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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
☒
☐
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
The ONE Group Hospitality, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
14-1961545
(I.R.S. Employer Identification No.)
1624 Market Street, Suite 311, Denver, Colorado
(Address of principal executive offices)
80202
Zip Code
646-624-2400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Title of each class
STKS
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ⌧
Securities registered pursuant to Section 12(g) of the Act:
None
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, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ⌧
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common
equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter, was $233,409,937.
Number of shares of Common Stock outstanding as of February 28, 2022: 32,183,371
Portions of the registrant's proxy statement for its 2022 annual meeting of stockholders are incorporated by reference in Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
TABLE OF CONTENTS
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
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Cautionary Note Regarding Forward-Looking Statements:
This Annual Report on Form 10-K 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 any future results,
performance or achievements expressed or implied by the forward-looking statements. These risk and uncertainties include, but are not
limited to, the risk factors discussed under Item 1A. “Risk Factors” of this Annual Report on Form 10-K. Factors that might cause actual
events or results to differ materially from those indicated by these forward-looking statements include matters such as future economic
performance, general economic conditions, consumer preferences and spending, costs, competition, new product execution, restaurant
openings or closings, operating margins, the availability of acceptable real estate locations, the sufficiency of our cash balances and cash
generated from operations and financing activities for our future liquidity and capital resource needs, the impact on our business of
Federal and State legislation and local regulation, future litigation, the execution of our growth strategy and other matters. We have
attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “ongoing,”
“could,” “estimates,” “expects,” “intends,” “may,” “appears,” “suggests,” “future,” “likely,” “goal,” “plans,” “potential,” “projects,”
“predicts,” “should,” “targets,” “would,” “will” and similar expressions that convey the uncertainty of future events or outcomes. You
should not place undue reliance on any forward-looking statement. We do not undertake any obligation to update or revise any forward-
looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except
as may be required under applicable law.
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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. The term “year ended” refers to the entire calendar year, unless the
context otherwise indicates.
PART I
Item 1. Business
Description of the Business
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 and consulting service for hospitality venues including
hotels, casinos and other high-end locations. Turn-key F&B services are food and beverage services that can be scaled, customized and
implemented by us for the client at a particular hospitality venue. Our vision is to be a global market leader in the hospitality industry by
melding high-quality service, ambiance, high-energy and cuisine into one great experience that we refer to as “Vibe Dining”. We design all
our restaurants, lounges and F&B services to create a social dining and high-energy entertainment experience within a destination location.
We believe that this design and operating philosophy separates us from more traditional restaurant and foodservice competitors.
Our primary restaurant brands are STK, a multi-unit steakhouse concept that combines a high-energy, social atmosphere with the
quality and service of a traditional upscale steakhouse, and Kona Grill, a polished casual bar-centric grill concept featuring American
favorites, award-winning sushi, and specialty cocktails in a polished casual atmosphere. Our F&B hospitality management services are
marketed as ONE Hospitality and include developing, managing and operating restaurants, bars, rooftop lounges, pools, banqueting and
catering facilities, private dining rooms, room service and mini bars tailored to the specific needs of high-end hotels and casinos. We also
provide hospitality advisory and consulting services to certain clients. Our F&B hospitality clients operate global hospitality brands such as
the W Hotel, ME Hotels, Hippodrome Casino, and Curio Collection by Hilton.
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We opened our first restaurant in January 2004 in New York, New York. We currently own, operate, manage or license 60 venues
including 23 STKs and 24 Kona Grills in major metropolitan cities in North America, Europe and the Middle East and 13 F&B venues in
seven hotels and casinos in the United States and Europe. We intend to open thirteen new STK and F&B venues in 2021 and 2022, of
which seven are currently open, and three to five Kona Grill locations in 2022. There are currently two Company-owned STK restaurants
(San Francisco, CA and Dallas, TX), one Company-owned Kona Grill restaurant (Riverton, UT) and one managed STK restaurant
(Stratford, UK) under construction.
Brands and Locations
The table below reflects our venues by restaurant brand and geographic location:
Domestic
Owned
Managed
Licensed
Total domestic
International
Owned
Managed
Licensed
Total international
STK(1)
Kona Grill
ONE Hospitality(2)
Total
Venues
11
2
1
14
24
—
—
24
2
1
—
3
—
4
5
9
23
—
—
—
—
24
—
10
—
10
13
37
3
1
41
—
14
5
19
60
Total venues
(1) Locations with an STK and STK Rooftop are considered one venue location. This includes the STK Rooftop in San Diego, CA, which is a licensed location.
(2)
Includes concepts under the Company’s F&B hospitality management agreements and other venue brands such as ANGEL, Bao Yum, Heliot, Hideout, Marconi, Radio
and Rivershore Bar & Grill. Effective January 1, 2022, our agreement with the Hippodrome Casino was amended and extended for five years whereby the Company
changed from manager to consultant for the Heliot Steak House and F&B Hospitality services for the casino.
We expect to continue expanding our operations domestically and internationally primarily through a mix of owned, licensed and
managed restaurants using a disciplined and targeted site selection process. We refer to this as our “capital light strategy” because it
requires significantly less capital than expansion through owned restaurants only. Refer to Item 2 – Properties for additional details
regarding the domestic and international locations in which we operate.
STK
STK is a global steakhouse restaurant concept with locations in major metropolitan cities. STK artfully blends the modern steakhouse
and a chic lounge, offering a high-energy, fine dining experience in a social atmosphere with the quality and service of a traditional upscale
steakhouse. Each STK location features a large, open restaurant and bar area with a DJ playing music throughout the restaurant, offering
our customers a high-energy, fun “destination” environment that encourages social interaction. We believe this Vibe Dining concept truly
differentiates us from other upscale steakhouses. Our menu provides a variety of portion sizes and signature options to appeal to a broad
customer demographic.
We operate eleven owned, six managed and six licensed STK restaurants in North America, Europe and the Middle East. Our STK
restaurants average approximately 9,000 to 10,000 square feet, and we typically target locations that range in size from 8,000 to 10,000
square feet. In 2021, the average domestic restaurant revenues and average domestic check per person for owned and managed STK
restaurants that have been open 18 months at December 31, 2021 were $14.8 million and $114, respectively.
We are focused on expanding our global STK footprint. We believe that the locations of our STK restaurants are critical to our long-
term success, and we devote significant time and resources to analyzing prospective restaurant sites. We intend to continue our focus on
(i) metropolitan areas with demographic and discretionary spending profiles that favor our high-end concept and (ii) finding partners with
excellent track records and brand recognition. We also consider factors such as traffic patterns, proximity to high-end shopping areas and
office buildings, hotels and convention centers, area restaurant competition, accessibility and visibility. We have identified over 75
additional major metropolitan areas
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across the globe where we could grow our STK brand to 200 restaurants over the foreseeable future. We expect to open as many as five to
six STKs annually.
Kona Grill
Kona Grill is a bar-centric grill concept featuring American favorites, award-winning sushi, and specialty cocktails in a polished casual
atmosphere. Kona Grill offers freshly prepared food and attentive service in an upscale, contemporary ambiance that creates an exceptional
dining experience that we believe exceeds many traditional casual dining restaurants. Menu items are prepared from scratch at each
restaurant location, creating memorable flavor profiles that appeal to a wide range of customers. The diverse menu is complemented by a
full-service bar offering a broad assortment of wines, craft cocktails, and beers. We believe that the Kona Grill brand is complementary to
our other brands and enables us to capture market share in the Vibe Dining segment.
We own and operate 24 Kona Grill restaurants within 17 states in the United States. Our Kona Grill restaurants average approximately
7,000 to 8,000 square feet. In 2021, the average restaurant revenues were $5.1 million and average check per person was $33. We believe
we can grow the Kona Grill brand to 200 restaurants over the foreseeable future. We expect to open as many as three to five Kona Grills
annually.
ONE Hospitality
Our ONE Hospitality platform is composed of our F&B hospitality management agreements with hotels, casinos, and other high-end
locations as well as our other brands and venue concepts, which are described below:
● ANGEL. ANGEL Rooftop bar and Dining is a sophisticated Southern-Mediterranean restaurant with two indoor and outdoor bars,
a floral garden patio, and a plunge pool located within the Hotel Calimala in Florence, Italy.
● Bao Yum. A fast-casual concept that offers a whimsical twist on classic bao. Bao Yum serves breakfast, lunch, dinner and dessert
bao along with a variety of salads, soups, sandwiches and snacks. Bao Yum currently operates within the Westminster Curio Hotel
in London.
● Heliot. Heliot Steak House is an award-winning steakhouse and bar within the Hippodrome Casino in London that offers
impressive views of the main casino gambling floor.
● Hideout. The Hideout by STK is an outdoor, poolside restaurant and bar within the W Hotel in Westwood, California, which
complements our owned STK and F&B hospitality services also offered within the W Hotel in Westwood.
● Marconi. The Marconi Lounge is a stylish and sophisticated lounge bar that we manage within the ME London hotel that offers an
extensive cocktail menu in an upbeat atmosphere.
● Radio. Radio Rooftop is a premier rooftop restaurant and lounge bar concept boasting striking city views with two signature
locations on top of the ME London and ME Milan hotels.
● Rivershore Bar & Grill. Rivershore Bar & Grill celebrates the end of the Oregon Trail with a beautiful river view, American
favorites and friendly, professional service in Oregon City, Oregon.
● F&B Services. Our F&B services for hospitality venues provide attractive and comprehensive tailored food and beverage
solutions to our hospitality clients. Our fee-based hospitality food and beverage solutions include developing, managing and
operating restaurants, bars, rooftops, pools, banquet and catering services, private dining rooms, in-room dining services and mini
bars on a contract basis. Currently, we operate six venues pursuant to F&B hospitality management agreements with hotels and
casinos in the United States and in Europe. Historically, our clients have provided the majority of the capital required for the
development of the facilities we manage on their behalf.
Our F&B hospitality contracts generate revenues for us through management fees, which are typically calculated as a percentage of the
operation’s revenues, and we earn additional milestone and incentive fees based on the operation’s profitability. We typically target F&B
hospitality service opportunities where we believe we can generate at least $500,000 of annual pre-tax income.
We expect our F&B hospitality services business to be an important driver of our growth and profitability, enabling us to generate
management fee income with minimal capital expenditures. We believe we are well positioned to leverage the strength of our brands and
the relationships we have developed with global hospitality providers to drive the continued growth of our F&B hospitality business. We
continue to receive inbound inquiries regarding new
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opportunities globally, and we continue to work with existing hospitality clients to identify and develop additional opportunities in their
venues. We expect to enter into one to two new F&B hospitality agreements annually.
Sourcing and Supply Chain
We seek to ensure that consistently high-quality food and beverages are served at all of our properties through the coordination and
cooperation of our purchasing and culinary departments. Our culinary and purchasing teams establish product specifications on a global
basis, which are then disseminated to all locations through recipe books for all dishes served at our properties.
We maintain consistent pricing standards and procedures for all top-volume purchases at our restaurants. Suppliers are selected and
pricing is negotiated on a national level in each country where one or more of our restaurants operate. We test new suppliers on a regional
basis for an extended period before using them on a national basis. We periodically review supplier consistency and satisfaction with our
location chefs and continually research and evaluate products and supplies to ensure the meat, seafood and other menu ingredients that we
purchase comply with our high-quality specifications. We believe we have strong relationships with national and regional foodservice
distributors who can continue to supply us with our products on a consistent basis. Products are shipped directly to the restaurants from our
suppliers.
Our corporate beverage program imposes guidelines for ordering beverage products at our properties. We provide beverage managers
at each location with national guidelines for standardized products. Our concepts emphasize the bar as a driver of activity in the restaurants
and in 2021, the sale of beverages accounted for approximately 25% of restaurant revenues.
On a company-wide basis, no supplier of food accounts for more than 30% of our total food and beverage purchases and no brand of
alcohol accounts for more than 25% of our alcohol purchases. We believe that our food and beverage supplies are available from a
significant number of alternate suppliers and that the loss of a supplier would not have a material adverse effect on our costs of supplies.
Advertising and Marketing
The primary focus of our advertising and marketing is to increase awareness of our brands and our overall reputation for quality,
service and delivering a high-energy experience. Our marketing efforts are designed to strengthen our brand recognition in markets where
we currently operate and to create brand awareness in new markets before opening a new location. We use digital/social media channels,
targeted local media such as magazines, billboards and other out-of-home advertising, and a strong network of public relations teams to
increase the frequency with which our existing customers visit our restaurants and to attract new customers. We conduct frequent
promotional programs tailored to the city, brand and clientele of each location. We utilize a network of local and national public relations
firms to support these promotional programs. Additional marketing functions include the use of our websites, www.STKsteakhouse.com
and www.KonaGrill.com, to facilitate online reservations, to-go/delivery orders and gift card sales to drive revenue.
Competition
The restaurant and hospitality industries are intensely competitive with respect to price, quality of service, location, ambiance of
facilities and type and quality of food. We experience competition from a variety of sources, including upscale steakhouse chains such as
Ruth Chris, Del Frisco’s, Fleming’s, Mastro’s and The Capital Grille, local upscale steakhouses and polished casual chains, such as The
Cheesecake Factory, Bonefish and BJ’s. There is also competition from other Vibe Dining restaurants such as Nobu, Lavo and Tao and
other high-end hospitality services companies such as the Gerber Group, Lettuce Entertain You and ESquared Hospitality. To the extent
that we operate lounges and similar venues in hotels and resorts, we are subject to our host venues being able to compete effectively in
attracting customers who would frequent our establishments.
Seasonality
Our business is subject to fluctuations due to seasonality and adverse weather. Because of the seasonality of the business and the
industry, results for any quarter are not necessarily indicative of the results that may be achieved for any
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other quarter or the full calendar year. Typically, our second and fourth quarters have higher sales volumes than other quarters in the year.
Intellectual Property
Our rights in our registered and unregistered intellectual property, including trademarks and service marks, are significant to our
business. We own the U.S. federal registration rights to “STK,” “Kona Grill,” and several related word marks and design marks related to
our brands. We depend on registered and unregistered trademarks and service marks to maintain the identity of our locations. We license
the rights to use certain trademarks we own or license to our licensees in connection with their operations. We also own several other
trademarks and service marks. It is our policy to defend our marks against encroachment by others.
Human Capital Resources
As of December 31, 2021, we employed approximately 64 corporate employees within our corporate offices and an aggregate of 243
full-time, salaried employees at all of our locations. We rely on hourly-wage employees for kitchen staff, servers, bussers, runners,
polishers, hosts, bartenders, barbacks, reservationists, administrative support, and interns. The average headcount for employees in our
domestic restaurants is 80. Combining full-time and part-time employees, we employ and manage directly approximately 3,364 persons
and indirectly approximately 420 employees of ONE Hospitality worldwide. We have never experienced a work stoppage, and none of our
employees are represented by a labor organization.
Our human capital objectives include attracting, developing, rewarding, and retaining our existing and new employees. We offer our
employees online training courses and on-the-job training. Restaurant management trainees undergo training in order to understand all
aspects of our restaurant operations. We provide our employees with cash-based performance bonuses. We also have an equity incentive
compensation plan to provide certain management-level or other key employees with stock-based awards. We have implemented programs
to attract and retain both restaurant managers and hourly employees. We monitor our progress with metrics such as employee performance
measures, turnover rates and restaurant customer surveys.
The health and safety of our employees is our highest priority. In protecting our employees’ safety, we have invested in creating a safe
work environment for our employees and guests. In response to COVID-19 concerns among guests and employees, we enhanced our
cleaning protocols beginning in 2020, including implementing daily health and safety checklists and providing additional personal
protective equipment and cleaning supplies. For all employees, we require masks to be worn in all restaurants and offices where required
by local law and provide regular communication regarding the impact of the COVID-19 pandemic, including health and safety protocols
and procedures.
Government Regulation
Our operations are subject to extensive federal, state and local governmental regulation, including health, safety, labor, sanitation,
building and fire agencies in the state, county, municipality or jurisdiction in which the restaurant is located. In certain states, our
restaurants are subject to “dram shop” statutes, which generally provides a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. We maintain the necessary restaurant,
alcoholic beverage and retail licenses, permits and approvals. Federal and state labor laws govern our relationship with our employees and
affect operating costs. The development and construction of new restaurants are also subject to compliance with applicable zoning, land use
and environmental regulations. A failure to comply with one or more regulations could result in the imposition of sanctions, including the
closing of restaurants for an indeterminate period of time, fines or third-party litigation.
Available Information
We are required to file reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K. The SEC maintains a website that contains reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC at www.sec.gov.
We maintain a website at www.togrp.com, including an investor relations section at ir.togrp.com, on which we routinely post
information, such as webcasts of quarterly earnings calls and other investor events in which we participate and any related material. Our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-
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K, and amendments to those reports, as well as other reports relating to us that are filed with or furnished to the SEC can be accessed in the
investor relations section of our website free of charge as soon as reasonably practicable after such material is electronically filed with or
furnished to the SEC.
We also make available on our website and in print to any stockholder who requests it, our Audit, Compensation, and Nominating and
Corporate Governance Committee charters, as well as the Code of Conduct that applies to all directors, officers and associates of the
Company. We do not incorporate any information found or accessible through our websites into this Annual Report on Form 10-K.
Item 1A. Risk Factors
RISK FACTORS
Ownership of our common stock involves certain risks. Holders of our common stock and prospective investors should carefully
consider the following risks and other information contained in this document, including our historical financial statements and related
notes included herein. The following risk factors could materially adversely affect our business, financial condition and results of
operations. This could cause the trading price of our common stock to decline, perhaps significantly, and you may lose part or all of your
investment. The risks and uncertainties below are all those that we have identified as material but may not be the only risks and
uncertainties facing us. Our business is subject to general risks and uncertainties that affect many other companies, including overall
economic and industry conditions.
Health and Safety
The COVID-19 pandemic has had, and is expected to continue to have, a significant effect on our restaurant traffic and our business,
financial condition and results of operations.
The COVID-19 pandemic has significantly affected on our business and results. Restaurants we own and manage have been subject to
significant government-mandated operating restrictions, including temporarily shut down of all in-person dining in 2020. Restrictions eased
in late 2020 and through 2021. Although all of our venues have reopened, we expect that our operations will continue to be affected by
COVID-19, and those effects may be exacerbated by resurgences and the spread of variants of the coronavirus. It remains difficult to
predict the full impact of the COVID-19 pandemic on the broader economy and how consumer behavior may change, and whether such
change is temporary or permanent.
We have made operational changes to adhere to government requirements on safety and sanitation in our restaurants. However, we
cannot guarantee that changes to our operational policies and training will be effective to keep our employees and customers safe from
COVID-19. COVID-19 may impact the willingness of customers to dine outside of the home. While it is not possible at this time to
estimate the full impact that COVID-19 could have on our business going forward, the continued spread of the virus and the measures
taken by governments or by us in response could adversely impact our business, financial condition and results of operations.
Costs associated with mitigating the impact of COVID-19 are significant and will continue in the future. We incurred COVID-19
related costs of $5.8 million and $5.5 million in 2021 and 2020, respectively.
Health concerns arising from outbreaks of flu viruses or other diseases, or regional or global health pandemic could severely affect our
business.
The United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such as coronavirus,
norovirus, Avian Flu or “SARS,” and H1N1 or “swine flu,” or other diseases such as bovine spongiform encephalopathy, commonly known
as “mad cow disease.” If a virus is transmitted by human contact, our employees or customers may become infected, or may choose, or be
advised, to avoid gathering in public places, any of which may adversely affect the guest traffic at our restaurants and the ability to
adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level. We also may be adversely
affected if jurisdictions in which we have restaurants impose mandatory closures, seek voluntary closures or impose restrictions on
operations. Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of
infection or significant health risk may adversely affect our business.
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To the extent that a virus or disease is food-borne, or perceived to be food-borne, future outbreaks may adversely affect the price and
availability of certain food products and cause our customers to eat less of a product. For example, health concerns relating to the
consumption of beef or to specific events such as the outbreak of “mad cow disease” may adversely impact sales of our beef-related menu
items. In addition, public concern over “avian flu” may cause fear about the consumption of chicken, eggs and other products derived from
poultry. The inability to serve beef or poultry-based products would restrict our ability to provide a variety of menu items to our customers.
If we change our menu in response to such concerns, we may lose customers who do not prefer the new menu, and we may not be able to
sufficiently attract new customers to produce the revenue needed to restore the profitability of our restaurant operations. We also may
generate different or additional competitors for our intended customers as a result of such a menu change and may not be able to
successfully compete against such competitors.
Failure to protect food supplies and adhere to food safety standards could result in food borne illnesses and adversely affect our
business.
Failure to protect our food supply or enforce food safety policies, such as proper food temperature and adherence to shelf-life dates,
could result in food-borne illnesses to our guests. Also, our reputation of providing high-quality food is an important factor in our guests
choosing our restaurants. Whether or not traced to our restaurants or those of our competitors, instances of food borne illness or other food
safety issues could reduce the demand for certain or all of our menu offerings. If any of our guest become ill from consuming our products,
the affected restaurants may be forced to close, and we may be subject to legal liability. An instance of food contamination from one of our
restaurants or suppliers could have far-reaching effects, as the contamination, or the perception of contamination could affect any or all of
our restaurants. Publicity related to either product contamination, recalls, or food-borne illness, including Bovine-Spongiform
Encephalopathy, which is also known as BSE or mad cow disease, aphthous fever, which is also known as hoof and mouth disease, and
hepatitis A, listeria, salmonella and e-coli may also injure our brand and may affect the selection of our restaurants by our guests or
licensees based on fear of such illnesses. In addition, the occurrence of food-borne illnesses or food safety issues could also adversely
affect the price and availability of affected ingredients, which could result in disruptions in our supply chain and/or lower margins for us
and our licensees.
