April 28, 2010 KeyBanc

CONSUMER: Restaurants Capital Markets

Company Update / Estimates Change

Kona Grill, Inc.:

KONA: 1Q10 Shows Early Signs of Progress in Turnaround; Maintain HOLD
KeyBanc Capital Markets Inc. Brad Ludington: (214) 414-2597 — bludington@keybanccm.com
Member NYSE/FINRA/SIPC John Dravenstott: (214) 414-2587 — jdravenstott@keybanccm.com

Rating HOLD
Price $5.21 ACTION STATEMENT
We are encouraged that Kona Grill (KONA-NASDAQ) was able to follow the surprise
12-Mo. Price Target NA same-store sales (SSS) results of -2.5% in 1Q10 and +3.6% in March with a
Dividend $0.00 measurable earnings beat with a loss per share of $0.07 vs. our projection of a loss
of $0.13 and consensus of a loss of $0.14. We would, however, like to see continued
Yield 0.0% improvement on the restaurant-level margin line to become more enthusiastic about
52-Wk. Range $2-$5 shares of the Company. While positive SSS could likely provide some significant
leverage on restaurant-level costs, we remain cautious in our outlook, as
Trading Volume 17 management guided to a SSS decline of 2% for 2Q10. We continue to view KONA as
an attractive growth brand and believe that the initiatives put in place since the hire of
Market Cap. (mm) $47.7
CEO, Marc Buehler, will pay dividends in the long term. We maintain our HOLD
Shares Out. (mm) 9.16 rating on the shares, however, until we feel more confident that sustainable positive
SSS trends and expected restaurant-level margin improvement have arrived.
Book Value/Share $1.88

Fiscal Year End December

KEY INVESTMENT POINTS
2011E ($0.01)
• 1Q10 Pro Forma Loss per Share of $0.07: The Company reported a net pro
forma loss from continuing operations of $0.6 million, or $0.07 per share. This was
2010E ($0.18) above our estimated loss per share of $0.13 by $0.06, and above the consensus
estimated loss of $0.14 by $0.07. The primary reasons for the beat vs. our estimate
2009A ($0.57) were depreciation expense that came in below our estimates and G&A (excluding
2011 P/E NM $0.3 million of legal and professional fees related to the proxy battle and
derivatives lawsuit) below our expectations for the quarter. Pre-opening expenses
2010 P/E NM and provision for income taxes also were less than we had expected. The
First Call 2011E ($0.01) Company's restaurant-level margins met our estimate of 12.6% for the quarter,
which represents a 230 basis point sequential improvement from 4Q09, though it is
First Call 2010E ($0.31) down 310 basis points from the 1Q09 15.7% margin.
Next Quarter June
• SSS Declined by 2.5% in 1Q10: As announced in the Company's April
pre-release, SSS were down just 2.5% in 1Q10. KONA was lapping a decline of
Estimate ($0.04) 9.6% from the year-ago period. Assuming an average check decline of 5.0% in the
quarter, primarily due to mix shifts, we estimate traffic was up 2.5% in the quarter.
Vs. $0.00
KONA also stated that March SSS turned positive, up 3.6%, the Company's first
First Call Estimate ($0.05) monthly SSS increase since February 2008, with traffic remaining positive. It also
reiterated that the positive traffic trend has continued into April.
Price/Book Value 2.8x • Relaunched Web Site Plays into Digital Media Strategy: On Monday, KONA
Total Debt (mm) $5.8
launched its redesigned Web site, which features interactive menus, links to make
reservations and blog postings by chefs. We believe the site fits well with the
Company's current digital marketing initiatives with Facebook and the Konavore
loyalty program. Management stated that the Konavore program currently has
60,000 members in just 90 days and reiterated that it is being transitioned to a
card-based program to better track guest behavior. Thus far, the Company has
used these channels to promote special events, new menu items and promotions
such as the Sunday happy hour. We are encouraged that discounting has not been
a significant factor in these promotions.

FOR IMPORTANT DISCLOSURES AND CERTIFICATIONS, PLEASE REFER TO PAGES 5 - 6 OF THIS NOTE.

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April 28, 2010

• Major Menu Overhaul Rolling Out Over Next Three Quarters: Management plans to roll out comprehensive menu changes
over the next three quarters to enhance the "Wow" factor of KONA menu items. KONA believes the groundwork has been laid for
50% of the menu changes and will begin testing the items in the next three to four weeks. The changes include tweaks to existing
items as well as new items. Additionally, changes will be made to the recently added local favorites menu, giving stores flexibility
to rotate and change offerings on a more frequent basis.
• Updated Guidance: For 2Q10, the Company anticipates restaurant sales of $21.7 million-$22.7 million and a net loss per share
between $0.06-$0.01, excluding legal and proxy solicitation expenses. This guidance assumes a net loss of $0.6 million-$0.1
million, and a SSS decline of roughly 2%. The Company continues to expect CapEx of approximately $4 million in 2010.
• Estimate Revisions: In order to reflect management's 2Q guidance as well as our expectations for reduced G&A and
depreciation, we now expect a loss of $0.04 in 2Q10 vs. our previous estimate of a loss of $0.06. We have also increased our
2010 projection to a loss of $0.18, from our previous estimated loss of $0.26, due primarily to the 1Q beat as well as our
expectations for reduced depreciation expense. We maintain our estimate of a loss of $0.01 in 2011.

