ONE Group Hospitality Inc

Previous wording

This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Forward-looking statements speak only as of the date thereof and involve risks and uncertainties that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include the risk factors discussed under Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements, including but not limited to: 1) our ability to integrate the new restaurants into our operations without disruptions to operations; (2) our ability to capture anticipated synergies; (3) our ability to open new restaurants and food and beverage locations in current and additional markets, grow and manage growth profitably, maintain relationships with suppliers and obtain adequate supply of products and retain employees; (4) factors beyond our control that affect the number and timing of new restaurant openings, including weather conditions and factors under the control of landlords, contractors and regulatory and/or licensing authorities; (5) our ability to successfully improve performance and cost, realize the benefits of our marketing efforts and achieve improved results as we focus on developing new management and license deals; (6) changes in applicable laws or regulations; (7) the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors;(8) risks related to the Acquisition, including the additional indebtedness incurred in connection with the Acquisition and our ability to successfully integrate the acquired restaurants and (9) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “ongoing,” “could,” “estimates,” “expects,” “intends,” “may,” “appears,” “suggests,” “future,” “likely,” “goal,” “plans,” “potential,” “projects,” “predicts,” “should,” “targets,” “would,” “will” and similar expressions that convey the uncertainty of future events or outcomes. You should not place undue reliance on any forward-looking statement. We do not undertake any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required under applicable law.

Current wording

This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Forward-looking statements speak only as of the date thereof and involve risks and uncertainties that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include the risk factors discussed under Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and Item 1A. “Risk Factors” included in this Quarterly Report on Form 10-Q.A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements, including but not limited to: (1) our ability to integrate the new or acquired restaurants into our operations without disruptions to operations; (2) our ability to capture anticipated synergies; (3) our ability to open new restaurants and food and beverage locations in current and additional markets, grow and manage growth profitably, maintain relationships with suppliers and obtain adequate supply of products and retain employees; (4) factors beyond our control that affect the number and timing of new restaurant openings, including weather conditions and factors under the control of landlords, contractors and regulatory and/or licensing authorities; (5) our ability to successfully improve performance and cost, realize the benefits of our marketing efforts and achieve improved results as we focus on developing new management and license deals; (6) changes in applicable laws or regulations; (7) the possibility that The ONE Group may be adversely affected by other economic, business, and/or competitive factors; and (8) other risks and uncertainties*.*We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “ongoing,” “could,” “estimates,” “expects,” “intends,” “may,” “appears,” “suggests,” “future,” “likely,” “goal,” “plans,” “potential,” “projects,” “predicts,” “should,” “targets,” “would,” “will” and similar expressions that convey the uncertainty of future events or outcomes. You should not place undue reliance on any forward-looking statement. We do not undertake any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required under applicable law.

Previous wording

We are 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 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.

Current wording

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.

Previous wording

As of March 31, 2024, our primary restaurant brands were 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 Hotel and Hippodrome Casino.

Current wording

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 Hotel, Hippodrome Casino, and Curio Collection by Hilton. For those restaurants and venues that are managed, licensed or franchised, we generate management fee revenue and franchise revenue based on top-line revenues and incentive fee revenue based on a percentage of the location’s revenues and net profits.

Previous wording

We opened our first restaurant in January 2004 in New York, New York. As of March 31, 2024, we owned, operated, managed or licensed 63 venues including 28 STKs and 27 Kona Grills in major metropolitan cities in North America, Europe and the Middle East

Current wording

We opened our first restaurant in January 2004 in New York, New York. We currently own, operate, manage, license or franchise 167 venues including 28 STKs, 85 Benihanas, 26 Kona Grills and 20 RA Sushi** **in major cities in North America, Europe, Latin America and the Middle East and 8 F&B venues operated under ONE Hospitality in four hotels and casinos throughout the United States and Europe.

