UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q


	(Mark One)
	~~(Mark One)~~
⌧
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended March 31, ~~2020~~2021

	OR

☐◻	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number ~~001‑37379~~001-37379

THE ONE GROUP HOSPITALITY, INC.

(Exact name of registrant as specified in its charter)

Delaware		~~14‑1961545~~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~~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)
~~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~~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~~12b-2 of the Exchange Act). Yes ☐◻ No ☒⌧

Number of shares of common stock outstanding as of ~~May 1, 2020: 28,828,675~~April 30, 2021: 30,164,987

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	19 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	26 27
Item 4. Controls and Procedures	26 27

PART II – Other Information
~~Ite~~mItem 1. Legal Proceedings	27
I~~tem~~Item 1A Risk Factors	27 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6. Exhibits	28

Signatures	29

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)


	March 31,		December 31,
	2020		2019

					March 31,		December 31,
					2021		2020
ASSETS	(Unaudited)				(Unaudited)
Current assets:
Cash and cash equivalents	$	8,160	$	12,344	$	28,435	$	24,385
Accounts receivable		5,189		10,351		4,628		5,777
Inventory		2,490		3,058		2,490		2,490
Other current assets		2,005		1,047		2,157		1,348
Due from related parties, net		376		341
Due from related parties						376		376
Total current assets		18,220		27,141		38,086		34,376


Property and equipment, net		69,183		70,483		67,924		67,344
Operating lease right-of-use assets		80,228		81,097		79,830		80,960
Deferred tax assets, net		7,876		7,751		12,877		13,226
Intangibles, net		16,965		17,183		16,110		16,313
Other assets		2,372		1,622		2,595		2,446
Security deposits		1,337		1,308		901		904
Total assets	$	196,181	$	206,585	$	218,323	$	215,569


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,397	$	8,274	$	7,997	$	7,404
Accrued expenses		7,642		11,198		18,586		15,684
Deferred license revenue		446		332		208		207
Deferred gift card revenue and other		2,691		3,183		1,682		1,990
Current portion of operating lease liabilities		4,454		4,397		4,971		4,817
Current portion of CARES Act Loans						16,247		10,057
Current portion of long-term debt		696		749		548		588
Total current liabilities		23,326		28,133		50,239		40,747


Deferred license revenue, long-term		869		1,036		900		953
Operating lease liabilities, net of current portion		97,492		98,278		97,373		98,569
CARES Act Loans, net of current portion						2,067		8,257
Long-term debt, net of current portion		45,123		45,226		45,050		45,064
Total liabilities		166,810		172,673		195,629		193,590


Commitments and contingencies


Stockholders’ equity:
Common stock, $0.0001 par value, 75,000,000 shares authorized; 28,807,800 and 28,603,829 shares issued and outstanding at March 31, 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 March 31, 2020 and December 31, 2019, respectively		—		—
Common stock, $0.0001 par value, 75,000,000 shares authorized; 29,627,482 and 29,083,183 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively						3		3
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively						—		—
Additional paid-in capital		45,229		44,853		47,522		46,538
Accumulated deficit		(12,490)		(7,891)		(20,646)		(20,716)
Accumulated other comprehensive loss		(2,695)		(2,651)		(2,664)		(2,646)
Total stockholders’ equity		30,047		34,314		24,215		23,179
Noncontrolling interests		(676)		(402)		(1,521)		(1,200)
Total equity		29,371		33,912		22,694		21,979
Total liabilities and equity	$	196,181	$	206,585	$	218,323	$	215,569

See notes to the condensed consolidated financial statements.

Table of Contents

THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

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


	For the three months ended March 31,
	2020		2019

					For the three months ended March 31,
					2021		2020
Revenues:
Owned restaurant net revenue	$	38,557	$	20,093	$	49,168	$	38,557
Management, license and incentive fee revenue		2,162		2,683		1,314		2,162
Total revenues		40,719		22,776		50,482		40,719
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales		10,113		5,026		12,001		10,113
Owned restaurant operating expenses		26,499		12,717		27,906		26,499
Total owned operating expenses		36,612		17,743		39,907		36,612
General and administrative (including stock-based compensation of $338 and $181 for the three months ended March 31, 2020 and 2019 respectively)		3,397		2,650
General and administrative (including stock-based compensation of $1,022, and $338 for the three months ended March 31, 2021 and 2020 respectively)						5,174		3,397
Depreciation and amortization		2,440		942		2,699		2,440
Transaction and integration costs		1,095		—
COVID-19 related expenses		1,348		—		1,557		1,348
Transaction costs						—		1,095
Lease termination expenses		179		—		187		179
Pre-opening expenses		—		482		101		—
Other income, net		(1)		(175)		—		(1)
Total costs and expenses		45,070		21,642		49,625		45,070
Operating (loss) income		(4,351)		1,134
Operating income (loss)						857		(4,351)
Other expenses, net:
Interest expense, net of interest income		1,175		269		1,246		1,175
Total other expenses, net		1,175		269		1,246		1,175
(Loss) income before (benefit) provision for income taxes		(5,526)		865
(Benefit) provision for income taxes		(653)		96
Net (loss) income		(4,873)		769
Loss before benefit for income taxes						(389)		(5,526)
Benefit for income taxes						(329)		(653)
Net loss						(60)		(4,873)
Less: net loss attributable to noncontrolling interest		(274)		(85)		(130)		(274)
Net (loss) income attributable to The ONE Group Hospitality, Inc.	$	(4,599)	$	854
Net income (loss) attributable to The One Group Hospitality, Inc.					$	70	$	(4,599)
Currency translation loss		(44)		(160)		(18)		(44)
Comprehensive (loss) income	$	(4,643)	$	694

Net (loss) income attributable to The ONE Group Hospitality, Inc. per share:
Basic net (loss) income per share	$	(0.16)	$	0.03
Diluted net (loss) income per share	$	(0.16)	$	0.03

Shares used in computing basic (loss) earnings per share		28,636,325		28,314,820
Shares used in computing diluted (loss) earnings per share		28,636,325		29,311,756
Comprehensive income (loss) attributable to The ONE Group Hospitality, Inc.					$	52	$	(4,643)

Net income (loss) attributable to The ONE Group Hospitality, Inc. per share:
Basic net income (loss) per share					$	—	$	(0.16)
Diluted net income (loss) per share					$	—	$	(0.16)

Shares used in computing basic income (loss) per share						29,168,576		28,636,325
Shares used in computing diluted income (loss) per share						32,031,479		28,636,325

See notes to the condensed consolidated financial statements.

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

																							Accumulated
																			Additional				other
																Common stock			paid-in		Accumulated		comprehensive		Stockholders’		Noncontrolling
																Shares	Par value		capital		deficit		loss		equity		interests		Total
Balance at December 31, 2020																29,083,183	$	3	$	46,538	$	(20,716)	$	(2,646)	$	23,179	$	(1,200)	$	21,979
Stock-based compensation																25,643		—		1,022		—		—		1,022		—		1,022
Exercise of warrants																450,971		—		—		—		—		—		—		—
Issuance of common shares, net of tax withholding																67,685		—		(154)		—		—		(154)		—		(154)
Purchase of noncontrolling interest																—		—		116		—		—		116		(191)		(75)
Loss on foreign currency translation, net																—		—		—		—		(18)		(18)		—		(18)
Net income (loss)																—		—		—		70		—		70		(130)		(60)
Balance at March 31, 2021																29,627,482	$	3	$	47,522	$	(20,646)	$	(2,664)	$	24,215	$	(1,521)	$	22,694


Balance at December 31, 2019	28,603,829	$	3	$	44,853	$	(7,891)	$	(2,651)	$	34,314	$	(402)	$	33,912	28,603,829	$	3	$	44,853	$	(7,891)	$	(2,651)	$	34,314	$	(402)	$	33,912
Stock-based compensation, net of tax withholding	69,327		—		338		—		—		338		—		338
Stock-based compensation																69,327		—		338		—		—		338		—		338
Exercise of stock options	18,000		—		38		—		—		38		—		38	18,000		—		38		—		—		38		—		38
Vesting of restricted shares	116,644		—		—		—		—		—		—		—
Issuance of common shares, net of tax withholding																116,644		—		—		—		—		—		—		—
Loss on foreign currency translation, net	—		—		—		—		(44)		(44)		—		(44)	—		—		—		—		(44)		(44)		—		(44)
Net loss	—		—		—		(4,599)		—		(4,599)		(274)		(4,873)	—		—		—		(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	28,807,800	$	3	$	45,229	$	(12,490)	$	(2,695)	$	30,047	$	(676)	$	29,371

See notes to the condensed consolidated financial statements.

