| 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 unaudited condensed consolidated financial statements of the Company, collectively, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission 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 such 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”). These 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 a normal recurring nature) considered necessary to present fairly the Company's financial results. The results of the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024 and for any other interim period or future year. (b) Recent Accounting Pronouncement s The Company, as an emerging growth company, has elected to use the extended transition period which allows us to defer the adoption of new or revised standards. This allows the Company to adopt new or revised accounting standards as of the effective date for non-public business entities. In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, “ Leases (Topic 842) : Common Control Arrangements” . The new guidance requires all lessees in a lease with a lessor under common control to amortize leasehold improvement over the useful life of the common control group and provides new guidance for recognizing a transfer of assets between entities under common control as an adjustment to equity when the lessee no longer controls the use of the underlying asset. This guidance is effective for fiscal years beginning after December 15, 2023. The adoption of this standard in the first quarter of 2024 did not have any material impact on our consolidated financial statements. Accounting Standards Codification (“ASC”) Topic 320, “ Investments-Debt Securities,” requires that an enterprise classify all debt securities as either held-to-maturity, trading, or available-for-sale. During the third quarter of 2023, the Company adopted ASC 320 and classified its U.S. Treasury and equivalent securities as held-to-maturity. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting (Topic 820): Improvements to Reportable Segment Disclosures ” which provides guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of this standard on our consolidated financial statements and will adopt this pronouncement in the fourth quarter of 2024. In December 2023, the FASB issued ASU 2023-09, “ Income Taxes (Topic 740) Improvements to Income Tax Disclosures ,” which is effective for fiscal years beginning after December 31, 2024. The Company is evaluating the presentational effect that ASU 2023-09 will have on our consolidation financial statements. (c) Use of Estimates The preparation of financial statements in conformity with GAAP requires the Company 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. Certain information and note disclosures normally included in the financial statements prepared in accordance with 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 accompanying notes included in the Annual Report. (d) Goodwill Goodwill is calculated under ASC 805-30-30, which represents the excess of the fair value of purchase consideration of an acquired business over the fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at a reporting unit level on an annual basis, or more frequently if circumstances change or an event occurs that would more likely than not reduce the fair value of the reporting unit below its carrying amount. (e) Business Combinations The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations”. Under the acquisition method, we recognize 100% of the assets we acquire and liabilities we assume, regardless of the percentage we own, at their estimated fair values as of the date of acquisitions. Any excess of the purchase price over the fair value of the net assets and other identifiable intangible assets we acquire is recorded as goodwill. The assets we acquire, and liabilities we assume from contingencies, are recognized at fair value if we can readily determine the fair value during the measurement period. The operating results of the business the Company acquired are included in the consolidated statements of operations from the date of acquisition. Acquisition-related costs are expensed as incurred. (f) Equity-Based Compensation The Company accounts for equity-based compensation grants to employees in accordance with ASC Topic 718, “ Stock Based Compensation” . The Company issued restricted stock units to its employees. The Company estimates the fair value of the restricted stock units on the grant-date and recognizes the resulting fair value over the requisite service period. The fair value of each restricted stock unit or award is determined based upon the value of the common stock granted. The Company has elected to treat stock-based awards with graded vesting schedules and time-based service conditions as a single award and recognizes stock-based compensation on a straight-line basis over the requisite service period. Forfeitures are accounted for as they occur (g) 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. As of September 30, 2024 and December 31, 2023, cash and cash equivalents consisted principally of cash, money market accounts and short-term investments. Short-term investments are classified as available for sale, which are carried at fair value, with changes in fair value reported in earnings. Cash equivalents also include credit card transactions in transit. As of September 30, 2024 and December 31, 2023 , there were deposits in excess of federally insured amounts of $ 1.0 million and $ 8.8 million, respectively.
