|
For the fiscal year ended December 31, 2012
|
□
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the transition period from _____ to _____
|
Delaware
|
20-0216690
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Title of Each Class
Common Stock, par value $0.01 per share
|
Name of Each Exchange on Which Registered
NASDAQ Global Market
|
PART I
|
||
Item 1.
|
Business
|
1
|
Item 1A.
|
Risk Factors
|
11
|
Item 1B.
|
Unresolved Staff Comments
|
19
|
Item 2.
|
Properties
|
20
|
Item 3.
|
Legal Proceedings
|
20
|
Item 4.
|
Mine Safety Disclosures
|
21
|
PART II
|
||
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
21
|
Item 6.
|
Selected Financial Data
|
24
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
25
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
39
|
Item 8.
|
Financial Statements and Supplementary Data
|
39
|
Item 9.
|
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|
39
|
Item 9A.
|
Controls and Procedures
|
39
|
Item 9B.
|
Other Information
|
40
|
PART III
|
||
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
40
|
Item 11.
|
Executive Compensation
|
40
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
41
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
41
|
Item 14.
|
Principal Accountant Fees and Services
|
41
|
PART IV
|
||
Item 15.
|
Exhibits and Financial Statement Schedules
|
41
|
Signatures
|
43 | |
Index to Consolidated Financial Statements
|
F-1 |
Item 1.
|
Business
|
|
·
|
Innovative Menu Selections with Mainstream Appeal.
We offer a menu of freshly prepared, high quality food that includes a diverse selection of mainstream American selections, a variety of appetizers and entrees with an international influence, and award-winning sushi to appeal to a wide range of tastes, preferences, and price points. We prepare our dishes from scratch using original recipes with generous portions and creative and appealing presentations that adhere to standards that we believe are much closer to fine dining than typical casual dining. Our more than 40 signature sauces and dressings create memorable flavor profiles and further differentiate our menu items. With an average check during 2012 of approximately $25 per guest, we believe we provide an exceptional price-value proposition that helps create a lasting relationship between Kona Grill and our guests.
|
|
·
|
Distinctive Upscale Casual Dining Experience.
Our upscale casual dining concept captures some of the best elements of fine dining including a variety of exceptional food options, attentive service, and an extensive wine and drink list, and combines them with more casual qualities, like a broad menu with attractive price points and a choice of environments suitable for any dining occasion. Our creative menu, personalized service, and contemporary restaurant design blend together to create an inviting polished casual dining experience. We design our restaurants with a unique layout and utilize modern, eye-catching design elements to enhance the customer experience. Our multiple dining areas provide guests with a number of distinct dining environments and atmospheres to suit a range of dining occasions. Our open exhibition-style kitchen and sushi bar further emphasize the quality and freshness of our food that are the cornerstones of our concept.
|
|
·
|
Significant Bar and Happy Hour Business.
Our high-energy bar and patio offer a distinctive atmosphere where guests can enjoy one of our alcoholic beverage offerings, while providing a place to be seen and see others. Our patio is a popular place for guests to enjoy our high-value happy hour and reverse happy hour offerings. Our patio, which is enclosed in colder climate locations, provides a year-round sales opportunity and is a key driver in generating business during non-traditional periods. Sales during these non-peak periods accounted for 23.2% of our total sales during 2012, which we believe provides us with a competitive advantage.
|
|
·
|
Personalized Guest Service.
Our commitment to provide prompt, friendly, and efficient service enhances our food, reinforces our upscale ambiance, and helps distinguish us from other traditional casual dining restaurants. We train our service personnel to be cordial, friendly, and knowledgeable about all aspects of the restaurant, especially the menu and the wine list, which helps us provide personalized guest service that is designed to ensure an enjoyable dining experience and exceed our guests’ expectations. Our kitchen staff completes extensive training to ensure that menu items are precisely prepared to provide a consistent quality of taste. We believe our focus on high service standards underscores our guest-centric philosophy.
|
|
·
|
Multiple Daypart Model.
Our appetizers, flatbreads, entrees, and sushi offerings provide a flexible selection of items that can be ordered individually or shared allowing guests to dine with us during traditional lunch and dinner meal periods as well as between customary dining periods such as in the late afternoon and late night. The lively ambiance of our patio and bar areas provides an energetic social forum that attracts a young professional clientele during non-peak periods, as well as provides a unique atmosphere for all of our guests to enjoy before or after they dine with us. Our sushi bar provides another dining venue for guests while offering a wide selection of creative and flavorful menu items for our health conscious guests. We believe that our ability to attract guests throughout the day distinguishes us from many other casual dining chains and helps us maximize sales and leverage our fixed operating costs.
|
|
·
|
Attractive Unit Economics.
During 2012, the average unit volume of our comparable base restaurants was $4.2 million, or $579 per square foot. We believe our high average unit volume helps us attract high-quality employees, leverage fixed costs, and makes us a desirable tenant for landlords. We expect the average cash investment for any new restaurants we open to be approximately $2.5 million, net of landlord tenant improvement allowances and excluding preopening expenses. Based on historical experience, restaurants that are subject to ground leases and do not receive landlord tenant improvement allowances may require a significantly higher cash investment, but typically have lower average rental costs over the duration of the lease.
|
|
·
|
suitable demographic characteristics, including residential and commercial population density and above-average household incomes;
|
|
·
|
great visibility;
|
|
·
|
high traffic patterns;
|
|
·
|
general accessibility;
|
|
·
|
availability of suitable parking;
|
|
·
|
proximity of shopping areas and office parks;
|
|
·
|
degree of competition and the revenue level of those competitors within the trade area; and
|
|
·
|
general availability of restaurant-level employees.
|
Sales
|
Percent
|
|||||||
(Dollars in thousands)
|
||||||||
Lunch (Open to 3 p.m.)
|
$ | 22,761 | 23.7 | % | ||||
Dinner (5 p.m. to 9 p.m.)
|
50,953 | 53.1 | % | |||||
Non-Peak (3 p.m. to 5 p.m. and 9 p.m. to Close)
|
22,307 | 23.2 | % | |||||
Total All Day
|
$ | 96,021 | 100.0 | % |
|
·
|
We offer a diverse selection of fresh high quality mainstream American dishes as well as a variety of appetizers and entrees with an international influence, including an extensive selection of sushi items;
|
|
·
|
We appeal to multiple demographic and psychographic profiles;
|
|
·
|
We strive to maintain quality and consistency in each of our restaurants through the careful training and supervision of restaurant personnel and adherence to high standards related to personnel performance, food and beverage preparation, and maintenance of our restaurants;
|
|
·
|
Our innovative menu with attractive price points, attentive service, and contemporary restaurant design with multiple environments blend together to create our polished casual dining experience and enables us to attract a broad guest demographic.
|
Item 1A.
|
Risk Factors
|
•
|
changes in consumer preferences and discretionary spending, including weaker consumer spending in uncertain economic times;
|
•
|
consumer understanding and acceptance of the Kona Grill experience;
|
•
|
our ability to increase menu prices without adversely impacting guest traffic to such a degree that the impact of the decrease in guests equals or exceeds the benefit of the menu price increase;
|
•
|
executing our strategies effectively, including menu improvement initiatives and marketing and branding strategies, each of which may not drive an increase in guest traffic;
|
•
|
weather, road construction and other factors limiting access to our restaurants; and
|
•
|
changes in government regulation.
