GEN Restaurant Group Inc

(1) Organization and Description of Business

The accompanying consolidated financial statements represent the consolidated balance sheets, income statements, changes in permanent equity (deficit), and cash flows of GEN Restaurant Group, Inc. (“GEN Inc.”) and its consolidated subsidiaries, including GEN Restaurant Companies, LLC (“GEN LLC”, or the “Operating Company”). Unless the context otherwise requires, references to the “Company” refer to GEN Restaurant Group, Inc., and its consolidated subsidiaries, including the Operating Company. The Company operates restaurants which are located in California, Arizona, Hawaii, Nevada, New York, Texas, and Florida specializing in a variety of special flavored meats for Korean barbeque.

The following tables lists the Company’s entities in operation as of December 31, 2023:

As of December 31, 2023, the above entities are collectively owned 100% by the controlling group, except for GEN Hawaii. The Company has an equity method investment in GEN Hawaii, with a 50% ownership share. Prior to the IPO (as defined below), an outside investor owned 49% of GEN Houston and GEN Webster, but as of June 30, 2023, they are 100% owned by the Company. On December 31, 2023 and December 31, 2022, there were 37 and 31 restaurants in operation, respectively. During the fourth quarter of 2023, the Company signed two leases for a restaurant in Austin, Texas for a period of 10 years and a lease for another restaurant in Portland, Oregon for a period of 10 years.

Organization

GEN Inc. was formed as a Delaware corporation on October 28, 2021. GEN Inc. is a holding company that was formed for the purpose of completing an underwritten initial public offering (“IPO”) of shares of its Class A common stock (as defined below) and other related Transactions (as defined below) in order to carry on the business of the Operating Company, the predecessor of GEN Inc. for financial reporting purposes. The Operating Company was organized under the laws of the state of Delaware on October 28, 2021, and is based in Cerritos, California. As the managing member of the Operating Company, GEN Inc. operates and controls all the business and affairs of the Operating Company, and through the Operating Company and its consolidated subsidiaries, conducts its business. The authorized shares of GEN Inc. consist of (i) shares of Class A common stock, par value $0.001 per share (the “Class A common stock”) and (ii) shares of Class B common stock, par value $0.001 per share (the “Class B common stock”). See “Initial Public Offering and Organizational Transactions” below for the description of the IPO and the Transactions completed in June 2023.

The Operating Company has been determined to be the predecessor for accounting purposes and, accordingly, the consolidated financial statements for periods prior to the IPO and the related Transactions have been adjusted to combine the previously separate entities for presentation purposes. Amounts for the period from January 1, 2023 through June 27, 2023 presented in the consolidated financial statements and notes to the financial statements herein represent the historical operations of the Operating Company. The amounts for the period from June 28, 2023 through December 31, 2023 reflect the consolidated operations of the Company.

Initial Public Offering and Organizational Transactions

On June 30, 2023, GEN Inc. completed its IPO of 3,600,000 shares of Class A common stock at a public offering price of $12.00 per share. In addition, the underwriters purchased an additional 540,000 shares of Class A common stock from GEN, Inc. pursuant to the exercise of their option to purchase additional shares in the IPO. The sale of shares of Class A common stock by GEN Inc. generated aggregate net proceeds of $46.2 million, after deducting the underwriting discounts and commissions and offering expenses payable by GEN Inc. GEN Inc. contrib uted all of the net proceeds to the Operating Company in exchange for a number of Class A common units of the Operating Company (“Class A Common Units”) equal to the number of shares of Class A common stock sold by GEN Inc. in the IPO at a price per Class A Common Unit equal to the IPO price per share of Class A common stock. After giving effect to the IPO and the related Transactions and the use of the net proceeds from the IPO, GEN Inc. owns approximately 12.8% of the Operating Company’s outstanding common units. As a result of the IPO, Mr. David Kim and Mr. Jae Chang, Co-CEOs, collectively control approximately 58.6% of GEN Inc.’s common stock as a result of their ownership of GEN LLC’s Class B common units (“Class B Common Units”), which were issued on a one-to-one basis. Each share of Class B common stock is entitled to ten votes on all matters submitted to a vote of GEN Inc.’s stockholders.

As a result of the IPO and the Transactions, GEN Inc. became the managing member of the Operating Company and its principal asset is Class A Common Units of the Operating Company. As the managing member of the Operating Company, GEN Inc. operates and controls all of the business and affairs of the Operating Company, and through the Operating Company and its subsidiaries, conducts its business. Although GEN Inc. has a minority economic interest in the Operating Company, GEN LLC has the sole voting interest in, and controls the management of, the Operating Company, and has the obligation to absorb losses of, and receive benefits from, the Operating Company, which could be significant. GEN Inc. consolidated the Operating Company in its consolidated financial statements and reports a non-controlling interest related to the Class B Common Units held by the members of the Operating Company (other than the Class A Common Units held by GEN Inc.) on its consolidated financial statements. GEN Inc. has a board of directors and executive officers but has no employees. All of the Company’s assets are held by, and all of its operations are conducted through, the Operating Company. All of the Company’s employees are employed by the Operating Company.

