10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

	(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended March 31, 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 x  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 x 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  x	Smaller reporting company  x
	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 x

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 May 8, 2019:  28,628,880

TABLE OF CONTENTS

	Page
PART I – Financial Information
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	32
PART II – Other Information
Item 1. Legal Proceedings	32
Item 6. Exhibits	33
Signatures	33

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)

	(Unaudited),
	March 31,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	1,079		$	1,592
Accounts receivable		5,946			7,029
Inventory		1,243			1,404
Other current assets		1,570			1,471
Due from related parties, net		123			45
Total current assets		9,961			11,541
Property and equipment, net		40,465			39,347
Operating lease right-of-use assets		40,073			—
Investments		2,684			2,684
Deferred tax assets, net		28			38
Other assets		341			349
Security deposits		2,039			2,020
Total assets	$	95,591		$	55,979
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,700		$	5,408
Accrued expenses		6,836			8,093
Deferred license revenue		154			171
Deferred gift card revenue and other		783			947
Current portion of operating lease liabilities		2,197			—
Current portion of long-term debt		2,844			3,201
Total current liabilities		18,514			17,820
Deferred license revenue, long-term		1,081			1,008
Due to related parties, long-term		1,197			1,197
Operating lease liability, net of current portion		55,220			—
Deferred rent and tenant improvement allowances		—			16,774
Long-term debt, net of current portion		6,727			7,118
Total liabilities		82,739			43,917
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.0001 par value, 75,000,000 shares authorized; 28,333,561 and 28,313,017 shares issued and outstanding at March 31, 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 March 31, 2019 and December 31, 2018, respectively		—			—
Additional paid-in capital		43,724			43,543
Accumulated deficit		(27,868	)		(28,722	)
Accumulated other comprehensive loss		(2,470	)		(2,310	)
Total stockholders’ equity		13,389			12,514
Noncontrolling interests		(537	)		(452	)
Total equity		12,852			12,062
Total liabilities and equity	$	95,591		$	55,979

See notes to the consolidated financial statements.

3

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

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

	For the three months ended March 31,
	2019			2018
Revenues:
Owned restaurant net revenues	$	17,820		$	15,076
Owned food, beverage and other net revenues		2,273			2,005
Total owned revenue		20,093			17,081
Management, license and incentive fee revenue		2,683			2,436
Total revenues		22,776			19,517
Cost and expenses:
Owned operating expenses:
Owned restaurants:
Owned restaurant cost of sales		4,569			4,034
Owned restaurant operating expenses		10,915			9,378
Total owned restaurant expenses		15,484			13,412
Owned food, beverage and other expenses		2,259			1,689
Total owned operating expenses		17,743			15,101
General and administrative (including stock-based compensation of $181 and $324 for the three months ended March 31, 2019 and 2018 respectively)		2,650			3,055
Depreciation and amortization		942			778
Pre-opening expenses		482			210
Equity in income of investee companies		—			23
Other income, net		(175	)		(111	)
Total costs and expenses		21,642			19,056
Operating income		1,134			461
Other expenses, net:
Interest expense, net of interest income		269			318
Total other expenses, net		269			318
Income before provision for income taxes		865			143
Provision for income taxes		96			25
Net income		769			118
Less: net loss attributable to noncontrolling interest		(85	)		(113	)
Net income attributable to The ONE Group Hospitality, Inc.	$	854		$	231
Currency translation adjustment		(160	)		(75	)
Comprehensive income	$	694		$	156
Net income attributable to The ONE Group Hospitality, Inc. per share:
Basic net income per share	$	0.03		$	0.01
Diluted net income per share	$	0.03		$	0.01
Shares used in computing basic earnings per share		28,314,820			27,187,657
Shares used in computing diluted earnings per share		29,311,756			27,388,498

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)

	Common stock									Accumulated
	Shares		Par value		Additional paid-in capital		Accumulated deficit			other comprehensive loss			Stockholders' equity			Noncontrolling 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		—		—		181		—			—			181			—			181
Vesting of restricted shares		20,544		—		—		—			—			—			—			—
Loss on foreign currency translation, net		—		—		—		—			(160	)		(160	)		—			(160	)
Net income		—		—		—		854			—			854			(85	)		769
Balance at March 31, 2019		28,333,561	$	3	$	43,724	$	(27,868	)	$	(2,470	)	$	13,389		$	(537	)	$	12,852

See notes to the consolidated financial statements.

5

THE ONE GROUP HOSPITALITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	For the three months ended March 31,
	2019			2018
Operating activities:
Net income	$	769		$	118
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		942			778
Amortization of discount on warrants		50			51
Deferred rent and tenant improvement allowances		—			(18	)
Deferred taxes		10			(2	)
Income from equity method investments		—			23
Gain on disposition of cost method investment		—			(185	)
Stock-based compensation		181			324
Changes in operating assets and liabilities:
Accounts receivable		1,147			190
Inventory		161			115
Other current assets		(96	)		(211	)
Due from related parties, net		(38	)		(99	)
Security deposits		(18	)		(54	)
Other assets		8			(37	)
Accounts payable		270			(203	)
Accrued expenses		(1,331	)		(718	)
Operating lease liabilities and right-of-use assets		321			—
Deferred revenue		137			100
Net cash provided by operating activities		2,513			172
Investing activities:
Purchase of property and equipment		(2,060	)		(306	)
Proceeds from disposition of cost method investment		—			600
Net cash (used in) provided by investing activities		(2,060	)		294
Financing activities:
Repayment of term loan		(707	)		(694	)
Repayment of equipment financing agreement		(91	)		(87	)
Repayment of business loan and security agreement		—			(62	)
Net cash used in financing activities		(798	)		(843	)
Effect of exchange rate changes on cash		(168	)		(28	)
Net decrease in cash and cash equivalents		(513	)		(405	)
Cash and cash equivalents, beginning of year		1,592			1,548
Cash and cash equivalents, end of year	$	1,079		$	1,143
Supplemental disclosure of cash flow data:
Interest paid	$	235		$	142
Income taxes paid		191			26
Non-cash amortization of debt issuance costs	$	5		$	5

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 March 31, 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 including F&B services provided to four hotels and casinos 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 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.

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.

7

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.

Note 2 – Inventory

Inventory consists of the following (in thousands):

	March 31,		December 31,
	2019		2018
Food	$	225	$	300
Beverages		1,018		1,104
Total	$	1,243	$	1,404

Note 3 – Other Current Assets

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

	March 31,		December 31,
	2019		2018
Prepaid taxes	$	560	$	503
Landlord receivable		195		195
Prepaid expenses		809		680
Other		6		93
Total	$	1,570	$	1,471

Note 4 – Property and Equipment, net

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

	March 31,			December 31,
	2019			2018
Furniture, fixtures and equipment	$	11,024		$	10,425
Leasehold improvements		45,531			43,890
Less: accumulated depreciation and amortization		(17,911	)		(16,969	)
Subtotal		38,644			37,346
Construction in progress		—			336
Restaurant supplies		1,821			1,665
Total	$	40,465		$	39,347

Depreciation and amortization related to property and equipment amounted to $0.9 million and $0.8 million for the three months ended March 31, 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):

	March 31,		December 31,
	2019		2018
Payroll and related	$	1,878	$	1,794
Variable rent, including disputed rent amounts		1,506		1,766
Legal, professional and other services		807		1,028
VAT and sales taxes		530		645
Income taxes and related		416		685
Insurance		317		203
Due to hotels		35		212
Other		1,347		1,760
Total	$	6,836	$	8,093

Note 6 – Long-Term Debt

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

	March 31,			December 31,
	2019			2018
Term loan agreements	$	3,121		$	3,828
Promissory notes		6,250			6,250
Equipment financing agreements		661			752
Total long-term debt		10,032			10,830
Less: current portion of long-term debt		(2,844	)		(3,201	)
Less: discounts on warrants, net		(434	)		(479	)
Less: debt issuance costs		(27	)		(32	)
Total long-term debt, net of current portion	$	6,727		$	7,118

Interest expense for all the Company’s debt arrangements, excluding the amortization of debt issuance costs and other discounts and fees, was approximately $0.2 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, the Company had $1.3 million in letters of credit outstanding for certain restaurants. These letters of credit, which are cash collateralized, are recorded as a component of security deposits on the consolidated balance sheet as of March 31, 2019.

The Company’s term loan agreements with Bank United are secured by substantially all of the Company’s assets. The term loan agreements contain certain affirmative and negative covenants that limit or restrict, among other things, liens and encumbrances, indebtedness, mergers, asset sales, investments, assumptions and guaranties of indebtedness of other persons, change in nature of operations, changes in fiscal year and other matters customarily restricted in such agreements. The financial covenants contained in these agreements require the borrowers to maintain a certain adjusted tangible net worth and a debt service coverage ratio. As of March 31, 2019, the Company is in compliance with all of its financial covenants under the term loan agreements.

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 March 31, 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. Fair value is determined by discounting future cash flows using interest rates available for issues with similar terms and maturities.

9

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

	March 31,		December 31,
	2019		2018
Carrying amount of long-term debt, including current portion (1)	$	10,032	$	10,830
Fair value of long-term debt, including current portion	$	6,616	$	7,648

(1) Excludes the discounts on warrants, net and debt issuance costs

Note 8 – Nonconsolidated Variable Interest Entities

As of March 31, 2019 and December 31, 2018, the Company owned interests in the following companies, which directly or indirectly operate restaurants:

· 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. The Company accounts for its investments in these entities under the equity method of accounting based on management’s assessment that although it is not the primary beneficiary of these entities because it does not have the power to direct their day to day activities, the Company is able to exercise influence over these entities. The Company has provided no additional types of support to these entities than what is contractually required.

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

	March 31,		December 31,
	2019		2018
Bagatelle Investors	$	56	$	56
Bagatelle NY		2,628		2,628
Total	$	2,684	$	2,684

For the three months ended March 31, 2018, the equity in income of investee companies for the equity method investments discussed above was approximately $23.0 thousand. There was no equity in income for the three months ended March 31, 2019.

Additionally, the Company has entered into a management agreement with Bagatelle NY. Under this agreement, the Company recorded management fee revenue of approximately $44.0 thousand and $37.0 thousand for the three months ended March 31, 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 $0.1 million was recorded from this entity for each three months ended March 31, 2019 and 2018.

Net receivables from the Bagatelle Investors and Bagatelle NY included in due from related parties, net were approximately $0.2 million and $0.1 million as of March 31, 2019 and December 31, 2018. These receivables, combined with the Company’s equity in each of these investments, represent the Company’s maximum exposure to loss.

In the three months ended March 31, 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 expenses, net” on the consolidated statement of operations and comprehensive income. 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 for the three months ended March 31, 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 $1.1 million and $1.2 million as of March 31, 2019 and December 31, 2018, respectively. The Company has not reserved any related party receivables as of March 31,2019 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 “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 are non-interest bearing and are repayable in 2021 when the trust expires. As of March 31, 2019 and December 31, 2018, the balance due to the Liquidation Trust included in due to related parties, long-term was approximately $1.2 million.

10

Please refer to Note 8 for details on other transactions with related parties.

Note 10 – Income taxes

The Company’s effective income tax rate was 11.1% for the three months ended March 31 2019 compared to 17.5% for the three months ended March 31, 2018. The effective income tax rate for the three months ended March 31, 2019 was lower compared to the three months ended March 31, 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 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 receivables and contract liabilities, which include deferred license revenue and deferred gift card and gift certificate revenue, from contracts with customers (in thousands):

	March 31, 2019		December 31, 2018
Receivables (1)	$	—	$	174
Deferred license revenue (2)		1,235		1,179
Deferred gift card and gift certificate revenue (3)	$	331	$	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 statement of operations and comprehensive income. Sales-based royalties are recognized as licensee restaurant sales occur.

Significant changes in deferred license revenue for the three months ended March 31, 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		(55	)
Deferred license revenue, as of March 31, 2019	$	1,235

As of March 31, 2019, the estimated deferred license revenue to be recognized in the future related to performance obligations that are unsatisfied as of March 31, 2019 was as follows (in thousands):

2019, nine months remaining	$	143
2020		191
2021		191
2022		163
2023		136
Thereafter		411
Total future estimated deferred license revenue	$	1,235

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.

11

Significant changes in deferred gift card and gift certificate revenue for the three months ended March 31, 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		123
Revenue recognized during the period related to redemptions		(283	)
Deferred gift card and gift certificate revenue, as of March 31, 2019	$	331

In each of three months ended March 31, 2019 and 2018, the Company recognized revenue of $0.3 million related to our contract liabilities.

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.

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.

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

	December 31, 2018		ASC 842 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 statement of operations and comprehensive income for the three months ended March 31, 2019 compared to the three months ended March 31, 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 variable rent, which is determined as a percentage of gross sales in excess of specified, minimum sales targets. These variable rents 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 months ended March 31, 2019, sublease income was $0.2 million, of which $0.1 million was from related party, Bagatelle NY. Refer to Note 8 for details on transactions with this related party.

Certain of the Company’s leases include 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. The Company has elected not to separate the accounting for lease components and non-lease components, for all leased assets.

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 three months ended March 31, 2019. In addition, there were no impairment indicators identified during the three months ended March 31, 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.

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

	March 31,
	2019
Lease cost
Operating lease cost	$	1,726
Variable lease cost		674
Short-term lease cost		108
Sublease income		(203	)
Total lease cost	$	2,305
Weighted average remaining lease term – operating leases		14 years
Weighted average discount rate – operating leases		8.25	%

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Supplemental cash flow information related to leases for the period was as follows (in thousands):

	March 31,
	2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,718
Right-of-use assets obtained in exchange for operating lease obligations	$	281

As of March 31, 2019, maturities of the Company’s operating lease liabilities are as follows (in thousands):

2019, nine months remaining	$	5,167
2020		6,801
2021		6,545
2022		6,669
2023		6,805
Thereafter		69,536
Total lease payments		101,523
Less: imputed interest		(44,106	)
Present value of operating lease liabilities	$	57,417

Note 13 – Earnings per share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period and income available to common stockholders. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of all potential shares of common stock including common stock issuable pursuant to stock options, warrants, and restricted stock units.

For the three months ended March 31, 2019 and 2018, the earnings per share was calculated as follows (in thousands, except earnings per share and related share data):

	Three months ended March 31,
	2019		2018
Net income attributable to The ONE Group Hospitality, Inc.	$	854	$	231
Basic weighted average shares outstanding		28,314,820		27,187,657
Dilutive effect of stock options, warrants and restricted share units		996,936		200,841
Diluted weighted average shares outstanding		29,311,756		27,388,498
Net income available to common stockholders per share - Basic	$	0.03	$	0.01
Net income available to common stockholders per share - Diluted	$	0.03	$	0.01

For the three months ended March 31, 2019, 0.9 million stock options, warrants and restricted share units were determined to be anti-dilutive and were therefore excluded from the calculation of diluted earnings per share. For the three months ended March 31, 2018, 2.0 million stock options, warrants and restricted share units were determined to be anti-dilutive and were therefore excluded from the calculation of diluted earnings per share.