|
|
·
|
the availability and cost of suitable restaurant locations for development and our ability to compete successfully for those locations;
|
|
·
|
the availability of adequate financing;
|
|
·
|
cash flow generated by our existing restaurants;
|
|
·
|
the timing of delivery of leased premises from our landlords so we can commence our build-out construction activities;
|
|
·
|
construction and development costs;
|
|
·
|
labor shortages or disputes experienced by our landlords or outside contractors;
|
|
·
|
unforeseen engineering or environmental problems with the leased premises;
|
|
·
|
our ability to secure governmental approvals and permits, including liquor licenses, construction permits, and occupancy permits;
|
|
·
|
weather conditions or natural disasters; and
|
|
·
|
general economic conditions.
|
|
·
|
recruitment or departure of key restaurant operations or management personnel;
|
|
·
|
actual or anticipated variations in comparable restaurant sales or operating results; whether in our operations or those of our competitors;
|
|
·
|
changes in the consumer spending environment or general economic conditions;
|
|
·
|
changes in the market valuations of other companies in the restaurant industry;
|
|
·
|
changes in the estimates of our operating performance or changes in recommendations by any research analysts that follow our stock; and
|
|
·
|
announcements of investigations or regulatory scrutiny of restaurant operations or lawsuits filed against us.
|
Item 1B.
|
Unresolved Staff Comments
|
Item 2.
|
Properties
|
State
|
City
|
Location
|
Year
Opened
|
Square
Footage
|
Number of
Seats (1)
|
|||||
Arizona
|
Scottsdale
|
Scottsdale Fashion Square
|
1998
|
5,964 | 274 | |||||
Arizona
|
Chandler
|
Chandler Fashion Center
|
2001
|
7,389 | 326 | |||||
Missouri
|
Kansas City
|
Country Club Plaza
|
2002
|
7,455 | 248 | |||||
Nevada
|
Las Vegas
|
Boca Park Fashion Village
|
2003
|
7,380 | 295 | |||||
Colorado
|
Denver
|
Cherry Creek Mall
|
2004
|
5,920 | 243 | |||||
Nebraska
|
Omaha
|
Village Pointe
|
2004
|
7,415 | 339 | |||||
Indiana
|
Carmel
|
Clay Terrace
|
2004
|
7,433 | 356 | |||||
Texas
|
San Antonio
|
The Shops at La Cantera
|
2005
|
7,200 | 256 | |||||
Texas
|
Dallas
|
North Park Mall
|
2006
|
6,872 | 299 | |||||
Illinois
|
Lincolnshire
|
Lincolnshire Commons
|
2006
|
7,020 | 305 | |||||
Texas
|
Houston
|
Houston Galleria
|
2006
|
7,459 | 315 | |||||
Illinois
|
Oak Brook
|
Oak Brook Promenade
|
2006
|
6,999 | 298 | |||||
Texas
|
Austin
|
The Domain
|
2007
|
6,890 | 298 | |||||
Michigan
|
Troy
|
Big Beaver Road
|
2007
|
7,000 | 280 | |||||
Connecticut
|
Stamford
|
Stamford Town Center
|
2007
|
7,654 | 305 | |||||
Louisiana
|
Baton Rouge
|
Perkins Rowe
|
2007
|
7,221 | 260 | |||||
Arizona
|
Gilbert
|
San Tan Village
|
2008
|
6,770 | 259 | |||||
Arizona
|
Phoenix
|
City North
|
2008
|
7,510 | 368 | |||||
Virginia
|
Richmond
|
West Broad Village
|
2009
|
7,000 | 282 | |||||
New Jersey
|
Woodbridge
|
Woodbridge Conference Center
|
2009
|
7,000 | 280 | |||||
Minnesota
|
Eden Prairie
|
Windsor Plaza
|
2009
|
7,000 | 310 | |||||
Florida
|
Tampa
|
MetWest International
|
2009
|
7,500 | 338 | |||||
Maryland
|
Baltimore
|
Downtown Baltimore
|
2010
|
6,972 | 280 | |||||
Arizona
|
Scottsdale
|
Corporate Office at Scottsdale Fashion Square
|
2004
|
7,500 | — |
(1)
|
Number of seats includes dining room, patio seating, sushi bar, bar, and private dining room (where applicable).
|
Item 3.
|
Legal Proceedings |
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
High
|
Low
|
|||||||
2012
|
||||||||
First quarter
|
$ | 7.30 | $ | 5.12 | ||||
Second quarter
|
$ | 9.25 | $ | 5.40 | ||||
Third quarter
|
$ | 9.12 | $ | 7.22 | ||||
Fourth quarter
|
$ | 9.49 | $ | 8.02 | ||||
2011
|
||||||||
First quarter
|
$ | 5.80 | $ | 4.01 | ||||
Second quarter
|
$ | 5.75 | $ | 3.97 | ||||
Third quarter
|
$ | 7.90 | $ | 4.75 | ||||
Fourth quarter
|
$ | 6.82 | $ | 5.01 |
Period
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plan
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
|
||||||||||||
November 2012
|
33,185 | $ | 8.45 | 33,185 | $ | 2,400,288 | ||||||||||
December 2012
|
42,754 | 8.42 | 42,754 | 2,040,506 | ||||||||||||
Total
|
75,939 | $ | 8.43 | 75,939 |
Year Ended December 31,
|
||||||||||||||||||||
2012
|
2011
|
2010
|
2009
|
2008
|
||||||||||||||||
(In thousands, except per share data)
|
||||||||||||||||||||
Consolidated Statement of Comprehensive Income (Loss) Data:
|
||||||||||||||||||||
Restaurant sales
|
$ | 96,021 | $ | 93,657 | $ | 82,735 | $ | 76,027 | $ | 72,724 | ||||||||||
Costs and expenses:
|
||||||||||||||||||||
Cost of sales
|
26,246 | 25,579 | 22,459 | 19,668 | 19,872 | |||||||||||||||
Labor
|
31,968 | 30,896 | 28,640 | 26,402 | 24,080 | |||||||||||||||
Occupancy
|
6,253 | 6,573 | 6,523 | 5,878 | 4,915 | |||||||||||||||
Restaurant operating expenses
|
13,534 | 13,977 | 12,923 | 12,009 | 10,572 | |||||||||||||||
General and administrative
|
7,037 | 8,395 | 7,072 | 8,200 | 8,417 | |||||||||||||||
Preopening expense
|
— | — | 567 | 1,672 | 1,417 | |||||||||||||||
Depreciation and amortization
|
5,749 | 5,856 | 5,612 | 6,463 | 6,100 | |||||||||||||||
Insurance recoveries and other
|
(120 | ) | — | — | — | — | ||||||||||||||
Asset impairment charge
|
— | — | — | 12,597 | 3,220 | |||||||||||||||
Total costs and expenses
|
90,667 | 91,276 | 83,796 | 92,889 | 78,593 | |||||||||||||||
Income (loss) from operations
|
5,354 | 2,381 | (1,061 | ) | (16,862 | ) | (5,869 | ) | ||||||||||||
Nonoperating income (expenses):
|
||||||||||||||||||||
Interest income and other, net
|
1 | 3 | 52 | 204 | 296 | |||||||||||||||
Interest expense
|
(67 | ) | (61 | ) | (123 | ) | (174 | ) | (51 | ) | ||||||||||
Income (loss) from continuing operations
before provision for income taxes
|
5,288 | 2,323 | (1,132 | ) | (16,832 | ) | (5,624 | ) | ||||||||||||
Provision for income taxes
|
36 | 9 | 10 | 65 | 205 | |||||||||||||||
Income (loss) from continuing operations
|
5,252 | 2,314 | (1,142 | ) | (16,897 | ) | (5,829 | ) | ||||||||||||
Loss from discontinued operations
(1)
|