In connection with the closing of the IPO, GEN Inc. and the Operating Company consummated the following organizational transactions (collectively, the “Transactions”):

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The Operating Company adopted the Operating Agreement (the “Operating Agreement”), which converted each member’s existing membership interests in the Operating Company into Class B Common Units, and appointed GEN Inc. as the managing member of the Operating Company;

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GEN Inc. restated its certificate of incorporation to, among other things, provide for Class A common stock and Class B common stock;

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GEN Inc. issued and sold 4,140,000 shares of its Class A common stock to the purchasers in the IPO (including the underwriters' option to exercise), and used all of the net proceeds received from the IPO to acquire Class A Common Units from the Operating Company at a purchase price per Class A Common Unit equal to the IPO price per share of Class A common stock, less underwriting discounts and commissions, which Class A Common Units represented approximately 12.8% of the Operating Company’s outstanding common units after the IPO; and

•

GEN Inc. entered into (i) a Tax Receivable Agreement (the “TRA”) with the Operating Company and the Operating Company’s members and (ii) a Registration Rights Agreement (the “Registration Rights Agreement”) with the Operating Company’s members who, assuming that all of the Class B Common Units of such members are redeemed or exchanged for newly-issued shares of Class A common stock on a one-to-one basis, will own an aggregate of 28,141,566 shares of Class A common stock, representing approximately 98.6%of the combined voting power of all of GEN Inc’s common stock. Although the actual timing and amount of any payments that GEN Inc will make to the Operating Company’s members under the TRA will vary, GEN Inc. expects those payments to be significant.

GEN Inc.’s corporate structure following the IPO, as described above, is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies when they undertake an initial public offering of their business. The Up-C structure allows the members of the Operating Company to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for income tax purposes following the IPO. One of these benefits is that future taxable income of the Operating Company that is allocated to its members will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the Operating Company entity level. Additionally, because the members may redeem their Class B Common Units for shares of GEN Inc.'s Class A common stock on a one-for-one basis, the Up-C structure also provides the members with potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded.

GEN Inc. will receive the same benefits as its members because of its ownership of Class A Common Units in an entity treated as a partnership, or “pass-through” entity, for income tax purposes. As GEN Inc. redeems additional Class B Common Units from the Operating Company’s members under the mechanism described above, GEN Inc will obtain a step-up in tax basis in GEN Inc’s share of the Operating Company’s assets. This step-up in tax basis will provide GEN Inc with certain tax benefits, such as future depreciation and amortization deductions that can reduce the taxable income allocable to GEN Inc. GEN Inc. entered into the TRA with the Operating Company and each of the Operating Company’s members, which provides for the payment by GEN Inc to the Operating Company’s members of 85% of the amount of tax benefits, if any, that GEN Inc. actually realizes (or in some cases, is deemed to realize) as a result of (i) increases in tax basis resulting from the redemption of Class B Common Units and (ii) certain other tax benefits attributable to payments made under the TRA.

As a result of the completion of the Transactions, including the IPO:

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GEN Inc. is a holding company and its principal asset is the Class A Common Units it holds in the Operating Company;

•

GEN Inc. is the managing member of the Operating Company and controls the business and affairs of the Operating Company and its subsidiaries;

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The purchasers in the IPO (i) purchased 4,140,000 shares of Class A common stock, representing approximately 1.4%of the combined voting power of all of GEN Inc.’s common stock, and own 100% of the economic interest in GEN Inc.

•

GEN Inc. owns all of the Class A Common Units of GEN LLC, representing approximately 12.8% of the distributions made by GEN LLC. While this interest represents a minority of economic interests in GEN LLC, it represents 100% of the voting interests, and GEN Inc. acts as the managing member of GEN LLC. As a result, GEN Inc. operates and controls all of GEN LLC’s business and affairs and is able to consolidate its financial results into GEN Inc.’s financial statements.

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The members of GEN LLC other than GEN Inc. are certain historic owners of GEN Restaurant Group, all of whom, in the aggregate, own 28,141,566 Class B Common Units of GEN LLC and 28,141,566 shares of Class B common stock of GEN Inc.

(2)

Basis of Presentation and Summary of Significant Accounting Policies

(a)

Basis of Presentation

The accompanying 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 (“SEC”).