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Note 14 – Stockholders’ Equity

Significant changes in stockholders’ equity for the three months ended March 31, 2019 and 2018 are as follows (in thousands):

	Common Stock		Additional paid-in capital		Accumulated deficit			Accumulated other comprehensive loss			Noncontrolling interests			Total
Balance at December 31, 2018	$	3	$	43,543	$	(28,722	)	$	(2,310	)	$	(452	)	$	12,062
Stock-based compensation		—		181		—			—			—			181
Loss on foreign currency translation, net		—		—		—			(160	)		—			(160	)
Net income (loss)		—		—		854			—			(85	)		769
Balance at March 31, 2019	$	3	$	43,724	$	(27,868	)	$	(2,470	)	$	(537	)	$	12,852

	Common Stock		Additional paid-in capital		Accumulated deficit			Accumulated other comprehensive loss			Noncontrolling interests			Total
Balance at December 31, 2017	$	3	$	41,007	$	(31,979	)	$	(1,556	)	$	(922	)	$	6,553
Adoption of ASC 606 “Revenue from contracts with customers”		—		—		(54	)		—			—			(54	)
Stock-based compensation		—		324		—			—			—			324
Vesting of restricted shares		—		—		—			—			—			—
Loss on foreign currency translation, net		—		—		—			(75	)		—			(75	)
Net income (loss)		—		—		231			—			(113	)		118
Balance at March 31, 2018	$	3	$	41,331	$	(31,802	)	$	(1,631	)	$	(1,035	)	$	6,866

Note 15 - Stock-Based Compensation

As of March 31, 2019, the Company had 458,746 remaining shares available for issuance under the 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Equity Plan”).

Stock-based compensation cost for each of the three months ended March 31, 2019 and 2018 was $0.2 million and is included in general and administrative expenses in the consolidated statement of operations and comprehensive income.

Stock Option Activity

Changes in outstanding stock options during the three months ended March 31, 2019 were as follows:

	Shares			Weighted average exercise price		Weighted average remaining contractual life	Intrinsic value (thousands)
Outstanding at December 31, 2018		2,001,008		$	3.29
Granted		68,000			2.99
Exercised		—			—
Cancelled, expired or forfeited		(63,000	)		2.80
Outstanding at March 31, 2019		2,006,008		$	3.29	6.67 years	$	1,063
Exercisable at March 31, 2019		1,065,508		$	4.16	5.45 years	$	—

The fair value of options granted in the three months ended March 31, 2019 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Expected life, in years	8.5 years
Risk-free interest rate	2.62	%
Volatility	42.0	%
Dividend yield	0.0	%

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A summary of the status of the Company’s non-vested stock options as of December 31, 2018 and March 31, 2019 and changes during the three months then ended, is presented below:

	Shares			Weighted average grant date fair value
Non-vested stock options at December 31, 2018		926,500		$	0.91
Granted		68,000			2.99
Vested		—			—
Cancelled, expired or forfeited		(54,000	)		0.99
Non-vested stock options at March 31, 2019		940,500		$	0.95

As of March 31, 2019, there are 579,402 milestone-based options outstanding. These options vest based on the achievement of Company and individual objectives as set by the Board.

As of March 31, 2019, there is approximately $0.6 million of total unrecognized compensation cost related to non-vested awards, which will be recognized over a weighted-average period of 2.8 years.

Restricted Stock Unit Activity

The Company issues restricted stock units (“RSUs”) under the 2013 Equity Plan. The fair value of these RSUs is determined based upon the closing fair market value of the Company’s common stock on the grant date.

A summary of the status of RSUs and changes during the three months ended March 31, 2019 is presented below:

	Shares			Weighted average grant date fair value
Non-vested RSUs at December 31, 2018		764,201		$	2.54
Granted		142,205			2.93
Vested		(20,544	)		2.86
Cancelled, expired or forfeited		(9,000	)		2.73
Non-vested RSUs at March 31, 2019		764,201		$	2.59

As of March 31, 2019, 150,000 RSUs subject to performance-based vesting were still outstanding. As of March 31, 2019, the Company had approximately $3.2 million of total unrecognized compensation costs related to RSUs, which will be recognized over a weighted average period of 2.8 years.

Note 16 - Segment Reporting

The Company operates in three segments: “Owned restaurants,” “Owned food, beverage and other,” and “Managed and licensed operations.” The Owned restaurants segment consists of leased restaurant locations and competes in the full-service dining industry. The Owned food, beverage and other segment consists of hybrid operations, such as where the Company has a leased restaurant location and also has a food and beverage agreement at the same location, typically a hotel, and offsite banquet offerings. The Managed and licensed operations segment includes all operations for which a management, incentive or license fee is received. Management agreements generate management fees on net revenue and incentive fees on operating profit as defined in the applicable management agreement. License agreements generate revenue primarily through royalties earned on net revenue at each location. Revenues associated with developmental support for licensed locations are also included within this segment.

The Company’s Chief Executive Officer (“CEO”), who has been deemed the Company’s Chief Operating Decision Maker, manages the business and allocates resources via a combination of restaurant sales reports and segment profit information (which is defined as revenues less operating expenses) related to the Company’s three segments, or sources of revenues, which are presented in their entirety within the consolidated statements of operations and comprehensive income.

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The Company’s operating results by segment were as follows (in thousands):

	For the three months ended March 31, 2019
	Owned restaurants		Owned food, beverage and other		Managed and licensed operations		Total
Revenues:
Owned net revenues	$	17,820	$	2,273	$	—	$	20,093
Management, license and incentive fee revenue		—		—		2,683		2,683
Total revenues		17,820		2,273		2,683		22,776
Cost and expenses:
Owned operating expenses:
Cost of sales		4,569		—		—		4,569
Other operating expenses		10,915		—		—		10,915
Owned food, beverage and other expenses		—		2,259		—		2,259
Total owned operating expenses		15,484		2,259		—		17,743
Segment income	$	2,336	$	14	$	2,683	$	5,033
General and administrative								2,650
Depreciation and amortization								942
Interest expense, net of interest income								269
Equity in income of investee companies								—
Other								307
Income before provision for income taxes							$	865

	For the three months ended March 31, 2018
	Owned restaurants		Owned food, beverage and other		Managed and licensed operations		Total
Revenues:
Owned net revenues	$	15,076	$	2,005	$	—	$	17,081
Management, license and incentive fee revenue		—		—		2,436		2,436
Total revenues		15,076		2,005		2,436		19,517
Cost and expenses:
Owned operating expenses:
Cost of sales		4,034		—		—		4,034
Other operating expenses		9,378		—		—		9,378
Owned food, beverage and other expenses		—		1,689		—		1,689
Total owned operating expenses		13,412		1,689		—		15,101
Segment income	$	1,664	$	316	$	2,436	$	4,416
General and administrative								3,055
Depreciation and amortization								778
Interest expense, net of interest income								318
Equity in loss of investee companies								23
Other								99
Income before provision for income taxes							$	143

The Company’s total assets by segment for the periods indicated were as follows (in thousands):

	March 31,		December 31,
	2019		2018
Total assets:
Owned restaurants	$	75,272	$	42,971
Owned food, beverage and other operations (1)		15,591		7,274
Managed and licensed operations		4,728		5,734
Total	$	95,591	$	55,979

(1) Includes corporate assets

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The Company’s total assets increased $40.1 million as of March 31, 2019 compared to December 31, 2018 as a result of adopting ASC Topic 842 during the first quarter of 2019. Refer to Note 12 for additional information regarding the adoption of ASC Topic 842.

The Company’s capital asset additions by segment for the periods indicated were as follows (in thousands):

	For the three months ended March 31,
	2019		2018
Capital assets additions:
Owned restaurants	$	1,762	$	301
Owned food, beverage and other operations (1)		298		5
Managed and licensed operations		—		—
Total	$	2,060	$	306

(1) Includes corporate capital asset additions

Note 17 - Geographic Information

The following tables contains certain financial information by geographic location for the three months ended March 31, 2019 and 2018 (in thousands):

Revenues

	For the three months ended March 31,
	2019		2018
Domestic:
Owned restaurants	$	17,820	$	15,076
Owned food, beverage and other operations		2,273		2,005
Managed and licensed operations		1,687		1,687
Total domestic revenues	$	21,780	$	18,768
International:
Owned restaurants		—		—
Owned food, beverage and other operations		—		—
Managed and licensed operationstv520238		996		749
Total international revenues	$	996	$	749
Total revenues	$	22,776	$	19,517

Long-lived assets

	March 31,		December 31,
	2019		2018
Domestic:
Owned restaurants	$	72,532	$	38,958
Owned food, beverage and other operations		13,002		5,375
Managed and licensed operations		59		67
Total domestic long-lived assets	$	85,593	$	44,400
International:
Owned restaurants		—		—
Owned food, beverage and other operations		—		—
Managed and licensed operations		37		38
Total international long-lived assets	$	37	$	38
Total long-lived assets	$	85,630	$	44,438

Note 18 – Litigation

The Company is party to claims in lawsuits incidental to its business, including lease disputes and employee-related matters. In the opinion of management, the ultimate outcome of such matters, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

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Note 19 - Liquidity

During the three months ended March 31, 2019, the Company had net income of $0.8 million and had a working capital deficit of $8.6 million. As of March 31, 2019, the Company's accumulated deficit was $27.9 million. Additionally, as of March 31, 2019, the Company's cash and cash equivalents was $1.1 million, and cash from operations for the three months ended March 31, 2019 and 2018 were $2.5 million and $0.2 million, respectively. The Company expects to finance its operations, including the costs of opening planned restaurants, for at least the next twelve months from March 31, 2019 primarily through cash provided by operations. Other sources of liquidity could include additional potential issuances of debt or equity securities in public or private financings or warrant or option exercises.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Forward-looking statements speak only as of the date thereof and, involve risks and uncertainties that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. These risk and uncertainties include, the risk factors discussed under Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Factors that might cause actual events or results to differ materially from those indicated by these forward-looking statements include matters such as general economic conditions, consumer preferences and spending, costs, competition, restaurant openings or closings, operating margins, the availability of acceptable real estate locations, the sufficiency of our cash balances and cash generated from operations and financing activities for our future liquidity and capital resource needs, the impact on our business of Federal and State legislation, litigation, the execution of our growth strategy and other matters. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “ongoing,” “could,” “estimates,” “expects,” “intends,” “may,” “appears,” “suggests,” “future,” “likely,” “goal,” “plans,” “potential,” “projects,” “predicts,” “should,” “targets,” “would,” “will” and similar expressions that convey the uncertainty of future events or outcomes.  You should not place undue reliance on any forward-looking statement. We do not undertake any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required under applicable law.

General

This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

As used in this report, the terms “Company,” “we,” “our,” or “us,” refer to The ONE Group Hospitality, Inc. and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.

Overview

The ONE Group Hospitality, Inc., a Delaware corporation, develops, owns and operates, manages or licenses upscale, high-energy restaurants and lounges and provides turn-key food and beverage services for hospitality venues including hotels, casinos and other high-end locations globally. We define turn-key food and beverage (“F&B”) services as services that can be scaled and implemented by us at a particular hospitality venue and customized for our clients.

We were established with the vision of becoming a global market leader in the hospitality industry by melding high-quality service, ambiance, high-energy and cuisine into one great experience that we refer to as “Vibe Dining.” Our 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. Our F&B hospitality management services include developing, managing and operating restaurants, bars, rooftop lounges, pools, banqueting and catering facilities, private dining rooms, room service and mini bars tailored to the specific needs of high-end hotels and casinos. Our F&B hospitality clients operate global hospitality brands such as the W Hotel, Hippodrome Casino, and ME Hotels.

We opened our first restaurant in January 2004 in New York City and, as of March 31, 2019, we owned, operated, managed or licensed 29 venues including 19 STKs in major metropolitan cities in North America, Europe and the Middle East. In addition, we provided food and beverage services in four hotels and casinos. We generate management and incentive fee revenue (profit sharing) from those restaurants and lounges that we do not own, but instead manage on behalf of our F&B hospitality clients. All our restaurants, lounges and F&B services are designed to create a social dining and high-energy entertainment experience within a destination location. We believe that this design and operating philosophy separates us from more traditional restaurant and foodservice competitors.

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The table below reflects our venues by restaurant brand and geographic location as of March 31, 2019:

	Venues
	STK(1)		Bagatelle		Radio		Hideout		Marconi		Heliot		F&B Services		Total
Domestic
Owned		10		—		—		1		—		—		1		12
Managed		1		1		—		—		—		—		—		2
Licensed		—		—		—		—		—		—		—		—
Total domestic		11		1		—		1		—		—		1		14
International
Owned		—		—		—		—		—		—		—		—
Managed		3		—		2		—		1		1		3		10
Licensed		5		—		—		—		—		—		—		5
Total international		8		—		2		—		1		1		3		15
Total venues		19		1		2		1		1		1		4		29

(1) Locations with an STK and STK Rooftop are considered one venue location. This includes the rooftop in San Diego, CA, which is a licensed location.

Net income attributable to The ONE Group Hospitality, Inc. for the three months ended March 31, 2019 was $0.9 million compared to $0.2 million for the three months ended March 31, 2018. The increase was primarily due to overall sales growth and profitability improvements from existing restaurants, newly owned restaurants and managed and licensed locations combined with labor and spending efficiencies. In the first quarter of 2019, we opened an owned STK restaurant in Nashville, Tennessee and a licensed STK restaurant in Doha, Qatar.

Our Growth Strategies and Outlook

Our growth model is primarily driven by the following:

Expansion of STK. We expect to continue to expand our operations domestically and internationally through a mix of licensed and managed restaurants using a disciplined and targeted site selection process. We refer to this as our “capital light strategy” because it requires significantly less capital than expansion through owned restaurants. Under our capital light strategy, we expect to open as many as three to five STK restaurants annually primarily through management or licensing agreements, provided that we have sufficient interest from prospective licensees, acceptable locations and quality restaurant managers available to support that pace of growth.

We have identified over 75 additional major metropolitan areas across the globe where we could grow our STK brand to 200 restaurants over the foreseeable future. In the first quarter of 2019, we opened an owned STK restaurant in Nashville, Tennessee and a licensed STK restaurant in Doha, Qatar. We expect to continue to grow in 2019 with the planned openings of licensed STK locations in Puerto Rico and Guadalajara, Mexico and a managed STK location in Scottsdale, Arizona.