(466 | ) | (288 | ) | (435 | ) | (4,655 | ) | (4,672 | ) | ||||||||||
Net income (loss)
|
$ | 4,786 | $ | 2,026 | $ | (1,577 | ) | $ | (21,552 | ) | $ | (10,501 | ) |
Net income (loss) per share — Basic:
|
||||||||||||||||||||
Continuing operations
|
$ | 0.60 | $ | 0.25 | $ | (0.12 | ) | $ | (1.95 | ) | (0.72 | ) | ||||||||
Discontinued operations
|
(0.05 | ) | (0.03 | ) | (0.05 | ) | (0.54 | ) | (0.58 | ) | ||||||||||
Net income (loss)
|
$ | 0.55 | $ | 0.22 | $ | (0.17 | ) | $ | (2.49 | ) | $ | (1.30 | ) | |||||||
Net income (loss) per share — Diluted:
|
||||||||||||||||||||
Continuing operations
|
$ | 0.59 | $ | 0.24 | $ | (0.12 | ) | $ | (1.95 | ) | $ | (0.72 | ) | |||||||
Discontinued operations
|
(0.05 | ) | (0.03 | ) | (0.05 | ) | (0.54 | ) | (0.58 | ) | ||||||||||
Net income (loss)
|
$ | 0.54 | $ | 0.21 | $ | (0.17 | ) | $ | (2.49 | ) | $ | (1.30 | ) | |||||||
Weighted average shares outstanding:
|
||||||||||||||||||||
Basic
|
8,726 | 9,242 | 9,167 | 8,645 | 8,054 | |||||||||||||||
Diluted
|
8,868 | 9,428 | 9,167 | 8,645 | 8,054 |
Balance Sheet Data (end of period):
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 7,989 | $ | 6,327 | $ | 2,555 | $ | 2,404 | $ | 2,477 | ||||||||||
Investments
|
177 | 176 | 174 | 6,282 | 6,861 | |||||||||||||||
Working capital (deficit)
|
1,044 | (2,380 | ) | (4,878 | ) | (5,054 | ) | (7,653 | ) | |||||||||||
Total assets
|
39,325 | 41,347 | 42,060 | 49,963 | 65,554 | |||||||||||||||
Total debt
|
370 | 132 | 636 | 7,120 | 4,525 | |||||||||||||||
Total stockholders’ equity
|
18,868 | 17,684 | 16,989 | 17,983 | 35,598 |
(1)
|
As a result of our decision to close two restaurants during 2011 and one restaurant during 2008, the results of operations for these restaurants, including asset impairment, lease termination, and restaurant-level closing costs, are classified as discontinued operations for all periods presented, as discussed further in Note 2 to the consolidated financial statements.
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Restaurant sales growth
|
2.5 | % | 13.2 | % | 8.8 | % | ||||||
Same-store sales percentage change
(1)
|
2.7 | % | 8.8 | % | 0.9 | % | ||||||
Average unit volume (in thousands)
(2)
|
$ | 4,182 | $ | 4,089 | $ | 3,771 | ||||||
Sales per square foot
(2)
|
$ | 579 | $ | 572 | $ | 535 | ||||||
Restaurant operating profit (in thousands)
(3)
|
$ | 18,020 | $ | 16,632 | $ | 12,190 | ||||||
Restaurant operating profit as a percentage of sales
(3)
|
18.8 | % | 17.8 | % | 14.7 | % |
(1)
|
Same-store sales percentage change reflects the periodic change in restaurant sales for the comparable restaurant base compared to the prior year. In calculating the percentage change for same-store sales, we include a restaurant in the comparable restaurant base after it has been in operation for more than 18 months.
|
(2)
|
Includes only those restaurants in the comparable restaurant base.
|
(3)
|
Restaurant operating profit is not a financial measurement determined in accordance with U.S. generally accepted accounting principles (see reconciliation below) and should not be considered in isolation or as an alternative to income (loss) from operations. Restaurant operating profit may not be comparable to the same or similarly titled measures computed by other companies. We believe restaurant operating profit is an important component of financial results because it is a widely used metric within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance. We use restaurant operating profit as a percentage of restaurant sales as a key metric to evaluate our restaurants’ financial performance compared with our competitors.
|
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
(In thousands)
|
||||||||||||
Restaurant sales
|
$ | 96,021 | $ | 93,657 | $ | 82,735 | ||||||
Costs and expenses:
|
||||||||||||
Cost of sales
|
26,246 | 25,579 | 22,459 | |||||||||
Labor
|
31,968 | 30,896 | 28,640 | |||||||||
Occupancy
|
6,253 | 6,573 | 6,523 | |||||||||
Restaurant operating expenses
|
13,534 | 13,977 | 12,923 | |||||||||
Restaurant operating profit
|
18,020 | 16,632 | 12,190 | |||||||||
Deduct – other costs and expenses
|
||||||||||||
General and administrative
|
7,037 | 8,395 | 7,072 | |||||||||
Preopening expense
|
— | — | 567 | |||||||||
Depreciation and amortization
|
5,749 | 5,856 | 5,612 | |||||||||
Insurance recoveries and other
|
(120 | ) | — | — | ||||||||
Income (loss) from operations
|
$ | 5,354 | $ | 2,381 | $ | (1,061 | ) |
Percent of Restaurant Sales
|
||||||||||||
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Restaurant sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Costs and expenses:
|
||||||||||||
Cost of sales
|
27.3 | 27.3 | 27.1 | |||||||||
Labor
|
33.3 | 33.0 | 34.6 | |||||||||
Occupancy
|
6.5 | 7.0 | 7.9 | |||||||||
Restaurant operating expenses
|
14.1 | 14.9 | 15.7 | |||||||||
Restaurant operating profit
|
18.8 | 17.8 | 14.7 | |||||||||
Deduct – other costs and expenses
|
||||||||||||
General and administrative
|
7.3 | 9.0 | 8.5 | |||||||||
Preopening expense
|
— | — | 0.7 | |||||||||
Depreciation and amortization
|
6.0 | 6.3 | 6.8 | |||||||||
Insurance recoveries and other
|
(0.1 | ) | — | — | ||||||||
Income (loss) from operations
|
5.6 | % | 2.5 | % | (1.3 | )% |
2012
|
2011
|
2010
|
||||||||||
Store Growth Activity
|
||||||||||||
Beginning Restaurants
|
23 | 25 | 24 | |||||||||
Openings
|
— | — | 1 | |||||||||
Closings
|
— | (2 | ) | — | ||||||||
Total
|
23 | 23 | 25 |
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Restaurant sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Costs and expenses:
|
||||||||||||
Cost of sales
|
27.3 | 27.3 | 27.1 | |||||||||
Labor
|
33.3 | 33.0 | 34.6 | |||||||||
Occupancy
|
6.5 | 7.0 | 7.9 | |||||||||
Restaurant operating expenses
|
14.1 | 14.9 | 15.7 | |||||||||
General and administrative
|
7.3 | 9.0 | 8.5 | |||||||||
Preopening expense
|
— | — | 0.7 | |||||||||
Depreciation and amortization
|
6.0 | 6.3 | 6.8 | |||||||||
Insurance recoveries and other
|
(0.1 | ) | — | — | ||||||||
Total costs and expenses
|
94.4 | 97.5 | 101.3 | |||||||||
