The ONE Group Hospitality, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Nonconsolidated variable interest entities

Nonconsolidated variable interest entities

12 Months Ended

Dec. 31, 2015

Equity Method Investments and Joint Ventures [Abstract]

Nonconsolidated variable interest entities

Nonconsolidated variable interest entities:

Accounting principles generally accepted in the United States of America provide a framework for identifying variable interest entities (VIEs) and determining when a company should include the assets, liabilities, noncontrolling interests, and results of activities of a VIE in its consolidated financial statements. In general, a VIE is a corporation, partnership, limited-liability corporation, trust, or any other legal structure used to conduct activities or hold assets that (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to direct the activities of the entity that most significantly impact its economic performance, or (3) has a group of equity owners that do not have the obligation to absorb losses of the entity or the right to receive returns of the entity. A VIE should be consolidated if a party with an ownership, contractual, or other financial interest in the VIE that is considered a variable interest (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and noncontrolling interests at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. At December 31, 2015 and 2014, the Company held the following investments which are all accounted for under the equity method:



	At December 31,
	2015		2014
Bagatelle NY LA Investors, LLC (“Bagatelle Investors”)	$	7,364	$	357,896
Bagatelle Little West 12th, LLC ( “Bagatelle NY”)	2,357,927		1,938,252
Bagatelle La Cienega, LLC (“Bagatelle LA”)	—		—
One 29 Park, LLC	545,071		506,295
Totals	$	2,910,362	$	2,802,443

Equity in income of investee companies	$	1,038,854	$	1,149,060

Bagatelle Investors is a holding company that has interests in two operating restaurant companies, Bagatelle NY and Bagatelle LA. All three entities were formed in 2011. The Company holds interests in all three entities. The Company holds a 31.24% ownership over Bagatelle Investors as of December 31, 2015 and 2014. The Company holds a 5.23% direct ownership over Bagatelle NY and has indirect ownership through Bagatelle Investors as well as one of its subsidiaries of 45.90% for a total effective ownership of 51.13% as of December 31, 2015 and 2014. The Company holds a 5.23% direct ownership over Bagatelle LA and has indirect ownership through Bagatelle Investors as well as one of its subsidiaries of 38.10% for a total effective ownership of 43.33% as of December 31, 2015 and 2014. The Company holds a 10% direct ownership over One 29 Park as of December 31, 2015 and 2014. The Company accounts for its investment in One 29 Park under the equity method since it has ability to exercise significant influence over the entity.

During the years ended December 31, 2015 and 2014, the Company provided no explicit or implicit financial or other support to these VIEs that were not previously contractually required.

The amounts presented above represent maximum exposure to loss.

The summarized financial data at December 31, 2015 and 2014, of these investments is presented below:



	Bagatelle Investors		Bagatelle NY		Bagatelle LA			One 29 Park, LLC

December 31, 2015

Current assets	$	150,527	$	1,804,376	$	128,009		$	2,594,270
Non-current assets	$	352,376	$	2,022,934	$	434,567		$	1,242,770
Current liabilities	$	67,867	$	808,599	$	1,661,077		$	911,236
Non-current liabilities	$	—	$	199,807	$	19,209		$	—

Revenues	$	—	$	13,521,968	$	2,277,738		$	8,995,101
Gross profit	$	—	$	10,061,406	$	1,806,393		$	7,226,748
Income (loss) from continuing operations	$	346,420	$	1,994,781	$	(310,393	)	$	95,082
Net income (loss)	$	346,420	$	1,994,781	$	(310,393	)	$	91,251

December 31, 2014

Current assets	$	152,566	$	1,558,732	$	267,334		$	2,325,794
Non-current assets	$	1,947,283	$	2,449,489	$	510,224		$	1,184,300
Current liabilities	$	6,531	$	752,886	$	1,558,463		$	675,541
Non-current liabilities	$	—	$	199,111	$	26,312		$	—

Revenues	$	—	$	12,603,259	$	1,900,260		$	9,825,462
Gross profit	$	—	$	9,504,683	$	1,452,291		$	7,805,571
Income from continuing operations	$	350,530	$	1,978,755	$	(271,460	)	$	261,434
Net income	$	350,530	$	1,978,755	$	(271,460	)	$	258,434