Expansion through New F&B Hospitality Projects. We believe that we are well positioned to leverage the strength of our brands and the relationships we have developed with global hospitality providers to drive the continued growth of our food and beverage hospitality projects, which traditionally have provided us with revenue through management and incentive revenue while requiring minimal capital expenditures from us. We continue to receive inquiries regarding new services at new hospitality venues globally and continue to work with existing hospitality clients to identify and develop additional opportunities at their venues.

We did not enter into any new F&B hospitality agreements for the three months ended March 31, 2019. In 2019, we plan to add one managed F&B location in Florence, Italy. Going forward, we expect to enter into one to two new F&B hospitality agreements annually.

Increase Our Operating Efficiency and Increase Same Store Sales. In addition to expanding into new cities and hospitality venues, we intend to increase revenue and profits in our existing operations through continued focus on high-quality, high-margin food and beverage menu items.

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We expect domestic STK same store sales (“SSS”) to grow in 2019 between 3% and 4%. For the three months ended March 31, 2019, our SSS increased 8.6% compared to the same prior year period. We consider a domestic owned or managed restaurant to be comparable in the first full quarter following its 18th month of operation to remove the impact of new restaurant openings in comparing the operations of existing restaurants. Our comparable restaurant base for SSS consisted of nine domestic restaurants for the three months ended March 31, 2019.

We believe that our operating margins will improve through growth in SSS and a reduction of store-level operating expenses. Our store-level margins for owned STK locations increased 210 basis points for the three months ended March 31, 2019. As our footprint increases, we expect to benefit by leveraging system-wide operating efficiencies and best practices through the management of our general and administrative expenses as a percentage of overall revenue. We continue to look at opportunities to decrease our general and administrative expenses by outsourcing non-core activities and through increases in staff productivity.

Key Performance Indicators

We use the following key performance indicators in evaluating our restaurants and assessing our business:

Number of Restaurant Openings. Number of restaurant openings reflects the number of restaurants opened during a particular fiscal period. For each restaurant opening, we incur pre-opening costs, which are defined below. Typically, new restaurants open with an initial start-up period of higher than normalized sales volumes (also referred to in the restaurant industry as the “honeymoon” period), which decrease to a steady level approximately 18 to 24 months after opening. However, operating costs during this initial period are also higher than normal, resulting in restaurant operating margins that are generally lower during the start-up period of operation and increase to a steady level approximately 18 to 24 months after opening. Some new restaurants may experience a “honeymoon” period that is either shorter or longer than this time frame. We opened two restaurants in 2019: an owned STK restaurant in Nashville, Tennessee and a licensed STK restaurant in Doha, Qatar.

Average Check. Average check is calculated by dividing total restaurant sales by total entrees sold for a specified period. Our management team uses this indicator to analyze trends in customers’ preferences, customer expenditures and the overall effectiveness of menu changes and price increases. For comparable restaurants, our average check for the three months ended March 31, 2019 was $110.83 compared to $108.89 for the three months ended March 31, 2018.

Average Comparable Restaurant Volume. Average comparable restaurant volume consists of the average sales of our comparable restaurants over a certain period of time. This measure is calculated by dividing total comparable restaurant sales in a given period by the total number of comparable restaurants in that period. This indicator assists management in measuring changes in customer traffic, pricing and development of our brand. Our average comparable restaurant volume for the three months ended March 31, 2019 and March 31, 2018 was $2.7 million and $2.5 million, respectively.

Same Store Sales. SSS represents total food and beverage sales at domestic owned and managed restaurants opened for at least a full 18-month period. This measure includes total revenue from our owned and managed STK locations, and it excludes revenues from our owned F&B services locations. Revenues from locations where we do not directly control the event sales force are excluded from this measure. Domestic SSS increased 8.6% for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.

Key Financial Terms and Metrics

We evaluate our business using a variety of key financial measures:

Segment reporting

We operate in three segments: “Owned restaurants,” “Owned food, beverage and other,” and “Managed and Licensed operations.” Our Owned restaurants segment consists of leased restaurant locations and competes in the full-service dining industry. Our Owned food, beverage and other segment consists of hybrid operations, such as where we have a leased restaurant location and also have a food and beverage agreement at the same location, typically a hotel, and our offsite banquet offerings. The primary component of this segment is our operations at the W Hotel in Beverly Hills, California. Our Managed and Licensed operations segment includes all operations for which a management, incentive or license fee is received. Management agreements generate management fees on net revenue and incentive fees on operating profit as defined in the applicable management agreement. License agreements generate revenue primarily through royalties earned on net revenue at each location. Revenues associated with developmental support for licensed locations are also included within this segment.

See Note 16 to our consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for further information on our segment reporting.

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Revenues

Owned restaurant net revenues. Owned restaurant net revenues consist of food and beverage sales by owned restaurants net of any discounts associated with each sale. For the trailing twelve months ended March 31, 2019, beverage sales comprised 36% of food and beverage sales, before giving effect to any discounts, and food sales comprised the remaining 64%. This indicator assists management in understanding the trends in gross margins of the restaurants.

Owned food, beverage and other net revenue. Owned food, beverage and other net revenues include the sales generated by the STK restaurant at the W Hotel in Los Angeles, California and any ancillary food and beverage hospitality services at the same location. Revenues from offsite banquet services also are reflected in this segment.

Management, license and incentive revenue. Management, license and incentive fee revenues includes: (1) management fees received pursuant to management and license agreements that are calculated based on a fixed percentage of revenues at the managed or licensed location; (2) incentive fees based on the operating profitability of a particular venue, as defined in each agreement; and (3) recognition of license fee related revenues, which are recognized over the term of the license.

We evaluate the performance of our managed and licensed properties based on sales growth, a key driver for management and license fees, and on improvements in operating profitability margins, which, combined with sales, drives incentive fee growth.

Our primary restaurant brand is STK and we specifically look at comparable sales from both owned and managed STKs to understand customer count trends and changes in average check as it relates to our primary restaurant brand.

Cost and expenses

Owned restaurant cost of sales. Owned restaurant cost of sales includes all owned restaurant food and beverage expenditures. We measure cost of goods as a percentage of owned restaurant net revenues. Owned restaurant cost of sales are generally influenced by the cost of food and beverage items, menu mix, discounting activity and restaurant level controls. Purchases of beef represented approximately 37% and 35% of our food and beverage costs for the three months ended March 31, 2019 and 2018, respectively.

Owned restaurant operating expenses. We measure owned restaurant operating expenses as a percentage of owned restaurant net revenues. Owned restaurant operating expenses include the following:

Payroll and related expenses. Payroll and related expenses consist of manager salaries, hourly staff payroll and other payroll-related items, including taxes and fringe benefits. We measure our labor cost efficiency by tracking total labor costs as a percentage of owned restaurant net revenues.

Occupancy. Occupancy comprises all occupancy costs, consisting of both fixed and variable portions of rent, non-cash rent expense, which is a non-cash adjustment included in our Adjusted EBITDA calculation as defined below, common area maintenance charges, real estate property taxes, utilities and other related occupancy costs and is measured by considering both the fixed and variable components of certain occupancy expenses.

Direct operating expenses. Direct operating expenses consist of supplies, such as paper, smallwares, china, silverware and glassware, cleaning supplies and laundry, credit card fees and linen costs. Direct operating expenses are typically measured as a variable expense based on owned restaurant net revenues.

Outside services. Outside services include music and entertainment costs, such as the use of live DJ’s, promoter costs, security services, outside cleaning services and commissions paid to event staff for banquet sales.

Repairs and maintenance. Repairs and maintenance consist of general repair work to maintain our facilities, and computer maintenance contracts. We expect these costs to increase at each facility as they get older.

Marketing. Marketing includes the cost of promoting our brands and, at times, can include the cost of goods used specifically for complementary purposes. Marketing costs will typically be higher during the first 18 months of a restaurant’s operations.

General and administrative. General and administrative expenses are comprised of all corporate overhead expenses, including payroll and related benefits, professional fees, such as legal and accounting fees, insurance and travel expenses. Certain centrally managed general and administrative expenses are allocated specifically to restaurant locations and are reflected in owned restaurant operating expenses and include shared services such as reservations, events and marketing. We expect general and administrative expenses to be leveraged as we grow, become more efficient, and continue to focus on best practices and cost savings measures.

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Depreciation and amortization. Depreciation and amortization consist principally of charges related to the depreciation of fixed assets including leasehold improvements, equipment and furniture and fixtures. Because we intend to support our growth initiatives with an increasing number of managed and licensed restaurant openings, depreciation and amortization is not expected to increase significantly in the near future.

Pre-opening expenses. Pre-opening expenses consist of costs incurred prior to opening an owned or managed STK restaurant at either a leased or F&B location. Pre-opening expenses are comprised principally of manager salaries and relocation costs, employee payroll, training costs for new employees and lease costs incurred prior to opening. We expect these costs to decrease as we focus our growth towards our capital light model. Pre-opening expenses have varied from location to location depending on a number of factors, including the proximity of our existing restaurants; the amount of rent expensed during the construction and in-restaurant training periods; the size and physical layout of each location; the number of management and hourly employees required to operate each restaurant; the relative difficulty of the restaurant staffing process; the cost of travel and lodging for different metropolitan areas; the timing of the restaurant opening; and the extent of unexpected delays, if any, in obtaining necessary licenses and permits to open the restaurant.

Equity in income of subsidiaries. This represents the income that we record under the cost or equity method of accounting for entities that are not consolidated. Included in this amount is our approximate 51% ownership of Bagatelle New York, consisting of a 5.23% direct ownership interest by us and a 45.9% ownership interest through two of our subsidiaries.

Other Items

EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are presented in this Quarterly Report on Form 10-Q and are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization. We define Adjusted EBITDA as net income before interest expense, provision for income taxes, depreciation and amortization, non-cash impairment loss, non-cash rent expense, pre-opening expenses, lease termination expenses, non-recurring gains and losses, stock-based compensation and results from discontinued operations. Not all of the aforementioned items defining Adjusted EBITDA occur in each reporting period but have been included in our definitions of these terms based on our historical activity.

We believe that EBITDA and Adjusted EBITDA are appropriate measures of our operating performance, because they eliminate non-cash expenses that do not reflect our underlying business performance. We use these metrics to facilitate a comparison of our operating performance on a consistent basis from period to period, to analyze the factors and trends affecting our business and to evaluate the performance of our restaurants. Adjusted EBITDA has limitations as an analytical tool and our calculation of Adjusted EBITDA may not be comparable to that reported by other companies; accordingly, you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Adjusted EBITDA is included in this Quarterly Report on Form 10-Q because it is a key measure used by management. Additionally, Adjusted EBITDA is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use Adjusted EBITDA, alongside other GAAP measures such as net income, to measure profitability, as a key profitability target in our budgets, and to compare our performance against that of peer companies despite possible differences in calculation.

Please refer to table on page 28 for our reconciliation of net income to EBITDA and Adjusted EBITDA.

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Results of Operations

The following table sets forth certain statements of operations data for the periods indicated (in thousands):

	For the three months ended March 31,
	2019			2018
Revenues:
Owned restaurant net revenues	$	17,820		$	15,076
Owned food, beverage and other net revenues		2,273			2,005
Total owned revenue		20,093			17,081
Management, license and incentive fee revenue		2,683			2,436
Total revenues		22,776			19,517
Cost and expenses:
Owned operating expenses:
Owned restaurants:
Owned restaurant cost of sales		4,569			4,034
Owned restaurant operating expenses		10,915			9,378
Total owned restaurant expenses		15,484			13,412
Owned food, beverage and other expenses		2,259			1,689
Total owned operating expenses		17,743			15,101
General and administrative (including stock-based compensation of $181 and $324, respectively)		2,650			3,055
Depreciation and amortization		942			778
Pre-opening expenses		482			210
Equity in income of investee companies		—			23
Other income, net		(175	)		(111	)
Total costs and expenses		21,642			19,056
Operating income		1,134			461
Other expenses, net:
Interest expense, net of interest income		269			318
Total other expenses, net		269			318
Income before provision for income taxes		865			143
Provision for income taxes		96			25
Net income		769			118
Less: net loss attributable to noncontrolling interest		(85	)		(113	)
Net income attributable to The ONE Group Hospitality, Inc.	$	854		$	231

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The following table sets forth certain statements of operations data as a percentage of total revenues for the periods indicated:

	For the three months ended March 31,
	2019			2018
Revenues:
Owned restaurant net revenues		78.2	%		77.2	%
Owned food, beverage and other net revenues		10.0	%		10.3	%
Total owned revenue		88.2	%		87.5	%
Management, license and incentive fee revenue		11.8	%		12.5	%
Total revenues		100.0	%		100.0	%
Cost and expenses:
Owned operating expenses:
Owned restaurants:
Owned restaurant cost of sales (1)		25.6	%		26.8	%
Owned restaurant operating expenses (1)		61.3	%		62.2	%
Total owned restaurant expenses (1)		86.9	%		89.0	%
Owned food, beverage and other expenses (2)		99.4	%		84.2	%
Total owned operating expenses (3)		88.3	%		88.4	%
General and administrative (including stock-based compensation of 0.8% and 1.7%, respectively)		11.6	%		15.7	%
Depreciation and amortization		4.1	%		4.0	%
Pre-opening expenses		2.1	%		1.1	%
Equity in income of investee companies		—	%		0.1	%
Other income, net		(0.8	)%		(0.6	)%
Total costs and expenses		95.0	%		97.6	%
Operating income		5.0	%		2.4	%
Other expenses, net:
Interest expense, net of interest income		1.2	%		1.6	%
Total other expenses, net		1.2	%		1.6	%
Income before provision for income taxes		3.8	%		0.7	%
Provision for income taxes		0.4	%		0.1	%
Net income		3.4	%		0.6	%
Less: net loss attributable to noncontrolling interest		(0.4	)%		(0.6	)%
Net income attributable to The ONE Group Hospitality, Inc.		3.7	%		1.2	%

(1) These expenses are being shown as a percentage of owned restaurant net revenues.

(2) These expenses are being shown as a percentage of owned food, beverage and other net revenues.

(3) These expenses are being shown as a percentage of total owned revenue.

