three months
ended September 30, 2021 primarily due to the opening of STK San Francisco in
August 2022. Same store sales increased 0.5% in the third quarter of 2022
compared to the third quarter of 2021. STK same store sales increased 3.5% while
Kona Grill same store sales decreased 3.6%. On a three-year basis, same store
sales for the third quarter of 2022 increased 45.6% compared to the third
quarter of 2019; STK same store sales increased 70.6% while Kona Grill same
store sales increased 22.3%.

Restaurant operating profit decreased $2.5 million, or 21.3% to $9.1 million for
the three months ended September 30, 2022 compared to $11.6 million for the
three months ended September 30, 2021 primarily due to higher labor and related
costs. Operating income decreased $4.6 million to $0.5 million for the three
months ended September 30, 2022 compared to operating income of $5.0 million for
the three months ended September 30, 2021 primarily due to pre-opening expenses
for the 2022 and 2023 openings, lower restaurant level operating profit and
lower management, license and incentive fee revenue.

Total revenues increased $35.2 million, or 18.2% to $228.3 million for the nine
months ended September 30, 2022 compared to $193.1 million for the nine months
ended September 30, 2021. Restaurant operating profit decreased $1.2 million to
$34.9 million for the nine months ended September 30, 2022 compared to
restaurant operating profit of $36.2 million for the nine months ended September
30, 2021. For the nine months ended September 30, 2022, operating income was
$10.4 million compared to $13.7 million for the nine months ended September
30,
2021.

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Results of Operations

The following table shows certain income statement data for the periods indicated (in thousands):

                                                     For the three months ended September 30,           For the nine months ended September 30,
                                                         2022                       2021                    2022                       2021
Revenues:
Owned restaurant net revenue                      $            69,538       $              67,966    $           216,984       $             184,982
Management, license and incentive fee revenue                   3,482      
                3,903                 11,342                       8,129
Total revenues                                                 73,020                      71,869                228,326                     193,111
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales                                 17,281                      17,733                 55,231                      46,925
Owned restaurant operating expenses                            43,136                      38,640                126,818                     101,882
Total owned operating expenses                                 60,417                      56,373                182,049                     148,807
General and administrative (including
stock-based compensation of $1,001, $653,
$2,791 and $2,812 for the three and nine
months ended September 30, 2022 and 2021,
respectively)                                                   6,447                       5,959                 20,587                      17,272
Depreciation and amortization                                   2,930                       2,572                  8,571                       7,766
COVID-19 related expenses                                           -                       1,131                  2,534                       3,776
Agreement restructuring expenses                                    -      
                    -                      -                         494
Pre-opening expenses                                            2,684                         587                  3,833                         842
Lease termination expenses                                          -                          58                    255                         352
Transaction costs                                                  51                         131                     51                         131
Total costs and expenses                                       72,529                      66,811                217,880                     179,440
Operating income                                                  491                       5,058                 10,446                      13,671
Other expenses (income), net:
Interest expense, net                                             435                         781                  1,387                       3,262
Loss on early debt extinguishment                                   -                         600                      -                         600
Gain on CARES Act Loan forgiveness                                  -                     (9,968)                      -                    (18,529)
Total other expenses (income), net                                435                     (8,587)                  1,387                    (14,667)
Income before provision for income taxes                           56                      13,645                  9,059                      28,338
(Benefit) provision for income taxes                            (321)                       1,544                    721                       2,188
Net income                                                        377                      12,101                  8,338                      26,150
Less: net (loss) income attributable to
noncontrolling interest                                         (105)                         430                  (117)                         573
Net income attributable to The One Group
Hospitality, Inc.                                 $               482       $              11,671    $             8,455       $              25,577


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The following table shows selected income statement data as a percentage of total revenue for the periods indicated. Some percentages may not add up to the total due to rounding.