Income (loss) from operations
|
5.6 | 2.5 | (1.3 | ) | ||||||||
Nonoperating income (expenses):
|
||||||||||||
Interest income and other, net
|
— | — | — | |||||||||
Interest expense
|
(0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||
Income (loss) from continuing operations before provision for income taxes
|
5.5 | 2.5 | (1.4 | ) | ||||||||
Provision for income taxes
|
— | — | — | |||||||||
Income (loss) from continuing operations
|
5.5 | 2.5 | (1.4 | ) | ||||||||
Loss from discontinued operations, net of tax
|
(0.5 | ) | (0.3 | ) | (0.5 | ) | ||||||
Net income (loss)
|
5.0 | % | 2.2 | % | (1.9 | )% |
|
·
|
timing of new restaurant openings and related expenses;
|
|
·
|
fluctuations in commodity and food protein prices;
|
|
·
|
restaurant operating costs and preopening costs for our newly-opened restaurants, which are often materially greater during the first several months of operation than thereafter;
|
|
·
|
labor availability and costs for hourly and management personnel;
|
|
·
|
profitability of our restaurants, especially in new markets;
|
|
·
|
increases and decreases in comparable restaurant sales;
|
|
·
|
impairment of long-lived assets and any loss on restaurant closures;
|
|
·
|
changes in borrowings and interest rates;
|
|
·
|
general economic conditions;
|
|
·
|
weather conditions or natural disasters;
|
|
·
|
timing of certain holidays;
|
|
·
|
changes in government regulations;
|
|
·
|
settlements, damages and legal costs associated with litigation;
|
|
·
|
new or revised regulatory requirements and accounting pronouncements; and
|
|
·
|
changes in consumer preferences and competitive conditions.
|
December 31,
|
||||||||
2012
|
2011
|
|||||||
Cash and short-term investments
|
$ | 8,166 | $ | 6,503 | ||||
Net working capital (deficit)
(1)
|
1,044 | (2,380 | ) |
(1) |
The working capital deficit at December 31, 2011 is primarily attributable to accruals for payroll and lease termination costs related to our two closed restaurants.
|
Year Ended December 31,
|
||||||||
2012
|
2011
|
|||||||
Cash provided by operating activities
|
$ | 7,336 | $ | 7,676 | ||||
Capital expenditures
|
1,794 | 1,492 |
2012
|
2011
|
2010
|
||||||||||
(In thousands)
|
||||||||||||
Net cash provided by (used in):
|
||||||||||||
Operating activities
|
$ | 7,336 | $ | 7,676 | $ | 4,718 | ||||||
Investing activities
|
(1,760 | ) | (1,538 | ) | 1,808 | |||||||
Financing activities
|
(3,914 | ) | (2,366 | ) | (6,375 | ) | ||||||
Net increase in cash and cash equivalents
|
$ | 1,662 | $ | 3,772 | $ | 151 |
Payments Due by Period
|
||||||||||||||||||||
Contractual Obligations
|
Total
|
Less than
1 year
|
1-3 years
|
3-5 years
|
More than
5 years
|
|||||||||||||||
Long-term notes payable, including current portion
|
$ | 370 | $ | 165 | $ | 205 | $ | — | $ | — | ||||||||||
Interest on notes payable
|
25 | 17 | 8 | — | — | |||||||||||||||
Operating leases
|
44,049 | 6,421 | 11,629 | 10,067 | 15,932 | |||||||||||||||
Total
|
$ | 44,444 | $ | 6,603 | $ | 11,842 | $ | 10,067 | $ | 15,932 |
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 8.
|
Financial Statements and Supplementary Data
|
Item 9.
|
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|
Item 9A.
|
Controls and Procedures
|
Item 9B.
|
Other Information
|
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
Item 11.
|
Executive Compensation
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
Item 14.
|
Principal Accountant Fees and Services
|
Item 15.
|
Exhibits and Financial Statement Schedules
|
|
(a)
|
The following documents are filed as a part of the report:
|
Exhibit
Number
|
Exhibit
|
3.1
|
Amended and Restated Certificate of Incorporation of the Registrant (2)
|
3.3
|
Amended and Restated Bylaws of Kona Grill, Inc., as of October 30, 2007 (6)
|
3.4
|
Certificate of Designations, Preferences, and Rights of Series A Junior Participating Preferred Stock of Kona Grill, Inc. (8)
|
4.1
|
Form of Common Stock Certificate (3)
|
10.10*
|
Kona Grill, Inc. 2002 Stock Plan (as of November 13, 2002) (1)
|
10.11*
|
Kona Grill, Inc. 2005 Stock Award Plan (2)
|
10.12*
|
Kona Grill, Inc. 2005 Employee Stock Purchase Plan (amended as of August 15, 2005) (4)
|
10.15*
|
Form of Stock Option Agreement (2005 Stock Award Plan) (5)
|
10.16*
|
Kona Grill, Inc. 2012 Stock Award Plan (12)
|
10.17
|
Securities Purchase Agreement, dated November 1, 2007, among Kona Grill, Inc. and the investor parties thereto (7)
|
10.30*
|
Employment Agreement, dated as of January 30, 2012, between the Company and Berke Bakay (9)
|
10.31*
|
Separation Agreement, dated as of February 6, 2012, between the Company and Michael A. Nahkunst (10)
|
10.32
|
Business Loan Agreement entered into as of February 8, 2012, Addendum to Business Loan Agreement and Promissory Note with Stearns Bank National Association as lender (Term Loan) (11)
|
10.33
|
Business Loan Agreement entered into as of February 8, 2012, Addendum to Business Loan Agreement and Promissory Note with Stearns Bank National Association as lender (Credit Line) (11)
|
Exhibit
Number
|
Exhibit
|
10.34
|
Amended Loan Documents dated July 24, 2012, between Kona Grill, Inc. as borrower and Stearns Bank National Association as lender (13)
|
10.35 | Mediated Settlement Agreement by and between Sugar Land Mall, LLC f/k/a GGP-Sugar Land Mall, LP and KDGE Kona Grill, Inc., Kona Grill, Inc. and Kona Texas Restaurant, Inc. f/k/a Texas Kona Grill, Inc. dated September 14, 2012 (14) |
10.36
|
Form of Stock Option Agreement (2012 Stock Award Plan)
|
21
|
List of Subsidiaries
|
23
|
Consent of Independent Registered Public Accounting Firm
|
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
|
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
|
32.1
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101
|
The following materials from Kona Grill Inc.’s Annual Report on Form 10-K for the years ended December 31, 2012, formatted in Extensive Business Reporting Language (XBRL), (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements. |
*
|
Management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.
