Company Quick10K Filing
Quick10K
One Group Hospitality
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$3.78 29 $108
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-06-04 Officers, Shareholder Vote, Exhibits
8-K 2019-05-22 Other Events
8-K 2019-05-15 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-03-22 Accountant, Exhibits
8-K 2019-01-29 Officers, Exhibits
8-K 2019-01-14 Other Events
8-K 2019-01-10 Earnings, Exhibits
8-K 2018-11-12 Earnings, Exhibits
8-K 2018-10-04 Accountant, Exhibits
8-K 2018-09-28 Officers, Other Events, Exhibits
8-K 2018-09-06 Regulation FD
8-K 2018-08-14 Earnings, Exhibits
8-K 2018-06-07 Regulation FD
8-K 2018-06-04 Shareholder Vote
8-K 2018-03-23 Enter Agreement, Earnings, Officers, Exhibits
8-K 2018-01-08 Earnings, Regulation FD, Exhibits
CB Chubb 65,320
RPM RPM International 7,760
PLAN Anaplan 5,040
ADSW Advanced Disposal Services 2,870
BBDC Barings Bdc 509
AURX Nuo Therapeutics 0
MXSG Mexus Gold 0
WMTS World Monitor Trust III - Series J 0
AEI26 AEI Income & Growth Fund 26 0
SPS Southwestern Public Service 0
STKS 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Note 1 – Summary of Business and Significant Accounting Policies
Note 2 – Inventory
Note 3 – Other Current Assets
Note 4 – Property and Equipment, Net
Note 5 – Accrued Expenses
Note 6 – Long-Term Debt
Note 7 – Fair Value of Financial Instruments
Note 8 – Nonconsolidated Variable Interest Entities
Note 9 – Related Party Transactions
Note 10 – Income Taxes
Note 11 – Revenue From Contracts with Customers
Note 12 – Leases
Note 13 – Earnings per Share
Note 14 – Stockholders’ Equity
Note 15 – Stock-Based Compensation
Note 16 – Segment Reporting
Note 17 – Geographic Information
Note 18 – Litigation
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II — Other Information
Item 1. Legal Proceedings.
Item 6. Exhibits.
EX-31.1 stks-20190630ex311075acb.htm
EX-31.2 stks-20190630ex31271c9cb.htm
EX-32.1 stks-20190630ex321675693.htm
EX-32.2 stks-20190630ex322953f8b.htm

One Group Hospitality Earnings 2019-06-30

STKS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 stks-20190630x10q.htm 10-Q stks_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

 

 

 

(Mark One)

 

 

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

 

For the Quarterly Period Ended June 30, 2019

 

 

 

OR

 

 

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

 

For the transition period from                      to

 

Commission File Number 001‑37379

 

 

THE ONE GROUP HOSPITALITY, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

    

14‑1961545

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

 

 

411 W. 14th Street, 2nd Floor, New York, New York

 

10014

(Address of principal executive offices)

 

Zip Code

 

 

646‑624‑2400

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

Large accelerated filer  ☐

Accelerated filer  ☐

Non-accelerated filer  ☒

Smaller reporting company  ☒

 

Emerging growth company  ☐

 

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐  No ☒

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

STKS

 

Nasdaq

 

Number of shares of common stock outstanding as of August 6, 2019:  28,807,015

 

 

 

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)

 

 

 

 

 

 

 

 

 

 

(Unaudited),

 

 

 

 

June 30, 

 

December 31, 

 

    

2019

 

2018

ASSETS

 

 

 

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

799

 

$

1,592

Accounts receivable

 

 

6,567

 

 

7,029

Inventory

 

 

1,365

 

 

1,404

Other current assets

 

 

1,440

 

 

1,471

Due from related parties, net

 

 

343

 

 

45

Total current assets

 

 

10,514

 

 

11,541

 

 

 

  

 

 

  

Property and equipment, net

 

 

40,507

 

 

39,347

Operating lease right-of-use assets

 

 

39,367

 

 

 —

Investments

 

 

2,684

 

 

2,684

Deferred tax assets, net

 

 

12

 

 

38

Other assets

 

 

338

 

 

349

Security deposits

 

 

2,038

 

 

2,020

Total assets

 

$

95,460

 

$

55,979

 

 

 

  

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

6,109

 

$

5,408

Accrued expenses

 

 

5,343

 

 

8,093

Deferred license revenue

 

 

191

 

 

171

Deferred gift card revenue and other

 

 

650

 

 

947

Current portion of operating lease liabilities

 

 

2,201

 

 

 —

Current portion of long-term debt

 

 

1,065

 

 

3,201

Total current liabilities

 

 

15,559

 

 

17,820

 

 

 

  

 

 

  

Deferred license revenue, long-term

 

 

999

 

 

