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Kona Grill Reports Third Quarter 2012 Financial Results

18.5% Restaurant Operating Profit Margin Helps Drive Income From Continuing Operations of $0.16 per Share

SCOTTSDALE, AZ -- (Marketwire) -- 11/05/12 -- Kona Grill, Inc. (NASDAQ: KONA), an American grill and sushi bar, reported results for its third quarter ended September 30, 2012.

Third Quarter 2012 Highlights vs. Year-Ago Quarter:

  • Restaurant sales increased to $23.9 million from $23.8 million;
  • Same-store sales increased 20 basis points, lapping 10.6% same-store sales growth;
  • Restaurant operating profit margin increased 20 basis points to 18.5%;
  • Income from continuing operations increased 86% to $1.4 million; and
  • Net income increased 67% to $984,000 or $0.11 per share, compared to $589,000 or $0.06 per share.

"Our comps during the quarter represent the eighth consecutive quarter of positive same-store sales and eleventh consecutive quarter of positive traffic," said Berke Bakay, president and CEO of Kona Grill. "We continue to drive positive traffic with the execution of our innovative menu offerings and guest service initiatives. Despite a challenging sales environment in the quarter, we were able to deliver a healthy operating margin of 18.5%. For the first nine months of the year, Kona's 19.3% operating margin remains at the top of our peer group and we've grown income from continuing operations 179% to $4.4 million.

"For the remainder of 2012, we will remain focused on providing innovative food and quality service that differentiates the Kona Grill brand. We continue to work diligently on our real estate pipeline and are currently evaluating several prospective locations. We will update our target for new restaurant openings once leases are executed. We remain confident in our go-forward strategy."

Third Quarter 2012 Financial Results
Restaurant sales in the third quarter of 2012 were $23.9 million compared to $23.8 million in the third quarter or 2011. The sales improvement reflects a 0.2% increase in same-store sales, driven by a 2.3% increase in guest traffic, partially offset by a 2.0% decrease in average guest check as a result of the company's happy hour initiatives. The 0.2% increase in same-store sales laps a 10.6% increase in the third quarter of 2011.

Total restaurant operating expenses in the third quarter of 2012 remained constant at $19.5 million compared to the third quarter of 2011. Restaurant operating profit in the third quarter of 2012 increased 1.3% to $4.4 million compared to the year-ago quarter. As a percentage of sales, restaurant operating profit increased 20 basis points to 18.5% compared to 18.3% in the year-ago quarter.

In September 2012, the company settled lease obligation costs associated with the closure of the Sugar Land restaurant for $950,000. As a result of the settlement, the company recognized a charge for $386,000 or $0.05 per share due to incremental lease termination costs and related legal fees. These costs are included in discontinued operations for the third quarter of 2012.

Income from continuing operations increased 86% to $1.4 million or $0.16 per share in the third quarter of 2012, compared to $735,000 or $0.08 per share in the year-ago quarter. Net income in the third quarter of 2012 increased 67% to $984,000 or $0.11 per share, compared to net income of $589,000 or $0.06 per share in the year-ago quarter.

During the third quarter, the company repurchased 192,000 shares at an average cost of $8.13 per share under its $5.0 million stock repurchase program, which was initiated in May 2012. In total, the company has repurchased 287,000 shares for $2.3 million under the current program.

At September 30, 2012, cash and cash equivalents totaled $6.4 million compared to $6.3 million at December 31, 2011. The cash balance at September 30, 2012 included the aforementioned settlement. Total debt was $0.4 million at September 30, 2012 compared to $0.1 million at December 31, 2011. The company has not drawn on its $6.5 million credit line.

Financial Guidance
For the fourth quarter of 2012, Kona Grill expects same-store sales of 1.0%, excluding the impact of Hurricane Sandy on four restaurants and the remodel of its Chandler, Arizona restaurant. With the aforementioned items, restaurant sales are expected to be flat at $23.1 million. The company also expects net income of $0.8 million, or $0.09 per share, compared to net income of $0.7 million, or $0.08 per share, for the fourth quarter of 2011.

For fiscal year 2012, the company expects to more than double its earnings with net income of $4.7 million, or $0.52 per share, compared to 2011 net income of $2.0 million, or $0.21 per share. The company expects 2012 income from continuing operations to increase 123% to $5.2 million compared to income from continuing operations of $2.3 million in 2011.

Conference Call
The company will host a conference call to discuss these results today at 5:00 p.m. Eastern time.

