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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2024

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to ___________

 

Commission File Number: 001-41494

 

YOSHIHARU GLOBAL CO.
(Exact name of Registrant as specified in its charter)

 

Delaware   5812   87-3941448

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

6940 Beach Blvd., Suite D-705

Buena Park, CA 90621

(714) 694-2403

(Address, including zip code, and telephone number, including

area code, of Registrant’s principal executive offices)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share   YOSH  

The Nasdaq Stock Market LLC

(Nasdaq Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No

 

The registrant has 1,242,722 shares of class A common stock outstanding, and 100,000 shares of class B common stock outstanding as of August 19, 2024.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION 1
     
Item 1 Unaudited Consolidated Financial Statements 1
     
  Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 1
     
  Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 2
     
  Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 3
     
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 4
     
  Notes to Consolidated Financial Statements 5
     
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 32
     
Item 4 Controls and Procedures 32
     
PART II OTHER INFORMATION 33
     
Item 1 Legal Proceedings 33
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 33
     
Item 3 Defaults Upon Senior Securities 33
     
Item 4 Mine Safety Disclosures 33
     
Item 5 Other Information 33
     
Item 6 Exhibits 33
     
Signature   34

 

i
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to management, and which statements involve substantial risk and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and objectives for future operations such as our ability to achieve in excess of 100% annual unit growth rate over the next three to five years, our hope to generate future comparable restaurant sales growth, our plan to drive high profitability, and our intention to heighten brand awareness are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions.

 

These risks and uncertainties include, among other things, the risk that we may not be able to successfully implement our growth strategy if we are unable to identify appropriate sites for restaurant locations, expand in existing and new markets, obtain favorable lease terms, attract guests to our restaurants or hire and retain personnel; the risk that we may not be able to maintain or improve our comparable restaurant sales growth; that the restaurant industry is a highly competitive industry with many competitors; that our limited number of restaurants, the significant expense associated with opening new restaurants, and the unit volumes of our new restaurants makes us susceptible to significant fluctuations in our results of operations; that we have incurred operating losses and may not be profitable in the future; the risk that our plans to maintain and increase liquidity may not be successful; that we depend on our senior management team and other key employees, and the loss of one or more key personnel or an inability to attract, hire, integrate and retain highly skilled personnel could have an adverse effect on our business, financial condition or results of operations; that our operating results and growth strategies will be closely tied to the success of our future franchise partners and we will have limited control with respect to their operations; the risk that we may face negative publicity or damage to our reputation, which could arise from concerns regarding food safety and foodborne illness or other matters; that minimum wage increases and mandated employee benefits could cause a significant increase in our labor costs; that events or circumstances could cause the termination or limitation of our rights to certain intellectual property critical to our business that is licensed from Yoshiharu Holdings Co., or that we could face infringements on our intellectual property rights and be unable to protect our brand name, trademarks and other intellectual property rights; that challenging economic conditions may affect our business by adversely impacting numerous items that include, but are not limited to: consumer confidence and discretionary spending, the future cost and availability of credit and the operations of our third-party vendors and other service providers; the risk that we, or our point of sale and restaurant management platform partners, may fail to secure guests’ confidential, personally identifiable, debit card or credit card information or other private data relating to our employees or us; and the impact of the COVID-19 pandemic, or a similar public health threat, on global capital and financial markets, general economic conditions in the United States, and our business and operations.

 

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described elsewhere in this Quarterly Report on Form 10-Q and in the section titled “Risk Factors” in the Company’s recently filed registration statement on Form S-1 (File No. 333-262330). We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law.

 

ii
 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Yoshiharu Global Co.

Unaudited Consolidated Balance Sheets

 

As of 

June 30,

2024

  

December 31,

2023

 
         
ASSETS          
Current Assets:          
Cash  $1,194,174   $1,462,326 
Accounts receivable   108,348    - 
Inventories   111,538    73,023 
Total current assets   1,414,060    1,535,349 
           
Non-Current Assets:          
Property and equipment, net   5,239,334    4,092,950 
Operating lease right-of-use asset   7,059,187    5,459,708 
Intangible asset   517,775    - 
Goodwill   1,985,645    - 
Other assets   914,424    1,931,357 
Total non-current assets   15,716,365    11,484,015 
           