|
(1)
|
Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-125506), as filed with the Commission on June 3, 2005.
|
(2)
|
Incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-125506), as filed on July 8, 2005.
|
(3)
|
Incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-125506), as filed on July 21, 2005.
|
(4)
|
Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-127593), as filed with the Commission on August 16, 2005.
|
(5)
|
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, as filed with the Commission on May 8, 2006.
|
(6)
|
Incorporated by reference to the Registrant’s Form 8-K filed on November 5, 2007.
|
(7)
|
Incorporated by reference to the Registrant’s Form 8-K filed on November 6, 2007.
|
(8)
|
Incorporated by reference to the Registrant’s Form 8-K filed on May 28, 2008.
|
(9)
|
Incorporated by reference to the Registrant’s Form 8-K filed on January 30, 2012.
|
(10)
|
Incorporated by reference to the Registrant’s Form 8-K filed on February 7, 2012.
|
(11)
|
Incorporated by reference to the Registrant’s Form 8-K filed on February 14, 2012.
|
(12)
|
Incorporated by reference to the Definitive Proxy Statement filed on March 16, 2012.
|
(13)
|
Incorporated by reference to the Registrant’s Form 8-K filed on July 30, 2012.
|
(14)
|
Incorporated by reference to the Registrant’s Form 8-K filed on September 14, 2012.
|
Kona Grill, Inc
.
|
|||
/s/ Berke Bakay | |||
Berke Bakay
President and Chief Executive Officer
|
Signature
|
Capacity
|
Date
|
|
/s/ Berke Bakay
|
President, Chief Executive Officer and Director |
March 15, 2013
|
|
Berke Bakay
|
(Principal Executive Officer) | ||
/s/ Christi Hing
|
Chief Financial Officer
|
March 15, 2013
|
|
Christi Hing
|
(Principal Financial and Accounting Officer)
|
||
/s/ Richard J. Hauser
|
Director
|
March 15, 2013
|
|
Richard J. Hauser
|
|||
/s/ James R. Jundt
|
Director
|
March 15, 2013
|
|
James R. Jundt
|
|||
/s/ Marcus E. Jundt
|
Director
|
March 15, 2013
|
|
Marcus E. Jundt
|
|||
/s/ Leonard Newman
|
Director
|
March 15, 2013
|
|
Leonard Newman | |||
/s/ Steven W. Schussler
|
Director
|
March 15, 2013
|
|
Steven W. Schussler | |||
/s/ Anthony L. Winczewski
|
Director
|
March 15, 2013
|
|
Anthony L. Winczewski
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated Balance Sheets
|
F-3
|
Consolidated Statements of Comprehensive Income (Loss)
|
F-4
|
Consolidated Statements of Stockholders’ Equity
|
F-5
|
Consolidated Statements of Cash Flows
|
F-6
|
Notes to Consolidated Financial Statements
|
F-7
|
/s/ Ernst & Young LLP
|
December 31,
|
||||||||
2012
|
2011
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 7,989 | $ | 6,327 | ||||
Investments
|
177 | 176 | ||||||
Receivables
|
286 | 3 | ||||||
Other current assets
|
1,134 | 1,203 | ||||||
Total current assets
|
9,586 | 7,709 | ||||||
Other assets
|
812 | 694 | ||||||
Property and equipment, net
|
28,927 | 32,944 | ||||||
Total assets
|
$ | 39,325 | $ | 41,347 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 1,851 | $ | 1,912 | ||||
Accrued expenses
|
6,526 | 8,045 | ||||||
Current portion of notes payable
|
165 | 132 | ||||||
Total current liabilities
|
8,542 | 10,089 | ||||||
Notes payable
|
205 | — | ||||||
Deferred rent
|
11,710 | 13,574 | ||||||
Total liabilities
|
20,457 | 23,663 | ||||||
Commitments and contingencies (Note 12)
|
||||||||
Stockholders’ equity:
|
||||||||
Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued
|
— | — | ||||||
Common stock, $0.01 par value, 15,000,000 shares authorized, 8,663,069 shares issued and 8,546,869 shares outstanding at December 31, 2012 and 9,071,923 shares issued and 8,955,723 shares outstanding at December 31, 2011
|
87 | 91 | ||||||
Additional paid-in capital
|
53,305 | 56,903 | ||||||
Accumulated deficit
|
(33,524 | ) | (38,310 | ) | ||||
Treasury stock, at cost, 116,200 shares at December 31, 2012 and 2011
|
(1,000 | ) | (1,000 | ) | ||||
Total stockholders’ equity
|
18,868 | 17,684 | ||||||
Total liabilities and stockholders’ equity
|
$ | 39,325 | $ | 41,347 |
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Restaurant sales
|
$ | 96,021 | $ | 93,657 | $ | 82,735 | ||||||
Costs and expenses:
|
||||||||||||
Cost of sales
|
26,246 | 25,579 | 22,459 | |||||||||
Labor
|
31,968 | 30,896 | 28,640 | |||||||||
Occupancy
|
6,253 | 6,573 | 6,523 | |||||||||
Restaurant operating expenses
|
13,534 | 13,977 | 12,923 | |||||||||
General and administrative
|
7,037 | 8,395 | 7,072 | |||||||||
Preopening expense
|
— | — | 567 | |||||||||
Depreciation and amortization
|
5,749 | 5,856 | 5,612 | |||||||||
Insurance recoveries and other
|
(120 | ) | — | — | ||||||||
Total costs and expenses
|
90,667 | 91,276 | 83,796 | |||||||||
Income (loss) from operations
|
5,354 | 2,381 | (1,061 | ) | ||||||||
Nonoperating income (expenses):
|
||||||||||||
Interest income and other, net
|
1 | 3 | 52 | |||||||||
Interest expense
|
(67 | ) | (61 | ) | (123 | ) | ||||||
Income (loss) from continuing operations before provision for income taxes
|
5,288 | 2,323 | (1,132 | ) | ||||||||
Provision for income taxes
|
36 | 9 | 10 | |||||||||
Income (loss) from continuing operations
|
5,252 | 2,314 | (1,142 | ) | ||||||||
Loss from discontinued operations, net of tax
|
(466 | ) | (288 | ) | (435 | ) | ||||||
Net income (loss)
|
$ | 4,786 | $ | 2,026 | $ | (1,577 | ) | |||||
Net income (loss) per share – Basic (Note 1):
|
||||||||||||
Continuing operations
|
$ | 0.60 | $ | 0.25 | $ | (0.12 | ) | |||||
Discontinued operations
|
(0.05 | ) | (0.03 | ) | (0.05 | ) | ||||||
Net income (loss)