Dial toll-free: 1-877-941-2068
Toll/international: 1-480-629-9712
Conference ID#: 4568022

The conference call will be broadcast simultaneously and available for replay via the Investor Relations section of the company's website at www.konagrill.com.

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

A replay of the call will be available after 8:00 p.m. Eastern time on the same day through Wednesday, December 5, 2012.

Toll-free replay number: 1-877-870-5176
Toll/International replay number: 1-858-384-5517
Replay pin #: 4568022

About Kona Grill
Kona Grill (NASDAQ: KONA) features American favorites with an international influence and award-winning sushi in a casually elegant atmosphere. Kona Grill owns and operates 23 restaurants, guided by a passion for quality food and personal service. Restaurants are currently located in 16 states: Arizona (Chandler, Gilbert, Phoenix, Scottsdale); Colorado (Denver); Connecticut (Stamford); Florida (Tampa); Illinois (Lincolnshire, Oak Brook); Indiana (Carmel); Louisiana (Baton Rouge); Maryland (Baltimore); Michigan (Troy); Minnesota (Eden Prairie); Missouri (Kansas City); Nebraska (Omaha); New Jersey (Woodbridge); Nevada (Las Vegas); Texas (Austin, Dallas, Houston, San Antonio); Virginia (Richmond). For more information, visit www.konagrill.com.

Forward-Looking Statements
The financial guidance we provide for our fourth quarter and fiscal year 2012 results, statements about our beliefs regarding profits and stockholder value, and certain other statements contained in this press release are forward-looking. Forward-looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events, or performance and underlying assumptions and other statements that are not purely historical. We have attempted to identify these statements by using forward-looking terminology such as "may," "will," "anticipates," "expects," "believes," "intends," "should," or comparable terms. All forward-looking statements included in this press release are based on information available to us on the date of this release and we assume no obligation to update these forward-looking statements for any reason. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements and the discussion of risk factors contained in the company's filings with the Securities and Exchange Commission.

                              KONA GRILL, INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                               (in thousands)

                                                September 30,  December 31,
                                                    2012           2011
                                               -------------- --------------
                                                 (Unaudited)

ASSETS
  Current assets                               $        8,154 $        7,709
  Other assets                                            822            694
  Property and equipment, net                          29,504         32,944
                                               -------------- --------------
  Total assets                                 $       38,480 $       41,347
                                               ============== ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities                          $        7,508 $       10,089
  Long-term obligations                                12,448         13,574
  Stockholders' equity                                 18,524         17,684
                                               -------------- --------------
  Total liabilities and stockholders' equity   $       38,480 $       41,347
                                               ============== ==============



                              KONA GRILL, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                   (in thousands, except per share data)

                                  Three Months Ended    Nine Months Ended
                                     September 30,         September 30,
                                 --------------------  --------------------
                                    2012       2011       2012       2011
                                 ---------  ---------  ---------  ---------
                                      (Unaudited)           (Unaudited)

Restaurant sales                 $  23,887  $  23,838  $  73,035  $  70,591
Costs and expenses:
  Cost of sales                      6,540      6,404     19,849     19,336
  Labor                              8,040      7,815     24,199     23,365
  Occupancy                          1,569      1,742      4,650      5,125
  Restaurant operating expenses      3,310      3,506     10,248     10,542
  General and administrative         1,761      2,117      5,365      6,147
  Gain on insurance recoveries        (101)         -       (101)         -
  Depreciation and amortization      1,392      1,474      4,311      4,419
                                 ---------  ---------  ---------  ---------
Total costs and expenses            22,511     23,058     68,521     68,934
                                 ---------  ---------  ---------  ---------
Income from operations               1,376        780      4,514      1,657
Nonoperating income (expense):
  Interest income and other, net         -          -          -          2
  Interest expense                      (6)       (26)       (26)       (47)
                                 ---------  ---------  ---------  ---------
Income from continuing
 operations before provision for
 income taxes                        1,370        754      4,488      1,612
Provision for income taxes               -         19        120         44
                                 ---------  ---------  ---------  ---------
Income from continuing
 operations                          1,370        735      4,368      1,568
Loss from discontinued
 operations, net of tax               (386)      (146)      (433)      (288)
                                 ---------  ---------  ---------  ---------
Net income                       $     984  $     589  $   3,935  $   1,280
                                 =========  =========  =========  =========