Total assets  $17,130,425   $13,019,364 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable and accrued expenses  $868,641   $647,811 
Line of credit   1,000,000    1,000,000 
Current portion of operating lease liabilities   882,627    572,230 
Current portion of bank notes payables   617,208    414,378 
Current portion of loan payable, EIDL   5,312    10,536 
Loans payable to financial institutions   236,148    534,239 
Due to related party   1,157,800    24,176 
Other payables   65,700    65,700 
           
Total current liabilities   4,833,436    3,269,070 
Operating lease liabilities, less current portion   7,007,735    5,689,535 
Bank notes payables, less current portion   2,337,285    991,951 
Loan payable, EIDL, less current portion   415,362    415,329 
Notes payable to related party   600,000    - 
Convertible notes to related party   1,200,000    - 
Total liabilities   16,393,818    10,365,885 
           
Commitments and Contingencies   -     -  
           
Stockholders’ equity          
Class A Common Stock - $0.0001 par value; 49,000,000 authorized shares; 1,242,722 shares issued and outstanding at June 30, 2024 and 1,230,246 shares issued and outstanding at December 31, 2023   124    123 
Class B Common Stock - $0.0001 par value; 1,000,000 authorized shares; 100,000 shares issued and outstanding at June 30, 2024 and December 31, 2023   10    10 
           
           
Additional paid-in capital   12,058,267    11,994,119 
Accumulated deficit   (11,321,794)   (9,340,773)
Total stockholders’ equity   736,607    2,653,479 
           
Total liabilities and stockholders’ equity  $17,130,425   $13,019,364 

 

See accompanying notes to unaudited consolidated financial statements.

 

1

 

 

Yoshiharu Global Co.

 

Unaudited Consolidated Statements of Operations  

 

   2024   2023   2024   2023 
  

Six Months Ended

June 30,

  

Three Months Ended

June 30,

 
   2024   2023   2024   2023 
                 
Revenue:                    
Food and beverage  $6,137,005   $4,689,043   $3,325,396   $2,209,469 
Total revenue   6,137,005    4,689,043    3,325,396    2,209,469 
                     
Restaurant operating expenses:                    
Food, beverages and supplies   1,508,572    1,229,341    840,680    577,895 
Labor   2,780,661    2,003,481    1,494,127    865,414 
Rent and utilities   769,296    555,376    450,728    256,913 
Delivery and service fees   280,916    284,950    137,555    137,113 
Depreciation   350,327    251,687    179,645    123,417 
Total restaurant operating expenses   5,689,772    4,324,835    3,102,735    1,960,752 
                     
Net operating restaurant operating income   447,233    364,208    222,661    248,717 
                     
Operating expenses:                    
General and administrative   2,012,054    2,222,346    1,091,653    1,161,893 
Related party compensation   95,879    123,432    53,725    11,384 
Advertising and marketing   58,564    52,542    24,660    26,200 
Total operating expenses   2,166,497    2,398,320    1,170,038    1,199,477 
                     
Loss from operations   (1,719,264)   (2,034,112)   (947,377)   (950,760)
                     
Other income (expense):                    
Gain on disposal of fixed asset   -    8,920    -    8,920 
Other income   12,207    6,990    12,207    6,990 
Interest   (252,126)   (138,828)   (147,808)   (77,691)
Total other income (expense), net   (239,919)   (122,918    (135,601)   (61,781)
                     
Loss before income taxes   (1,959,183)   (2,157,030)   (1,082,978)   (1,012,541)
                     
Income tax provision   21,838    6,988    21,838    6,988 
                     
Net loss  $(1,981,021)  $(2,164,018)  $(1,104,816)  $(1,019,529)
                     
Loss per share:                    
Basic and diluted  $(1.48)   (1.77)   (0.82)   (0.83)
                     
Weighted average number of common shares outstanding:                    
Basic and diluted   1,342,105    1,223,262    1,342,105    1,223,262 

 

See accompanying notes to unaudited consolidated financial statements.

 

2

 

 

Yoshiharu Global Co.