1,008

Due to related parties, long-term

 

 

 —

 

 

1,197

Operating lease liability, net of current portion

 

 

54,639

 

 

 —

Deferred rent and tenant improvement allowances

 

 

 —

 

 

16,774

Long-term debt, net of current portion

 

 

11,238

 

 

7,118

Total liabilities

 

 

82,435

 

 

43,917

 

 

 

  

 

 

  

Commitments and contingencies

 

 

  

 

 

  

 

 

 

  

 

 

  

Stockholders’ equity:

 

 

  

 

 

  

Common stock, $0.0001 par value, 75,000,000 shares authorized; 28,520,530 and 28,313,017 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

 3

 

 

 3

Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

 —

 

 

 —

Additional paid-in capital

 

 

44,180

 

 

43,543

Accumulated deficit

 

 

(28,190)

 

 

(28,722)

Accumulated other comprehensive loss

 

 

(2,590)

 

 

(2,310)

Total stockholders’ equity

 

 

13,403

 

 

12,514

Noncontrolling interests

 

 

(378)

 

 

(452)

Total equity

 

 

13,025

 

 

12,062

Total liabilities and equity

 

$

95,460

 

$

55,979

 

See notes to the consolidated financial statements.

3

 

 

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited, in thousands, except earnings per share and related share information)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 

 

For the six months ended June 30, 

 

    

2019

    

2018

    

2019

    

2018

Revenues:

 

 

  

 

 

  

 

 

  

 

 

  

Owned restaurant net revenues

 

$

18,809

 

$

15,520

 

$

36,629

 

$

30,596

Owned food, beverage and other net revenues

 

 

2,134

 

 

2,083

 

 

4,407

 

 

4,088

Total owned revenue

 

 

20,943

 

 

17,603

 

 

41,036

 

 

34,684

Management, license and incentive fee revenue

 

 

2,656

 

 

2,708

 

 

5,339

 

 

5,144

Total revenues

 

 

23,599

 

 

20,311

 

 

46,375

 

 

39,828

Cost and expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Owned operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

Owned restaurants:

 

 

  

 

 

  

 

 

  

 

 

  

Owned restaurant cost of sales

 

 

5,068

 

 

4,037

 

 

9,637

 

 

8,071

Owned restaurant operating expenses

 

 

11,856

 

 

9,399

 

 

22,771

 

 

18,777

Total owned restaurant expenses

 

 

16,924

 

 

13,436

 

 

32,408

 

 

26,848

Owned food, beverage and other expenses

 

 

2,225

 

 

2,025

 

 

4,484

 

 

3,714

Total owned operating expenses

 

 

19,149

 

 

15,461

 

 

36,892

 

 

30,562

General and administrative (including stock-based compensation of $456,  $344,  $637 and $668 for the three and six months ended June 30, 2019 and 2018 respectively)

 

 

2,704

 

 

2,615

 

 

5,354

 

 

5,670

Depreciation and amortization

 

 

1,004

 

 

901

 

 

1,946

 

 

1,679

Lease termination expense

 

 

141

 

 

90

 

 

141

 

 

90

Pre-opening expenses

 

 

63

 

 

671

 

 

545

 

 

881

Transaction costs

 

 

152

 

 

 —

 

 

152

 

 

 —

Equity in income of investee companies

 

 

 —

 

 

(134)

 

 

 —

 

 

(111)

Other income, net

 

 

(91)

 

 

(66)

 

 

(266)

 

 

(177)

Total costs and expenses

 

 

23,122

 

 

19,538

 

 

44,764

 

 

38,594

Operating income

 

 

477

 

 

773

 

 

1,611

 

 

1,234

Other expenses, net:

 

 

  

 

 

  

 

 

  

 

 

  

Interest expense, net of interest income

 

 

218

 

 

290

 

 

487

 

 

608

Loss on early debt extinguishment

 

 

437

 

 

 —

 

 

437

 

 

 —

Total other expenses, net

 

 

655

 

 

290

 

 

924

 

 

608

(Loss) income before provision for income taxes

 

 

(178)

 

 

483

 

 

687

 

 

626

(Benefit) provision for income taxes

 

 

(15)

 

 

169

 

 

81

 

 

194

Net (loss) income

 

 

(163)

 

 

314

 

 

606

 

 

432

Less: net income attributable to noncontrolling interest

 

 

159

 

 

133

 

 

74

 

 

20

Net (loss) income attributable to The ONE Group Hospitality, Inc.