Economic Conditions and Competition
Our business is dependent on discretionary spending patterns, business travel and general economic conditions.
We depend on consumer discretionary spending, business travel and the overall economic environment. Disruptions in the economy,
including recessions, high unemployment, foreclosures, bankruptcies, inflation and other economic impacts, could affect consumers’ ability
and willingness to spend discretionary dollars. Reductions in business travel and dining, which we believe accounts for a majority of our
weekday revenues at our hotel-based restaurants and food and beverage services operations, would adversely affect our revenues.
Reductions in discretionary income and spending also would impact our casino-based restaurants and food and beverage services
operations. If uncertain economic conditions were to persist for an extended period of time or worsen, consumers might make long-lasting
changes to their discretionary spending behavior, including dining out less frequently. Adverse changes in consumer discretionary spending
could be affected by many different factors that are out of our control, including international, national and local economic conditions, any
of which could harm our business prospects, financial condition, operating results and cash flows. Continued uncertainty in or a worsening
of the economy, generally or in a number of our markets, and our customers’ reactions to these trends could adversely affect our business
and cause us to, among other things, reduce the number and frequency of new location openings, close locations and delay any re-modeling
of existing locations. Our success will depend in part upon our ability to anticipate, identify and respond to changing economic and other
conditions.
We have a limited number of venues, and we operate multiple venues in some cities and are therefore sensitive to economic and other
trends and developments in these cities.
We have a relatively small number of restaurants and F&B service locations, and we operate multiple venues in some cities. We
typically operate one to six venues in the cities where we operate. Accordingly, particularly in cities where we have multiple venues, our
business is susceptible to adverse changes in these markets whether as a result of declining economic conditions, declining stock market
performance, negative publicity, changes in customer preferences or for other reasons, and any such adverse changes may have a
disproportionate effect on our overall results of operations compared to some of our competitors that may have less restaurant
concentration or that do not operate in our markets. Any regional occurrences such as local labor strikes, natural disasters, prolonged
inclement weather, acts of
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terrorism or other national emergencies, accidents, energy shortages, system failures or other unforeseen events in or around these cities
could result in temporary or permanent closings of our venues, which could have a material adverse effect on our business, financial
condition and results of operations as a whole.
Competition in the restaurant industry is intense.
The restaurant and hospitality industry is intensely competitive with respect to price, quality of service, location, ambiance of facilities
and type and quality of food. The industry is also characterized by the continual introduction of new concepts and is subject to rapidly
changing consumer preferences, tastes, trends and eating and purchasing habits. Our success depends in part on our ability to anticipate and
respond quickly to changing consumer preferences, and other factors affecting the restaurant and hospitality industry, including new market
entrants and demographic changes. Shifts in consumer preferences away from upscale steakhouses or beef in general, which are significant
components of our concepts’ menus and appeal, whether as a result of economic, competitive or other factors, could adversely affect our
business and results of operations.
A substantial number of national and regional restaurant chains, as well as independently owned restaurants, compete with us for
customers, restaurant locations and qualified management and other restaurant staff. There is also competition from non-steak but upscale
and high-energy restaurants, and other high-end hospitality services companies and high-energy nightlife concepts. To the extent that our
restaurants and F&B hospitality services operations are in hotels, casinos, resorts and similar client locations, we are subject to competition
in the broader lodging and hospitality markets that could draw potential customers away from our locations.
Some of our competitors have greater financial, marketing and operating resources than we do, have been in business longer, have
greater name recognition and are better established in the markets where our restaurants and F&B hospitality services operations are
located or where we may expand. In addition, improved product offerings in the fast casual segment of the restaurant industry, combined
with the effects of negative economic conditions and other factors, may lead consumers to choose less expensive alternatives. Our inability
to compete successfully with other restaurants, other F&B hospitality services operations and other segments of the industry may harm our
ability to maintain acceptable levels of revenue growth, limit our development of new restaurants or concepts, or force us to close one or
more of our restaurants or F&B hospitality services operations.
We may also need to evolve our concepts to compete with popular new restaurant or F&B hospitality services operation formats,
concepts or trends that emerge from time to time, and we cannot provide any assurance that any changes we make to any of our concepts in
response will be successful or not adversely affect our profitability.
Strategy and Operations
Unsuccessful implementation of any or all of the initiatives of our business strategy, including opening new restaurants and attracting
new F&B hospitality service opportunities, could negatively impact our operations.
Our success depends in part on our ability to understand and satisfy the needs of our guests and licensees. Our key strategies are to:
● Drive same store sales;
● Improve operational efficiency at our restaurants;
● Reduce corporate general and administrative expenses; and
● Grow our portfolio primarily through licensing and management deals.
Improving comparable location sales and restaurant-level margins depends in part on whether we are able to achieve revenue growth
through increases in the average check and increases in customer traffic, and to further expand our private dining business at each location
and delivery service business in markets where offered. We believe there are opportunities to increase the average check at our locations
through selective introduction of higher priced items and increases in menu pricing. We also believe that expanding and enhancing our
private dining capacity will also increase our location sales, as our private dining business typically has a higher average check and higher
overall margins than regular dining room business. We believe that expanding the markets in which we offer third-party delivery services
will also result in incremental sales. We believe select price increases have not historically adversely impacted customer traffic; however,
we expect that there is a price level at which point customer traffic would be adversely affected. It is
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also possible that these changes could cause our sales volume to decrease. If we are not able to increase our sales at existing locations for
any reason, our profitability and results of operations could be adversely affected.
One key element of our growth strategy is opening new restaurants and F&B hospitality services locations. We believe there are
opportunities to open approximately seven to twelve new locations (restaurants and/or hospitality services operations) annually, with a
focus on operating under licensing or management agreements (referred to as our “capital light strategy”). However, there can be no
assurance that we will be able to open new restaurants or F&B hospitality services locations at the rate that we currently expect.
Our success in growing our business through the opening of new restaurants and F&B hospitality locations is dependent upon a
number of factors, including our ability to: cost-effectively operate in markets that we are not familiar with, find suitable license and food
and beverage partners, find suitable locations, reach acceptable lease terms, have adequate capital, find acceptable contractors, obtain
licenses and permits, manage construction and development costs, recruit and train appropriate staff and properly manage the new venue.
Unanticipated costs or delays in the development or construction of future restaurants could impede our ability to open new restaurants
timely and cost-effectively, which could have a negative impact on our business, financial condition and results of operations. Specifically,
some of the factors that adversely affect the cost and time associated with the development and construction of our restaurants include:
labor disputes, shortages of materials or skilled labor, adverse weather conditions, unforeseen engineering problems, environmental
problems, construction or zoning problems, local government regulations, modifications in design, and other unanticipated increases in
cost.
Additionally, our venues are expensive to build, and we, our managed unit partners and our licensees incur significant capital and pre-
opening expense. Our business and profitability may be adversely affected if the “ramp-up” period for a new location lasts longer than we
expect or if the profitability of a new location dips after our initial “ramp-up” marketing program ends. New locations may not be
profitable, and their sales performance may not follow historical or projected patterns. If we are forced to close any new operations, we will
incur losses for certain buildout costs and pre-opening expenses incurred in connection with opening such operations.
We face a variety of risks associated with doing business with licensees.
We rely in part on our licensees and the manner in which they operate the STK restaurants to develop and promote our business. As of
December 31, 2021, we had six licensed STK restaurants. In 2021, one of our licensees permanently closed an STK restaurant in Dubai as
a result of COVID-19 and the decision to consolidate operations into the remaining STK restaurant in Dubai.
Our licensees are required to operate our restaurants according to the specific guidelines we set forth, which are essential to
maintaining brand integrity and reputation, as well as in accordance with all laws and regulations applicable to us, and all laws and
regulations applicable in the countries in which we operate. We provide training to these licensees to integrate them into our operating
strategy and culture. However, since we do not have day-to-day control over all of these restaurants, we cannot give assurance that there
will not be differences in product and service quality, operations, labor law enforcement, marketing or profitability or that there will be
adherence to all of our guidelines and applicable laws. In addition, if our licensees fail to make investments necessary to maintain or
improve the restaurants, guest preference for our brand could suffer. Our licensees are subject to business risks similar to those we face
such as competition; customer acceptance; fluctuations in the cost, quality and availability of raw ingredients; increased labor costs;
difficulty obtaining acceptable site leases; and difficulty obtaining proper financing. Failure of licensed restaurants to operate effectively
could adversely affect our cash flows from those operations or have a negative impact on our reputation and our business.
The success of our licensed operations depends on our ability to establish and maintain good relationships with our licensees. The
value of our brand and the rapport that we maintain with our licensees are important factors for potential licensees considering doing
business with us. If we are unable to maintain good relationships with licensees, we may be unable to renew license agreements and
opportunities for developing new relationships with additional licensees may be adversely affected. This, in turn, could have an adverse
effect on our results of operations. Although we have developed criteria to evaluate and screen prospective developers and licensees, we
cannot be certain that the developers and licensees we select will have the business acumen necessary to open and operate successful
licensed restaurants in their licensing areas, or that the licensees, once selected, will be able to negotiate acceptable lease or purchase terms
for prospective sites or to obtain the necessary approvals for such sites, or that financing will be available to construct and open new
venues.
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To the extent that our operations are located in hotels, casinos or similar destinations, our results of operations and growth are subject
to the risks facing such venues.
Our ability to grow and realize profits from our operations in hotels, casinos and other branded or destination venues are dependent on
the success of such venues’ business. We are subject to the actions and business decisions of our clients and third parties, in which we may
have little or no influence in the overall operation of the applicable venue and such actions and decisions could have an adverse effect on
our business and operations.
Labor and Supplies
Changes to wage, immigration and labor laws could increase our costs substantially.
Under the minimum wage laws in most domestic jurisdictions, we are permitted to pay certain hourly employees a wage that is less
than the base minimum wage because these employees receive tips as a substantial part of their income. As of December 31, 2021,
approximately 32% of our employees earn this lower minimum wage in their respective locations since tips constitute a substantial part of
their income. If cities, states or the federal government change their laws to require all employees to be paid the general employee
minimum base wage regardless of supplemental tip income, our labor costs would increase substantially. Certain states in which we operate
restaurants also have adopted or are considering adopting minimum wage statutes that exceed the federal minimum wage. We may be
unable or unwilling to increase our prices to pass these increased labor costs on to our customers, in which case, our business and results of
operations could be adversely affected.
A restaurant company employer may claim a credit against the company’s federal income taxes for FICA taxes paid on certain tip
wages (the “FICA tip credit”). We utilize the federal FICA tip credit to reduce our federal income tax expense. Changes in the tax law
could reduce or eliminate the FICA tip credit, which could negatively impact our results of operations and cash flows in future periods.
Further, the U.S. Congress and Department of Homeland Security may implement changes to federal immigration laws, regulations or
enforcement programs. Some of these changes may increase our obligations for compliance and oversight, which could subject us to
additional costs and make our hiring process more cumbersome or reduce the availability of potential employees. Even if we operate our
restaurants in strict compliance with U.S. Immigration and Customs Enforcement and state requirements, some of our employees may not
meet federal work eligibility or residency requirements, which could lead to a disruption in our work force. Although we require all of our
new employees to provide us with the government-specified documentation evidencing their employment eligibility, some of our
employees may, without our knowledge, be unauthorized workers. Unauthorized workers are subject to seizure and deportation and may
subject us to fines, penalties or loss of our business license in certain jurisdictions. Additionally, a government audit could result in a
disruption to our workforce or adverse publicity that could negatively impact our brand and our use of E-Verify and/or potential for receipt
of letters from the Social Security Administration requesting information (commonly referred to as no-match letters) could make it more
difficult to recruit and/or retain qualified employees.
Potential changes in labor laws or increased union recruiting activities could result in portions of our workforce being subjected to
greater organized labor influence. Although we do not currently have any unionized employees, labor legislation could have an adverse
effect on our business and financial results by imposing requirements that could potentially increase our costs, reduce our flexibility and
impact our ability to service our customers. In addition, a labor dispute involving some or all of our employees could harm our reputation,
disrupt our operations and reduce our revenues and resolution of disputes may increase our costs.
The loss of key personnel or difficulties recruiting and retaining qualified personnel could adversely affect our business and financial
results.
Our success depends substantially on the contributions and abilities of key executives and other employees, and on our ability to
recruit and retain high-quality employees to work in and manage our restaurants. We must continue to recruit, retain and motivate
management and other employees sufficient to maintain our current business and support our projected growth. A loss of key employees or
a significant shortage of high-quality restaurant employees to maintain our current business and support our projected growth could
adversely affect our business and financial results.
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We have been able to fully staff our restaurants in this challenging labor environment. There is no assurance that we will be able to
continue to effectively manage our employee base and avoid a labor shortage.
We occupy most of our restaurants and some of our food and beverage hospitality services locations under long-term non-cancelable
leases under which we may remain obligated to perform even if we close those operations, and we may be unable to renew leases at the
end of their terms.
Most of our restaurants and some of our food and beverage hospitality operations are located in premises that we lease. Many of our
current leases are non-cancelable and typically have terms ranging from 10 to 15 years with renewal options for terms ranging from 1 to
5 years. We believe that future leases that we enter into will be on substantially similar terms. Fixed payments and/or minimum percentage
rent payments under our operating leases and management agreements account for a significant portion of our operating expenses. This
may increase our vulnerability to general adverse economic and industry conditions, limit our ability to obtain additional financing, and
limit our flexibility in planning for or reacting to changes in our business.
We primarily depend on cash flow from operations to pay our obligations and to fulfill our other cash needs. If our business does not
generate sufficient cash flow from operating activities and sufficient funds are not otherwise available to us from borrowings under our
credit facility or other sources, we may not be able to meet our operating lease and management agreement obligations, grow our business,
respond to competitive challenges or fund our other liquidity and capital needs, which could adversely affect our business and results of
operations.
If we were to close or fail to open a restaurant or other venue at a location we lease, we would generally remain committed to perform
our obligations under the applicable lease, which could include, among other things, payment of the base rent for the balance of the lease
term. Our obligation to continue making rental payments and fulfilling other lease obligations in respect of leases for closed or unopened
restaurants could have a material adverse effect on our business and results of operations. Alternatively, at the end of the lease term and any
renewal period for a restaurant, we may be unable to renew the lease without substantial additional cost, if at all. If we cannot renew such a
lease we may be forced to close or relocate a restaurant, which could subject us to construction and other costs and risks.
Additionally, negative effects on our existing and potential landlords due to the inaccessibility of credit and other unfavorable
economic factors may adversely affect our business and results of operations. If our landlords are unable to obtain financing or remain in
good standing under their existing financing arrangements, they may be unable to provide construction contributions or satisfy other lease
covenants to us. If any landlord files for bankruptcy protection, the landlord may be able to reject our lease in the bankruptcy proceedings.
While we would under some circumstances have the option to retain our rights under the lease, we could not compel the landlord to
perform any of its obligations and would be left with damages (which are subject to collectability risk) as our sole recourse. Our
development of new locations may also be adversely affected by the negative financial situations of potential developers, landlords and
host sites. Such parties may delay or cancel development projects or renovations of existing projects due to the instability in the credit
markets and economic uncertainty. This could reduce the number of high-quality locations available that we would consider for our new
operations or cause the quality of the sites in which the restaurants and food and beverage hospitality services operations are located to
deteriorate. Any of these developments could have an adverse effect on our existing businesses or cause us to curtail new projects.
We depend upon frequent deliveries of food, alcohol and other supplies, which subjects us to the possible risks of shortages,
interruptions and price fluctuations.
Our ability to maintain consistent quality throughout our locations depends in part upon our ability to acquire fresh, quality products,
including beef, seafood, produce and related items, from reliable sources in accordance with our specifications. We currently purchase our
food products from various suppliers. We have elected to purchase our beef from a limited number of suppliers. If there were any shortages,
interruptions or significant price fluctuations in beef or seafood or if our suppliers were unable to perform adequately or fail to distribute
products or supplies to our restaurants, or terminate or refuse to renew any contract with us, this could cause a short-term increase of our
costs or cause us to remove certain items from our menu, increase the price of certain offerings or temporarily close a location, which could
adversely affect our business and results of operations.
In addition, we purchase beer, wine and spirits from distributors who own the exclusive rights to sell such alcoholic beverage products
in the geographic areas in which our locations reside. Our continued ability to purchase certain brands of alcoholic beverages depends upon
maintaining our relationships with those distributors, of which there can be no
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assurance. If any of our alcohol beverage distributors cease to supply us, we may be forced to offer brands of alcoholic beverage which
have less consumer appeal or that do not match our brand image, which could adversely affect our business and results of operations.
Increases in commodity prices would adversely affect our results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in commodity costs, which have a substantial effect
on our total costs. The purchase of beef represents approximately 22% of our food and beverage costs. The market for beef is subject to
extreme price fluctuations due to seasonal shifts, climate conditions, the price of feed, industry demand, energy demand and other factors.
Our ability to forecast and manage our commodities could significantly affect our gross margins. Energy prices can also affect our
operating results, because increased energy prices may cause increased transportation costs for beef and other commodities and supplies,
and increased costs for the utilities required to run each location. Historically we have passed increased commodity and other costs on to
our customers by increasing the prices of our menu items. While we believe these price increases have historically not affected customer
traffic, there can be no assurance that additional price increases would not affect future customer traffic. If prices increase in the future and
we are unable to anticipate or mitigate these increases, or if there are shortages for beef, our business and results of operations would be
adversely affected.
Litigation and Brand Risk
We face the risk of adverse publicity in connection with our operations, including as a result of increased social media usage.
The quality of our food and our facilities are two of our competitive strengths. Therefore, adverse publicity, whether accurate or not,
relating to food quality, public health concerns, illness, safety, injury or government or industry findings concerning our venues or those
operated by others could negatively impact us. Any shifts in consumer preferences away from the kinds of food we offer, particularly beef,
whether because of dietary or health concerns or otherwise, would make our locations less appealing and could reduce customer traffic
and/or impose practical limits on pricing.
The use of social media platforms allows individuals to access a broad audience of consumers and other interested persons. Consumers
value readily available information concerning goods and services that they have or plan to purchase and may act on such information
without further investigation or authentication. Many social media platforms immediately publish content from their subscribers and
participants, often without filters or checks on the accuracy of the content posted. Information concerning our company may be posted on
such platforms at any time. If customers perceive or experience a reduction in our food quality, service or ambiance or in any way believe
we have failed to deliver a consistently positive experience, this information can be immediately and broadly disseminated. This
information may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business.
We face the risk of litigation in connection with our operations.
We are, from time to time, the subject of complaints or litigation from our consumers alleging, among other things, illness, injury or
other food quality, health or operational concerns. The inappropriate use of social media by our employees or customers could lead to
litigation and result in negative publicity that could damage our reputation. In addition, third party and employee claims against us based
on, among other things, alleged discrimination, harassment or wrongful termination, or labor code violations may divert financial and
management resources that would otherwise be used to benefit our future performance. Regardless of whether any claims against us are
valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations. In addition,
they may generate negative publicity, which could reduce customer traffic and sales. Although we maintain what we believe to be adequate
levels of insurance commensurate with the nature and extent of our operations, insurance may not be available at all or in sufficient
amounts to cover any liabilities with respect to these matters. A significant increase in the number of these claims or in the number of such
claims that are successful could materially adversely affect our brand, financial condition or operating results. Like most employee
practices liability insurance policies, our policy does not provide protection against hour and wage claims, and therefore litigation in the
area could adversely impact our financial condition.
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We may not be able to protect our brands, trademarks, service marks or other proprietary rights.
We have registered, or have applications pending to register, the trademarks STK, Kona Grill and Konavore with the United States
Patent and Trademark Office and in certain foreign countries in connection with restaurant services. Our brands, which include our
trademarks, service marks and other intellectual property and proprietary rights, are important to our success and our competitive position.
In that regard, we believe that our trade names, trademarks and service marks are valuable assets that are critical to our success.
Accordingly, we devote substantial resources to the establishment and protection of our brands. However, the actions we take may be
inadequate to prevent imitation of our products and concepts by others, to prevent various challenges to our registrations or applications or
denials of applications for the registration of trademarks, service marks and proprietary rights in the U.S. or other countries, or to prevent
others from claiming violations of their trademarks and proprietary marks. In addition, others may assert rights in our trademarks, service
marks and other proprietary rights or may assert that we are infringing rights they have in their trademarks, service marks, patents or other
proprietary rights. Any such disputes could force us to incur costs related to enforcing our rights. In addition, the use of trade names,
trademarks or service marks similar to ours in some markets may keep us from entering those markets.
Each of our intellectual property marks is pledged as collateral securing our credit and guaranty agreement with Goldman Sachs Bank
USA (“Goldman Sachs”). Default under these agreements could enable Goldman Sachs to sell (at auction or otherwise) our trademarks,
which would have a material adverse effect on our ability to continue our business.
