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 June 30, 2022

	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 July 31, 2022: 32,649,401

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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	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	26
Item 4. Controls and Procedures	26

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

Signatures	29

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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)


	June 30,		December 31,
	2022		2021
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	24,417	$	23,614
Accounts receivable		7,979		11,356
Inventory		4,732		3,915
Other current assets		2,281		3,666
Due from related parties		376		376
Total current assets		39,785		42,927

Property and equipment, net		77,213		69,638
Operating lease right-of-use assets		86,297		85,395
Deferred tax assets, net		11,727		12,313
Intangibles, net		15,284		15,505
Other assets		4,124		3,199
Security deposits		797		858
Total assets	$	235,227	$	229,835

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,278	$	11,094
Accrued expenses		18,698		23,155
Deferred license revenue		79		90
Deferred gift card revenue and other		1,545		2,029
Current portion of operating lease liabilities		5,914		5,396
Current portion of long-term debt		500		500
Total current liabilities		39,014		42,264

Deferred license revenue, long-term		258		298
Operating lease liabilities, net of current portion		104,464		103,616
Long-term debt, net of current portion		23,004		23,132
Total liabilities		166,740		169,310

Commitments and contingencies (Note 14)

Stockholders’ equity:
Common stock, $0.0001 par value, 75,000,000 shares authorized; 32,662,035 issued and 32,649,401 outstanding at June 30, 2022 and 32,138,396 issued and 32,125,762 outstanding at December 31, 2021		3		3
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		—		—
Treasury stock		(37)		(37)
Additional paid-in capital		53,743		53,481
Retained earnings		18,605		10,632
Accumulated other comprehensive loss		(2,906)		(2,645)
Total stockholders’ equity		69,408		61,434
Noncontrolling interests		(921)		(909)
Total equity		68,487		60,525
Total liabilities and equity	$	235,227	$	229,835

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

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


	For the three months ended June 30,				For the six months ended June 30,
	2022		2021		2022		2021
Revenues:
Owned restaurant net revenue	$	76,930	$	67,848	$	147,446	$	117,016
Management, license and incentive fee revenue		4,195		2,912		7,860		4,226
Total revenues		81,125		70,760		155,306		121,242
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales		19,851		17,191		37,950		29,192
Owned restaurant operating expenses		44,309		35,336		83,682		63,242
Total owned operating expenses		64,160		52,527		121,632		92,434
General and administrative (including stock-based compensation of $911, $1,137, $1,790 and $2,159 for the three and six months ended June 30, 2022 and 2021, respectively)		7,261		6,139		14,140		11,313
Depreciation and amortization		2,926		2,495		5,641		5,194
COVID-19 related expenses		221		1,088		2,534		2,645
Agreement restructuring expenses		—		494		—		494
Pre-opening expenses		804		154		1,149		255
Lease termination expenses		—		107		255		294
Total costs and expenses		75,372		63,004		145,351		112,629
Operating income		5,753		7,756		9,955		8,613
Other expenses, net:
Interest expense, net		444		1,235		952		2,481
Gain on CARES Act Loan forgiveness		—		(8,561)		—		(8,561)
Total other expenses, net		444		(7,326)		952		(6,080)
Income before provision for income taxes		5,309		15,082		9,003		14,693
Provision for income taxes		869		973		1,042		644
Net income		4,440		14,109		7,961		14,049
Less: net income (loss) attributable to noncontrolling interest		137		273		(12)		143
Net income attributable to The One Group Hospitality, Inc.	$	4,303	$	13,836	$	7,973	$	13,906
Currency translation (loss) gain		(169)		8		(261)		(10)
Comprehensive income attributable to The ONE Group Hospitality, Inc.	$	4,134	$	13,844	$	7,712	$	13,896

Net income attributable to The ONE Group Hospitality, Inc. per share:
Basic net income per share	$	0.13	$	0.44	$	0.25	$	0.46
Diluted net income per share	$	0.13	$	0.41	$	0.23	$	0.41

Shares used in computing basic income per share		32,601,203		31,248,677		32,411,570		30,239,364
Shares used in computing diluted income per share		33,959,991		34,028,735		34,123,142		33,683,652

