UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q


	(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended September 30, 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		14-1961545
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1624 Market Street, Suite 311, Denver, Colorado		80202
(Address of principal executive offices)		Zip Code

646-624-2400

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	STKS	Nasdaq

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

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

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


Large accelerated filer ◻	Accelerated filer ◻
Non-accelerated filer ⌧	Smaller reporting company ⌧
	Emerging growth company ◻

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

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

Number of shares of common stock outstanding as of October 31, 2021: 32,107,635

Table of Contents

TABLE OF CONTENTS


	Page
PART I – Financial Information
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	30

PART II – Other Information
Item 1. Legal Proceedings	30
Item 1A Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6. Exhibits	31

Signatures	32

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)


	September 30,		December 31,
	2021		2020
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	19,078	$	24,385
Accounts receivable		8,348		5,777
Inventory		3,006		2,490
Other current assets		2,287		1,348
Due from related parties		376		376
Total current assets		33,095		34,376

Property and equipment, net		68,530		67,344
Operating lease right-of-use assets		83,957		80,960
Deferred tax assets, net		11,722		13,226
Intangibles, net		15,724		16,313
Other assets		3,189		2,446
Security deposits		898		904
Total assets	$	217,115	$	215,569

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,849	$	7,404
Accrued expenses		20,911		15,684
Deferred license revenue		100		207
Deferred gift card revenue and other		975		1,990
Current portion of operating lease liabilities		5,116		4,817
Current portion of CARES Act Loans		—		10,057
Current portion of long-term debt		500		588
Total current liabilities		37,451		40,747

Deferred license revenue, long-term		318		953
Operating lease liabilities, net of current portion		102,312		98,569
CARES Act Loans, net of current portion		—		8,257
Long-term debt, net of current portion		23,196		45,064
Total liabilities		163,277		193,590

Commitments and contingencies

Stockholders’ equity:
Common stock, $0.0001 par value, 75,000,000 shares authorized; 32,094,253 and 29,083,183 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		3		3
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		—		—
Treasury stock		(37)		—
Additional paid-in capital		52,519		46,538
Retained earnings (accumulated deficit)		4,861		(20,716)
Accumulated other comprehensive loss		(2,690)		(2,646)
Total stockholders’ equity		54,656		23,179
Noncontrolling interests		(818)		(1,200)
Total equity		53,838		21,979
Total liabilities and equity	$	217,115	$	215,569

See notes to the condensed consolidated financial statements.

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THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

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


	For the three months ended September 30,				For the nine months ended September 30,
	2021		2020		2021		2020
Revenues:
Owned restaurant net revenue	$	67,966	$	37,822	$	184,982	$	92,908
Management, license and incentive fee revenue		3,903		1,745		8,129		4,042
Total revenues		71,869		39,567		193,111		96,950
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales		17,733		9,091		46,925		23,378
Owned restaurant operating expenses		38,640		22,454		101,882		60,991
Total owned operating expenses		56,373		31,545		148,807		84,369
General and administrative (including stock-based compensation of $653, $496, $2,812, and $1,316 for the three and nine months ended September 30, 2021 and 2020, respectively)		5,959		3,400		17,272		9,235
Depreciation and amortization		2,572		2,655		7,766		7,605
COVID-19 related expenses		1,131		1,716		3,776		3,759
Agreement restructuring expenses		—		—		494		—
Pre-opening expenses		587		45		842		45
Lease termination expenses		58		185		352		453
Transaction costs		131		—		131		1,109
Other income, net		—		1		—		(11)
Total costs and expenses		66,811		39,547		179,440		106,564
Operating income (loss)		5,058		20		13,671		(9,614)
Other (income) expenses, net:
Interest expense, net of interest income		781		1,280		3,262		3,650
Loss on early debt extinguishment		600		—		600		—
Gain on CARES Act Loan forgiveness		(9,968)		—		(18,529)		—
Total other (income) expenses, net		(8,587)		1,280		(14,667)		3,650
Income (loss) before provision (benefit) for income taxes		13,645		(1,260)		28,338		(13,264)
Provision (benefit) for income taxes		1,544		(350)		2,188		(4,231)
Net income (loss)		12,101		(910)		26,150		(9,033)
Less: net income (loss) attributable to noncontrolling interest		430		(35)		573		(687)
Net income (loss) attributable to The One Group Hospitality, Inc.	$	11,671	$	(875)	$	25,577	$	(8,346)
Currency translation gain (loss)		(34)		19		(44)		(23)
Comprehensive income (loss) attributable to The ONE Group Hospitality, Inc.	$	11,637	$	(856)	$	25,533	$	(8,369)