Other Risks
Our operations may be negatively impacted by seasonality, adverse weather conditions, natural disasters or acts of terror.
Our business is subject to seasonal fluctuations, adverse weather conditions and natural disasters that may at times affect the regions in
which our restaurants and F&B hospitality services operations are located, regions that supply or produce food products for our restaurants,
or locations of our distribution network. As a result of the seasonality of our business due to weather, holiday events and other factors, our
quarterly results for any one quarter or fiscal year may not be indicative of results to be expected for any other quarter or for any year.
In addition, if adverse weather conditions or natural disasters such as fires and hurricanes affect our restaurants, we could experience
closures, repair and restoration costs, food spoilage, and other significant reopening costs, any of which would adversely affect our
business. We could also experience shortages or delayed shipments at our restaurants if adverse weather or natural disasters affect our
distribution network, which could adversely affect our restaurants and our business as a whole. Additionally, during periods of extreme
temperatures (either hot or cold) or precipitation, we may experience a reduction in customer traffic, which could adversely affect our
restaurants and our business as a whole. Weather conditions are impossible to predict as is the negative impact on our business that such
conditions might cause. Catastrophic weather conditions are likely to affect the supply of and costs for food products. If we do not
anticipate or react to changing food costs by adjusting our purchasing practices or menu prices, our operating margins would likely
deteriorate.
Terrorism, including cyber-terrorism or efforts to tamper with food supplies, could have an adverse impact on our brand and results of
operations.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from
accessing critical information or expose us to liability, which could adversely affect our business and our reputation
We utilize information technology systems and networks to process, transmit and store electronic information in connection with our
business activities. As the use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain
unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the
security of our systems and networks and the confidentiality, availability and integrity of our data, all of which are vital to our operations
and business strategy. There can be no assurance that we will be successful in preventing cyber-attacks or successfully mitigating their
effects.
We estimate that approximately 80% of our sales are by credit or debit cards. Other restaurants and retailers have experienced security
breaches in which credit and debit card information has been stolen. We may in the future become
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subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we
may also be subject to lawsuits or other proceedings relating to these types of incidents. Further, in 2015, the major credit card networks
shifted the liability associated with EMV (Europay/Mastercard/Visa) chip card technology to the merchants. With this liability shift, any
restaurant or merchant that is not using an approved chip-and-pin point-of-sale device would be liable for counterfeit or fraudulent charges.
Despite the implementation of security measures (such as the employment of internal resources and external consultants to conduct
auditing and testing for weaknesses in our informational technology environment), our internal computer systems and those of our third-
party contractors and consultants are vulnerable to damage or disruption from hacking, computer viruses, software bugs, unauthorized
access or disclosure, natural disasters, terrorism, war, and telecommunication, equipment and electrical failures. There can be no assurance
that we will promptly detect any such disruption or security breach, if at all. Unauthorized access, loss or dissemination could disrupt our
operations, our ability to process and prepare company financial information, and manage various general and administrative aspects of our
business. To the extent that any such disruption or security breach results in a loss of or damage to our data or applications, or inappropriate
disclosure or theft of confidential, proprietary or personal information, we could incur liability, suffer reputational damage or poor financial
performance or become the subject of regulatory actions by state, federal or non-US authorities, any of which could adversely affect our
business.
We are subject to numerous and changing U.S. federal and foreign government regulations. Failure to comply with or substantial
changes in government regulations could negatively affect our sales, increase our costs or result in fines or other penalties against us.
Each of our venues is subject to licensing and regulation by the health, sanitation, safety, labor, building environmental (including
disposal, pollution, and the presence of hazardous substances) and fire agencies of the respective states, counties, cities, and municipalities
in which it is located, as well as under federal law. These regulations govern the preparation and sale of food, the sale of alcoholic
beverages, the sale and use of tobacco, zoning and building codes, land use and employee, health, sanitation and safety matters. Alcoholic
beverage control regulations govern various aspects of our locations’ daily operations, including the minimum age of patrons and
employees, hours of operation, advertising, wholesale purchasing and inventory control, handling and storage. Typically, our locations’
licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause. A failure to comply
with one or more regulations could result in the imposition of sanctions, including the closing of venues for an indeterminate period of
time, or third-party litigation, any of which could have a material adverse effect on us and our results of operations.
Government regulation can also affect customer traffic at our locations. A number of states, counties and cities have enacted menu
labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information. For example, the Affordable Care Act
establishes a uniform, federal requirement for restaurant chains with 20 or more locations operating under the same trade name and offering
substantially the same menus to post nutritional information on their menus, including the total number of calories. The law also requires
such restaurants to provide to consumers, upon request, a written summary of detailed nutritional information, including total calories and
calories from fat, total fat, saturated fat, cholesterol, sodium, total carbohydrates, complex carbohydrates, sugars, dietary fiber, and total
protein in each serving size or other unit of measure, for each standard menu item. The Food and Drug Administration is also permitted to
require additional nutrient disclosures, such as trans-fat content. Our compliance with the Affordable Care Act or other similar laws to
which we may become subject could reduce demand for our menu offerings, reduce customer traffic and/or reduce average revenue per
customer, which would have an adverse effect on our revenue. Any reduction in customer traffic related to these or other government
regulations could affect revenues and adversely affect our business and results of operations.
Our foreign operations are subject to all of the same risks as our domestic restaurants and food and beverage hospitality services
operations, and additional risks that include, among others, international economic and political conditions and the possibility of instability
and unrest, differing cultures and consumer preferences, diverse government regulations and tax systems, the ability to source fresh
ingredients and other commodities in a cost-effective manner and the availability of experienced management.
We are subject to governmental regulation in the domestic and international jurisdictions where we operate, including antitrust and tax
requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the USA PATRIOT Act
and the Foreign Corrupt Practices Act. Any new regulatory or
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trade initiatives could impact our operations in certain countries. Failure to comply with any such legal requirements could subject us to
monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.
We may not be able to comply with certain debt covenants on our debt.
Our credit agreement requires us to achieve specified financial and operating results and maintain compliance with specified financial
ratios. Our ability to comply with these provisions may be affected by events beyond our control, including the effects on our business of
COVID-19 and related government actions and consumer behavior. If we were to default under our covenants and such default were not
cured or waived, our indebtedness could become immediately due and payable. If we breach these covenants and fail to comply with the
credit agreement, and the lenders accelerate the amounts outstanding, our business and results of operations would be adversely affected.
In addition, our ability to borrow under our revolving credit facility depends on several factors, including compliance with specified
leverage incurrence ratios. If we are not able to borrow under our revolving credit facility to bridge losses we incur while our operations are
affected by the COVID-19 pandemic, and if alternative financing is not available to us on acceptable terms or at all, our business and
results of operations would be adversely affected.
Failure of our internal controls over financial reporting could harm our business and financial results.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control
over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in
accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements
or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our
financial results accurately and timely or to detect and prevent fraud. A significant financial reporting failure or material weakness in
internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our stock.
We cannot be certain that we will be able to maintain adequate controls over our financial processes and reporting. Refer to Part II —
Item 9A, “Controls and Procedures” of this Annual Report on Form 10-K for management’s assessment as of December 31, 2021. Any
failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results
accurately and timely or to detect and prevent fraud. A significant financial reporting failure or material weakness in internal control over
financial reporting could cause a loss of investor confidence and decline in the market price of our stock, and we could be subject to
sanctions or investigation by regulatory authorities, such as the SEC or Nasdaq.
Insiders have substantial control over us, and they could delay or prevent a change in our corporate control even if our other
stockholders wanted it to occur.
Our executive officers, directors, and principal stockholders hold a significant percentage of our outstanding common stock.
Accordingly, these stockholders are able to control or have a significant impact on all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or
merging with us even if our other stockholders affirmed such action. In addition, such concentrated control may adversely affect the price
of our common stock and sales by our insiders or affiliates, along with any other market transactions, could affect the market price of our
common stock.
Provisions in our amended and restated certificate of incorporation, our bylaws and Delaware law may inhibit a takeover of us, which
could limit the price investors might be willing to pay in the future for our common stock and could entrench management.
Our amended and restated certificate of incorporation and our bylaws contain provisions that may discourage unsolicited takeover
proposals that stockholders may consider to be in their best interests. Our Board of Directors (the “Board”) is divided into three classes,
each of which generally serve for a term of three years with only one class of directors being elected each year. As a result, at a given
annual meeting, only a minority of the Board may be considered for election. Since our staggered Board may prevent our stockholders
from replacing a majority of our Board at any given annual meeting, it may entrench management and discourage unsolicited stockholder
proposals that may be in the best interests of stockholders.
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Moreover, our Board has the ability to designate the terms of and issue new series of preferred stock without stockholder approval.
Under the terms of our amended and restated certificate of incorporation, our Board may authorize and issue up to 10,000,000 shares of one
or more series or class of preferred stock with rights superior to those of holders of common stock in terms of liquidation and dividend
preference, voting and other rights. The issuance of preferred stock would reduce the relative rights of holders of common stock vis-à-vis
the holders of preferred stock without the approval of the holders of common stock. In addition, to the extent that such preferred stock is
convertible into shares of common stock, its issuance would result in a dilution of the percentage ownership of holders of common stock on
a fully diluted basis. In addition, the issuance of a series of preferred stock could be used as a method of discouraging, delaying or
preventing a change in control of our company.
We are also subject to the anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together,
these provisions may make the removal of management more difficult and may discourage transactions that otherwise could involve a
payment of a premium over prevailing market prices for our securities.
The price of our common stock could be subject to volatility related or unrelated to our operations.
The trading price of our common stock could fluctuate significantly due to a number of factors, including market perception of our
ability to meet our growth projections and expectations, quarterly operating results of other companies in the same industry, trading value
in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our business
and the business of others in the industry. In addition, the stock market itself is subject to extreme price and volume fluctuations. This
volatility has had a significant effect on the market price of securities issued by many companies for reasons related and unrelated to their
operating performance and could have the same effect on our common stock.
Item 1B. Unresolved Staff Comments
None
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Item 2. Properties
We do not own any real property. Each of our “owned” restaurants operates in premises leased by its operating subsidiary. We do not
have a direct ownership interest in restaurants we operate under a management agreement (“managed”) or license agreement (“licensed”).
Our STK locations are as follows:
Venue
STK Atlanta
STK Bellevue
STK Chicago
STK Denver
STK Doha
STK Downtown (1)
STK Dubai
STK Ibiza
STK Las Vegas
STK London
STK Los Cabos
STK Mexico City
STK Miami Beach
STK Midtown
STK Milan
STK Nashville
STK Orlando (1)
STK San Diego (1)
STK San Juan
STK Scottsdale
STK Toronto
STK Westminster
STK Westwood
(1) Location includes an owned rooftop lounge, except for the STK Rooftop San Diego which is a licensed location.
(2) Ownership in location is 64.81%.
Hotel/Casino/Special Venue
—
—
—
—
The Ritz-Carlton
—
Jumeirah Beach Residence
Ibiza Corso Hotel & Spa
The Cosmopolitan
ME London
Los Cabos Airport
—
—
—
ME Milan
—
Disney Springs
Andaz Hotel
Condado Vanderbilt Hotel
—
—
The Westminster London
W Hotel
Location
Atlanta, Georgia
Bellevue, Washington
Chicago, Illinois
Denver, Colorado
Doha, Qatar
New York, New York
Dubai, United Arab Emirates
Illes Balears, Spain
Las Vegas, Nevada
London, England
Cabo San Lucas, Mexico
Mexico City, Mexico
Miami Beach, Florida
New York, New York
Milan, Italy
Nashville, Tennessee
Orlando, Florida
San Diego, California
San Juan, Puerto Rico
Scottsdale, Arizona
Toronto, Canada
London, England
Los Angeles, California
18
Type of
Interest
Owned
Owned
Owned
Owned
Licensed
Owned (2)
Licensed
Licensed
Managed
Managed
Licensed
Licensed
Owned
Owned
Managed
Owned
Owned
Owned
Licensed
Managed
Managed
Managed
Owned
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Our Kona Grill locations are as follows:
Venue
Kona Grill Alpharetta
Kona Grill Baltimore
Kona Grill Boca Park
Kona Grill Boise
Kona Grill Carmel
Kona Grill Cincinnati
Kona Grill Dallas
Kona Grill Denver
Kona Grill Eden Prairie
Kona Grill El Paso
Kona Grill Gilbert
Kona Grill Huntsville
Kona Grill Kansas City
Kona Grill Minnetonka
Kona Grill North Star
Kona Grill Oak Brook
Kona Grill Omaha
Kona Grill Plano
Kona Grill San Antonio
Kona Grill Sarasota
Kona Grill Scottsdale
Kona Grill Tampa
Kona Grill Troy
Kona Grill Woodbridge
Hotel/Casino/Special Venue
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Location
Alpharetta, Georgia
Baltimore, Maryland
Las Vegas, Nevada
Meridian, Idaho
Carmel, Indiana
Cincinnati, Ohio
Dallas, Texas
Denver, Colorado
Eden Prairie, Minnesota
El Paso, Texas
Gilbert, Arizona
Huntsville, Alabama
Kansas City, Missouri
Minnetonka, Minnesota
San Antonio, Texas
Oak Brook, Illinois
Omaha, Nebraska
Plano, Texas
San Antonio, Texas
Sarasota, Florida
Scottsdale, Arizona
Tampa, Florida
Troy, Michigan
Iselin, New Jersey
Our ONE Hospitality brands and F&B services locations are as follows:
Venue
ANGEL
Bao Yum
F&B Services - Westminster London
F&B Services - Hippodrome
F&B Services - ME London
F&B Services - ME Milan
F&B Services - W Hotel
Heliot
Hideout
Marconi
Radio Rooftop Bar
Radio Rooftop Bar
Rivershore Bar & Grill
Hotel/Casino/Special Venue
Hotel Calimala
The Westminster London
The Westminster London
Hippodrome Casino
ME London
ME Milan
W Hotel
Hippodrome Casino
W Hotel
ME London
ME London
ME Milan
Best Western Plus
Location
Florence, Italy
London, England
London, England
London, England
London, England
Milan, Italy
Los Angeles, California
London, England
Los Angeles, California
London, England
London, England
Milan, Italy
Oregon City, Oregon
Type of
Interest
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Type of
Interest
Managed
Managed
Managed
Managed
Managed
Managed
Owned
Managed
Owned
Managed
Managed
Managed
Managed
In addition to the locations above, we lease office space for support offices in Denver, Colorado; New York, New York; Scottsdale,
Arizona; and London, England.
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Item 3. 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
accruals for these matters are adequately provided for in our consolidated financial statements. We may have to make payments from time
to time to settle or resolve legal matters. We do not believe the ultimate resolutions of these matters will have a material adverse effect on
our consolidated financial position and results of operations. However, the resolution of lawsuits is difficult to predict. A significant
increase in the number of these claims, or one or more successful claims under which we incur greater liabilities than is currently
anticipated, could materially and adversely affect our consolidated financial statements.
For information regarding litigation refer to Note 15. “Commitments and Contingencies” in our consolidated financial statements
included in Item 8. “Financial Statements and Supplementary Data.” For more information about the impact of legal proceedings in our
business, see Item 1A. “Risk Factors”.
Item 4. Mine Safety Disclosures
Not applicable
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the NASDAQ Capital Market under the symbol "STKS". As of February 28, 2022, there were 85
holders of record of our common stock.
Dividends
We have not declared or paid any cash dividends on our common stock and do not intend to declare or pay any cash dividend in the
foreseeable future. The payment of dividends, if any, is within the discretion of our Board of Directors and will depend on our earnings, our
capital requirements, compliance with debt covenants, overall financial condition and such other factors as the Board of Directors may
consider. As a Delaware corporation, we are also limited by Delaware law as to the payment of dividends. We currently intend to retain our
earnings to finance our growth.
Issuer Purchases of Equity Securities
None
Recent Sales of Unregistered Securities
None
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of our consolidated financial condition and results of operations should be read
in conjunction with the consolidated financial statements and related notes to those statements included elsewhere in this Annual Report on
Form 10-K.
Overview
We currently own, operate, manage or license 60 venues including 23 STKs and 24 Kona Grills in major metropolitan cities in North
America, Europe and the Middle East and 13 F&B venues in seven hotels and casinos in the United States and Europe. We intend to open
thirteen new STK and F&B venues in 2021 and 2022, of which seven are currently open, and three to five Kona Grill locations in 2022.
The seven venues that were opened or added in 2021 are below:
● Managed STK restaurant in Scottsdale, Arizona;
● Licensed STK restaurant within the Los Cabos International Airport in San Jose del Cabo, Mexico;
● Managed STK restaurant at The Westminster London hotel in London, United Kingdom;
● Owned STK restaurant in Bellevue, Washington;
● Managed Bao Yum restaurant and F&B hospitality services at The Westminster London hotel in London, United Kingdom;
and
● Managed Rivershore Bar & Grill restaurant in Oregon City, Oregon.
There are currently two Company-owned STK restaurants (San Francisco, CA and Dallas, TX), one Company-owned Kona Grill
restaurant (Riverton, UT) and one managed STK restaurant (Stratford, UK) under construction. We are in ongoing discussions for
additional owned, managed and licensed venues both in the U.S. and international.
The table below reflects our venues by restaurant brand and geographic location:
STK(1)
Kona Grill
ONE Hospitality(2)
Total
Venues
Domestic
Owned
Managed
Licensed
Total domestic
International
Owned
Managed
Licensed
Total international
11
2
1
14
24
—
—
24
2
1
—
3
—
4
5
9
23
—
—
—
—
24
—
10
—
10
13
37
3
1
41
—
14
5
19
60
Total venues
(1) Locations with an STK and STK Rooftop are considered one venue location. This includes the STK Rooftop in San Diego, CA, which is a licensed location.
(2)
Includes concepts under the Company’s F&B hospitality management agreements and other venue brands such as ANGEL, Bao Yum, Heliot, Hideout, Marconi, Radio
and Rivershore Bar & Grill. Effective January 1, 2022, our agreement with the Hippodrome Casino was amended and extended for five years whereby the Company
changed from manager to consultant for the Heliot Steak House and F&B Hospitality services for the casino.
Overview of the Impact of COVID-19
The COVID-19 pandemic has significantly impacted, and will continue to adversely affect operations and financial results for the
foreseeable future. In response to COVID-19, we have taken significant steps to adapt our business to increase sales while providing a safe
environment for guests and employees. Currently, all restaurants are open for in-person dining. Our continuation of normal dining
operations is subject to events beyond our control, including the effectiveness of governmental efforts to halt the spread of COVID-19.
We are in regular contact with our major suppliers and have not experienced any significant disruption in our supply chain. We have
implemented programs to attract and retain both restaurant managers and hourly employees. We have increased cleaning protocols,
including the creation of a role which is focused on sanitation in high-touch and high-
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traffic areas, implemented daily health and safety checklists, provided additional personal protective equipment and cleaning supplies and
engaged third party vendors to perform electrostatic cleaning of our restaurants.
2021 Financial Highlights
Total revenue increased $135.3 million, or 95.3% to $277.2 million for 2021 compared to $141.9 million for 2020. The increase was
primarily attributable to strong sales as state and local governments eased seating capacity restrictions in the markets in which we operate
combined with strong execution of our sales initiatives. Same store sales increased 92.8% in 2021 compared to 2020 as seating capacity
restrictions limited in-person restaurant dining in the prior year. On a two-year basis, same-store sales increased 34.2% for 2021 compared
to 2019; STK same store sales increased 45.1% on a two-year basis while Kona Grill same store sales increased 23.2% reflecting the
execution of our sales initiatives.
Restaurant Operating Profit increased $36.8 million, or 235.9% to $52.4 million for 2021 compared to $15.6 million in 2020.
Restaurant Operating Profit as a percentage of owned restaurant net revenue was 19.8% in 2021 compared to 11.4% in 2020.
Operating income increased $33.1 million to $19.4 million for 2021 from a loss of $13.7 million for 2020. The increase in operating
income was primarily driven by strong sales and better Restaurant Operating Profit.
Net income attributable to The ONE Group Hospitality, Inc was $31.3 million in 2021 compared to a loss of $12.8 million in 2020. We
recognized an $18.5 million gain on CARES Act Loan Forgiveness in 2021, partly offset by a $0.6 million loss on early debt
extinguishment related to the partial paydown of our credit facility.
Our Growth Strategies and Outlook
Our growth model is primarily driven by the following:
Expansion of STK. We expect to continue to expand our operations domestically and internationally through a mix of owned, licensed
and managed STK restaurants using a disciplined and targeted site selection process. We have identified over 75 additional major
metropolitan areas across the globe where we expect we could grow our STK brand to 200 restaurants over the foreseeable future. We
expect to open as many as five to six STKs annually, primarily through company-owned locations and management or licensing
agreements, provided that we have sufficient interest from prospective licensees, acceptable locations and quality restaurant managers
available to support that pace of growth.
In 2021, we opened an owned STK restaurant in Bellevue, Washington, two managed STK restaurants located in Scottsdale, Arizona
and London, United Kingdom and one licensed STK restaurant located at the Los Cabos International Airport in San Jose del Cabo,
Mexico. Additionally, we have under construction owned STK restaurants in Dallas, Texas and San Francisco, California and a managed
STK restaurant in Stratford, United Kingdom.
