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, 2024

	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, 2024: 31,145,546

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	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	35
Item 4. Controls and Procedures	35

PART II – Other Information
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 5. Other Information	38
Item 6. Exhibits	40

Signatures	41

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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,
	2024		2023
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	32,247	$	21,047
Credit card receivable		10,979		7,234
Restricted cash and cash equivalents		552		—
Accounts receivable		9,287		10,030
Inventory		9,164		6,184
Other current assets		4,849		1,809
Due from related parties		376		376
Total current assets		67,454		46,680

Operating lease right-of-use assets		271,160		95,075
Property and equipment, net		260,385		139,908
Goodwill		145,162		—
Intangibles, net		146,193		15,306
Deferred tax assets, net		45,236		14,757
Other assets		8,639		4,636
Security deposits		1,635		883
Total assets	$	945,864	$	317,245

LIABILITIES, SERIES A PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	26,723	$	19,089
Accrued expenses		52,474		28,333
Current portion of operating lease liabilities		16,523		6,897
Deferred gift card revenue and other		6,715		2,077
Current portion of long-term debt		3,500		1,500
Other current liabilities		559		266
Total current liabilities		106,494		58,162

Long-term debt, net of current portion, unamortized discount and debt issuance costs		330,861		70,410
Operating lease liabilities, net of current portion		294,171		120,481
Other long-term liabilities		5,116		832
Total liabilities		736,642		249,885

Commitments and contingencies (Note 17)

Series A preferred stock, $0.0001 par value, 160,000 shares authorized; 160,000 issued and outstanding at June 30, 2024 and 0 issued and outstanding at December 31, 2023		143,481		—

Stockholders’ equity:
Common stock, $0.0001 par value, 75,000,000 shares authorized; 33,765,978 issued and 31,297,200 outstanding at June 30, 2024 and 33,560,428 issued and 31,283,975 outstanding at December 31, 2023		3		3
Preferred stock, other than Series A preferred stock, $0.0001 par value, 9,840,000 shares authorized; no shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		—		—
Treasury stock, at cost, 2,468,778 shares at June 30, 2024 and 2,276,453 shares at December 31, 2023		(15,939)		(15,051)
Additional paid-in capital		71,656		58,270
Retained earnings		15,348		28,884
Accumulated other comprehensive loss		(2,987)		(2,930)
Total stockholders’ equity		68,081		69,176
Noncontrolling interests		(2,340)		(1,816)
Total stockholder's equity		65,741		67,360
Total liabilities, Series A preferred stock and stockholders' equity	$	945,864	$	317,245

See notes to the condensed consolidated financial statements.

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THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(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,
	2024		2023		2024		2023
Revenues:
Owned restaurant net revenue	$	169,021	$	79,923	$	250,529	$	158,502
Management, license, franchise and incentive fee revenue		3,473		3,470		6,960		7,447
Total revenues		172,494		83,393		257,489		165,949
Cost and expenses:
Owned operating expenses:
Owned restaurant cost of sales		35,877		19,215		54,591		38,070
Owned restaurant operating expenses		103,192		48,784		152,830		95,611
Total owned operating expenses		139,069		67,999		207,421		133,681
General and administrative (including stock-based compensation of $1,495, $1,234, $2,853 and $2,554 for the three and six months ended June 30, 2024 and 2023, respectively)		10,622		8,039		18,156		15,523
Depreciation and amortization		8,025		3,506		13,285		7,162
Transaction and exit costs		6,826		—		8,349		—
Transition and integration expenses		3,794		—		3,794		—
Pre-opening expenses		2,504		1,609		5,418		2,908
Other expenses		—		195		32		352
Total costs and expenses		170,840		81,348		256,455		159,626
Operating income		1,654		2,045		1,034		6,323
Other expenses, net:
Interest expense, net of interest income		7,865		1,642		9,943		3,429
Loss on early debt extinguishment		4,149		—		4,149		—
Total other expenses, net		12,014		1,642		14,092		3,429
(Loss) income before provision for income taxes		(10,360)		403		(13,058)		2,894
(Benefit) provision for income taxes		(3,268)		(13)		(3,536)		148
Net (loss) income		(7,092)		416		(9,522)		2,746
Less: net loss attributable to noncontrolling interest		(163)		(152)		(524)		(428)
Net (loss) income attributable to The ONE Group Hospitality, Inc.	$	(6,929)	$	568	$	(8,998)	$	3,174
Series A Preferred Stock paid-in-kind dividend and accretion		(4,538)		—		(4,538)		—
Net (loss) income available to common stockholders	$	(11,467)	$	568	$	(13,536)	$	3,174

Net (loss) income per common share:
Basic	$	(0.36)	$	0.02	$	(0.43)	$	0.10
Diluted	$	(0.36)	$	0.02	$	(0.43)	$	0.10

Weighted average common shares outstanding:
Basic		31,424,938		31,782,783		31,376,951		31,730,299
Diluted		31,424,938		32,673,457		31,376,951		32,779,821

See notes to the condensed consolidated financial statements.