|
$ | 0.55 | $ | 0.22 | $ | (0.17 | ) | |||||
Net income (loss) per share – Diluted (Note 1):
|
||||||||||||
Continuing operations
|
$ | 0.59 | $ | 0.24 | $ | (0.12 | ) | |||||
Discontinued operations
|
(0.05 | ) | (0.03 | ) | (0.05 | ) | ||||||
Net income (loss)
|
$ | 0.54 | $ | 0.21 | $ | (0.17 | ) | |||||
Weighted average shares outstanding (Note 1):
|
||||||||||||
Basic
|
8,726 | 9,242 | 9,167 | |||||||||
Diluted
|
8,868 | 9,428 | 9,167 | |||||||||
Comprehensive income (loss)
|
$ | 4,786 | $ | 2,026 | $ | (1,577 | ) |
|
Common Stock
|
Additional
Paid-in
|
Accumulated
|
Treasury
|
Stockholders’
|
|||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Stock
|
Equity
|
||||||||||||||||||
Balances at December 31,
2009
|
9,147 | $ | 93 | $ | 57,649 | $ | (38,759 | ) | $ | (1,000 | ) | $ | 17,983 | |||||||||||
Stock-based compensation
|
— | — | 474 | — | — | 474 | ||||||||||||||||||
Issuance of common stock under the Employee Stock Purchase Plan and exercise of stock options and warrants
|
40 | — | 109 | — | — | 109 | ||||||||||||||||||
Net loss
|
— | — | — | (1,577 | ) | — | (1,577 | ) | ||||||||||||||||
Other comprehensive income
|
— | — | — | — | — | — | ||||||||||||||||||
Total comprehensive loss
|
(1,577 | ) | ||||||||||||||||||||||
Balances at December 31,
2010
|
9,187 | 93 | 58,232 | (40,336 | ) | (1,000 | ) | 16,989 | ||||||||||||||||
Stock-based compensation
|
— | — | 531 | — | — | 531 | ||||||||||||||||||
Issuance of common stock under the Employee Stock Purchase Plan and exercise of stock options and warrants
|
197 | 2 | 559 | — | — | 561 | ||||||||||||||||||
Purchase and retirement of common stock
|
(428 | ) | (4 | ) | (2,419 | ) | — | — | (2,423 | ) | ||||||||||||||
Net income
|
— | — | — | 2,026 | — | 2,026 | ||||||||||||||||||
Other comprehensive income
|
— | — | — | — | — | — | ||||||||||||||||||
Total comprehensive income
|
2,026 | |||||||||||||||||||||||
Balances at December 31, 2011
|
8,956 | 91 | 56,903 | (38,310 | ) | (1,000 | ) | 17,684 | ||||||||||||||||
Stock-based compensation
|
— | — | 398 | — | — | 398 | ||||||||||||||||||
Issuance of common stock under the Employee Stock Purchase Plan and exercise of stock options and warrants
|
384 | 4 | 1,532 | — | — | 1,536 | ||||||||||||||||||
Purchase and retirement of common stock
|
(793 | ) | (8 | ) | (5,528 | ) | — | — | (5,536 | ) | ||||||||||||||
Net income
|
— | — | — | 4,786 | — | 4,786 | ||||||||||||||||||
Other comprehensive income
|
— | — | — | — | — | — | ||||||||||||||||||
Total comprehensive income
|
4,786 | |||||||||||||||||||||||
Balances at December 31, 2012
|
8,547 | $ | 87 | $ | 53,305 | $ | (33,524 | ) | $ | (1,000 | ) | $ | 18,868 |
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Operating activities
|
||||||||||||
Net income (loss)
|
$ | 4,786 | $ | 2,026 | $ | (1,577 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||||||
Depreciation and amortization
|
5,735 | 5,891 | 5,666 | |||||||||
Stock-based compensation
|
398 | 531 | 474 | |||||||||
Loss on disposal of assets
|
14 | 119 | 36 | |||||||||
Gain on insurance recoveries
|
(317 | ) | — | — | ||||||||
Change in operating assets and liabilities:
|
||||||||||||
Receivables
|
34 | 7 | 298 | |||||||||
Other current assets
|
69 | 9 | (101 | ) | ||||||||
Accounts payable
|
52 | (370 | ) | (296 | ) | |||||||
Accrued expenses
|
(1,571 | ) | 1,999 | 293 | ||||||||
Deferred rent
|
(1,864 | ) | (2,536 | ) | (75 | ) | ||||||
Net cash provided by operating activities
|
7,336 | 7,676 | 4,718 | |||||||||
Investing activities
|
||||||||||||
Purchase of property and equipment
|
(1,794 | ) | (1,492 | ) | (4,318 | ) | ||||||
Decrease (increase) in other assets
|
34 | (46 | ) | 18 | ||||||||
Sales of investments
|
— | — | 6,108 | |||||||||
Net cash (used in) provided by investing activities
|
(1,760 | ) | (1,538 | ) | 1,808 | |||||||
Financing activities
|
||||||||||||
Borrowings on term loan
|
500 | — | — | |||||||||
Debt repayments
|
(262 | ) | (504 | ) | (6,484 | ) | ||||||
Fees paid for credit facility
|
(152 | ) | — | — | ||||||||
Proceeds from issuance of common stock under the Employee Stock Purchase Plan and exercise of stock options and warrants
|
1,536 | 561 | 109 | |||||||||
Purchase and retirement of common stock
|
(5,536 | ) | (2,423 | ) | — | |||||||
Net cash used in financing activities
|
(3,914 | ) | (2,366 | ) | (6,375 | ) | ||||||
Net increase in cash and cash equivalents
|
1,662 | 3,772 | 151 | |||||||||
Cash and cash equivalents at the beginning of the year
|
6,327 | 2,555 | 2,404 | |||||||||
Cash and cash equivalents at the end of the year
|
$ | 7,989 | $ | 6,327 | $ | 2,555 | ||||||
Supplemental disclosures of cash flow information
|
||||||||||||
Cash paid for interest (net of capitalized interest)
|
$ | 26 | $ | 31 | $ | 83 | ||||||
Cash paid for income taxes, net of refunds
|
$ | 64 | $ | 97 | $ | 87 | ||||||
Noncash investing activities
|
||||||||||||
Accounts payable and accrued expenses related to property and equipment purchases
|
$ | 214 | $ | 275 | $ | 272 |
Level 1:
|
Fair values determined by quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access.
|
Level 2:
|
Fair values utilize inputs other than quoted prices that are observable for the asset or liability, and may include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability.
|
Level 3:
|
Fair values determined by unobservable inputs that are not corroborated by market data and may reflect the reporting entity’s own assumptions market participants would use in pricing the asset or liability.