Previous wording

We intend to open six to eight new STK or Kona Grill venues in 2024. In March 2024, we opened the following:

Current wording

We intend to open eight to eleven new venues in 2024. As of the date of this report we have opened the following:

Previous wording

There is currently one Company-owned STK restaurant, one Company-owned Kona Grill restaurant, and one company-owned Salt Water Social restaurant under construction in the following cities:

Current wording

There are currently two Company-owned STK restaurants, one Company-owned Kona Grill restaurant, one Company-owned Salt Water Social restaurant, and one Company-owned Benihana restaurant under construction in the following cities:

Previous wording

The table below reflects our venues by restaurant brand and geographic location as of March 31, 2024:

Current wording

The table below reflects our current venues by restaurant brand and geographic location:

Previous wording

On May 1, 2024, the Company acquired 100% of the issued and outstanding equity interests of Safflower Holdings Corp. from Safflower Holdings LLC for $365.0 million., subject to customary adjustments (the “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.

Current wording

On May 1, 2024, the Company acquired 100% of the issued and outstanding equity interests of Safflower Holdings Corp. from Safflower Holdings LLC for $365.0 million., subject to customary adjustments (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.

Previous wording

price of $10.00 per share , (ii) to SSOF II BH US Subsidiary, L.P., 3,691 shares of such Preferred Stock in book-entry form, a warrant to purchase 43,957 shares of Common Stock of the Company for an exercise price of $0.01 per share, and a warrant to purchase 24,604 shares of Common Stock of the Company for an exercise price of $10.00 per share, (iii) to HPS Corporate Lending Fund, 1,000 shares of such Preferred Stock in book-entry form, a warrant to purchase 11,911 shares of Common Stock of the Company for an exercise price of $0.01 per share, and a warrant to purchase 6,667 shares of Common Stock of the Company for an exercise price of $10.00 per share, and (iv) to HPS Corporate Capital Solutions Fund, 1,000 shares of such Preferred Stock in book-entry form, a warrant to purchase 11,911 shares of Common Stock of the Company for an exercise price of $0.01 per share, and a warrant to purchase 6,667 shares of Common Stock of the Company for an exercise price of $10.00 per share, in each case of clauses (a) and (b), in a private placement exempt from registration under the Securities Act of 1933, as amended.

Current wording

In connection with the Benihana Acquisition, on May 1, 2024, the Company sold and issued to (a) HPC III Kaizen LP, for $150.0 million cash, subject to a 5% original issuance discount, 150,000 shares of Series A Preferred Stock, a warrant to purchase 1,786,582 shares of Common Stock of the Company for an exercise price of $0.01 per share, and a warrant to purchase 1,000,000 shares of Common Stock of the Company for an exercise price of $10.00 per share and (b) to the HPS Investors, for $10 million cash in the aggregate, subject to a 5% original issuance discount, securities allocated among the HPS Investors as follows: (i) to HPS Special Situations Opportunity Fund II, L.P., 4,309 shares of such Series A Preferred Stock in book-entry form, a warrant to purchase 51,236 shares of Common Stock of the Company for an exercise price of $0.01 per share, and a warrant to purchase 28,729 shares of Common Stock of the Company for an exercise price of $10.00 per share, (ii) to SSOF II BH US Subsidiary, L.P., 3,691 shares of such Series A Preferred Stock in book-entry form, a warrant to purchase 43,957 shares of Common Stock of the Company for an exercise price of $0.01 per share, and a warrant to purchase 24,604 shares of Common Stock of the Company for an exercise price of $10.00 per share, (iii) to HPS Corporate Lending Fund, 1,000 shares of such Series A Preferred Stock in book-entry form, a warrant to purchase 11,911 shares of Common Stock of the Company for an exercise price of $0.01 per share, and a warrant to purchase 6,667 shares of Common Stock of the Company for an exercise price of $10.00 per share, and (iv) to HPS Corporate Capital Solutions Fund, 1,000 shares of such Series A Preferred Stock in book-entry form, a warrant to purchase 11,911 shares of Common Stock of the Company for an exercise price of $0.01 per share, and a warrant to purchase 6,667 shares of Common Stock of the Company for an exercise price of $10.00 per share, in each case of clauses (a) and (b), in a private placement exempt from registration under the Securities Act of 1933, as amended.