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THE ONE GROUP HOSPITALITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited, in thousands)


	For the three months ended June 30,				For the six months ended June 30,
	2024		2023		2024		2023
Net (loss) income	$	(7,092)	$	416	$	(9,522)	$	2,746
Currency translation gain (loss), net of tax		11		52		(57)		(18)
Comprehensive (loss) income		(7,081)		468		(9,579)		2,728
Less: comprehensive loss attributable to noncontrolling interest		(163)		(152)		(524)		(428)
Comprehensive (loss) income attributable to The ONE Group Hospitality, Inc.		(6,918)		620		(9,055)		3,156
Series A Preferred Stock paid-in-kind dividend and accretion		(4,538)		—		(4,538)		—
Comprehensive (loss) income attributable to common stockholders	$	(11,456)	$	620	$	(13,593)	$	3,156

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 AND

SERIES A PREFERRED STOCK

(Unaudited, in thousands, except share information)


													Accumulated
									Additional				other
	Series A Preferred Stock			Common stock			Treasury		paid-in		Retained		comprehensive		Stockholders’		Noncontrolling
	Shares	Amount		Shares	Par value		stock		capital		Earnings		loss		equity		interests		Total
Balance at December 31, 2023	—	$	—	31,283,975	$	3	$	(15,051)	$	58,270	$	28,884	$	(2,930)	$	69,176	$	(1,816)	$	67,360
Stock-based compensation	—		—	—		—		—		1,358		—		—		1,358		—		1,358
Issuance of vested restricted shares, net of tax withholding	—		—	24,521		—		—		(124)		—		—		(124)		—		(124)
Loss on foreign currency translation, net	—		—	—		—		—		—		—		(68)		(68)		—		(68)
Net loss	—		—	—		—		—		—		(2,069)		—		(2,069)		(361)		(2,430)
Balance at March 31, 2024	—	$	—	31,308,496	$	3	$	(15,051)	$	59,504	$	26,815	$	(2,998)	$	68,273	$	(2,177)	$	66,096
Stock-based compensation	—		—	22,905		—		—		1,495		—		—		1,495		—		1,495
Exercise of stock options and warrants	—		—	50,000		—		—		242		—		—		242		—		242
Issuance of vested restricted shares, net of tax withholding	—		—	108,124		—		—		(356)		—		—		(356)		—		(356)
Issuance of warrants	—		—	—		—		—		10,771		—		—		10,771		—		10,771
Purchase of treasury stock	—		—	(192,325)		—		(888)		—		—		—		(888)		—		(888)
Gain on foreign currency translation, net	—		—	—		—		—		—		—		11		11		—		11
Net loss	—		—	—		—		—		—		(6,929)		—		(6,929)		(163)		(7,092)
Series A Preferred Stock issuance	160,000		138,943	—		—		—		—		—		—		—		—		—
Series A Preferred Stock paid-in-kind dividend and accretion	—		4,538	—		—		—		—		(4,538)		—		(4,538)		—		(4,538)
Balance at June 30, 2024	160,000	$	143,481	31,297,200	$	3	$	(15,939)	$	71,656	$	15,348	$	(2,987)	$	68,081	$	(2,340)	$	65,741

Balance at December 31, 2022	—	$	—	31,735,423	$	3	$	(7,169)	$	55,583	$	24,166	$	(2,869)	$	69,714	$	(1,124)	$	68,590
Stock-based compensation	—		—	16,205		—		—		1,320		—		—		1,320		—		1,320
Issuance of vested restricted shares, net of tax withholding	—		—	247,536		—		—		(1,432)		—		—		(1,432)		—		(1,432)
Purchase of treasury stock				(118,085)				(735)		—		—		—		(735)		—		(735)
Loss on foreign currency translation, net	—		—	—		—		—		—		—		(70)		(70)		—		(70)
Net income (loss)	—		—	—		—		—		—		2,606		—		2,606		(276)		2,330
Balance at March 31, 2023	—	$	—	31,881,079	$	3	$	(7,904)	$	55,471	$	26,772	$	(2,939)	$	71,403	$	(1,400)	$	70,003
Stock-based compensation	—		—	17,930		—		—		1,234		—		—		1,234		—		1,234
Exercise of stock options and warrants	—		—	135,500		—		—		226		—		—		226		—		226
Issuance of vested restricted shares, net of tax withholding	—		—	66,717		—		—		(370)		—		—		(370)		—		(370)
Purchase of treasury stock	—		—	(478,992)		—		(3,418)		—		—		—		(3,418)				(3,418)
Gain on foreign currency translation, net	—		—	—		—		—		—		—		52		52		—		52
Net income (loss)	—		—	—		—		—		—		568		—		568		(152)		416
Balance at June 30, 2023	—	$	—	31,622,234	$	3	$	(11,322)	$	56,561	$	27,340	$	(2,887)	$	69,695	$	(1,552)	$	68,143