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, 2021	32,125,762	$	3	$	(37)	$	53,481	$	10,632	$	(2,645)	$	61,434	$	(909)	$	60,525
Stock-based compensation	7,162		—		—		879		—		—		879		—		879
Issuance of vested restricted shares, net of tax withholding	127,413		—		—		(314)		—		—		(314)		—		(314)
Loss on foreign currency translation, net	—		—		—		—		—		(92)		(92)		—		(92)
Net income (loss)	—		—		—		—		3,670		—		3,670		(149)		3,521
Balance at March 31, 2022	32,260,337	$	3	$	(37)	$	54,046	$	14,302	$	(2,737)	$	65,577	$	(1,058)	$	64,519
Stock-based compensation	10,214		—		—		911		—		—		911		—		911
Exercise of stock options and warrants	13,261		—		—		28		—		—		28		—		28
Issuance of vested restricted shares, net of tax withholding	365,589		—		—		(1,242)		—		—		(1,242)		—		(1,242)
Loss on foreign currency translation, net	—		—		—		—		—		(169)		(169)		—		(169)
Net income	—		—		—		—		4,303		—		4,303		137		4,440
Balance at June 30, 2022	32,649,401	$	3	$	(37)	$	53,743	$	18,605	$	(2,906)	$	69,408	$	(921)	$	68,487


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 vested restricted 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 vested restricted shares, net of tax withholding	1,297,525		—		—		—		—		—		—		—		—
Gain on foreign currency translation, net	—		—		—		—		—		8		8		—		8
Net income	—		—		—		—		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

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 six months ended June 30,
	2022		2021
Operating activities:
Net income	$	7,961	$	14,049
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,641		5,194
Stock-based compensation		1,790		1,763
CARES Act loan forgiveness		—		(8,561)
Amortization of debt issuance costs		186		265
Deferred taxes		586		120
Changes in operating assets and liabilities:
Accounts receivable		3,436		(794)
Inventory		(817)		(181)
Other current assets		1,379		(210)
Security deposits		61		(26)
Other assets		(329)		(85)
Accounts payable		273		2,356
Accrued expenses		(5,154)		7,596
Operating lease liabilities and right-of-use assets		464		29
Deferred gift card and license revenue		(535)		(1,671)
Net cash provided by operating activities		14,942		19,844

Investing activities:
Purchase of property and equipment		(12,091)		(5,373)
Net cash used in investing activities		(12,091)		(5,373)

Financing activities:
Repayments of long-term debt		(250)		(321)
Debt issuance costs		—		(41)
Exercise of stock options and warrants		28		3,151
Tax-withholding obligation on stock-based compensation		(1,556)		(154)
Purchase of non-controlling interests		—		(75)
Net cash (used in) provided by financing activities		(1,778)		2,560
Effect of exchange rate changes on cash		(270)		(9)
Net increase in cash and cash equivalents		803		17,022
Cash and cash equivalents, beginning of period		23,614		24,385
Cash and cash equivalents, end of period	$	24,417	$	41,407
Supplemental disclosure of cash flow data:
Interest paid, net of capitalized interest	$	874	$	2,076
Income taxes paid	$	287	$	53
Non-cash CARES Act loan forgiveness	$	—	$	8,561
Accrued purchases of property and equipment	$	2,415	$	—

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 restaurant company that develops, owns and operates, manages and licenses upscale and polished casual, high-energy restaurants and lounges and provides turn-key food and beverage (“F&B”) services and consulting 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 June 30, 2022, the Company owned, operated, managed, or licensed 59 venues, including 22 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, the Company generates management fees 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 our operations and financial results. The impact to our operations and financial results has been most notable in periods of accelerating COVID-19 case counts. 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 $0.2 million and $2.5 million for the three and six months ended June 30, 2022, compared to $1.1 million and $2.6 million for the three and six months ended June 30, 2021, 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.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2021, which has been derived from audited financial statements, and the accompanying unaudited interim condensed consolidated financial statements (“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, 2021.

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.

Change in Accounting Estimate

Effective April 1, 2022, the Company changed its estimated useful life of the Kona Grill trade name. Based upon the strong performance of the Kona Grill restaurants over the past twelve months, significant capital investments in both existing and new restaurants and the Company’s commitment to expand the Kona Grill brand with the opening of new restaurants, the Company has determined that the Kona Grill trade name has an indefinite life rather than the twenty-year life previously determined. The Company currently has two Kona Grill venues under construction in Riverton, Utah and Columbus, Ohio and plans to open three to five Kona Grills each year for the foreseeable future. The effect of this change in estimate will reduce depreciation and amortization expense by $0.9 million annually, increase net income by $0.9 million annually, and increase basic and diluted earnings per share by approximately $0.03 annually based upon the number of shares outstanding as of June 30, 2022.

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As a result of the above change, the Company updated its accounting policy for Intangible Assets and will test for impairment annually on November 1^st or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment.