Previous wording

The Preferred Stock will be non-voting and non-convertible; will have compounding dividends that begin at a rate of 13.0% per annum and increase over time at specified intervals; will be subject to optional redemption by the Company and mandatory redemption following specified events and in certain circumstances upon the exercise by the holders of a majority of the outstanding shares of Preferred Stock of an option to deliver written notice to the Company to require redemption, in each case, for specified prices; and will grant certain consent rights for the holders of a majority of the outstanding shares of Preferred Stock for specified matters.

Current wording

The Series A Preferred Stock is non-voting and non-convertible; has compounding dividends that begin at a rate of 13.0% per annum and increase over time at specified intervals; is subject to optional redemption by the Company and mandatory redemption following specified events and in certain circumstances upon the exercise by the holders of a majority of the outstanding shares of Series A Preferred Stock of an option to deliver written notice to the Company to require redemption, in each case, for specified prices; and gives certain consent rights for the holders of a majority of the outstanding shares of Series A Preferred Stock for specified matters.

Previous wording

Additionally, in connection with the Acquisition, on May 1, 2024, the Company entered into a credit agreement with Deutsche Bank AG New York Branch, Deutsche Bank Securities Inc., HPS Investment Partners, LLC and HG Vora Capital Management, LLC. The Credit and Guarantee Agreement provides a $350.0 million senior secured term loan facility and a $40.0 million senior secured revolving credit facility, up to $10.0 million of which will be available in the form of letters of credit. On May 1, 2024, the Company borrowed $350.0 million under the Term Loan Facility and the Revolving Facility was undrawn.

Current wording

Additionally, in connection with the Benihana Acquisition, on May 1, 2024, the Company entered into a credit agreement with Deutsche Bank AG New York Branch, Deutsche Bank Securities Inc., HPS Investment Partners, LLC and HG Vora Capital Management, LLC (the “Credit Agreement”). The Credit Agreement provides a $350.0 million senior secured term loan facility and a $40.0 million senior secured revolving credit facility, up to $10.0 million of which will be available in the form of letters of credit. On May 1, 2024, we borrowed $350.0 million under the Term Loan Facility and the Revolving Facility was and remains undrawn.

Previous wording

Refer to Note 15 to our condensed consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the preferred stock financing and new credit facility.

Current wording

Refer to Notes 6 and 12 to our condensed consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the new credit facility and preferred stock financing.

Previous wording

Operating income decreased $4.9 million to an operating loss of $0.6 million for the three months ended March 31, 2024 compared to operating income of $4.3 million for the three months ended March 31, 2023. The change is primarily attributed to higher depreciation and amortization and preopening costs associated with new restaurant openings and transaction costs related to the Acquisition.

Current wording

Operating income decreased $0.4 million to $1.7 million for the three months ended June 30, 2024 compared to operating income of $2.0 million for the three months ended June 30, 2023. The change is primarily attributed to transaction, transition and integration costs related to the Benihana Acquisition partially offset by the increase in operating income attributable to the acquired restaurants.

Previous wording

EBITDA, Adjusted EBITDA and Restaurant Operating Profit are presented in this Quarterly Report on Form 10-Q 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 accepted in the U.S. (“GAAP”). We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization. We define Adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization, non-cash rent expense, pre-opening expenses, lease termination expenses, stock-based compensation, 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.

Current wording

EBITDA, Adjusted EBITDA and Restaurant Operating Profit are presented in this Quarterly Report on Form 10-Q 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 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 net income before interest expense, provision for income taxes, depreciation and amortization, non-cash rent expense, pre-opening expenses, transaction and exit costs, transition and integration expenses, stock-based compensation, 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.

Previous wording

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 and is a metric used in our debt compliance calculation. 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.