                                                 For the three months ended September 30,        For the nine months ended September 30,
                                                       2022                     2021                   2022                    2021
Revenues:
Owned restaurant net revenue                                 95.2 %                   94.6 %                 95.0 %                  95.8 %
Management, license and incentive fee
revenue                                                       4.8 %                    5.4 %                  5.0 %                   4.2 %
Total revenues                                              100.0 %                  100.0 %                100.0 %                 100.0 %
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales (1)                           24.9 %                   26.1 %                 25.5 %                  25.4 %
Owned restaurant operating expenses (1)                      62.0 %                   56.9 %                 58.4 %                  55.1 %
Total owned operating expenses (1)                           86.9 %                   82.9 %                 83.9 %                  80.4 %
General and administrative (including
stock-based compensation of 1.4%, 0.9%,
1.2% and 1.5% for the three and nine months
ended September 30, 2022 and 2021,
respectively)                                                 8.8 %                    8.3 %                  9.0 %                   8.9 %
Depreciation and amortization                                 4.0 %                    3.6 %                  3.8 %                   4.0 %
COVID-19 related expenses                                        -%                    1.6 %                  1.1 %                   2.0 %
Agreement restructuring expenses                                 -%        
              -%                     -%                   0.3 %
Pre-opening expenses                                          3.7 %                    0.8 %                  1.7 %                   0.4 %
Lease termination expenses                                       -%                    0.1 %                  0.1 %                   0.2 %
Transaction costs                                             0.1 %                    0.2 %                     -%                   0.1 %
Total costs and expenses                                     99.3 %                   93.0 %                 95.4 %                  92.9 %
Operating income                                              0.7 %                    7.0 %                  4.6 %                   7.1 %
Other expenses (income), net:
Interest expense, net                                         0.6 %                    1.1 %                  0.6 %                   1.7 %
Loss on early debt extinguishment                                -%                    0.8 %                     -%                   0.3 %
Gain on CARES Act Loan forgiveness                               -%                  (13.9)%                     -%                  (9.6)%
Total other expenses (income), net                            0.6 %                  (12.0)%                  0.6 %                  (7.6)%
Income before provision for income taxes                      0.1 %                   19.0 %                  4.0 %                  14.7 %
(Benefit) provision for income taxes                         (0.4)%                    2.1 %                  0.3 %                   1.1 %
Net income                                                    0.5 %                   16.8 %                  3.7 %                  13.5 %
Less: net (loss) income attributable to
noncontrolling interest                                      (0.1)%                    0.6 %                 (0.1)%                   0.3 %
Net income attributable to The One Group
Hospitality, Inc.                                             0.7 %                   16.2 %                  3.7 %                  13.2 %


(1) These expenses are presented as a percentage of the restaurant’s net

    revenue.


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The following tables show our operating results by segment for the periods
indicated (in thousands).

                                   STK        Kona Grill      ONE Hospitality      Corporate       Total
For the three months ended
September 30, 2022
Total revenues                  $  42,347          30,069                   483           121       73,020
Operating income (loss)         $   6,448             259                   216       (6,432)          491
Capital asset additions         $   5,788           2,761                    58           611        9,218
For the nine months ended
September 30, 2022
Total revenues                  $ 131,865          94,756                 1,340           365      228,326
Operating income (loss)         $  28,379           5,094                   377      (23,404)       10,446
Capital asset additions         $  13,122           6,029                   111         2,047       21,309
As of September 30, 2022
Total assets                    $ 103,555          73,414                 5,344        54,070      236,383


                                  STK        Kona Grill      ONE Hospitality      Corporate       Total
For the three months ended
September 30, 2021
Total revenues                 $  40,018          31,177                   578            96       71,869
Operating income (loss)        $   9,996           2,258                   369       (7,565)        5,058
Capital asset additions        $   1,890             665                    29           155        2,739
For the nine months ended
September 30, 2021
Total revenues                 $ 102,495          89,001                   991           624      193,111
Operating income (loss)        $  26,403           9,124                   185      (22,041)       13,671
Capital asset additions        $   5,115           1,570                   102         1,325        8,112
As of December 31, 2021
Total assets                   $  95,579          69,006                 

5,735 59,515 229,835


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 rent
expense, pre-opening expenses, lease termination expenses, stock-based
compensation, COVID-19 related expenses 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, Adjusted EBITDA and Restaurant Operating Profit 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.

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The following table provides a reconciliation of net earnings 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,
                                                          2022                        2021                    2022                       2021
Net income attributable to The One Group
Hospitality, Inc.                                   $             482        $               11,671    $            8,455       $               25,577
Net (loss) income attributable to noncontrolling
interest                                                        (105)                           430                 (117)                          573
Net income                                                        377                        12,101                 8,338                       26,150
Interest expense, net                                             435                           781                 1,387                        3,262
(Benefit) provision for income taxes                            (321)                         1,544                   721                        2,188
Depreciation and amortization                                   2,930      
                  2,572                 8,571                        7,766
EBITDA                                                          3,421                        16,998                19,017                       39,366
COVID-19 related expenses                                           -                         1,131                 2,534                        3,776
Agreement restructuring expenses                                    -      
                      -                     -                          494
Transaction costs                                                  51                           131                    51                          131
Stock-based compensation                                        1,001                           653                 2,791                        2,812
Lease termination expense (1)                                       -                            58                   255                          352
Non-cash rent expense (2)                                        (75)                          (16)                 (160)                         (19)
Pre-opening expenses                                            2,684                           587                 3,833                          842
Gain on CARES Act Loan forgiveness                                  -                       (9,968)                     -                     (18,529)
Loss on early debt extinguishment                                   -                           600                     -                          600
Adjusted EBITDA                                                 7,082                        10,174                28,321                       29,825
Adjusted EBITDA attributable to noncontrolling
interest                                                         (56)                           126                    77                          407
Adjusted EBITDA attributable to The ONE Group
Hospitality, Inc.                                   $           7,138        $               10,048    $           28,244       $               29,418