(b)

Recently Issued Accounting Pronouncements

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 Company is in the process of evaluating the impact that the adoption of the ASU will have on the consolidated financial statements and related disclosures.

In June 2016, the 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 Accounting Standard Codification (“ASC”) 326 didnot have a material impact on the Company’s recognition of financial instruments within the scope of the standard.

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 quarter ended December 31, 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 December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Incomes Taxes (Topic 740)” (“ASU 2019-12”). During 2023, the Company adopted ASC 740 after the IPO transaction. ASU 2019-12 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance, when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rate on the date of enactment. Theadoption of this standard in thesecond quarter of 2023 hadno material impact on our consolidated financial statements.

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.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740),” “Improvement for Income Tax Disclosure,” 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 the consolidation financial statements.

The Company adopted FASB ASC 260, “Earnings per Share” after the IPO. The consolidated income statements of the Company include a presentation of income (loss) per share. The Company calculates this on the income (loss) attributable to the activity after the IPO. As of December 31, 2023, the Company did not have any dilutive securities that could, potentially, be exercised or converted into Class A common stock and then share in the earnings of the Company. As a result, diluted income (loss) per share is the same as basic income (loss) per share for the period presented.

(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 consolidated financial statements of the Company. The accompanying consolidated financial statements have been prepared in conformity with GAAP and applicable rules, and regulations of the SEC.

(d)

Equity-Based Compensation

The Company accounts for equity-based compensation grants of equity awards to employees in accordance with ASC Topic 718, “Stock Based Compensation”. The Company issued restricted stock units to its employees in 2023.

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 or sold. 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.

(e)

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 December 31, 2023, cash and cash equivalents consist principally of cash, money market accounts and short-term investments. Short-term investments are classified available for sale securities, 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 December 31, 2023 and December 31, 2022, there were deposits in excess of federally insured amounts of $8.8 million and $3.5 million, respectively.

(f)

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.

For the year ended December 31, 2023, Sysco accounted for approximately 15.1% of total food costs.

The Company relies on U.S. Foods, an unrelated third-party for a significant portion of its food products. For the year ended December 31, 2023 and 2022, U.S. Foods accounted for approximately 36.0% and 57.6% of total food costs, respectively.

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 year ended December 31, 2023 and December 31, 2022, PGD accounted for approximately 16.4% and 21.2% 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 13 restaurants. For the year ended December 31, 2023 and December 31, 2022, Wise accounted for approximately 21.3% and 32.5% of total food costs, respectively.

(g)

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.

(h)

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.

Sales tax amounts collected from customers are remitted to governmental authorities and are excluded from sales.

(i)

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:

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 consolidated income statements. The Company and its related entities did not capitalize any internal costs related to site preparation and construction activities during the year ended December 31, 2023 and 2022 as any amounts were deemed immaterial.

(j)

Other Assets and Other Current Liabilities

Other assets as of December 31, 2023 and December 31, 2022 consist of the following:

Other Current Liabilities as of December 31, 2023 and December 31, 2022 consist of the following:

(k)

Advances from members

Advances from members consist of funding received from member owners. As of December 31, 2023, the members had funded a total of $7.5 million of which $4.8 million was paid and immediately received as an equity contribution as part of the IPO. 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 15 for further discussion).

(l)

Pre-Opening Costs

Pre-opening costs, incurred in connection with the opening of new restaurants, are expensed as incurred. Pre-opening costs were $3.7 million and $1.5 million for the years ended December 31, 2023and December 31, 2022, respectively.

(m)

Income Taxes

Prior to the IPO, the Operating Company and its related entities were organized as limited liability companies or limited partnerships and are treated as pass-through entities for federal and state income tax purposes. As the Operating Company and its related entities (other than Gen, Inc.) 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 Operating 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 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 meetingthe “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.

(n)

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 thatno impairment charges were recorded in any of the periods presented.

(o)

Interest Expense

A reconciliation of total interest cost to interest expense as reported in the consolidated income statement for the years ended December 31, 2023and December 31, 2022 is as follows:

(p)

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.

(q)

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 consolidated income statements as restaurant sales are recorded net of sales tax.

(r)

Advertising Costs

Advertising costs are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated income statements. The Company incurred approximately $187 thousand and $169 thousand in advertising expenses for theyears ended December 31, 2023 and December 31, 2022, respectively.

(s)

Risks and Uncertainties.

We have been 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 menu 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.

(t)

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 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 year ended December 31, 2023 and December 31, 2022.

(u)

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 year ended December 31, 2023 and December 31, 2022, we recorded an aggregate benefit of $2.5 million and $3.5 million, respectively, in our consolidated income statements to reflect the ERC.