Current wording

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.

Previous wording

The following table presents a reconciliation of Operating (loss) income to Restaurant operating profit for the periods indicated (in thousands):

Current wording

The following table presents a reconciliation of Operating income to Restaurant Operating Profit for the periods indicated (in thousands):

Previous wording

Owned restaurant net revenue*.* Owned restaurant net revenue increased $2.9 million, or 3.7%, to $81.5 million for the three months ended March 31, 2024 from $78.6 million for the three months ended March 31, 2023. The increase was primarily attributable to the opening of six restaurants since July 2023 partially offset by a reduction in comparable restaurant sales. Comparable restaurant sales decreased 7.9% in the first quarter of 2024 compared to the first quarter of 2023.

Current wording

Owned restaurant net revenue*.* Owned restaurant net revenue increased $89.1 million, or 111.5%, to $169.0 million for the three months ended June 30, 2024 from $79.9 million for the three months ended June 30, 2023. The increase was primarily attributable to the acquisition of Benihana and RA Sushi restaurants on May 1, 2024, which generated $88.7 million in revenues for the two-month period owned by the Company and $12.7 million in revenues from six new restaurants opened since July 2023, partially offset by a reduction in comparable restaurant sales. Comparable restaurant sales decreased 7.0% for the second quarter of 2024 compared to the second quarter of 2023.

Previous wording

Owned restaurant cost of sales*.* Food and beverage costs for owned restaurants decreased $0.2 million, or 0.7%, to $18.7 million for the three months ended March 31, 2024 from $18.9 million for the three months ended March 31, 2023. As a percentage of owned restaurant net revenue, cost of sales decreased 100 basis points from 24.0% in the three months ended March 31, 2023 to 23.0% for the three months ended March 31, 2024 primarily due to product mix management, pricing and operational cost reduction initiatives.

Current wording

Owned restaurant cost of sales*.* Food and beverage costs for owned restaurants increased $16.7 million, or 86.7%, to $35.9 million for the three months ended June 30, 2024 from $19.2 million for the three months ended June 30, 2023. The increase in owned restaurant cost of sales is primarily attributed to $17.6 million in cost of sales associated with revenues generated by Benihana and RA Sushi restaurants acquired on May 1, 2024. As a percentage of owned restaurant net revenue, cost of sales decreased 280 basis points from 24.0% in the three months ended June 30, 2023 to 21.2% for the three months ended June 30, 2024 primarily due to lower cost of sales as a percentage of restaurant sales for Benihana and RA Sushi restaurants as compared to STK and Kona Grill restaurants, product mix management, pricing and operational cost reduction initiatives.

Previous wording

Owned restaurant operating expenses*.*Owned restaurant operating expenses increased $2.8 million to $49.6 million for the three months ended March 31, 2024 from $46.8 million for the three months ended March 31, 2023. The increase was primarily due to the operating expenses associated with six new restaurants opened since July 2023. Owned restaurant operating costs as a percentage of owned restaurant net revenue increased 130 basis points from 59.6% in the three months ended March 31, 2023 to 60.9% for the three months ended March 31, 2024 primarily due to deleverage of fixed operating costs from lower same store sales, higher average wage and operating cost inflation partially offset by cost reduction initiatives.

Current wording

Owned restaurant operating expenses*.*Owned restaurant operating expenses increased $54.4 million to $103.2 million for the three months ended June 30, 2024 from $48.8 million for the three months ended June 30, 2023. The increase in owned restaurant operating expense is primarily attributed to $53.8 million in operating expenses associated with revenues generated by Benihana and RA Sushi restaurants acquired on May 1, 2024. Owned restaurant operating expenses as a percentage of owned restaurant net revenue increased 10 basis points from 61.0% for the three months ended June 30, 2023 to 61.1% for the three months ended June 30, 2024.