Net income (loss) attributable to The ONE Group Hospitality, Inc. per share:
Basic net income (loss) per share	$	0.36	$	(0.03)	$	0.83	$	(0.29)
Diluted net income (loss) per share	$	0.34	$	(0.03)	$	0.75	$	(0.29)

Shares used in computing basic income (loss) per share		31,993,557		29,010,348		30,830,521		28,857,990
Shares used in computing diluted income (loss) per share		34,380,573		29,010,348		34,223,857		28,857,990

See notes to the condensed consolidated financial statements.

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THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except share information)


										Accumulated
						Additional				other
	Common stock			Treasury		paid-in		Retained		comprehensive		Stockholders’		Noncontrolling
	Shares	Par value		stock		capital		Earnings		loss		equity		interests		Total
Balance at December 31, 2020	29,083,183	$	3	$	—	$	46,538	$	(20,716)	$	(2,646)	$	23,179	$	(1,200)	$	21,979
Stock-based compensation	25,643		—		—		1,022		—		—		1,022		—		1,022
Exercise of stock options and warrants	450,971		—		—		—		—		—		—		—		—
Issuance of common shares, net of tax withholding	67,685		—		—		(154)		—		—		(154)		—		(154)
Purchase of noncontrolling interest	—		—		—		116		—		—		116		(191)		(75)
Loss on foreign currency translation, net	—		—		—		—		—		(18)		(18)		—		(18)
Net income (loss)	—		—		—		—		70		—		70		(130)		(60)
Balance at March 31, 2021	29,627,482	$	3	$	—	$	47,522	$	(20,646)	$	(2,664)	$	24,215	$	(1,521)	$	22,694
Stock-based compensation	9,210		—		—		741		—		—		741		—		741
Exercise of stock options and warrants	931,558		—		—		3,151		—		—		3,151		—		3,151
Issuance of common shares, net of tax withholding	1,297,525		—		—		—		—		—		—		—		—
Gain on foreign currency translation, net	—		—		—		—		—		8		8		—		8
Net income (loss)	—		—		—		—		13,836		—		13,836		273		14,109
Balance at June 30, 2021	31,865,775	$	3	$	—	$	51,414	$	(6,810)	$	(2,656)	$	41,951	$	(1,248)	$	40,703
Stock-based compensation	18,978		—		—		679		—		—		679		—		679
Exercise of stock options	200,000		—		—		426		—		—		426		—		426
Issuance of common shares, net of tax withholding	9,500		—		—		—		—		—		—		—		—
Purchase of treasury stock	—		—		(37)		—		—		—		(37)		—		(37)
Loss on foreign currency translation, net	—		—		—		—		—		(34)		(34)		—		(34)
Net income (loss)	—		—		—		—		11,671		—		11,671		430		12,101
Balance at September 30, 2021	32,094,253	$	3	$	(37)	$	52,519	$	4,861	$	(2,690)	$	54,656	$	(818)	$	53,838