Table of Contents

THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	For the three months ended March 31,
	2020		2019

					For the three months ended March 31,
					2021		2020
Operating activities:
Net (loss) income	$	(4,873)	$	769
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Net loss					$	(60)	$	(4,873)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		2,440		942		2,699		2,440
Stock-based compensation		338		181		1,022		338
Amortization of discount on warrants and debt issuance costs		108		50
Amortization of debt issuance costs						141		108
Deferred taxes		(125)		10		349		(125)
Changes in operating assets and liabilities:
Accounts receivable		5,092		1,147		1,148		5,092
Inventory		568		161		—		568
Other current assets		(958)		(96)		(809)		(958)
Due from related parties, net		(35)		(38)
Due from related parties						—		(35)
Security deposits		(32)		(18)		3		(32)
Other assets		(807)		8		(164)		(807)
Accounts payable		(859)		270		392		(859)
Accrued expenses		(3,560)		(1,331)		2,537		(3,560)
Operating lease liabilities and right-of-use assets		140		321		88		140
Deferred revenue		(540)		137
Net cash (used in) provided by operating activities		(3,103)		2,513
Deferred gift card and license revenue						(360)		(540)
Net cash provided by (used in) operating activities						6,986		(3,103)

Investing activities:
Purchase of property and equipment		(791)		(2,060)		(2,615)		(791)
Net cash used in investing activities		(791)		(2,060)		(2,615)		(791)

Financing activities:
Borrowings of long-term debt		—		—
Repayments of long-term debt		(216)		(798)		(40)		(216)
Debt issuance costs		(48)		—		(35)		(48)
Exercise of stock options		38		—		—		38
Tax-withholding obligation on stock based compensation						(154)		—
Purchase of non-controlling interests						(75)		—
Net cash used in financing activities		(226)		(798)		(304)		(226)
Effect of exchange rate changes on cash		(64)		(168)		(17)		(64)
Net decrease in cash and cash equivalents		(4,184)		(513)
Cash and cash equivalents, beginning of year		12,344		1,592
Cash and cash equivalents, end of year	$	8,160	$	1,079
Net increase (decrease) in cash and cash equivalents						4,050		(4,184)
Cash and cash equivalents, beginning of period						24,385		12,344
Cash and cash equivalents, end of period					$	28,435	$	8,160
Supplemental disclosure of cash flow data:
Interest paid	$	704	$	235	$	1,022	$	704
Income taxes paid		85		191		—		85
Non-cash amortization of debt issuance costs	$	108	$	5

See notes to the condensed consolidated financial statements.

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 and customized for the client.~~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 polished casual bar-centric grill concept featuring American favorites, award-winning sushi, and specialty cocktails in a polished casual atmosphere.

On October 4, 2019, the Company acquired substantially all of the assets of Kona Grill Inc. and its affiliates (“Kona Grill”), which is 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 intends to integrate Kona Grill by leveraging its corporate infrastructure, bar-business knowledge and unique Vibe Dining program, to elevate the brand experience and drive improved performance. The results of operations of these restaurants are included in our consolidated financial statements from the date of acquisition.

As of March 31, ~~2020,~~2021 the Company owned, operated, managed or licensed 5554 venues, including 20 STKs and 24 Kona Grills in major metropolitan cities in North America, Europe and the Middle East and 1110 F&B venues ~~including six~~in five hotels and casinos in the United States and Europe.

~~Effects of COVID-19~~

In January 2021, a managed STK restaurant in Scottsdale, Arizona was opened. For those restaurants that are managed or licensed, the ~~first quarter of 2020, the negative effect~~Company generates management fees based on top-line revenues and incentive fee revenue based on a percentage of the ~~novel coronavirus (“COVID-19”) on~~location’s revenues and profits.

COVID-19

The COVID-19 pandemic has significantly impacted the Company’s business ~~was significant. The Company experienced an initial decline in restaurant revenue that began in early March 2020 as business travel~~due to state and local government mandates, including suspension of in-person dining, reduced seating capacity and social ~~dining decreased. On March 11,~~distancing. Beginning in mid-March 2020, the World Health Organization declared COVID-19 a pandemic disease, and on March 13, 2020, President Trump declared a state of emergency for COVID-19. Public concerns about the spread of COVID-19 continues to be widespread. The Company ~~has~~ experienced a significant reduction in guest traffic ~~at its restaurants as a result~~due to government mandated restrictions resulting in the temporary closure of ~~restrictions mandated by state and local governments.~~

~~In response to these conditions, and out of concern for our customers and partners, the Company has temporarily closed~~ several restaurants and the ~~Company has shifted~~shift in operations ~~at 30 of its restaurants~~ to provide only take-out and delivery service. Starting in May 2020, state and local governments began easing restrictions on stay-at-home orders; however, certain states reimposed restrictions as COVID-19 cases increased during the fall of 2020. In ~~addition to the decline~~February 2021, many jurisdictions began easing restrictions once again. Currently, all domestic restaurants are open for in-person dining with seating capacity restrictions in restaurant revenue, the Company has incurred approximately $1.3 million of costs directly related to COVID-19 in the three months ended March 31, 2020, composed primarily of payments to employees for paid-time off during restaurant closures, inventory waste, and rent and rent related costs for closed and limited-operations restaurants from the day that the dining room closed.major metropolitan markets. The Company has ~~implemented measures~~taken significant steps to ~~reduce~~adapt its ~~costs~~business to increase sales while providing a safe environment for guests and employees, which resulted in a significant increase in revenues during the ~~COVID-19 pandemic, including significant reductions in employees, deferral~~first quarter of ~~capital projects, and negotiations with suppliers and landlords regarding deferral or abatement~~2021 compared to the fourth quarter of ~~payments which could become significant.~~2020.

Given the ~~present~~ongoing uncertainty surrounding the ~~global economy due to~~effects of the COVID-19 pandemic, the Company cannot reasonably predict when ~~its closed restaurants will re-open and open~~our restaurants will be able to return to normal dining room operations. The ~~Company expects that its~~Company’s results of operations ~~will~~could be materially and negatively affected by ~~these actions~~COVID-19 in ~~the second quarter of 2020.~~2021. The Company’s ~~re-opening of closed restaurants and~~ resumption of normal dining operations is subject to events beyond ~~its~~our 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,~~2020, 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

~~Table of Contents~~

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~~10-K for the year ended December 31, ~~2019.~~2020.

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~~2020 amounts in the segment reporting footnote 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

Table of owned food, beverage and other expenses to owned restaurant cost of sales and $1.8 million of owned food, beverage and other expenses to owned restaurant expenses on the accompanying consolidated statements of operations and comprehensive (loss) income. Certain reclassifications were also made to conform the prior period segment reporting to the current year segment presentation. Refer to Note 15 – Segment Reporting for additional information regarding the Company’s reportable operating segments.Contents

Recent Accounting Pronouncements

In ~~December 2019,~~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 March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU 2021-01 to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively to such transactions through December 31, 2022. ASU 2021-01 is effective beginning on January 7, 2021 and may be applied retrospectively or prospectively to such transactions through December 31, 2022. The Company is evaluating the impact of the adoption of ASU 2020-04 and ASU 2021-01 on its financial statements.

In December 2019, FASB issued Accounting ~~Standard Updated~~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. We adopted ASU No. 2019-12 on January 1, 2021 and it did not have a significant impact to the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 is effective for smaller reporting companies for fiscal years beginning after December 15, 2022. The Company is evaluating the impact of the adoption of ASU ~~2019-12~~2016-13 on its financial ~~statements but does not expect the adoption of ASU 2019-12 to be material.~~statements.

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 our 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 our 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 our disclosures of fair value measurement, which are included in Note 7 – Fair Value of Financial Instruments.

~~Note 2 – Business Combination~~

On October 4, 2019, the Company acquired substantially all of the assets of Kona Grill Inc. and its affiliates comprising 24 domestic restaurants. The Company purchased the assets for a contractual price of $25.0 million plus $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 believes that Kona Grill is complementary to the Company’s business and will enable the Company to capture market share in the Vibe Dining segment.

~~Table of Contents~~

Kona Grill Inc. and its affiliates were purchased pursuant to a Chapter 11 bankruptcy. As a result, the Company recognized a bargain purchase gain of approximately $11.0 million in the consolidated statements of operation and comprehensive (loss) income for the year ended December 31, 2019, which represents the excess of the aggregate fair value of net assets acquired and liabilities assumed over the purchase price.

The purchase accounting is preliminary and represents estimates and assumptions that are subject to change during the measurement period (up to one year from the acquisition date). The following table summarizes the preliminary fair value of identified assets acquired and liabilities assumed as of the acquisition date (amounts in thousands):

Net assets acquired:

Cash

$
450
Current assets, excluding cash

2,830
Property and equipment

31,781
Operating lease right-of-use assets

42,398
Intangible assets

17,400
Other assets

692
Current liabilities

(7,690)
Deferred tax liability

(4,044)
Operating lease liabilities

(46,364)
Total net assets acquired

$
37,453

Purchase consideration:

Contractual purchase price

25,000
Apportionment of rent and utilities

775
Assumption of real estate lease consultant contract

465
Escrow deposit

250
Consideration paid

$
26,490

Bargain purchase gain attributable to Kona Grill acquisition

$
10,963

~~Pro Forma Results of Operations (unaudited)~~

The following pro forma results of operations for the three months ended March 31, 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 related data.

Three months ended

March 31, 2019
Total revenues

$
47,230
Net income attributable to The ONE Group Hospitality, Inc.

$
667
Net income attributable to The ONE Group Hospitality, Inc. per share:

Basic net income per share

$
0.02
Diluted net income per share

$
0.02

~~Table of Contents~~

Note 32 – Property and Equipment, net

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


	March 31,		December 31,
	2020		2019

					March 31,		December 31,
					2021		2020
Furniture, fixtures and equipment	$	20,907	$	20,512	$	22,996	$	22,328
Leasehold improvements		70,110		69,925		71,960		71,654
Less: accumulated depreciation and amortization		(24,218)		(21,997)
Less: accumulated depreciation						(33,009)		(30,948)
Subtotal		66,799		68,440		61,947		63,034
Construction in progress		438		97		3,961		2,294
Restaurant smallwares		1,946		1,946		2,016		2,016
Total	$	69,183	$	70,483	$	67,924	$	67,344

Depreciation ~~and amortization~~ related to property and equipment ~~amounted to $2.2~~was $2.5 million and ~~$0.9~~$2.2 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company does not depreciate construction in progress, assets not yet put into service or restaurant ~~supplies.~~smallwares.