Previous wording

General and administrative*.* General and administrative costs were $7.5 million for the three months ended March 31, 2024 and 2023. As a percentage of revenues, general and administrative costs were 8.9% for the three months ended March 31, 2024 compared to 9.1% for the three months ended March 31, 2023.

Current wording

General and administrative*.* General and administrative costs increased $2.6 million, or 32.9%, to $10.7 million for the three months ended June 30, 2024 from $8.0 million for the three months ended June 30, 2023. The increase was attributable to incremental headcount associated with the Benihana Acquisition and increased stock-based compensation expense. As a percentage of revenues, general and administrative costs were 6.2% for the three months ended June 30, 2024 compared to 9.6% for the three months ended June 30, 2023.

Previous wording

Depreciation and amortization*.* Depreciation and amortization expenses were $5.3 million and $3.7 million for the three months ended March 31, 2024 and 2023, respectively. The increase was primarily related to the opening of six new venues since July 2023 and capital expenditures to maintain and enhance the guest experience.

Current wording

Depreciation and amortization*.* Depreciation and amortization expense was $8.0 million for the three months ended June 30, 2024 compared to $3.5 million for the three months ended June 30, 2023. The increase was primarily related to depreciation and amortization for the Benihana and RA Sushi restaurants acquired on May 1, 2024, depreciation associated with the opening of six new owned venues since July 2023 and capital expenditures to maintain and enhance the guest experience in our restaurants.

Previous wording

Transaction and exit costs*.* Transaction and exit costs were approximately $1.5 million for the three months ended March 31, 2024. These costs include approximately $1.2 million related to the Acquisition, which closed on May 1, 2024. In addition, we incurred

Current wording

Transaction and exit costs*.* Transaction and exit costs were $6.8 million for the three months ended June 30, 2024. These costs primarily included investment banker, legal and professional fees incurred in conjunction with the Benihana Acquisition, which closed on May 1, 2024.

Previous wording

Interest expense, net of interest income*.* Interest expense, net of interest income was $2.1 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively. The weighted average interest rate for the three months ended March 31, 2024 was 12.3% compared to 11.4% for the three months ended March 31, 2023.

Current wording

Interest expense, net*.* Interest expense, net was $7.9 million and $1.6 million for the three months ended June 30, 2024 and 2023, respectively. We borrowed $350.0 million on the Credit Agreement on May 1, 2024 to finance the Benihana Acquisition. The weighted average interest rate for the three months ended June 30, 2024 was ­11.9% compared to 11.8% in the same period of 2023.

Previous wording

Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest was $0.4 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest was $0.2 million for both the three months ended June 30, 2024 and June 30, 2023.

Previous wording

Management and license fee revenue*.* Management and license fee revenues decreased $0.5 million, or 12.3% to $3.5 million for the three months ended March 31, 2024 from $4.0 million for the three months ended March 31, 2023. The decrease was primarily attributed to decreased revenues at our STK restaurants in North America and early termination of the STK Westminster management agreement in the fourth quarter of 2023 as we consolidated our operations in London, UK.

Current wording

Management, license and incentive fee revenue*.* Management, license and incentive fee revenues decreased $0.4 million, or 6.5% to $7.0 million for the six months ended June 30, 2024 from $7.4 million for the six months ended June 30, 2023. The decrease was primarily attributable to decreased revenues at our STK restaurants in North America and early termination of the STK Westminster management agreement in the fourth quarter of 2023 as we consolidated our operations in London, UK, partially offset by $0.4 million in revenues attributed to Benihana franchised restaurants.

Previous wording

Pre-opening expenses. In the three months ended March 31, 2024, we incurred $2.9 million of pre-opening expenses primarily related to payroll and travel costs for the training team and payroll, training, and non-cash pre-open rent for STK Washington DC which opened in March 2024 and STK and Kona Grill restaurants currently under development. Total pre-opening expenses related to non-cash pre-open rent was $0.3 million. Pre-opening expenses for the three months ended March 31, 2023 were $1.3 million. Details of pre-opening expenses by category are provided in the table below for the three months ended March 31, 2024 and 2023 (in thousands).