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,
	2024		2023
Operating activities:
Net (loss) income	$	(9,522)	$	2,746
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,285		7,162
Non-cash exit costs		321		—
Stock-based compensation		2,853		2,554
Amortization of debt issuance costs and debt original issuance discounts		806		372
Deferred taxes		(3,671)		12
Non-cash loss on early debt extinguishment		1,674		—
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		2,623		5,722
Inventory		1,425		(37)
Other current assets		2,300		(253)
Security deposits		(35)		3
Other assets		(2,397)		(257)
Accounts payable		891		(922)
Accrued expenses		(4,007)		(4,943)
Operating lease liabilities and right-of-use assets		466		1,735
Other liabilities		(458)		(758)
Net cash provided by operating activities		6,554		13,136

Investing activities:
Purchase of property and equipment		(34,941)		(23,896)
Acquisition related payments, net of cash acquired		(368,605)		—
Net cash used in investing activities		(403,546)		(23,896)

Financing activities:
Borrowings of long-term debt		333,829		—
Repayments of long-term debt and financing lease liabilities		(73,612)		(435)
Issuance of Series A preferred stock net of discount		138,943		—
Issuance of warrants to Series A preferred stockholders		10,771		—
Exercise of stock options		242		226
Tax-withholding obligation on stock-based compensation		(480)		(1,802)
Purchase of treasury stock		(888)		(4,153)
Net cash provided by (used in) financing activities		408,805		(6,164)
Effect of exchange rate changes on cash		(61)		(19)
Net change in cash and cash equivalents and restricted cash and cash equivalents		11,752		(16,943)
Cash and cash equivalents and restricted cash and cash equivalents, beginning of period		21,047		55,121
Cash and cash equivalents and restricted cash and cash equivalents, end of period	$	32,799	$	38,178
Supplemental disclosure of cash flow data:
Interest paid, net of capitalized interest	$	4,572	$	4,055
Income taxes paid	$	413	$	312
Accrued purchases of property and equipment	$	10,768	$	5,602
Series A Preferred Stock paid-in-kind dividend and accretion	$	4,538	$	—
Reconciliation of cash and cash equivalents and restricted cash and cash equivalents
Cash and cash equivalents	$	32,247	$	38,178
Restricted cash and cash equivalents		552		—
Total cash and cash equivalents and restricted cash and cash equivalents as shown in the statement of cash flows	$	32,799	$	38,178

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

Description of Business

The ONE Group Hospitality, Inc. and its subsidiaries (collectively, the “Company”) is an international 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. As of June 30, 2024, 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, Benihana, the nation’s leading operator of Japanese teppanyaki restaurants, Kona Grill, a polished casual bar-centric grill concept featuring American favorites, award-winning sushi, and specialty cocktails in a polished casual atmosphere, and RA Sushi, a Japanese cuisine concept that offers a fun-filled, bar-forward, upbeat, and vibrant dining atmosphere.

On May 1, 2024, the Company acquired 100% of the issued and outstanding equity interests of Safflower Holdings Corp. from Safflower Holdings LLC (the “Benihana Acquisition”). Safflower Holdings Corp. beneficially owns most of the Benihana restaurants, as well as all of the RA Sushi restaurants, in the United States. It also franchises Benihana locations in the U.S., Latin America (excluding Mexico) and the Caribbean. Refer to Note 2 – Benihana Acquisition for additional information.

As of June 30, 2024, the Company owned, operated, managed, or licensed 167 venues, including 28 STKs, 86 Benihanas, 26 Kona Grills and 19 RA Sushis in major metropolitan cities in North America, Europe, Latin America and the Middle East and 8 F&B venues in four hotels and casinos in the United States and Europe. For those restaurants and venues that are managed, licensed or franchised, the Company generates management fees and franchise fees based on top-line revenues and incentive fee revenue based on a percentage of the location’s revenues and profits.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2023, 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, 2023.

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 condensed consolidated balance sheet as of December 31, 2023 have been made to conform to current year presentation. The Company has reclassified credit card receivables of $7.2 million to be presented within credit card receivables from accounts receivable.