Prior Period Reclassifications

Certain reclassifications of the 2021 amounts in the segment reporting footnote have been made to conform to the current year presentation.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB “) issued Accounting Standards Update (“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):


	June 30,		December 31,
	2022		2021
Furniture, fixtures and equipment	$	26,569	$	24,942
Leasehold improvements		78,108		76,500
Less: accumulated depreciation		(43,229)		(39,425)
Subtotal		61,448		62,017
Construction in progress		13,453		5,374
Restaurant smallwares		2,312		2,247
Total	$	77,213	$	69,638

Depreciation related to property and equipment was $2.9 million and $2.3 million for the three months ended June 30, 2022 and 2021, respectively, and $5.4 million and $4.8 million for the six months ended June 30, 2022 and 2021, respectively. The Company does not depreciate construction in progress until such assets are placed into service.

Note 3 – Intangibles, net

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


	June 30,		December 31,
	2022		2021
Indefinite-lived intangible assets
Kona Grill trade name	$	17,400	$	—
Finite-lived intangible assets
Kona Grill trade name		—		17,400
Other finite-lived intangible assets		66		66
Total finite-lived intangible assets		66		17,466
Less: accumulated amortization		(2,182)		(1,961)
Total intangibles, net	$	15,284	$	15,505

Finite-lived intangible assets are amortized using the straight-line method over their estimated useful life of 10 years. Amortization expense was nominal and $0.2 million for the three months ended June 30, 2022 and 2021, respectively. Amortization expense was $0.2 million and $0.4 million for the six months ended June 30, 2022 and 2021, respectively. The Company’s estimated aggregate amortization expense for each of the five succeeding fiscal years is a nominal amount annually. Refer to Note 1 regarding the change in accounting estimate of the Kona Grill trade name.

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Note 4 – Accrued Expenses

Accrued expenses consist of the following (in thousands):


	June 30,		December 31,
	2022		2021
Payroll and related ⁽¹⁾	$	6,896	$	6,554
Accrued lease exit costs ⁽²⁾		—		4,913
VAT and sales taxes		2,276		3,477
Amounts due to landlords		2,433		1,847
Legal, professional and other services		1,030		458
Income taxes and related		180		—
Construction on new restaurants		622		359
Insurance		305		642
Interest		128		132
Other ⁽³⁾		4,828		4,773
Total	$	18,698	$	23,155

(1)	Payroll and related includes $1.2 million in employer payroll taxes for which payment has been deferred under the CARES Act as of June 30, 2022 and December 31, 2021, respectively.

(2)	Amount relates to lease exit costs for 2016 leases for restaurants never built. All amounts have been paid as of June 30, 2022.

(3)	Amount primarily relates to recurring restaurant operating expenses.

Note 5 – Long-Term Debt

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


	June 30,		December 31,
	2022		2021
Term loan agreements	$	24,500	$	24,750
Revolving credit facility		—		—
Total long-term debt		24,500		24,750
Less: current portion of long-term debt		(500)		(500)
Less: debt issuance costs		(996)		(1,118)
Total long-term debt, net of current portion	$	23,004	$	23,132

Interest expense for the Company’s debt arrangements, excluding the amortization of debt issuance costs and fees, was $0.4 million and $1.1 million for the three months ended June 30, 2022 and 2021, respectively, and $0.8 million and $2.2 million for the six months ended June 30, 2022 and 2021, respectively. Capitalized interest was $0.1 million for the three and six months ended June 30, 2022.

As of June 30, 2022, the Company had $1.4 million 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 (the “Credit Agreement”). 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)

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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.

The Company’s weighted average interest rate on the borrowings under the amended Credit Agreement as of June 30, 2022 and December 31, 2021 was 6.00%.

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 amended Credit Agreement, which also are secured by liens on substantially all of the assets of the Company and its subsidiaries.

As of June 30, 2022, the Company had $1.0 million of debt issuance costs related to the amended Credit Agreement, which were capitalized and are recorded as a direct deduction to long-term debt and $0.5 million in debt issuance costs recorded in Other Assets on the condensed consolidated balance sheets. As of June 30, 2022, the Company was in compliance with the financial covenants required by the Credit Agreement.

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 June 30, 2022.

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 – Income taxes

Income taxes for the three and six months ended June 30, 2022 are recorded at the Company’s estimated annual effective income tax rate, subject to adjustments for discrete events, should they occur. The Company’s effective income tax rate including discrete events was 16.4% and 11.6% for the three and six months ended June 30, 2022 compared to 6.5% and 4.4% for the three and six months ended June 30, 2021. The Company’s annualized effective tax rate is estimated at approximately 19.0% for 2022. The Company’s projected annual effective tax rate differs from the statutory U.S. tax rate of 21% primarily due to the following: (i) tax credits for FICA taxes on certain employees’ tips (ii) taxes owed in foreign jurisdictions with tax rates that differ from the U.S. statutory rate; (iii) taxes owed in state and local jurisdictions; and (iv) the tax effect of non-deductible compensation. Income tax provision recorded for the six months ended June 30, 2022 and 2021 included the discrete period tax benefits resulting from the vesting of restricted stock units.