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The following tables show our operating results by segment for the periods indicated (in thousands):

	For the three months ended March 31, 2019
	Owned restaurants		Owned food, beverage and other		Managed and licensed operations		Total
Revenues:
Owned net revenues	$	17,820	$	2,273	$	—	$	20,093
Management, license and incentive fee revenue		—		—		2,683		2,683
Total revenues		17,820		2,273		2,683		22,776
Cost and expenses:
Owned operating expenses:
Cost of sales		4,569		—		—		4,569
Other operating expenses		10,915		—		—		10,915
Owned food, beverage and other expenses		—		2,259		—		2,259
Total owned operating expenses		15,484		2,259		—		17,743
Segment income	$	2,336	$	14	$	2,683	$	5,033
General and administrative								2,650
Depreciation and amortization								942
Interest expense, net of interest income								269
Equity in income of investee companies								—
Other								307
Income before provision for income taxes							$	865

	For the three months ended March 31, 2018
	Owned restaurants		Owned food, beverage and other		Managed and licensed operations		Total
Revenues:
Owned net revenues	$	15,076	$	2,005	$	—	$	17,081
Management, license and incentive fee revenue		—		—		2,436		2,436
Total revenues		15,076		2,005		2,436		19,517
Cost and expenses:
Owned operating expenses:
Cost of sales		4,034		—		—		4,034
Other operating expenses		9,378		—		—		9,378
Owned food, beverage and other expenses		—		1,689		—		1,689
Total owned operating expenses		13,412		1,689		—		15,101
Segment income	$	1,664	$	316	$	2,436	$	4,416
General and administrative								3,055
Depreciation and amortization								778
Interest expense, net of interest income								318
Equity in loss of investee companies								23
Other								99
Income before provision for income taxes							$	143

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The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated (in thousands):

	For the three months ended March 31,
	2019			2018
Net income attributable to The ONE Group Hospitality, Inc.	$	854		$	231
Net loss attributable to noncontrolling interest		(85	)		(113	)
Net income		769			118
Interest expense, net of interest income		269			318
Provision for income taxes		96			25
Depreciation and amortization		942			778
EBITDA		2,076			1,239
Non-cash rent expense (1)		(87	)		(20	)
Pre-opening expenses		482			210
Stock-based compensation		181			324
Adjusted EBITDA		2,652			1,753
Adjusted EBITDA attributable to noncontrolling interest		(36	)		(42	)
Adjusted EBITDA attributable to The ONE Group Hospitality, Inc.	$	2,688		$	1,795

(1) Non-cash rent expense is included in owned restaurant operating expenses and general and administrative expense on the statement of operations and comprehensive income.

Results of Operations for the Three Months Ended March 31, 2019 and March 31, 2018

Revenues

Owned restaurant net revenues. Owned restaurant net revenues increased $2.7 million, or 18.2%, from $15.1 million for the three months ended March 31, 2018 to $17.8 million for the three months ended March 31, 2019. This increase was primarily due to the opening of our restaurant in San Diego, California in July 2018 and increased sales at our existing locations. Additionally, in March 2019, we opened our STK restaurant in Nashville, Tennessee. SSS increased 8.6% and average check increased 2.3% for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. Our Denver location, which opened in January 2017, was considered a comparable location for SSS in the three months ended March 31, 2019. To drive revenue, among several strategies, we have recently begun opening our restaurants earlier to take advantage of happy-hour and pre-dinner time frames. We are also now open during lunch hours in several locations.

Owned food, beverage and other revenues. Owned food, beverage and other revenues increased $0.3 million, or 13.4%, from $2.0 million for the three months ended March 31, 2018 to $2.3 million for the three months ended March 31, 2019. The increase in revenue was primarily related to the 2019 Super Bowl party in Atlanta, Georgia for which there was not a similar event in 2018.

Management and license fee revenue. Revenue generated from the restaurants and lounges we operate under management or license agreements, and from F&B services at hospitality venues affects the amount of management and incentive fees that we earn. Management and license fee revenues increased $0.2 million, or 10.1%, from $2.4 million for the three months ended March 31, 2018 to $2.7 million for the three months ended March 31, 2019. The increase was primarily related to new STK licensed locations that opened in 2018, including in Mexico City, Mexico and Dubai, United Arab Emirates. Additionally, in March of 2019, we opened a licensed STK restaurant in Doha, Qatar.

Cost and Expenses

Owned restaurant cost of sales. Food and beverage costs for owned restaurants increased approximately $0.5 million, or 13.3%, from $4.0 million for the three months ended March 31, 2018 to $4.6 million for the three months ended March 31, 2019. This increase was primarily due to increased sales at our existing, owned locations and the opening of our restaurant in San Diego, California in July 2018. Additionally, in March 2019, we opened our STK restaurant in Nashville, Tennessee. As a percentage of owned restaurant net revenues, cost of sales decreased from 26.8% for the three months ended March 31, 2018 to 25.6% for the three months ended March 31, 2019 due to the positive impacts of operating initiatives coupled with selective price increases that we implemented in January 2019. Food revenues as a percentage of total food and beverage revenues were approximately 64% and 68% for the three months ended March 31, 2019 and 2018, respectively. Food costs as a percentage of food revenues are typically higher than beverage costs as a percentage of beverage revenues.

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Owned restaurant operating expenses. Owned restaurant operating expenses increased $1.5 million, or 16.4%, from $9.4 million for the three months ended March 31, 2018 to $10.9 million for the three months ended March 31, 2019. As a percentage of owned restaurant net revenues, owned restaurant operating expenses decreased 110 basis points from 62.2% for the three months ended March 31, 2018 to 61.3% for the three months ended March 31, 2019. This improvement was due to the leverage of SSS growth and labor and spending efficiencies.

Owned food, beverage and other expenses. Owned food, beverage and other expenses increased $0.6 million, or 33.7%, from $1.7 million for the three months ended March 31, 2018 to $2.3 million for the three months ended March 31, 2019. The increase in revenue was primarily related to the 2019 Super Bowl party in Atlanta, Georgia for which there was not a similar event in 2018.

General and administrative. General and administrative costs decreased $0.4 million, or 13.3% from $3.1 million for the three months ended March 31, 2018 to $2.7 million for the three months ended March 31, 2019. The decrease was primarily due to reduced stock-based compensation expense as a result of headcount reductions in 2018 as well as reduced external professional fees. General and administrative costs as a percentage of total revenues decreased from 15.7% for the three months ended March 31, 2018 to 11.6% for the three months ended March 31, 2019.

Depreciation and amortization. Depreciation and amortization expense increased approximately $0.2 million, or 21.1%, from $0.8 million for the three months ended March 31, 2018 to $0.9 million for the three months ended March 31, 2019. The increase was primarily related to the opening of our restaurant in San Diego, California in July 2018.

Pre-opening expenses. Pre-opening expenses for the three months ended March 31, 2019 were $0.5 million compared to pre-opening expenses of $0.2 million for the three months ended March 31, 2018. In 2018, preopening expenses were primarily related to the development of our restaurant at the Andaz Hotel in San Diego, California, which opened in July 2018. In 2019, our preopening expenses related to the opening of our STK restaurant in Nashville, Tennessee in March 2019.

Equity in income of investee companies. Equity in income of investee companies was approximately $23.0 thousand for the three months ended March 31, 2018. We did not recognize any equity in income of investee companies for the three months ended March 31, 2019.

Interest expense, net of interest income. Interest expense, net of interest income was approximately $0.3 million for each of the three months ending March 31, 2019 and 2018.

Provision for income taxes. The provision for income taxes for the three months ended March 31, 2019 was tax expense of $96.0 thousand compared to $25.0 thousand for the three months ended March 31, 2018. Our annual effective tax rate was 9.7% and 15.6% for the three months ended March 31, 2019 and 2018, respectively. Our 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.

Net loss attributable to noncontrolling interest. Net loss attributable to noncontrolling interest was approximately $0.1 million for each of the three months ended March 31, 2019 and 2018.

Liquidity and Capital Resources

Our principal liquidity requirements are to meet our lease obligations, our working capital and capital expenditure needs and to pay principal and interest on our outstanding indebtedness. Subject to our operating performance, which, if significantly adversely affected, would adversely affect the availability of funds, we expect to finance our operations for at least the next 12 months, including costs of opening currently planned new restaurants, through cash provided by operations and construction allowances provided by landlords of certain locations.

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In the context of our current debt structure and projected cash needs, we believe the cash provided by operations is adequate to support our immediate business operations and plans. As of March 31, 2019, we had cash and cash equivalents of approximately $1.1 million.

We expect that our capital expenditures in 2019 will be less than prior years because we expect that that the Nashville, Tennessee STK restaurant will be the only new, owned restaurant we open in 2019. We currently anticipate our total capital expenditures for 2019, inclusive of all maintenance expenditures, will be approximately $3.5 million.

We expect to fund our anticipated capital expenditures for 2019 with current cash on hand, expected cash flows from operations and proceeds from expected tenant improvement allowances. Our future cash requirements will depend on many factors, including the pace of our expansion, conditions in the retail property development market, construction costs, the nature of the specific sites selected for new restaurants, and the nature of the specific leases and associated tenant improvement allowances available, if any, as negotiated with landlords.

Under our current capital light strategy, we plan to enter into management and license agreements for the operation of STKs where we are not required to contribute significant capital upfront. We expect to rely on our cash flow from operations and continued financing to fund the majority of our planned capital expenditures for 2019.

Our operations have not required significant working capital, and, like many restaurant companies, we have negative working capital. Revenues are received primarily in credit card or cash receipts and restaurant operations do not require significant receivables or inventories, other than our wine inventory. In addition, we receive trade credit for the purchase of food, beverages and supplies, thereby reducing the need for incremental working capital to support growth

Cash Flows

The following table summarizes the statement of cash flows for the three months ended March 31, 2019 and March 31, 2018 (in thousands):

	For the three months ended March 31,
	2019			2018
Net cash provided by (used in):
Operating activities	$	2,513		$	172
Investing activities		(2,060	)		294
Financing activities		(798	)		(843	)
Effect of exchange rate changes on cash		(168	)		(28	)
Net increase in cash and cash equivalents	$	(513	)	$	(405	)

Operating Activities

Net cash provided by operating activities was $2.5 million for the three months ended March 31, 2019 compared to $0.2 million for the three months ended March 31, 2018. The increase was primarily attributable to improvements in net income and changes within our working capital accounts due to increased domestic SSS and the openings of our owned STK restaurants in San Diego, California and Nashville, Tennessee in July 2018 and March 2019, respectively.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2019 was $2.1 million compared to net cash provided by investing activities of $0.3 million for the three months ended March 31, 2018. The difference was attributable to increased capital expenditures in 2019 for purchases of property and equipment, primarily related to the construction of our owned restaurants and general capital expenditures of existing restaurants. Additionally, in 2018, we received of $0.6 million of proceeds related to the sale of our interest in One 29 Park, a restaurant and rooftop bar located in a New York City hotel.

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Financing Activities

Net cash used in financing activities for each of the three months ended March 31, 2019 and 2018 was approximately $0.8 million. Net cash used in financing activities primarily relate to repayments for our term loans and equipment financing agreements.

Capital Expenditures and Lease Arrangements

To the extent we open new company-owned restaurants, we anticipate capital expenditures would increase from the amounts described in “Investing Activities” above. Although we are committed to our capital light strategy, in which our capital investment is expected to be limited, we are willing to consider opening owned restaurants as opportunities arise. For owned restaurants, we have typically targeted an average cash investment of approximately $3.8 million for a 10,000 square-foot STK restaurant, net of landlord contributions and equipment financing and excluding pre-opening costs. In addition, some of our existing restaurants will require capital improvements to either maintain or improve the facilities. We may add seating or provide enclosures for outdoor space in the next twelve months at some of our locations.

Our hospitality F&B services projects typically require limited capital investment from us. Capital expenditures for these projects will primarily be funded by cash flows from operations and equipment financing, depending upon the timing of these expenditures and cash availability.

We typically seek to lease our restaurant locations for periods of 10 to 20 years under operating lease arrangements, with a limited number of renewal options. Our rent structure varies from lease to lease, but our leases generally provide for the payment of both minimum and contingent (percentage) rent based on sales, as well as other expenses related to the leases (for example, our pro-rata share of common area maintenance, property tax and insurance expenses). Many of our lease arrangements include the opportunity to secure tenant improvement allowances to partially offset the cost of developing and opening the related restaurants. Generally, landlords recover the cost of such allowances from increased minimum rents. However, there can be no assurance that such allowances will be available to us on each project that we select for development.

Loan Agreements

As of March 31, 2019, our long-term debt consisted of term loans, promissory notes and equipment financing agreements for which no additional financing was available. In 2019, we made principal payments of approximately $0.8 million towards our long-term debt. As of March 31, 2019, we had approximately $10.0 million of outstanding debt to third parties.

Our term loan agreements with BankUnited contain certain affirmative and negative covenants, including negative covenants that limit or restrict, among other things, liens and encumbrances, indebtedness, mergers, asset sales, investments, assumptions and guaranties of indebtedness of other persons, change in nature of operations, changes in fiscal year and other matters customarily restricted in such agreements. The financial covenants in these agreements require us to maintain a certain adjusted tangible net worth and a debt service coverage ratio. We were in compliance with all of our financial covenants under the BankUnited term loan agreements as of March 31, 2019. Based on current projections, we believe that we will continue to comply with such covenants throughout the twelve months following the issuance of the financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for a detailed description of recent accounting pronouncements. We do not expect the recent accounting pronouncements discussed in Note 1 to have a significant impact on our consolidated financial position or results of operations.

As of January 1, 2019, we adopted Accounting Standard Codification Topic 842, Leases, (“ASC Topic 842”). Refer to Note 12 to our consolidated financial statements set forth in Item 1 of this Quarterly Report on Form 10-Q for a detailed description of the impact of implementing ASC Topic 842.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management , with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation as of the last day of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

Beginning January 1, 2019, we implemented ASC Topic 842, Leases. As such, we implemented changes to our processes related to leases and the control activities within them. These included the development of new policies based on the requirements provided in the new standard, new training, ongoing contract review requirements, and gathering of information provided for disclosures. There were no other changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the first quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to claims common to our industry and in the ordinary course of our business, including lease disputes and employee-related matter. Companies in our industry, including us, have been and are subject to class action lawsuits, primarily regarding compliance with labor laws and regulations. Defending lawsuits requires significant management attention and financial resources and the outcome of any litigation is inherently uncertain. We believe that accrual for these matters are adequately provided for in our consolidated financial statements. We do not believe the ultimate resolutions of these matters will have a material adverse effect on our consolidated financial position and results of operations. However, the resolution of lawsuits is difficult to predict. A significant increase in the number of these claims, or one or more successful claims under which we incur greater liabilities than is currently anticipated, could materially and adversely affect our consolidated financial statements.

32

Item 6. Exhibits.

(a) Exhibits required by Item 601 of Regulation S-K.