Net income per share - Basic
  Income from continuing
   operations                    $    0.16  $    0.08  $    0.50  $    0.17
  Loss from discontinued
   operations, net of tax            (0.05)     (0.02)     (0.05)     (0.03)
                                 ---------  ---------  ---------  ---------
  Net income                     $    0.11  $    0.06  $    0.45  $    0.14
                                 =========  =========  =========  =========

Net income per share - Diluted
  Income from continuing
   operations                    $    0.16  $    0.08  $    0.49  $    0.17
  Loss from discontinued
   operations, net of tax            (0.05)     (0.02)     (0.05)     (0.03)
                                 ---------  ---------  ---------  ---------
  Net income                     $    0.11  $    0.06  $    0.44  $    0.14
                                 =========  =========  =========  =========

Weighted average shares
 outstanding:
  Basic                              8,710      9,256      8,776      9,224
                                 =========  =========  =========  =========
  Diluted                            8,808      9,454      8,956      9,398
                                 =========  =========  =========  =========

Comprehensive income             $     984  $     589  $   3,935  $   1,280
                                 =========  =========  =========  =========


Reconciliation of Restaurant Operating Profit to Income from Operations

The Company defines restaurant operating profit to be restaurant sales minus cost of sales, labor, occupancy, and restaurant operating expenses. Restaurant operating profit does not include general and administrative expenses, gain on insurance recoveries and depreciation and amortization. The Company believes 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. The Company uses restaurant operating profit as a key metric to evaluate its restaurants' financial performance compared with its competitors. Restaurant operating profit is not a financial measurement determined in accordance with generally accepted accounting principles ("GAAP") and should not be considered in isolation or as an alternative to income from operations. Restaurant operating profit may not be comparable to the same or similarly titled measures computed by other companies. The table below sets forth the Company's calculation of restaurant operating profit and a reconciliation to income from operations, the most comparable GAAP measure (in thousands).

                                  Three Months Ended    Nine Months Ended
                                     September 30,         September 30,
                                 --------------------  --------------------
                                    2012       2011       2012       2011
                                 ---------  ---------  ---------  ---------

Restaurant sales                 $  23,887  $  23,838  $  73,035  $  70,591
Costs and expenses:
  Cost of sales                      6,540      6,404     19,849     19,336
  Labor                              8,040      7,815     24,199     23,365
  Occupancy                          1,569      1,742      4,650      5,125
  Restaurant operating expenses      3,310      3,506     10,248     10,542
                                 ---------  ---------  ---------  ---------
Restaurant operating profit          4,428      4,371     14,089     12,223
                                 ---------  ---------  ---------  ---------
Deduct - other costs and
 expenses:
  General and administrative         1,761      2,117      5,365      6,147
  Gain on insurance recoveries        (101)         -       (101)         -
  Depreciation and amortization      1,392      1,474      4,311      4,419
                                 ---------  ---------  ---------  ---------
Income from operations           $   1,376  $     780  $   4,514  $   1,657
                                 =========  =========  =========  =========


                                     Percentage of         Percentage of
                                   Restaurant Sales      Restaurant Sales
                                 --------------------  --------------------
                                  Three Months Ended    Nine Months Ended
                                     September 30,         September 30,
                                 --------------------  --------------------
                                    2012       2011       2012       2011
                                 ---------  ---------  ---------  ---------

Restaurant sales                     100.0%     100.0%     100.0%     100.0%
Costs and expenses:
  Cost of sales                       27.4       26.9       27.2       27.4
  Labor                               33.7       32.8       33.1       33.1
  Occupancy                            6.6        7.3        6.4        7.3
  Restaurant operating expenses       13.8       14.7       14.0       14.9
                                 ---------  ---------  ---------  ---------
Restaurant operating profit           18.5       18.3       19.3       17.3
                                 ---------  ---------  ---------  ---------
Deduct - other costs and
 expenses:
  General and administrative           7.4        8.9        7.3        8.7
  Gain on insurance recoveries        (0.4)         -       (0.1)         -
  Depreciation and amortization        5.8        6.2        5.9        6.3
                                 ---------  ---------  ---------  ---------
Income from operations                 5.7%       3.3%       6.1%       2.3%
                                 =========  =========  =========  =========

Certain amounts do not sum to total due to rounding

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Kona Grill Investor Relations Contact:
Liolios Group, Inc.
Cody Slach
Tel 1-949-574-3860
Email Contact

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