 

$

(322)

 

$

181

 

$

532

 

$

412

Currency translation (loss) gain

 

 

(120)

 

 

141

 

 

(280)

 

 

66

Comprehensive (loss) income

 

$

(442)

 

$

322

 

$

252

 

$

478

 

 

 

  

 

 

  

 

 

  

 

 

  

Net (loss) income attributable to The ONE Group Hospitality, Inc. per share:

 

 

  

 

 

  

 

 

  

 

 

  

Basic net (loss) income per share

 

$

(0.01)

 

$

0.01

 

$

0.02

 

$

0.02

Diluted net (loss) income per share

 

$

(0.01)

 

$

0.01

 

$

0.02

 

$

0.01

 

 

 

  

 

 

  

 

 

  

 

 

  

Shares used in computing basic earnings per share

 

 

28,432,510

 

 

27,366,322

 

 

28,373,974

 

 

27,277,483

Shares used in computing diluted earnings per share

 

 

28,432,510

 

 

27,659,448

 

 

29,456,764

 

 

27,516,884

 

See notes to the consolidated financial statements.

4

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except share information)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

other

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

paid-in

 

Accumulated

 

comprehensive

 

Stockholders’

 

Noncontrolling

 

 

 

 

    

Shares

    

Par value

    

capital

    

deficit

    

loss

    

equity

    

interests

    

Total

Balance at December 31, 2018

 

28,313,017

 

$

 3

 

$

43,543

 

$

(28,722)

 

$

(2,310)

 

$

12,514

 

$

(452)

 

$

12,062

Stock-based compensation

 

 —

 

 

 —

 

 

637

 

 

 —

 

 

 —

 

 

637

 

 

 —

 

 

637

Vesting of restricted shares

 

20,544

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Loss on foreign currency translation, net

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(280)

 

 

(280)

 

 

 —

 

 

(280)

Net income

 

 —

 

 

 —

 

 

 —

 

 

532

 

 

 —

 

 

532

 

 

74

 

 

606

Balance at June 30, 2019

 

28,333,561

 

$

 3

 

$

44,180

 

$

(28,190)

 

$

(2,590)

 

$

13,403

 

$

(378)

 

$

13,025

 

See notes to the consolidated financial statements.

5

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 

 

    

2019

    

2018

Operating activities:

 

 

  

 

 

  

Net income

 

$

606

 

$

432

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

  

 

 

  

Depreciation and amortization

 

 

1,946

 

 

1,679

Stock-based compensation

 

 

637

 

 

668

Loss on early debt extinguishment

 

 

437

 

 

 —

Amortization of discount on warrants

 

 

82

 

 

101

Deferred rent and tenant improvement allowances

 

 

 —

 

 

359

Deferred taxes

 

 

26

 

 

(1)

Income from equity method investments

 

 

 —

 

 

(111)

Gain on disposition of cost method investment

 

 

 —

 

 

(185)

Changes in operating assets and liabilities:

 

 

  

 

 

  

Accounts receivable

 

 

471

 

 

147

Inventory

 

 

39

 

 

203

Other current assets

 

 

30

 

 

(28)

Due from related parties, net

 

 

(298)

 

 

(365)

Security deposits

 

 

(18)

 

 

(60)

Other assets

 

 

11

 

 

(23)

Accounts payable

 

 

705

 

 

(199)

Accrued expenses

 

 

(2,943)

 

 

(244)

Operating lease liabilities and right-of-use assets

 

 

450

 

 

 —

Deferred revenue

 

 

(37)

 

 

(40)

Net cash provided by operating activities

 

 

2,144

 

 

2,333

 

 

 

  

 

 

  

Investing activities:

 

 

  

 

 

  

Purchase of property and equipment

 

 

(2,917)

 

 

(1,926)

Proceeds from disposition of cost method investment

 

 

 —

 

 

600

Net cash used in investing activities

 

 

(2,917)

 

 

(1,326)

 

 

 

  

 

 

  

Financing activities:

 

 

  

 

 

  

Borrowings on revolving credit facility

 

 

2,150

 

 

 —

Borrowings of term loan

 

 

10,000

 

 

 —

Repayment of term loans

 

 

(3,828)

 

 

(1,401)

Repayment of promissory notes

 

 

(6,250)

 

 

 —

Repayment of due to related parties, long-term

 

 

(1,197)

 

 

 —

Repayment of equipment financing agreement

 

 

(184)

 

 

(175)

Repayment of business loan and security agreement

 

 

 —

 

 

(62)

Debt issuance costs

 

 

(421)

 

 

 —

Net cash provided by (used in) financing activities

 

 

270

 

 

(1,638)

Effect of exchange rate changes on cash

 

 

(290)

 

 

16

Net decrease in cash and cash equivalents

 

 

(793)

 

 

(615)

Cash and cash equivalents, beginning of year

 

 

1,592

 

 

1,548

Cash and cash equivalents, end of year

 

$

799

 

$

933

Supplemental disclosure of cash flow data:

 

 

  

 

 

  

Interest paid

 

$

483

 

$

484

Income taxes paid

 

 

193

 

 

 —

Non-cash amortization of debt issuance costs

 

$

14

 

$

 —

 

See notes to the consolidated financial statements.