Exhibit	Description
3.1	Amended and Restated Certificate of Incorporation (Incorporated by reference to Form 8-K filed on June 5, 2014).
3.2	Amended and Restated Bylaws (Incorporated by reference to Form 8-K filed on October 25, 2011).
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350.
32.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes – Oxley Act of 2002, 18 U.S.C. Section 1350.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document

* Filed herewith.

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, thereunto duly authorized.

Dated: May 9, 2019

THE ONE GROUP HOSPITALITY, INC.
By:	/s/ Tyler Loy
	Tyler Loy, Chief Financial Officer

33

EX-31.1

Exhibit 31.1

CERTIFICATIONS UNDER SECTION 302

I, Emanuel Hilario, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The ONE Group Hospitality, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2019

/s/ Emanuel Hilario

Emanuel Hilario

Title: Chief Executive Officer

(Principal Executive Officer) 

EX-31.2

Exhibit 31.2

CERTIFICATIONS UNDER SECTION 302

I, Tyler Loy, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The ONE Group Hospitality, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2019

/s/ Tyler Loy

Tyler Loy

Title: Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS UNDER SECTION 906

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of The ONE Group Hospitality, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report for the three months ended March 31, 2019 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 9, 2019	/s/ Emanuel Hilario
	Emanuel Hilario
	Title: Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATIONS UNDER SECTION 906

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of The ONE Group Hospitality, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report for the three months ended March 31, 2019 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 9, 2019	/s/ Tyler Loy
	Tyler Loy
	Title: Chief Financial Officer
	(Principal Financial Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 08, 2019
Document and Entity Information [Abstract]
Entity Registrant Name	ONE Group Hospitality, Inc.
Entity Central Index Key	0001399520
Trading Symbol	stks
Document Fiscal Year Focus	2019
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		28,628,880
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q1
Entity Small Business	true
Entity Emerging Growth Company	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 1,079	$ 1,592
Accounts receivable	5,946	7,029
Inventory	1,243	1,404
Other current assets	1,570	1,471
Due from related parties, net	123	45
Total current assets	9,961	11,541
Property and equipment, net	40,465	39,347
Operating lease right-of-use assets	40,073
Investments	2,684	2,684
Deferred tax assets, net	28	38
Other assets	341	349
Security deposits	2,039	2,020
Total assets	95,591	55,979
Current liabilities:
Accounts payable	5,700	5,408
Accrued expenses	6,836	8,093
Deferred license revenue	154	171
Deferred gift card revenue and other	783	947
Current portion of operating lease liabilities	2,197
Current portion of long-term debt	2,844	3,201
Total current liabilities	18,514	17,820
Deferred license revenue, long-term	1,081	1,008
Due to related parties, long-term	1,197	1,197
Operating lease liability, net of current portion	55,220
Deferred rent and tenant improvement allowances		16,774
Long-term debt, net of current portion	6,727	7,118
Total liabilities	82,739	43,917
Commitments and contingencies
Stockholders' equity:
Common stock, $0.0001 par value, 75,000,000 shares authorized; 28,333,561 and 28,313,017 shares issued and outstanding at March 31, 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 March 31, 2019 and December 31, 2018, respectively
Additional paid-in capital	43,724	43,543
Accumulated deficit	(27,868)	(28,722)
Accumulated other comprehensive loss	(2,470)	(2,310)
Total stockholders' equity	13,389	12,514
Noncontrolling interests	(537)	(452)
Total equity	12,852	12,062
Total liabilities and equity	$ 95,591	$ 55,979

XML

CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Common stock, par value per share (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	28,333,561	28,313,017
Common stock, shares outstanding	28,333,561	28,313,017
Preferred stock, par value per share (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenues:
Owned restaurant net revenues	$ 17,820	$ 15,076
Owned food, beverage and other net revenues	2,273	2,005
Total owned revenue	20,093	17,081
Management, license and incentive fee revenue	2,683	2,436
Total revenues	22,776	19,517
Owned restaurants:
Owned restaurant cost of sales	4,569	4,034
Owned restaurant operating expenses	10,915	9,378
Total owned restaurant expenses	15,484	13,412
Owned food, beverage and other expenses	2,259	1,689
Total owned operating expenses	17,743	15,101
General and administrative (including stock-based compensation of $181 and $324 for the three months ended March 31, 2019 and 2018 respectively)	2,650	3,055
Depreciation and amortization	942	778
Pre-opening expenses	482	210
Equity in income of investee companies		23
Other income, net	(175)	(111)
Total costs and expenses	21,642	19,056
Operating income	1,134	461
Other expenses, net:
Interest expense, net of interest income	269	318
Total other expenses, net	269	318
Income before provision for income taxes	865	143
Provision for income taxes	96	25
Net income	769	118
Less: net loss attributable to noncontrolling interest	(85)	(113)
Net income attributable to The ONE Group Hospitality, Inc.	854	231
Currency translation adjustment	(160)	(75)
Comprehensive income	$ 694	$ 156
Net income attributable to The ONE Group Hospitality, Inc. per share:
Basic net income per share (in dollars per share)	$ 0.03	$ 0.01
Diluted net income per share (in dollars per share)	$ 0.03	$ 0.01
Shares used in computing basic earnings per share (in shares)	28,314,820	27,187,657
Shares used in computing diluted earnings per share (in shares)	29,311,756	27,388,498

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Statement [Abstract]
Share-based Compensation	$ 181	$ 324

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Common stock	Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive loss	Stockholders' equity	Noncontrolling Interests	Total
Balance at Dec. 31, 2017	$ 3	$ 41,007	$ (31,979)	$ (1,556)		$ (922)	$ 6,553
Stock-based compensation		324					324
Loss on foreign currency translation, net				(75)			(75)
Net income			231			(113)	118
Balance at Mar. 31, 2018	3	41,331	(31,802)	(1,631)		(1,035)	6,866
Balance at Dec. 31, 2018	$ 3	43,543	(28,722)	(2,310)	$ 12,514	(452)	12,062
Balance (in shares) at Dec. 31, 2018	28,313,017
Stock-based compensation	$ 0	181	0	0	181	0	181
Vesting of restricted shares (in shares)	20,544
Loss on foreign currency translation, net	$ 0	0	0	(160)	(160)	0	(160)
Net income	0	0	854	0	854	(85)	769
Balance at Mar. 31, 2019	$ 3	$ 43,724	$ (27,868)	$ (2,470)	$ 13,389	$ (537)	$ 12,852
Balance (in shares) at Mar. 31, 2019	28,333,561

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Operating activities:
Net income	$ 769	$ 118
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	942	778
Amortization of discount on warrants	50	51
Deferred rent and tenant improvement allowances		(18)
Deferred taxes	10	(2)
Income from equity method investments		23
Gain on disposition of cost method investment		(185)
Stock-based compensation	181	324
Changes in operating assets and liabilities:
Accounts receivable	1,147	190
Inventory	161	115
Other current assets	(96)	(211)
Due from related parties, net	(38)	(99)
Security deposits	(18)	(54)
Other assets	8	(37)
Accounts payable	270	(203)
Accrued expenses	(1,331)	(718)
Operating lease liabilities and right-of-use assets	321
Deferred revenue	137	100
Net cash provided by operating activities	2,513	172
Investing activities:
Purchase of property and equipment	(2,060)	(306)
Proceeds from disposition of cost method investment		600
Net cash (used in) provided by investing activities	(2,060)	294
Financing activities:
Repayment of term loan	(707)	(694)
Repayment of equipment financing agreement	(91)	(87)
Repayment of business loan and security agreement		(62)
Net cash used in financing activities	(798)	(843)
Effect of exchange rate changes on cash	(168)	(28)
Net decrease in cash and cash equivalents	(513)	(405)
Cash and cash equivalents, beginning of year	1,592	1,548
Cash and cash equivalents, end of year	1,079	1,143
Supplemental disclosure of cash flow data:
Interest paid	235	142
Income taxes paid	191	26
Non-cash amortization of debt issuance costs	$ 5	$ 5

XML

Summary of Business and Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Summary of Business and Significant Accounting Policies

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 March 31, 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 including F&B services provided to four hotels and casinos 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 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.

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.

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.

XML

Inventory

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventory

Note 2 – Inventory

Inventory consists of the following (in thousands):

	March 31,		December 31,
	2019		2018
Food	$	225	$	300
Beverages		1,018		1,104
Total	$	1,243	$	1,404

XML

Other Current Assets

3 Months Ended

Mar. 31, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Current Assets

Note 3 – Other Current Assets

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

	March 31,		December 31,
	2019		2018
Prepaid taxes	$	560	$	503
Landlord receivable		195		195
Prepaid expenses		809		680
Other		6		93
Total	$	1,570	$	1,471

XML

Property and Equipment, net

3 Months Ended

Mar. 31, 2019

Property, Plant and Equipment [Abstract]

Property and Equipment, net

Note 4 – Property and Equipment, net

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

	March 31,			December 31,
	2019			2018
Furniture, fixtures and equipment	$	11,024		$	10,425
Leasehold improvements		45,531			43,890
Less: accumulated depreciation and amortization		(17,911	)		(16,969	)
Subtotal		38,644			37,346
Construction in progress		—			336
Restaurant supplies		1,821			1,665
Total	$	40,465		$	39,347

Depreciation and amortization related to property and equipment amounted to $0.9 million and $0.8 million for the three months ended March 31, 2019 and 2018, respectively. The Company does not depreciate construction in progress, assets not yet put into service or restaurant supplies.

XML

Accrued Expenses

3 Months Ended

Mar. 31, 2019

Accrued [Abstract]

Accrued Expenses

Note 5 – Accrued Expenses

Accrued expenses consist of the following (in thousands):

	March 31,		December 31,
	2019		2018
Payroll and related	$	1,878	$	1,794
Variable rent, including disputed rent amounts		1,506		1,766
Legal, professional and other services		807		1,028
VAT and sales taxes		530		645
Income taxes and related		416		685
Insurance		317		203
Due to hotels		35		212
Other		1,347		1,760
Total	$	6,836	$	8,093

XML

Long-Term Debt

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Long-Term Debt

Note 6 – Long-Term Debt

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

	March 31,			December 31,
	2019			2018
Term loan agreements	$	3,121		$	3,828
Promissory notes		6,250			6,250
Equipment financing agreements		661			752
Total long-term debt		10,032			10,830
Less: current portion of long-term debt		(2,844	)		(3,201	)
Less: discounts on warrants, net		(434	)		(479	)
Less: debt issuance costs		(27	)		(32	)
Total long-term debt, net of current portion	$	6,727		$	7,118

Interest expense for all the Company’s debt arrangements, excluding the amortization of debt issuance costs and other discounts and fees, was approximately $0.2 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, the Company had $1.3 million in letters of credit outstanding for certain restaurants. These letters of credit, which are cash collateralized, are recorded as a component of security deposits on the consolidated balance sheet as of March 31, 2019.

The Company’s term loan agreements with Bank United are secured by substantially all of the Company’s assets. The term loan agreements contain certain affirmative and negative covenants that limit or restrict, among other things, liens and encumbrances, indebtedness, mergers, asset sales, investments, assumptions and guaranties of indebtedness of other persons, change in nature of operations, changes in fiscal year and other matters customarily restricted in such agreements. The financial covenants contained in these agreements require the borrowers to maintain a certain adjusted tangible net worth and a debt service coverage ratio. As of March 31, 2019, the Company is in compliance with all of its financial covenants under the term loan agreements.

XML

Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

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 March 31, 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. 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:

	March 31,		December 31,
	2019		2018
Carrying amount of long-term debt, including current portion (1)	$	10,032	$	10,830
Fair value of long-term debt, including current portion	$	6,616	$	7,648

(1) Excludes the discounts on warrants, net and debt issuance costs

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Nonconsolidated Variable Interest Entities

3 Months Ended

Mar. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

Nonconsolidated Variable Interest Entities

Note 8 – Nonconsolidated Variable Interest Entities

As of March 31, 2019 and December 31, 2018, the Company owned interests in the following companies, which directly or indirectly operate restaurants:

· 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. The Company accounts for its investments in these entities under the equity method of accounting based on management’s assessment that although it is not the primary beneficiary of these entities because it does not have the power to direct their day to day activities, the Company is able to exercise influence over these entities. The Company has provided no additional types of support to these entities than what is contractually required.

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

	March 31,		December 31,
	2019		2018
Bagatelle Investors	$	56	$	56
Bagatelle NY		2,628		2,628
Total	$	2,684	$	2,684

For the three months ended March 31, 2018, the equity in income of investee companies for the equity method investments discussed above was approximately $23.0 thousand. There was no equity in income for the three months ended March 31, 2019.

Additionally, the Company has entered into a management agreement with Bagatelle NY. Under this agreement, the Company recorded management fee revenue of approximately $44.0 thousand and $37.0 thousand for the three months ended March 31, 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 $0.1 million was recorded from this entity for each three months ended March 31, 2019 and 2018.

Net receivables from the Bagatelle Investors and Bagatelle NY included in due from related parties, net were approximately $0.2 million and $0.1 million as of March 31, 2019 and December 31, 2018. These receivables, combined with the Company’s equity in each of these investments, represent the Company’s maximum exposure to loss.

In the three months ended March 31, 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 expenses, net” on the consolidated statement of operations and comprehensive income. 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 for the three months ended March 31, 2018. The management agreement with One 29 Park, LLC terminated on September 30, 2018.

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Related Party Transactions

3 Months Ended

Mar. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Note 9 – Related Party Transactions

Net amounts due to related parties were $1.1 million and $1.2 million as of March 31, 2019 and December 31, 2018, respectively. The Company has not reserved any related party receivables as of March 31,2019 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 “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 are non-interest bearing and are repayable in 2021 when the trust expires. As of March 31, 2019 and December 31, 2018, the balance due to the Liquidation Trust included in due to related parties, long-term was approximately $1.2 million.

Please refer to Note 8 for details on other transactions with related parties.

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Income taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income taxes

Note 10 – Income taxes

The Company’s effective income tax rate was 11.1% for the three months ended March 31 2019 compared to 17.5% for the three months ended March 31, 2018. The effective income tax rate for the three months ended March 31, 2019 was lower compared to the three months ended March 31, 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 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.

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Revenue from contracts with customers

3 Months Ended

Mar. 31, 2019

Revenue from Contract with Customer [Abstract]

Revenue from contracts with customers

Note 11 – Revenue from contracts with customers

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

	March 31,  2019		December 31,  2018
Receivables (1)	$	—	$	174
Deferred license revenue (2)		1,235		1,179
Deferred gift card and gift certificate revenue (3)	$	331	$	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 statement of operations and comprehensive income. Sales-based royalties are recognized as licensee restaurant sales occur.