Table of Contents

Note 43 – Intangibles, net

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


	March 31,		December 31,
	2020		2019

					March 31,		December 31,
					2021		2020
Kona Grill tradename	$	17,400	$	17,400	$	17,400	$	17,400
Indefinite-lived intangible assets						15		—
Less: accumulated amortization		(435)		(217)		(1,305)		(1,087)
Total intangibles, net	$	16,965	$	17,183	$	16,110	$	16,313

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 for the three months ending March 31, 2021 and 2020. The Company’s estimated aggregate amortization expense for each of the five succeeding fiscal years is approximately $0.9 million annually.

Note 54 – Accrued Expenses

Accrued expenses consist of the following (in thousands):


	March 31,		December 31,
	2020		2019

					March 31,		December 31,
					2021		2020
Payroll and related(1)	$	2,138	$	4,519	$	6,852	$	4,860
Variable rent, including disputed rent amounts		1,770		1,796
Amounts due to landlords						1,541		1,883
Accrued lease exit costs ⁽²⁾						4,144		4,144
VAT and sales taxes						1,610		1,119
Legal, professional and other services		1,081		1,103		807		462
VAT, sales and other taxes		689		1,488
Income taxes		—		547
Interest						553		474
Insurance		118		100		206		330
Other		1,846		1,645		2,873		2,412
Total	$	7,642	$	11,198	$	18,586	$	15,684

(1)	Payroll and related includes $2.6 million in employer payroll taxes at March 31, 2021 and December 31, 2020 for which payment has been deferred under the CARES Act.

(2)	Amount relates to lease exit costs for restaurants never built and still under dispute with landlords.

~~Table of Contents~~

Note 65 – Long-Term Debt and CARES Act Loans

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


	March 31,		December 31,
	2020		2019

					March 31,		December 31,
					2021		2020
Term loan agreements	$	47,760	$	47,880	$	47,280	$	47,400
Revolving credit facility		—		—		—		—
Equipment financing agreements		284		380		68		108
Total long-term debt		48,044		48,260		47,348		47,508
Less: current portion of long-term debt		(696)		(749)		(548)		(588)
Less: debt issuance costs		(2,225)		(2,285)		(1,750)		(1,856)
Total long-term debt, net of current portion	$	45,123	$	45,226	$	45,050	$	45,064

Interest expense for all the Company’s debt arrangements, excluding the amortization of debt issuance costs and other discounts and fees, was ~~approximately~~ $1.1 million and ~~$0.2~~$1.1 million for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

As of March 31, ~~2020,~~2021, 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. As~~facility, subject to certain conditions.

Table of March 31, 2020 and 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 consolidated balance sheet.Contents

~~Goldman Sachs Bank USA~~ 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 (“~~Goldman Sachs~~ Credit Agreement”). The ~~Goldman Sachs~~ 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,~~

On May 4, 2020, Goldman Sachs Bank USA (“GSB”), as administrative agent, collateral agent and lead arranger under the ~~Company’s consolidated adjusted EBITDA~~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 byunder the ~~Goldman Sachs~~ 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 ~~determining covenant compliance includes pro forma adjustments~~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 ~~annualization~~repayment of the ~~Kona Grill restaurant performance which includes results before~~CARES Act Loans.

On May 8, 2020 and August 10, 2020, GSB and the ~~acquisition date.~~

~~The Goldman Sachs~~Company and certain of its subsidiaries amended the Credit Agreement. A summary of the financial covenants under the Credit Agreement, ~~contains several financial covenants, including the following:~~as amended, is as follows:

●

AThe minimum consolidated fixed charge coverage ratio is (i) eliminated for the balance of ~~(i) 1.35 to 1.00 as of the end of any fiscal quarter ending on or prior to June 30, 2021~~2020 and 2021; and (ii) 1.50 to 1.00 as of any fiscal quarter thereafter;

●

A maximum consolidated ~~leverage ratio~~Net Leverage Ratio of (i) ~~2.75 to 1.00 as of the end of any fiscal quarter ending on or prior to March 31, 2020, (ii) 2.50~~2.85 to 1.00 as of the fiscal quarter ending ~~June~~September 30, 2020, ~~(iii) 2.25~~(ii) 3.60 to 1.00 as of the fiscal ~~quarters~~quarter ending ~~September 30, 2020 and~~ December 31, 2020, ~~(iv) 2.00~~(iii) 3.10 to 1.00 as of the fiscal quarter ending March 31, 2021, ~~(v) 1.75~~(iv) 2.10 to 1.00 as of the fiscal ~~quarter~~quarters ending June 30, 2021 ~~(vi) 1.70 to 1.00 as of the fiscal quarter ending~~and September 30, 2021, ~~(vii) 1.65~~(v) 1.90 to 1.00 as of the fiscal quarter ending December ~~21,~~31, 2021, and ~~(viii)~~(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;~~

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) ~~$10,000,000~~$7,000,000 in each of 2020 and 2021, and (ii) $8,000,000 in ~~2021 and~~ every fiscal year thereafter; and,

●

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

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) ~~2.50 to 1.00 as of the end of any fiscal quarters ending on or prior to June 30, 2020, (ii)~~ 2.25 to 1.00 as of the fiscal quarters ending September 30, 2020 and December 31, 2020, ~~(iii)~~(ii) 2.00 to 1.00 as of the fiscal quarter ending March 31, 2021, ~~(iv)~~(iii) 1.75 to 1.00 as of the fiscal quarter ending June 30, 2021, ~~(v)~~(iv) 1.70 to 1.00 as of the fiscal quarter ending September 30, 2021, ~~(vi)~~(v) 1.65 to 1.00 as of the fiscal quarter ending December 31, 2021, and ~~(vii)~~(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 ~~Goldman Sachs~~ 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~~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 ~~Goldman Sachs~~ Credit

~~Table of Contents~~

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 March 31, 2021 and December 31, 2020 was 8.50% and 8.50%, respectively.

The ~~Goldman Sachs~~ 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~~.type.

The Company and certain operating subsidiaries of the Company guarantee the obligations under the ~~Goldman Sachs~~ 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 ~~Goldman Sachs~~ 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 March 31, ~~2020,~~2021, the Company was in compliance with the covenants required by the ~~Goldman Sachs~~ Credit Agreement.

Table of Contents

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~~has five-year terms and bear interest at a rate of 5% per annum, payable in equal monthly installments.

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. 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 applied for forgiveness of the CARES Act Loans in February 2021. The Company anticipates forgiveness of the entire amount of 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 debt. If repayment is required, principal and interest payments are expected to be repaid beginning in August 2021, ten months after the end of the covered period which was from April 2020 to October 2020.

Note 76 – 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 March 31, ~~2020.~~2021.

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 ~~issues~~issuers with similar terms and ~~maturities~~.

~~The estimated fair values of long-term debt, for which carrying values do not approximate fair value, are as follows (in thousands):~~

March 31,

December 31,

2020

2019
Carrying amount of long-term debt, including current portion (1)

$
48,044

$
48,260
Fair value of long-term debt, including current portion

$
37,454

$
35,471

~~(1)~~

~~Excludes the discounts on warrants, net and debt issuance costs~~

maturities.

Note 87 – ~~Nonconsolidated Variable Interest Entities and Related Party Transactions~~Bagatelle

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 ~~cost method~~ 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 March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company has zero carrying value in these ~~cost method~~ investments.

1211

Table of Contents

~~Additionally, the Company has a management agreement with Bagatelle NY.~~ ~~Under this agreement, the Company recorded less than~~ ~~$0.1 million~~ of management fee revenue in each of the three months ended March 31, 2020 and 2019, respectively. The Company also receives rental income from Bagatelle NY for restaurant space that it subleases to Bagatelle NY. Rental ~~income of approximately $0.1 million was recorded from this entity for each of the three months ended March 31, 2020 and 2019, respectively.~~

Net receivables from the Bagatelle ~~Investors and Bagatelle NY~~entities included in due from related parties, net were ~~approximately~~ $0.4 ~~million and $0.3~~ million as of March 31, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020. These receivables represent the Company’s maximum exposure to loss. Upon expiration of the lease in November 2020, the Company exited its contract with Bagatelle.

Note 98 – Income taxes

Income taxes for the three months ended March 31, 2021 are recorded at the Company’s estimated annual effective income tax rate, subject to adjustments for discrete events, should they occur. The Company’s effective income tax rate was 84.4% for the three months ended March 31, 2021 compared to 11.8% for the three months ended March 31, ~~2020 compared to 11.1%~~2020. The Company’s annualized effective tax rate is estimated at approximately 20.8% for ~~the three months ended March 31, 2019.~~2021. The Company’s projected annual effective tax rate differs from the statutory U.S. tax rate of 21% primarily due to the following: (i) ~~availability of U.S. net operating loss carryforwards, resulting in no federal income taxes;~~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.~~jurisdictions; and (iv) the tax effect of non-deductible compensation. Income tax benefit recorded for the three months ended March 31, 2021 also included the discrete period tax benefits resulting from the vesting of restricted stock units.