6

THE ONE GROUP HOSPITALITY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Summary of Business and Significant Accounting Policies

Summary of Business

The ONE Group Hospitality, Inc. and its subsidiaries (collectively, the “Company”) is a global hospitality company that develops, owns and operates, manages or licenses upscale, high-energy restaurants and lounges and provides turn-key food and beverage (“F&B”) services for hospitality venues including hotels, casinos and other high-end locations globally. Turn-key F&B services are food and beverage services that can be scaled, customized and implemented by the Company at a particular hospitality venue and customized for the client. The Company’s primary restaurant brand is STK, a multi-unit steakhouse concept that combines a high-energy, social atmosphere with the quality and service of a traditional upscale steakhouse.

As of June 30, 2019, we owned, operated, managed or licensed 29 venues, including 19 STKs, in major metropolitan cities in North America, Europe and the Middle East and provided F&B services to three hotels and one casino in the United States and Europe.

Basis of Presentation

The accompanying consolidated balance sheet as of December 31, 2018, which has been derived from audited financial statements, and the accompanying unaudited interim consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain information and footnote disclosures normally included in annual audited financial statements have been omitted pursuant to SEC rules and regulations. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018.

In the Company’s opinion, the accompanying unaudited interim financial statements reflect all adjustments (consisting only of normal recurring accruals and adjustments) necessary for a fair presentation of the results for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results expected for the full year. Additionally, the Company believes that the disclosures are sufficient for interim financial reporting purposes.

Recent Accounting Pronouncements

In March 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Updated (“ASU”) No. 2019‑01, “Leases (Topic 842): Codification Improvements” (“ASU 2019‑01”). ASU 2019‑01 provided clarification related to adopting Accounting Standard Codification Topic 842, Leases, (“ASC Topic 842”). ASU 2019‑01 addresses fair value determinations of underlying assets by lessors, cash flow statement presentation for financing leases, and transition disclosures. The Company adopted ASC Topic 842 as of January 1, 2019 and considered the clarification guidance in ASU 2019‑01 as part of its adoption. Refer to Note 12 for additional details regarding the adoption of ASC Topic 842.

In October 2018, the FASB issued ASU No. 2018‑17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018‑17”). ASU 2018‑17 states that indirect interests held through related parties in common control arrangements should be considered on a proportional basis to determine whether fees paid to decision makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a variable interest entity. ASU 2018‑17 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Entities are required to adopt the new guidance retrospectively with a cumulative adjustment to retained earnings at the beginning of the earliest period presented. The Company is evaluating the effects of this pronouncement on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018‑13”). ASU 2018‑13 eliminates, modifies and adds disclosure requirements for fair value measurements. The amendments in ASU 2018‑13 are effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the effects of ASU 2018‑13 on its consolidated financial statements but does not expect the adoption of ASU 2018‑13 to be material.

7

In August 2018, the FASB issued ASU No. 2018‑15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract” (“ASU 2018‑15”). ASU 2018‑15 aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018‑15 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. Entities can choose to adopt the new guidance prospectively or retrospectively. The Company is evaluating the effects of this pronouncement on its consolidated financial statements.

 

Note 2 – Inventory

Inventory consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2019

    

2018

Food

 

$

237

 

$

300

Beverages

 

 

1,128

 

 

1,104

Total

 

$

1,365

 

$

1,404

 

 

Note 3 – Other Current Assets

Other current assets consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

Prepaid taxes

 

$

521

 

$

503

Landlord receivable

 

 

195

 

 

195

Prepaid expenses

 

 

667

 

 

680

Other

 

 

57

 

 

93

Total

 

$

1,440

 

$

1,471

 

 

Note 4 – Property and Equipment, net

Property and equipment, net consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

Furniture, fixtures and equipment

 

$

11,588

 

$

10,425

Leasehold improvements

 

 

45,903

 

 

43,890

Less: accumulated depreciation and amortization

 

 

(18,915)

 

 

(16,969)

Subtotal

 

 

38,576

 

 

37,346

Construction in progress

 

 

 —

 

 

336

Restaurant supplies

 

 

1,931

 

 

1,665

Total

 

$

40,507

 

$

39,347

 

Depreciation and amortization related to property and equipment amounted to $1.0 million and $0.9 million for the three months ended June 30, 2019 and 2018, respectively, and $1.9 million and $1.7 million for the six months ended June 30, 2019 and 2018, respectively. The Company does not depreciate construction in progress, assets not yet put into service or restaurant supplies.