Carrying Gross Gross Fair Value
(in thousands)
Money Market Accounts (included in cash and cash equivalents) $ 1,417 $ — $ — $ 1,417
U.S. Treasury Securities (included in cash and cash equivalents) $ 17,000 $ 1,146 $ — $ 18,146
$ 18,417 $ 1,146 $ — $ 19,563
Represent money market accounts. Excludes $ 2.5 million of cash and cash equivalents at September 30, 2024. (h) 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 Sysco Los Angeles, Inc., or Sysco, an unrelated third-party, for a significant portion of its food supplies. During the fourth quarter of 2023, the Company entered into an agreement with Sysco to purchase certain food supplies. For the three and nine months ended September 30, 2023, the Company did not purchase from Sysco. For the three and nine months ended September 30, 2024 Sysco accounted for approximately 68.4 % and 68.9 % of total food costs, respectively. The Company previously relied on U.S. Foods, an unrelated third-party for a significant portion of its food products. For the nine months ending September 30, 2024, the Company did not purchase from U.S. Foods. For the three months ended September 30, 2023, U.S. Foods accounted for approximately 52.9 % of total food costs. For the nine months ended September 30, 2023, U.S. Foods accounted for approximately 45.0 % of total food costs. The Company relies on Pacific Global Distribution, Inc. (“PGD”), which provides restaurant supplies such as tableware, napkins, soda, and sauces. PGD is owned by a related party. For the three months ended September 30, 2024 and September 30, 2023 , PGD accounted for approximately 3.4 % and 13.7 % of total operating expenses, respectively. For the nine months ended September 30, 2024 and 2023 , PGD accounted for approximately 4.4 % and 14.9 % of total operating expenses, respectively. The Company previously relied on Wise Universal, Inc. (“Wise”), an entity 60 % owned by a related party, for food supplies for 13 restaurants. For the three months and nine months ended September 30, 2024 the Company did not purchase from Wise. For the three months and nine months ended September 30, 2023 , Wise accounted for approximately 26.8 % and 23.6 % of total food supplies, respectively. During the three and nine months ended September 30, 2024, two third party vendors accounted for 20.6 % and 15.1 %, respectively of food costs. (i) 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. (j) Revenue Recognition The Company recognizes revenue in accordance with 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. During the third quarter of 2024, the Company sold gift cards to customers through a third party vendor and at restaurant locations. The gift cards do not have an expiration date. Gift card sales are recorded as a contract liability when sold and are recognized as revenue, net of discounts, when the gift card is redeemed. Once the Company has sufficient historical data to reasonably estimate the amount of gift cards for which redemption is remote (also referred to as “breakage”), the Company will recognize breakage over an appropriate period in proportion to historical redemption trends and classify as revenue. The Company also offers discounts on the gift cards sold to its customers. The discounts are recorded as sales discount when gift cards have been redeemed. Revenue recognized from the redemption of gift cards is included in restaurant revenue. The Company’s contract liability related to gift cards was $ 1.3 million as of September 30, 2024. (k) 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 capitalizes certain costs in conjunction with improvements to specific sites for planned future restaurants and in conjunction with construction of new restaurants. The Company and its related entities did not capitalize any internal costs related to site preparation and construction activities during the nine months ended September 30, 2024 and September 30, 2023 as any amounts were deemed immaterial. (l) Other Assets and Other Current Liabilities Other assets as of September 30, 2024 and December 31, 2023 consist of the following:
(in thousands) September 30, December 31,
Other Assets
Security Deposits $ 835 $ 534
Liquor Licenses 224 215
Total Other Assets $ 1,059 $ 749 Other Current Liabilities as of September 30, 2024 and December 31, 2023 consist of the following:
(in thousands) September 30, December 31,
Other Current Liabilities
Sales tax payable $ 1,382 $ 1,447
Accrued percentage rent 1,060 1,163
Misc. accrued expenses 2,518 2,756
Total Other Current Liabilities $ 4,960 $ 5,366 (m) Advances from members Advances from members consist of funding received from member owners. During the nine months ended September 30, 2024, the Company satisfied $ 2.7 million of advances from members through cash payments of $ 864 thousand, the issuance of Class A common stock valued at $ 550 thousand, and offsets against $ 1.3 million of advances to satisfy certain costs incurred by the Company relating to the restructuring transaction in connection with the IPO. As of September 30, 2024 , the balance was $ 0 and as of December 31, 2023 the balance was $ 2.7 million. (n) Pre-Opening Costs Pre-opening costs, incurred in connection with the opening of new restaurants, are expensed as incurred. Pre-opening costs wer e $ 1.8 mill ion and $ 0.7 million for the three months ended September 30, 2024 and September 30, 2023 , respectively, and $ 5.4 million and $ 2.1 million for the nine months ended September 30, 2024 and September 30, 2023 , respectively. (o) Income Taxes 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 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 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. (p) Long-Lived Assets Long-lived assets 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. (q) Interest Income/Expense A reconciliation of total interest cost to interest income/expense as reported in the condensed consolidated income statement for the three and nine months ended September 30, 2024 and September 30, 2023 is as follows:
Three months ended Nine months ended
(in thousands) September 30, September 30, September 30, September 30,
Interest expense $ 135 $ 216 $ 312 $ 733
Interest income ( 331 ) ( 406 ) ( 1,046 ) ( 527 )
Interest (income) expense, net $ ( 196 ) $ ( 190 ) $ ( 734 ) $ 206 (r) Liquor Licenses Liquor licenses are deemed to have indefinite useful lives and are quantitatively tested on an annual basis for impairment. Liquor licenses are included in other assets in the accompanying balance sheets. (s) 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 statements as restaurant sales are recorded net of sales tax. (t) Advertising Costs Advertising costs are expensed as incurred and are included in General and Administrative costs in the accompanying condensed consolidated income statements. The Company incurred approximately $ 156 thousand and $ 42 thousand in advertising expenses for the three months ended September 30, 2024 and September 30, 2023 , respectively. The Company incurred approximately $ 246 thousand and $ 131 thousand in advertising expenses for the nine months ended September 30, 2024 and 2023, respectively. (u) Risks and Uncertainties. Management continues to evaluate the potential impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s future financial position and the results of its operations, the specific impact is not readily determinable as of the date of these unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty. (v) 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. During the year ended 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 nine months ended September 30, 2024 and September 30, 2023 . (w) 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 September 30, 2024 and 2023 , the Company did no t receive any benefits related to the ERC. The Company recorded an aggregate benefit of $ 200 thousand and $ 2.5 . million, respectively, in our condensed consolidated income statements to reflect the ERC for the nine months ended September 30, 2024 and 2023 , respectively, in our condensed consolidated income statements to reflect the ERC. (x) 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 assets at September 30, 2024 . (y) 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 15—Net Income per Share.” |