VALUATION
On an EV/Sales basis, KONA presently trades at 0.5x our 2011 revenue estimate, compared to the peer group multiple of 0.7x 2011
revenue. The Company also trades at 7.2x on a 2011 EV/EBITDA basis, compared to 6.2x for the peer group.

RISKS
Risks include an inability to secure outside financing for planned CapEx in 2010, commodity cost fluctuations, consumer spending
uncertainty, consumer acceptance of the brand and other risks detailed in the Company's SEC filings.

EPS (Net) Summary

2009A %CHG 2010E %CHG 2011E %CHG
1Q ($0.17) NM ($0.07)A NM ($0.04) NM
2Q $0.00 NM ($0.04) NM $0.02 NM
3Q ($0.11) NM ($0.04) NM $0.03 NM
4Q ($0.18) NM ($0.03) NM ($0.03) NM
YEAR ($0.57) NM ($0.18) NM ($0.01) NM

Source: KeyBanc Capital Markets Inc. estimates

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Projected Income Statement for Kona Grill
Fiscal Year Ends in December
Dollars in Millions, except per share

2009 2010E 2011E

Q1 Q2 Q3 Q4 FY09 1Q Q2-E Q3-E Q4-E FY10E Q1-E Q2-E Q3-E Q4-E FY11E
(13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks)
Sales $19.455 $21.468 $20.173 $19.999 $81.095 $21.052 $22.327 $21.598 $21.362 $86.339 $21.798 $23.373 $22.426 $21.855 $89.452

Cost of Sales 5.097 5.461 5.267 5.233 21.058 5.575 5.872 5.680 5.682 22.810 5.776 6.241 6.006 5.813 23.836
Gross Profit 14.358 16.007 14.906 14.766 60.037 15.477 16.455 15.918 15.680 63.530 16.021 17.133 16.420 16.041 65.616

Labor 6.749 7.269 7.117 7.382 28.517 7.583 7.881 7.559 7.413 30.436 7.716 7.994 7.804 7.584 31.098
Occupancy 1.520 1.536 1.655 1.746 6.457 1.781 1.786 1.620 1.538 6.725 1.635 1.589 1.368 1.464 6.056
Restaurant Operating Expenses 3.030 3.242 3.296 3.588 13.156 3.456 3.572 3.434 3.653 14.115 3.291 3.553 3.364 3.191 13.399
Restaurant Operating Income 3.059 3.960 2.838 2.050 11.907 2.657 3.215 3.305 3.076 12.253 3.379 3.997 3.884 3.803 15.062

Selling, General & Administrative 1.887 1.761 1.590 1.407 6.645 1.843 1.942 1.663 1.709 7.157 2.027 2.150 1.929 1.923 8.029
Pre-Opening Expenses 0.500 0.352 0.480 0.353 1.685 0.008 0.100 0.500 0.100 0.708 0.090 0.090 0.120 0.500 0.800
EBITDA 0.672 1.847 0.768 0.290 3.577 0.806 1.173 1.141 1.267 4.387 1.261 1.756 1.836 1.380 6.233

Depreciation 1.741 1.812 1.820 1.941 7.314 1.399 1.429 1.469 1.495 5.792 1.591 1.496 1.503 1.574 6.163
EBIT (1.069) 0.035 (1.052) (1.651) (3.737) (0.593) (0.256) (0.327) (0.228) (1.405) (0.330) 0.261 0.333 (0.194) 0.070

Interest (Income) & Other, Net (0.048) (0.077) (0.044) (0.035) (0.204) (0.022) (0.034) (0.021) (0.020) (0.096) (0.022) (0.024) (0.029) (0.031) (0.106)
Interest Expense 0.032 0.099 0.022 0.021 0.174 0.042 0.067 0.039 0.035 0.183 0.031 0.027 0.023 0.019 0.100
Pretax Income (1.053) 0.013 (1.030) (1.637) (3.707) (0.613) (0.290) (0.345) (0.243) (1.491) (0.339) 0.258 0.339 (0.183) 0.076

