8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

March 2, 2006

Date of Report (Date of earliest event reported)

KONA GRILL, INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	000-51491	20-0216690
(State or Other	(Commission File Number)	(IRS Employer
Jurisdiction of Incorporation)		Identification No.)

7150 East Camelback Road, Suite 220
Scottsdale, Arizona 85251

(Address of Principal Executive Offices)(Zip Code)

(480) 922-8100

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

KONA GRILL, INC.

FORM 8-K

CURRENT REPORT

Item 2.02. Results of Operations and Financial Condition.

     On March 2, 2006, Kona Grill, Inc. issued a press release reporting financial results for the fourth quarter and year ended December 31, 2005. A copy of this press release, including information concerning forward looking statements and factors that may affect our future results, is attached hereto as Exhibit 99.1 and is hereby incorporated by reference in this Item 2.02.

     The information in this Report on Form 8-K (including the exhibit) is furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.

     The registrant does not have, and expressly disclaims, any obligation to release publicly any updates or any changes in the registrant’s expectations or any change in events, conditions, or circumstances on which any forward-looking statement is based.

Item 9.01. Financial Statements and Exhibits.

(a)	Financial Statements of Business Acquired.
	Not applicable.
(b)	Pro Forma Financial Information.
	Not applicable.
(c)	Exhibits.

99.1 Press release from Kona Grill, Inc. dated March 2, 2006 entitled, “Kona Grill Reports Fourth Quarter and Full Year 2005 Results”

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: March 3, 2006	KONA GRILL, INC.
	By:	/s/ Mark S. Robinow
		Mark S. Robinow
		Executive Vice President, Chief Financial Officer, and Secretary

EXHIBIT INDEX

Exhibit
Number	Description
99.1	Press Release from Kona Grill, Inc. dated March 2, 2006 entitled, “Kona Grill Reports Fourth Quarter and Full Year 2005 Results”

EX-99.1

Exhibit 9.9.1

Investor Relations Contact:
Don Duffy
203.682.8200

Kona Grill Reports Fourth Quarter and Full Year 2005 Results
Fourth Quarter Same-Store Sales Increased 3.3%; $0.01 of Diluted EPS
Company Reiterates 2006 Guidance

SCOTTSDALE—(BUSINESS WIRE)—March 2, 2006—Kona Grill, Inc. (Nasdaq: KONA), an American Grill and sushi bar, today reported results for its fourth quarter and full year ended December 31, 2005.

Highlights for the fourth quarter of 2005 include:

• Revenue increased 37.0% to $10.4 million

• Same-store sales increased 3.3%

• Restaurant operating profit increased 42.5% to $2.1 million

• Net income of $0.1 million, or $0.01 per basic and diluted share

Highlights for the full year 2005 include:

• Revenue increased 47.0% to $36.8 million

• Same-store sales increased 4.2%

• Restaurant operating profit increased 58.0% to $8.0 million

• Net loss of ($0.4) million, or ($0.13) per basic and diluted share

“Our fourth quarter results exceeded our expectations, due to a robust top line and margin gains at both the restaurant and consolidated level. Despite the short-term challenges we face at our Sugarland, Texas location, we were still able to generate one of the highest restaurant operating profit margins in the industry during 2005. We believe our ability to maintain this momentum provides us with a solid foundation on which we can build both profits and shareholder value over time,” said Marcus E. Jundt, Chairman of the Board, interim Chief Executive Officer and President of Kona Grill.

Fourth Quarter Financial Results
Revenue increased 37.0% to $10.4 million during the fourth quarter of 2005 from $7.6 million during the same period last year, primarily as a result of $2.7 million in incremental revenue associated with the opening of five new restaurants since July 2004, and a 3.3% increase in same store sales.

Average weekly sales for the four restaurants in the comparable base were $109,068 during the fourth quarter of 2005, compared to $105,608 in the prior year period. Average weekly sales for restaurants not in the comparable base were $73,660 during the fourth quarter this year versus $78,496 last year. Average weekly sales during the fourth quarter of 2005 were impacted by lower than projected sales volumes at the Sugarland, Texas restaurant. Excluding the Sugarland restaurant, average weekly sales for restaurants not in the comparable base were $80,232 during the fourth quarter of 2005.

Net income for the fourth quarter of 2005 was $0.1 million, or $0.01 per diluted share, based upon 5.9 million diluted shares, versus a net loss of ($0.7) million, or ($0.48) per diluted share last year, based upon 1.5 million diluted shares.

Full Year 2005 Financial Results
Revenue increased 47.0% to $36.8 million during 2005 from $25.1 million in the same period last year, primarily as a result of $11.0 million in additional revenue associated with the opening of three restaurants during the second half of 2004 and two restaurants during the third quarter of 2005, as well as a 4.2% increase in same store sales.

Net loss for the year ended December 31, 2005 was ($0.4) million, or ($0.13) per basic and diluted share, based upon 3.0 million shares. This compares to net income of $0.3 million, or $0.19 per basic share, based upon 1.5 million basic shares, and $0.17 per diluted share, based upon 2.8 million diluted shares, in the prior year.

Financial Guidance
For the first quarter of 2006, the Company expects revenue of $9.8 million to $10.1 million and a net loss per share of ($0.18) to ($0.21) including the previously announced charge of approximately $0.09 per share related to the resignation of the Company’s former CEO. This range excludes the estimated impact of adopting Statement of Financial Accounting Standards No. 123R “Share-Based Payment” (SFAS No. 123R), which requires the expensing of stock options issued to employees. The impact of SFAS No. 123R is estimated to be $0.03 to $0.04 per diluted share for the first quarter of 2006.