 

8

Note 5 – Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

Variable rent, including disputed rent amounts

 

$

1,577

 

$

1,766

Legal, professional and other services

 

 

1,034

 

 

645

Payroll and related

 

 

830

 

 

1,794

VAT and sales taxes

 

 

431

 

 

1,028

Insurance

 

 

426

 

 

203

Income taxes and related

 

 

284

 

 

685

Due to hotels

 

 

 —

 

 

212

Other

 

 

761

 

 

1,760

Total

 

$

5,343

 

$

8,093

 

 

Note 6 – Long-Term Debt

Long-term debt consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

Term loan agreements

 

$

10,000

 

$

3,828

Revolving credit facility

 

 

2,150

 

 

Equipment financing agreements

 

 

569

 

 

752

Promissory notes

 

 

 —

 

 

6,250

Total long-term debt

 

 

12,719

 

 

10,830

Less: current portion of long-term debt

 

 

(1,065)

 

 

(3,201)

Less: debt issuance costs

 

 

(416)

 

 

(32)

Less: discounts on warrants, net

 

 

 —

 

 

(479)

Total long-term debt, net of current portion

 

$

11,238

 

$

7,118

 

Interest expense for all the Company’s debt arrangements, excluding the loss on early debt extinguishment and the amortization of debt issuance costs,  other discounts and fees, was approximately $0.2 million and $0.2 million for the three months ended June 30, 2019 and 2018 and $0.4 million and $0.5 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, the Company had $1.3 million in letters of credit outstanding for certain restaurants, including $36.9 thousand of standby letters of credit and $1.3 million of cash collateralized letters of credit, which are recorded as a component of security deposits on the consolidated balance sheet as of June 30, 2019.

Bank of America, N.A. Credit Agreement

 

On May 15, 2019, the Company entered into a Credit Agreement with Bank of America, N.A (“Credit Agreement”). The Credit Agreement provides for a secured revolving credit facility of $10.0 million and a $10.0 million term loan. The term loan is payable in quarterly installments, with the final payment due in May 2024. The revolving credit facility also matures in May 2024. In conjunction with entering into the Credit Agreement, the Company incurred $0.4 million of debt issuance costs, which were capitalized and are recorded as a direct deduction to the long-term debt, net of current portion, on the consolidated balance sheets.

 

The Credit Agreement contains several financial covenants, including (a) a maximum consolidated leverage ratio of (i) 4.75 to 1.00 as of the end of any fiscal quarter ending on or prior to June 30, 2020 and (ii) 4.50 to 1.00 as of the end of any fiscal quarter thereafter and (b) a minimum consolidated fixed charge coverage ratio of 1.35 to 1.00.

 

The Credit Agreement has several borrowing and interest rate options, including the following: (a) a LIBOR rate (or a comparable successor rate) or (b) a base rate equal to the greater of the prime rate, the federal funds rate plus 0.50% or the LIBOR rate for a one-month period plus 1.00%; provided that the base rate may not be less than zero. Loans under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of between 2.75% and 3.50% (for LIBOR rate loans) and 1.75% and 2.50% (for base rate loans).

 

9

The Credit Agreement contains customary representations, warranties and conditions to borrowing including customary affirmative and negative covenants, which include covenants that limit or restrict the Company’s ability to incur indebtedness and other obligations, grant liens to secure obligations, make investments, merge or consolidate, and dispose of assets outside the ordinary course of business, in each case subject to customary exceptions for credit facilities of this size and type. As of June 30, 2019, the Company is in compliance with the covenants required by the Credit Agreement.

 

Debt Extinguishment

 

In conjunction with entering into the Credit Agreement on May 15, 2019, the Company prepaid the outstanding debt balances to early extinguish the $2.6 million of outstanding term loans with BankUnited, the $5.3 million of outstanding promissory notes with Anson Investments Master Fund LP, and the $1.0 million outstanding promissory note with 2235570 Ontario Limited. The Company recognized a $0.4 million loss on early debt extinguishment within other expenses, net on the consolidated statements of operations and comprehensive income, primarily caused by the recognition of the unamortized discounts related to warrants issued with the promissory notes and the recognition of unamortized debt issuance costs related to the debt extinguished. Additionally, the Company prepaid the $1.2 million of outstanding cash advances due to the TOG Liquidation Trust, a related party. Please refer to Note 9 for additional details on transactions with related parties.

 

Note 7 – Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued expenses are carried at cost, which approximates fair value due to their short maturities. Long-lived assets are measured and disclosed at fair value on a nonrecurring basis if an impairment is identified. There were no long-lived assets measured at fair value as of June 30, 2019.

The Company’s long-term debt, including the current portion, is carried at cost on the consolidated balance sheets. Fair value of long-term debt, including the current portion, is estimated based on Level 2 inputs, except the amount outstanding on the revolving credit facility for which the carrying value approximates fair value. Fair value is determined by discounting future cash flows using interest rates available for issues with similar terms and maturities.