Income Taxes 0.030 0.030 0.005 0.000 0.065 0.000 0.050 0.050 0.050 0.150 0.030 0.050 0.050 0.050 0.180
Proforma Net Income ($1.083) ($0.017) ($1.035) ($1.637) ($3.772) ($0.613) ($0.340) ($0.395) ($0.293) ($1.641) ($0.369) $0.208 $0.289 ($0.233) ($0.104)

Gain / (Loss) on Special Items, Net (0.013) (0.200) 0.000 (17.570) (17.783) (0.294) 0.000 0.000 0.000 (0.294) 0.000 0.000 0.000 0.000 0.000
Fully-Reported Net Income ($1.096) ($0.217) ($1.035) ($19.207) ($21.555) ($0.907) ($0.340) ($0.395) ($0.293) ($1.935) ($0.369) $0.208 $0.289 ($0.233) ($0.104)

Diluted Weighted Average Shares in Millions 6.512 8.278 9.141 9.144 8.645 9.155 9.167 9.182 9.192 9.179 9.202 9.617 9.632 9.242 9.229

Earnings Per Share ($0.17) ($0.00) ($0.11) ($0.18) ($0.44) ($0.07) ($0.04) ($0.04) ($0.03) ($0.18) ($0.04) $0.02 $0.03 ($0.03) ($0.01)
Fully-Reported Earnings Per Share ($0.17) ($0.03) ($0.11) ($2.10) ($2.49) ($0.10) ($0.04) ($0.04) ($0.03) ($0.21) ($0.04) $0.02 $0.03 ($0.03) ($0.01)

Margins
Cost of Sales 26.2% 25.4% 26.1% 26.2% 26.0% 26.5% 26.3% 26.3% 26.6% 26.4% 26.5% 26.7% 26.8% 26.6% 26.6%
Labor 34.7% 33.9% 35.3% 36.9% 35.2% 36.0% 35.3% 35.0% 34.7% 35.3% 35.4% 34.2% 34.8% 34.7% 34.8%
Occupancy 7.8% 7.2% 8.2% 8.7% 8.0% 8.5% 8.0% 7.5% 7.2% 7.8% 7.5% 6.8% 6.1% 6.7% 6.8%
Restaurant Operating Expenses 15.6% 15.1% 16.3% 17.9% 16.2% 16.4% 16.0% 15.9% 17.1% 16.3% 15.1% 15.2% 15.0% 14.6% 15.0%
Restaurant Operating Margin 15.7% 18.4% 14.1% 10.3% 14.7% 12.6% 14.4% 15.3% 14.4% 14.2% 15.5% 17.1% 17.3% 17.4% 16.8%
Selling, General & Administrative 9.7% 8.2% 7.9% 7.0% 8.2% 8.8% 8.7% 7.7% 8.0% 8.3% 9.3% 9.2% 8.6% 8.8% 9.0%
Pre-Opening Expenses 2.6% 1.6% 2.4% 1.8% 2.1% 0.0% 0.4% 2.3% 0.5% 0.8% 0.4% 0.4% 0.5% 2.3% 0.9%
EBITDA Margin 3.5% 8.6% 3.8% 1.5% 4.4% 3.8% 5.3% 5.3% 5.9% 5.1% 5.8% 7.5% 8.2% 6.3% 7.0%
Depreciation 8.9% 8.4% 9.0% 9.7% 9.0% 6.6% 6.4% 6.8% 7.0% 6.7% 7.3% 6.4% 6.7% 7.2% 6.9%
EBIT Margin (5.5%) 0.2% (5.2%) (8.3%) (4.6%) (2.8%) (1.1%) (1.5%) (1.1%) (1.6%) (1.5%) 1.1% 1.5% (0.9%) 0.1%
Net Income Margin (5.6%) (0.1%) (5.1%) (8.2%) (4.7%) (2.9%) (1.5%) (1.8%) (1.4%) (1.9%) (1.7%) 0.9% 1.3% (1.1%) (0.1%)

Growth Rate Analysis

Sales Growth Rate 3.5% 6.4% 3.7% 7.7% 5.3% 8.2% 4.0% 7.1% 6.8% 6.5% 3.5% 4.7% 3.8% 2.3% 3.6%
Operating Income Growth Rate 5.7% 7.9% (18.1%) (32.2%) (8.8%) (13.1%) (18.8%) 16.4% 50.1% 2.9% 27.2% 24.3% 17.5% 23.6% 22.9%
EBITDA Growth Rate (22.3%) 67.6% (16.2%) 60.2% 16.7% 19.9% (36.5%) 48.6% 337.0% 22.7% 56.5% 49.8% 60.8% 8.9% 42.1%