(1) Amount relating to exit costs for 2016 leases for restaurants never built. All amounts have been paid to September 30, 2022.

Non-cash rent expense is included in directly owned restaurant operating expenses and (2) general and administrative expenses in the condensed consolidated statements

operations and comprehensive income.

The following table provides a reconciliation between operating profit and restaurant operating profit for the periods indicated (in thousands):

                                                                For the three months ended September 30,           For the nine months ended 

September 30,

                                                                     2022                       2021                    2022                       2021
Operating income as reported                                 $                491       $              5,058    $              10,446       $           

13,671

Management, license and incentive fee revenue                             (3,482)                    (3,903)                 (11,342)                

(8,129)

General and administrative                                                  6,447                      5,959                   20,587                  

17,272

Depreciation and amortization                                              
2,930                      2,572                    8,571                     7,766
COVID-19 related expenses                                                       -                      1,131                    2,534                     3,776
Agreement restructuring expenses                                           
    -                          -                        -                       494
Pre-opening expenses                                                        2,684                        587                    3,833                       842
Lease termination expense                                                       -                         58                      255                       352
Transaction costs                                                              51                        131                       51                       131
Restaurant Operating Profit                                  $             
9,121       $             11,593    $              34,935       $          

36,175

Restaurant Operating Profit as a percentage of owned
restaurant net revenue                                                      13.1%                      17.1%                    16.1%                     19.6%


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Restaurant operating income by brand is as follows (in thousands):

                                               For the three months ended 

September 30For the nine months ended September 30,

                                                    2022                       2021                   2022                      2021
STK restaurant operating profit (Company
owned)                                       $             7,237        $             8,309    $            25,519       $            23,458
STK restaurant operating profit (Company
owned) as a percentage of STK revenue
(Company owned)                                            18.5%                      22.6%                  21.0%                     24.6%
Kona Grill restaurant operating profit       $             1,915        $             3,422    $             9,544       $            12,693
Kona Grill restaurant operating profit as
a percentage of Kona Grill revenue                          6.4%                      11.0%                  10.1%                     14.3%

Results of operations for the three months ended September 30, 2022 and 2021

Revenue

Owned restaurant net revenue. Owned restaurant net revenue increased
$1.5 million, or 2.3%, to $69.5 million for the three months ended September 30,
2022 from $68.0 million for the three months ended September 30, 2021. The
increase was primarily attributable to the opening of STK San Francisco in
August 2022, partially offset by the impact of Hurricane Ian which affected 14%
of our sales base. Comparable restaurant sales increased 0.5% for the third
quarter of 2022 compared to the third quarter of 2021.

Management, license and incentive fee revenue. Management and license fee
revenues decreased $0.4 million, or 10.8%, to $3.5 million for the three months
ended September 30, 2022 from $3.9 million for the three months ended September
30, 2021. The decrease was primarily driven by decreased revenues in our managed
properties in London, England.

Costs and expenses

Owned restaurant cost of sales. Food and beverage costs for owned restaurants
decreased $0.4 million, or 2.5%, to $17.3 million for the three months ended
September 30, 2022 from $17.7 million for the three months ended September 30,
2021. As a percentage of owned restaurant net revenue, cost of sales decreased
120 basis points from 26.1% in the three months ended September 30, 2021 to
24.9% for the three months ended September 30, 2022 primarily due to operational
cost reduction initiatives partially offset by increased commodity prices.

Owned restaurant operating expenses. Owned restaurant operating expenses
increased $4.5 million to $43.1 million for the three months ended September 30,
2022 from $38.6 million for the three months ended September 30, 2021. Owned
restaurant operating expenses as a percentage of owned restaurant net revenue
increased 510 basis points from 56.9% for the three months ended September 30,
2021 to 62.0% for the three months ended September 30, 2022 primarily due to
consolidated higher average wage and operating costs.