Expansion of Kona Grill. We expect to expand our operations domestically using a disciplined and targeted site selection process. We
believe we could grow the Kona Grill brand to 200 restaurants over the foreseeable future. We expect to open as many as three to five Kona
Grills annually, primarily through company-owned locations, provided that we have acceptable locations and quality restaurant managers
available to support that pace of growth.
Expansion through New F&B Hospitality Projects. We expect our F&B hospitality services business to be an important contributor of
our growth and profitability, enabling us to generate management fee income with minimal capital expenditures. We believe we are well
positioned to leverage the strength of our brands and the relationships we have developed with global hospitality providers to drive the
continued growth of our F&B hospitality business. We continue to receive inbound inquiries regarding new opportunities globally, and we
continue to work with existing hospitality clients to identify and develop additional opportunities in their venues. We expect to enter into at
least one to two new F&B hospitality agreements annually. In 2021, we opened Bao Yum, a new brand under ONE Hospitality, and
commenced management of certain F&B hospitality management services at The Westminster London Hotel in London, United Kingdom.
We also entered into a management agreement with Rivershore Bar & Grill in Oregon City, Oregon during 2021.
Increase Same Store Sales and Increase Our Operating Efficiency. In addition to expanding into new cities and hospitality venues, we
intend to continue to increase revenue and profits in our existing operations through continued
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focus on high-quality, high-margin food and beverage menu items. We believe that our operating margins will improve through growth in
same store sales (“SSS”), as defined below in Key Performance Indicators, and a reduction of store-level operating expenses.
Acquisitions. We will continue to evaluate potential acquisition opportunities. On October 4, 2019, we acquired substantially all of the
assets of Kona Grill. We have integrated 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.
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.
Key Performance Indicators
We use the following key performance indicators in evaluating our restaurants and assessing our business:
Same Store Sales (“SSS”). SSS represents total food and beverage sales at domestic owned and managed restaurants opened for at
least a full 18-month period, which removes the impact of new restaurant openings in comparing the operations of existing restaurants. For
STK SSS, this measure includes total revenue from our owned and managed STK locations, excluding revenues from our owned STK
restaurant located in the W Hotel in Los Angeles, California due to the impact of the F&B hospitality management agreement with the
hotel. Revenues from locations where we do not directly control the event sales force are excluded from this measure. We have presented
two-year comparable sales to illustrate how sales at our restaurant base before the COVID-19 pandemic compare to sales as COVID-19
restrictions have eased and we have begun to recover lost sales.
Our comparable restaurant base for STK SSS consisted of ten domestic restaurants for the year ended December 31, 2021. For Kona
Grill SSS all 24 domestic restaurants are included in the comparable restaurant base. STK and Kona Grill SSS increased 131.9% and
57.7%, respectively, for 2021 compared to the prior year. On a two-year basis, STK SSS increased 45.1% while Kona Grill SSS increased
23.2%.
Number of Restaurant Openings. Number of restaurant openings reflects the number of restaurants opened during a particular fiscal
period. For each restaurant opening, we incur pre-opening costs, which are defined below. Typically, new restaurants open with an initial
start-up period of higher than normalized sales volumes (also referred to in the restaurant industry as the “honeymoon” period), which
decrease to a steady level approximately 18 to 24 months after opening. However, operating costs during this initial period are also higher
than normal, resulting in restaurant operating margins that are generally lower during the start-up period of operation and increase to a
steady level approximately 18 to 24 months after opening. Some new restaurants may experience a “honeymoon” period that is either
shorter or longer than this time frame.
In 2021, we opened four STK restaurants through a mix of owned, managed and licensed venues and commenced management of
three venues under F&B hospitality service agreements.
Average Check Per Person. Average check is calculated by dividing total restaurant sales by total entrees sold for a specified period.
Our management team uses this indicator to analyze trends in customers’ preferences, customer expenditures and the overall effectiveness
of menu changes and price increases. For our comparable STK restaurants, our average check was $114 for both 2021 and 2020. The
average check was $33 for Kona Grill restaurants for 2021 compared to $32 for 2020.
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Average Comparable Restaurant Revenue. Average comparable restaurant revenue consists of the average sales of our comparable
restaurants over a certain period of time. This measure is calculated by dividing total comparable restaurant sales in a given period by the
total number of comparable restaurants in that period. This indicator assists management in measuring changes in customer traffic, pricing
and development of our brand. Our average comparable STK restaurant revenues were $14.8 million, $6.9 million and $11.1 million for
the years ended December 31, 2021, 2020 and 2019 respectively. Our average comparable Kona Grill restaurant revenues were $5.1
million, $3.3 million and $4.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Key Financial Terms and Metrics
We evaluate our business using a variety of key financial measures:
Segment reporting
Our reportable operating segments are 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 comprised of the management, license and incentive fee revenue and results of
operations generated from our other brands and venue concepts, which include ANGEL, Bao Yum, Heliot, Hideout, Marconi,
Radio and Rivershore Bar & Grill. 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, 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, our major off-site events group, which
supports all brands and venue concepts, and revenue generated from gift card programs.
See Note 13 to our consolidated financial statements for further information on our segment reporting.
Revenues
Owned restaurant net revenues. Owned restaurant net revenues consist of food and beverage sales by owned restaurants net of any
discounts associated with each sale and of any ancillary F&B hospitality services at owned locations. Additionally, revenues from offsite
banquets, our major off-site events group, and our gift card programs are included in owned restaurant net revenues. For the year ended
December 31, 2021, beverage sales comprised 25% of food and beverage sales, and food sales comprised the remaining 75%. This
indicator assists management in understanding the trends in gross margins of the restaurants.
Our primary owned restaurant brands are STK and Kona Grill. We specifically look at comparable sales from both owned and
managed restaurants to understand customer count trends and changes in average check as it relates to our primary restaurant brands.
Management, license and incentive fee revenue. Management, license and incentive fee revenues include fees received pursuant to
management and license agreements. Management agreements typically call for a management fee based on a percentage of revenue, a
monthly marketing fee based on a percentage of revenues and an incentive fee based on a managed venue’s net profits. Similarly, royalties
from the licensee in license agreements are generally based on a percentage of the licensed restaurant’s revenue. These management,
license and incentive fees are recognized as revenue in the period the restaurant’s sales occur. Initial licensing fees and upfront fees related
to management and license agreements are recognized as revenue on a straight-line basis over the term of the agreement.
We evaluate the performance of our managed and licensed properties based on sales growth, a key driver for management and license
fees, and on improvements in operating profitability margins, which, combined with sales, drives incentive fee growth.
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Cost and expenses
Owned restaurant cost of sales. Owned restaurant cost of sales includes all owned restaurant food and beverage expenditures. We
measure cost of goods as a percentage of owned restaurant net revenues. Owned restaurant cost of sales are generally influenced by the cost
of food and beverage items, menu mix, discounting activity and restaurant level controls. See “Item 1A. Risk Factors — Increases in
commodity prices would adversely affect our results of operations.”
Owned restaurant operating expenses. We measure owned restaurant operating expenses as a percentage of owned restaurant net
revenues. Owned restaurant operating expenses include the following:
● Payroll and related expenses. Payroll and related expenses consist of manager salaries, hourly staff payroll and other payroll-
related items, including taxes, insurance and fringe benefits. We measure our labor cost efficiency by tracking total labor costs as
a percentage of owned restaurant net revenues.
● Occupancy. Occupancy comprises all occupancy costs, consisting of both fixed and variable rent, deferred rent expense, which is
a non-cash adjustment included in our Adjusted EBITDA calculation as defined below, common area maintenance charges, real
estate property taxes, utilities and other related occupancy costs and is measured by considering both the fixed and variable
components of certain occupancy expenses.
● Direct operating expenses. Direct operating expenses consist of supplies, such as paper, smallwares, china, silverware and
glassware, cleaning supplies, credit card fees and linen costs. Direct operating expenses are typically measured as a variable
expense based on owned restaurant net revenues.
● Outside services. Outside services include music and entertainment costs, such as the use of live DJ’s, promoter costs, security
services, outside cleaning services and commissions paid to event staff for banquet sales and delivery service fees.
● Repairs and maintenance. Repairs and maintenance consist of general repair work to maintain our facilities, and computer
maintenance contracts. We expect these costs to increase at each facility as they get older.
● Marketing. Marketing includes the cost of promoting our brands and, at times, can include the cost of goods used specifically for
complementary purposes. Marketing costs will typically be higher during the first 18 months of a restaurant’s operations.
General and administrative. General and administrative expenses are comprised of all corporate overhead expenses, including payroll
and related benefits, stock-based compensation expense, professional fees, such as legal and accounting fees, insurance and travel
expenses. Certain centrally managed general and administrative expenses are allocated specifically to restaurant locations and are reflected
in owned restaurant operating expenses and include shared services such as reservations, events and marketing. We expect general and
administrative expenses to be leveraged as we grow, become more efficient, and continue to focus on best practices and cost savings
measures.
Depreciation and amortization. Depreciation and amortization expense consists principally of charges related to the depreciation of
fixed assets including leasehold improvements, equipment and furniture and fixtures and the amortization of the intangible assets related to
the Kona Grill tradename.
Pre-opening expenses. Pre-opening expenses consist of costs incurred prior to opening an owned or managed STK restaurant at either
a leased or F&B location. Pre-opening expenses are comprised principally of manager salaries and relocation costs, employee payroll,
training costs for new employees and lease costs incurred prior to opening. Pre-opening expenses have varied from location to location
depending on a number of factors, including the proximity of our existing restaurants; the amount of rent expensed during the construction
and in-restaurant training periods; the size and physical layout of each location; the number of management and hourly employees required
to operate each restaurant; the relative difficulty of the restaurant staffing process; the cost of travel and lodging for different metropolitan
areas; the timing of the restaurant opening; and the extent of unexpected delays, if any, in obtaining necessary licenses and permits to open
the restaurant.
Other Items
EBITDA, Adjusted EBITDA and Restaurant Operating Profit. We present EBITDA, Adjusted EBITDA and Restaurant Operating
Profit to supplement other measures of financial performance. EBITDA, Adjusted EBITDA and Restaurant Operating Profit are not
required by, or presented in accordance with, accounting principles generally
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accepted in the United States of America (“GAAP”). We define EBITDA as net income before interest expense, provision for income taxes
and depreciation and amortization. We define Adjusted EBITDA as EBITDA before non-cash rent expense, pre-opening expenses, lease
termination expenses, stock-based compensation, COVID-19 related expenses and non-recurring gains and losses. Not all of the items
defining Adjusted EBITDA occur in each reporting period but have been included in our definitions of these terms based on our historical
activity. We define Restaurant Operating Profit as owned restaurant net revenue minus owned restaurant cost of sales and owned restaurant
operating expenses.
We believe that EBITDA, Adjusted EBITDA and Restaurant Operating Profit are appropriate measures of our operating performance
because they eliminate non-cash or non-recurring expenses that do not reflect our underlying business performance. We believe Restaurant
Operating Profit is an important component of financial results because: (i) it is a widely used metric within the restaurant industry to
evaluate restaurant-level productivity, efficiency, and performance, and (ii) we use Restaurant Operating Profit as a key metric to evaluate
our restaurant financial performance compared to our competitors. We use these metrics to facilitate a comparison of our operating
performance on a consistent basis from period to period, to analyze the factors and trends affecting our business and to evaluate the
performance of our restaurants. Adjusted EBITDA has limitations as an analytical tool and our calculation of Adjusted EBITDA may not
be comparable to that reported by other companies; accordingly, you should not consider it in isolation or as a substitute for analysis of our
results as reported under GAAP. Adjusted EBITDA is a key measure used by management. Additionally, Adjusted EBITDA and
Restaurant Operating Profit are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We
use Adjusted EBITDA and Restaurant Operating Profit, alongside other GAAP measures such as net income, to measure profitability, as a
key profitability target in our budgets, and to compare our performance against that of peer companies despite possible differences in
calculation.
Please refer to the table on page 30 for our reconciliation of net income to EBITDA and Adjusted EBITDA and for a reconciliation of
operating income (loss) to Restaurant Operating Profit.
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Results of Operations
The following table sets forth certain statements of operations data for the periods indicated (in thousands):
Revenues:
Owned restaurant net revenue
Management, license and incentive fee revenue
Total revenues
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales
Owned restaurant operating expenses
Total owned operating expenses
General and administrative (including stock-based compensation of $3,618 and $1,773 for the
years ended December 31, 2021 and 2020, respectively)
Depreciation and amortization
COVID-19 related expenses
Transaction costs
Lease termination expenses
Agreement restructuring expenses
Pre-opening expenses
Other income, net
Total costs and expenses
Operating income (loss)
Other (income) expenses, net:
Interest expense, net of interest income
Loss on early debt extinguishment
Gain on CARES Act Loan Forgiveness
Total other (income) expenses, net
Income (loss) before provision (benefit) for income taxes
Provision (benefit) for income taxes
Net income (loss)
Less: net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to The ONE Group Hospitality, Inc.
28
For the year ended December 31,
2021
2020
$
$
264,404
12,774
277,178
136,618
5,325
141,943
67,468
144,529
211,997
25,573
10,790
5,821
160
1,912
503
1,037
—
257,793
19,385
3,780
600
(18,529)
(14,149)
33,534
1,586
31,948
600
31,348
$
34,024
87,042
121,066
13,922
10,114
5,492
1,109
3,315
452
178
(11)
155,637
(13,694)
5,329
—
—
5,329
(19,023)
(5,400)
(13,623)
(798)
(12,825)
$
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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 year ended December 31,
2021
2020
Revenues:
Owned restaurant net revenue
Management, license and incentive fee revenue
Total revenues
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales (1)
Owned restaurant operating expenses (1)
Total owned operating expenses (1)
General and administrative (including stock-based compensation of 1.3% and 1.2% for the
years ended December 31, 2021 and 2020, respectively)
Depreciation and amortization
COVID-19 related expenses
Transaction costs
Lease termination expenses
Agreement restructuring expenses
Pre-opening expenses
Other income, net
Total costs and expenses
Operating income (loss)
Other (income) expenses, net:
Interest expense, net of interest income
Loss on early debt extinguishment
Gain on CARES Act Loan Forgiveness
Total other (income) expenses, net
Income (loss) before provision (benefit) for income taxes
Provision (benefit) for income taxes
Net income (loss)
Less: net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to The ONE Group Hospitality, Inc.
(1) These expenses are being shown as a percentage of owned restaurant net revenue.
29
95.4 %
4.6 %
100.0 %
25.5 %
54.7 %
80.2 %
9.2 %
3.9 %
2.1 %
0.1 %
0.7 %
0.2 %
0.4 %
—%
93.0 %
7.0 %
1.4 %
0.2 %
(6.7)%
(5.1)%
12.1 %
0.6 %
11.5 %
0.2 %
11.3 %
96.2 %
3.8 %
100.0 %
24.9 %
63.7 %
88.6 %
9.8 %
7.1 %
3.9 %
0.8 %
2.3 %
0.3 %
0.1 %
—%
109.6 %
(9.6)%
3.8 %
—%
—%
3.8 %
(13.4)%
(3.8)%
(9.6)%
(0.6)%
(9.0)%
Table of Contents
The following table presents a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the periods indicated (in
thousands):
Net income (loss) attributable to The ONE Group Hospitality, Inc.
Net income (loss) attributable to noncontrolling interest
Net income (loss)
Interest expense, net of interest income
Provision (benefit) for income taxes
Depreciation and amortization
EBITDA
COVID-19 related expenses
Transaction costs (1)
Stock-based compensation
Lease termination expense (2)
Agreement restructuring expense
Pre-opening expenses
Non-cash rent (3)
Gain on CARES Act Loan forgiveness
Loss on early debt extinguishment
Adjusted EBITDA
Adjusted EBITDA attributable to noncontrolling interest
Adjusted EBITDA attributable to The ONE Group Hospitality, Inc.
For the year ended December 31,
2021
2020
31,348
600
31,948
3,780
1,586
10,790
48,104
5,821
160
3,618
1,912
503
1,037
(32)
(18,529)
600
43,194
507
42,687
$
$
(12,825)
(798)
(13,623)
5,329
(5,400)
10,114
(3,580)
5,492
1,109
1,773
3,315
452
178
300
—
—
9,039
(517)
9,556
$
$
(1) Primarily transaction costs incurred with the Kona Grill acquisition and subsequent integration activities and costs associated with capital raising activities.
(2) Lease termination expense are costs associated with closed, abandoned and disputed locations or leases.
(3) Non-cash rent expense is included in owned restaurant operating expenses and general and administrative expense on the consolidated statements of operations and
comprehensive income.
The following table presents a reconciliation of Operating income (loss) to Restaurant Operating Profit for the periods indicated (in
thousands):
For the year ended December 31,
Operating income (loss) as reported
Management, license and incentive fee revenue
General and administrative
Depreciation and amortization
COVID-19 related expenses
Agreement restructuring expenses
Pre-opening expenses
Lease termination expense
Transaction costs
Other income, net
Restaurant Operating Profit
Restaurant Operating Profit as a percentage of owned restaurant net revenue
Restaurant Operating Profit by brand is as follows (in thousands):
STK restaurant operating profit (Company owned)
STK restaurant operating profit (Company owned) as a percentage of STK revenue (Company owned)
Kona Grill restaurant operating profit
Kona Grill restaurant operating profit as a percentage of Kona Grill revenue
30
$
$
$
$
2021
$
19,385
(12,774)
25,573
10,790
5,821
503
1,037
1,912
160
—
$
52,407
19.8%
2020
(13,694)
(5,325)
13,922
10,114
5,492
452
178
3,315
1,109
(11)
15,552
11.4%
For the year ended December 31,
2021
2020
34,598
24.7%
17,785
14.4%
$
$
7,347
13.1%
8,175
10.4%
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.
For the year ended December 31, 2021
Total revenues
Operating income (loss)(1)
Capital asset additions
As of December 31, 2021
Total assets
For the year ended December 31, 2020
Total revenues
Operating income (loss)(1)
Capital asset additions
As of December 31, 2020
Total assets
STK
Kona Grill
ONE Hospitality
Corporate
Total
$
$
$
$
$
$
151,436
39,863
7,581
95,510
$
$
$
123,181
12,982
2,307
91,323
$
$
$
1,725
466
170
6,117
$
$
$
836
(33,926)
1,409
36,885
STK
Kona Grill
ONE Hospitality
Corporate
60,932
5,973
2,734
81,431
$
$
$
78,591
3,356
1,952
96,262
$
$
$
1,197
33
206
5,484
$
$
$
1,223
(23,056)
895
32,392
$
$
$
$
$
$
277,178
19,385
11,467
229,835
Total
141,943
(13,694)
5,787
215,569
(1) Operating loss for the Corporate segment for the years ended December 31, 2021 and 2020 includes $5.8 million and $5.5 million, respectively, in COVID-19 related
expenses.
Results of Operations for the Years Ended December 31, 2021 and December 31, 2020
Revenues
Owned restaurant net revenue. Owned restaurant net revenue increased $127.8 million, or 93.5%, to $264.4 million for 2021 from
$136.6 million for 2020. The increase was primarily attributable to strong sales as state and local governments eased COVID-19 seating
capacity restrictions in markets where we operate combined with strong execution of our sales initiatives. Same store sales increased 92.8%
in 2021.
Management, license and incentive fee revenue. Management and license fee revenues increased $7.5 million, or 139.9%, to
$12.8 million for 2021 from $5.3 million for 2020. The increase was primarily attributable to local governments lifting stay at home orders
and easing seating capacity restrictions in the markets in which we operate as well as revenue generated from two managed STKs, one
licensed STK and three managed F&B venues we opened during 2021.
Cost and Expenses
Owned restaurant cost of sales. Food and beverage costs for owned restaurants increased approximately $33.5 million, or 98.3%, to
$67.5 million for 2021 from $34.0 million for 2020. The increase was due to the incremental sales increases noted above. As a percentage
of revenues, cost of sales increased 60 basis points to 25.5% for 2021 from 24.9% for 2020 primarily due to increased commodity prices
partly offset by operational cost reduction initiatives.
Owned restaurant operating expenses. Owned restaurant operating expenses increased $57.5 million, or 66.0%, to $144.5 million for
2021 from $87.0 million for 2020. Owned restaurant operating costs as a percentage of owned restaurant net revenue decreased 900 basis
points from 63.7% in 2020 to 54.7% for 2021 due to leverage on higher average weekly sales and actively managing operating costs.
General and administrative. General and administrative costs increased $11.7 million, or 83.7% to $25.6 million for 2021 from
$13.9 million for 2020. The increase was attributable to increased activity as restaurants resumed in-person dining compared to the prior
year when significant cost savings measures were implemented as a result of COVID-19. Stock-based compensation increased $1.8 million
to $3.6 million for 2021 compared to $1.8 million for 2020. The increase was driven by certain grants that vested based on stock price
thresholds and employer payroll taxes on stock option exercises and restricted stock vesting. Also, accruals for performance-based
compensation increased by $1.6 million compared to 2020. As a percentage of revenues, general and administrative costs were 9.2% in
2021 compared to 9.8% in 2020.
