| Basis of Presentation and Summary of Significant Accounting Policies | (2) Basis of Presentation and Summary of Significant Accounting Policies (a) Basis of Presentation The accompanying condensed consolidated financial statements of the Company, collectively, have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompany notes included in the registration statement filed for the IPO completed on June 30, 2023. The unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements, and, in the opinion of management, reflect all adjustments (all of which were considered of normal recurring nature) considered necessary to present fairly the Company's financial results. The results of the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2023 and for any other interim period or future year. (b) Recently Adopted Accounting Pronouncement s In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “ Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ” (“ASU 2016-13”). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including receivables. In January 2023 , the Company adopted ASU No. 2016-13, and concluded that the adoption of ASC 326 did no t have a material impact on the Company’s recognition of financial instruments within the scope of the standard. (c) Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with U.S. GAAP and applicable rules, and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the previously filed registration statement. (d) Cash and Cash Equivalents The Company and its related entities consider all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist principally of credit card transactions in transit. As of June 30, 2023 and December 31, 2022 , there were deposits in excess of federally insured amounts of $ 53.8 million and $ 3.5 million, respectively. (e) Concentration Risk The Company relies on third parties for specified food products and supplies. In instances where these parties fail to perform their obligation, the Company may be unable to find alternative suppliers. The Company relies on U.S. Foods, an unrelated third-party for its food costs. For the three months ended June 30, 2023 and June 30, 2022 , U.S. Foods accounted for approximately 50.6 % and 37.4 % of total food costs, respectively. For the six months ended June 30, 2023 and June 30, 2022 , U.S. Foods accounted for approximately 46.3 % and 40.2 % of total food costs, respectively. The Company relies on Pacific Global Distribution, Inc. (“PGD”), which provides restaurant supplies such as tableware, napkins, soda, sauces, and is owned by a related party. For the three months ended June 30, 2023 and June 30, 2022 , PGD accounted for approximately 13.9 % and 21.1 % of total operating expenses, respectively. For the six months ended June 30, 2023 and June 30, 2022 , PGD accounted for approximately 16.4 % and 26.7 % of total operating expenses, respectively. The Company also relies on Wise Universal, Inc. (“Wise”) an entity 60 % owned by a related party, which provides food products for 12 restaurants. For the three months ended June 30, 2023 and June 30, 2022 , Wise accounted for approximately 22.6 % and 26.2 % of total food costs, respectively. For the six months ended June 30, 2023 and June 30, 2022 , Wise accounted for approximately 23.7 % and 27.0 % of total food costs, respectively. (f) Inventories Inventories consist principally of food and beverages and are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method (FIFO) for all inventories. (g) Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” Revenue from the operation of the restaurants is recognized as food and beverage products are delivered to customers and payment is tendered at the time of sale. Sales tax amounts collected from customers are remitted to governmental authorities and are excluded from sales. (h) Property and Equipment Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Property and equipment under finance leases are stated at the present value of minimum lease payments. The estimated useful service lives are as follows:
Equipment 5 - 7 Years
Furniture and fixtures 5 - 7 Years
Leasehold improvements Shorter of useful life or remaining lease term The Company and its related entities capitalize certain costs in conjunction with improvements to specific sites for planned future restaurants. The Company and its related entities also capitalize certain costs, including interest, in conjunction with constructing new restaurants. These costs are included in property and equipment and are amortized over the shorter of the life of the related leasehold improvements or the remaining lease term. Costs related to abandoned sites and other site selection costs that cannot be identified with specific restaurants are charged to general and administrative expenses in the accompanying condensed consolidated income statements. The Company and its related entities did not capitalize any internal costs related to site preparation and construction activities during the six months ended June 30, 2023 and December 31, 2022 as any amounts were deemed immaterial. (i) Other Assets and Other Current Liabilities Other assets as of June 30, 2023 and December 31, 2022 consist of the following:
(in thousands) June 30, December 31,
Other Assets
Security Deposits $ 446 $ 444
Liquor Licenses 215 224
Other 27 15
Total Other Assets $ 688 $ 683 Other Current Liabilities as of June 30, 2023 and as of December 31, 2022 consist of the following:
June 30, December 31,
Other Current Liabilities
Sales tax payable $ 1,413 $ 1,468
Accrued percentage rent 571 1,246
Deferred offering costs 2,867 319
Misc. accrued expenses 3,032 1,591
Total Other Current Liabilities $ 7,883 $ 4,624 (j) Advances from members Advances from members consist of funding received from member owners. As of June 30, 2023, the members had funded a total of $ 7.7 million of which $ 4.8 million was paid and immediately received as an equity contribution as part of the IPO transaction. As of December 31, 2022 , the members had funded a total of $ 4.4 million in cash to cover a portion of the costs of the IPO. (See Note 13 for further discussion). (k) Pre-Opening Costs Pre-opening costs, incurred in connection with the opening of new restaurants, are expensed as incurred. Pre-opening costs were $ 0.9 million and $ 0.4 million thousand for the three months ended June 30, 2023 and June 30, 2022 , respectively, and $ 1.4 million and $ 0.5 million thousand for the six months ended June 30, 2023 and June 30, 2022 , respectively. (l) Income Taxes Prior to the IPO, the Company and its related entities are organized as limited liability companies or limited partnerships and are treated as pass-through entities for federal and state income tax purposes. As the Company and its related entities have elected to be treated as partnerships for income tax purposes and are not subject to federal or state income taxes, income or loss is included in the tax returns of the members or the partners of the Company and its related entities based on their respective shares. Deferred tax assets are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets 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. The effect on deferred tax assets of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes positions taken or expected to be taken in a tax return in accordance with existing accounting guidance