(u)

Deferred Offering Costs

The Company capitalized certain legal, accounting, and other third-party fees that were directly attributable to the IPO. Following the successful consummation of the IPO in June 2023, deferred offering costs of approximately $3.3 million were recorded in the Company’s stockholders’ equity as a reduction of additional paid-in capital. The Company hadno remaining deferred offering costs assets at December 31, 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 outstanding 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 16—Net Income per Share.”

(3)

Capital Contribution Receivable

The Company and its related entities had capital contributions receivables. During January 2022, the partners of certain of the Company’s related entities paid $320 thousand to the Company. As of December 31, 2022, the Company had $60 thousand in capital contributions receivable fromtwo restaurants: GEN Webster and GEN Kapolei. During the IPO, the remaining $60 thousand receivable balance was collected in full resulting in an increase to owners’ equity.

(4)

Fair Value of Financial Instruments

The Company's financial instruments consist of cash and cash equivalents and investments. The carrying amounts reported in the accompanying consolidated balance sheets for cash and cash equivalents approximate fair value because of the short-term maturity of those instruments. Fair value measurements are classified and disclosed in one of the following three categories:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets of liabilities.

As of December 31, 2023, all of the Company's financial assets that were subject to fair value measurement were valued using observable inputs. The Company's financial assets valued based on Level 1 inputs consist of cash and money market funds. The Company's financial assets based on Level 2 inputs consist of U.S. treasury securities.

(5)

Notes Receivable from Related Party

The Notes receivable from related party balance as of December 31, 2022, was $10.9 million with accrued interest income receivable of $164 thousand. During the period ended June 30, 2023, the Company provided an additional $2.1 million in loans to the related party. The Company recorded $172 thousand as interest income during the year ended December 31, 2023. As part of the IPO in June 2023, the loan along with the accrued interest was repaid in full resulting in an increase in owners’ equity. The note receivable from related party balance waszero as of December 31, 2023.

(6)

Property and Equipment, Net

The costs and related accumulated depreciation and amortization of major classes of property:

The construction in progress balance on December 31, 2023 and 2022 is related to new stores being developed as of such dates for subsequent openings.

Total depreciation and amortization for the year ended December 31, 2023 and December 31, 2022 was $4.9 million and $4.4 million, respectively, of which $147 thousand and $179 thousand for those periods were related to assets acquired under a finance lease.

(7)

Equity Method Investment

On April 1, 2016, GEN Hawaii made an investment of $200 thousand for a 50% interest in GKBH Restaurant LLC (“GKBH”), which operates a GEN restaurant in Hawaii. The Company does not control major operational and financial decisions, which require consent from the other owner. During the year ended December 31, 2023 and 2022, the Company received distributionsof $625 thousandand $537 thousand, respectively, from GKBH.

A summary of the GKBH financial position for theyears ended December 31, 2023 and December 31, 2022 and results of operations as of December 31, 2023, and December 31, 2022 is as follows (unaudited):

(8)

Line of Credit

During March 2022 the Company entered into a line of credit for $8.0 million with Pacific City Bank (“PCB”). These funds were used to pay off related party loans payable. The line of credit matured on September 3, 2023, and bore interest at a variable interest rate which was defined as the Wall Street Journal Prime Rate plus 1.75%, resulting in an interest rate of 10.25% on August 16, 2023, when paid in full. Only interest payments were due monthly with the principal balance to be paid in one payment at the maturity date. On August 16, 2023, the Company repaid in full the obligation under the line of credit plus accrued interest of $29 thousand. The balance as of December 31, 2023 and December 31, 2022 was $0 and $6.9 million, respectively.

On September 29, 2023, the Company entered into a new line of credit agreement for $20.0 million with PCB. The line of credit matures on September 25, 2024, and bears interest at a variable rate per annum equal to The Wall Street Journal Prime Rate, plus 0.25% resulting in an initial rate of 8.750%. The balance as of December 31, 2023 was $0. The available balance is $20.0 million at December 31, 2023.

(9)

Notes Payable

Notes Payable to Bank

On September 13, 2017, the Company and a commercial bank entered into a loan agreement in the amount of $3.0 million with a maturity date of September 15, 2024, at an interest rate of 6.00%. On September 2, 2020, the loan was amended for the amount of the balloon payment due on September 15, 2024. The Company pays $44 thousand each month and will pay one last payment estimated at $263 thousand due on September 15, 2024. Interest on this loan is computed on a 365/360 basis, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days in the monthly period. This calculation method results in a slightly higher effective interest rate than the numeric interest rate originally stated. This note is guaranteed by six of the Company’s entities and is cross guaranteed by related party entities. On August 16, 2023, the Company paid the outstanding balance plus accrued interest in full. The balance as of December 31, 2023 and December 31, 2022 was $0 and $1.1 million, respectively. There isno available balance at December 31, 2023.