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Depreciation and amortization. Depreciation and amortization expense increased $0.7 million to $10.8 million for 2021 from
$10.1 million for 2020. The increase was primarily related to the opening of an owned STK restaurant in July 2021 and capital
expenditures to expand seating capacity and other initiatives to enhance the guest experience.
Transaction costs. We incurred $0.2 million in 2021 associated with capital raising and financing activities compared to transaction
and integration costs of $1.1 million related to the Kona Grill acquisition in 2020.
Lease termination expenses. Lease termination expense was $1.9 million and $3.3 million in 2021 and 2020, respectively. Lease
termination expenses are costs associated with closed, abandoned and disputed locations or disputed leases. In 2020, we accrued
approximately $2.7 million for lease exit costs for restaurants never built and still under dispute with landlords.
Agreement restructuring. Agreement restructuring expense for both 2021 and 2020 was $0.5 million, related to the restructuring of
agreements with our management and license partners. We do not expect to incur additional agreement restructuring expenses going
forward.
COVID-19 related expenses. COVID-19 related expenses were $5.8 million and $5.5 million for 2021 and 2020, respectively,
composed primarily of sanitation, supplies and safety precautions taken to prevent the spread of COVID-19.
Pre-opening expenses. Pre-opening expenses for 2021 were $1.0 million, related to the STK Bellevue restaurant which opened in July
2021 and non-cash pre-open rent for STK Dallas and STK San Francisco which are currently under construction. Pre-opening expenses for
2020 were $0.2 million.
Interest expense, net of interest income. Interest expense, net of interest income was approximately $3.8 million and $5.3 million for
2021 and 2020, respectively.
Loss on early debt extinguishment. During August 2021, we entered into the Third Amendment to the credit and guaranty agreement
with Goldman Sachs Bank USA (“Credit Agreement”) and made a $22.2 million pre-payment on the term loan. We recognized a loss on
early debt extinguishment of $0.6 million for the year ended December 31, 2021.
Provision (benefit) for income taxes. The provision for income taxes for 2021 was $1.6 million compared to a benefit for income taxes
of $5.4 million for 2020. Our effective tax rate was 4.7% and 28.4% for the years ended December 31, 2021 and 2020, respectively. For
2021, the provision for income taxes included discrete period tax benefits resulting from the vesting of restricted stock units and the
exercise of stock options. Our effective tax rate differs from the statutory U.S. tax rate of 21% primarily due to the following: (i) tax credits
for FICA taxes on certain employees’ tips; (ii) taxes owed in foreign jurisdictions such as the United Kingdom, Canada and Italy; (iii) taxes
owed in state and local jurisdictions; (iv) the benefit of excluding the Paycheck Protection Program loans forgiven under the CARES Act;
and (v) windfall tax benefits from equity compensation offset by compensation limited for certain individuals with compensation in excess
of $1 million.
Net income (loss) attributable to noncontrolling interest. Net income attributable to noncontrolling interest increased by $1.4 million to
$0.6 million for 2021 compared to net loss of $0.8 million for 2020.
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 debt. Subject to our operating performance, which, if significantly adversely affected, would
adversely affect the availability of funds, we expect to finance our operations for at least the next 12 months, including the costs of opening
currently planned new restaurants, through cash provided by operations and construction allowances provided by landlords of certain
locations. We also may borrow on our revolving credit facility or issue equity to support ongoing business and fund additional expansion.
We believe the combination of the aforementioned items are adequate to support our immediate business operations and plans. As of
December 31,
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2021, we had cash and cash equivalents of $23.6 million. We had $24.8 million in long-term debt, which consisted of borrowings under our
Credit Agreement as of December 31, 2021. As of December 31, 2021, the availability on our revolving credit facility was $10.6 million,
subject to the restrictions described in Note 5 to our consolidated financial statements.
Capital expenditures in 2021 were $11.5 million primarily for the construction of STK Bellevue which opened in July 2021, the
development and construction of STK restaurants in Dallas and San Francisco and a Kona Grill in Riverton as well as capital expenditures
for our existing restaurants and technology initiatives. Our future cash requirements will depend on many factors, including the pace of
expansion, conditions in the retail property development market, construction costs, the nature of the specific sites selected for new
restaurants, and the nature of the specific leases and associated tenant improvement allowances available, if any, as negotiated with
landlords.
Our operations have not required significant working capital, and, like many restaurant companies, we may have negative working
capital during the year. Revenues are received primarily in credit card or cash receipts, and restaurant operations do not require significant
receivables or inventories, other than our wine inventory. In addition, we receive trade credit for the purchase of food, beverages and
supplies, thereby reducing the need for incremental working capital to support growth.
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 (in thousands):
Minimum rents
Insurance
Interest
Minimum general & administrative costs
Total
Credit Agreement
$
$
1,600
200
100
500
2,400
On October 4, 2019, in conjunction with the acquisition of Kona Grill, we entered into our Credit Agreement with Goldman Sachs
Bank USA. On August 6, 2021, we entered into the Third Amendment to the Credit Agreement to extend the maturity date for both the
term loan and revolving credit facility to August 2026, to eliminate all financial covenants except a maximum net leverage ratio of 2.00 to
1.00, and to eliminate restrictions on the maximum amount of capital expenditures, the maximum number of Company-owned new
locations, and credit extensions under the revolving credit facility. As amended, the Credit Agreement provides for a secured revolving
credit facility of $12.0 million and a $25.0 million term loan (reduced from $48.0 million). The term loan is payable in quarterly
installments of $0.1 million, with the final payment due in August 2026.
The amended Credit Agreement has several borrowing and interest rate options, including the following: (a) a LIBOR rate (or a
comparable successor rate) subject to a 1.00% floor from a 1.75% floor or (b) a base rate equal to the greatest of (i) the prime rate, (ii) the
federal funds rate plus 0.50%, (iii) the LIBOR rate for a one-month period plus 1.00% or (iv) 4.00%. Loans under the amended Credit
Agreement bear interest at a rate per annum using the applicable indices plus an interest rate margin of 5.00% from a variable interest rate
margin of 5.75 to 6.75% (for LIBOR rate loans) and 4.00% from 4.75% to 5.75% (for base rate loans). Upon the cessation of LIBOR, the
amended Credit Agreement provides for the use of a benchmark replacement as defined in the amended Credit Agreement.
As of December 31, 2021, we were compliant with the covenants under the amended Credit Agreement. Based on current projections,
we believe that we will continue to comply with the covenants in the Credit Agreement, as amended, throughout the twelve months
following the issuance of the financial statements.
See Note 5 and Note 15 to our consolidated financial statements for further information on our long-term debt and commitments and
contingencies.
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CARES Act Loans
On May 4, 2020, two of our subsidiaries obtained CARES Act Loans from BBVA USA under the Paycheck Protection Program
(“PPP”) created by the CARES Act. Repayment of the CARES Act Loans was guaranteed by the 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 were eligible for forgiveness if the proceeds were used for qualified purposes within a specified period and if
at least 60% was spent on payroll costs. We 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 supported the re-opening of in person dining and the return of approximately 3,000
furloughed employees to work.
We applied for forgiveness of the CARES Act Loans in February 2021, and loans were forgiven in June 2021 and July 2021. As a
result, we recognized an $18.5 million gain on CARES Act Loan forgiveness for the year ended December 31, 2021.
Capital Expenditures and Lease Arrangements
When we open new Company-owned restaurants, our capital expenditures for construction increase. For owned restaurants, where we
build from a shell state, we have typically targeted an average cash investment of approximately $3.8 million for a 10,000 square-foot STK
restaurant and approximately $2.5 million for an 8,000 square-foot Kona Grill restaurant, in each case, net of landlord contributions and
excluding pre-opening costs. For STK locations where we may be the successor restaurant tenant, which anticipate total cash investment of
$2.0 million to $3.0 million. Typical cash pre-opening costs are $0.3 million to $0.5 million. In addition, some of our existing restaurants
will require capital improvements to either maintain or improve the facilities. We may add seating or provide enclosures for outdoor space
in the next twelve months for some of our locations, when we believe that will increase revenues for those locations.
Our hospitality F&B services projects typically require limited capital investment from us. Capital expenditures for these projects are
primarily be funded by cash flows from operations and equipment financing, depending upon the timing of these expenditures and cash
availability.
We typically seek to lease our restaurant locations for periods of 10 to 20 years under operating lease arrangements, with a limited
number of renewal options. Our rent structure varies, but our leases generally provide for the payment of both minimum and contingent
rent based on sales, as well as other expenses related to the leases such as our pro-rata share of common area maintenance, property tax and
insurance expenses. Many of our lease arrangements include the opportunity to secure tenant improvement allowances to partially offset
the cost of developing and opening the related restaurants. Generally, landlords recover the cost of such allowances from increased
minimum rents. However, there can be no assurance that such allowances will be available to us on each project that we select for
development.
Cash Flows
The following table summarizes the statement of cash flows for the fiscal years ended December 31, 2021 and December 31, 2020 (in
thousands):
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
For the year ended December 31,
2021
2020
$
$
30,966
(11,467)
(20,275)
5
(771)
$
$
431
(5,787)
17,424
(27)
12,041
Operating Activities. Net cash provided by operating activities was $31.0 million for 2021 compared to $0.4 million for 2020. The
increase was primarily attributable to net income generated during the year due to strong sales compared
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Table of Contents
to a net loss for 2020 as a result of COVID-19 restrictions. The increase is also attributed to an increase in accounts payable and accrued
expenses as a result of higher sales volumes.
Investing Activities. Net cash used in investing activities for 2021 was $11.5 million primarily for the construction of STK restaurants
in Bellevue, Washington; Dallas, Texas; San Francisco, California; and a Kona Grill restaurant in Riverton, Utah, as well as capital
expenditures for existing restaurants and technology initiatives compared to $5.8 million for 2020.
Financing Activities. Net cash used in financing activities was $20.3 million for 2021 compared to net cash provided by financing
activities of $17.4 million for 2020. During 2021, we made a $22.2 million principal payment on the amended Credit Agreement. In May
of 2020, we received $18.3 million in proceeds from the CARES Act Loans, which were subsequently forgiven in 2021.
Recent Accounting Pronouncements
Refer to Note 2 of our consolidated financial statements for a detailed description of recent accounting pronouncements.
Critical Accounting Estimates
Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and
results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain, especially in light of the current economic environment due to the COVID-19 pandemic. Judgments
and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions.
Our significant accounting estimates are discussed in additional detail in Note 2 to our consolidated financial statements. We base our
estimates on historical experience and various assumptions that we believe to be reasonable under the circumstances and we evaluate those
estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. We believe that
our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below:
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the
respective tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted rates expected to
apply to taxable income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of
realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that
some portion of the tax benefit will not be realized.
In addition, our income tax returns are periodically audited by federal, state and foreign tax authorities. These audits include questions
regarding our tax filing positions, including the timing and amount of deductions taken and the allocation of income amongst various tax
jurisdictions. We evaluate our exposures associated with our various tax filing positions and record a related liability. We adjust our liability
for unrecognized tax benefits and income tax provision in the period in which an uncertain tax provision is effectively settled, the statute of
limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available.
As of December 31, 2021, we had a valuation allowance of $0.3 million that relates to foreign tax credits we do not expect to utilize as
a result of generating income in a jurisdiction with a higher income tax rate than the U.S. The recording of deferred taxes requires
significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our
particular facts and circumstances.
Our income taxes are impacted by the enactment of the Tax Cuts and Job Act in December 2017 (the “TCJA”), which, amongst other
things, enacted global intangible low-taxed income provisions that do not allow us to defer the earnings of our U.K. and Italy subsidiaries.
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Impairment of Long-Lived Assets and Disposal of Property and Equipment
Long-lived assets, which include property and equipment and right-of-use assets for operating leases, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of these assets may not be fully recoverable. The impairment
evaluation is generally performed at the individual restaurant level, as we believe this is the lowest level of identifiable cash flows. We
believe that historical cash flows, in addition to other relevant facts and circumstances, are the primary basis for estimating future cash
flows. Relevant facts and circumstances include, among others, significant underperformance relative to historical or projected future
operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business, and significant
negative industry or economic trends. Recoverability of restaurant assets is measured by a comparison of the carrying amount of an
individual restaurant’s assets to the estimated identifiable undiscounted future cash flows expected to be generated by those restaurant
assets. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If the carrying amount
of an individual restaurant’s assets exceeds its estimated undiscounted future cash flows an impairment charge is recognized as the amount
by which the carrying amount of the asset exceeds its fair value. The estimated fair value is determined for these assets in accordance with
ASC 820. Property and equipment, net of accumulated depreciation, and the operating lease right-of-use assets as of December 31,2021
were $69.6 million and $85.4 million, respectively. For the year ended December 31, 2021, no impairment loss related to long-lived assets
has been recognized
From time to time, we have decided to close or dispose of restaurants. Typically, such decisions are based on operating performance or
strategic considerations and must be made before the actual costs or proceeds of disposition are known, and management must make
estimates of these outcomes. Such outcomes could include the sale of a leasehold, mitigating costs through a tenant or subtenant, or
negotiating a buyout of a remaining lease term. In these instances, management evaluates possible outcomes, frequently using outside real
estate and legal advice, and records provisions for the effect of such outcomes. The accuracy of such provisions can vary materially from
original estimates, and management regularly monitors the adequacy of the provisions until final disposition occurs.
For the years ended December 31, 2021 and 2020, we did not identify any event or changes in circumstances that indicated that the
carrying values of our restaurant long-lived assets were impaired.
Leases
Contracts are evaluated to determine whether they contain a lease at inception, and leases are classified as either operating or
financing. For operating leases, we recognize a lease liability equal to the present value of the remaining lease payments, and a right of use
asset equal to the lease liability, subject to certain adjustments, such as prepaid rents, initial direct costs and lease incentives received from
the lessor. For leases that do not have a rate implicit in the lease, we use our incremental borrowing rate to determine the present value of
the lease payments. Our incremental borrowing rate is the rate of interest that we would have to borrow on a collateralized basis over a
similar term on an amount equal to the lease payments in a similar economic environment.
The lease term at the lease commencement date is determined based on the non-cancellable period for which we have the right to use
the underlying asset, together with any periods covered by an option to extend the lease if we are reasonably certain to exercise that option,
periods covered by an option to terminate the lease if we are reasonably certain not to exercise that option, and periods covered by an
option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor.
Certain of our leases also provide for percentage rent, which are variable lease costs determined as a percentage of gross sales in
excess of specified, minimum sales targets. These percentage rents are recognized as rent expense prior to the achievement of the specified
sales target provided achievement of the sales target is considered probable.
We currently lease all of our restaurant locations under leases classified as operating leases. Management makes judgments regarding
the probable term for each lease and considers a number of factors to evaluate whether renewal options in the lease contracts are reasonably
certain of exercise, such as length of time before option exercise, expected value of the leased asset at the end of the initial lease term,
importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic penalties. The lease term can
impact the lease classification and accounting for a lease as either an operating or financing lease, the incremental borrowing rate, the rent
holidays and/or escalations in payments that are taken into consideration when calculating the rent expense and the related lease liability
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and right-of-use asset, and the term over which leasehold improvements for each restaurant are depreciated. These judgments may produce
materially different amounts of depreciation, amortization and rent expense and materially different lease liabilities and right-of-use assets
than would be reported if different assumed lease terms were used.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
We are exposed to market price fluctuations in beef, seafood, produce and other food product prices. Given the historical volatility of
beef, seafood, produce and other food product prices, these fluctuations can materially impact our food and beverage costs. In addition, the
COVID-19 pandemic has adversely impacted commodity prices due to supply and labor shortages. While we have taken steps to qualify
multiple suppliers who meet our standards as suppliers for our restaurants and enter into agreements with suppliers for some of the
commodities used in our restaurant operations, we do not enter into long-term agreements for the purchase of such supplies. There can be
no assurance that future supplies and costs for such commodities will not fluctuate due to weather and other market conditions outside of
our control and we may be subject to unforeseen supply and cost fluctuations. Dairy costs can also fluctuate due to government regulation.
Because we typically set our menu prices in advance of our food product prices, our menu prices cannot immediately take into account the
changing costs of food items. To the extent that we are unable to pass the increased costs on to our customers through price increases, our
results of operations would be adversely affected. We do not use financial instruments to hedge our risk to market price fluctuations in beef,
seafood, produce and other food product prices at this time.
Inflation
Over the past several years, inflation has not significantly affected our operations. However, the impact of inflation on labor, food and
occupancy costs could, in the future, significantly affect our operations. In addition, the COVID-19 pandemic has resulted in inflation due
to supply and labor shortages. We pay many of our employees hourly rates related to the applicable federal or state minimum wage. Food
costs as a percentage of revenues have been somewhat stable due to procurement efficiencies and menu price adjustments, although no
assurance can be made that our procurement will continue to be efficient or that we will be able to raise menu prices in the future. Costs for
construction, taxes, repairs, maintenance and insurance all impact our occupancy costs. We believe that our current strategy, which is to
seek to maintain operating margins through a combination of menu price increases, cost controls, careful evaluation of property and
equipment needs, and efficient purchasing practices, has been an effective tool for dealing with inflation. There can be no assurance,
however, that future inflationary or other cost pressure will be effectively offset by this strategy
Foreign Currency Exchange Rate Risk
We are subject to foreign currency exchange risk for our restaurants operating in the United Kingdom, Italy, Canada, Mexico and the
Middle East. If foreign currency exchange rates depreciate in these countries or regions, or any other country or region in which we may
operate in the future, we may experience declines in our international operating results but such exposure would not be material to the
consolidated financial statements. We currently do not use financial instruments to hedge foreign currency exchange rate changes.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements required by this Item are set forth in Item 15 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
37
Table of Contents
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management,
including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives,
as our controls are designed to do, and management necessarily applies its judgment in evaluating the risk and cost benefit relationship
related to controls and procedures.
Our Chief Executive Officer and Chief Financial Officer, have reviewed the effectiveness of our disclosure controls and procedures as
of December 31, 2021 and, based on this evaluation, have concluded that due to two material weaknesses in our internal control over
financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2021. These material
weaknesses did not result in a material misstatement of the annual or interim consolidated financial statements.
Report of Management on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act and based upon the criteria established in Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO framework”). Internal control over
financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in
accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes
maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions
are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures are
made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition
of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our
financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and
criteria established in the COSO framework.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a
timely basis. Based on our assessment, management has concluded that as of December 31, 2021, our internal control over financial
reporting was ineffective due to the material weaknesses in the control activities component of the COSO framework described below:
● Management identified there is a lack of segregation of duties as it relates to the review of journal entries.
● In addition, management identified the following deficiencies which, in the aggregate, constitute a material weakness:
● The Company’s redesign of certain controls throughout 2021 did not contemplate all the relevant design elements of control
activities necessary to address the risks of material misstatement, as well as the completeness and accuracy over the
information used in those controls. Additionally, certain controls were not executed as designed or were performed without
sufficiently documented supporting evidence. The business processes impacted primarily consisted of payroll, accounts
payable and property and equipment. Additionally, in certain cases controls were redesigned and implemented without a
sufficient period of time remaining to evidence operating effectiveness.
38
Table of Contents
● The Company did not design and maintain formal and effective controls over user access to certain information systems to
ensure adequate restriction of users and privileged access to venue level transaction processing applications and IT systems
maintained by third parties. As a result, it is possible that the Company’s business process controls that depend on the
accuracy and completeness of data or financial reports generated by these information technology systems could be adversely
affected due to the lack of operating effectiveness of information technology controls.
● In certain instances, the Company determined there was inappropriate application of technical accounting pronouncements
for certain transactions and disclosures.
These material weaknesses did not result in a material misstatement of the annual or interim consolidated financial statements.
However, these deficiencies in control activities result in the potential for there to have been material accounting errors.
Deloitte & Touche LLP, the independent registered public accounting firm that audited the financial statements included in this Annual
Report, has issued an attestation report on our internal control over financial reporting as of December 31, 2021.
Remediation Efforts to Address the Material Weaknesses
To remediate the material weakness regarding the lack of segregation of duties as it relates to the review of journal entries, in late
2021 we modified our journal entry review process to require that senior members of the management team who are outside of the journal
entry recording process review journal entries in order to enforce proper segregation of duties.
To remediate the material weakness resulting from other identified deficiencies, we plan to accelerate the timeline for testing and
documenting the design and operating effectiveness of control activities to aid in the repetition of control activities and implementation of
corrective actions as necessary. In addition, the following remediation efforts are planned or ongoing:
● We plan to increase the precision and specificity in the design of our control activities, including the controls over the
completeness and accuracy of the information used in performing control activities.
● We will continue to educate control owners and enhance policies to ensure that all design elements of control activities are
addressed in the performance of control activities, including a focus on information technology user access security.
● We will provide access to accounting literature and research to enable the controls owners in evaluating technical accounting
pronouncements for certain transactions.
We are committed to maintaining a strong internal control environment and have fully implemented measures designed to help
ensure that the control deficiencies contributing to the material weaknesses are remediated. However, there cannot be any assurance that
these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.
These material weaknesses cannot be considered remediated until the applicable remediated controls have operated for a period of time
sufficient for management to conclude that they have operated effectively.