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 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 109 – 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):


	March 31,		December 31,
	2020		2019

					March 31,		December 31,
					2021		2020
Receivables (1)	$	125	$	250	$	125	$	125
Deferred license revenue (2)	$	1,315	$	1,368	$	1,108	$	1,160
Deferred gift card and gift certificate revenue (3)	$	2,594	$	3,210	$	1,429	$	1,945
Konavore rewards program (4)	$	86	$	84	$	110	$	102

(1)

~~(1)~~

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

(2)

~~(2)~~

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

(3)

~~(3)~~

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

(4)

~~(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 three months ended March 31, ~~2020~~2021 and ~~2019~~2020 are as follows (in thousands):


	March 31,		March 31,
	2020		2019

					March 31,		March 31,
					2021		2020
Revenue recognized from deferred license revenue	$	52	$	55	$	52	$	52
Revenue recognized from deferred gift card revenue	$	746	$	283	$	587	$	746

~~As of March 31, 2020,~~ ~~the~~The estimated deferred license revenue to be recognized in the future related to performance obligations that are unsatisfied as of March 31, ~~2020~~2021 were as follows for each year ending (in thousands):


2020, nine months remaining	$	154
2021		206

2021, nine months remaining			$	155
2022		181		180
2023		169		169
2024		134		134
2025				133
Thereafter		471		337
Total future estimated deferred license revenue	$	1,315	$	1,108

1312

Table of Contents

Note 1110 – Leases

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


	March 31,			March 31,
	2020			2019

							March 31,			March 31,
							2021			2020
Lease cost
Operating lease cost	$	3,297		$	1,726		$	3,298		$	3,297
Variable lease cost		1,156			674			767			1,156
Short-term lease cost		128			108			138			128
Sublease income		(135)			(203)			—			(135)
Total lease cost	$	4,446		$	2,305		$	4,203		$	4,446


Weighted average remaining lease term – operating leases		13 years			14 years			12 years			13 years
Weighted average discount rate – operating leases		8.49	%		8.25	%		8.09	%		8.49	%

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 ~~subleases one restaurant space~~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 ~~2019 subleased office space where it did not use~~a significant increase in cash payments, the entire space for its operations. For the three months ended March 31, 2020 and 2019, sublease income was $0.1 million and $0.2 million, respectively, of which $0.1 million and $0.1 million, respectively, was from a related party, Bagatelle NY. Refer to Note 8 for details on transactions with this related party.

~~The~~ Company has ~~entered into an~~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 ~~one future restaurant that has not yet commenced~~lease concessions received. Variable lease cost is comprised of percentage rent and common area maintenance, offset by rent concessions received as a result of March 31, 2020. The aggregate future commitment related to this lease totals $4.8 million. The Company expects this lease to commence within the next twelve months and will have a lease term of 11 years.COVID-19.

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


	March 31,		March 31,
	2020		2019

					March 31,		March 31,
					2021		2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	3,161	$	1,718	$	2,514	$	3,161
Right-of-use assets obtained in exchange for operating lease obligations	$	288	$	281	$	—	$	288

As of March 31, ~~2020,~~2021, maturities of the Company’s operating lease liabilities are as follows (in thousands):


2020, nine months remaining	$	9,775
2021		12,843

2021, nine months remaining			$	10,066
2022		12,801		13,232
2023		13,087		13,531
2024		12,486		12,927
2025				11,893
Thereafter		115,862		112,866
Total lease payments		176,854		174,515
Less: imputed interest		(74,908)		(72,171)
Present value of operating lease liabilities	$	101,946	$	102,344

For the nine months remaining in ~~2020,~~2021, the Company’s operating lease liabilities does not include future rent abatements that have been or will be negotiated with landlords.

Table of Contents

Note 1211 – ~~(Loss) earnings~~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.

~~Table of Contents~~

For the three months ended March 31, 2021 and 2020, ~~and 2019,~~ the income (loss) ~~earnings~~ per share was calculated as follows (in thousands, except ~~earnings~~loss per share and related share data):


	Three months ended March 31,
	2020		2019
Net (loss) income attributable to The ONE Group Hospitality, Inc.	$	(4,599)	$	854


					Three months ended March 31,
					2021		2020
Net income (loss) attributable to The One Group Hospitality, Inc.					$	70	$	(4,599)

Basic weighted average shares outstanding		28,636,325		28,314,820		29,168,576		28,636,325
Dilutive effect of stock options, warrants and restricted share units		—		996,936		2,862,903		—
Diluted weighted average shares outstanding		28,636,325		29,311,756		32,031,479		28,636,325

Net (loss) income available to common stockholders per share - Basic	$	(0.16)	$	0.03
Net (loss) income available to common stockholders per share - Diluted	$	(0.16)	$	0.03

Net income (loss) available to common stockholders per share - Basic					$	—	$	(0.16)
Net income (loss) available to common stockholders per share - Diluted					$	—	$	(0.16)

For the three months ended March 31, 2021 and 2020, ~~all equivalent shares underlying options, warrants~~0.3 million and ~~restricted share units were anti-dilutive as the Company was in a net loss position. For the three months ended March 31, 2019, 0.9~~2.1 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.~~share, respectively.

Note ~~13 – Stockholders’ Equity~~

~~Significant changes in stockholders’ equity for the three months ended March 31, 2020 and 2019 are as follows (in thousands):~~

Accumulated

Additional

other

Common

paid-in

Accumulated

comprehensive

Noncontrolling

Stock

capital

deficit

loss

interests

Total
Balance at December 31, 2019

$
3

$
44,853

$
(7,891)

$
(2,651)

$
(402)

$
33,912
Stock-based compensation, net of tax withholding

—

338

—

—

—

338
Exercise of stock options

—

38

—

—

—

38
Vesting of restricted shares

—

—

—

—

—

—
Loss on foreign currency translation, net

—

—

—

(44)

—

(44)
Net loss

—

—

(4,599)

—

(274)

(4,873)
Balance at March 31, 2020

$
3

$
45,229

$
(12,490)

$
(2,695)

$
(676)

$
29,371

Accumulated

Additional

other

Common

paid-in

Accumulated

comprehensive

Noncontrolling

Stock

capital

deficit

loss

interests

Total
Balance at December 31, 2018

$
3

$
43,543

$
(28,722)

$
(2,310)

$
(452)

$
12,062
Stock-based compensation, net of tax withholding

—

181

—

—

—

181
Loss on foreign currency translation, net

—

—

—

(160)

—

(160)
Net income (loss)

—

—

854

—

(85)

769
Balance at March 31, 2019

$
3

$
43,724

$
(27,868)

$
(2,470)

$
(537)

$
12,852

~~Note 14~~12 – Stock-Based Compensation and Warrants

As of March 31, ~~2020,~~2021, the Company had ~~1,301,357~~704,668 remaining shares available for issuance under the 2019 Equity Incentive Plan (“2019 Equity Plan”).

Stock-based compensation cost for the three months ended March 31, 2021 and 2020 was $1.0 million and ~~2019 was~~ $0.3 million, ~~and $0.2 million, respectively, and~~respectively. Stock-based compensation is included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss) ~~income.~~. Included in stock-based compensation cost was $0.1 million and $0.1 million of ~~unrestricted~~ stock granted to directors for the three months ended March 31, ~~2020.~~2021 and 2020, respectively. Such grants were awarded consistent with the ~~Board’s~~Board of Director’s compensation practices. In addition, stock-based compensation expense for the three months ended March 31, 2021 includes $0.3 million of compensation costs for the vesting of market condition based options and RSUs.

~~Table of Contents~~

Stock Option Activity

Stock options in the table below includes both time based and market condition based awards. Changes in ~~outstanding~~ stock options during the three months ended March 31, ~~2020~~2021 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

$
666
Exercised

(18,000)

2.13




Cancelled, expired or forfeited

(24,000)

4.85




Outstanding at March 31, 2020

1,764,508

$
3.37

5.57 years

$
—
Exercisable at March 31, 2020

1,291,175

$
3.84

4.91 years

$
—


					Weighted
			Weighted		average	Intrinsic
			average exercise		remaining	value
		Shares	price		contractual life	(thousands)
Outstanding at December 31, 2020		2,286,410	$	3.29	4.97 years	$	1,879
Exercisable at December 31, 2020		1,443,675	$	3.57	4.68 years	$	1,112
Granted		—		—
Exercised		—		—
Cancelled, expired or forfeited		—		—
Outstanding at March 31, 2021	��	2,286,410	$	3.29	4.72 years	$	9,590
Exercisable at March 31, 2021		2,045,743	$	3.41	4.54 years	$	8,323

Table of Contents

A summary of the status of the Company’s non-vested stock options as of December 31, ~~2019~~2020 and March 31, ~~2020~~2021 and changes during the three 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

(62,667)

0.89
Non-vested stock options at March 31, 2020

473,333

$
0.87


		Weighted average
	Shares	grant date fair value
Non-vested stock options at December 31, 2020	263,333	$	0.99
Vested	(22,667)		1.55
Non-vested stock options at March 31, 2021	240,666	$	0.94

The fair value of options that vested in the three months ended March 31, ~~2020 were~~2021 was less than $0.1 million. As of March 31, ~~2020, there are 579,402 milestone-based options outstanding, and~~2021, there is approximately $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. As of March 31, 2020, there is approximately $0.3$0.1 million of total unrecognized compensation cost related to non-vested awards, which will be recognized over a weighted-average period of ~~2.5~~1.4 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 three months ended March 31, ~~2020~~2021 is presented below:


		Weighted average
	Shares	grant date fair value
Non-vested RSUs at December 31, 2019	955,011	$	2.69

					Weighted average
				Shares	grant date fair value
Non-vested RSUs at December 31, 2020				1,871,592	$	1.68
Granted	1,240,599		1.19	421,381		5.09
Vested	(116,644)		2.97	(910,540)		1.75
Cancelled, expired or forfeited	(4,000)		3.25	(12,000)		2.50
Non-vested RSUs at March 31, 2020	2,074,966	$	1.77
Non-vested RSUs at March 31, 2021				1,370,433	$	2.73

As of March 31, 2020, 150,000 RSUs subject to performance-based vesting were still outstanding, and there is approximately $0.4 million of unrecognized compensation cost related to these milestone-based options. As of March 31, 2020,2021, the Company had approximately ~~$2.9~~$3.2 million of total unrecognized compensation costs related to RSUs, which will be recognized over a weighted average period of ~~2.5~~2.4 years.