Significant changes in deferred license revenue for the three months ended March 31, 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		(55	)
Deferred license revenue, as of March 31, 2019	$	1,235

As of March 31, 2019, the estimated deferred license revenue to be recognized in the future related to performance obligations that are unsatisfied as of March 31, 2019 was as follows (in thousands):

2019, nine months remaining	$	143
2020		191
2021		191
2022		163
2023		136
Thereafter		411
Total future estimated deferred license revenue	$	1,235

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.

Significant changes in deferred gift card and gift certificate revenue for the three months ended March 31, 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		123
Revenue recognized during the period related to redemptions		(283	)
Deferred gift card and gift certificate revenue, as of March 31, 2019	$	331

In each of three months ended March 31, 2019 and 2018, the Company recognized revenue of $0.3 million related to our contract liabilities.

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Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

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.

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.

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

	December 31, 2018		ASC 842  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 statement of operations and comprehensive income for the three months ended March 31, 2019 compared to the three months ended March 31, 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 variable rent, which is determined as a percentage of gross sales in excess of specified, minimum sales targets. These variable rents 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 months ended March 31, 2019, sublease income was $0.2 million, of which $0.1 million was from related party, Bagatelle NY. Refer to Note 8 for details on transactions with this related party.

Certain of the Company’s leases include 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. The Company has elected not to separate the accounting for lease components and non-lease components, for all leased assets.

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 three months ended March 31, 2019. In addition, there were no impairment indicators identified during the three months ended March 31, 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.

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

	March 31,
	2019
Lease cost
Operating lease cost	$	1,726
Variable lease cost		674
Short-term lease cost		108
Sublease income		(203	)
Total lease cost	$	2,305
Weighted average remaining lease term – operating leases		14 years
Weighted average discount rate – operating leases		8.25	%

Supplemental cash flow information related to leases for the period was as follows (in thousands):

	March 31,
	2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,718
Right-of-use assets obtained in exchange for operating lease obligations	$	281

As of March 31, 2019, maturities of the Company’s operating lease liabilities are as follows (in thousands):

2019, nine months remaining	$	5,167
2020		6,801
2021		6,545
2022		6,669
2023		6,805
Thereafter		69,536
Total lease payments		101,523
Less: imputed interest		(44,106	)
Present value of operating lease liabilities	$	57,417

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Earnings per share

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Earnings per share

Note 13 – Earnings per share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period and income available to common stockholders. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of all potential shares of common stock including common stock issuable pursuant to stock options, warrants, and restricted stock units.

For the three months ended March 31, 2019 and 2018, the earnings per share was calculated as follows (in thousands, except earnings per share and related share data):

	Three months ended March 31,
	2019		2018
Net income attributable to The ONE Group Hospitality, Inc.	$	854	$	231
Basic weighted average shares outstanding		28,314,820		27,187,657
Dilutive effect of stock options, warrants and restricted share units		996,936		200,841
Diluted weighted average shares outstanding		29,311,756		27,388,498
Net income available to common stockholders per share - Basic	$	0.03	$	0.01
Net income available to common stockholders per share - Diluted	$	0.03	$	0.01

For the three months ended March 31, 2019, 0.9 million stock options, warrants and restricted share units were determined to be anti-dilutive and were therefore excluded from the calculation of diluted earnings per share. For the three months ended March 31, 2018, 2.0 million stock options, warrants and restricted share units were determined to be anti-dilutive and were therefore excluded from the calculation of diluted earnings per share.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2019

Stockholders' Equity Note [Abstract]

Stockholders' Equity

Note 14 – Stockholders’ Equity

Significant changes in stockholders’ equity for the three months ended March 31, 2019 and 2018 are as follows (in thousands):

	Common  Stock		Additional  paid-in  capital		Accumulated  deficit			Accumulated  other  comprehensive  loss			Noncontrolling  interests			Total
Balance at December 31, 2018	$	3	$	43,543	$	(28,722	)	$	(2,310	)	$	(452	)	$	12,062
Stock-based compensation		—		181		—			—			—			181
Loss on foreign currency translation, net		—		—		—			(160	)		—			(160	)
Net income (loss)		—		—		854			—			(85	)		769
Balance at March 31, 2019	$	3	$	43,724	$	(27,868	)	$	(2,470	)	$	(537	)	$	12,852

	Common  Stock		Additional  paid-in  capital		Accumulated  deficit			Accumulated  other  comprehensive  loss			Noncontrolling  interests			Total
Balance at December 31, 2017	$	3	$	41,007	$	(31,979	)	$	(1,556	)	$	(922	)	$	6,553
Adoption of ASC 606 “Revenue from contracts with customers”		—		—		(54	)		—			—			(54	)
Stock-based compensation		—		324		—			—			—			324
Vesting of restricted shares		—		—		—			—			—			—
Loss on foreign currency translation, net		—		—		—			(75	)		—			(75	)
Net income (loss)		—		—		231			—			(113	)		118
Balance at March 31, 2018	$	3	$	41,331	$	(31,802	)	$	(1,631	)	$	(1,035	)	$	6,866

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Note 15 - Stock-Based Compensation

As of March 31, 2019, the Company had 458,746 remaining shares available for issuance under the 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Equity Plan”).

Stock-based compensation cost for each of the three months ended March 31, 2019 and 2018 was $0.2 million and is included in general and administrative expenses in the consolidated statement of operations and comprehensive income.

Stock Option Activity

Changes in outstanding stock options during the three months ended March 31, 2019 were as follows:

	Shares			Weighted average  exercise price		Weighted average remaining  contractual life	Intrinsic  value  (thousands)
Outstanding at December 31, 2018		2,001,008		$	3.29
Granted		68,000			2.99
Exercised		—			—
Cancelled, expired or forfeited		(63,000	)		2.80
Outstanding at March 31, 2019		2,006,008		$	3.29	6.67 years	$	1,063
Exercisable at March 31, 2019		1,065,508		$	4.16	5.45 years	$	—

The fair value of options granted in the three months ended March 31, 2019 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Expected life, in years	8.5 years
Risk-free interest rate	2.62	%
Volatility	42.0	%
Dividend yield	0.0	%

A summary of the status of the Company’s non-vested stock options as of December 31, 2018 and March 31, 2019 and changes during the three months then ended, is presented below:

	Shares			Weighted  average grant  date fair value
Non-vested stock options at December 31, 2018		926,500		$	0.91
Granted		68,000			2.99
Vested		—			—
Cancelled, expired or forfeited		(54,000	)		0.99
Non-vested stock options at March 31, 2019		940,500		$	0.95

As of March 31, 2019, there are 579,402 milestone-based options outstanding. These options vest based on the achievement of Company and individual objectives as set by the Board.

As of March 31, 2019, there is approximately $0.6 million of total unrecognized compensation cost related to non-vested awards, which will be recognized over a weighted-average period of 2.8 years.

Restricted Stock Unit Activity

The Company issues restricted stock units (“RSUs”) under the 2013 Equity Plan. The fair value of these RSUs is determined based upon the closing fair market value of the Company’s common stock on the grant date.

A summary of the status of RSUs and changes during the three months ended March 31, 2019 is presented below:

	Shares			Weighted  average grant  date fair value
Non-vested RSUs at December 31, 2018		764,201		$	2.54
Granted		142,205			2.93
Vested		(20,544	)		2.86
Cancelled, expired or forfeited		(9,000	)		2.73
Non-vested RSUs at March 31, 2019		764,201		$	2.59

As of March 31, 2019, 150,000 RSUs subject to performance-based vesting were still outstanding. As of March 31, 2019, the Company had approximately $3.2 million of total unrecognized compensation costs related to RSUs, which will be recognized over a weighted average period of 2.8 years.

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Segment Reporting

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segment Reporting

Note 16 - Segment Reporting

The Company operates in three segments: “Owned restaurants,” “Owned food, beverage and other,” and “Managed and licensed operations.” The Owned restaurants segment consists of leased restaurant locations and competes in the full-service dining industry. The Owned food, beverage and other segment consists of hybrid operations, such as where the Company has a leased restaurant location and also has a food and beverage agreement at the same location, typically a hotel, and offsite banquet offerings. The Managed and licensed operations segment includes all operations for which a management, incentive or license fee is received. Management agreements generate management fees on net revenue and incentive fees on operating profit as defined in the applicable management agreement. License agreements generate revenue primarily through royalties earned on net revenue at each location. Revenues associated with developmental support for licensed locations are also included within this segment.

The Company’s Chief Executive Officer (“CEO”), who has been deemed the Company’s Chief Operating Decision Maker, manages the business and allocates resources via a combination of restaurant sales reports and segment profit information (which is defined as revenues less operating expenses) related to the Company’s three segments, or sources of revenues, which are presented in their entirety within the consolidated statements of operations and comprehensive income.

The Company’s operating results by segment were as follows (in thousands):

	For the three months ended March 31, 2019
	Owned  restaurants		Owned food,  beverage and  other		Managed and  licensed  operations		Total
Revenues:
Owned net revenues	$	17,820	$	2,273	$	—	$	20,093
Management, license and incentive fee revenue		—		—		2,683		2,683
Total revenues		17,820		2,273		2,683		22,776
Cost and expenses:
Owned operating expenses:
Cost of sales		4,569		—		—		4,569
Other operating expenses		10,915		—		—		10,915
Owned food, beverage and other expenses		—		2,259		—		2,259
Total owned operating expenses		15,484		2,259		—		17,743
Segment income	$	2,336	$	14	$	2,683	$	5,033
General and administrative								2,650
Depreciation and amortization								942
Interest expense, net of interest income								269
Equity in income of investee companies								—
Other								307
Income before provision for income taxes							$	865

	For the three months ended March 31, 2018
	Owned  restaurants		Owned food,  beverage and  other		Managed and  licensed  operations		Total
Revenues:
Owned net revenues	$	15,076	$	2,005	$	—	$	17,081
Management, license and incentive fee revenue		—		—		2,436		2,436
Total revenues		15,076		2,005		2,436		19,517
Cost and expenses:
Owned operating expenses:
Cost of sales		4,034		—		—		4,034
Other operating expenses		9,378		—		—		9,378
Owned food, beverage and other expenses		—		1,689		—		1,689
Total owned operating expenses		13,412		1,689		—		15,101
Segment income	$	1,664	$	316	$	2,436	$	4,416
General and administrative								3,055
Depreciation and amortization								778
Interest expense, net of interest income								318
Equity in loss of investee companies								23
Other								99
Income before provision for income taxes							$	143

The Company’s total assets by segment for the periods indicated were as follows (in thousands):

	March 31,		December 31,
	2019		2018
Total assets:
Owned restaurants	$	75,272	$	42,971
Owned food, beverage and other operations (1)		15,591		7,274
Managed and licensed operations		4,728		5,734
Total	$	95,591	$	55,979

(1) Includes corporate assets

The Company’s total assets increased $40.1 million as of March 31, 2019 compared to December 31, 2018 as a result of adopting ASC Topic 842 during the first quarter of 2019. Refer to Note 12 for additional information regarding the adoption of ASC Topic 842.

The Company’s capital asset additions by segment for the periods indicated were as follows (in thousands):

	For the three months ended March 31,
	2019		2018
Capital assets additions:
Owned restaurants	$	1,762	$	301
Owned food, beverage and other operations (1)		298		5
Managed and licensed operations		—		—
Total	$	2,060	$	306

(1) Includes corporate capital asset additions

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Geographic Information

3 Months Ended

Mar. 31, 2019

Geographic Information [Abstract]

Geographic Information

Note 17 - Geographic Information

The following tables contains certain financial information by geographic location for the three months ended March 31, 2019 and 2018 (in thousands):

Revenues

	For the three months ended March 31,
	2019		2018
Domestic:
Owned restaurants	$	17,820	$	15,076
Owned food, beverage and other operations		2,273		2,005
Managed and licensed operations		1,687		1,687
Total domestic revenues	$	21,780	$	18,768
International:
Owned restaurants		—		—
Owned food, beverage and other operations		—		—
Managed and licensed operations		996		749
Total international revenues	$	996	$	749
Total revenues	$	22,776	$	19,517

Long-lived assets

	March 31,		December 31,
	2019		2018
Domestic:
Owned restaurants	$	72,532	$	38,958
Owned food, beverage and other operations		13,002		5,375
Managed and licensed operations		59		67
Total domestic long-lived assets	$	85,593	$	44,400
International:
Owned restaurants		—		—
Owned food, beverage and other operations		—		—
Managed and licensed operations		37		38
Total international long-lived assets	$	37	$	38
Total long-lived assets	$	85,630	$	44,438

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Litigation

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Litigation

Note 18 – Litigation

The Company is party to claims in lawsuits incidental to its business, including lease disputes and employee-related matters. In the opinion of management, the ultimate outcome of such matters, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

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Liquidity

3 Months Ended

Mar. 31, 2019

Liquidity [Abstract]

Liquidity

Note 19 - Liquidity

During the three months ended March 31, 2019, the Company had net income of $0.8 million and had a working capital deficit of $8.6 million. As of March 31, 2019, the Company's accumulated deficit was $27.9 million. Additionally, as of March 31, 2019, the Company's cash and cash equivalents was $1.1 million, and cash from operations for the three months ended March 31, 2019 and 2018 were $2.5 million and $0.2 million, respectively. The Company expects to finance its operations, including the costs of opening planned restaurants, for at least the next twelve months from March 31, 2019 primarily through cash provided by operations. Other sources of liquidity could include additional potential issuances of debt or equity securities in public or private financings or warrant or option exercises.

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Summary of Business and Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Presentation

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

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 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.

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.

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.