Changes in Internal Control Over Financial Reporting
Except for the changes in connection with our implementation of the remediation plan discussed above, there have been no other
changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
39
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of The ONE Group Hospitality, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The ONE Group Hospitality, Inc. and subsidiaries (the “Company”) as of
December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses
identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over
financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by
COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 16, 2022,
expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
40
Table of Contents
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or
detected on a timely basis. The following material weaknesses in the control activities component of the COSO framework have been
identified and included in management's assessment:
● Lack of segregation of duties as it relates to the review of journal entries
● The following deficiencies in the aggregate constitute a material weakness:
● The Company’s redesign of certain controls throughout 2021 did not contemplate all the relevant design elements of control
activities necessary to address the risks of material misstatement, as well as the completeness and accuracy over the
information used in those controls. Additionally, certain controls were not executed as designed or were performed without
sufficiently documented supporting evidence. The business processes impacted primarily consisted of payroll, accounts
payable and property and equipment. Additionally, in certain cases controls were redesigned and implemented without a
sufficient period of time remaining to evidence operating effectiveness
● The Company did not design and maintain formal and effective controls over user access to certain information systems to
ensure adequate restriction of users and privileged access to venue level transaction processing applications and IT systems
maintained by third parties. As a result, it is possible that the Company’s business process controls that depend on the
accuracy and completeness of data or financial reports generated by these information technology systems could be adversely
affected due to the lack of operating effectiveness of information technology controls
● In certain instances, the Company determined there was inappropriate application of technical accounting pronouncements
for certain transactions and disclosures
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the
consolidated financial statements as of and for the year ended December 31, 2021, of the Company, and this report does not affect our
report on such financial statements.
/s/ Deloitte & Touche LLP
Denver, Colorado
March 16, 2022
41
Table of Contents
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information required by this item is incorporated by reference from the Company’s Proxy Statement for the 2022 Annual Meeting of
Stockholders.
Item 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the Company’s Proxy Statement for the 2022 Annual Meeting of
Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required by this item is incorporated by reference from the Company’s Proxy Statement for the 2022 Annual Meeting of
Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this item is incorporated by reference from the Company’s Proxy Statement for the 2022 Annual Meeting of
Stockholders.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this item is incorporated by reference from the Company’s Proxy Statement for the 2022 Annual Meeting of
Stockholders.
42
Table of Contents
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a)(1)
Financial Statements. For the financial statements included in this annual report, see “Index to the Financial Statements” on
page F-1.
(a)(3)
Exhibits. The list of exhibits filed as part of this Annual Report on Form 10-K is set forth on the Exhibit Index immediately
preceding such exhibits and is incorporated by reference in this Item 15(a)(3).
(b)
(c)
Exhibits. See Exhibit Index.
Separate Financial Statements. None.
Item 16. 10-K Summary
None.
43
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 16, 2022
THE ONE GROUP HOSPITALITY, INC.
By: /s/ TYLER LOY
Tyler Loy
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ EMANUEL HILARIO
Emanuel Hilario
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ TYLER LOY
Tyler Loy
/s/ CHRISTI HING
Christi Hing
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Date
March 16, 2022
March 16, 2022
March 16, 2022
/s/ JONATHAN SEGAL
Jonathan Segal
/s/ DIMITRIOS ANGELIS
Dimitrios Angelis
/s/ EUGENE BULLIS
Eugene Bullis
/s/ SUSAN LINTONSMITH
Susan Lintonsmith
/s/ HAYDEE OLINGER
Haydee Olinger
/s/ MICHAEL SERRUYA
Michael Serruya
Executive Chairman, Director
March 16, 2022
Director
Director
Director
Director
Director
44
March 16, 2022
March 16, 2022
March 16, 2022
March 16, 2022
March 16, 2022
Table of Contents
Exhibit Index
Exhibit
Number
3.1
3.2
4.1
4.2
10.1
10. 2†
10.3†
10.4†
10.5†
10.6†
10.7
10.8
10.9
10.10
10.11†
21.1*
23.1*
23.2*
31.1*
31.2*
32.1**
32.2**
101.CAL*
101.DEF*
101.LAB*
101.PRE*
101.INS*
101.SCH*
Exhibit Description
Amended and Restated Certificate of Incorporation (Incorporated by reference to Form 8-K filed on June 5, 2014).
Amended and Restated Bylaws (Incorporated by reference to Form 8-K filed on October 25, 2011).
Description of securities registered under Section 12 of the Securities Exchange Act of 1934 (Incorporated by reference to Exhibit 4.1 to Form 10-K filed on
March 26, 2020).
Form of Common Stock Purchase Warrant dated as of November 15, 2017 (Incorporated by reference to Form 8-K filed on November 16, 2017).
Form of Indemnity Agreement (Incorporated by reference to Amendment No. 1 to Form S-1 filed on June 30, 2011).
Amended and Restated Employment Agreement, dated October 30, 2017, by and between The ONE Group Hospitality, Inc. and Jonathan Segal
(Incorporated by reference to Form 8-K filed on November 3, 2017).
The One Group Hospitality, Inc. 2019 Equity Incentive Plan (Incorporated by reference to Form 8-K filed on June 4, 2019).
Amended and Restated Employment Agreement between Emanuel N. Hilario and The ONE Group Hospitality, Inc. dated September 24, 2021 (Incorporated
by reference to Form 8-K filed on September 28, 2021).
Notice of Grant of Restricted Stock Units dated September 24, 2021 between Emanuel N. Hilario and The ONE Group Hospitality, Inc. (Incorporated by
reference to Form 8-K filed on September 28, 2021).
Employment Letter Agreement with Tyler Loy Effective April 1, 2019 (Incorporated by reference to Exhibit 10.7 to Form 10-K filed on March 26, 2020).
Credit and Guaranty Agreement dated October 4, 2019 with Goldman Sachs Bank USA (Incorporated by reference to Form 8-K/A filed on October 8,
2019).
Third Amendment to Credit and Guaranty Agreement dated August 6, 2021 between The ONE Group, LLC, certain other credit parties, and Goldman Sachs
Bank USA, as administrative agent for the lenders (Incorporated by reference to Form 10-Q filed on August 10, 2021)
Second Amendment to Credit and Guaranty Agreement dated August 10, 2020 between The ONE Group, LLC, certain other credit parties, and Goldman
Sachs Bank USA, as administrative agent for the lenders (Incorporated by reference to Form 8-K filed on August 12, 2020).
First Amendment to Credit and Guaranty Agreement dated May 8, 2020 between The ONE Group, LLC, certain other credit parties, and Goldman Sachs
Bank USA, as administrative agent for the lenders (Incorporated by reference to Form 8-K filed May 8, 2020).
Form of Restricted Stock Unit Grant Notice and Agreement (Incorporated by reference to Exhibit 10.10 to Form 10-K filed on March 26, 2020).
List of Subsidiaries.
Consent of Deloitte & Touche LLP
Consent of Plante & Moran, PLLC
Certification of Emanuel Hilario, Chief Executive Officer, pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.
Certification of Tyler Loy, Chief Financial Officer, pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.
Certification of Emanuel Hilario, Chief Executive Officer, pursuant to Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350.
Certification of Tyler Loy, Chief Financial Officer, pursuant to Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350.
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
* Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan or arrangement.
45
Table of Contents
THE ONE GROUP HOSPITALITY, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 34)
Report of Independent Registered Public Accounting Firm (PCAOB ID: 166)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
Table of Contents
Report of Independent Registered Accounting Firm
To the stockholders and the Board of Directors of The ONE Group Hospitality, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The ONE Group Hospitality, Inc. and subsidiaries (the "Company") as
of December 31, 2021, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders' equity,
and cash flows, for the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and
the results of its operations and its cash flows for the period ended December 31, 2021, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 16, 2022, expressed an adverse opinion on the Company's internal control over financial reporting because of material weaknesses.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.The critical
audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does
not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Table of Contents
Long-Lived Asset Impairment — Refer to Note 2 to the financial statements
Critical Audit Matter Description
Long-lived assets, which includes property and equipment and right-of-use assets for operating leases, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying values of these assets may not be fully recoverable. The impairment
evaluation is performed at the individual restaurant level. Recoverability of restaurant assets is measured by a comparison of the carrying
amount of an individual restaurant’s assets to the estimated undiscounted future cash flows expected to be generated by those restaurant
assets. If the carrying amount of an individual restaurant’s assets exceeds its estimated undiscounted future cash flows an impairment
charge is recognized as the amount by which the carrying amount of the asset exceeds its fair value. The estimated fair value is determined
for these assets in accordance with ASC 820. Property and equipment, net, and the Operating lease right-of-use assets as of December 31,
2021 were $69.6 million and $85.4 million, respectively. For the year ended December 31, 2021, no impairment loss related to long-lived
assets was recognized.
We identified the determination of possible triggering events for long-lived assets as a critical audit matter because of the significant
assumptions management makes when determining whether events or changes in circumstances have occurred indicating that the carrying
amounts of long-lived assets may not be recoverable. This required a high degree of auditor judgement.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to evaluation of long-lived asset impairment indicators included the following, among others:
● We tested effectiveness of internal controls over the Company’s long lived asset impairment indicator evaluation.
● We evaluated the reasonableness of the Company’s evaluation of impairment indicators by:
–
–
–
Testing long-lived restaurant assets for possible indications of impairment, including searching for locations with current
period losses or projected losses
Performing inquiries of management regarding the process and assumptions used to identify potential indicators of
impairment and evaluating the consistency of the assumptions with evidence obtained in other areas of the audit
Inspecting minutes of the board of directors, the Company's public statements, operating plans, and industry data to
identify any evidence that may contradict management's assumptions
● We tested the completeness and accuracy of the underlying source information used by management to identify quantitative
indicators of impairment.
/s/ Deloitte & Touche LLP
Denver, Colorado
March 16, 2022
We have served as the Company's auditor since 2021.
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
The ONE Group Hospitality, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of The ONE Group Hospitality, Inc. (the “Company”) as of December 31,
2020, the related consolidated statements of operations and comprehensive (loss) income, changes in stockholders' equity, and cash flows
for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.
/s/ Plante & Moran PLLC
We served as the Company’s auditor from 2018 to 2021.
Boulder, Colorado
March 19, 2021
F-4
THE ONE GROUP HOSPITALITY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
Table of Contents
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Inventory
Other current assets
Due from related parties
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Deferred tax assets, net
Intangibles, net
Other assets
Security deposits
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Deferred license revenue
Deferred gift card revenue and other
Current portion of operating lease liabilities
Current portion of CARES Act Loans
Current portion of long-term debt
Total current liabilities
Deferred license revenue, long-term
Operating lease liabilities, net of current portion
CARES Act Loans, net of current portion
Long-term debt, net of current portion
Total liabilities
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, $0.0001 par value, 75,000,000 shares authorized; 32,138,396 issued and 32,125,762 outstanding
at December 31, 2021 and 29,083,183 shares issued and outstanding at December 31, 2020
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at
December 31, 2021 and December 31, 2020, respectively
Treasury stock, 12,634 shares and 0 shares at December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See notes to the consolidated financial statements.
F-5
December 31,
2021
December 31,
2020
$
$
$
$
$
$
$
23,614
11,356
3,915
3,666
376
42,927
69,638
85,395
12,313
15,505
3,199
858
229,835
11,094
23,155
90
2,029
5,396
—
500
42,264
298
103,616
—
23,132
169,310
24,385
5,777
2,490
1,348
376
34,376
67,344
80,960
13,226
16,313
2,446
904
215,569
7,404
15,684
207
1,990
4,817
10,057
588
40,747
953
98,569
8,257
45,064
193,590
3
3
—
(37)
53,481
10,632
(2,645)
61,434
(909)
60,525
229,835
$
—
—
46,538
(20,716)
(2,646)
23,179
(1,200)
21,979
215,569
Table of Contents
THE ONE GROUP HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except earnings per share and related share information)
Revenues:
Owned restaurant net revenue
Management, license and incentive fee revenue
Total revenues
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales
Owned restaurant operating expenses
Total owned operating expenses
General and administrative (including stock-based compensation of $3,618 and $1,773 for the years
ended December 31, 2021 and 2020, respectively)
Depreciation and amortization
COVID-19 related expenses
Transaction costs
Lease termination expenses
Agreement restructuring expenses
Pre-opening expenses
Other income, net
Total costs and expenses
Operating income (loss)
Other (income) expenses, net:
Interest expense, net of interest income
Loss on early debt extinguishment
Gain on CARES Act Loan Forgiveness
Total other (income) expenses, net
Income (loss) before provision (benefit) for income taxes
Provision (benefit) for income taxes
Net income (loss)
Less: net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to The ONE Group Hospitality, Inc.
Currency translation (loss) gain
Comprehensive income (loss) attributable to The One Group Hospitality, Inc.
Net income (loss) attributable to The ONE Group Hospitality, Inc. per share:
Basic net income (loss) per share
Diluted net income (loss) per share
Shares used in computing basic earnings per share
Shares used in computing diluted earnings per share
For the year ended December 31,
2021
2020
$
$
264,404
12,774
277,178
67,468
144,529
211,997
25,573
10,790
5,821
160
1,912
503
1,037
—
257,793
19,385
3,780
600
(18,529)
(14,149)
33,534
1,586
31,948
600
31,348
1
31,349
1.01
0.93
31,155,224
33,794,344
$
$
$
$
$
$
$
$
136,618
5,325
141,943
34,024
87,042
121,066
13,922
10,114
5,492
1,109
3,315
452
178
(11)
155,637
(13,694)
5,329
—
—
5,329
(19,023)
(5,400)
(13,623)
(798)
(12,825)
5
(12,820)
(0.44)
(0.44)
28,909,963
28,909,963
See notes to the consolidated financial statements.
F-6
Table of Contents
Balance at January 1, 2020
Stock-based compensation
Exercise of stock options
Issuance of vested restricted
shares, net of tax withholding
Gain on foreign currency
translation, net
Net loss
Balance at December 31, 2020
Stock-based compensation
Exercise of stock options and
warrants
Issuance of vested restricted
shares, net of tax withholding
Purchase of treasury stock
Purchase of noncontrolling
interest
Gain on foreign currency
translation, net
Net income
Balance at December 31, 2021
THE ONE GROUP HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share information)
Common stock
Shares
28,603,829
226,983
18,000
Par value
$
3
—
—
Additional
paid-in
capital
$ 44,853
1,773
38
234,371
—
(126)
Treasury
stock
Retained
earnings
Accumulated
other
comprehensive
loss
Stockholders’
equity
Noncontrolling
interests
$
— $
—
—
—
(7,891) $
—
—
(2,651) $
—
—
34,314
1,773
38
—
—
(126)
—
—
$
29,083,183
61,399
—
—
3
—
—
—
$
$ 46,538
3,248
1,590,029
—
3,615
1,403,785
(12,634)
—
—
(154)
—
—
—
234
—
—
$
32,125,762
—
—
3
—
—
$
$ 53,481
—
—
—
— $ (20,716) $
—
—
(12,825)
—
—
(37)
—
—
—
(37) $
—
—
—
—
—
31,348
10,632
$
5
—
(2,646) $
—
—
—
—
—
5
(12,825)
23,179
3,248
3,615
(154)
(37)
234
1
—
(2,645) $
1
31,348
61,434
$
$
$
(402) $
—
—
Total
33,912
1,773
38
—
(126)
—
(798)
(1,200) $
—
5
(13,623)
21,979
3,248
—
3,615
—
—
(309)
(154)
(37)
(75)
—
600
(909) $
1
31,948
60,525
See notes to the consolidated financial statements.
F-7
Table of Contents
THE ONE GROUP HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
For the year ended December 31,
2021
2020
$
31,948
$
(13,623)
Depreciation and amortization
Stock-based compensation
Loss on early debt extinguishment
Amortization of debt issuance costs
Deferred taxes
Gain on CARES Act Loan Forgiveness
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Other current assets
Due from related parties
Security deposits
Other assets
Accounts payable
Accrued expenses
Operating lease liabilities and right-of-use assets
Deferred revenue
Net cash provided by operating activities
Investing activities:
Purchase of property and equipment
Net cash used in investing activities
Financing activities:
Repayments of long-term debt
Proceeds from CARES Act Loans
Debt issuance costs
Exercise of stock options and warrants
Tax-withholding obligation on stock-based compensation
Purchase of treasury stock
Purchase of non-controlling interests
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow data:
Interest paid
Income taxes paid
Non-cash CARES Act Loan Forgiveness
Non-cash capital expenditures
10,790
3,248
600
415
913
(18,529)
(5,615)
(1,425)
(2,189)
—
46
(417)
3,462
7,261
1,191
(733)
30,966
(11,467)
(11,467)
(22,758)
—
(866)
3,615
(154)
(37)
(75)
(20,275)
5
(771)
24,385
23,614
3,402
437
18,529
854
$
$
$
$
$
$
$
$
$
$
10,114
1,773
—
479
(5,475)
—
4,378
568
(301)
(35)
405
(826)
(939)
4,468
848
(1,403)
431
(5,787)
(5,787)
(752)
18,314
(50)
38
(126)
—
—
17,424
(27)
12,041
12,344
24,385
3,925
286
—
303
See notes to the consolidated financial statements.
F-8
Table of Contents
THE ONE GROUP HOSPITALITY, INC.
Notes to Consolidated Financial Statements
Note 1 – Description 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 at a particular hospitality venue and customized for
the client. 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.
As of December 31, 2021, the Company owned, operated, managed or licensed 60 venues including 23 STKs and 24 Kona Grills in
major metropolitan cities in North America, Europe and the Middle East and 13 F&B venues in seven hotels and casinos in the United
States and Europe. 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.
Overview of the Impact of COVID-19
The COVID-19 pandemic has significantly impacted, and will continue to adversely affect our operations and financial results for the
foreseeable future. In response to COVID-19, the Company has taken significant steps to adapt its business to increase sales while
providing a safe environment for guests and employees. COVID-19 related expenses were $5.8 million and $5.5 million for 2021 and
2020, respectively, composed primarily of sanitation, supplies and safety precautions taken to prevent the spread of COVID-19. Currently,
all restaurants are open for in-person dining. The continuation of normal dining operations is subject to events beyond the Company’s
control, including the effectiveness of governmental efforts to halt the spread of COVID-19.
The Company is in regular contact with its major suppliers and has not experienced any significant disruption in its supply chain. The
Company has implemented programs to attract and retain both restaurant managers and hourly employees. The Company has also
increased cleaning protocols, including the creation of a role which is focused on sanitation in high-touch and high-traffic areas,
implemented daily health and safety checklists, provided additional personal protective equipment and cleaning supplies and engaged third
party vendors to perform electrostatic cleaning of its restaurants.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and have been prepared in conformity with
accounting principles generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions have been
eliminated in consolidation.
Prior Period Reclassifications
Certain reclassifications of the 2020 amounts in the accrued expenses and segment reporting footnotes have been made to conform to
the current year presentation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and
assumptions for the reporting period and as of the reporting date. These estimates and assumptions affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingencies. Actual results could differ from those estimates.
F-9
Table of Contents
Fair Value Measurements
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. Assets and liabilities are
valued based upon observable and non-observable inputs. Valuations using Level 1 inputs are based on unadjusted quoted prices that are
available in active markets for the identical assets or liabilities at the measurement date. Level 2 inputs utilize significant other observable
inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly. Valuations using Level 3
inputs are based on significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant
management judgment. There were no significant transfers between levels during any period presented.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand and highly liquid instruments with original maturities of three months or less
when purchased. The Company’s cash and cash equivalents consist of cash in banks and at the restaurants as of December 31, 2021 and
2020.
Accounts Receivable
The majority of the Company’s receivables arise primarily from credit cards, management agreements, trade customers and other
reimbursable amounts due from hotel operators where the Company operates a food and beverage service. The increase in accounts
receivables at December 31, 2021 is attributable to strong sales reflecting the execution of the Company’s sales initiatives. Accounts
receivable from credit card processors and third party delivery services at December 31, 2021 and 2020 was $3.9 million and $2.0 million,
respectively. Receivables from the Company’s management, license and hotel partners were $6.4 million and $3.1 million at December 31,
2021 and 2020, respectively, The Company determines an allowance for doubtful accounts by considering a number of factors, including
the length of time trade accounts receivable are past due, previous loss and payment history, the customer’s current ability to pay its
obligation to the Company and the condition of the general economy and industry as a whole. The Company has not reserved any trade
receivables as of December 31, 2021 and 2020.
Inventory
Inventories, which consist of food, liquor and other beverages, are stated at the lower of cost or net realizable value. Cost is determined
by the first in, first out method. Net realizable value is defined as the estimated selling price in the ordinary course of business, less
reasonably predictable costs to sell.
Property and Equipment
Additions to property and equipment, including leasehold improvements, are recorded at cost while costs incurred to repair and
maintain the Company’s operations and equipment are expensed as incurred. Depreciation is calculated using the straight-line method over
the estimated useful life of the asset. When assets are retired or otherwise disposed of, the cost of the assets and the related accumulated
depreciation are removed from the accounts, and any gain or loss on retirements is reflected in operating income in the year of disposition.
Computers and equipment as well as furniture and fixtures are depreciated over their useful lives from three to ten years. Leasehold
improvements are depreciated over the shorter of their estimated useful lives or the remaining term of the associated lease. Lease terms
begin on the date the Company takes possession under the lease and include option periods where failure to exercise such options would
result in an economic penalty.