on income taxes which prescribes a recognition threshold and measurement process. Under U.S. GAAP, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 % likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Interest and penalties on tax liabilities, if any, would be recorded in interest expense and other non-interest expense, respectively. In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. (m) Long-Lived Assets Long-lived assets, such as property and equipment owned, are reviewed quarterly for impairment and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long- lived asset or asset group to be tested for possible impairment, undiscounted cash flows expected to be generated by that asset or asset group are compared to its carrying amount. If the carrying amount of the long-lived asset or asset group is not expected to be recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. We assessed our long-lived assets for potential impairment with the result that no impairment charges were recorded in any of the periods presented. (n) Interest Expense A reconciliation of total interest cost to interest expense as reported in the condensed consolidated income statement for the three and six months ended June 30, 2023 and June 30, 2022 is as follows:
Three months ended Six months ended
(in thousands) June 30, June 30, June 30, June 30,
Interest cost capitalized $ — $ — $ — $ —
Interest expense 301 197 557 338
PPP interest expense forgiven — — — ( 4 )
Interest income ( 94 ) ( 42 ) ( 161 ) ( 97 )
Interest expense, net $ 207 $ 155 $ 396 $ 237 (o) Liquor Licenses Liquor licenses are deemed to have indefinite useful lives and are qualitatively tested on an annual basis for impairment. Liquor licenses are included in other assets in the accompanying balance sheets. (p) Sales Taxes Sales taxes are imposed by state, county, and city governmental authorities, collected from customers and remitted to the appropriate governmental agency. The Company’s policy is to record the sales taxes collected as a liability on the books and then remove the liability when the sales tax is remitted. There is no impact on the condensed consolidated income statement as restaurant sales are recorded net of sales tax. (q) Advertising Costs Advertising costs are expensed as incurred and are included in General and Administrative costs in the accompanying statements of income. The Company incurred approximately $ 54 thousand and $ 49 thousand in advertising expenses for the three months ended June 30, 2023 and June 30, 2022, respectively. The Company incurred approximately $ 90 thousand in advertising expenses for both the six months ended June 30, 2023 and June 30, 2022 . (r) Risks and Uncertainties. We are subject to continued risks and uncertainties as a result of the outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic which was declared a National Public Health Emergency in March 2020. We experienced significant disruptions to our business as suggested and mandated social distancing and shelter-in-place orders led to the temporary closure of all of our restaurants. In the second quarter of fiscal 2020, certain jurisdictions began allowing the reopening of restaurants. While restrictions on the type of operations and occupancy capacity may continue to change, by the end of the first quarter of 2022 all of our restaurants were operating at full capacity with no capacity restrictions remaining. We cannot predict whether COVID-19 outbreaks will reoccur or whether variants will spike, what additional restrictions may be enacted, to what extent we can maintain sales volumes during or following any resumption of mandated social distancing protocols or vaccination or mask mandates and what long-lasting effects the COVID-19 pandemic may have on the restaurant industry as a whole. The ongoing effects of the COVID-19 pandemic, including, but not limited to, labor-related impacts, supply chain disruptions and changes in consumer behavior, will determine the continued significance of the impact of the COVID-19 pandemic to our operating results and financial position. The Company has experienced, and in the future may experience, inflation related to its purchase of certain food products that the Company needs to operate its business. This price volatility could potentially have a material impact on the Company’s financial condition and/or its results of operations. In order to mitigate price volatility, the Company monitors cost fluctuations and may adjust its prices accordingly. The Company’s ability to compensate for higher costs through increased pricing may be limited by the competitive environment in which the Company operates. (s) Restaurant Revitalization Fund Several of the Company’s restaurants received, between May and August 2021, a total of approximately $ 16.8 million from the Restaurant Revitalization Fund (“RRF”). The RRF funds must be used for specific purposes, and the Company was required to provide use of funds validation on an annual basis through March 2023. The Company accounted for the RRF funds as a government grant and has recognized the amounts as income as related expenses were incurred. During the year ending December 31, 2021 , the Company recognized approximately $ 13.0 million as RRF grant income and had deferred the remaining balance of $ 3.8 million. No RRF grant income was recognized during the six months ended June 30, 2023 and June 30, 2022 . (t) Employee Retention Credits In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus measures, including the Employee Retention Credit (“ERC”), a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC. We qualified for the ERC in the first and second quarters of 2019, second and fourth quarters of 2020 and first, second and third quarters of 2021. During the three months ended June 30, 2023 and June 30, 2022 , we recorded an aggregate benefit of $ 1.3 million and $ 2.5 million, respectively, in our condensed consolidated income statement to reflect the ERC. During the six months ended June 30, 2023 and June 30, 2022 , we recorded an aggregate benefit of $ 2.5 million in both years in our condensed consolidated income statement to reflect the ERC. (u) Deferred Offering Costs The Company capitalized certain legal, accounting, and other third-party fees that were directly attributable to GEN Inc’s IPO. Following the successful consummation of the IPO in June 2023, deferred offering costs of approximatel y $ 3.3 m illion were recorded in the Company’s stockholders’ equity as a reduction of additional paid in capital. The Company had no remaining deferred offering costs at June 30, 2023 . (v) Net Income Per Share Basic net income per share is computed by dividing net income attributable to the Company by the weighted average number of shares outstandin g during the period. Diluted net income per share is computed by giving effect to all potential weighted average dilutive shares including stock options, restricted stock units, dividend equivalent units, restricted stock awards, and Class B Common Units exchangeable for shares of Class A common stock for the periods after the closing of the IPO on June 30, 2023. The dilutive effect of outstanding awards, if any, is reflected in diluted earnings per share by application of the treasury stock method or if-converted method, as applicable. See “Note 14—Net Income per Share.” |