For fiscal year 2006, the Company continues to anticipate revenue of $49 million to $51 million and a net loss per share of ($0.52) to ($0.61) including the previously announced charge of approximately $0.09 per share related to the resignation of the Company’s former CEO. This range excludes the estimated impact of adopting SFAS No. 123R,. The impact of SFAS No. 123R is estimated to be $0.05 to $0.07 per diluted share in fiscal year 2006. The Company intends to open five restaurants in 2006. The Company anticipates being profitable in fiscal year 2007.

Conference Call
The Company will host a conference call to discuss fourth quarter 2005 financial results today at 4:30 PM ET. Hosting the call will be Marcus E. Jundt, Chairman of the Board, interim Chief Executive Officer and President; Jason Merritt, Chief Operating Officer; and Mark Robinow, Chief Financial Officer.

The call will be webcast live from the Company’s website at www.konagrill.com under the investor relations section. Listeners may also access the call by dialing 1-800-289-0572 or 1-913-981-5543. A replay of the call will be available until Thursday, March 9, 2006, by dialing 1-888-203-1112 or 1-719-457-0820, the password is 6940262.

About Kona Grill
Kona Grill owns and operates restaurants in Scottsdale, AZ; Chandler, AZ; Kansas City, MO; Las Vegas, NV; Denver, CO; Omaha, NE; Carmel, IN; Sugarland (Houston), TX; and San Antonio, TX. Kona Grill restaurants offer freshly prepared food, personalized service, and a warm, contemporary ambiance that creates an exceptional, yet affordable, dining experience. Kona Grill restaurants serve a diverse selection of mainstream American dishes as well as a variety of appetizers and entrees with an international influence. Each restaurant also features an extensive sushi menu and sushi bar.

Forward-Looking Statements
The financial guidance we provide for our first quarter and fiscal year 2006 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. These risks and uncertainties include various risk factors set forth in our Registration Statement on Form S-1 (Reg. No. 333-125506) as filed with and declared effective by the Securities and Exchange Commission, as well as various risk factors set forth from time to time in our reports filed with the Securities and Exchange Commission.

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

	December 31,
	2005		2004
	(unaudited)
ASSETS
Current assets	$	29,327	$	4,887
Other assets		474		485
Property and equipment, net		22,617		17,041
Total assets	$	52,418	$	22,413
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities	$	4,655	$	5,148
Long-term obligations		10,452		11,134
Stockholders’ equity		37,311		6,131
Total liabilities and stockholders’ equity	$	52,418	$	22,413

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

	Three Months Ended						Year Ended
	December 31,						December 31,
	2005			2004			2005			2004
	(Unaudited)						(Unaudited)
Restaurant sales	$	10,443		$	7,622		$	36,828		$	25,050
Costs and expenses:
Cost of sales		2,962			2,235			10,550			7,371
Labor		3,183			2,308			11,123			7,502
Occupancy		693			510			2,466			1,748
Restaurant operating expenses		1,496			1,089			4,698			3,372
General and administrative		1,373			937			4,783			2,217
Preopening expense		65			674			634			880
Depreciation		682			401			2,333			1,269
Total costs and expenses		10,454			8,154			36,587			24,359
Income (loss) from operations		(11	)		(532	)		241			691
Interest (income) expense, net		(122	)		147			541			360
Income (loss) from operations before income taxes		111			(679	)		(300	)		331
Provision for income taxes		59			15			83			55
Net income (loss)	$	52		$	(694	)	$	(383	)	$	276
Net income (loss) per share:
Basic	$	0.01		$	(0.48	)	$	(0.13	)	$	0.19
Diluted	$	0.01		$	(0.48	)	$	(0.13	)	$	0.17
Weighted average shares used in computation:
Basic		5,680			1,460			3,044			1,460
Diluted		5,899			1,460			3,044			2,815

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, depreciation, and preopening expenses. 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. 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.

	Three Months Ended						Year Ended
	December 31,						December 31,
	2005			2004			2005		2004
Restaurant sales	$	10,443		$	7,622		$	36,828	$	25,050
Costs and expenses:
Cost of sales		2,962			2,235			10,550		7,371
Labor		3,183			2,308			11,123		7,502
Occupancy		693			510			2,466		1,748
Restaurant operating expenses		1,496			1,089			4,698		3,372
Restaurant operating profit		2,109			1,480			7,991		5,057
Deduct — other costs and expenses:
General and administrative		1,373			937			4,783		2,217
Preopening expense		65			674			634		880
Depreciation		682			401			2,333		1,269
Income (loss) from operations		(11	)		(532	)		241		691

	Percentage of Restaurant Sales
	Three Months Ended						Year Ended
	December 31,						December 31,
	2005			2004			2005			2004
Restaurant sales		100	%		100	%		100	%		100	%
Costs and expenses:
Cost of sales		28.4	%		29.3	%		28.6	%		29.4	%
Labor		30.5	%		30.3	%		30.2	%		29.9	%
Occupancy		6.6	%		6.7	%		6.7	%		7.0	%
Restaurant operating expenses		14.3	%		14.3	%		12.8	%		13.5	%
Restaurant operating profit		20.2	%		19.4	%		21.7	%		20.2	%
Deduct — other costs and expenses:
General and administrative		13.1	%		12.3	%		13.0	%		8.8	%
Preopening expense		0.6	%		8.8	%		1.7	%		3.5	%
Depreciation		6.5	%		5.3	%		6.3	%		5.1	%
Income (loss) from operations		(0.1	%)		(7.0	%)		0.7	%		2.8	%

Certain percentage amounts may not sum to total due to rounding