Balance at December 31, 2019	28,603,829	$	3	$	—	$	44,853	$	(7,891)	$	(2,651)	$	34,314	$	(402)	$	33,912
Stock-based compensation	69,327		—		—		338		—		—		338		—		338
Exercise of stock options	18,000		—		—		38		—		—		38		—		38
Issuance of common shares, net of tax withholding	116,644		—		—		—		—		—		—		—		—
Loss on foreign currency translation, net	—		—		—		—		—		(44)		(44)		—		(44)
Net income (loss)	—		—		—		—		(4,599)		—		(4,599)		(274)		(4,873)
Balance at March 31, 2020	28,807,800	$	3	$	—	$	45,229	$	(12,490)	$	(2,695)	$	30,047	$	(676)	$	29,371
Stock-based compensation	58,929		—		—		482		—		—		482		—		482
Issuance of common shares, net of tax withholding	93,418		—		—		(90)		—		—		(90)		—		(90)
Gain on foreign currency translation, net	—		—		—		—		—		2		2		—		2
Net income (loss)	—		—		—		—		(2,872)		—		(2,872)		(378)		(3,250)
Balance at June 30, 2020	28,960,147	$	3	$	—	$	45,621	$	(15,362)	$	(2,693)	$	27,569	$	(1,054)	$	26,515
Stock-based compensation	61,566		—		—		496		—		—		496		—		496
Issuance of common shares, net of tax withholding	9,133		—		—		(13)		—		—		(13)		—		(13)
Gain on foreign currency translation, net	—		—		—		—		—		19		19		—		19
Net income (loss)	—		—		—		—		(875)		—		(875)		(35)		(910)
Balance at September 30, 2020	29,030,846	$	3	$	—	$	46,104	$	(16,237)	$	(2,674)	$	27,196	$	(1,089)	$	26,107

See notes to the condensed consolidated financial statements.

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THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	For the nine months ended September 30,
	2021		2020
Operating activities:
Net income (loss)	$	26,150	$	(9,033)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		7,766		7,605
Stock-based compensation		2,442		1,316
CARES Act loan forgiveness		(18,529)		—
Amortization of debt issuance costs		321		356
Deferred taxes		1,504		(4,272)
Loss on early debt extinguishment		600		—
Changes in operating assets and liabilities:
Accounts receivable		(2,611)		4,567
Inventory		(516)		802
Other current assets		(811)		(299)
Due from related parties		—		(35)
Security deposits		7		315
Other assets		(348)		(986)
Accounts payable		2,314		(706)
Accrued expenses		5,454		241
Operating lease liabilities and right-of-use assets		1,045		710
Deferred gift card and license revenue		(1,758)		(1,256)
Net cash provided by (used in) operating activities		23,030		(675)

Investing activities:
Purchase of property and equipment		(8,112)		(2,660)
Net cash used in investing activities		(8,112)		(2,660)

Financing activities:
Proceeds from CARES Act Loans		—		18,314
Repayments of long-term debt		(22,633)		(592)
Debt issuance costs		(866)		(50)
Exercise of stock options and warrants		3,577		38
Tax-withholding obligation on stock based compensation		(154)		(103)
Purchase of treasury stock		(37)		—
Purchase of non-controlling interests		(75)		—
Net cash provided by financing activities		(20,188)		17,607
Effect of exchange rate changes on cash		(37)		(51)
Net increase in cash and cash equivalents		(5,307)		14,221
Cash and cash equivalents, beginning of period		24,385		12,344
Cash and cash equivalents, end of period	$	19,078	$	26,565
Supplemental disclosure of cash flow data:
Interest paid	$	3,118	$	2,871
Income taxes paid	$	53	$	253
Non-cash CARES Act loan forgiveness	$	18,529	$	—
Non-cash property and equipment additions	$	—	$	303

See notes to the condensed consolidated financial statements.