The estimated fair values of long-term debt, for which carrying values do not approximate fair value, are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

Carrying amount of long-term debt, including current portion (1)

 

$

10,569

 

$

10,830

Fair value of long-term debt, including current portion

 

$

8,728

 

$

7,648


(1)

Excludes the discounts on warrants, net and debt issuance costs

 

Note 8 – Nonconsolidated Variable Interest Entities

As of June 30, 2019 and December 31, 2018, the Company owned interests in the following companies, which directly or indirectly operate a restaurant:

·

31.24% interest in Bagatelle NY LA Investors, LLC (“Bagatelle Investors”)

·

51.13% interest in Bagatelle Little West 12th, LLC (“Bagatelle NY”)

Bagatelle Investors is a holding company that has an interest in Bagatelle NY. Both entities were formed in 2011. In the three months ended June 30, 2019, Bagatelle NY notified the Company that it had no intent to renew its sublease with the Company for the restaurant space. As a result, the Company determined that it no longer had the ability to exercise significant influence over its investees, Bagatelle Investors and Bagatelle NY. As of June 30, 2019, the Company recorded its retained interests in Bagatelle Investors and Bagatelle NY as cost method investments, with the initial basis being the previous carrying amounts of the investments. Prior to June 30, 2019, the Company had accounted for its investments in these entities under the equity method of accounting based on management’s assessment that it was not the primary beneficiary of these entities because it did not have the power to direct their day to day activities. The Company has provided no additional types of support to these entities than what is contractually required.

10

The carrying values of these investments were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

Bagatelle Investors

 

$

56

 

$

56

Bagatelle NY

 

 

2,628

 

 

2,628

Total

 

$

2,684

 

$

2,684

 

For the each of the three and six months ended June 30, 2018, the equity in income of investee companies for the equity method investments discussed above was approximately $0.1 million. There was no equity in income for the three and six months ended June 30, 2019.

Additionally, the Company has a management agreement with Bagatelle NY. Under this agreement, the Company recorded management fee revenue of approximately $0.2 million and $0.1 million for the three months ended June 30, 2019 and 2018, respectively, and $0.3 million and $0.1 million for the six months ended June 30, 2019 and 2018, respectively. The Company also receives rental income from Bagatelle NY for restaurant space that it subleases to Bagatelle NY. Rental income of approximately $0.2 million and $0.1 million was recorded from this entity for the three months ended June 30, 2019 and 2018, respectively, and $0.3 million was recorded from this entity for the each of the six months ended June 30, 2019 and 2018, respectively.

Net receivables from the Bagatelle Investors and Bagatelle NY included in due from related parties, net were approximately $0.3 million and $0.1 million as of June 30, 2019 and December 31, 2018, respectively. These receivables, combined with the Company’s equity in each of these investments, represent the Company’s maximum exposure to loss.

In the first quarter of 2018, the Company sold its 10% interest in a cost method investment, One 29 Park, LLC, for $0.6 million, resulting in a gain of $0.2 million. The gain is included as a component of other income, net on the consolidated statements of operations and comprehensive income for the six months ended June 30, 2018. The investment was accounted for under the cost method of accounting. The Company had also entered into a management agreement with One 29 Park, LLC, under which the Company recorded management fee revenue of $0.1 million and $0.2 million for the three and six months ended June 30, 2018. The management agreement with One 29 Park, LLC terminated on September 30, 2018.

Note 9 – Related Party Transactions

Net amounts due to related parties were $0.3 million and $1.2 million as of June 30, 2019 and December 31, 2018, respectively. The Company has not reserved any related party receivables as of June 30, 2019 and December 31, 2018.

During the fourth quarter of 2016, the Company received approximately $1.2 million in cash advances from the TOG Liquidation Trust. The TOG Liquidation Trust is a trust that was set up in connection with a 2013 merger transaction to hold previously issued and outstanding warrants held by members of the predecessor company. Amounts due to the trust were non-interest bearing and were repayable in 2021 when the trust expires. In conjunction with entering into the Credit Agreement on May 15, 2019, the Company prepaid the $1.2 million balance due to the TOG Liquidation Trust. As a result of the prepayment, there was no amount outstanding to the TOG Liquidation Trust as of June 30, 2019. As of December 31, 2018, the $1.2 million balance due to the Liquidation Trust was included in due to related parties, long-term.

Please refer to Note 8 for details on other transactions with other related parties, and refer to Note 6 for details related to the Credit Agreement.