Current wording

Pre-opening expenses. For the six months ended June 30, 2024, we incurred $5.4 million of pre-opening expenses primarily related to payroll, training and non-cash pre-open rent for STK Washington DC which opened in March 2024 and a RA Sushi restaurant which opened on July 1, 2024. We also incurred costs during the first six months of 2024 for two STK restaurants that opened during December 2023 and STK, Benihana and Kona Grill restaurants currently under development. Total pre-opening expenses related to non-cash pre-open rent was $0.7 million.

Previous wording

approximately $0.3 million in exit costs for accelerated depreciation associated with the April 30 th lease expiration of Kona Grill Scottsdale and accelerated amortization due to the exit of the licensing agreement with REEF Kitchens.

Current wording

Transaction and exit costs.* *Transaction and exit costs were $8.3 million for the six months ended June 30, 2024. These costs primarily included investment banker and legal and professional fees incurred in conjunction with the Benihana Acquisition, which closed on May 1, 2024. In addition, we incurred approximately $0.6 million for accelerated depreciation and exit costs associated with the April 30 th lease expiration of Kona Grill Scottsdale and accelerated amortization due to the exit of the licensing agreement with REEF Kitchens.

Previous wording

(Benefit) provision for income taxes*.* The benefit for income taxes for the three months ended March 31, 2024 was $0.3 million compared to income tax expense of $0.2 million for the three months ended March 31, 2023. The effective income tax rate for the first quarter of 2024 was 9.9% compared to 6.5% for the first quarter of 2023.

Current wording

(Benefit) provision for income taxes*.* The benefit for income taxes for the six months ended June 30, 2024 was $3.5 million compared to a provision for income taxes of $0.1 million for the six months ended June 30, 2023.

Previous wording

Our principal liquidity requirements are to meet our lease obligations, working capital and capital expenditure needs and to pay principal and interest on 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, including the costs of opening currently planned new restaurants, for the foreseeable future, including at least the next 12 months, 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 these sources of financing are adequate to support our immediate business operations and plans. As of March 31, 2024, we had cash and cash equivalents of $15.4 million and $73.5 million in long-term debt, which consisted of borrowings under our Credit Agreement. As of March 31, 2024, the availability on our revolving credit facility was $10.6 million, subject to certain conditions.

Current wording

Our principal liquidity requirements are to meet our lease obligations, working capital and capital expenditure needs and to pay principal and interest on 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, including preferred stock, to support ongoing business operations. We believe these sources of financing are adequate to support our immediate business operations and plans. As of June 30, 2024, we had cash and cash equivalents and restricted cash and cash equivalents of $32.8 million and $350.0 million in long-term debt, which consisted of borrowings under our Credit Agreement. As of June 30, 2024, the availability on our revolving credit facility was $33.8 million, subject to certain conditions.

Previous wording

For the three months ended March 31, 2024, capital expenditures were $15.8 million of which $14.1 million related to the opening of five restaurants during the past six months, including STK Washington DC which opened in March 2024 and several restaurants that were under development as of March 31, 2024. We spent $1.6 million on maintenance capital expenditures for existing restaurants which included additional furniture, fixtures, and equipment. Net capital expenditures, inclusive of $0.4 million in landlord contributions, was $15.4 million for the three months ended March 31, 2024. We expect to receive between $2.2 million and $2.8 million in landlord contributions in the next three months.

Current wording

For the six months ended June 30, 2024, capital expenditures were $34.9 million of which $29.0 million related to the construction of new STK, Benihana, Kona Grill and RA Sushi restaurants and $5.8 million related to existing restaurants. We have opened two Company-owned restaurants in 2024 and expect to open an additional four to five Company-owned restaurants over the next six months. Net capital expenditures, inclusive of $1.8 million in landlord contributions, was $33.1 million for the six months ended June 30, 2024. We expect to receive between $5.0 million to $6.0 million in landlord contributions in the next three months. Capital expenditures by type for the six months ended June 30, 2024 is provided below (in thousands).