Other Assets
Other assets include liquor license acquisition costs and costs to fulfill obligations under the Company’s management and license
agreements.
F-10
Table of Contents
Intangible Assets
Intangible assets consist of the “Kona Grill” trade name and other finite-lived intangible assets that are amortized using the straight-
line method over their estimated useful life of 10 to 20 years. As of December 31, 2021 and 2020, the gross carrying amount of the
tradename intangible was $17.4 million. As of December 31, 2021 and 2020 the gross carrying amount of the other finite-lived intangible
assets were $0.1 million and $0 million, respectively. The accumulated amortization of the tradename was $2.0 million and $1.1 million as
of December 31, 2021 and 2020, respectively, and the amortization expense was $0.9 million for each of the years ending December 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.
Impairment of Long-Lived Assets
Long-lived assets, which include property and equipment and right-of-use assets for operating leases, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value of these assets may not be fully recoverable. The impairment
evaluation is generally performed at the individual restaurant level, as we believe this is the lowest level of identifiable cash flows. We
believe that historical cash flows, in addition to other relevant facts and circumstances, are the primary basis for estimating future cash
flows. Relevant facts and circumstances include, among others, significant underperformance relative to historical or projected future
operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business, and significant
negative industry or economic trends. Recoverability of restaurant assets is measured by a comparison of the carrying amount of an
individual restaurant’s assets to the estimated identifiable undiscounted future cash flows exclusive of operating lease payments, expected
to be generated by those restaurant assets. This process requires the use of estimates and assumptions, which are subject to a high degree of
judgment. If the carrying amount of an individual restaurant’s assets exceeds its estimated undiscounted future cash flows, exclusive of
operating lease payments, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds its fair
value. The estimated fair value is determined for these assets in accordance with ASC 820. Property and equipment, net of accumulated
depreciation, and the operating lease right-of-use assets as of December 31, 2021 were $69.6 million and $85.4 million, respectively. For
the year ended December 31, 2021, no impairment loss related to long-lived assets has been recognized.
For the years ended December 31, 2021 and 2020, the Company did not identify any event or changes in circumstances that indicated
that the carrying values of its restaurant assets were impaired.
Debt Issuance Costs
Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense based
on the term of the related debt agreement using the straight-line method, which approximates the effective interest method. The Company
has recorded debt issuance costs related to the revolving credit facility in other assets on the consolidated balance sheets. The portion of
debt issuance costs related to the term loan is recorded in long-term debt, net of current portion on the consolidated balance sheets.
Income Taxes
The Company computes income taxes using the asset and liability method. Under this method, deferred income taxes are recognized
for differences between the basis of assets and liabilities for financial statement and income tax purposes, using the enacted statutory rate in
effect for the year these differences are expected to be taxable or refunded. Deferred income tax expenses or credits are based on the
changes in the asset or liability, respectively, from period to period. A deferred tax asset or liability is recognized whenever there are future
tax effects from existing temporary differences and operating loss and tax credit carry-forwards. If the Company determines that a deferred
tax asset or liability could be realized in a greater or lesser amount than recorded, the deferred tax asset or liability is adjusted and a
corresponding adjustment is made to the provision for income taxes in the consolidated statements of operations and comprehensive
income in the period during which the determination is made.
F-11
Table of Contents
The Company reduces its deferred tax assets by a valuation allowance if it determines that it is more likely than not that some portion
or all of these tax assets will not be realized. In making this determination, the Company considers various qualitative and quantitative
factors, such as:
● the level of historical taxable income;
● the projection of future taxable income over periods in which the deferred tax assets would be deductible;
● events within the restaurant industry;
● the health of the economy; and,
● historical trending.
As of December 31, 2021, the Company had a valuation allowance of $0.3 million that relates to foreign tax credits that the Company
does not expect to utilize as a result of generating income in a jurisdiction with a higher income tax rate than the U.S. The recording of
deferred taxes requires significant management judgment regarding the interpretation of applicable statutes, the status of various income
tax audits, and particular facts and circumstances.
The Company recognizes the tax benefit from an uncertain tax position when it determines that it is more-likely-than-not that the
position would be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit
that has a greater than 50% likelihood of being realized upon ultimate settlement. If the Company derecognizes an uncertain tax position,
the Company’s policy is to record any applicable interest and penalties within the provision (benefit) for income taxes in the consolidated
statements of operations and comprehensive income.
Revenue Recognition
Revenue is derived from restaurant sales, management services and license related operations.
The Company recognizes restaurant revenues, net of discounts, when goods and services are provided. Sales tax amounts collected
from customers that are remitted to governmental authorities are excluded from net revenue.
Management agreements typically call for a management fee based on a percentage of revenue, a monthly marketing fee based on a
percentage of revenues and an incentive fee based on a managed venue’s net profits. Similarly, royalties from the licensee in license
agreements are generally based on a percentage of the licensed restaurant’s revenue. These management, license and incentive fees are
recognized as revenue in the period the restaurant’s sales occur.
The Company recognizes initial licensing fees and upfront fees related to management and license agreements on a straight-line basis
over the term of the agreement as a component of management, license and incentive fee revenue on the consolidated statements of
operations and comprehensive income.
The Company has a loyalty program for Kona Grill to encourage customers to frequent its restaurants. The loyalty rewards program
awards a customer one point for every dollar spent. When a customer is part of the rewards program, the obligation to provide future
discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated.
The performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is
recognized as revenue, when the points are converted to a reward and redeemed, or the likelihood of redemption is remote. A portion of the
transaction price is allocated to loyalty points, if necessary, on a pro-rata basis, based on the stand-alone selling price, as determined by
menu pricing and loyalty points terms. As of December 31, 2021 and 2020 the deferred revenue allocated to loyalty points that have not
been redeemed is $0.1 million, which is recorded as a component of accrued expenses in the accompanying consolidated balance sheets.
The Company expects the loyalty points to be redeemed and recognized over a one-year period.
Gift Cards
Proceeds from the sale of gift cards are recorded as deferred revenue and recognized as revenue when redeemed by the holder. There
are no expiration dates on the Company’s gift cards and the Company does not charge any service fees that would result in a decrease to a
customer’s available balance.
F-12
Table of Contents
Although the Company will continue to honor all gift cards presented for payment, it may determine the likelihood of redemption to be
remote for certain gift cards due to, among other things, long periods of inactivity. In these circumstances, to the extent the Company
determines there is no requirement for remitting balances to government agencies under unclaimed property laws, outstanding gift card
balances may then be recognized as breakage in the consolidated statements of operations and comprehensive income as a component of
owned restaurant net revenue. For the years ended December 31, 2021 and 2020, the Company recognized $0.5 million and $1.0 million,
respectively, in revenue from gift card breakage.
Pre-opening Costs
Pre-opening costs for Company owned restaurants are expensed as incurred prior to a restaurant opening for business. Pre-opening
costs for the years ended December 31, 2021 and 2020 were $1.0 million and $0.2 million, respectively.
Advertising Costs
The Company expenses the cost of advertising and promotions as incurred. Advertising expense was $5.1 million and $2.5 million for
the years ended December 31, 2021 and 2020, respectively.
Leases
Contracts are evaluated to determine whether they contain a lease at inception. The Company’s contracts determined to be or contain a
lease include explicitly or implicitly identified assets where the Company has the right to substantially all of the economic benefits of the
assets and has the ability to direct how and for what purpose the assets are used during the lease term. If it is determined that the contract
contains an operating lease, a right-of-use asset and operating lease liability are recorded on the consolidated balance sheets. A right-of-use
asset represents the Company’s right to use the underlying asset and the lease liability represents the Company’s contractually obligated
payments. Both the right-of-use asset and the lease liability are recognized as of the commencement date of the lease and are based upon
the present value of lease payments due over the course of the lease. The right-of-use asset is reduced by any lease incentives received. For
leases that do not have a rate implicit in the lease, the Company’s incremental borrowing rate at the date of commencement is used to
determine the present value of the lease payments. The Company’s incremental borrowing rate is the rate of interest that it would have to
borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment.
The Company enters into contracts to lease office and restaurant space with terms that expire at various dates through 2047, which
includes exercise of options to extend the lease. The lease term is the minimum of the noncancelable period of the lease or the lease term
inclusive of reasonably certain renewal periods. The Company considers a number of factors when evaluating whether the options in its
lease contracts were reasonably certain of exercise, such as length of time before option exercise, expected value of the leased asset at the
end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic
penalties.
Certain of the Company’s leases also provide for percentage rent, which are variable lease costs determined as a percentage of gross
sales in excess of specified, minimum sales targets, as well as other lease costs to reimburse the lessor for real estate tax and insurance
expenses, and certain non-lease components that transfer a distinct service to the Company, such as common area maintenance services.
These percentage rents and other variable lease costs are not included in the calculation of lease payments when classifying a lease and in
the measurement of the lease liability as they do not meet the definition of in-substance, fixed-lease payments under ASC Topic 842.
F-13
Table of Contents
Stock-Based Compensation
The Company maintains an equity incentive compensation plan under which it may grant options, warrants, restricted stock or other
stock-based awards to directors, officers, key employees and other key individuals performing services to the Company. Restricted stock
and restricted stock units (“RSUs”) are valued using the closing stock price on the date of grant.
Under the plan, vesting of awards can either be based on the passage of time or on the achievement of performance goals. For awards
that vest on the passage of time, compensation cost is recognized over the vesting period. For performance-based awards, the Company
recognizes compensation costs over the requisite service period when conditions for achievement become probable. The Company
estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ or are expected to
differ. These estimates, which are currently at 10%, are based on historical forfeiture behavior exhibited by employees of the Company.
Earnings per Share
Basic earnings per share is computed using the weighted average number of common shares outstanding during the period and income
available to common stockholders. Diluted 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 RSUs. Refer to Note 10 for the calculations of basic and diluted earnings per share.
Segment Reporting
The Company has identified the following four reportable operating segments: STK, Kona Grill, ONE Hospitality and Corporate.
Refer to Note 13 for additional details and certain financial information regarding the Company’s operating segments relating to the years
ended December 31, 2021 and 2020. Prior year amounts have been revised to conform to the current year segment presentation.
Foreign Currency Translation
Assets and liabilities of foreign operations are translated into U.S. dollars at the balance sheet date. Revenues and expenses are
translated at average monthly exchange rates. Gains or losses resulting from the translation of foreign subsidiaries represent other
comprehensive income (loss) and are accumulated as a separate component of stockholders’ equity. Currency translation gains or losses are
recorded in accumulated other comprehensive loss within stockholders’ equity and amounted to a gain of approximately $1,000 and $5,000
during 2021 and 2020, respectively.
Comprehensive Income
Comprehensive income consists of two components: net income and other comprehensive income (loss). The Company’s other
comprehensive income (loss) is comprised of foreign currency translation adjustments. All of the Company’s foreign currency translation
adjustments relate to wholly-owned subsidiaries of the Company.
Recent Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10
(“ASU 2021-10”) to increase the transparency of government assistance including the disclosure of the types of assistance, the entity’s
accounting for the assistance, and the effect of the assistance on an entity’s financial statements. ASU 2021-10 is effective for annual
periods beginning after December 15, 2021 with early application permitted. The Company has incorporated the requirements of ASU
2021-10 into its financial statements as of December 31, 2021. The adoption of ASU 2021-10 did not have a material impact on the
Company’s financial statements.
F-14
Table of Contents
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which
is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general
principles in Accounting Standard Codification Topic 740, Income Taxes, and it clarifies and amends existing guidance to improve
consistent application. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020. The adoption of ASU
2019-12 did not have a material impact on the Company’s financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” (“ASU 2016-13”). ASU 2016-13
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 assess credit loss estimates. ASU 2016-13 is effective for annual and interim
periods beginning after December 15, 2022. The Company does not expect the adoption of ASU 2016-13 to have a material impact on its
financial statements.
Note 3 – Property and Equipment, net
Property and equipment, net consist of the following (in thousands):
Furniture, fixtures and equipment
Leasehold improvements
Less: accumulated depreciation and amortization
Subtotal
Construction in progress
Restaurant smallwares
Total
December 31,
2021
December 31,
2020
$
$
24,942
76,500
(39,425)
62,017
5,374
2,247
69,638
$
$
22,328
71,654
(30,948)
63,034
2,294
2,016
67,344
Depreciation and amortization related to property and equipment amounted to $9.9 million and $9.2 million for the years ended
December 31, 2021 and 2020, respectively. The Company does not depreciate construction in progress until such assets are placed into
service.
For the years ended December 31, 2021 and 2020, the Company did not identify any event or changes in circumstances that indicated
that the carrying values of its restaurant assets were impaired.
Note 4 – Accrued Expenses
Accrued expenses consist of the following (in thousands):
Payroll and related (1)
Accrued lease exit costs (2)
VAT and sales taxes
Variable rent
Insurance
Legal, professional and other services
Construction on new restaurants
Interest
Other
Total
December 31,
December 31,
2021
2020
6,554
4,913
3,477
1,847
642
458
359
132
4,773
23,155
$
$
4,860
4,144
1,119
1,883
330
301
—
474
2,573
15,684
$
$
(1) Payroll and related includes $1.2 million and $2.6 million in employer payroll taxes for which payment has been deferred under the CARES Act as of December 31, 2021
and 2020, respectively.
(2) Amount relates to lease exit costs for 2016 leases for restaurants never built and still under dispute with landlords.
F-15
Table of Contents
Note 5 – Long Term Debt
Long-term debt consists of the following (in thousands):
Term loan agreements
Revolving credit facility
Equipment financing agreements
Total long-term debt
Less: current portion of long-term debt
Less: debt issuance costs
Total long-term debt, net of current portion
Future minimum loan payments:
2022
2023
2024
2025
2026
Total
December 31,
December 31,
2021
2020
$
$
$
24,750
—
—
24,750
(500)
(1,118)
23,132
$
$
$
47,400
—
108
47,508
(588)
(1,856)
45,064
500
500
500
500
22,750
24,750
Interest expense for the Company’s debt arrangements, excluding the amortization of debt issuance costs and other discounts and fees,
was approximately $3.3 million and $4.4 million for the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021 and 2020, the Company had $1.4 million and $1.3 million, respectively, in standby letters of credit
outstanding for certain restaurants and $10.6 million available in its revolving credit facility, subject to certain conditions.
Credit and Guaranty Agreement
On October 4, 2019, in conjunction with the acquisition of Kona Grill, the Company entered into a Credit Agreement with Goldman
Sachs Bank USA. On August 6, 2021, the Company entered into the Third Amendment to the Credit Agreement to extend the maturity date
for both the term loan and revolving credit facility to August 2026, to eliminate all financial covenants except a maximum net leverage
ratio of 2.00 to 1.00, and to eliminate restrictions on the maximum amount of capital expenditures, the maximum number of Company-
owned new locations, and credit extensions under the revolving credit facility. As amended, the Credit Agreement provides for a secured
revolving credit facility of $12.0 million and a $25.0 million term loan (reduced from $48.0 million). The term loan is payable in quarterly
installments of $0.1 million, with the final payment due in August 2026.
The amended Credit Agreement has several borrowing and interest rate options, including the following: (a) a LIBOR rate (or a
comparable successor rate) subject to a 1.00% floor from a 1.75% floor or (b) a base rate equal to the greatest of (i) the prime rate, (ii) the
federal funds rate plus 0.50%, (iii) the LIBOR rate for a one-month period plus 1.00% or (iv) 4.00%. Loans under the amended Credit
Agreement bear interest at a rate per annum using the applicable indices plus an interest rate margin of 5.00% from a variable interest rate
margin of 5.75 to 6.75% (for LIBOR rate loans) and 4.00% from 4.75% to 5.75% (for base rate loans). Upon the cessation of LIBOR, the
amended Credit Agreement provides for the use of a benchmark replacement as defined in the amended Credit Agreement.
In conjunction with the amended Credit Agreement, the Company made a pre-payment on the loan of $22.2 million and incurred $0.9
million in debt issuance costs. The Company accounted for the amendment as a debt modification with a partial extinguishment and
recognized a loss on early debt extinguishment of $0.6 million for the year ended December 31, 2021 and $0.1 million in transaction costs.
F-16
Table of Contents
The Company’s weighted average interest rate on the borrowings under the amended Credit Agreement as of December 31, 2021 and
December 31, 2020 was 6.00% and 8.50%, respectively.
The Credit Agreement contains customary representations, warranties and conditions to borrowing including customary affirmative
and negative covenants, which include covenants that limit or restrict the Company’s ability to incur indebtedness and other obligations,
grant liens to secure obligations, make investments, merge or consolidate, alter the organizational structure of the Company and its
subsidiaries, and dispose of assets outside the ordinary course of business, in each case subject to customary exceptions for credit facilities
of this size and type.
The Company and certain operating subsidiaries of the Company guarantee the obligations under the Credit Agreement, which also are
secured by liens on substantially all of the assets of the Company and its subsidiaries.
As of December 31, 2021, the Company had $1.2 million of debt issuance costs related to the amended Credit Agreement, which were
capitalized and are recorded as a direct deduction to the long-term debt and $0.6 million in debt issuance costs recorded in Other Assets on
the consolidated balance sheets. As of December 31, 2021, the Company was in compliance with the financial covenants required by the
Credit Agreement.
Equipment Financing Agreements
On June 5, 2015 and August 16, 2016, the Company entered into financing agreements with Sterling National Bank for $1.0 million
and $0.7 million, respectively, to purchase equipment for the STKs in Orlando, Chicago, San Diego, and Denver. Each of these financing
agreements have five-year terms and bear interest at a rate of 5% per annum, payable in equal monthly installments. The financing
agreements were fully paid as of December 31, 2021.
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 were eligible for forgiveness if the proceeds were used for qualified purposes within a specified period and if
at least 60% was spent on payroll costs. The Company 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 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, and the loans were forgiven in June 2021 and July
2021. As a result, the Company recognized $18.5 million gain on CARES Act Loan forgiveness for the year ended December 31, 2021.
Note 6 – Related Party Transactions
As of December 31, 2021 and 2020, the Company owned interests in the following companies, which directly or indirectly operate
restaurants:
● 31.24% interest in Bagatelle NY LA Investors, LLC (“Bagatelle Investors”)
● 51.13% interest 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 ability to exercise significant
influence over its investees, Bagatelle Investors and Bagatelle NY. As of December 31, 2021 and 2020, the Company has zero carrying
value in these investments.
F-17
Table of Contents
Net receivables from the Bagatelle entities included in due from related parties were $0.4 million as of December 31, 2021 and 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 7 – Income Taxes
The components of income before provision (benefit) for income taxes were as follows (in thousands):
Domestic
Foreign
Total
For the years ended December 31,
2021
2020
$
$
33,331
203
33,534
$
$
(19,129)
106
(19,023)
The components of the Company’s provision (benefit) for income taxes were as follows (in thousands):
Current:
Federal
State and local
Foreign
Total current
Deferred:
Federal
State and local
Foreign
Total deferred
Total provision (benefit) for income taxes
The Company’s effective tax rate differs from the statutory rates as follows:
Income tax provision (benefit) at federal statutory rate
State and local taxes
FICA tip credit
Change in valuation allowance
Compensation subject to IRC Section 162(m)
Equity based compensation
PPP income exclusion
Other items, net
Effective income tax rate
F-18
For the years ended December 31,
2021
2020
$
$
— $
564
110
674
(195)
1,107
—
912
1,586
$
—
39
36
75
(4,593)
(887)
5
(5,475)
(5,400)
For the years ended December 31,
2021
2020
21.0 %
4.5 %
(7.2)%
—
6.2%
(7.6)%
(11.6)%
(0.6)%
4.7 %
(21.0)%
(4.4)%
(5.3)%
(0.9)%
—
—
—
3.2 %
(28.4)%
Table of Contents
The income tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows
(in thousands):
Deferred tax assets:
Operating lease liabilities
Stock compensation
FICA tip credit carryforward
Net operating loss
Goodwill
Inventory
Charitable contributions carryforward
Foreign tax credit carryforward
Deferred revenue
State and local tax credit carryforward
Expenses not deductible until paid
Basis in LLC interest
IRC 163(j) disallowed interest carryforward
Debt issuance costs
Kona related acquisition costs
Deferred payroll taxes
Total deferred tax assets
Deferred tax liabilities:
Operating lease right-of-use assets
Depreciation and amortization
Other
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
Correction of the Prior Period
For the years ended December 31,
2021
2020
$
$
$
17,152
247
9,929
3,290
1,055
10
—
382
165
310
1,667
—
—
143
813
281
35,444
(13,150)
(9,605)
(40)
(22,795)
(336)
12,313
$
15,255
439
6,860
6,038
1,283
23
2
336
321
299
985
175
835
—
201
703
33,755
(10,381)
(9,812)
—
(20,193)
(336)
13,226
Subsequent to the issuance of the December 31, 2020 consolidated financial statements, management determined that the deferred tax
assets and deferred tax liabilities related to the right-of-use asset and lease liabilities were incorrectly presented on a net basis as deferred
rent liabilities and lease incentives for the year ended December 31, 2020. To correct for the classification on a gross basis, the Company
presented the operating lease liabilities line item of $15.3 million as a deferred tax asset and operating lease right-of-use assets line item of
$10.4 million as a deferred tax liability. Management also determined that the deferred tax liability line item for the ASC 740-10 liability of
$0.1 million for the year ended December 31, 2020 should have been netted against the deferred tax asset line item for net operating loss.
