Annual report pursuant to Section 13 and 15(d)

Business and summary of significant accounting policies

v3.7.0.1
Business and summary of significant accounting policies
12 Months Ended
Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business and summary of significant accounting policies
Business and summary of significant accounting policies: 
 
Principles of consolidation:
The accompanying consolidated financial statements of The ONE Group Hospitality, Inc. and subsidiaries include the accounts of ONE Group and its subsidiaries, Little West 12th LLC (“Little West 12th” ), Bridge Hospitality, LLC (“Bridge”), STK-LA, LLC (“STK-LA”), WSATOG (Miami), LLC (“WSATOG”), STK Miami Service, LLC (“Miami Services”), STK Miami, LLC (“STK Miami”), Basement Manager, LLC (“Basement Manager”), JEC II, LLC (“JEC II”), One Marks, LLC (“One Marks”), MPD Space Events LLC (“MPD”), One 29 Park Management, LLC (“One 29 Park Management”), STK Midtown Holdings, LLC (“Midtown Holdings”), STK Midtown, LLC (“STK Midtown”), STK Atlanta, LLC (“STK Atlanta”), STK-Las Vegas, LLC (“STK Vegas”), Asellina Marks LLC (“Asellina Marks”), Xi Shi Las Vegas, LLC (“Xi Shi Las Vegas”), T.O.G. (UK) Limited (“TOG UK”), Hip Hospitality Limited (“Hip Hospitality UK”), T.O.G. (Aldwych) Limited (“TOG Aldwych”), CA Aldwych Limited (“CA Aldwych"), T.O.G. (Milan) S.r.l. ("TOG Milan"), BBCLV, LLC (“BBCLV”), STK DC, LLC (“STK DC”), STK Orlando, LLC ("STK Orlando"), STK Chicago, LLC ("STK Chicago"), TOG Biscayne, LLC ("TOG Biscayne"), STK Westwood, LLC ("STK Westwood"), STK Denver, LLC ("STK Denver"), STK Texas Holdings, LLC ("Texas Holdings"), STK Texas Holdings II, LLC ("Texas Holdings II"), STK Dallas, LLC ("STK Dallas"), STK Rebel Austin, LLC ("STK Austin"), STK Rebel San Diego, LLC ("STK San Diego"), STK Rooftop San Diego, LLC ("STK Rooftop San Diego"), 9401415 Canada Ltd. ("9401415 Canada"), STK Rebel (Edinburgh) Limited ("STK Edinburgh"), and STK Ibiza, LLC ("STK Ibiza"), The ONE Group - MENA, LLC, The ONE Group - STK PR, LLC. The entities are collectively referred to herein as the “Company” or “Companies,” as appropriate, and are consolidated on the basis of common ownership and control. All significant intercompany balances and transactions have been eliminated in consolidation.
 

Nature of business:
The Company is a hospitality company that develops and operates 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. As of December 31, 2016, we owned and operated (under lease agreements) 11, managed (under management agreements) 13 restaurants and lounges and one restaurant operated under a licensing agreement, including 14 STKs in major metropolitan cities in the United States and Europe (of which eight are owned, five are managed and one is operated under a licensing agreement). In addition, we provided food and beverage services in six hotels and casinos, one of which is under a lease agreement and five of which are under separate management agreements. We generate management and incentive fee revenue from those restaurants and lounges that we manage on behalf of our F&B hospitality clients.

ONE Group is a limited liability company (“LLC”) formed on December 3, 2004 under the laws of the State of Delaware. ONE Group is a management company, as well as holds a majority interest in the entities noted above. As per the LLC Operating Agreement of ONE Group, such LLC is set to expire on December 31, 2099.
 
Little West 12th is an LLC formed on February 28, 2005 under the laws of the State of Delaware. Little West 12th, which commenced operations on September 8, 2006, operates a restaurant known as STK located in New York, New York. As per the LLC Operating Agreement of Little West 12th, such LLC is set to expire on December 31, 2099. As of December 31, 2016 and December 31, 2015, ONE Group has a 61.22% interest in this entity. 
 