Warrants

As of December 31, 2020, there were 865,000 warrants available to be exercised at exercise prices ranging from $1.63 to $2.61. During the first quarter of 2021, the Company issued 450,971 shares in connection with the cashless exercise by Anson Investments Master Fund LP of 640,000 warrants. As of March 31, 2021, there were 225,000 warrants available to be exercised. In April 2021, the Company issued 100,000 shares to 22235570 Ontario Limited in connection with its exercise of a warrant for aggregate consideration of $261,000.

1615

Table of Contents

Note 1513 – 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 ~~our~~the Company’s internal reporting structure to better facilitate ~~our~~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, ~~pre-opening expenses,~~ 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, 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 months ended March 31, ~~2020~~2021 and ~~2019~~2020 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 March 31, 2020

											STK		Kona Grill		ONE Hospitality		Corporate		Total
For the three months ended March 31, 2021
Total revenues	$	17,383	$	20,657	$	2,679	$	—	$	40,719	$	24,691	$	25,577	$	33	$	181	$	50,482
Operating income (loss)		1,543		820		1,820		(8,534)		(4,351)	$	5,596	$	2,450	$	(321)	$	(6,868)	$	857
Capital asset additions	$	335	$	410	$	8	$	38	$	791	$	1,476	$	529	$	15	$	595	$	2,615
As of March 31, 2020
As of March 31, 2021
Total assets	$	79,512	$	88,199	$	6,116	$	22,354	$	196,181	$	82,198	$	97,631	$	4,901	$	33,593	$	218,323


	STK		Kona Grill		ONE Hospitality		Corporate		Total
For the three months ended March 31, 2019

											STK		Kona Grill		ONE Hospitality		Corporate		Total
For the three months ended March 31, 2020
Total revenues	$	19,245	$	—	$	3,060	$	471	$	22,776	$	19,051	$	20,657	$	924	$	87	$	40,719
Operating income (loss)		2,668		—		2,250		(3,784)		1,134	$	2,291	$	(339)	$	73	$	(6,376)	$	(4,351)
Capital asset additions	$	1,726	$	—	$	36	$	298	$	2,060	$	335	$	410	$	8	$	38	$	791
As of December 31, 2019
As of December 31, 2020
Total assets	$	82,691	$	93,829	$	8,252	$	21,813	$	206,585	$	81,431	$	96,262	$	5,484	$	32,392	$	215,569

Note 1614 – Geographic Information

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


	For the three months ended March 31,
	2021		2020
Domestic revenues	$	50,288	$	39,977
International revenues		194		742
Total revenues	$	50,482	$	40,719

For the three months ended March 31,

2020

2019
Domestic revenues

$
39,977

$
21,780
International revenues

742

996
Total revenues

$
40,719

$
22,776

March 31,

December 31,

2020

2019
Domestic long-lived assets

$
177,684

$
179,143
International long-lived assets

277

301
Total long-lived assets

$
177,961

$
179,444


	March 31,		December 31,
	2021		2020
Domestic long-lived assets	$	179,972	$	180,935
International long-lived assets		266		258
Total long-lived assets	$	180,238	$	181,193

Table of Contents

Note 1715 – 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 and judgments, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

~~Note 18 – Subsequent Events~~

On May 4, 2020, Goldman Sachs Bank USA (“GSB”), as administrative agent, collateral agent and lead arranger under the Credit and Guaranty Agreement dated October 4, 2019 between The ONE Group Hospitality, Inc. (the “Company”) and certain of its subsidiaries, the lenders from time to time party thereto and GSB (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 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.

In accordance with the requirements of the CARES Act, the Company will use proceeds from the CARES Act Loans primarily for payroll costs. 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 may declare a default of the CARES Act Loans if a guarantor disputes the validity of the guaranty of indebtedness, if a material adverse change occurs in our financial condition, or if BBVA 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 may declare principal and unpaid interest immediately due and payable, and it may charge default interest of 10%.

~~On May 8, 2020, GSB and the Company and certain of its subsidiaries entered into an amendment to the Credit Agreement that:~~

Relaxes the fixed charge coverage ratio (decreasing the ratio for remaining measurement dates in 2020 to 1.20 to 1.00 from 1.35 to 1.00) and the leverage ratio (increasing the ratio at June 30, 2020 to 3.00 to 1.00 from 2.50 to 1.00, and the ratio at September 30 and December 31, 2020 to 2.75 to 1.00 from 2.25 to 1.00).

~~Requires minimum “Consolidated Liquidity” to be $4,000,000 for the balance of 2020 (from $1,500,000).~~

As of May 10, 2020, the Company has re-opened eleven restaurant dining rooms and plans to open an additional five dining rooms on May 11, 2020. The Company expects to re-open an additional five to ten dining rooms in the next two weeks and anticipates re-opening the remaining restaurants and closed dining rooms as soon as conditions permit.

~~Table of Contents~~

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. Factors that might~~2020. A number of factors could cause actual ~~events~~results or ~~results~~outcomes to differ materially from those indicated by ~~these~~such forward-looking statements, ~~include matters such as~~including but not limited to: (1) the ~~effect and duration~~effects of the COVID-19 and related stay at home orders and other government actions, 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 impactpandemic on our business, including government restrictions on our ability to operate our restaurants and changes in customer behavior, and our ability to re-hire employees; (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 ~~Federal~~products and ~~State legislation, litigation,~~retain our key employees; (3) factors beyond our control that affect the ~~execution~~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 ~~growth strategy~~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 ~~matters.~~ 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, ~~2019.~~2020.

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.

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 and customized for the client. We were established with the~~venue. Our vision ~~of becoming~~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”. ~~All~~We design all our restaurants, lounges and F&B services ~~are designed~~ 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

Table of Contents

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 March 31, ~~2020,~~2021, we owned, operated, managed or licensed 5554 venues including 20 STKs and 24 Kona Grills in major metropolitan cities in North America, Europe and the Middle East and 1110 F&B venues in ~~six~~five hotels and casinos in the United States and Europe. In January 2021, we opened a managed STK restaurant in Scottsdale, Arizona. For those restaurants and venues that are managed or licensed, we generate management fees based on top-line revenues and incentive fee revenue based on a percentage of the location’s revenues and net profits.

~~Table of Contents~~

The table below reflects our venues by restaurant brand and geographic location as of March 31, ~~2020:~~2021:


	Venues
	STK(1)	Kona Grill	ONE Hospitality(2)	Total

					Venues
					STK⁽¹⁾	Kona Grill	ONE Hospitality⁽²⁾	Total
Domestic
Owned	10	24	2	36	10	24	2	36
Managed	1	—	1	2	2	—	—	2
Licensed	1	—	—	1	1	—	—	1
Total domestic	12	24	3	39	13	24	2	39
International
Owned	—	—	—	—	—	—	—	—
Managed	3	—	8	11	3	—	8	11
Licensed	5	—	—	5	4	—	—	4
Total international	8	—	8	16	7	—	8	15
Total venues	20	24	11	55	20	24	10	54

(1)

~~(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)

~~(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.

Our Growth Strategies and Outlook

Our growth model is primarily driven by the following:

●

Expansion of our STK restaurants

●

Expansion through New F&B Hospitality Projects

●

Increase Same Store Sales and Increase Operating Efficiency

●

Acquisitions

We intend to open thirteen new venues between 2021 and 2022. There are currently three STKs and four managed F&B restaurants under construction. 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.