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THE ONE GROUP HOSPITALITY, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Summary of Business and Significant Accounting Policies

Summary of Business

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

As of September 30, 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 six hotels and casinos in the United States and Europe. In January 2021, the Company opened a managed STK restaurant in Scottsdale, Arizona. In the second quarter of 2021, the Company opened a managed STK restaurant in the Westminster area of London, United Kingdom and a licensed STK restaurant within the Los Cabos International Airport in San Jose del Cabo, Mexico which represents the STK brand’s debut at an airport. In May 2021, the Company also opened Bao Yum, a new brand under ONE Hospitality, and commenced management of certain F&B hospitality management services at the Westminster Curio Hotel in London, United Kingdom. In July 2021, the Company opened an owned STK restaurant in Bellevue, Washington. In August 2021, the Company entered into a management agreement for Rivershore Bar & Grill in Oregon City, Oregon. For those restaurants that are managed or licensed, the Company generates management fee revenue based on top-line revenues and incentive fee revenue based on a percentage of the location’s revenues and profits.

COVID-19

The COVID-19 pandemic has significantly impacted the Company’s business. Beginning in mid-March 2020, the Company experienced a significant reduction in guest traffic due to government mandated restrictions resulting in the temporary closure of several restaurants and the shift in operations to provide only take-out and delivery service. Starting in May 2020, state and local governments began easing restrictions on stay-at-home orders; however, certain states reimposed restrictions as COVID-19 cases increased during the fall of 2020. In February 2021, many jurisdictions began easing restrictions once again and the Company has experienced strong sales momentum coming out of the pandemic. Currently, all domestic and international restaurants are open for in-person dining. The Company has taken significant steps to adapt its business to increase sales while providing a safe environment for guests and employees.

Given the ongoing uncertainty surrounding the COVID-19 pandemic, the Company cannot reasonably predict if the sales and profitability levels coming out of the pandemic will continue for the remainder of 2021. It is possible that an increase in cases could result in restrictions on in-restaurant dining operations that could materially and negatively affect the Company’s results of operations. The Company’s continuation of normal dining operations is subject to events beyond its control, including the effectiveness of governmental efforts to halt the spread of COVID-19.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2020, which has been derived from audited financial statements, and the accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain information and footnote disclosures normally included in annual audited financial statements have been omitted pursuant to SEC rules and regulations. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

Prior Period Reclassifications

Certain reclassifications of the 2020 amounts in the accrued expenses and segment reporting footnotes have been made to conform to the current year presentation.

Recent Accounting Pronouncements

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

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” (“ASU 2019-12”) which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Accounting Standard Codification Topic 740, Income Taxes, and it clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020. The Company adopted ASU No. 2019-12 on January 1, 2021 and it did not have a significant impact to the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 is effective for smaller reporting companies for fiscal years beginning after December 15, 2022. The Company is currently evaluating ASU 2016-13 and assessing the impact on its financial statements.

Note 2 – Property and Equipment, net

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


	September 30,		December 31,
	2021		2020
Furniture, fixtures and equipment	$	23,464	$	22,328
Leasehold improvements		75,901		71,654
Less: accumulated depreciation		(37,460)		(30,948)
Subtotal		61,905		63,034
Construction in progress		4,372		2,294
Restaurant smallwares		2,253		2,016
Total	$	68,530	$	67,344

Depreciation related to property and equipment was $2.3 million and $2.5 million for the three months ended September 30, 2021 and 2020, respectively, and $7.1 million and $6.9 million for the nine months ended September 30, 2021 and 2020, respectively. The Company does not depreciate construction in progress, assets not yet put into service or restaurant smallwares.

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Note 3 – Intangibles, net

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


	September 30,		December 31,
	2021		2020
Kona Grill trade name	$	17,400	$	17,400
Other finite-lived intangible assets		66		—
Less: accumulated amortization		(1,742)		(1,087)
Total intangibles, net	$	15,724	$	16,313

The Kona Grill trade name and other finite-lived intangible assets are amortized using the straight-line method over its estimated useful life of 10 to 20 years. Amortization expense was $0.3 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively, and $0.7 million for each of the nine months ended September 30, 2021 and 2020. The Company’s estimated aggregate amortization expense for each of the five succeeding fiscal years is approximately $0.9 million annually.