Note 10 – Income taxes

The Company’s effective income tax rate was 10.2% for the six months ended June 30 2019 compared to 31.0% for the six months ended June 30, 2018. The effective income tax rate for the six months ended June 30, 2019 was lower compared to the six months ended June 30, 2018 primarily due to the tax rates applied to domestic and foreign income (loss). Additionally, the Company’s projected annual effective tax rate differs from the statutory U.S. tax rate of 21% primarily due to the following: (i) availability of U.S. net operating loss carryforwards, resulting in no federal income taxes; (ii) a full valuation allowance on the U.S. deferred tax assets, net; (iii) taxes owed in foreign jurisdictions such as the United Kingdom, Canada and Italy; and, (iv) taxes owed in state and local jurisdictions such as New York, New York City, Colorado and Tennessee.

The Company is subject to income taxes in the U.S. federal jurisdiction, and the various states and local jurisdictions in which it operates. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require

11

significant judgment to apply. In the normal course of business, the Company is subject to examination by the federal, state, local and foreign taxing authorities.

Note 11 – Revenue from contracts with customers

The following table provides information about contract receivables and liabilities, which include deferred license revenue and deferred gift card and gift certificate revenue, from contracts with customers (in thousands):

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

2019

 

2018

Receivables (1)

 

$

125

 

$

174

Deferred license revenue (2)

 

 

1,190

 

 

1,179

Deferred gift card and gift certificate revenue (3)

 

$

221

 

$

491


(1)

Receivables are included in accounts receivable on the consolidated balance sheets.

(2)

Includes the current and long-term portion of deferred license revenue.

(3)

Deferred gift card and gift certificate revenue is included in deferred gift card revenue and other on the consolidated balance sheets.

The Company determined that the services it provides under its licensing agreements are primarily the rights to access and derive benefit from our symbolic intellectual property. As a result, the initial license fees and upfront fees are recognized on a straight-line basis over the term of the license agreement as a component of management, license and incentive fee revenue on the consolidated statements of operations and comprehensive income. Sales-based royalties are recognized as licensee restaurant sales occur.

Significant changes in deferred license revenue for the six months ended June 30, 2019 were as follows (in thousands):

 

 

 

 

 

Deferred license revenue, as of December 31, 2018

 

$

1,179

Additions to deferred license revenue

 

 

111

Revenue recognized during the period

 

 

(100)

Deferred license revenue, as of June 30, 2019

 

$

1,190

 

As of June 30, 2019, the estimated deferred license revenue to be recognized in the future related to performance obligations that are unsatisfied as of June 30, 2019 was as follows (in thousands):

 

 

 

 

 

2019, six months remaining

    

$

95

2020

 

 

191

2021

 

 

191

2022

 

 

166

2023

 

 

136

Thereafter

 

 

411

Total future estimated deferred license revenue

 

$

1,190

 

Proceeds from the sale of gift cards and gift certificates are recorded as deferred revenue and recognized as revenue when redeemed by the holder. There are no expiration dates on the Company’s gift card and gift certificates and the Company does not charge any service fees that would result in a decrease to a customer’s available balance. Although the Company will continue to honor all gift card and gift certificates presented for payment, it may determine the likelihood of redemption to be remote for certain gift cards and gift certificates due to, among other things, long periods of inactivity. In these circumstances, to the extent the Company determines there is no requirement for remitting balances to government agencies under unclaimed property laws, outstanding gift card and gift certificate balances may then be recognized as breakage in the consolidated statements of operations and comprehensive income as a component of owned food, beverage and other net revenues.

12

Significant changes in deferred gift card and gift certificate revenue for the six months ended June 30, 2019 were as follows (in thousands):

 

 

 

 

 

Deferred gift card and gift certificate revenue, as of December 31, 2018

 

$

491

Additions to deferred gift card and gift certificates revenue

 

 

296

Revenue recognized during the period related to redemptions

 

 

(566)

Deferred gift card and gift certificate revenue, as of June 30, 2019

 

$

221

 

The Company recognized revenue of $0.3 million and $0.2 million related to our contract liabilities, which include deferred license revenue and deferred gift card and gift certificate revenue, in the three months ended June 30, 2019 and 2018, respectively, and $0.7 million and $0.5 million in the six months ended June 30, 2019 and 2018, respectively.

Note 12 – Leases

The Company adopted ASC Topic 842 as of January 1, 2019 using the optional transition method and has applied its transition provisions at the beginning of the period of adoption. As a result, the Company did not restate comparative periods. Under this transition provision, the Company has applied the legacy guidance under Accounting Standard Codification Topic 840, Leases, including its disclosure requirements, in the comparative periods presented.