~~Uncertainties Related to~~ COVID-19

~~In the first quarter of 2020, the negative effect of the novel coronavirus (“COVID-19”) on~~The COVID-19 pandemic has significantly impacted the Company’s business ~~was significant. The Company experienced an initial decline in restaurant revenue that began in early March 2020 as business travel~~due to state and local government mandates, including suspension of in-person dining, reduced seating capacity and social ~~dining decreased. On March 11,~~distancing. Beginning in mid-March 2020, the World Health Organization declared COVID-19 a pandemic disease, and on March 13, 2020, President Trump declared a state of emergency for COVID-19. Public concerns about the spread of COVID-19 continues to be widespread. The Company ~~has~~ experienced a significant reduction in guest traffic ~~at its restaurants as a result~~due to government mandated restrictions resulting in the temporary closure of ~~restrictions mandated by state and local governments.~~

~~In response to these conditions, and out of concern for our customers and partners, the Company has temporarily closed~~ several restaurants and the ~~Company has shifted~~shift in operations ~~at 30 of its restaurants~~ to provide only take-out and delivery service. Starting in May 2020, state and local governments began easing restrictions on stay-at-home orders; however, certain states reimposed restrictions as COVID-19 cases increased during the fall of 2020. In ~~addition to the decline~~February 2021, many jurisdictions began easing restrictions once again. Currently, all domestic restaurants are open for in-person dining with seating capacity restrictions in restaurant revenue, the Company has incurred approximately $1.3 million of costs related to COVID-19 in the three months ended March 31, 2020, composed primarily of payments to employees for paid-time off during restaurant closures, inventory waste, and rent and rent related costs for closed and limited-operations restaurants from the day that the dining room closed.major metropolitan markets. The Company has ~~implemented measures~~taken significant steps to ~~reduce~~adapt its ~~costs~~business to increase sales while providing a safe environment for guests and employees, which resulted in a significant increase in revenues during the first quarter of 2021 compared to the fourth quarter of 2020.

Given the ongoing uncertainty surrounding the effects of the COVID-19 pandemic, ~~including significant reductions in employees, deferral of capital projects, and negotiations with suppliers and landlords regarding deferral or abatement of payments which could become significant.~~

~~Given the present uncertainty surrounding the global economy due to the COVID-19 pandemic, the Company~~we cannot reasonably predict when ~~its closed restaurants will re-open and open~~our restaurants will be able to return to normal dining room operations. ~~The Company expects that its~~Our results of operations ~~will~~could be materially and negatively

Table of Contents

affected by ~~these actions~~COVID-19 in ~~the second quarter of 2020. The Company’s re-opening of closed restaurants and~~2021. Our resumption of normal dining operations is subject to events beyond ~~its~~our 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 (“Goldman Sachs Credit Agreement”). Over the remainder of 2020, we intend 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.

Executive Summary

Total revenue increased ~~$17.9~~$9.8 million, or ~~78.8%,~~24.0% to $50.5 million for the three months ended March 31, 2021 compared to $40.7 million for the three months ended March 31, 2020 primarily due to strong sales momentum as state and local governments continue to ease seating capacity restrictions in the markets in which we operate. Same-store sales increased 23.5% in the first quarter of 2021 compared to ~~$22.8~~the first quarter of 2020 as starting in mid-March 2020 restaurants were temporarily closed or operated only with take-out and delivery service due to the onset of the COVID-19 pandemic. Same store sales improved sequentially each month in the first quarter of 2021. STK same store sales for the months of January and February decreased 23.2% and 1.7%, respectively, and increased 181.5% in March. Kona Grill same-store sales decreased 1.4% and 0.3% for the months of January and February, respectively, and increased 126.8% for the month of March 2021. On a two-year basis, same store sales for the first quarter of 2021 increased 3.3% compared to the first quarter of 2019. STK same store sales increased 1.9% on a two-year basis while Kona Grill same store sales increased 4.6%.

Restaurant operating profit increased $7.3 million, or 376%, to $9.3 million for the first quarter of 2021 compared to $1.9 million in the first quarter of 2020. Restaurant operating profit as a percentage of owned restaurant net revenue was 18.8% compared to 5.0% in the first quarter of 2020. On a sequential basis, restaurant operating profit as a percentage of owned restaurant net revenue was 16.6% in the third quarter of 2020, 16.0% in the fourth quarter of 2020 and 18.8% in the first quarter of 2021.

We generated operating income of $0.9 million for the three months ended March 31, ~~2019. Approximately $20.7 million of the increase in total revenue was attributable to the addition of the Kona Grill restaurants in the first quarter of 2020~~2021 compared ~~to the prior year period. The increase in~~

~~Table of Contents~~

~~total revenue was partially offset by the temporarily closures and limited dining room operations for 30 of our remaining open restaurants beginning in March 2020 as a result of COVID-19.~~

~~Operating income decreased approximately $5.5 million~~ to an operating loss of $4.4 million for the three months ended March 31, ~~2020 from operating income of $1.1 million for the three months ended March 31, 2019.~~2020. The ~~decrease~~increase was primarily driven by ~~fixed costs~~strong sales momentum aided by increased seating capacity in ~~comparable~~our restaurants ~~not decreasing at the same rate~~ as the decrease in comparable sales for the quarter of 14.1%, specifically the decrease of comparable sales of 55.9% in March of 2020. Additionally, in the three months ended March 31, 2020, we incurred $1.3 million in costs directly related to the effects ofstate and local governments eased seating capacity restrictions as COVID-19 cases decreased and ~~$1.1 million in integration expenses~~vaccination efforts increased along with increased restaurant operating profit as a ~~result~~percentage of ~~the Kona Grill acquisition.~~revenue driven by strong cost discipline. We expect ~~additional costs related~~ to ~~COVID-19 in the second quarter,~~see continued sales momentum as seating capacity restrictions are lifted and ~~do not anticipate any further integration expenses related~~as consumers continue to ~~the Kona Grill acquisition.~~return to in-person dining.

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 March 31,
	2020		2019

					For the three months ended March 31,
					2021		2020
Revenues:
Owned restaurant net revenue	$	38,557	$	20,093	$	49,168	$	38,557
Management, license and incentive fee revenue		2,162		2,683		1,314		2,162
Total revenues		40,719		22,776		50,482		40,719
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales		10,113		5,026		12,001		10,113
Owned restaurant operating expenses		26,499		12,717		27,906		26,499
Total owned operating expenses		36,612		17,743		39,907		36,612
General and administrative (including stock-based compensation of $338 and $181 for the three months ended March 31, 2020 and 2019 respectively)		3,397		2,650
General and administrative (including stock-based compensation of $1,022, and $338 for the three months ended March 31, 2021 and 2020 respectively)						5,174		3,397
Depreciation and amortization		2,440		942		2,699		2,440
Transaction and integration costs		1,095		—
COVID-19 related expenses		1,348		—		1,557		1,348
Transaction costs						—		1,095
Lease termination expenses		179		—		187		179
Pre-opening expenses		—		482		101		—
Other income, net		(1)		(175)		—		(1)
Total costs and expenses		45,070		21,642		49,625		45,070
Operating (loss) income		(4,351)		1,134
Operating income (loss)						857		(4,351)
Other expenses, net:
Interest expense, net of interest income		1,175		269		1,246		1,175
Total other expenses, net		1,175		269		1,246		1,175
(Loss) income before (benefit) provision for income taxes		(5,526)		865
(Benefit) provision for income taxes		(653)		96
Net (loss) income		(4,873)		769
Loss before benefit for income taxes						(389)		(5,526)
Benefit for income taxes						(329)		(653)
Net loss						(60)		(4,873)
Less: net loss attributable to noncontrolling interest		(274)		(85)		(130)		(274)
Net (loss) income attributable to The ONE Group Hospitality, Inc.	$	(4,599)	$	854
Net income (loss) attributable to The One Group Hospitality, Inc.					$	70	$	(4,599)

2120

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 March 31,
	2020	2019

			For the three months ended March 31,
			2021	2020
Revenues:
Owned restaurant net revenue	94.7 %	88.2 %	97.4 %	94.7 %
Management, license and incentive fee revenue	5.3 %	11.8 %	2.6 %	5.3 %
Total revenues	100.0 %	100.0 %	100.0 %	100.0 %
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales (1)	26.2 %	25.0 %	24.4 %	26.2 %
Owned restaurant operating expenses (1)	68.7 %	63.3 %	56.8 %	68.7 %
Total owned operating expenses (1)	94.9 %	88.3 %	81.2 %	95.0 %
General and administrative (including stock-based compensation of 0.8% and 0.8% for the three months ended March 31, 2020 and 2019 respectively)	8.3 %	11.6 %
General and administrative (including stock-based compensation of 2% and 0.8% for the three months ended March 31, 2021 and 2020 respectively)			10.2 %	8.3 %
Depreciation and amortization	6.0 %	4.1 %	5.3 %	6.0 %
Transaction and integration costs	2.7 %	—%
COVID-19 related expenses	3.3 %	—%	3.1 %	3.3 %
Transaction costs			—%	2.7 %
Lease termination expenses	0.4 %	—%	0.4 %	0.4 %
Pre-opening expenses	—%	2.1 %	0.2 %	—%
Other income, net	—%	(0.8)%	—%	—%
Total costs and expenses	110.7 %	95.0 %	98.3 %	110.7 %
Operating (loss) income	(10.7)%	5.0 %
Operating income (loss)			1.7 %	(10.7)%
Other expenses, net:
Interest expense, net of interest income	2.9 %	1.2 %	2.5 %	2.9 %
Total other expenses, net	2.9 %	1.2 %	2.5 %	2.9 %
(Loss) income before (benefit) provision for income taxes	(13.6)%	3.8 %
(Benefit) provision for income taxes	(1.6)%	0.4 %
Net (loss) income	(12.0)%	3.4 %
Loss before benefit for income taxes			(0.8)%	(13.6)%
Benefit for income taxes			(0.7)%	(1.6)%
Net loss			(0.1)%	(12.0)%
Less: net loss attributable to noncontrolling interest	(0.7)%	(0.4)%	(0.2)%	(0.7)%
Net (loss) income attributable to The ONE Group Hospitality, Inc.	(11.3)%	3.7 %
Net income (loss) attributable to The One Group Hospitality, Inc.			0.1 %	(11.3)%