Store Count
Stores at Beginning of Period 20 21 22 23 20 24 24 24 25 24 25 25 25 25 25
Stores Added in Period 1 1 1 1 4 0 0 1 0 1 0 0 0 1 1
Stores Closed in Period 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Stores at End of Period 21 22 23 24 24 24 24 25 25 25 25 25 25 26 26
Average Number of Stores in Period 20.5 21.5 22.5 23.5 22.0 24.0 24.0 24.5 25.0 24.5 25.0 25.0 25.0 25.5 25.5

Sales Analysis (AWS in actual $)

Weeks in Quarter 13 13 13 13 52 13 13 13 13 52 13 13 13 13 52
Total Operating Weeks 269 282 287 300 1,138 312 312 313 325 1,262 325 325 325 332 1,307
System Average Weekly Sales (AWS) $72,323 $76,128 $70,412 $66,663 $71,292 $67,474 $71,560 $69,004 $65,730 $68,415 $67,070 $71,918 $69,004 $65,927 $68,467
System Y/Y AWS Growth (10.0%) (11.4%) (16.0%) (16.0%) (13.4%) (6.7%) (6.0%) (2.0%) (1.4%) (4.0%) (0.6%) 0.5% 0.0% 0.3% 0.1%
Same-Store Sales Growth (9.6%) (9.5%) (9.9%) (8.1%) (9.3%) (2.5%) (1.2%) 0.0% 0.6% (0.8%) 0.4% 0.5% 0.0% 0.3% 0.3%

Source: Company Reports & KeyBanc Capital Markets Inc. Estimates

Brad Ludington (214) 414-2597
John Dravensott (214) 414-2587

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Comparison Sheet for Kona Grill

Fiscal Year Ends in December
Dollars in Millions, except per share

Actual Actual vs. Prior Year Actual vs. KBCM Estimates

1Q10A 1Q09A Chg. %Chg. 1Q10E Diff. %Diff.

Restaurant Sales $21.1 $19.5 $1.6 8.2% $21.1 ($0.0) (0.2%)

Restaurant-Level Margin 12.6% 15.7% -310 bps (19.7%) 12.6% +2 bps 0.2%
EBITDA Margin 3.8% 3.5% +37 bps 10.8% 2.1% +176 bps 84.7%
EBIT Margin (2.8%) (5.5%) +268 bps 48.7% (4.9%) +211 bps 42.8%
EPS ($0.07) ($0.17) $0.10 59.7% ($0.13) $0.06 46.5%
SSS (2.5%) (9.6%) +710 bps 74.0% (2.5%) +0 bps 0.0%

Source: Company Reports & KeyBanc Capital Markets Inc. Estimates

Brad Ludington (214) 414-2597
John Dravenstott (214) 414-2587

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April 28, 2010

KeyBanc Capital Markets Inc. Disclosures and Certifications

Kona Grill, Inc. - KONA
Coverage was transitioned to current research analyst Brad Ludington on 4/9/09. All prior rating and price target activity
indicated on this chart reflects the work of a previous research analyst.
We expect to receive or intend to seek compensation for investment banking services from Kona Grill, Inc. within the next
three months.
As of the date of this report, we make a market in Kona Grill, Inc.

Reg A/C Certification

The research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressed in
this research report accurately reflect the research analyst's personal views about any and all of the subject securities or
issuers; and (2) no part of the research analyst's compensation was, is, or will be directly or indirectly related to the
specific recommendations or views expressed by the research analyst(s) in this research report.

Three-Year Rating and Price Target History

Rating and Price Target History for: Kona Grill, Inc. (KONA) as of 04-23-2010
06/12/07 01/11/08 05/01/08 05/28/08 07/30/08
B:$24 B:$16 B:$13 B:$11 H:NA
25

20

15

10

0
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2
2008 2009 2010

Coverage was transitioned to current research analyst Brad Ludington on 4/9/09. All prior rating and price target activity indicated on
this chart reflects the work of a previous research analyst.

Created by BlueMatrix

Rating Disclosures

Distribution of Ratings/IB Services Firmwide and by Sector

KeyBanc Capital Markets CONSUMER

IB Serv/Past 12 Mos. IB Serv/Past 12 Mos.

Rating Count Percent Count Percent Rating Count Percent Count Percent

BUY [BUY] 177 46.10 41 23.16 BUY [BUY] 44 47.80 5 11.36

HOLD [HOLD] 201 52.30 54 26.87 HOLD [HOLD] 43 46.70 2 4.65
SELL [UND] 6 1.60 1 16.67 SELL [UND] 5 5.40 1 20.00

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Rating System
BUY - The security is expected to outperform the market over the next six to 12 months; investors should consider adding
the security to their holdings opportunistically, subject to their overall diversification requirements.

HOLD - The security is expected to perform in line with general market indices over the next six to 12 months; no buy or sell
action is recommended at this time.

UNDERWEIGHT - The security is expected to underperform the market over the next six to 12 months; investors should
reduce their holdings opportunistically.

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