 

Unaudited Consolidated Statements of Stockholders’ Equity (Deficit)  

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
   Class A Shares   Class B Shares  

Additional

Paid-In

   Accumulated  

Total

Stockholders’

 
   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
Balance at December 31, 2023   1,230,246   $123    100,000   $10   $11,994,119   $(9,340,773)  $2,653,479 
                                    
Issuance of Class A Common Stock   12,476    1    -    -    64,148    -    64,149 
                                    
Net loss   -    -    -    -    -    (876,205)   (876,205)
                                    
Balance at March 31, 2024 (unaudited)   1,242,722   $124    100,000   $10   $12,058,267   $(10,216,978)  $1,841,423 
                                    
Net loss   -    -    -    -    -    (1,104,816)   (1,104,816)
                                    
Balance at June 30, 2024 (unaudited)   1,242,722   $124    100,000   $10   $12,058,267   $(11,321,794)  $736,607 

 

   Class A Shares   Class B Shares  

Additional

Paid-In

   Accumulated  

Total

Stockholders’

 
   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance at December 31, 2022   1,228.846   $123    100,000   $10   $11,938,119   $(6,300,409)  $5,637,843 
                                    
                                    
Net loss   -    -    -    -    -    (1,144,489)   (1,144,489)
                                    
Balance at March 31, 2023 (unaudited)   1,228.846   $123    100,000   $10   $11,938,119   $(7,444,898)  $4,493,354 
                                    
Net loss   -    -    -    -    -    (1,019,529)   (1,019,529)
                                    
Balance at June 30, 2023 (unaudited)   1,228,846   $123    100,000   $10   $11,938,119   $(8,464,427)  $3,473,825 
                                    

 

See accompanying notes to unaudited consolidated financial statements.

 

3

 

 

Yoshiharu Global Co.

 

Unaudited Consolidated Statements of Cash Flows

 

   2024   2023 
  

For the six months ended

June 30,

 
   2024   2023 
         
Cash flows from operating activities:          
Net loss  $(1,981,021)  $(2,164,018)
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   363,603    251,687 
Gain on disposal of fixed asset   -    (8,920)
Changes in assets and liabilities:          
Accounts receivable   (108,348)   - 
Inventories   (25,730)   9,838 
Other assets   1,018,133    (650,515)
Accounts payable and accrued expenses   221,197    (104,888)
Due to related party   1,133,624    58,771 
Other payables   -    59,785 
Net cash provided by (used in) operating activities   621,458    (2,548,260)
           
Cash flows from investing activities:          
Purchases of property and equipment   (398,641)   (1,040,797)
Acquisition of LV entities   (1,800,000)   - 
Net cash used in investing activities   (2,198,641)   (1,040,797)
           
Cash flows from financing activities:          
Advance from line of credit   -    500,000 
Proceeds from borrowings for acquisition of LV entities   900,000    - 
Proceeds from borrowings   1,014,830    - 
Repayments on bank notes payables   (371,857)   (69,627)
Repayment of loan payable to financial institutions   (298,091)   - 
Proceeds from sale of common shares   64,149    - 
Net cash provided by financing activities   1,309,031    430,373 
           
Net decrease in cash   (268,152)   (3,158,684)
           
Cash – beginning of period   1,462,326    6,138,786 
           
Cash – end of period  $1,194,174   $2,980,102 
           
Supplemental disclosures of non-cash financing activities:          
Note payable to related party  $600,000    - 
Convertible notes to related party  $1,200,000    - 
           
Supplemental disclosures of cash flow information          
Cash paid during the periods for:          
Interest  $230,777   $138,828 
Income taxes  $21,838   $6,988 

 

See accompanying notes to unaudited consolidated financial statements.

 

4

 

 

YOSHIHARU GLOBAL CO.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1. NATURE OF OPERATIONS

 

Yoshiharu Global Co. (“Yoshiharu”) was incorporated in the State of Delaware on December 9, 2021. Yoshiharu has the following wholly owned subsidiaries:

 

Name   Date of Formation   Description of Business
Global JJ Group, Inc. (“JJ”)   January 8, 2015   Ramen stores located in Orange, California and Buena Park, California.
Global AA Group, Inc. (“AA”)   July 21, 2016   Ramen store located in Whittier, California.
Global BB Group, Inc. (“BB”)   May 19, 2017   Ramen store located in Chino Hills, California.
Global CC Group, Inc. (“CC”)   September 23, 2019   Ramen stores located in Eastvale, California and Corona, California.
Global DD Group, Inc. (“DD”)   December 19, 2019   Ramen store located in la Mirada, California.
Yoshiharu Irvine (“YI”)   December 4, 2020   Ramen store located in Irvine, California.
Yoshiharu Cerritos (“YC”)   January 21, 2021   Ramen store located in Cerritos, California.
Yoshiharu Clemente (“YCT”)   May 2, 2022   Ramen store to be opened in San Clemente, California.
Yoshiharu Laguna (“YL”)   May 2, 2022   Ramen store located in Laguna, California.
Yoshiharu Ontario (“YO”)   May 2, 2022   Ramen store to be opened in Ontario, California.
Yoshiharu Menifee (“YM”)   May 2, 2022   Ramen store to be opened in Menifee, California.
Yoshiharu Las Vegas (“YLV”)   Sep 21, 2023   Ramen store and Izakaya stores in Las Vegas, Nevada
Yoshiharu Garden Grove (“YG”)   July 27, 2022   Ramen store located in Garden Grove, California.