The CARES Act includes provisions allowing for the carryback of net operating losses generated for specific periods and technical amendments regarding the expensing of qualified improvement property. The CARES Act also allows for the deferral of the employer-paid portion of social security taxes, which the Company has elected to defer and will pay by December 31, 2022.

The Company is subject to U.S. federal, state, local and various foreign income taxes for the 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

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judgment to apply. In the normal course of business, the Company is subject to examination by the federal, state, local and foreign taxing authorities. There are no ongoing federal, state, local, or foreign tax examinations as of June 30, 2022.

Note 8 – Revenue from Contracts with Customers

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


	June 30,		December 31,
	2022		2021
Deferred license revenue ⁽¹⁾	$	337	$	388
Deferred gift card and gift certificate revenue ⁽²⁾	$	1,033	$	1,769
Advanced party deposits ⁽²⁾	$	512	$	260
Konavore rewards program ⁽³⁾	$	153	$	136

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

(2)	Deferred gift card revenue and advance party deposits on goods and services yet to be provided are included in deferred gift card revenue and other on the condensed consolidated balance sheets.

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

Revenue recognized during the period from contract liabilities is as follows (in thousands):


	June 30,		June 30,
	2022		2021
Revenue recognized from deferred license revenue	$	40	$	105
Revenue recognized from deferred gift card revenue	$	1,196	$	958
Revenue recognized from advanced party deposits	$	198	$	60

The estimated deferred license revenue to be recognized in the future related to performance obligations that are unsatisfied as of June 30, 2022 were as follows for each year ending (in thousands):


2022, six months remaining	$	39
2023		79
2024		45
2025		44
2026		37
Thereafter		93
Total future estimated deferred license revenue	$	337

Note 9 – Leases

The components of lease expense for the six months ended June 30, 2022 and 2021 are as follows (in thousands):


	June 30,			June 30,
	2022			2021
Lease cost
Operating lease cost	$	7,317		$	6,621
Variable lease cost		5,597			2,622
Short-term lease cost		521			322
Total lease cost	$	13,435		$	9,565

Weighted average remaining lease term – operating leases		13 years			13 years
Weighted average discount rate – operating leases		8.40	%		8.49	%

Due to the negative effects of COVID-19, the Company implemented measures to reduce its costs, including negotiations with landlords regarding rent concessions. As the rent concessions received do not result in a significant increase in cash payments, the Company elected to account for these concessions as a variable lease payment in accordance with ASC Topic 842. The Company’s

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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.

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


	June 30,		June 30,
	2022		2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	6,531	$	5,682
Right-of-use assets obtained in exchange for operating lease obligations	$	3,709	$	34

As of June 30, 2022, maturities of the Company’s operating lease liabilities are as follows (in thousands):


2022, six months remaining	$	3,164
2023		15,164
2024		14,663
2025		13,705
2026		13,636
Thereafter		131,925
Total lease payments		192,257
Less: imputed interest		(81,879)
Present value of operating lease liabilities	$	110,378

Note 10 – 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 potential shares of common stock including common stock issuable pursuant to stock options, warrants, and restricted stock units.

For the three and six months ended June 30, 2022 and 2021, the net income per share was calculated as follows (in thousands, except net income per share and related share data):


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Net income attributable to The One Group Hospitality, Inc.	$	4,303	$	13,836	$	7,973	$	13,906

Basic weighted average shares outstanding		32,601,203		31,248,677		32,411,570		30,239,364
Dilutive effect of stock options, warrants and restricted share units		1,358,788		2,780,058		1,711,572		3,444,288
Diluted weighted average shares outstanding		33,959,991		34,028,735		34,123,142		33,683,652

Net income available to common stockholders per share - Basic	$	0.13	$	0.44	$	0.25	$	0.46
Net income available to common stockholders per share - Diluted	$	0.13	$	0.41	$	0.23	$	0.41

For the six months ended June 30, 2022 and 2021, zero and 0.1 million stock options, warrants and restricted share units, respectively, were determined to be anti-dilutive and were therefore excluded from the calculation of diluted earnings per share, respectively.

Note 11 – Stock-Based Compensation and Warrants

At the 2022 Annual Meeting of Shareholders, the Company’s shareholders approved a 4,500,000 increase in the number of shares available for issuance under the 2019 Equity Plan. As of June 30, 2022, the Company had 4,407,088 shares available for issuance under the 2019 Equity Incentive Plan (“2019 Equity Plan”).

Stock-based compensation cost for the three months ended June 30, 2022 and 2021 was $0.9 million and $1.1 million, respectively, and $1.8 million and $2.2 million for the six months ended June 30, 2022 and 2021, respectively. Stock-based

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