Note 4 – Accrued Expenses

Accrued expenses consist of the following (in thousands):


	September 30,		December 31,
	2021		2020
Payroll and related ⁽¹⁾⁽²⁾	$	7,860	$	4,860
Accrued lease exit costs ⁽³⁾		4,144		4,144
VAT and sales taxes		2,309		1,119
Amounts due to landlords		1,757		1,883
Insurance		661		330
Interest		129		474
Legal, professional and other services		357		301
Income taxes and related		508		—
Construction on new restaurants		69		—
Other		3,117		2,573
Total	$	20,911	$	15,684

(1)	Payroll and related includes $2.6 million in employer payroll taxes at September 30, 2021 and December 31, 2020 for which payment has been deferred under the CARES Act.

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

Note 5 – Long-Term Debt and CARES Act Loans

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


	September 30,		December 31,
	2021		2020
Term loan agreements	$	24,875	$	47,400
Revolving credit facility		—		—
Equipment financing agreements		—		108
Total long-term debt		24,875		47,508
Less: current portion of long-term debt		(500)		(588)
Less: debt issuance costs		(1,179)		(1,856)
Total long-term debt, net of current portion	$	23,196	$	45,064

Interest expense for all the Company’s debt arrangements, excluding the amortization of debt issuance costs and other discounts and fees, was $0.7 million and $1.2 million for the three months ended September 30, 2021 and 2020, respectively, and $2.9 million and $3.3 million for the nine months ended September 30, 2021 and 2020, respectively.

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As of September 30, 2021, the Company had $1.3 million in standby letters of credit outstanding for certain restaurants and $10.7 million available in its revolving credit facility, 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 and guaranty agreement with Goldman Sachs Bank USA (“Credit Agreement”). The Credit Agreement provides for a secured revolving credit facility of $12.0 million and a $48.0 million term loan. The term loan is payable in quarterly installments, with the final payment due in October 2024. The revolving credit facility also matures in October 2024.

On August 6, 2021, the Company entered into the Third Amendment to the Credit Agreement with Goldman Sachs Bank USA. The amended agreement provides for additional flexibility and extends the maturity date for both the term loan and revolving credit facility by five years to August 2026. The amendment provides for a secured revolving credit facility of $12.0 million and a $25.0 million term loan which was reduced from $48.0 million. The term loan is payable in quarterly installments, with the final payment due in August 2026.

A summary of other changes to the amended Credit Agreement include:

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Removes all financial covenants except a maximum net leverage ratio of 2.00 to 1.00;

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Removes restrictions on the maximum amount of capital expenditures;

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Removes restrictions on the maximum number of Company-owned new locations; and

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Removes restrictions on credit extensions with regards to the revolving credit facility

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).

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 three months ended September 30, 2021 and $0.1 million in transaction costs.

The Company’s weighted average interest rate on the borrowings under the amended Credit Agreement as of September 30, 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 September 30, 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 condensed consolidated balance sheets. As of September 30, 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 has 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 September 30, 2021.

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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 was 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. In June 2021, the Company was notified that the SBA had forgiven the CARES Act Loan for Kona Grill Acquisition, LLC in its entirety. Subsequently, in July 2021, the Company was notified that the SBA had forgiven the CARES Act Loan for The ONE Group, LLC in its entirety. As a result, the Company recognized $10.0 million and $18.5 million gain on CARES Act Loan forgiveness for the three and nine months ended September 30, 2021.

Note 6 – Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued expenses are carried at cost, which approximates fair value due to their short maturities. Long-lived assets are measured and disclosed at fair value on a nonrecurring basis if an impairment is identified. There were no long-lived assets measured at fair value as of September 30, 2021.

The Company’s long-term debt, including the current portion, is carried at cost on the condensed consolidated balance sheets. Fair value of long-term debt, including the current portion, is valued using Level 2 inputs including current applicable rates for similar instruments and approximates the carrying value of such obligations.

Note 7 – Bagatelle

As of September 30, 2021 and December 31, 2020, the Company-owned interests in the following companies, which directly or indirectly own a restaurant:

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