Certain reclassifications were also made to conform the prior period segment reporting to the current year segment presentation. Refer to Note 15 – Segment Reporting for additional information regarding the Company’s reportable operating segments.

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Significant Accounting Policies

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for the Company’s significant accounting policies. The following represents changes in accounting policies during 2024, primarily attributable to the evaluation of accounting policies in conjunction with the Benihana acquisition discussed below:

Restricted cash and cash equivalents. Restricted cash and cash equivalents are accounts that are restricted to funding payment of employee benefits and collateral accounts relating to liquor license bonds.

Goodwill. Goodwill consists of goodwill associated with the Benihana Acquisition. Goodwill is not amortized and is tested for impairment annually on November 1^st or on an interim basis whenever events or changes in circumstances indicated a potential impairment.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance. The ASU is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is evaluating the impact of adopting this ASU on its disclosures.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of adopting this ASU on its disclosures.

Note 2 – Benihana Acquisition

On May 1, 2024, the Company acquired 100% of the issued and outstanding equity interests of Safflower Holdings Corp. and its affiliates comprising of 93 company owned restaurants and 12 franchised restaurants (the “Benihana Acquisition”). The Company purchased the equity for a contractual price of $365.0 million, subject to customary adjustments. The Company believes that Benihana is complementary to its existing brands and will enable the Company to capture market share in the Vibe Dining segment.

The assets and liabilities of Benihana were recorded at their respective fair values as of the date of acquisition. The Company is in the process of finalizing the fair value of certain assets and liabilities acquired, including property and equipment, intangible assets, operating lease right-of-use assets, operating lease liabilities and income tax assets and liabilities. The fair values set forth below are based on preliminary estimates and are subject to change as additional information is obtained during the measurement period which is up to one year from acquisition date (amounts in thousands).

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Preliminary purchase consideration:
Contractual purchase price	$	365,000
Cash and cash equivalents, restricted cash and cash equivalents and credit card receivable		25,224
Working capital adjustment		(82)
Cash consideration paid		390,142

Net assets acquired:
Cash and cash equivalents	$	20,986
Restricted cash and cash equivalents		551
Credit card receivable		3,687
Inventory		4,405
Other current assets		7,315
Property and equipment		103,015
Operating lease right-of-use assets		181,144
Deferred tax assets, net		26,808
Intangible assets		130,900
Other assets		2,898
Accounts payable		(9,851)
Accrued expenses		(29,228)
Other current liabilities		(5,337)
Operating lease liabilities		(187,909)
Other long-term liabilities		(4,404)
Total net assets acquired		244,980
Goodwill	$	145,162

The excess of the purchase price over the aggregate fair value of net assets acquired was allocated to goodwill. The portion of the purchase price attributable to goodwill represents benefits expected because of the acquisition, including sales and unit growth opportunities in addition to supply-chain and support-cost synergies. The Benihana and RA Sushi tradenames have an indefinite life based on the expected use of the asset and the regulatory and economic environment within which it is being used. The tradenames represent highly respected brands with positive connotations, and the Company intends to cultivate and protect the use of the brands. Goodwill and indefinite-lived tradenames are not amortized but are reviewed annually for impairment or more frequently if indicators of impairment exist.

As a result of the Benihana Acquisition, the Company incurred approximately $6.5 million and $7.8 million of transaction costs, respectively, during the three and six months ended June 30, 2024, which are included in transaction and exit costs in the consolidated statements of operations. The Company incurred $3.8 million for transition and related integration efforts in the three and six months ended June 30, 2024.

The following pro forma results of operations for the three and six months ended June 30, 2024 and 2023 give effect to the Benihana Acquisition as if it had occurred on January 1, 2023 (in thousands):


	For the three months ended June 30,				For the six months ended June 30,
	2024		2023		2024		2023
Total Revenues⁽¹⁾	$	212,794	$	217,260	$	431,026	$	434,649

Net (loss) income as reported	$	(10,535)	$	3,293	$	39,880	$	8,577
Adjustments:
Transaction and exit costs		11,236		—		13,639		(13,639)
Transition and integration costs		3,794		—		3,794		(3,794)
Loss on early debt extinguishment		4,149		—		4,149		(4,149)
Purchase price accounting adjustments⁽²⁾		67		171		9,744		463
Change in interest expense		387		463		891		1,170
Pro forma net income (loss) before income taxes		9,098		3,927		72,097		(11,372)
Income tax effect of adjustments		(1,473)		(48)		(2,416)		1,496
Change in valuation allowance		—		—		(59,925)		—
Pro forma net income (loss)	$	7,625	$	3,879	$	9,756	$	(9,876)