During the first quarter of 2023, the Company and a commercial bank entered into a loan agreement in the amount of $1.3 million with a maturity date of February 6, 2030, at a variable interest rate which is defined as the Wall Street Journal Prime Rate plus 1.00%, resulting in an interest rate of 9.25% as of August 16, 2023. Principal and interest payments were duemonthly and commenced in March 2023. On August 16, 2023, the Company paid the outstanding balance plus accrued interest in full.

Economic Injury Disaster Loan (EIDL)

On July 1, 2020, the Company executed the standard loan documents for six restaurants required for securing an EIDL loan from the United States Small Business Administration (the “SBA”) under its Economic Injury Disaster Loan assistance program. This assistance was sought in light of the impact of the COVID-19 pandemic on the Company’s business.

During the year ended December 31, 2022, the Company received $2.6 million in EIDL loans. As of December 31, 2023 and December 31, 2022, the total principal amount of the EIDL loans was $4.4 million and $4.5 million, respectively, and the proceeds were used for working capital purposes. Interest on the EIDL loans accrues at 3.75% per annum and installment payments, including principal and interest, are duemonthly beginning twelve months from the date of each loan. The balance of principal and interest is payable over thirty years from the date of the promissory note.

Note Payable to Landlord

In August 2017, GEN Fremont entered into a note agreement with a landlord. The Company is making equal monthly payments on this note which has a July 2027 maturity date, with an interest rate of 8.00% per annum. As of December 31, 2023 and December 31, 2022, the loan balance outstanding was $271 thousand and $334 thousand, respectively.

The aggregate maturities of all third party notes payable as of December 31, 2023 are as follows:

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Related Party Notes Payable

Each of the following entities, GEN Alhambra, GEN Cerritos, GEN Torrance, GEN Rancho Cucamonga, GEN San Jose, GEN Northridge, GEN Chino Hills, GEN Carrolton, GEN Hawaii, GEN Fremont, GEN Online, GEN Concord, GEN Westgate, GEN Mountain View, GEN Sacramento, GEN Pearlridge, GEN Frisco, and GEN Texas (collectively, the “Borrowers”) had notes payable to Ignite Enterprise, LLC, (“Ignite”), an entity owned by Mr. David Kim, our Co-Chief Executive Officer, with similar terms. Each note allowed for draws to be made as individual loans. The total amount of loans under each note payable became due on the fifth anniversary of such note. Maturity dates ranged from January 2020 to December 2025. Interest accrued on each loan using the simple interest method at interest rates ranging from 2.75% to 5.00% of the outstanding principal balance. Interest was paid annually, one year in arrears. Ignite had a security interest in the assets of the Borrowers. There were no financial covenants in the note payable agreements. As of December 31, 2021 the outstanding principal under the Ignite notes payable was $7.7 million. During the month of March 2022, the Company repaid the entire $7.7 million principal balance outstanding on the notes payable. After repaying the notes payable of $7.7 million with Ignite, the Company signed additional note agreements with Ignite in 2022 and the outstanding principal under Ignite notes payable was $1.1 million as of December 31, 2022.

During 2022, the member owners loaned $1.9 million to the Company for the construction and pre-opening costs at the new GEN Webster restaurant location. As of December 31, 2023, the loan balance outstandingwas $1.2 million. The loans bear interest of 3.00% per year and mature on November 25, 2023.

In December 2022, the member owners loaned an additional $500 thousand to the Company for construction and pre-opening costs. The loan has a variable interest rate which is defined as the Wall Street Journal Prime Rate plus 1.75%, resulting in an interest rate of 9.25% at December 31, 2022. During January 2023, the Company repaid $500 thousand towards the Note Payable – related party. During March 2023, a member owner loaned another $500 thousand to the Company of which $150 thousand was repaid prior to the IPO and as part of the IPO, the remaining loan balance was repaid in full and immediately contributed to owners’ equity.

The aggregate maturities of notes payable from related parties as of December 31, 2023, are as follows:

Interest expense incurred for the related party debt was $133 thousand and $71 thousand for the year ended December 31, 2023 and December 31, 2022, respectively.

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Leases

At inception of a contract, the Company assesses whether a contract is a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification, measurement, and recognition are determined at lease commencement, which is the date the underlying asset is available for use by the Company. The accounting classification of a lease is based on whether the arrangement is effectively a financed purchase of the underlying asset (finance lease) or not (operating lease). The Company has operating and finance leases for its corporate office, restaurant locations, office equipment and kitchen equipment. Our leases have remaining lease terms of less than 1 year to up to 25 years, including options to extend many of the leases. For leases with renewal periods at the Company’s option, the Company determines the expected lease period based on whether the renewal of any options are reasonably assured at the inception of the lease.