Previous wording

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 cards 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.

Current wording

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. Due to the seasonality of our business, we typically generate a greater proportion of our cash flow from operations during the fourth quarter.

Previous wording

To help manage future cash requirements, we limit the number of owned company venues under construction at any given time to four restaurants. We also set a maximum number of signed leases for new restaurant development to approximately twelve in order to minimize our cash rent commitment to approximately $3.0 million to $4.0 million annually for restaurants under development.

Current wording

To help manage future cash requirements, we limit the number of owned company venues under construction at any given time to six restaurants. We also set a maximum number of signed leases for new restaurant development to twelve in order to minimize our cash rent commitment to approximately $3.0 million to $4.0 million annually for restaurants under development.

Previous wording

Our hospitality F&B services projects typically require limited capital investment from us. Capital expenditures for these projects are primarily funded by cash flows from operations.

Current wording

Our hospitality F&B venues typically require limited capital investment from us. Capital expenditures for these projects will primarily be funded by cash flows from operations depending upon the timing of these expenditures and cash availability.

Previous wording

Refer to Note 14 and Note 15 to our condensed consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for further information regarding our commitments and contingencies and information regarding our new long-term debt arrangements.

Current wording

Refer to Note 6 and Note 17 to our condensed consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the terms of our long-term debt arrangements and information regarding our commitments and contingencies.

Previous wording

The following table summarizes the statement of cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The following table summarizes the statement of cash flows for the six months ended June 30, 2024 and 2023 (in thousands):

Previous wording

Operating Activities*.*Net cash provided by operating activities was $10.4 million for the three months ended March 31, 2024, compared to net cash provided by operating activities of $6.6 million for the three months ended March 31, 2023. The increase was primarily attributable to the timing of payments on accrued expenses.

Current wording

Operating Activities*.*Net cash provided by operating activities was $6.6 million for the six months ended June 30, 2024, compared to $13.1 million for the six months ended June 30, 2023. The change in net cash provided by operating activities was primarily attributable to the timing of collections on accounts receivables and payments on accrued expenses.

Previous wording

Investing Activities. Net cash used in investing activities for the three months ended March 31, 2024 was $15.8 million primarily for the construction of STK Washington DC, which opened in March 2024, residual payments on the four restaurants that opened during the fourth quarter of 2023 and several restaurants that were under development as of March 31, 2024, as well as capital expenditures for existing restaurants compared to $11.9 million for the three months ended March 31, 2023. Purchases of property and equipment during the three months ended March 31, 2024 included approximately $5.3 million that was accrued as of December 31, 2023 and paid during the first quarter of 2024.

Current wording

Investing Activities. Net cash used in investing activities for the six months ended June 30, 2024 was $403.5 million which was comprised of $368.6 million for the Benihana acquisition, net of cash acquired and $34.9 million in capital expenditures for the construction of STK Washington DC, which opened in March 2024, and a RA Sushi in Plantation, FL which opened in July 2024 in addition to residual payments on four restaurants that opened during the fourth quarter of 2023 and several restaurants that were under development as of June 30, 2024.

Previous wording

Financing Activities. Net cash used in financing activities for the three months ended March 31, 2024 and 2023 was $0.2 million and $1.1 million, respectively. Common stock purchased under our share repurchase program was $0.7 million for the three months ended March 31, 2023.

Current wording

Financing Activities. Net cash used in financing activities for the six months ended June 30, 2024 was $408.8 million and was comprised of net proceeds from borrowings under the Credit Agreement of $333.8 million and net proceeds from the issuance of preferred stock and warrants of $138.9 million, partially offset by the repayment of the Goldman Sachs debt of $73.6 million. Net cash used in financing activities was $6.2 million for the six months ended June 30, 2023 which reflected $4.2 million in common stock purchased under our share repurchase program and $1.8 million in tax withholding obligation on stock-based compensation.