(1)

~~(1)~~

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

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 March 31, 2020

											STK		Kona Grill		ONE Hospitality		Corporate		Total
For the three months ended March 31, 2021
Total revenues	$	17,383	$	20,657	$	2,679	$	—	$	40,719	$	24,691	$	25,577	$	33	$	181	$	50,482
Operating income (loss)		1,543		820		1,820		(8,534)		(4,351)	$	5,596	$	2,450	$	(321)	$	(6,868)	$	857
Capital asset additions	$	335	$	410	$	8	$	38	$	791	$	1,476	$	529	$	15	$	595	$	2,615
As of March 31, 2020
As of March 31, 2021
Total assets	$	79,512	$	88,199	$	6,116	$	22,354	$	196,181	$	82,198	$	97,631	$	4,901	$	33,593	$	218,323


	STK		Kona Grill		ONE Hospitality		Corporate		Total
For the three months ended March 31, 2019

											STK		Kona Grill		ONE Hospitality		Corporate		Total
For the three months ended March 31, 2020
Total revenues	$	19,245	$	—	$	3,060	$	471	$	22,776	$	19,051	$	20,657	$	924	$	87	$	40,719
Operating income (loss)		2,668		—		2,250		(3,784)		1,134	$	2,291	$	(339)	$	73	$	(6,376)	$	(4,351)
Capital asset additions	$	1,726	$	—	$	36	$	298	$	2,060	$	335	$	410	$	8	$	38	$	791
As of December 31, 2019
As of December 31, 2020
Total assets	$	82,691	$	93,829	$	8,252	$	21,813	$	206,585	$	81,431	$	96,262	$	5,484	$	32,392	$	215,569

EBITDA, ~~and~~ Adjusted EBITDA and Restaurant Operating Profit are presented in this Quarterly Report on Form 10-Q ~~and are supplemental~~to supplement other measures of financial ~~performance that~~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

~~Table of Contents~~

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, COVID-19 related expenses and non-recurring gains and losses. Not all of the ~~aforementioned~~ 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 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 isand 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.

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 March 31,
	2020		2019
Net (loss) income attributable to The ONE Group Hospitality, Inc.	$	(4,599)	$	854

					For the three months ended March 31,
					2021		2020
Net income (loss) attributable to The One Group Hospitality, Inc.					$	70	$	(4,599)
Net loss attributable to noncontrolling interest		(274)		(85)		(130)		(274)
Net (loss) income		(4,873)		769
Net loss						(60)		(4,873)
Interest expense, net of interest income		1,175		269		1,246		1,175
(Benefit) provision for income taxes		(653)		96
Benefit for income taxes						(329)		(653)
Depreciation and amortization		2,440		942		2,699		2,440
EBITDA		(1,911)		2,076		3,556		(1,911)
COVID-19 related expenses		1,348		—		1,557		1,348
Transaction and integration costs (1)		1,095		—
Transaction costs ⁽¹⁾						—		1,095
Stock-based compensation		338		181		1,022		338
Lease termination expense (2)		179		—		187		179
Non-cash rent expense (3)		136		(87)		23		136
Pre-opening expenses		—		482		101		—
Adjusted EBITDA		1,185		2,652		6,446		1,185
Adjusted EBITDA attributable to noncontrolling interest		(391)		(36)		(53)		(391)
Adjusted EBITDA attributable to The ONE Group Hospitality, Inc.	$	1,576	$	2,688	$	6,499	$	1,576

(1)

~~(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 Goldman Sachs Credit Agreement.~~

activities.

(2)

~~(2)~~

Lease termination expense are costs associated with closed, abandoned and disputed locations or leases.

(3)

~~(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 income (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 March 31,
	2021		2020
Operating income (loss) as reported	$	857	$	(4,351)
Management, license and incentive fee revenue		(1,314)		(2,162)
General and administrative		5,174		3,397
Depreciation and amortization		2,699		2,440
Transaction costs		—		1,095
COVID-19 related expenses		1,557		1,348
Lease termination expense		187		179
Pre-opening expenses		101		—
Other income, net		—		(1)
Restaurant Operating Profit	$	9,261	$	1,945

Restaurant Operating Profit as a Percentage of Owned Restaurant Net Revenue		18.8%		5.0%

Table of Contents

Results of Operations for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020

Revenues

Owned restaurant net revenue.Owned restaurant net revenue increased ~~$18.5~~$10.6 million, or 27.5%, to $49.2 million for the three months ended March 31, 2021 from $38.6 million for the three months ended March 31, ~~2020 from $20.1~~2020. The increase in revenue is primarily attributable to strong sales momentum as state and local governments continue to ease seating capacity restrictions in the markets in which we operate. Comparable restaurant sales increased 23.5% in the first quarter of 2021.

Management and license fee revenue. Management and license fee revenues decreased $0.8 million to $1.3 million for the three months ended March 31, 2019. Approximately $20.7 million of the increase in owned restaurant revenue was attributable to the addition of the Kona Grill restaurants in the first quarter of 2020 compared to the prior year period. 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 14.1% in the first quarter of 2020.

~~Management and license fee revenue~~. ~~Management and license fee revenues decreased $0.5 million, or 19.4%, to~~2021 from $2.2 million for the three months ended March 31, ~~2020 from $2.7 million for the three months ended March 31, 2019.~~2020. Management and license fee revenue decreased primarily as a result of ~~lower sales within~~temporary closures and limited in-person seating at our ~~international~~ managed locations ~~in the United Kingdom and Italy related to temporary closures~~ due to COVID-19 prevention measures.

~~Table of Contents~~

Cost and Expenses

Owned restaurant cost of sales. Food and beverage costs for owned restaurants increased ~~approximately $5.1~~$1.9 million, or 18.7%, to $12.0 million for the three months ended March 31, 2021 from $10.1 million for the three months ended March 31, 2020. The increase in owned restaurant cost of sales is due to the incremental sales increase. As a percentage of revenues, cost of sales decreased 180 basis points to 24.4% for the three months ended March 31, 2021 from 26.2% for the three months ended March 31, 2020 ~~from $5.0~~due to purchasing synergies across the Company and menu optimization.

Owned restaurant operating expenses. Owned restaurant operating expenses increased $1.4 million to $27.9 million for the three months ended March 31, 2019. Approximately $5.6 million of the increase in owned restaurant cost of sales was attributable to the addition of the Kona Grill restaurants in the first quarter of 2020 compared to the prior year period. 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 $13.8 million to~~2021 from $26.5 million for the three months ended March 31, 2020. Owned restaurant operating costs decreased 1,190 basis points as a percentage of revenue from 68.7% in the three months ended March 31, 2020 ~~from $12.7~~to 56.8% for the three months ended March 31, 2021 due to actively managing operating costs, cost saving measures and the impact of COVID-19 in the first quarter of 2020.

General and administrative. General and administrative costs increased $1.8 million, or 52.3%, to $5.2 million for the three months ended March 31, 2019. Approximately $14.2 million of the increase in owned restaurant operating expenses was attributable to the addition of the Kona Grill restaurants in the first quarter of 2020 compared to the prior year period. The Company began reducing operating costs in March due to the impact of COVID-19.

~~General and administrative~~. ~~General and administrative costs increased approximately $0.7 million, or 28.2%, to~~2021 from $3.4 million for the three months ended March 31, ~~2020~~2020. General and administrative expenses increased due to a $0.7 million increase in stock-based compensation, partially driven by certain grants that vested due to a substantial increase in our stock price during the quarter, higher legal and professional fees and an increase in travel expenses due to an increase in business activity. We expect that general and administrative expenses as a percentage of revenues will decrease as revenues continue to increase from the lifting of COVID-19 related restrictions both domestically and internationally.

Depreciation and amortization. Depreciation and amortization expense increased $0.3 million to $2.7 million for the three months ended March 31, ~~2019. However, general and administrative costs as a percentage of total revenues decreased to 8.3% for the three months ended March 31, 2020~~2021 from 11.6% for the three months ended March 31, 2019. We have implemented measures to reduce our costs while our operations are affected by COVID-19, including significant reductions in employees, deferral of capital projects, and reduction of third-party professional services.

~~Depreciation and amortization~~. ~~Depreciation and amortization expense increased approximately $1.5 million to~~ $2.4 million for the three months ended March 31, ~~2020 from $0.9 million for the three months ended March 31, 2019 due to the addition of the Kona Grill restaurants in the first quarter of 2020 compared to the prior year period.~~2020.

~~Transaction and integration costs~~. ~~In the three months ended March 31, 2020, we incurred transaction and integration costs of approximately $1.1 million related to the Kona Grill acquisition, which closed on October 4, 2019.~~ Over the remainder of 2020, we intend 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.

~~COVID-19 related~~Pre-opening expenses. In the three months ended March 31, ~~2020,~~2021, we incurred ~~approximately $1.3~~$0.1 million of ~~direct costs~~pre-opening expenses related to COVID-19, composed primarily of payments to employees for paid-time off during restaurant closures, inventory waste and rent and rent related costs for closed and limited-operations restaurants from the day that the dining room closed. our upcoming STK Bellevue restaurant.

~~Lease termination expenses~~. ~~In the three months ended March 31, 2020, lease termination expense was approximately $0.2 million. Lease termination expenses are~~ ~~costs associated with closed, abandoned and disputed locations or disputed leases~~.