Operating leases are accounted for on the balance sheet with the lease assets and liabilities recognized in “Operating lease assets”, “Operating lease liabilities, current” and “Operating lease liabilities, net of current portion”. Finance lease liabilities are recognized on the balance sheet in “Obligations under finance leases, current” and “Obligations under finance leases, net of current portion”.

Lease assets and liabilities are recognized at the lease commencement date. All lease liabilities are measured at the present value of the lease payments not yet paid. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the maturities of the leases. We estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. Operating lease assets are initially measured based on the lease liability, adjusted for initial direct costs, prepaid or deferred rent, and lease incentives. The operating lease liabilities are subsequently measured at the carrying amount of the lease liability adjusted for initial direct costs, prepaid or accrued lease payments, and lease incentives.

The following table summarizes the operating and finance lease activities to the income statement and balance sheet for the the year ended December 31, 2023 and 2022:

Maturities of lease liabilities as of December 31, 2023:

As of December 31, 2023, the Company had additional operating leases related to new restaurants the Company has not yet taken possession of that will total $44.5 million in future lease payment commitments. These operating leases are expected to commence in fiscal year 2024 and have lease terms, including option periods, of 20 to 25 years.

The Company is obligated under finance leases covering certain property and equipment that expire at various dates during the next 2 years. On December 31, 2023 and December 31, 2022 the gross amounts of property and equipment and related accumulated depreciation and amortization recorded under finance leases were as follows:

Amortization of assets held under finance leases is included with depreciation expense in the consolidated income statement.

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Commitments and Contingencies

(a)

Commitments

On November 23, 2016, pursuant to the U.S. government’s Immigrant Investor Program, commonly known as the EB-5 program (the “EB-5 Program”), Gen Restaurant Investment, LLC entered into an operating agreement with an investor (the “EB-5 Investor”). Under the terms and conditions of the EB- 5 program, the Company is subject to certain job creation requirements.

As part of the EB-5 Program operating agreement, Gen Restaurant Investment, LLC issued 3 units of Series II Preferred Member Interest in exchange for a 30% interest and received $1.5 million, recorded as equity. Five years from the date of issue, (the “Conversion Date”), or after approval of the l-829 petition to USCIS, the EB-5 Investor has the option to convert the Series II Units into Series I Units. If the EB-5 Investor does not exercise the conversion option, the Company may exercise its call option to purchase the EB-5 Investor’s interests for the fair market value. If approval of the preferred member's I-526 immigration application is denied, the Company is required to repurchase the preferred member's units for $1.5 million.

Accordingly, this has been presented as mezzanine equity, not permanent equity, in the accompanying consolidated balance sheets.

(b)

Contingencies

The Company and its related entities are involved in various claims and legal actions arising in the ordinary course of business.

On January 21, 2015, the Company received a class-action lawsuit naming Gen Alhambra, LLC, for alleged wage and hour class violations in Los Angeles County, California. This claim was settled during the year ended December 31, 2022, for an amount of $850,000 and was recorded in the Company’s books as Other income (expense).

The Company received several lawsuits from ex-employees naming the Company alleged labor law violations in Los Angeles County, California. The Company plans to continue to defend against these claims and do not expect the outcome of the lawsuits to have a material impact on the financial statements of the Company.

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Income Taxes

As a result of the IPO and the Transactions the Company owns a portion of the common units of the Operating Company, which is treated as a partnership for U.S. federal, and most applicable state and local income tax purposes. As a partnership, the Operating Company is generally not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by the Operating Company is passed through to and included in the taxable income or loss of its members in accordance with the terms of the Operating Agreement. The Company is subject to U.S. federal, state and local income taxes based on its share of the Operating Company’s pass-through taxable income.

The effective tax rate differs from the statutory tax rate primarily due to the Operating Company’s pass-through structure for U.S. income tax purposes.

For the year ended December 31, 2023, the Company didnot have any unrecognized tax benefits as a result of tax positions taken during a prior period or during the current period. No interest or penalties have been recorded as a result of tax uncertainties.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.

The following table details the Company’s provision for income taxes. Components of the provision for incomes taxes are as follows:

The company had an effective tax rate of 0.19% for the year ended December 31, 2023. The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate was as follows:

The Company’s income tax expense varies from the expense that would be expected based on statutory rates due principally to income passed through to noncontrolling interests. Prior to the IPO, income taxes for GEN, LLC at the consolidated level were primarily state, and local minimum taxes. Subsequent to the IPO, the Company became a C Corporation subject to federal, state, and local income taxes with respect to its share of net taxable income of GEN, LLC.