General and administrative. General and administrative costs increased
$0.4 million, or 8.2%, to $6.4 million for the three months ended September 30,
2022 from $6.0 million for the three months ended September 30, 2021. The
increase was attributable to additional investments required ahead of growth,
increased accounting and legal fees and increased stock-based compensation
expense, partially offset by a decrease in performance based variable
compensation. In addition, the Company experienced increased travel expenses due
to rising hotel and airfare costs. As a percentage of revenues, general and
administrative costs were 8.8% for the three months ended September 30, 2022
compared to 8.3% for the three months ended September 30, 2021.

Depreciation and amortization. Depreciation and amortization expense was $2.9
million and $2.6 million for the three months ended September 30, 2022 and
2021,
respectively.

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Pre-opening expenses. In the three months ended September 30, 2022, we incurred
$2.7 million of pre-opening expenses primarily related to payroll, training and
non-cash pre-open rent for STK San Francisco which opened in August 2022 and STK
Dallas, Kona Grill Riverton and Kona Grill Columbus which are currently under
construction. Total pre-opening expenses related to non-cash pre-open rent was
$0.1 million. Pre-opening expenses for the three months ended September 30, 2021
were $0.6 million, primarily related to expenses for STK Bellevue, which opened
in July 2021. Detail of pre-opening expenses by category is provided in the
table below for the three months ended September 30, 2022 (in thousands).

                    Preopen Expenses     Preopen Rent    Total
Training Team      $              617    $           -  $   617
Restaurants (1)                 1,865              202    2,067
Total              $            2,482    $         202  $ 2,684

(1)Includes STK San Francisco, STK Dallas, Kona Grill Riverton, Kona Grill Columbus and other places in development

COVID-19 related expenses. COVID-19 related expenses were $1.1 million in three
months ended September 30, 2021. COVID-19 related expenses are composed
primarily of sanitation, supplies and safety precautions taken to prevent the
spread of COVID-19.

Interest expense, net. Interest expense, net was $0.4 million and $0.8 million
for each of the three months ended September 30, 2022 and 2021, respectively. In
conjunction with the amended Credit Agreement in August 2021, we made a $22.2
million pre-payment on the loan and reduced the interest rate on the loan.

(Benefit) provision for income taxes. The provision for income taxes for the
three months ended September 30, 2022 and 2021 was a tax benefit of $0.3 million
and tax expense of $1.5 million, respectively. We estimate our 2022 annualized
effective tax rate will be 15.9%.

Net (loss) income attributable to noncontrolling interest. Net loss attributable
to noncontrolling interest was $0.1 million for the three months ended September
30, 2022 compared to net income of $0.4 million for the three months ended
September 30, 2021.

Results of Operations for the Nine Months Ended September 30, 2022 and 2021

Revenue

Owned restaurant net revenue. Owned restaurant net revenue increased
$32.0 million, or 17.3%, to $217.0 million for the nine months ended September
30, 2022 from $185.0 million for the nine months ended September 30, 2021. The
increase was primarily attributable to strong execution of our sales
initiatives. Comparable restaurant sales increased 16.8% in the nine months
ended September 30, 2022.

Management and license fee revenue. Management and license fee revenues
increased $3.2 million, or 39.5% to $11.3 million for the nine months ended
September 30, 2022 from $8.1 million for the nine months ended September 30,
2021. The increase was primarily attributable to strong revenues at our managed
locations in North America.

Cost and Expenses

Owned restaurant cost of sales. Food and beverage costs for owned restaurants
increased $8.3 million, or 17.7%, to $55.2 million for the nine months ended
September 30, 2022 from $46.9 million for the nine months ended September 30,
2021. The increase was due to the incremental sales increases. As a percentage
of owned restaurant net revenue, cost of sales increased 10 basis points from
25.4% in the nine months ended September 30, 2021 to 25.5% for the nine months
ended September 30, 2022 primarily due to increased commodity prices partly
offset by operational cost reduction initiatives.

Owned restaurant operating expenses. Owned restaurant operating expenses
increased $24.9 million to $126.8 million for the nine months ended September
30, 2022 from $101.9 million for the nine months ended September 30, 2021. Owned
restaurant operating expenses as a percentage of owned restaurant net revenue
increased 330 basis points from 55.1% in the nine months ended September 30,
2021 to 58.4% for the nine months ended September 30, 2022 primarily due to
consolidated higher average wage and operating costs.