 

The Company owns several restaurants specializing in Japanese ramen and other Japanese cuisines. The Company offers a variety of Japanese ramens, rice bowls, and appetizers. Unless otherwise stated or the context otherwise requires, the terms “Yoshiharu” “we,” “us,” “our” and the “Company” refer collectively to Yoshiharu and, where appropriate, its subsidiaries.

 

Prior to September 30, 2021, the Yoshiharu business (the “Business”) consisted of the first seven separate entities listed above (collectively, the “Entities”), each wholly owned by James Chae (“Mr. Chae”), and each holding one (1) store, except for JJ, which held two stores and the Business’s intellectual property (the “IP”). Effective October 2021, JJ transferred the IP to Mr. Chae. Effective October 2021, Mr. Chae contributed 100% of the equity interests in each of the Entities to Yoshiharu Holdings Co., a California corporation (“Holdings”), for purposes of consolidating the Business operations into a single entity. Mr. Chae was issued an aggregate 3,205,000 shares in Holdings, which reflected the aggregate number of shares originally issued to Mr. Chae by the Entities, in exchange for 100% of each Entity (on a 1 for 1 share exchange basis). In addition, effective October 2021, Mr. Chae transferred the IP to Holdings in exchange for the issuance of 6,245,900 shares in Holdings in order to bring his total shareholdings in Holdings up to an aggregate 9,450,900 shares.

 

On December 9, 2021, Yoshiharu completed a share exchange agreement whereby Mr. Chae, the sole stockholder of Holdings, received 9,450,900 shares of Yoshiharu, representing 100% of issued shares at that time, and Yoshiharu received all of the shares of Holdings. This recapitalization was accounted for in accordance with the “Transactions Between Entities Under Common Control” subsections of Accounting Standards Codification (“ASC”) 805-50, Business Combinations, which requires that the receiving entity recognize the net assets received at their historical carrying amounts. A common-control transaction has no effect on the parent’s consolidated financial statements. No value was ascribed to the shares issued for the transfer of the IP since the only relevance of the aggregate number of shares issued to Mr. Chae in Holdings was to effect the 1 for 1 share exchange with Yoshiharu upon its incorporation in Delaware. ASC 805-50 also prescribes that, if the recognition of the net assets results in a “change in the reporting entity,” the receiving entity presents the transfer in its separate financial statements retrospectively. Accordingly, the assets and liabilities and the historical operations that are reflected in these consolidated financial statements are those of the subsidiaries and are recorded at the historical cost basis of the subsidiaries.

 

On November 22, 2023, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of its issued Class A common stock and Class B common stock together with the Class A common stock, “Common Stock”), in the ratio of 1-for-10 (the “Reverse Stock Split”) effective at 11:59 p.m. eastern on November 27, 2023. The Common Stock began trading on a split-adjusted basis at the market open on Tuesday, November 28, 2023.

 

No fractional shares were issued as a result of the Reverse Stock Split. Instead, any fractional shares that would have resulted from the Reverse Stock Split were rounded up to the next whole number. As a result, total of 34,846 shares of Class A common stock were issued and total of 1,230,246 shares of Class A common stock were outstanding as of December 31, 2023. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s outstanding Common Stock, except for adjustments that may result from the treatment of fractional shares. The number of authorized shares of Common Stock of the Company and number of authorized, issued, and outstanding shares of the preferred stock of the Company were not changed.

 

5

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Consolidation

 

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) as promulgated in the United States of America. The consolidated financial statements include Yoshiharu and its wholly owned subsidiaries instead in Note 1 above as of June 30, 2024 and December 31, 2023 and for the six months ended June 30, 2024 and 2023. All intercompany accounts, transactions, and profits have been eliminated upon consolidation.

 

Initial Public Offering

 

In September 2022, the Company consummated its initial public offering (the “IPO”) of 2,940,000 shares of its class A common stock at a public offering price of $4.00 per share, generating gross proceeds of $11,760,000. Net proceeds from the IPO were approximately $10.3 million after deducting underwriting discounts and commissions and other offering expenses of approximately $1.5 million.