Bridge is an LLC formed on January 4, 2005 under the laws of the State of California. Bridge operated a restaurant known as STK located on La Cienega Boulevard in Los Angeles, California. STK commenced operations on February 24, 2008 and ceased operations as an STK in June 2015. The lease was terminated at this location in October 2016. Coco de Ville, a bar and lounge located in the same building, commenced operations on May 13, 2008. On January 15, 2011, Coco de Ville ceased operations. As per the LLC Operating Agreement of Bridge, such LLC is set to expire on December 31, 2057. As of December 31, 2016 and December 31, 2015, STK-LA has a 77% interest in this entity.
 
STK-LA, which is wholly-owned by ONE Group, is an LLC formed on May 31, 2007 under the laws of the State of New York. STK-LA has a 77% interest in Bridge. As per the LLC Operating Agreement of STK-LA, such LLC is set to expire on December 31, 2099.
 
WSATOG is an LLC formed on October 18, 2007 under the laws of the State of Delaware. WSATOG is a holding company that owns 100% of Miami Services and STK Miami. As per the LLC Operating Agreement of WSATOG, such LLC is set to exist in perpetuity. As of December 31, 2016 and December 31, 2015, ONE group has a 100% interest in this entity.
 
Miami Services, which is wholly-owned by WSATOG, is an LLC formed in October 18, 2007 under the laws of the State of Florida. Miami Services, which commenced operations on March 24, 2008, operated a food and beverage service through The Perry Hotel located in Miami Beach, Florida. On May 19, 2013, Miami Services ceased operations. As per the LLC Operating Agreement of Miami Services, such LLC is set to exist in perpetuity.
 
STK Miami, which is wholly-owned by WSATOG, is an LLC formed on October 18, 2007 under the laws of the State of Florida. STK Miami operates an STK restaurant, and operated a bar and lounge known as Coco de Ville located in Miami Beach, Florida. STK commenced operations on January 4, 2010 and Coco de Ville commenced operations on February 4, 2010. On July 3, 2011, Coco de Ville ceased operations. On May 26, 2013, the STK restaurant temporarily closed as the building underwent renovations. On March 13, 2015, STK re-opened. As per the LLC Operating Agreement of STK Miami, such LLC is set to exist in perpetuity.
 
Basement Manager is an LLC formed on January 12, 2006 under the laws of the State of New York. Basement Manager, which commenced operations on August 25, 2006, operated a nightclub known as Tenjune located in New York, New York. In 2014, Tenjune ceased operations. As per the LLC Operating Agreement of Basement Manager, such LLC is set to expire on December 31, 2099. As of December 31, 2016 and December 31, 2015, Little West 12th has a 100% interest in this entity.
  
JEC II is an LLC formed on May 28, 2003 under the laws of the State of New York. JEC II, which commenced operations on December 2, 2003, operated a restaurant known as One Restaurant located in New York, New York. In 2010, JEC II changed its concept and name of the restaurant to The Collective. On June 11, 2011, JEC II ceased operations. As per the LLC Operating Agreement of JEC II, such LLC is set to expire on December 31, 2099. As of December 31, 2016 and December 31, 2015, the ONE Group has a 96.14% interest in this entity.
 
One Marks is an LLC formed on December 7, 2004 under the laws of the State of Delaware to hold the “One” trademark. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and December 31, 2015, ONE Group has a 95.09% interest in this entity.
 
MPD, which is wholly-owned by Little West 12th, is an LLC formed in October 24, 2005 under the laws of the State of New York. MPD commenced operations on June 13, 2011 and operates the STK rooftop in New York, New York. It is management’s intent that such LLC will continue in existence in perpetuity.
 
One 29 Park Management, which is wholly-owned by ONE Group, is an LLC formed on April 22, 2009 under the laws of the State of New York. One 29 Park Management owns ten percent of One 29 Park, LLC, which operates a restaurant and manages the rooftop of a hotel located in New York, New York. Operations for One 29 Park Management commenced on August 18, 2010. As per the LLC Operating Agreement of One 29 Park Management, such LLC is set to exist in perpetuity.
 