Temporary differences and carryforward that give rise to deferred tax assets and liabilities are comprised of the following:

Tax Receivable Agreement (“TRA”)

GEN, Inc. entered into the TRA with the Operating Company and each of the members of the Operating

Company(the “Members”) that provides for the payment by GEN Inc. to the Members of 85% of the amount of tax benefits, if any, that the Company may actually realize (or in some circumstances are deemed to realize) as a result of (i) increases in tax basis resulting from any future redemptions that are funded by GEN Inc. or exchanges of Class A Common Units described above in “Note 1—Organization and Description of Business” and (ii) certain other tax benefits attributable to payments made under the TRA.

The annual tax benefits are computed by calculating the income taxes due including such tax benefits, and the income taxes due without such benefits. The Operating Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA payments are not conditioned upon any continued ownership interest in the Operating Company. The rights of each noncontrolling interest holder under the TRA are assignable to transferees of its interest in the Operating Company. The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Operating Company generates each year and the applicable tax rate.

As of December 31, 2023, the Company didnot have a liability related to its projected obligations under the TRA. During theyear ended December 31, 2023, GEN Inc. didnot make any payments to members of the Operating Company pursuant to the TRA.

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Non-Controlling Interest

As discussed in “Note 1 – Organization and Description of Business,” the Company consolidates the financial results of the Operating Company and reports a non-controlling interest related to the Class B Common Units held by non-controlling interest holders on its consolidated statements.

As of December 31, 2023, the Company owned 12.8% of the economic interests in the Operating Company, with the remaining 87.2% of the economic interest owned by non-controlling interest holders. The non-controlling interests on the accompanying consolidated income statement represents the portion of the income attributable to the economic interests in the Operating Company held by the non-controlling holders of Class B Common Units calculated based on the weighted average non-controlling interests’ ownership during the periods presented.

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Other Related-Party Transactions

The Company purchased approximately $2.8 million and $3.1 million for the year ended December 31, 2023 and December 31, 2022, respectively, of supplies from Pacific Global (“PGD”), which is 100% owned by Mr. Jae Chang, our Co-Chief Executive Officer and Mr. Chang's direct family. Outstanding obligations for supply purchases from PGD of approximately $137 thousand and $86 thousand are included in accounts payable as of December 31, 2023, and December 31, 2022, respectively.

In 2016, the Company entered into a management agreement with JL Restaurant Management, Inc (formerly known as J&J Management Group, Inc.) a third party which shares offices with Mr. Jae Chang, our Co-Chief Executive Officer. Pursuant to the agreement, the Company paid approximately $1.2 million and $2.6 million during the year ended December 31, 2023 and December 31, 2022, respectively. As of December 31, 2023 and December 31, 2022, included in accounts payable were payments due for obligations for management services provided by JL Restaurant Management, Inc. of $0 and $24 thousand, respectively. Following the IPO on June 27, 2023 this management agreement was terminated.

The Company purchased food from Wise Universal Inc., an affiliate 60% owned by Mr. Chang for approximately $12.4 million and $14.1 million for the year ended December 31, 2023 and December 31, 2022, respectively. As of December 31, 2023 and December 31, 2022, included in accounts payable were outstanding obligations for food purchases from Wise of approximately $0 and $385 thousand, respectively.

On August 29, 2014, the Company entered into a consulting agreement (the “Consulting Agreement”) with Ignite,100% owned by Mr. David Kim, our Co-Chief Executive Officer, which provides for annual fees of up to 25%of gross revenue in exchange for various consulting services. Such consulting fees were only paid to the extent the Company and its related entities had adequate resources as determined by the controlling member. The Company paid approximately $2.3 million and $4.9 million for the year ended December 31, 2023 and December 31, 2022, respectively. Following the IPO on June 27, 2023 this agreement was terminated.

During the year ended December 31, 2023 and December 31, 2022, the Company paid approximately $30 thousand and $102 thousand to Fast Fabrications, LLC (“Fast Fabrications”), for services related to restaurant interior construction. Fast Fabrications is an affiliate that is 100% owned by an employee of the Company. That employee is also a partner in several of the LP entities and a member of GEN Hawaii.

As of December 31, 2021, the Company had notes receivable from Ignite and A/R Put-Forever, LP (100% owned by David Kim) totaling $21.5 million with interest accruing at 2.5% per annum. The $13.0 million was collected during the three months ending March 31, 2022. During the month of January 2022, the Company received $320 thousand from its partners. The remaining balance of approximately $13.0 million was repaid in full and immediately distributed to owner’s equity as part of the IPO during June 2023.