 

The Company granted the underwriters a 45-day option to purchase up to 441,000 additional shares (equal to 15% of the shares of class A common stock sold in the IPO) to cover over-allotments, if any, which the underwriters did not exercise. In addition, the Company issued to the representative of the underwriters warrants to purchase a number of shares of class A common stock equal to 5.0% of the aggregate number of shares of Class A common stock sold in the IPO (including shares of Class A common stock sold upon exercise of the over-allotment option). The representative’s warrants will be exercisable at any time and from time to time, in whole or in part, during the four-and-½-year period commencing six months from the date of commencement of the sales of the shares of Class A common stock in connection with the IPO, at an initial exercise price per share of $5.00 (equal to 125% of the initial public offering price per share of class A common stock). No representative’s warrants have been exercised.

 

On September 9, 2022, the Company’s stock began trading on the Nasdaq Capital Market under the symbol “YOSH.”

 

YLV Acquisition

 

On June 12, 2024, the Company consummated the acquisition of assets of three restaurant entities (Jjanga, HJH, and Aku) for an aggregate $3.6 million, consisting of $1.8 million in cash, a $600,000 promissory note, and a $1.2 million convertible note.

 

Deferred Offering Costs

 

Deferred offering costs were expenses directly related to the IPO. These costs consisted of legal, accounting, printing, and filing fees. The deferred offering costs were offset against the IPO proceeds in September 2022 and were reclassified to additional paid-in capital upon completion of the IPO.

 

Use of Estimates and Assumptions

 

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes. Such estimates include accounts receivables, accrued liabilities, income taxes, long-lived assets, and deferred tax valuation allowances. These estimates generally involve complex issues and require management to make judgments, involve analysis of historical and future trends that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from estimates.

 

Marketing

 

Marketing costs are charged to expense as incurred. Marketing costs were approximately $59 thousand and $53 thousand for the six months period ended June 30, 2024 and 2023, respectively, and are included in general expenses in the accompanying consolidated statements of income.

 

Delivery Fees Charged by Delivery Service Providers

 

The Company’s customers may order online through third party service providers such as Uber Eats, Door Dash, and others. These third-party service providers charge delivery and order fees to the Company. Such fees are expensed when incurred. Delivery fees are included in delivery and service fees in the accompanying consolidated statements of operations.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s net revenue primarily consists of revenues from food and beverage sales. Revenues from the sale of food items by Company-owned restaurants are recognized as Company sales when a customer receives the food that they purchased, which is when our obligation to perform is satisfied. The timing and amount of revenue recognized related to Company sales was not impacted by the adoption of ASC 606.

 

6

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Inventories

 

Inventories, which are stated at the lower of cost or net realizable value, consist primarily of perishable food items and supplies. Cost is determined using the first-in, first out method.

 

Segment Reporting

 

ASC 280, Segment Reporting, requires public companies to report financial and descriptive information about their reportable operating segments. The Company identifies its operating segments based on how executive decision makers internally evaluates separate financial information, business activities and management responsibility. Accordingly, the Company has one reportable segment, consisting of operating its stores.

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized, and minor replacements, maintenance and repairs are charged to expense as incurred. Depreciation and amortization are calculated on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows:

 

  Furniture and equipment 5 to 7 years
  Leasehold improvements Shorter of estimated useful life or term of lease
  Vehicle 5 years

 

Goodwill and Intangible Assets

 

Goodwill and certain intangible assets were recorded in connection with the YLV asset acquisition in April 2024, and were accounted for in accordance with ASC 805, “Business Combinations.” Goodwill represents the excess of the purchase price over the fair value of the tangible and intangible net assets acquired. Intangible assets are recorded at their fair value at the date of acquisition. Goodwill and other intangible assets are accounted for in accordance with ASC 350, “Goodwill and Other Intangible Assets.” Goodwill and other intangible assets are tested for impairment at least annually and any related impairment losses are recognized in earnings when identified. No impairment was recognized during the three and six months ended June 30, 2024.

 

Income Taxes

 

The accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under that guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company had no unrecognized tax benefits identified or recorded as liabilities as of June 30, 2024.