Midtown Holdings is an LLC formed on February 9, 2010 under the laws of the State of New York. Midtown Holdings owns 100% of STK Midtown and STKOUT Midtown. As per the LLC Operating Agreement of Midtown Holdings, such LLC is set to expire on December 31, 2099. As of December 31, 2016 and December 31, 2015 ONE Group has a 100% interest in this entity.
 
STK Midtown, which is wholly-owned by Midtown Holdings, is an LLC formed on December 30, 2009 under the laws of the State of New York. STK Midtown commenced operations on December 7, 2011 and operates a restaurant known as STK located in New York City, New York. It is management’s intent that such LLC will continue in existence in perpetuity.
 
STK Atlanta, which is wholly-owned by ONE Group, is an LLC formed on December 9, 2009 under the laws of the State of Georgia. STK Atlanta operates a restaurant known as STK located in Atlanta, Georgia. STK commenced operations on December 15, 2011. STK Atlanta operated a restaurant known as Cucina Asellina located in Atlanta, Georgia. Cucina Asellina commenced operations on February 20, 2012 and ceased operations in December 2015 and will reopen as a private dining space. It is management’s intent that such LLC will continue in existence in perpetuity.
 
STK Vegas, which is wholly-owned by ONE Group, is an LLC formed on November 13, 2009 under the laws of the State of Nevada. STK Vegas manages a restaurant known as STK located at the Cosmopolitan Hotel in Las Vegas, Nevada which commenced operations on December 15, 2010. It is management’s intent that such LLC will continue in existence in perpetuity.

Asellina Marks is an LLC formed on December 5, 2011 under the laws of the State of Delaware to hold the “Asellina” and "Cucina Asellina" trademarks. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and December 31, 2015, ONE Group has a 50% interest in and control of this entity. 
 
Xi Shi Las Vegas, which is wholly-owned by ONE Group, is an LLC formed on August 14, 2012 under the laws of the State of Nevada. Xi Shi Las Vegas was originally expected to commence operations in 2014 in Las Vegas, Nevada, but a determination was made in 2014 to not open Xi Shi.
 
TOG UK was formed on July 6, 2010 under the laws of the United Kingdom. TOG UK is a holding company that owns 100% of TOG Aldwych, CA Aldwych and Hip Hospitality UK. On October 10, 2013 ONE Group executed a Transfer Agreement in which it purchased the remaining 49.99% interest in TOG UK from the previous minority stockholders in exchange for membership interest in ONE Group. As of December 31, 2016 and December 31, 2015 ONE group has a 100% interest in this entity.
  
Hip Hospitality UK was formed on May 13, 2010 under the laws of the United Kingdom. Hip Hospitality UK is a management company that manages and operates the food and beverage operations in the Hippodrome Casino in London. Operations in the casino commenced in 2012. As of December 31, 2016 and December 31, 2015 TOG UK has a 100% interest in this entity.
 
TOG Aldwych, which is wholly-owned by TOG UK, was formed on April 18, 2011 under the laws of the United Kingdom. TOG Aldwych is a management company that manages and operates a restaurant, bar and lounges in the ME Hotel in London. Operations at these venues within the hotel commenced in 2013.
 
CA Aldwych, which is wholly-owned by TOG UK, was formed on July 4, 2012 under the laws of the United Kingdom. CA Aldwych is a management company that manages and operates a restaurant known as Cucina Asellina in the ME Hotel in London. Operations at the restaurant commenced in 2014.

TOG Milan, which is wholly owned by TOG UK, was formed on September 18, 2014 under the laws of Italy. TOG Milan manages and operates a restaurant, bar and lounge in the ME Hotel in Milan. TOG Milan commenced operations in the ME Hotel on May 11, 2015.
 