As of December 31, 2022, GEN Mountain View had a related party account payable to a company owned by Mr. David Kim, of approximately $353 thousand for purchases of fixed assets during 2018. During theyear ended December 31, 2023, GEN Mountain View paid $201 thousand towards this payable. As of December 31, 2023, the related party account payable was $152 thousand.

As of September 30, 2022 Gen Restaurant Management had a related party account payable to Ignite of $1.0 million for the purchase of inventory. During October and November 2022, the Company had repaid the entire balance.

During the year ended December 31, 2021 the owners advanced $2.0 million in cash to cover a portion of the costs of the pending IPO. During the year ended December 31, 2022, the owners advanced an additional $2.4 million. Of this total, $4.0 million was expensed during the year as deferred offering costs aborted, reflecting poor IPO market conditions at the end of 2022. As of December 31, 2023, the deferred offering costs balance waszero. 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 approximately $3.3 million were recorded in the Company’s stockholders’ equity as a reduction of additional paid in capital. The Company hadno deferred offering costs at December 31, 2023.

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Net Income per Share

Basic net income per share of Class A common stock is computed by dividing net income attributable to GEN Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted net income per share of Class A common stock is computed by dividing net income attributable to GEN Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive elements. Diluted net income per share for any periods for which loss per share is presented is the same as basic net income per share as the inclusion of potentially issuable shares would be antidilutive.

Prior to the amendment and restatement of the Operating Company’s LLC Agreement in connection with the IPO, the Operating Company’s membership interests were defined solely as percentage interests as the LLC Agreement did not define a number of membership units outstanding or authorized. As a result, a calculation of basic and diluted earnings per unit for the year ended December 31, 2022 was not presented in the accompanying consolidated financial statements as a denominator to the calculation could not be determined. The basic and diluted net income per share for the year ended December 31, 2023 represents the brief period between the IPO listing on June 28, 2023 through December 31, 2023.

A calculation of the numerator and denominator used in the calculation of basic and diluted net income per share of Class A common stock is as follows:

For the year ended December 31, 2023,28,141,566 shares of Class B common stock was excluded from the weighted-average in the computation of diluted net income per share of Class A common stock because the effect would have been anti-dilutive.

Shares of Class B common stock do not share in the earnings or losses of GEN Inc. and are therefore not participating securities. Separate calculations of basic and diluted net income per share for Class B common stock has not been presented.

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Stock-Based Compensation

In connection with the IPO, the Company has granted restricted stock units (“RSUs”) to certain team members that generally vest on thefive year anniversary of the grant date, or over afive year period with vesting of 20% each year. Under the 2023 Equity Incentive Plan (“Equity Plan”), the Company is authorized to issue up to 4,000,000 shares of the Company’s Class A common stock. Certain non-employee directors of the Company received RSUs that vest on the first anniversary of the grant date, subject to the grantee's continued service through the vesting period. Pursuant to the Equity Plan, we awarded 1,208,824 RSUs to certain employees and certain non-employee members of our Board of Directors during July 2023. Grants of RSUs to our Board of Director fully vest on the first anniversary of the grant date, or upon termination from the Board of Directors for any reason other than for cause, a pro rated portion of the shares vest on the termination date. The employee grants vest in increments over afive year period. The total stock based compensation for theyear ended December 31, 2023 was $1.5 million included in general and administrative expenses.

The aggregate fair value of the RSU's granted during the period was $14.6 million. The unrecognized stock-based compensation of $13.1 will be recognized over five years. The Company issued 372,600 (or 9% of the shares of common stock sold in the offering) warrants in connection with the IPO to the underwriters. The warrants expire five years after the effective date of the registration and can be exercised on a cashless basis. At December 31, 2023 no warrants have been exercised, and 372,600 are outstanding with an exercise price equal to 100%of the initial public offering price of $12 per share.

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Subsequent Events

The Company and its related parties evaluated subsequent events from the balance sheet date through the date at which the consolidated financial statements were issued.

Store Opening

During the month of February 2024 the Company openedtwo new restaurants in Dallas, Texas and Seattle, Washington.

Lease Agreements

During January 2024, the Company entered into two lease agreements with third parties for new restaurants in San Antonio, Texas, Pflugerville, Texas and Bayside (Queens), New York for a period of ten years each.

Business Acquisition

Effective February 19, 2024, the Company completed an acquisition to buy out its 50% partner in GKBH Restaurant LLC (“GKBH”). This transaction also included acquiring the rights the partner had to participate in future GEN restaurants in the State of Hawaii. The purchase price for the 50% interest and future rights totaled $6 million. The $3 million of the purchase price was paid at closing and the remaining $3 million is payable in six-months after closing. As of the acquisition date, GKBH will be consolidated into the financial statements of the Company going forward.