~~Pre-opening expenses~~. ~~Pre-opening expenses for the three months ended March 31, 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~~ $1.2 million and ~~$0.3~~$1.2 million for the three months ending March 31, 2021 and 2020, ~~and 2019,~~ respectively.

~~(Benefit) provision~~Benefit for income taxes. The ~~provision~~benefit for income taxes for the three months ended March 31, ~~2020~~2021 was $0.3 million compared to a tax benefit of $0.7 million ~~compared~~for the three months ended March 31, 2020. Our 2021 annualized effective tax rate is estimated at 20.8% for 2021. For the three months ended March 31, 2021, the benefit for income taxes includes discrete period tax benefits resulting from the vesting of restricted stock units.

Net loss attributable to ~~tax expense of~~noncontrolling interest. Net loss attributable to noncontrolling interest was $0.1 million for the three months ended March 31, ~~2019. Our annualized effective tax rate is estimated at 12.4% for 2020~~2021 compared to ~~9.7% for the three months ended March 31, 2019. Our projected annual effective tax rate differs from the statutory U.S. tax rate~~net loss of 21% primarily due to the following: (i) availability of U.S. net operating loss carryforwards, resulting in no federal income taxes; (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 approximately~~ $0.3 ~~million and $0.1~~ million for the three months ended March 31, ~~2020 and 2019, respectively.~~2020.

Table of Contents

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

~~Table of Contents~~

the costs of opening currently planned new restaurants, through cash provided by operations ~~borrowings on our Goldman Sachs Credit Agreement~~ and construction allowances provided by landlords of certain locations.

We believe the combination of ~~our cash provided by operations and our Goldman Sachs Credit Agreement~~the aforementioned items are adequate to support our immediate business operations and plans. As of March 31, ~~2020,~~2021, we had cash and cash equivalents of approximately ~~$8.2~~$28.4 million. We had $47.3 million ~~and~~in long-term debt, ~~of $48.0 million,~~ which consisted of our ~~Goldman Sachs~~ Credit Agreement and an equipment financing ~~agreements.~~agreement, and $18.3 million in CARES Act Loans as of March 31, 2021. As of March 31, ~~2020~~2021, the availability ~~pursuant to~~on our revolving credit facility was $10.7 ~~million.~~million, subject to the restrictions described in Note 5 to the condensed consolidated financial statements.

In the three months ended March 31, ~~2020,~~2021, our capital expenditures were ~~approximately $0.8 million.~~$2.6 million primarily for the construction of an STK restaurant in Bellevue, Washington, technology initiatives, and capital expenditures for existing restaurants. 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 primarily 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.~~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.

~~Goldman Sachs~~ 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 with Goldman Sachs ~~Credit Agreement, which replaced the~~ Bank ~~of America Credit Agreement and~~USA that 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, our consolidated adjusted EBITDA as defined by the Goldman Sachs 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.

As of March 31, ~~2020,~~2021, we were ~~in compliance~~compliant with the covenants required by the ~~Goldman Sachs~~ Credit Agreement. Based on current projections, we believe that we would continue to comply with the covenants in the ~~Goldman Sachs~~ Credit Agreement, as amended, throughout the twelve months following the issuance of the financial statements.

Refer to Note ~~6, Note 17~~5 and Note 1815 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.

Table of Contents

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 March 31, 2021, 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 applied for forgiveness of the CARES Act Loans in February 2021. The Company anticipates forgiveness of the entire amount of 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 debt. If repayment is required, principal and interest payments are expected to be repaid beginning in August 2021, ten months after the end of the covered period which was from April 2020 to October 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.

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,

~~Table of Contents~~

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 three months ended March 31, 2020, we spent a total of $0.8 million in capital expenditures, $1.3 million less than the amount spent for the same period in the prior year, and 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 three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (in thousands):


	For the three months ended March 31,
	2020		2019
Net cash (used in) provided by:

					For the three months ended March 31,
					2021		2020
Net cash provided by (used in):
Operating activities	$	(3,103)	$	2,513	$	6,986	$	(3,103)
Investing activities		(791)		(2,060)		(2,615)		(791)
Financing activities		(226)		(798)		(304)		(226)
Effect of exchange rate changes on cash		(64)		(168)		(17)		(64)
Net decrease in cash and cash equivalents	$	(4,184)	$	(513)
Net increase (decrease) in cash and cash equivalents					$	4,050	$	(4,184)

Table of Contents

Operating Activities. Net cash provided by operating activities was $7.0 million for the three months ended March 31, 2021 compared to net cash used in operating activities ~~was~~of $3.1 million for the three months ended March 31, ~~2020 compared~~2020. The increase was primarily attributable to ~~$2.5 million of cash generated from operating activities~~the reduction in net loss for the three months ended March 31, ~~2019. The decrease was primarily attributable~~2021 compared to the ~~decrease in net income which included $1.3 million in expenses for payments to employees for paid-time off during restaurant closures,~~same period prior year as a result of state and ~~inventory waste directly attributable to~~local jurisdictions easing COVID-19 related restrictions and ~~$1.1 million in transaction and integration expenses related to the Kona Grill acquisition coupled with $4.4 million reduction~~an increase in accounts payable and accrued ~~expenses.~~expenses due to higher restaurant sales volumes.

Investing Activities. Net cash used in investing activities for the three months ended March 31, ~~2020~~2021 was ~~$0.8~~$2.6 million primarily for the construction of an STK restaurant in Bellevue, Washington, technology initiatives, and capital expenditures for existing restaurants compared to ~~$2.1~~$0.8 million for the three months ended March 31, ~~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.~~2020.

Financing Activities. Net cash used in financing activities for the three months ended March 31, ~~2020~~2021 was ~~$0.2~~$0.3 million compared to ~~$0.8~~$0.2 million in the three months ended March 31, ~~2019~~.2020.

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.

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

~~Table of Contents~~

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 first quarter of ~~2020~~2021 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

Table of Contents

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.

~~See~~There have been no material changes to the risk factors contained in Item 1A of our ~~Annual Report on~~ Form 10-K for the year ended December 31, ~~2019 for additional risk factors.~~2020.

~~The outbreak~~Item 2. Unregistered Sales of ~~COVID-19 has significantly affected our restaurant traffic~~Equity Securities and ~~our business.~~Use of Proceeds

~~Our business has been adversely affected by the effect~~On March 25, 2021 we issued an aggregate of ~~the public perception~~450,971 shares of common stock to Anson Investments Master Fund LP in connection with its cashless exercise (based on a share value of $8.441) of two common stock purchase warrants.

On April 22, 2021, we issued 100,000 shares of common stock to 22235570 Ontario Limited in connection with its exercise of a ~~risk~~warrant for aggregate consideration of and government actions to contain, COVID-19. In December 2019, COVID-19 was identified in Wuhan, China, and subsequently spread to other regions of the world. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic disease. Since early March 2020, we have experienced a significant decline in restaurant traffic and government agencies have since declared a state of emergency in the U.S. and in foreign jurisdictions where we operate, and some government agencies have restricted movement, required restaurant and bar closures, and advised people not to visit restaurants or bars. In some jurisdictions, people have been instructed to shelter in place 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. We expect our results of operations to be materially and negatively affected by these actions. A prolonged occurrence of COVID-19 may result in further restrictions, including possible travel restrictions and additional restrictions on the restaurant industry. Our efforts to mitigate the effect of COVID-19 on our business may be unsuccessful, and we may not be able to adequately reduce our costs as we move to a take-out and delivery model, with which we have limited experience. Any of these events could result in a sustained, significant drop in restaurant traffic and could have a material adverse effect on us. In the event that the effect of COVID-19 be prolonged, there could be other events that drive risk in the business. For a description of those risks, refer to our Annual Report on Form 10-K for the year ended December, 31, 2019 for additional risk factors.$261,000.

~~Table of Contents~~

Item 6. Exhibits.

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


Exhibit
~~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).
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.

Table of Contents

SIGNATURES

~~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: May 11, ~~2020~~2021

	THE ONE GROUP HOSPITALITY, INC.

	By:	~~/s/~~/s/ Tyler Loy
		Tyler Loy, Chief Financial Officer


Net assets acquired:
Cash	$	450
Current assets, excluding cash		2,830
Property and equipment		31,781
Operating lease right-of-use assets		42,398
Intangible assets		17,400
Other assets		692
Current liabilities		(7,690)
Deferred tax liability		(4,044)
Operating lease liabilities		(46,364)
Total net assets acquired	$	37,453

Purchase consideration:
Contractual purchase price		25,000
Apportionment of rent and utilities		775
Assumption of real estate lease consultant contract		465
Escrow deposit		250
Consideration paid	$	26,490

Bargain purchase gain attributable to Kona Grill acquisition	$	10,963


	Three months ended
	March 31, 2019
Total revenues	$	47,230
Net income attributable to The ONE Group Hospitality, Inc.	$	667
Net income attributable to The ONE Group Hospitality, Inc. per share:
Basic net income per share	$	0.02
Diluted net income per share	$	0.02


				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	$	666
Exercised	(18,000)		2.13
Cancelled, expired or forfeited	(24,000)		4.85
Outstanding at March 31, 2020	1,764,508	$	3.37	5.57 years	$	—
Exercisable at March 31, 2020	1,291,175	$	3.84	4.91 years	$	—