|
(years) | ||||
Furniture and fixtures
|
5 | - |
7
|
|
Equipment
|
7 |
|
||
Computer software and electronic equipment
|
3 |
|
Leasehold improvements
|
Shorter of the useful life or the lease term
|
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
(In thousands, except per share data)
|
||||||||||||
Numerator:
|
||||||||||||
Income (loss) from continuing operations
|
$
|
5,252
|
$
|
2,314
|
$
|
(1,142
|
)
|
|||||
Loss from discontinued operations, net of tax
|
(466
|
)
|
(288
|
)
|
(435
|
)
|
||||||
Net income (loss)
|
$
|
4,786
|
$
|
2,026
|
$
|
(1,577
|
)
|
|||||
Denominator:
|
||||||||||||
Weighted average shares — basic
|
8,726
|
9,242
|
9,167
|
|||||||||
Effect of dilutive stock options and warrants
|
142
|
186
|
—
|
|||||||||
Weighted average shares — diluted
|
8,868
|
9,428
|
9,167
|
|||||||||
Net income (loss) per share – Basic:
|
||||||||||||
Continuing operations
|
$
|
0.60
|
$
|
0.25
|
$
|
(0.12
|
)
|
|||||
Discontinued operations
|
(0.05
|
)
|
(0.03
|
)
|
(0.05
|
)
|
||||||
Net income (loss)
|
$
|
0.55
|
$
|
0.22
|
$
|
(0.17
|
)
|
|||||
Net income (loss) per share – Diluted:
|
||||||||||||
Continuing operations
|
$
|
0.59
|
$
|
0.24
|
$
|
(0.12
|
)
|
|||||
Discontinued operations
|
(0.05
|
)
|
(0.03
|
)
|
(0.05
|
)
|
||||||
Net income (loss)
|
$
|
0.54
|
$
|
0.21
|
$
|
(0.17
|
)
|
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Restaurant sales
|
$ | — | $ | 3,317 | $ | 4,855 | ||||||
Loss from discontinued operations before income tax benefit
|
$ | 478 | $ | 297 | $ | 435 | ||||||
Income tax benefit
|
(12 | ) | (9 | ) | — | |||||||
Loss from discontinued operations, net of tax
|
$ | 466 | $ | 288 | $ | 435 |
Balance at December 31, 2010
|
$ | — | ||
Additions
|
1,261 | |||
Cash payments
|
(703 | ) | ||
Non-cash adjustments
|
60 | |||
Balance at December 31, 2011
|
618 | |||
Additions
|
431 | |||
Cash payments
|
(1,049 | ) | ||
Non-cash adjustments
|
— | |||
Balance at December 31, 2012
|
$ | — |
Adjusted
Cost
|
Gross Unrealized Losses
|
Estimated
Fair Value
|
||||||||||
December 31, 2012
|
||||||||||||
Short-term investments:
|
||||||||||||
Certificates of deposit
|
$ | 177 | $ | — | $ | 177 | ||||||
Total investments
|
$ | 177 | $ | — | $ | 177 | ||||||
December 31, 2011
|
||||||||||||
Short-term investments:
|
||||||||||||
Certificates of deposit
|
$ | 176 | $ | — | $ | 176 | ||||||
Total investments
|
$ | 176 | $ | — | $ | 176 |
December 31, 2012
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Certificates of deposit
|
$ | — | $ | 177 | $ | — | $ | 177 |
December 31, 2011
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Certificates of deposit
|
$ | — | $ | 176 | $ | — | $ | 176 |
December 31,
|
||||||||
2012
|
2011
|
|||||||
Leasehold improvements
|
$ | 49,420 | $ | 48,447 | ||||
Equipment
|
13,791 | 13,465 | ||||||
Furniture and fixtures
|
3,611 | 3,590 | ||||||
66,822 | 65,502 | |||||||
Less accumulated depreciation and amortization
|
(37,931 | ) | (32,558 | ) | ||||
28,891 | 32,944 | |||||||
Construction in progress
|
36 | — | ||||||
Total property and equipment, net
|
$ | 28,927 | $ | 32,944 |
December 31,
|
||||||||
2012
|
2011
|
|||||||
Accrued payroll
|
$ | 2,479 | $ | 3,121 | ||||
Gift cards
|
1,351 | 1,243 | ||||||
Sales taxes
(1)
|
1,332 | 959 | ||||||
Lease termination accrual
|
— | 618 | ||||||
Business and income taxes
|
312 | 548 | ||||||
Accrued occupancy
|
328 | 471 | ||||||
Other
|
724 | 1,085 | ||||||
Total accrued expenses
|
$ | 6,526 | $ | 8,045 |
(1)
|
As of December 31, 2012, Sales taxes includes a net sales tax adjustment and interest of $274,000 associated with a sales tax audit settlement during 2012 pertaining to prior years that was not material to those years or the current year. The net sales tax amount is included in Insurance Recoveries and Other and the interest is included in Interest Expense.
|
2013
|
$
|
165
|
||
2014
|
175
|
|||
2015
|
|
30
|
||
Total notes payable
|
$
|
370
|
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Current:
|
||||||||||||
Federal
|
$ | — | $ | — | $ | — | ||||||
State
|
36 | 9 | 10 | |||||||||
36 | 9 | 10 | ||||||||||
Deferred:
|
||||||||||||
Federal
|
— | — | — | |||||||||
State
|
— | — | — | |||||||||
— | — | — | ||||||||||
Total
|
$ | 36 | $ | 9 | $ | 10 |
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Income tax expense (benefit) at federal statutory rate
|
$ | 1,798 | $ | 790 | $ | (385 | ) | |||||
State income taxes, net of federal benefit
|
56 | (72 | ) | (68 | ) | |||||||
Nondeductible expenses
|
365 | 447 | 335 | |||||||||
Stock based compensation | 146 | 201 | 574 | |||||||||
Business tax credit
|
(1,018 | ) | (1,067 | ) | (862 | ) | ||||||
Other
(1)
|
(120 | ) | (85 | ) | (209 | ) | ||||||
Change in valuation reserve
|
(1,191 | ) | (205 | ) | 625 | |||||||
Total
|
$ | 36 | $ | 9 | $ | 10 |
(1)
|
For the year ended December 31, 2012 and 2011, Other includes $48,000 and $85,000, respectively, for the reduction in unrecognized tax benefits due to the lapse of the statute of limitations. For the year ended December 31, 2010, Other primarily reflects $169,000 for the change in tax benefit from accumulated state net operating losses and $39,000 for the reduction in unrecognized tax benefits due to the lapse of the statute of limitations
.