General and administrative. General and administrative costs increased
$3.3 million, or 19.2%, to $20.6 million for the nine months ended September 30,
2022 from $17.3 million for the nine months ended September 30, 2021. The
increase was attributable to additional investments required ahead of growth and
increased accounting and legal fees partially offset by a decrease in
performance based variable compensation. In addition, the Company experienced
increased travel expenses due to rising hotel and airfare costs. As

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a percentage of revenues, general and administrative costs were 9.0% for the
nine months ended September 30, 2022 compared to 8.9% for the nine months ended
September 30, 2021.

Depreciation and amortization. Depreciation and amortization expense was $8.6
million and $7.8 million for the nine months ended September 30, 2022 and 2021,
respectively.

Pre-opening expenses. In the nine months ended September 30, 2022, we incurred
$3.8 million of pre-opening expenses primarily related to payroll, training and
non-cash pre-open rent for STK San Francisco which opened in August 2022 and STK
Dallas, Kona Grill Riverton, and Kona Grill Columbus which are currently under
construction. Total pre-opening expenses related to non-cash pre-open rent was
$0.6 million. Pre-opening expenses for the nine months ended September 30, 2021
were $0.8 million primarily related to STK Bellevue which opened in July 2021.
Detail of pre-opening expenses by category is provided in the table below for
the nine months ended September 30, 2022 (in thousands).

                    Preopen Expenses     Preopen Rent    Total
Training Team      $              708    $           -  $   708
Restaurants (1)                 2,261              864    3,125
Total              $            2,969    $         864  $ 3,833

(1)Includes STK San Francisco, STK Dallas, Kona Grill Riverton, Kona Grill Columbus and other places in development

COVID-19 related expenses. COVID-19 related expenses were $2.5 million for the
nine months ended September 30, 2022 compared to $3.8 million in the prior year
period. COVID-19 related expenses are composed primarily of sanitation, supplies
and safety precautions taken to prevent the spread of COVID-19.

Interest expense, net. Interest expense, net was $1.4 million and $3.3 million
for the nine months ended September 30, 2022 and 2021, respectively. In
conjunction with the amended Credit Agreement in August 2021, we made a $22.2
million pre-payment on the loan and reduced the interest rate on the loan.

(Benefit) provision for income taxes. The provision for income taxes for the
nine months ended September 30, 2022 was $0.7 million compared to $2.2 million
for the nine months ended September 30, 2021. We estimate our 2022 annualized
effective tax rate will be 15.9%.

Net income (loss) attributable to noncontrolling interest. Net loss attributable
to noncontrolling interest was $0.1 million for the nine months ended September
30, 2022 compared to net income of $0.6 million for the nine months ended
September 30, 2021.

Cash and capital resources

Summary

Our principal liquidity requirements are to meet our lease obligations, working
capital and capital expenditure needs and to pay principal and interest on
outstanding debt. 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 and construction allowances provided by landlords of certain
locations. We also may borrow on our revolving credit facility or issue equity
to support ongoing business and fund additional expansion. We believe these
sources of financing are adequate to support our immediate business operations
and plans. As of September 30, 2022, we had cash and cash equivalents of
$17.5 million and $29.4 million in long-term debt, which consisted of borrowings
under our Credit Agreement. As of September 30, 2022, the availability on our
revolving credit facility was $5.6 million, subject to certain conditions.

In the nine months ended September 30, 2022, capital expenditures were
$21.3 million of which $13.3 million related to the construction of new STK and
Kona Grill restaurants and $8.0 million for existing restaurants. Net capital
expenditures, inclusive of $2.1 million in landlord contributions, was $19.2
million for the nine months ended September 30, 2022. Capital expenditures by
type for the nine months ended September 30, 2022 is provided below (in
thousands).

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               STK      Kona Grill   Other    Total
New Venues   $ 10,777  $      2,524  $    -  $ 13,301
Maintenance     4,006         3,457       -     7,463
Other               -             -     545       545
Total        $ 14,783  $      5,981  $  545  $ 21,309


Our future cash requirements will depend on many factors, including the pace of
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.

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.

credit agreement

On October 4, 2019, in conjunction with the acquisition of Kona Grill, we
entered into our Credit Agreement with Goldman Sachs Bank USA. On August 6,
2021, we entered into the Third Amendment to the Credit Agreement to extend the
maturity date for both the term loan and revolving credit facility to August
2026. The Credit Agreement provides for a secured revolving credit facility of
$12.0 million and a $25.0 million term loan (reduced from $48.0 million). The
term loan is payable in quarterly installments of $0.1 million, with the final
payment due in August 2026.