Under ASC Topic 842, a lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company’s contracts determined to be or contain a lease include explicitly or implicitly identified assets where the Company has the right to substantially all of the economic benefits of the assets and has the ability to direct how and for what purpose the assets are used during the lease term. Leases are classified as either operating or financing. For operating leases, the Company has recognized a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as prepaid rents, initial direct costs and lease incentives received from the lessor. The Company used its incremental borrowing rate to determine the present value of the lease payments. The Company’s incremental borrowing rate is the rate of interest that it would have to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

ASC Topic 842 includes practical expedient and policy election choices. The Company elected the practical expedient transition package available in ASC Topic 842 and, as a result, did not reassess the lease classification of existing contracts or leases or the initial direct costs associated with existing leases. The Company has made an accounting policy election not to recognize right of use assets and lease liabilities for leases with a lease term of 12 months or less, including renewal options that are reasonably certain to be exercised, that also do not include an option to purchase the underlying asset that is reasonably certain of exercise. Instead, lease payments for these leases are recognized as lease cost on a straight-line basis over the lease term. Additionally, the Company has elected not to separate the accounting for lease components and non-lease components, for all leased assets.

The Company did not elect the hindsight practical expedient, and therefore the Company did not reassess its historical conclusions with regards to whether renewal option periods should be included in the terms of its leases. Given the importance of each of its restaurant locations to its operations, the Company historically concluded that it was reasonably assured of exercising all renewal periods included in its leases as failure to exercise such options would result in an economic penalty. The Company also did not elect the portfolio approach practical expedient, which permits applying the standard to a portfolio of leases with similar characteristics.

Upon adoption on January 1, 2019, the Company recognized right-of-use assets and lease liabilities for operating leases of $41.8 million and $58.9 million, respectively. The difference between the right-of-use asset and lease liability represents the net book value of deferred rent and tenant improvement allowances recognized by the Company as of December 31, 2018, which was adjusted against the right-of-use asset upon adoption of ASC Topic 842. There was no impact to the opening balance of retained earnings upon adoption.

13

The changes due to the adoption of ASC Topic 842 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASC 842

 

 

 

 

 

December 31, 2018

 

Adjustments

 

January 1, 2019

Assets

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

 

$

41,868

 

$

41,868

Liabilities

 

 

 

 

 

 

 

 

 

Current portion of operating lease liabilities

 

$

 

$

3,212

 

$

3,212

Operating lease liability, net of current portion

 

 

 —

 

 

55,679

 

 

55,679

Deferred gift card revenue and other

 

 

947

 

 

(249)

 

 

698

Deferred rent and tenant improvement allowances

 

$

16,774

 

$

(16,774)

 

$

 

There was no impact to the Company’s consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018.

The Company enters into contracts to lease office space, restaurant space and equipment with terms that expire at various dates through 2039. Under ASC Topic 842, the lease term at the lease commencement date is determined based on the non-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option, and periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor. The Company considered a number of factors when evaluating whether the options in its lease contracts were reasonably certain of exercise, such as length of time before option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic penalties.

Certain of the Company’s leases also provide for percentage rent, which are variable lease costs determined as a percentage of gross sales in excess of specified, minimum sales targets, as well as other variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such as common area maintenance services.  These percentage rents and other variable lease costs are not included in the calculation of lease payments when classifying a lease and in the measurement of the lease liability as they do not meet the definition of in-substance, fixed-lease payments under ASC Topic 842.

The Company subleases portions of its office and restaurant space where it does not use the entire space for its operations. For the three and six months ended June 30, 2019, sublease income was $0.3 million and $0.5 million, respectively, of which $0.2 million and $0.3 million, respectively, was from related party, Bagatelle NY. Refer to Note 8 for details on transactions with this related party.

ASC Topic 842 includes a number of reassessment and re-measurement requirements for lessees based on certain triggering events or conditions, including whether a contract is or contains a lease, assessment of lease term and purchase options, measurement of lease payments, assessment of lease classification and assessment of the discount rate. The Company reviewed the reassessment and re-measurement requirements and concluded that a lease for office space required reassessment as the Company had determined not to elect to exercise an option that it had previously determined it was reasonably certain to exercise. As a result, the Company remeasured the lease liability to reflect the change in lease payments, which resulted in a reduction in the operating lease liability and a corresponding adjustment to the operating lease right-of-use asset of $1.2 million in the six months ended June 30,  2019. In addition, there were no impairment indicators identified during the six months ended June 30, 2019 that required an impairment test for the Company’s right-of-use assets or other long-lived assets in accordance with Accounting Standard Codification Topic 360, Property, Plant, and Equipment.

14

The components of lease expense for the period were as follows (in thousands):

 

 

 

 

 

 

 

 

June 30, 

 

 

 

2019

 

Lease cost

 

 

 

 

Operating lease cost

 

$

3,372

 

Variable lease cost

 

 

1,297

 

Short-term lease cost

 

 

214

 

Sublease income

 

 

(474)

 

Total lease cost

 

$

4,409

 

 

 

 

 

 

Weighted average remaining lease term – operating leases

 

 

14 years