BBCLV is an LLC formed on March 8, 2012 under the laws of the State of Nevada. BBCLV commenced operations on October 31, 2012 and operated a restaurant known as Bagatelle in Las Vegas, Nevada. As of December 31, 2016 and December 31, 2015, ONE Group has an 86.06% interest in this entity. In July 2013, BBCLV ceased operations.
 
STK DC, which is wholly-owned by ONE Group, is an LLC formed on November 20, 2012 under the laws of the State of Delaware. STK DC operates a restaurant known as STK in Washington, D.C. STK commenced operations on April 25, 2014. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and December 31, 2015, ONE Group has a 93.5% interest in this entity. In December 2016 STK DC ceased operations and the lease for this location was terminated.

STK Orlando, which is wholly-owned by ONE Group, is an LLC formed on October 3, 2013 under the laws of the State of Florida. STK Orlando operates a restaurant known as STK in Orlando, Florida. STK commenced operations on May 25, 2016. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and December 31, 2015, ONE Group has a 100% interest in this entity.

TOG Biscayne, which is wholly-owned by ONE Group, is an LLC formed on January 3, 2014 under the laws of the State of Florida. TOG Biscayne is a management company that manages and operates the food and beverage operations of the ME Hotel in Miami, Florida. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and December 31, 2015, ONE Group has a 100% interest in this entity.
 
STK Chicago, which is wholly-owned by ONE Group, is an LLC formed on June 3, 2014 under the laws of the State of Illinois. STK Chicago operates a restaurant known as STK in Chicago, Illinois. STK Chicago commenced operations on October 1, 2015. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and December 31, 2015, ONE Group has a 100% interest in this entity. 
 
STK Westwood, which is wholly-owned by ONE Group, is an LLC formed on August 20, 2014 under the laws of the State of California. STK Westwood operates the food and beverage operations and a restaurant known as STK, in the W Hotel in Los Angeles, California. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and December 31, 2015, ONE Group has a 100% interest in this entity.
 
STK Denver, which is wholly-owned by ONE Group, is an LLC formed on October 20, 2014 under the laws of the State of Colorado. STK Denver operates a restaurant known as STK in Denver, Colorado. STK Denver commenced operations on January 17, 2017. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and December 31, 2015, ONE Group has a 100% interest in this entity.

Texas Holdings, which is wholly-owned by ONE Group, is an LLC formed on August 24, 2015 under the laws of the State of Delaware. Texas Holdings owns 100% of Texas Holdings II. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016, ONE Group has a 100% interest in this entity.

Texas Holdings II, which is wholly-owned by Texas Holdings, is an LLC formed on August 24, 2015 under the laws of the State of Delaware. Texas Holdings II owns 100% STK Dallas and STK Austin. It is management's intent that such LLC will continue in existence in perpetuity.

STK Dallas, which is wholly-owned by Texas Holdings II, is an LLC formed on May 18, 2015 under the laws of the State of Texas. STK Dallas will operate a restaurant known as STK in Dallas, Texas. It is management’s intent that such LLC will continue in existence in perpetuity.

STK Austin, which is wholly-owned by Texas Holdings II, is an LLC formed on May 18, 2015 under the laws of the State of Texas. STK Austin will operate a restaurant known as STK in Austin, Texas. It is management's intent that such LLC will continue in existence in perpetuity.

STK San Diego, which is wholly-owned by ONE Group, is an LLC formed on May 18, 2015 under the laws of the State of California. STK San Diego will operate a restaurant known as STK in the Andaz Hotel in San Diego, California. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and 2015, ONE Group has a 100% interest in this entity.

STK Rooftop San Diego, which is wholly-owned by ONE Group, is an LLC formed on May 18, 2015 under the laws of the State of California. STK Rooftop San Diego operates a rooftop restaurant, lounge and bar known as STK Rooftop in the Andaz Hotel in San Diego, California. STK Rooftop San Diego commenced operations in September 2016. It is management’s intent that such LLC will continue in existence in perpetuity. As of December 31, 2016 and 2015, ONE Group has a 100% interest in this entity.