The amended Credit Agreement has several borrowing and interest rate options,
including the following: (a) a LIBOR rate (or a comparable successor rate)
subject to a 1.00% floor (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) 4.00%. Loans under the amended Credit
Agreement bear interest at a rate per annum using the applicable indices plus an
interest rate margin of 5.00% (for LIBOR rate loans) and 4.00% (for base rate
loans).

As of September 30, 2022, we were compliant with the covenants required by the
amended 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.

Refer to Notes 5 and 15 of our condensed consolidated financial statements presented in Item 1 of this Quarterly Report on Form 10-Q for more information on the terms of our long-term debt agreements and information on our covenants. and contingencies.

Capital expenditures and rental agreements

When we open new Company-owned restaurants, our capital expenditures for
construction increase. 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 and anticipate
approximately $2.5 million for an 8,000 square-foot Kona Grill restaurant, in
each case, net of landlord contributions and excluding pre-opening costs. For
STK locations where we may be the successor restaurant tenant, we anticipate
total cash investment in the $2.0 million to $3.0 million range. Typical
pre-opening costs, excluding non-cash rent, are $0.3 million to $0.5 million. 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.

Our hospitality F&B venues typically require limited capital investment from us.
Capital expenditures for these projects will primarily be funded by cash flows
from operations 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

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indemnities resulting from the increase in minimum rents. However, there is no guarantee that these allocations will be available to us for each project we select for development.

Cash flow

The following table summarizes the statement of cash flows for the nine months ended September 30, 2022 and 2021 (in thousands):

                                                               For the nine 

months ended September 30,

                                                                    2022                     2021
Net cash provided by (used in):
Operating activities                                         $            16,336      $            23,030
Investing activities                                                    (21,309)                  (8,112)
Financing activities                                                       (803)                 (20,188)
Effect of exchange rate changes on cash                                    (361)                     (37)
Net decrease in cash and cash equivalents                    $           (6,137)      $           (5,307)


Operating Activities. Net cash provided by operating activities was
$16.3 million for the nine months ended September 30, 2022, compared to net cash
provided by operating activities of $23.0 million for the nine months ended
September 30, 2021. For the nine months ended September 30, 2022, net cash
provided by operating activities was driven by strong net income from higher
sales volumes and collection on accounts receivables partially offset by
payments on accrued expenses including payments for lease settlements.

Investing Activities. Net cash used in investing activities for the nine months
ended September 30, 2022 was $21.3 million primarily for the construction of STK
restaurants in Dallas, Texas and San Francisco, California, and Kona Grill
restaurants in Riverton, Utah and Columbus, Ohio, as well as capital
expenditures for existing restaurants compared to $8.1 million for the nine
months ended September 30, 2021.

Financing Activities. Net cash used in financing activities for the nine months
ended September 30, 2022 was $0.8 million. We borrowed $5.0 million against the
revolving line of credit, offset by the purchase and retirement of $3.5 million
in common stock and $2.0 million to pay employee taxes for shares withheld upon
the vesting of restricted stock units. Net cash used in financing activities for
the nine months ended September 30, 2021 was $20.2 million primarily
attributable to the partial paydown of the term loan in conjunction with the
Third Amendment to the Credit Agreement.

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.

Critical accounting estimates

In addition to the critical accounting estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021we added a critical accounting estimate regarding indefinite life intangible assets.

Indefinite-lived intangible assets are tested for impairment annually or on an
interim basis if events or changes in circumstances between annual tests
indicate a potential impairment. First, we determine if, based on qualitative
factors, it is more likely than not that an impairment exists. Factors
considered include, but are not limited to, historical financial performance,
expected future cash flows, changes in management or key personnel,
macroeconomic and industry conditions and the legal and regulatory environment.
If the qualitative assessment indicates that it is more likely than not that an
impairment exists, then a quantitative assessment is performed.

The quantitative assessments require the use of estimates and assumptions
regarding future cash flows. Key assumptions include projected revenue growth
and operating expenses, discount rates, royalty rates and other factors that
could affect fair value or otherwise indicate potential impairment. These
estimates are subjective, and our ability to realize future cash is affected by
factors such as changes in economic conditions and operating performance.
Changes in circumstances existing at the measurement date or at

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at other times in the future, or in estimates associated with management’s judgments and assumptions in assessing the fair value of our trademarks, could cause some or all of our brands to be impaired of business.

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