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Inventory (Tables)

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Schedule of inventory

	March 31,		December 31,
	2019		2018
Food	$	225	$	300
Beverages		1,018		1,104
Total	$	1,243	$	1,404

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Other Current Assets (Tables)

3 Months Ended

Mar. 31, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of other current assets

	March 31,		December 31,
	2019		2018
Prepaid taxes	$	560	$	503
Landlord receivable		195		195
Prepaid expenses		809		680
Other		6		93
Total	$	1,570	$	1,471

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Property and Equipment, net (Tables)

3 Months Ended

Mar. 31, 2019

Property, Plant and Equipment [Abstract]

Schedule of property and equipment, net

	March 31,			December 31,
	2019			2018
Furniture, fixtures and equipment	$	11,024		$	10,425
Leasehold improvements		45,531			43,890
Less: accumulated depreciation and amortization		(17,911	)		(16,969	)
Subtotal		38,644			37,346
Construction in progress		—			336
Restaurant supplies		1,821			1,665
Total	$	40,465		$	39,347

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Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2019

Accrued [Abstract]

Schedule of accrued expenses

	March 31,		December 31,
	2019		2018
Payroll and related	$	1,878	$	1,794
Variable rent, including disputed rent amounts		1,506		1,766
Legal, professional and other services		807		1,028
VAT and sales taxes		530		645
Income taxes and related		416		685
Insurance		317		203
Due to hotels		35		212
Other		1,347		1,760
Total	$	6,836	$	8,093

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Schedule of long term debt

	March 31,			December 31,
	2019			2018
Term loan agreements	$	3,121		$	3,828
Promissory notes		6,250			6,250
Equipment financing agreements		661			752
Total long-term debt		10,032			10,830
Less: current portion of long-term debt		(2,844	)		(3,201	)
Less: discounts on warrants, net		(434	)		(479	)
Less: debt issuance costs		(27	)		(32	)
Total long-term debt, net of current portion	$	6,727		$	7,118

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Schedule of fair value of financial instruments

	March 31,		December 31,
	2019		2018
Carrying amount of long-term debt, including current portion (1)	$	10,032	$	10,830
Fair value of long-term debt, including current portion	$	6,616	$	7,648

(1) Excludes the discounts on warrants, net and debt issuance costs

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Nonconsolidated Variable Interest Entities (Tables)

3 Months Ended

Mar. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

Schedule of equity investments

	March 31,		December 31,
	2019		2018
Bagatelle Investors	$	56	$	56
Bagatelle NY		2,628		2,628
Total	$	2,684	$	2,684

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Revenue from contracts with customers (Tables)

3 Months Ended

Mar. 31, 2019

Revenue from Contract with Customer [Abstract]

Schedule of receivables and contract liabilities

	March 31,  2019		December 31,  2018
Receivables (1)	$	—	$	174
Deferred license revenue (2)		1,235		1,179
Deferred gift card and gift certificate revenue (3)	$	331	$	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.

Schedule of changes in deferred license revenue

Deferred license revenue, as of December 31, 2018	$	1,179
Additions to deferred license revenue		111
Revenue recognized during the period		(55	)
Deferred license revenue, as of March 31, 2019	$	1,235

Schedule of estimated deferred license revenue to be recognized in the future related to performance obligations

2019, nine months remaining	$	143
2020		191
2021		191
2022		163
2023		136
Thereafter		411
Total future estimated deferred license revenue	$	1,235

Schedule of changes in deferred gift certificate revenue

Deferred gift card and gift certificate revenue, as of December 31, 2018	$	491
Additions to deferred gift card and gift certificates revenue		123
Revenue recognized during the period related to redemptions		(283	)
Deferred gift card and gift certificate revenue, as of March 31, 2019	$	331

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Schedule of changes due to the adoption of ASC Topic 842

	December 31, 2018		ASC 842  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	)	$	—

Schedule of components of lease expense

	March 31,
	2019
Lease cost
Operating lease cost	$	1,726
Variable lease cost		674
Short-term lease cost		108
Sublease income		(203	)
Total lease cost	$	2,305
Weighted average remaining lease term – operating leases		14 years
Weighted average discount rate – operating leases		8.25	%

Schedule of supplemental cash flow information related to leases

	March 31,
	2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,718
Right-of-use assets obtained in exchange for operating lease obligations	$	281

Schedule of maturities of operating lease liabilities

2019, nine months remaining	$	5,167
2020		6,801
2021		6,545
2022		6,669
2023		6,805
Thereafter		69,536
Total lease payments		101,523
Less: imputed interest		(44,106	)
Present value of operating lease liabilities	$	57,417

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Earnings per share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Schedule of earnings per share, basic and diluted

	Three months ended March 31,
	2019		2018
Net income attributable to The ONE Group Hospitality, Inc.	$	854	$	231
Basic weighted average shares outstanding		28,314,820		27,187,657
Dilutive effect of stock options, warrants and restricted share units		996,936		200,841
Diluted weighted average shares outstanding		29,311,756		27,388,498
Net income available to common stockholders per share - Basic	$	0.03	$	0.01
Net income available to common stockholders per share - Diluted	$	0.03	$	0.01

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2019

Stockholders' Equity Note [Abstract]

Schedule of changes in stockholders' equity

	Common  Stock		Additional  paid-in  capital		Accumulated  deficit			Accumulated  other  comprehensive  loss			Noncontrolling  interests			Total
Balance at December 31, 2018	$	3	$	43,543	$	(28,722	)	$	(2,310	)	$	(452	)	$	12,062
Stock-based compensation		—		181		—			—			—			181
Loss on foreign currency translation, net		—		—		—			(160	)		—			(160	)
Net income (loss)		—		—		854			—			(85	)		769
Balance at March 31, 2019	$	3	$	43,724	$	(27,868	)	$	(2,470	)	$	(537	)	$	12,852

	Common  Stock		Additional  paid-in  capital		Accumulated  deficit			Accumulated  other  comprehensive  loss			Noncontrolling  interests			Total
Balance at December 31, 2017	$	3	$	41,007	$	(31,979	)	$	(1,556	)	$	(922	)	$	6,553
Adoption of ASC 606 “Revenue from contracts with customers”		—		—		(54	)		—			—			(54	)
Stock-based compensation		—		324		—			—			—			324
Vesting of restricted shares		—		—		—			—			—			—
Loss on foreign currency translation, net		—		—		—			(75	)		—			(75	)
Net income (loss)		—		—		231			—			(113	)		118
Balance at March 31, 2018	$	3	$	41,331	$	(31,802	)	$	(1,631	)	$	(1,035	)	$	6,866

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of stock option activity

	Shares			Weighted average  exercise price		Weighted average remaining  contractual life	Intrinsic  value  (thousands)
Outstanding at December 31, 2018		2,001,008		$	3.29
Granted		68,000			2.99
Exercised		—			—
Cancelled, expired or forfeited		(63,000	)		2.80
Outstanding at March 31, 2019		2,006,008		$	3.29	6.67 years	$	1,063
Exercisable at March 31, 2019		1,065,508		$	4.16	5.45 years	$	—

Schedule of fair value of options granted

Expected life, in years	8.5 years
Risk-free interest rate	2.62	%
Volatility	42.0	%
Dividend yield	0.0	%

Schedule of non-vested stock options

	Shares			Weighted  average grant  date fair value
Non-vested stock options at December 31, 2018		926,500		$	0.91
Granted		68,000			2.99
Vested		—			—
Cancelled, expired or forfeited		(54,000	)		0.99
Non-vested stock options at March 31, 2019		940,500		$	0.95

Schedule of restricted stock awards and changes

	Shares			Weighted average grant date fair value
Non-vested RSUs at December 31, 2018		764,201		$	2.54
Granted		142,205			2.93
Vested		(20,544	)		2.86
Cancelled, expired or forfeited		(9,000	)		2.73
Non-vested RSUs at March 31, 2019		764,201		$	2.59

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Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Schedule of segment information

	For the three months ended March 31, 2019
	Owned  restaurants		Owned food,  beverage and  other		Managed and  licensed  operations		Total
Revenues:
Owned net revenues	$	17,820	$	2,273	$	—	$	20,093
Management, license and incentive fee revenue		—		—		2,683		2,683
Total revenues		17,820		2,273		2,683		22,776
Cost and expenses:
Owned operating expenses:
Cost of sales		4,569		—		—		4,569
Other operating expenses		10,915		—		—		10,915
Owned food, beverage and other expenses		—		2,259		—		2,259
Total owned operating expenses		15,484		2,259		—		17,743
Segment income	$	2,336	$	14	$	2,683	$	5,033
General and administrative								2,650
Depreciation and amortization								942
Interest expense, net of interest income								269
Equity in income of investee companies								—
Other								307
Income before provision for income taxes							$	865

	For the three months ended March 31, 2018
	Owned  restaurants		Owned food,  beverage and  other		Managed and  licensed  operations		Total
Revenues:
Owned net revenues	$	15,076	$	2,005	$	—	$	17,081
Management, license and incentive fee revenue		—		—		2,436		2,436
Total revenues		15,076		2,005		2,436		19,517
Cost and expenses:
Owned operating expenses:
Cost of sales		4,034		—		—		4,034
Other operating expenses		9,378		—		—		9,378
Owned food, beverage and other expenses		—		1,689		—		1,689
Total owned operating expenses		13,412		1,689		—		15,101
Segment income	$	1,664	$	316	$	2,436	$	4,416
General and administrative								3,055
Depreciation and amortization								778
Interest expense, net of interest income								318
Equity in loss of investee companies								23
Other								99
Income before provision for income taxes							$	143

	March 31,		December 31,
	2019		2018
Total assets:
Owned restaurants	$	75,272	$	42,971
Owned food, beverage and other operations (1)		15,591		7,274
Managed and licensed operations		4,728		5,734
Total	$	95,591	$	55,979

(1) Includes corporate assets

	For the three months ended March 31,
	2019		2018
Capital assets additions:
Owned restaurants	$	1,762	$	301
Owned food, beverage and other operations (1)		298		5
Managed and licensed operations		—		—
Total	$	2,060	$	306

(1) Includes corporate capital asset additions

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Geographic Information (Tables)

3 Months Ended

Mar. 31, 2019

Geographic Information [Abstract]

Schedule of revenues by geographic location

	For the three months ended March 31,
	2019		2018
Domestic:
Owned restaurants	$	17,820	$	15,076
Owned food, beverage and other operations		2,273		2,005
Managed and licensed operations		1,687		1,687
Total domestic revenues	$	21,780	$	18,768
International:
Owned restaurants		—		—
Owned food, beverage and other operations		—		—
Managed and licensed operations		996		749
Total international revenues	$	996	$	749
Total revenues	$	22,776	$	19,517

Schedule of long-lived assets by geographic location

	March 31,		December 31,
	2019		2018
Domestic:
Owned restaurants	$	72,532	$	38,958
Owned food, beverage and other operations		13,002		5,375
Managed and licensed operations		59		67
Total domestic long-lived assets	$	85,593	$	44,400
International:
Owned restaurants		—		—
Owned food, beverage and other operations		—		—
Managed and licensed operations		37		38
Total international long-lived assets	$	37	$	38
Total long-lived assets	$	85,630	$	44,438

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Summary of Business and Significant Accounting Policies (Detail Textuals) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Deferred rent payable			$ 16,774
Loss on foreign currency translation, net	$ (160)	$ (75)
Operating Lease, Liability	57,417
Operating Lease, Right-of-Use Asset	$ 40,073

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Inventory (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Inventory [Line Items]
Inventory	$ 1,243	$ 1,404
Food
Inventory [Line Items]
Inventory	225	300
Beverages
Inventory [Line Items]
Inventory	$ 1,018	$ 1,104

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Other Current Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Prepaid taxes	$ 560	$ 503
Landlord receivable	195	195
Prepaid expenses	809	680
Other	6	93
Total	$ 1,570	$ 1,471

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Property and Equipment, net (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Less: accumulated depreciation and amortization	$ (17,911)	$ (16,969)
Property and equipment, net	40,465	39,347
Furniture, fixtures and equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	11,024	10,425
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	45,531	43,890
Total amount net of accumulated depreciation and amortization
Property, Plant and Equipment [Line Items]
Property and equipment, net	38,644	37,346
Construction in progress
Property, Plant and Equipment [Line Items]
Property and equipment, net	0	336
Restaurant supplies
Property, Plant and Equipment [Line Items]
Property and equipment, net	$ 1,821	$ 1,665

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Property and Equipment, net (Detail Textuals) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Property, Plant and Equipment [Line Items]
Depreciation and amortization	$ 0.9	$ 0.8

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Accrued Expenses (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Accrued [Abstract]
Payroll and related	$ 1,878	$ 1,794
Variable rent, including disputed rent amounts	1,506	1,766
Legal, professional and other services	807	1,028
VAT and Sales taxes	530	645
Income taxes and related	416	685
Insurance	317	203
Due to hotels	35	212
Other	1,347	1,760
Totals	$ 6,836	$ 8,093

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Long-Term Debt - Debt and Maturities (Details) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Long-term debt	[1]	$ 10,032	$ 10,830
Less: current portion of long-term debt		(2,844)	(3,201)
Less: Discounts on warrants, net		(434)	(479)
Less: Debt Issuance Costs		(27)	(32)
Long-term debt, net of current portion		6,727	7,118
Medium-term Notes | Term Loan Agreements
Debt Instrument [Line Items]
Long-term debt		3,121	3,828
Construction Loans | Equipment Financing Agreements
Debt Instrument [Line Items]
Long-term debt		661	752
Unsecured Debt | Promissory notes
Debt Instrument [Line Items]
Long-term debt		$ 6,250	$ 6,250

[1] Excludes the discounts on warrants, net and debt issuance costs

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Long-Term Debt (Detail Textuals) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Debt Disclosure [Abstract]
Interest expense	$ 0.2	$ 0.3
Letters of credit outstanding	$ 1.3

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Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Carrying amount of long-term debt, including current portion	[1]	$ 10,032	$ 10,830
Level 2
Fair value of long-term debt, including current portion		$ 6,616	$ 7,648

[1] Excludes the discounts on warrants, net and debt issuance costs

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Nonconsolidated Variable Interest Entities - Information of Equity Investments (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Schedule of Equity Method Investments [Line Items]
Equity method investments	$ 2,684,000	$ 2,684,000	$ 23,000
Bagatelle Investors
Schedule of Equity Method Investments [Line Items]
Equity method investments	56,000	56,000
Bagatelle NY
Schedule of Equity Method Investments [Line Items]
Equity method investments	$ 2,628,000	$ 2,628,000

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Nonconsolidated Variable Interest Entities (Detail Textuals) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Schedule of Equity Method Investments [Line Items]
Equity method investments	$ 2,684,000	$ 23,000	$ 2,684,000
Due from related parties, net	123,000		45,000
Income from equity method investments		(23,000)
Bagatelle NY LA Investors, LLC (Bagatelle Investors)
Schedule of Equity Method Investments [Line Items]
Equity method investments	$ 56,000		$ 56,000
Ownership percentage equity method investment	31.24%		31.24%
Bagatelle Little West 12th, LLC (Bagatelle NY)
Schedule of Equity Method Investments [Line Items]
Equity method investments	$ 2,628,000		$ 2,628,000
Management fee revenue	44,000	37,000
Rental income	$ 100,000	100,000
Ownership percentage equity method investment	51.13%		51.13%
One 29 Park, LLC (One 29 Park)
Schedule of Equity Method Investments [Line Items]
Management fee revenue		100,000
Gain on sale of investments		200,000
Income from equity method investments		$ 600,000
Variable Interest Entity, Primary Beneficiary, Aggregated Disclosure
Schedule of Equity Method Investments [Line Items]
Due from related parties, net	$ 200,000		$ 100,000

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Related Party Transactions (Detail Textuals) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Mar. 31, 2019	Dec. 31, 2018
Related Party Transaction [Line Items]
Due to related parties		$ 1.1	$ 1.2
TOG Liquidation Trust
Related Party Transaction [Line Items]
Due to related parties		$ 1.2	$ 1.2
Cash Advances
Related Party Transaction [Line Items]
Proceeds from cash advances from TOG Liquidation Trust	$ 1.2

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Income taxes (Detail Textuals)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Tax Disclosure [Abstract]
Effective income tax rate	11.10%	17.50%
U.S.statutory tax rate	21.00%

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Revenue from contracts with customers (Details) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
License revenue
Receivables	[1]	$ 0	$ 174
Deferred revenue	[2]	1,235	1,179
Deferred gift card and gift certificate revenue
Deferred revenue	[3]	$ 331	$ 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.