9401415 Canada was formed on August 10, 2015 under the laws of Canada. 9401415 Canada manages a restaurant known as STK in Toronto, Canada. STK Toronto commenced operations on September 30, 2016. As of December 31, 2016, ONE Group has a 100% interest in this entity.

STK Rebel Edinburgh, which is wholly-owned by TOG UK, was formed on June 12, 2015 under the laws of the United Kingdom. STK Edinburgh was to operate a restaurant known as STK in Edinburgh, Scotland. This entity was put into liquidation in February 2017 and will not open an STK.

The ONE Group-MENA, LLC, which is wholly-owned by ONE Group, is an LLC formed on August 20, 2015 under the laws of the State of Delaware. The ONE Group-MENA, LLC entered into a license agreement to grant a license to the licensee to open and operate up to three STK restaurants in Abu Dhabi and Dubai. It is management's intent that such LLC will continue to exist in perpetuity. As of December 31, 2016, ONE Group has a 100% interest in this entity.

STK Ibiza which is wholly-owned by ONE Group, is an LLC formed on September 3, 2015 under the laws of the State of Delaware. STK Ibiza entered into a license agreement to grant a license to the licensee to open and operate an STK restaurant in the Ibiza Corso Hotel and Spa at Marina Botafoch in Ibiza Town, Spain. STK Ibiza commenced operations in July 2016. It is management's intent that such LLC will continue to exist in perpetuity. As of December 31, 2016 and 2015, ONE Group has a 100% interest in this entity.

The ONE Group-STKPR, LLC, which is wholly-owned by ONE Group, is an LLC formed on March 29, 2016 under the laws of the State of Delaware. The ONE Group-STKPR, LLC entered into a license agreement to grant a license to the licensee to open and operate an STK restaurant and beach venue in Puerto Rico. It is management's intent that such LLC will continue to exist in perpetuity. As of December 31, 2016, ONE Group has a 100% interest in this entity.


Use of estimates:
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
 
Investments:
Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s consolidated balance sheets and statements of operations and comprehensive (loss) income; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in loss of Investee companies” in the consolidated statements of operations and comprehensive income. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investments” in the Company’s consolidated balance sheets.
 
When the Company’s carrying value in an equity method Investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the Investee company. When the Investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized. See Note 8 for names of entities accounted for under the equity method.

The Company’s investments are evaluated for impairment whenever events or changes in circumstances indicate their carrying values may not be recoverable
 
Fair value of financial instruments:
The carrying amounts of cash, receivables, accounts payable and accrued expenses approximate fair value due to the immediate or short-term maturity of these financial instruments. The carrying values of the term loan, promissory notes and borrowings from equipment financing approximate their fair values since the terms of these instruments have been recently negotiated.
 
Cash and cash equivalents:
The Company’s cash and cash equivalents are defined as cash and short-term highly liquid investments with an original maturity of three months or less from the date of purchase. The Company’s cash and cash equivalents consist of cash in banks as of December 31, 2016 and 2015.

Concentrations of credit risk:
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and accounts receivable, which include credit card receivables. At times, the Company’s cash may exceed federally insured limits. At December 31, 2016 and 2015, the Company has cash balances in excess of federally insured limits in the amount of approximately $789,157 and $897,383, respectively. Concentrations of credit risk with respect to credit card receivables are limited. Credit card receivables are anticipated to be collected within three business days of the transaction.

Our STK locations in New York and Las Vegas represented approximately 9% (Downtown), 9% (Midtown) and 17% (Las Vegas) and our food and beverage operations at the ME Hotel in London represented approximately 11% of our total revenues (both owned and managed properties) for the year ended December 31, 2016.

Our STK locations in New York and Las Vegas represented approximately 10% (Downtown), 9% (Midtown) and 17% (Las Vegas) and our food and beverage operations at the ME Hotel in London represented approximately 15% of our total revenues (both owned and managed properties) for the year ended December 31, 2015.