Net operating loss is the tax attribute for which the ASC 740-10 liability reduces the amount that is more-likely-than-not to be realized. To
correct for the misclassification of the uncertain tax position, the Company removed the ASC 740-10 liability line item from Deferred tax
liabilities and netted it against the net operating loss line item, resulting in $6.0 million net operating loss as of December 31, 2020.
Management has evaluated the materiality of these corrections and concluded that they are not material to the prior periods.
Tax Carryforwards
As of December 31, 2021, the Company has federal net operating loss (“NOL”) carryforwards of $13.7 million which have no
expiration date. The Company has various state NOL carryforwards. The determination of the state NOL carryforwards is dependent upon
apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. The state NOLs
expire at various dates from 2035 to 2040. The state and local tax credit carryforwards expire at various dates from 2022 through 2028.
F-19
Table of Contents
In assessing the realizability of deferred tax assets, the Company evaluates whether it is more likely than not that the deferred tax
assets will be realized. In the assessment of the valuation allowance, appropriate consideration was given to all positive and negative
evidence including current operating results, tax planning strategies and forecasts of future earnings. As of December 31, 2021 and
December 31, 2020, the Company has valuation allowance of $0.3 million and $0.3 million, respectively, related to foreign tax credits the
Company does not expect to utilize as a result of generating income in a jurisdiction with a higher income tax rate than the U.S.
Uncertain tax positions
The following table summarizes the activity related to the Company’s uncertain tax positions (in thousands):
Balance, beginning of year
Increase related to current year positions
Decrease related to prior period positions
Balance, end of year
For the years ended December 31,
2021
2020
$
$
814
$
—
(367)
447
$
814
209
(209)
814
Included in the balance of unrecognized tax benefits as of December 31, 2021 and December 31, 2020, are $0.1 million and $0.1
million, respectively, of tax benefits that, if recognized, would result in adjustments to deferred taxes. Management believes it is reasonably
possible that a nominal amount of the uncertain tax position as of December 31, 2021 will decrease within the next twelve months.
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. The Company’s federal tax filings remain subject to examination for federal tax years 2018 through 2020.
The Company’s state and local tax filings remain subject to examination for tax years 2018 through 2020. NOL carryforwards are subject
to examination regardless of whether the tax year in which they are generated has been closed by statute. The amount subject to
disallowance is limited to the NOL utilized. Accordingly, the Company may be subject to examination for prior NOLs generated as such
NOLs are utilized.
The Company’s foreign income tax returns prior to fiscal year 2018 are closed and management continually evaluates expiring statutes
of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
Note 8 – Revenue recognition
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):
Receivables (1)
Deferred license revenue (2)
Deferred gift card revenue (3)
Konavore rewards program (4)
December 31,
December 31,
2021
2020
$
— $
388
1,769
136
125
1,160
1,945
102
(1) Deferred license receivables are included in accounts receivable on the consolidated balance sheets.
(2)
(3) Deferred gift card revenue and advance party deposits on good and services yet to be provided are included in deferred gift card revenue and other on the consolidated
Includes the current and long-term portion of deferred license revenue.
balance sheets.
(4) Konavore rewards program is included in accrued expenses on the consolidated balance sheets.
F-20
Table of Contents
Significant changes in deferred license revenue and deferred gift card revenue for the years ended December 31, 2021 and 2020 are as
follows (in thousands):
Revenue recognized from deferred license revenue
Revenue recognized from deferred gift card revenue
December 31,
December 31,
$
2021
2020
164
1,214
$
206
1,904
As of December 31, 2021, the estimated deferred license revenue to be recognized in the future related to performance obligations that
are unsatisfied as of December 31, 2021 were as follows for each year ending (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total future estimated deferred license revenue
Note 9 – Leases
The components of lease expense for the period were as follows (in thousands):
Lease cost
Operating lease cost
Variable lease cost
Short-term lease cost
Sublease income
Total lease cost
Weighted average remaining lease term – operating leases
Weighted average discount rate – operating leases
$
$
90
79
45
44
37
93
388
December 31,
December 31,
2021
2020
$
$
13,602 $
7,400
684
—
21,686 $
11,613
2,001
479
(493)
13,600
13 years
8.43 %
12 years
8.09 %
Due to the negative effects of COVID-19, the Company implemented measures to reduce its costs, including negotiations with
landlords regarding rent concessions. As the rent concessions received and currently being contemplated do not result in a significant
increase in cash payments, the Company has elected to account for these concessions as a variable lease payment in accordance with ASC
Topic 842. The Company’s right-of-use assets and operating lease liabilities have not been remeasured for lease concessions received.
Variable lease cost is comprised of percentage rent and common area maintenance, offset by rent concessions received as a result of
COVID-19.
The Company has entered into an operating lease for a future Kona Grill restaurant in Riverton, Utah that had not commenced as of
December 31, 2021. The present value of the aggregate future commitment related to this lease totals $0.9 million. The Company expects
this lease, which has an initial lease term of 10 years and two five-year options, to commence within the next twelve months.
F-21
Table of Contents
Supplemental cash flow information related to leases for the period was as follows (in thousands):
Cash paid for amounts included in the measurement of operating lease liabilities
Right-of-use assets obtained in exchange for operating lease obligations
December 31,
December 31,
2021
2020
$
$
12,644
8,068
$
$
8,491
4,968
As of December 31, 2021, maturities of the Company’s operating lease liabilities are as follows (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Present value of operating lease liabilities
Note 10 – Earnings per share
$
$
11,364
14,758
14,250
13,285
13,209
122,827
189,693
(80,681)
109,012
Basic earnings per share is computed using the weighted average number of common shares outstanding during the period and income
available to common stockholders. Diluted earnings per share is computed using the weighted average number of common shares
outstanding during the period plus the dilutive effect of all potential shares of common stock including common stock issuable pursuant to
stock options, warrants, and restricted stock units.
For the years ended December 31, 2021 and 2020, earnings per share was calculated as follows (in thousands, except earnings per
share and related share data):
Net income (loss) attributable to The ONE Group Hospitality, Inc.
Basic weighted average shares outstanding
Dilutive effect of stock options, warrants and restricted share units
Diluted weighted average shares outstanding
Net income (loss) available to common stockholders per share - Basic
Net income (loss) available to common stockholders per share - Diluted
Year ended December 31,
2020
2021
$
31,348
$
(12,825)
31,155,224
2,639,120
33,794,344
28,909,963
—
28,909,963
$
$
1.01
0.93
$
$
(0.44)
(0.44)
For the years ended December 31, 2021 and 2020, stock options, warrants and restricted share units totaling 0.4 million and 1.4
million, respectively, were determined to be anti-dilutive and were therefore excluded from the calculation of diluted earnings per share.
F-22
Table of Contents
Note 11 – Stockholders’ Equity
Common Stock
The Company is authorized by its amended and restated certificate of incorporation to issue up to 75.0 million shares of common
stock, par value $0.0001 per share. As of December 31, 2021 and 2020, there are 32.1 million and 29.1 million shares of common stock
outstanding, respectively.
The Company has the following warrants to purchase shares of common stock outstanding as of December 31, 2021 and 2020:
Warrants Exercise
December 31,
December 31,
Shares available for purchase as of
Issuance date
June 27, 2016
August 11, 2016
October 24, 2016
November 15, 2017
Holder of warrants
Expiration date
2235570 Ontario Limited
Anson Investments Master Fund LP
Anson Investments Master Fund LP
2017 Securities Purchase Agreement investors May 15, 2023
June 27, 2026
August 11, 2026
October 24, 2026
Issued
Price
100,000 $ 2.61
2.61
300,000
2.39
340,000
875,000 $ 1.63
2021
2020
—
—
—
125,000
100,000
300,000
340,000
125,000
The issuance of a dividend is dependent on a variety of factors, including but not limited to, available cash and the overall financial
condition of the Company. The issuance of a dividend is also subject to legal restrictions and the terms of the Company’s credit agreement.
The Company did not issue dividends related to its common stock in the years ended December 31, 2021 or 2020.
Preferred Stock
The Company is authorized by its amended and restated certificate of incorporation to issue 10.0 million shares of preferred stock, par
value $0.0001 per share. The Company’s Board may designate the rights, powers and preferences of the preferred stock, which may have
superior rights to common shareholders in terms of liquidation and dividend preference, voting and other rights. As of December 31, 2021
and 2020, the Board had not designated the rights of the preferred stock and there were no outstanding shares of preferred stock.
Note 12 – Employee Benefit Plans
Defined Contribution Retirement Plan
The Company sponsors a qualified defined contribution retirement plan (the “401(k) Plan”) covering all eligible employees, as defined
in the 401(k) Plan. The 401(k) Plan allows participating employees to defer the receipt of a portion of their compensation, on a pre-tax or
post-tax basis, and contribute such amount to one or more investment options. Employer contributions to the plan are at the discretion of
the Company. The Company did not accrue or make any employer contributions in 2021 and 2020.
Equity Incentive Plan
In October 2013, the Board approved the 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Equity Plan”).
The 2013 Equity Plan provides for the granting of stock options, warrants, restricted stock or other stock-based awards to directors,
officers, key employees and other key individuals performing services for the Company. All awards are required to be approved by the
Board or a designated committee of the Board. Options are generally granted with an exercise price equal to fair market value on the date
of grant and expire after ten years. Vesting of options and restricted stock can either be based on the passage of time or on the achievement
of performance goals.
The 2013 Equity Plan will terminate automatically in October 2023, unless terminated by the Board at an earlier date. The Board has
the authority to amend, modify or terminate the 2013 Equity Plan, subject to any required approval by the Company’s stockholders under
applicable law or upon advice of counsel. No such action would affect any options previously granted under the 2013 Equity Plan without
the consent of the holders.
F-23
Table of Contents
Effective June 4, 2019, the Company’s stockholders approved amendments to the 2013 Equity Plan (the “2019 Equity Plan”). Among
other things, the amendments increased the number of shares of common stock authorized for issuance under the 2019 Equity Plan by
2,300,000 shares to a new maximum aggregate limit of 7,073,922 shares. As of December 31, 2021, the Company had 160,624 shares
available for issuance under the 2019 Equity Plan.
Stock-based compensation cost for the years ended December 31, 2021 and 2020 was $3.6 million and $1.8 million, respectively, and
is included in general and administrative expenses in the consolidated statements of operations and comprehensive income. Included in
stock-based compensation cost was $0.5 million and $0.3 million of unrestricted stock granted to directors for the years ended
December 31, 2021 and 2020, respectively. Such grants were awarded consistent with the Board’s compensation practices and included
grants to two new board members appointed in September 2021. In addition, stock-based compensation expense for the year ended
December 31, 2021 included $0.4 million of employer payroll taxes associated with stock option and restricted stock units (“RSU“) activity
and $0.3 million of compensation costs for the vesting of market condition-based stock options and RSUs.
Stock Option Activity
Changes in outstanding stock options during the years ended December 31, 2021 and 2020 were as follows:
Outstanding at January 1, 2020
Vested
Exercised
Cancelled, expired or forfeited
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Vested
Exercised
Cancelled, expired or forfeited
Outstanding at December 31, 2021
Exercisable at December 31, 2021
Weighted
average exercise
price
Weighted
average
remaining
contractual life
Intrinsic
value
(thousands)
3.37
—
2.13
3.75
3.37
3.57
3.09
3.23
2.13
3.36
3.48
4.98 years
4.68 years
3.92 years
3.72 years
$
$
$
$
1,454
1,112
11,581
10,283
Shares
1,806,508
$
—
(18,000)
(81,500)
1,707,008
1,443,675
594,402
(1,039,058)
(10,000)
1,252,352
1,126,685
$
$
$
$
There were no stock options granted in the years ended December 31, 2021 and 2020
A summary of the status of the Company’s non-vested stock options as of December 31, 2021 and 2020 and changes during the years
then ended, is presented below:
Non-vested stock options at January 1, 2020
Granted
Vested
Cancelled, expired or forfeited
Non-vested stock options at December 31, 2020
Granted
Vested
Cancelled, expired or forfeited
Non-vested stock options at December 31, 2021
Shares
536,000
$
—
(272,667)
263,333
—
$
—
(127,667)
(10,000)
125,667
$
Weighted average
grant date fair value
0.87
—
0.75
—
0.99
—
1.00
0.87
1.00
The fair value of options that vested in the years ended December 31, 2021 and 2020 were $0.1 million and $0.2 million, respectively.
As of December 31, 2021, there is less than $0.1 million of total unrecognized compensation cost related to non-vested awards, which will
be recognized over a weighted-average period of less than 1 year.
F-24
Table of Contents
Restricted Stock Unit Activity
The Company issues restricted stock units 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 years ended December 31, 2021 and 2020 is presented below:
Non-vested RSUs at January 1, 2020
Granted
Vested
Cancelled, expired or forfeited
Non-vested RSUs at December 31, 2020
Granted
Vested
Cancelled, expired or forfeited
Non-vested RSUs at December 31, 2021
Shares
955,011
1,316,174
(305,027)
(94,566)
1,871,592
977,599
(1,109,250)
(49,931)
1,690,010
Weighted average
grant date fair value
2.69
1.21
2.77
2.12
1.68
7.74
1.90
5.18
4.98
$
$
$
As of December 31, 2021, the Company had approximately $7.0 million of total unrecognized compensation costs related to restricted
stock awards, which will be recognized over a weighted average period of 3.0 years.
Note 13 – Segment Reporting
In the fourth quarter of 2019, in conjunction with the Kona Grill acquisition, the Company implemented certain organizational
changes, including the reorganization of our internal reporting structure to better facilitate our 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 comprised 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, Heliot, Hideout, Marconi,
Radio and Rivershore Bar & Grill. 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,
acquisition related gains and losses, lease termination expenses, transaction costs, COVID-19 related expenses and other income
and expenses. This segment also includes STK Meat Market, an e-commerce platform that offers signature steak cuts nationwide,
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.
F-25
Table of Contents
Certain financial information relating to the years ended December 31, 2021 and 2020 for each segment is provided below (in
thousands). Prior year amounts for the STK and ONE Hospitality segments have been revised to conform to the current year segment
presentation.
For the year ended December 31, 2021
Total revenues
Operating income (loss)(1)
Capital asset additions
As of December 31, 2021
Total assets
For the year ended December 31, 2020
Total revenues
Operating income (loss)(1)
Capital asset additions
As of December 31, 2020
Total assets
STK
Kona Grill
ONE Hospitality
Corporate
Total
$
$
$
$
$
$
151,436
39,863
7,581
95,510
$
$
$
123,181
12,982
2,307
91,323
$
$
$
1,725
466
170
6,117
$
$
$
836
(33,926)
1,409
36,885
STK
Kona Grill
ONE Hospitality
Corporate
60,932
5,973
2,734
81,431
$
$
$
78,591
3,356
1,952
96,262
$
$
$
1,197
33
206
5,484
$
$
$
1,223
(23,056)
895
32,392
$
$
$
$
$
$
277,178
19,385
11,467
229,835
Total
141,943
(13,694)
5,787
215,569
(1) Operating loss for the Corporate segment for the years ended December 31, 2021 and 2020 includes $5.8 million and $5.5 million, respectively, in COVID-19 related
expenses.
Note 14 – Geographic Information
Certain financial information by geographic location relating to the years ended December 31, 2021 and 2020 is provided below (in
thousands).
Domestic revenues
International revenues
Total revenues
Domestic long-lived assets
International long-lived assets
Total long-lived assets
Note 15 – Commitments and Contingencies
For the year ended December 31,
2021
2020
272,651 $
4,527
277,178
$
140,537
1,406
141,943
December 31,
December 31,
2021
2020
185,718 $
1,190
186,908
$
180,935
258
181,193
$
$
$
$
The Company is party to claims in lawsuits incidental to its business, including lease disputes and employee-related matters. The
Company has recorded accruals in its consolidated financial statements in accordance with ASC 450. While the resolution of a lawsuit,
proceeding or claim may have an impact on the Company’s financial results for the period in which it is resolved, in the opinion of
management, the ultimate outcome of such matters and judgements in which the Company is currently involved, either individually or in
the aggregate, will not have a material adverse effect on the Company’s consolidated financial position or results of operations.
F-26
LIST OF SUBSIDIARIES
Exhibit 21.1
The ONE Group, LLC
Little West 12th, LLC
Basement Manager, LLC
JEC II, LLC
MPD Space Events, LLC
ONE 29 Park Management, LLC
STK Midtown Holdings, LLC
STK Midtown, LLC
ONE Marks, LLC
Asellina Marks, LLC
WSATOG, LLC
STK Miami, LLC
STK Miami Service, LLC
STK-LA, LLC
STK-Las Vegas, LLC
STK Atlanta, LLC
STK Orlando, LLC
STK Chicago, LLC
STK Westwood, LLC
STK Denver, LLC
T.O.G. (UK) Limited
Hip Hospitality Limited
T.O.G. (Aldwych) Limited
CA Aldwych Limited
T.O.G. (Milan) S.r.l.
STK Dallas, LLC
TOG Orlando F&B Manager, LLC
Bridge Hospitality
STK Rebel Austin, LLC
STK Texas Holdings, LLC
STK Texas Holdings II, LLC
STK Rebel San Diego, LLC
STK Rooftop San Diego, LLC
STK Ibiza, LLC
The ONE Group-STKPR, LLC
The ONE Group-MENA, LLC
The ONE Group-Qatar Ventures, LLC
9401415 Canada Ltd
The ONE Group-Mexico, LLC
TOG Marketing, LLC
STK Nashville, LLC
STK Bellevue, LLC
STK Aspen, LLC
STK Scottsdale, LLC
STK Dallas II, LLC
STK San Francisco, LLC
STK Boston, LLC
STK Washington DC, LLC
Kona Grill Acquisition, LLC
TOG Kona Sushi, LLC
TOG Kona Macadamia, LLC
TOG Kona Texas, LLC
KGA Texas, LLC
TOG Kona Texas Concession, LLC
TOG Kona Baltimore, LLC
TOG Kona Grill Riverton, LLC
TOG Kona Grill Columbus, LLC
Delaware
Delaware
New York
New York
New York
New York
New York
New York
Delaware
Delaware
Delaware
Florida
Florida
New York
Nevada
Georgia
Florida
Illinois
California
Colorado
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Texas
Florida
Delaware
Texas
Delaware
Delaware
California
California
Delaware
Delaware
Delaware
Delaware
Canada
Delaware
Florida
Tennessee
Washington
Colorado
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Arizona
Delaware
Texas
Delaware
Delaware
Delaware
Delaware
Delaware
OTHER SUBSIDIARIES (not consolidated for GAAP purposes):
Bagatelle Little West 12th, LLC
Bagatelle La Cienega, LLC
Bagatelle NY LA Investors, LLC
Seaport Rebel Restaurant LLC
New York
California
New York
Massachusetts
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-256527 and 333-260947 on Form S-3 of our reports dated March 16,
2022, relating to the financial statements of The ONE Group Hospitality, Inc. (the “Company”) and the effectiveness of the Company's internal control
over financial reporting appearing in this Annual Report on Form 10-K for the year ended December 31, 2021.
Exhibit 23.1
/s/ Deloitte & Touche, LLP
Denver, Colorado
March 16, 2022
Consent of Independent Registered Public Accounting Firm
Exhibit 23.2
We have issued our report dated March 19, 2021 with respect to the consolidated financial statements included in the Annual Report of The ONE Group
Hospitality, Inc. on Form 10-K as of and for the year ended December 31, 2020. We consent to the incorporation by reference of said report in the
Registration Statements of The ONE Group Hospitality, Inc. on Form S-1 (File No. 333-222389), Form S-3 (File Nos. 333-256527, 333-260947), and
Form S-8 (File Nos. 333-193207, 333-232231).
/s/ Plante & Moran PLLC
March 16, 2022
Exhibit 31.1
I, Emanuel Hilario, certify that:
1. I have reviewed this Annual Report on Form 10-K of The ONE Group Hospitality, Inc.;
CERTIFICATIONS UNDER SECTION 302
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 16, 2022
/s/ Emanuel Hilario
Emanuel Hilario
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Tyler Loy, certify that:
1. I have reviewed this Annual Report on Form 10-K of The ONE Group Hospitality, Inc.;
CERTIFICATIONS UNDER SECTION 302
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 16, 2022
/s/ Tyler Loy
Tyler Loy
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATIONS UNDER SECTION 906
Exhibit 32.1
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code),
the undersigned officer of The ONE Group Hospitality, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge,
that:
The Annual Report for the period ended December 31, 2021 (the “Form 10-K”) of the Company fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: March 16, 2022
/s/ Emanuel Hilario
Emanuel Hilario
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATIONS UNDER SECTION 906
Exhibit 32.2
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code),
the undersigned officer of The ONE Group Hospitality, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge,
that:
The Annual Report for the period ended December 31, 2021 (the “Form 10-K”) of the Company fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: March 16, 2022
/s/ Tyler Loy
Tyler Loy
Chief Financial Officer
(Principal Financial Officer)