|
December 31,
|
||||||||
2012
|
2011
|
|||||||
Deferred tax assets (liabilities):
|
||||||||
Net operating loss carryforward
|
$ | 1,622 | $ | 3,025 | ||||
Deferred rent
|
4,393 | 5,001 | ||||||
Business tax credits
|
6,811 | 5,794 | ||||||
Organizational and preopening costs
|
58 | 68 | ||||||
Impairment of assets
|
3,069 | 3,695 | ||||||
Stock-based compensation
|
265 | 402 | ||||||
Accrued expenses
|
— | 430 | ||||||
Property and equipment
|
(2,142 | ) | (2,585 | ) | ||||
Accelerated tax depreciation
|
2,495 | 1,820 | ||||||
Other
|
212 | 157 | ||||||
Net deferred tax assets
|
16,783 | 17,807 | ||||||
Valuation allowance
|
(16,783 | ) | (17,807 | ) | ||||
Total
|
$ | — | $ | — |
December 31,
|
||||||||
2012
|
2011
|
|||||||
Beginning balance
|
$ | 36 | $ | 101 | ||||
Additions related to current year tax positions
|
— | — | ||||||
Additions related to tax positions taken during the prior period
|
— | — | ||||||
Reductions related to settlements with taxing authorities
|
— | — | ||||||
Reductions due to lapse of statute of limitations
|
(35 | ) | (65 | ) | ||||
Ending balance
|
$ | 1 | $ | 36 |
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Stock-based compensation
|
$ | 398,000 | $ | 531,000 | $ | 474,000 |
2012
|
2011
|
2010
|
||||||||||
Expected volatility
|
58.5 | % | 59.9 | % | 64.0 | % | ||||||
Risk-free interest rate
|
0.6 | % | 1.2 | % | 1.6 | % | ||||||
Dividend yield
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
Expected life (in years)
|
3.6 | 3.6 | 3.6 | |||||||||
Weighted average fair value per option granted
|
$ | 2.87 | $ | 2.57 | $ | 1.63 |
Shares Under Option
|
Weighted
Average Exercise Price
|
Weighted Average
Remaining Contractual Term
(in years)
|
Aggregate Intrinsic Value | |||||||||
Outstanding options at December 31, 2009
|
854,856 | $ | 7.67 | |||||||||
Granted
|
243,750 | 3.44 | ||||||||||
Forfeited
|
(185,150 | ) | 9.53 | |||||||||
Exercised
|
(28,650 | ) | 2.38 | |||||||||
Outstanding options at December 31, 2010
|
884,806 | 6.28 | ||||||||||
Granted
|
485,750 | 5.80 | ||||||||||
Forfeited
|
(252,450 | ) | 8.55 | |||||||||
Exercised
|
(217,125 | ) | 3.18 | |||||||||
Outstanding options at December 31, 2011
|
900,981 | 6.13 | ||||||||||
Granted
|
402,800 | 6.66 | ||||||||||
Forfeited
|
(350,500 | ) | 8.07 | |||||||||
Exercised
|
(279,339 | ) | 4.55 | |||||||||
Outstanding options at December 31, 2012
|
673,942 | $ | 6.09 |
3.3
|
$ |
1,898,000
|
||||||
Exercisable at December 31, 2012
|
213,167 | $ | 5.85 |
2.2
|
$ |
710,000
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||
Range of
Exercise Prices
|
Shares
|
Weighted Average Remaining Contractual
Life (years)
|
Weighted Average
Exercise Price
|
Shares
|
Weighted Average
Exercise Price
|
|||||||||||||||||
$1.92 | – | $ 4.99 | 186,450 | 2.3 | $ | 3.73 | 79,850 | $ | 3.13 | |||||||||||||
$5.15 | – | $ 7.65 | 442,075 | 4.6 | $ | 6.50 | 87,900 | $ | 5.50 | |||||||||||||
$11.72 | – | $11.79 | 45,417 | 0.1 | $ | 11.78 | 45,417 | $ | 11.78 | |||||||||||||
673,942 | 3.3 | $ | 6.09 | 213,167 | $ | 5.85 |
Year Ended December 31,
|
||||||||||||
2012
|
2011
|
2010
|
||||||||||
Straight-line minimum base rent
|
$
|
5,992
|
$
|
6,236
|
$
|
6,218
|
||||||
Contingent rent
|
128
|
159
|
39
|
|||||||||
Total rent
|
$
|
6,120
|
$
|
6,395
|
$
|
6,257
|
2013
|
$ | 6,421 | ||
2014
|
6,002 | |||
2015
|
5,627 | |||
2016
|
5,677 | |||
2017
|
4,390 | |||
Thereafter
|
15,932 | |||
Total minimum lease payments
|
$ | 44,049 |
2012
|
||||||||||||||||
March 31
|
June 30
|
September 30
|
December 31
|
|||||||||||||
Restaurant sales
|
$ | 24,155 | $ | 24,992 | $ | 23,887 | $ | 22,987 | ||||||||
Income from continuing operations
|
1,184 | 1,814 | 1,370 | 884 | ||||||||||||
Loss from discontinued operations
|
— | (47 | ) | (386 | ) | (33 | ) | |||||||||
Net income
|
1,184 | 1,767 | 984 | 851 | ||||||||||||
Diluted net income per share
(1)
|
$ | 0.13 | $ | 0.20 | $ | 0.11 | $ | 0.10 |
2011
|
||||||||||||||||
March 31
|
June 30
|
September 30
|
December 31
|
|||||||||||||
Restaurant sales
|
$ | 22,242 | $ | 24,512 | $ | 23,838 | $ | 23,065 | ||||||||
(Loss) income from continuing operations
|
(28 | ) | 860 | 735 | 747 | |||||||||||
Loss from discontinued operations
|
(64 | ) | (78 | ) | (146 | ) | — | |||||||||
Net (loss) income
|
(92 | ) | 782 | 589 | 747 | |||||||||||
Diluted net (loss) income per share
(1)
|
$ | (0.01 | ) | $ | 0.08 | $ | 0.06 | $ | 0.08 |
(1) |
Net (loss) income per share calculations for each quarter are based on the weighted average diluted shares outstanding for that quarter and may not total to the full year amount.
|
Name:
|
|
Address:
|
Name of Company
|
State of Incorporation
|
State(s) of Qualification
|
Kona Restaurant Holdings, Inc. (1)
|
Delaware
|
|
Kona Macadamia, Inc. (2)
|
Delaware
|
Colorado
|
Connecticut
|
||
Florida
|
||
Indiana
|
||
Louisiana
|
||
Ohio
|
||
Michigan
|
||
Missouri
|
||
Nevada
|
||
New Jersey
|
||
Kona Sushi, Inc. (2)
|
Arizona
|
Illinois
|
Minnesota
|
||
Nebraska
|
||
Virginia
|
||
Kona Texas Restaurants, Inc. (2)
|
Texas
|
|
Kona Baltimore, Inc. (3)
|
Maryland
|
(1)
|
Registration Statement (Form S-3 No. 333-147362) of Kona Grill, Inc., pertaining to the resale of securities held by certain stockholders,
|
(2)
|
Registration Statement (Form S-8 No. 333-127593) pertaining to the Kona Grill, Inc. 2005 Employee Stock Purchase Plan,
|
(3)
|
Registration Statement (Form S-8 No. 333-127594) pertaining to the Kona Grill, Inc. 2005 Stock Award Plan,
|
(4)
|
Registration Statement (Form S-8 No. 333-127596) pertaining to the Kona Grill, Inc. 2002 Stock Plan, and
|
(5)
|
Registration Statement (Form S-3 No. 333-158278) of Kona Grill, Inc., pertaining to the registration of rights to purchase shares of its common stock and the issuance of such shares upon exercise of the rights;
|
/s/ Ernst & Young LLP
|
1.
|
I have reviewed this report on Form 10-K of Kona Grill, Inc.;
|
2.
|
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: March 15, 2013
|
/s/ Berke Bakay | |
Berke Bakay
Chief Executive Officer
|
1.
|
I have reviewed this report on Form 10-K of Kona Grill, Inc.;
|
2.
|
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: March 15, 2013
|
/s/ Christi Hing | |
Christi Hing
Chief Financial Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Berke Bakay | ||
Berke Bakay
Chief Executive Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Christi Hing | ||
Christi Hing
Chief Financial Officer
|