 
The Company closely monitors the extension of credit to its noncredit card customers while maintaining allowances for potential credit losses, if required. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, if required, based on a history of past write-offs and collections and current credit considerations. The allowance for uncollectible accounts receivable totaled $0 at December 31, 2016 and 2015. The determination of the allowance for uncollectible accounts receivable includes a number of factors, including the age of the accounts, past experience with the accounts, changes in collection patterns and general industry conditions.
 
Noncontrolling interest:
Noncontrolling interest related to the Company’s ownership interests of less than 100% is reported as noncontrolling interest in the consolidated balance sheets. The noncontrolling interest in the Company’s earnings is reported as net income attributable to the noncontrolling interest in the consolidated statements of operations and comprehensive income.
 
Foreign currency translation:
Assets and liabilities of foreign operations are translated into U.S. dollars at year end exchange rates and revenues and expenses are translated at average monthly exchange rates. Gains or losses resulting from the translation of foreign subsidiaries represent other comprehensive income (loss) and are accumulated as a separate component of stockholders’ equity. Currency translation gains or (losses) are recorded in Accumulated Other Comprehensive Income in Stockholders' Equity and amounted to $(1,123,568) and $(189,687) during December 31, 2016 and 2015.
 
Accounts receivable:
Accounts receivable is primarily comprised of normal business receivables such as credit card receivables, management and incentive fees and other reimbursable amounts due from hotel operators where the Company has a location, and are recorded when the products or services have been delivered or rendered at the invoiced amounts.
  
Inventory:
The Company’s inventory consists of food, liquor and other beverages and is valued at the lower of cost, on a first-in first-out basis, or market.
 
Property and equipment:
Property and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives as follows:
 
Computer and equipment
5-7 years
Furniture and fixtures
5-7 years

 
Restaurant supplies are capitalized during initial year of operations. All supplies purchased subsequent are charged to operations as incurred. Leasehold improvements are amortized on the straight-line method over the lesser of the estimated useful life of the assets or the lease term. Costs of maintenance and repairs are charged to operations as incurred. Any major improvements and additions are capitalized.
 
Impairment of long-lived assets:
The Company evaluates long-lived assets for impairment when facts and circumstances indicate that the carrying values of long-lived assets may not be recoverable. The impairment evaluation is generally performed at the individual venue asset group level. The Company first compares the carrying value of the asset to the asset’s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying value of the asset, the Company measures an impairment loss based on the asset’s estimated fair value. The fair value of a venue’s assets is estimated using a discounted cash flow model based on internal projections and taking into consideration the view of a market participant. The estimate of cash flows is based on, among other things, certain assumptions about expected future operating performance. Factors considered during the impairment evaluation include factors related to actual operating cash flows, the period of time since a venue has been opened or remodeled and the maturity of the relevant market. In 2015 the Company recorded an impairment charge of $3.0 million.
 
Deferred rent:
Deferred rent represents the net amount of the excess of recognized rent expense over scheduled lease payments and recognized sublease rental income over sublease receipts. Deferred rent also includes the landlord’s contribution towards construction (lease incentive), that will be amortized over the lease term. For rent expense, the Company straight lines the expense.
 
Pre-opening expenses:
Costs of pre-opening activities related to company-owned restaurants are expensed as incurred.
 
Revenue recognition:
Revenue consists of restaurant sales, management, incentive, license and royalty fee revenues. The Company records   discounts, such as management meals and employee meals as an expense as part of unit operating expenses on our statement of operations the total amounts were $308,000 and $273,000 for the years ended December 31, 2016 and 2015, respectively.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
The Company recognizes restaurant revenues when goods and services are provided. Revenue for management services (inclusive of incentive fees) are recognized when services are performed or earned and fees are earned. Royalty fees are recognized as revenue in the period the licensed restaurants’ revenues are earned.

Royalties from the license are based on a percentage of venue revenue and are recognized in the same period as the related sales occur.
 