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Revenue from contracts with customers (Details 1) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Revenue recognized during the period		$ 300	$ 300
Deferred license revenue
Deferred gift card and gift certificate revenue, as of December 31, 2018	[1]	1,179
Additions to deferred license revenue		111
Revenue recognized during the period		(55)
Deferred gift card and gift certificate revenue, as of March 31, 2019	[1]	$ 1,235

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

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Revenue from contracts with customers (Details 2) - Deferred license revenue $ in Thousands	Mar. 31, 2019 USD ($)
2019	$ 143
2020	191
2021	191
2022	163
2023	136
Thereafter	411
Total future estimated deferred license revenue	$ 1,235

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Revenue from contracts with customers (Details 3) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Revenue recognized during the period related to redemptions		$ 300	$ 300
Deferred gift card and gift certificate revenue
Deferred gift card and gift certificate revenue, as of December 31, 2018	[1]	491
Additions to deferred gift card and gift certificates revenue		123
Revenue recognized during the period related to redemptions		(283)
Deferred gift card and gift certificate revenue, as of March 31, 2019	[1]	$ 331

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

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Revenue from contracts with customers (Detail Textuals) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenue from Contract with Customer [Abstract]
Recognized revenue related to contract liabilities	$ 0.3	$ 0.3

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Leases (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Schedule Of Leases [Line Items]
Operating lease right-of-use assets	$ 40,073
Operating lease liability, net of current portion	2,197
Deferred gift card revenue and other	783	$ 947
Deferred rent and tenant improvement allowances		16,774
ASC 842
Schedule Of Leases [Line Items]
Operating lease right-of-use assets	41,800	41,868
Current portion of operating lease liabilities		3,212
Operating lease liability, net of current portion		55,679
Deferred gift card revenue and other		698
Deferred rent and tenant improvement allowances		0
Previously reported | ASC 842
Schedule Of Leases [Line Items]
Operating lease right-of-use assets		0
Current portion of operating lease liabilities		0
Operating lease liability, net of current portion		0
Deferred gift card revenue and other		947
Deferred rent and tenant improvement allowances		16,774
Adjustments | ASC 842
Schedule Of Leases [Line Items]
Operating lease right-of-use assets	$ 1,200	41,868
Current portion of operating lease liabilities		3,212
Operating lease liability, net of current portion		55,679
Deferred gift card revenue and other		(249)
Deferred rent and tenant improvement allowances		$ (16,774)

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Leases (Details 1) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Lease cost
Operating lease cost	$ 1,726
Variable lease cost	674
Short-term lease cost	108
Sublease income	(203)
Total lease cost	$ 2,305
Weighted average remaining lease term - operating leases	14 years
Weighted average discount rate - operating leases	8.25%

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Leases (Details 2) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Leases [Abstract]
Cash paid for amounts included in the measurement of operating lease liabilities	$ 1,718
Right-of-use assets obtained in exchange for operating lease obligations	$ 281

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Leases (Details 3) $ in Thousands	Mar. 31, 2019 USD ($)
Leases [Abstract]
2019, nine months remaining	$ 5,167
2020	6,801
2021	6,545
2022	6,669
2023	6,805
Thereafter	69,536
Total lease payments	101,523
Less: imputed interest	(44,106)
Operating lease liability	$ 57,417

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Leases (Detail Textuals) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Schedule Of Leases [Line Items]
Operating lease right-of-use assets	$ 40,073
Operating lease liability	57,417
Sublease income	203
Bagatelle NY
Schedule Of Leases [Line Items]
Sublease income	100
ASC 842
Schedule Of Leases [Line Items]
Operating lease right-of-use assets	41,800	$ 41,868
Operating lease liability	58,900
ASC 842 | Adjustments
Schedule Of Leases [Line Items]
Operating lease right-of-use assets	$ 1,200	$ 41,868

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Earnings per share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Net income attributable to The ONE Group Hospitality, Inc.	$ 854	$ 231
Basic weighted average shares outstanding	28,314,820	27,187,657
Dilutive effect of stock options, warrants and restricted share units	996,936	200,841
Diluted weighted average shares outstanding	29,311,756	27,388,498
Net income available to common stockholders per share - Basic	$ 0.03	$ 0.01
Net income available to common stockholders per share - Diluted	$ 0.03	$ 0.01

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Earnings per share (Details Textuals) - shares shares in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from the calculation of diluted earnings per share	0.9	2.0
Warrant
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from the calculation of diluted earnings per share	0.9	2.0
Restricted share units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from the calculation of diluted earnings per share	0.9	2.0

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Stockholders' Equity (Details 1) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Balance	$ 12,062	$ 6,553
Stock-based compensation	181	324
Loss on foreign currency translation, net	(160)	(75)
Net income (loss)	769	118
Adoption of ASC 606 "Revenue from contracts with customers"		(54)
Balance	12,852	6,866
Common stock
Balance	$ 3	3
Balance (in shares)	28,313,017
Stock-based compensation	$ 0
Loss on foreign currency translation, net	0
Net income (loss)	0
Balance	$ 3	3
Balance (in shares)	28,333,561
Additional paid-in capital
Balance	$ 43,543	41,007
Stock-based compensation	181	324
Loss on foreign currency translation, net	0
Net income (loss)	0
Balance	43,724	41,331
Accumulated deficit
Balance	(28,722)	(31,979)
Stock-based compensation	0
Loss on foreign currency translation, net	0
Net income (loss)	854	231
Adoption of ASC 606 "Revenue from contracts with customers"		(54)
Balance	(27,868)	(31,802)
Accumulated other comprehensive loss
Balance	(2,310)	(1,556)
Stock-based compensation	0
Loss on foreign currency translation, net	(160)	(75)
Net income (loss)	0
Balance	(2,470)	(1,631)
Noncontrolling Interests
Balance	(452)	(922)
Stock-based compensation	0
Loss on foreign currency translation, net	0
Net income (loss)	(85)	(113)
Balance	$ (537)	$ (1,035)

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Stock-Based Compensation - Valuation Assumptions (Details)	3 Months Ended
	Mar. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life (in years)	8 years 6 months
Risk-free interest rate	2.62%
Volatility	42.00%
Dividend yield	0.00%

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Stock-Based Compensation - Summary of Status of Company's Stock Option Activity (Detail 1) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) $ / shares shares
Shares
Outstanding at December 31, 2018 (in shares) | shares	2,001,008
2018 Grants | shares	68,000
Exercised (in shares) | shares	0
Cancelled, expired or forfeited (in shares) | shares	(63,000)
Outstanding at March 31, 2019 (in shares) | shares	2,006,008
Exercisable at March 31, 2019 (in shares) | shares	1,065,508
Weighted Average Exercise Price
Outstanding at December 31, 2018 (in dollars per share) | $ / shares	$ 3.29
Granted (in dollars per share) | $ / shares	2.99
Exercised (in dollars per share) | $ / shares	0
Cancelled, expired or forfeited (in dollars per share) | $ / shares	2.8
Outstanding at March 31, 2019 (in dollars per share) | $ / shares	3.29
Exercisable (in dollars per share) | $ / shares	$ 4.16
Weighted Average Remaining Contractual Life (Years)
Weighted Average Remaining Contractual Life at March 31, 2019	6 years 8 months 1 day
Exercisable Weighted Average Remaining Contractual Life at March 31, 2019	5 years 5 months 12 days
Intrinsic Value
Intrinsic Value Outstanding at March 31, 2019 | $	$ 1,063
Intrinsic Value Exercisable at March 31, 2019 | $	$ 0

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Stock-Based Compensation - Summary of non-vested stock options (Details 2)	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Shares
Non-vested stock options at December 31, 2018 (in shares) | shares	926,500
Granted | shares	68,000
Vested (in shares) | shares	0
Cancelled, expired or forfeited (in shares) | shares	(54,000)
Non-vested stock options at March 31, 2019 (in shares) | shares	940,500
Weighted Average Grant Date Fair Value
Non-vested stock options at December 31, 2018 (in dollars per share) | $ / shares	$ 0.91
Granted (in dollars per share) | $ / shares	2.99
Vested (in dollars per share) | $ / shares	0
Cancelled, expired or forfeited (in dollars per share) | $ / shares	0.99
Non-vested stock options at March 31, 2019 (in dollars per share) | $ / shares	$ 0.95

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Stock-Based Compensation - Summary of Status of Company's Restricted Stock Option Activity (Detail 3)	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Shares
Non-vested RSUs at December 31, 2018 (in shares) | shares	764,201
Granted (in shares) | shares	142,205
Vested (in shares) | shares	(20,544)
Cancelled, expired or forfeited (in shares) | shares	(9,000)
Non-vested RSUs at March 31, 2019 (in shares) | shares	764,201
Weighted Average Grant Date FairValue
Non-vested RSUs at December 31, 2018 (in dollars per share) | $ / shares	$ 2.54
Granted (in dollars per share) | $ / shares	2.93
Vested (in dollars per share) | $ / shares	2.86
Cancelled, expired or forfeited (in dollars per share) | $ / shares	2.73
Non-vested RSUs at March 31, 2019 (in dollars per share) | $ / shares	$ 2.59

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Stock-Based Compensation (Detail Textuals) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common Stock, Capital Shares Reserved for Future Issuance	458,746
Stock-based compensation	$ 181	$ 324
Options outstanding (in shares)	2,006,008		2,001,008
General and Administrative Expense
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation	$ 200	$ 200
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost related to non-vested awards	$ 3,200
Unrecognized compensation cost, recognition period	2 years 9 months 18 days
Restricted shares outstanding	150,000
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding (in shares)	579,402
Unrecognized compensation cost related to non-vested awards	$ 600
Unrecognized compensation cost, recognition period	2 years 9 months 18 days

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Segment Reporting (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenues:
Management, license and incentive fee revenue	$ 2,683	$ 2,436
Total revenues	22,776	19,517
Owned operating expenses:
Cost of sales	4,569	4,034
Owned Food Beverage And Other Expenses	2,259	1,689
Total owned operating expenses	17,743	15,101
General and administrative	2,650	3,055
Depreciation and amortization	942	778
Interest expense, net of interest income	269	318
Equity in income of investee companies		23
Other	(175)	(111)
Income before provision for income taxes	865	143
Operating segment
Revenues:
Owned net revenues	20,093	17,081
Management, license and incentive fee revenue	2,683	2,436
Total revenues	22,776	19,517
Owned operating expenses:
Cost of sales	4,569	4,034
Other operating expenses	10,915	9,378
Owned Food Beverage And Other Expenses	2,259	1,689
Total owned operating expenses	17,743	15,101
Segment income	5,033	4,416
General and administrative	2,650	3,055
Depreciation and amortization	942	778
Interest expense, net of interest income	269	318
Equity in income of investee companies	0	23
Other	307	99
Income before provision for income taxes	865	143
Operating segment | Owned restaurants
Revenues:
Owned net revenues	17,820	15,076
Management, license and incentive fee revenue	0	0
Total revenues	17,820	15,076
Owned operating expenses:
Cost of sales	4,569	4,034
Other operating expenses	10,915	9,378
Owned Food Beverage And Other Expenses	0	0
Total owned operating expenses	15,484	13,412
Segment income	2,336	1,664
Operating segment | Owned food, beverage and other operations
Revenues:
Owned net revenues	2,273	2,005
Management, license and incentive fee revenue	0	0
Total revenues	2,273	2,005
Owned operating expenses:
Cost of sales	0	0
Other operating expenses	0	0
Owned Food Beverage And Other Expenses	2,259	1,689
Total owned operating expenses	2,259	1,689
Segment income	14	316
Operating segment | Managed and licensed operations
Revenues:
Owned net revenues	0	0
Management, license and incentive fee revenue	2,683	2,436
Total revenues	2,683	2,436
Owned operating expenses:
Cost of sales	0	0
Other operating expenses	0	0
Owned Food Beverage And Other Expenses	0	0
Total owned operating expenses	0	0
Segment income	$ 2,683	$ 2,436

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Segment Reporting (Details 1) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Segment reporting
Total assets		$ 95,591	$ 55,979
Operating segment
Segment reporting
Total assets		95,591	55,979
Total capital asset additions		2,060	306
Operating segment | Owned restaurants
Segment reporting
Total assets		75,272	42,971
Total capital asset additions		1,762	301
Operating segment | Owned food, beverage and other operations
Segment reporting
Total assets	[1]	15,591	7,274
Total capital asset additions	[1]	298	5
Operating segment | Managed and licensed operations
Segment reporting
Total assets		4,728	5,734
Total capital asset additions		$ 0	$ 0

[1] Includes corporate assets

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Geographic Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 22,776	$ 19,517
Long-lived Assets	85,630		$ 44,438
Domestic
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	21,780	18,768
Long-lived Assets	85,593		44,400
Domestic | Owned restaurants
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	17,820	15,076
Long-lived Assets	72,532		38,958
Domestic | Owned food, beverage and other operations
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	2,273	2,005
Long-lived Assets	13,002		5,375
Domestic | Managed and licensed operations
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	1,687	1,687
Long-lived Assets	59		67
International
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	996	749
Long-lived Assets	37		38
International | Owned restaurants
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	0	0
Long-lived Assets	0		0
International | Owned food, beverage and other operations
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	0	0
Long-lived Assets	0		0
International | Managed and licensed operations
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	996	$ 749
Long-lived Assets	$ 37		$ 38

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Liquidity (Detail Textuals) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Dec. 31, 2017
Liquidity [Abstract]
Net income (loss)	$ 769	$ 118
Working capital deficit	8,600
Accumulated deficit	27,868		$ 28,722
Cash and cash equivalents	1,079	1,143	$ 1,592	$ 1,548
Net Cash Provided by (Used in) Operating Activities	$ 2,513	$ 172