Deferred revenue:
Deferred revenue represents gift certificates outstanding and deposits on parties. The Company recognizes this revenue when the gift certificates are redeemed and/or the parties are held.

For license deals, the Company charges an entry fee ("Entry Fee") for providing operational materials, design and development planning, and functional training courses. The Entry Fee is included in deferred license revenue in the accompanying consolidated balance sheets and is recognized as revenue over the life of the license agreement.
 
Taxes collected from customers:
The Company accounts for sales taxes collected from customers on a net basis (excluded from revenues).
 
Income taxes:
The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the consolidated financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the temporary differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
 
The Company accounts for income taxes in accordance with FASB ASC 740 “Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. After an evaluation of the realizability of the Company’s deferred tax assets, the Company recorded a full valuation allowance of $12.0 million on its US deferred tax assets in 2016. See Note 10, “Incomes Taxes,” for a further discussion of the Company’s provision for income taxes.

The Company has no unrecognized tax benefits at December 31, 2016 and 2015.
 
The Company recognizes interest and penalties associated with uncertain tax positions as part of the income tax provision and includes accrued interest and penalties with the related tax liability in the consolidated balance sheets.
 
Advertising:
The Company expenses the cost of advertising and promotions as incurred. Advertising expense included in continuing operations amounted to $3.2 million and $2.4 million in 2016 and 2015, respectively.
 
Stock-based compensation:
Compensation cost of all share-based awards is measured at fair value on the date of grant and recognized as an expense, on a straight line basis, net of estimated forfeitures, over their respective vesting periods.
 
Comprehensive income (loss):
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). The Company’s other comprehensive income (loss) is comprised of foreign currency translation adjustments. The amount of other comprehensive income (loss) related to the foreign currency adjustment amounted to $(1.1) million and ($189,687) as of December 31, 2016 and 2015, respectively.
 
Net income (loss) per share:
Basic net income per share is computed using the weighted average number of common shares outstanding during the applicable period. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common stock. Potential common stock consists of shares issuable pursuant to stock options and warrants. At December 31, 2016 and 2015, respectively, all equivalent shares underlying options and warrants were excluded from the calculation of diluted loss per share, as the exercise price of such options were out of the money and therefore equivalent shares would have an anti-dilutive effect.
 
Recent accounting pronouncements
In April 2015, the FASB issued ASU No. 2015-03 “Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which is effective for the fiscal years beginning after December 15, 2015. ASU 2015-03 simplifies financial reporting by eliminating the different presentation requirements for debt issuance costs and debt discounts or premiums. The Company has adopted this standard retrospectively as of December 31, 2016.
In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”), which is effective for the fiscal years beginning after December 15, 2018. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. Early adoption is permitted. The Company is in the process of evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, “Simplifying the Accounting for Share-Based Payments” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance, which is part of the Board’s simplification initiative, also contains two practical expedients under which nonpublic entities can use a simplified method to estimate the expected term of an award and make a one-time election to switch from fair value measurement to intrinsic value measurement for liability-classified awards. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. We adopted the provisions of ASU 2016-09 during the fourth quarter of 2016. The adoption of ASU 2016-09 did not have a material impact on our consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09) and has subsequently issued a number of amendments to ASU 2014-09. The new standard, as amended, provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASU 2014-09 includes provisions within a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard will be effective for us beginning January 1, 2018 and permits two methods of adoption: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet selected the transition method. The Company anticipates assigning internal resources to assist with the evaluation and implementation of the new standard, and will continue to provide updates during 2017.
In August 2014, FASB issued Accounting Standards Update (ASU) No. 2014-15 Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. Under generally accepted accounting principles (GAAP), continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements - Liquidation Basis of Accounting. Even when an entity's liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the provisions in this ASU should be followed to determine whether to disclose information about the relevant conditions and events. The ASU was effective for us as of December 31, 2016.

In August 2016, the FASB issued ASU 2016-15 "Statement of Cash Flows (Topic 230), Classification of certain Cash Receipts and Cash Payments." ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.