 

Impairment of Long-Lived Assets

 

When circumstances, such as adverse market conditions, indicate that the carrying value of a long-lived asset may be impaired, the Company performs an analysis to review the recoverability of the asset’s carrying value, which includes estimating the undiscounted cash flows (excluding interest charges) from the expected future operations of the asset. These estimates consider factors such as expected future operating income, operating trends and prospects, as well as the effects of demand, competition and other factors. If the analysis indicates that the carrying value is not recoverable from future cash flows, an impairment loss is recognized to the extent that the carrying value exceeds the estimated fair value. Any impairment losses are recorded as operating expenses, which reduce net income.

 

7

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Fair Value of Financial Instruments

 

The Company utilizes ASC 820-10, Fair Value Measurement and Disclosure, for valuing financial assets and liabilities measured on a recurring basis. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

 

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The Company’s financial instruments consisted of cash, operating lease right-of-use assets, net, accounts payable and accrued expenses, notes payables, and operating lease liabilities. The estimated fair value of cash, operating lease right-of-use assets, net, and notes payables approximate its carrying amount due to the short maturity of these instruments.

 

Leases

 

In accordance with ASC 842, Leases, the Company determines whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, the Company determines whether it should be classified as an operating or finance lease. Operating leases are recorded in the balance sheet as: right-of-use asset (“ROU asset”) and operating lease liability. An ROU asset represents the Company’s right to use an underlying asset for the lease term and an operating lease liability represents the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measured based on the present value of lease payments over the lease term. The ROU asset also includes deferred rent liabilities. The Company’s lease arrangements generally do not provide an implicit interest rate. As a result, in such situations the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU asset and operating lease liability. Lease expense for the operating lease is recognized on a straight-line basis over the lease term. The Company has a lease agreement with lease and non-lease components, which are accounted for as a single lease component.

 

Recent Accounting Pronouncements

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements.

 

8

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

3. ACQUISITION UNDER ASSET PURCHASE

 

On June 12, 2024, the Company consummated the closing of the transactions contemplated by an Asset Purchase Agreement (“APA”) with Mr. Jihyuck Hwang (“Seller”)(see Note 9 Related Party Transactions) via the Company’s wholly owned subsidiary, Yoshiharu Las Vegas (“YLV”). The APA provided for the purchase of specific assets of the three restaurant businesses, including inventory, security deposits, fixed assets and lease assignment effective as of April 20, 2024. The Company considered the guidance in ASC 805, Business Combinations, and determined the transaction was an asset acquisition. As a result, the estimated fair value of the assets acquired, and amount of liabilities assumed are included in the accompanying balance sheet as of June 30, 2024. The three restaurants consist of one Japanese ramen restaurant, and two Izakaya style restaurants offering sushi & steak along with Japanese ramen.

 

The condensed consolidated financial statements include the results of the YLV from the date of acquisition. The purchase price has been allocated based on estimated fair values as of the acquisition date. The purchase price was allocated as follows:

 

Preliminary Purchase Price  April 20, 2024 
Cash  $900,000 
Promissory note to Seller   600,000 
Bank notes payables   900,000 
Convertible note to Seller   1,200,000 
Total purchase price  $3,600,000 
      
Preliminary Purchase Price Allocation     
Fixed assets  $1,098,070 
Inventory and other assets   13,985 
Operating lease right-of-use asset, net   1,409,288 
Goodwill   1,985,645 
Intangible assets   531,051 
Operating lease liabilities   (1,438,039)
Acquired assets, net  $3,600,000 

 

The purchase price allocation has been prepared on a preliminary basis based on the information that was available to the Company at the time the condensed consolidated financial statements were prepared, and revisions to the preliminary purchase price allocation may result as additional information becomes available.

 

In determining the purchase price allocation, management considered, among other factors, the Company’s intention to use the acquired assets. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized, with no expected residual value.

 

4. INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

    Life   Average Remining Life    June 30, 2024   April 20, 2024 
                   
Brand & non-compete   10 years   9.9 years    $531,051   $531,051 
Less – accumulated amortization             (13,276)   - 
                     
Total intangible assets, net            $517,775   $531,051 

 

Estimated future amortization of intangible assets is as follows:

 

Years ending December 31,  Amount 
     
2024  $26,553 
2025   53,105 
2026   53,105 
2027   53,105 
2028   53,105 
Thereafter   292,078 
      
Total  $531,051 

 

Amortization expense on intangible assets amounted to $13,276 and $0 for the six months ended June 30, 2024 and 2023.

 

9

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

5. PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   June 30,   December 31, 
   2024   2023 
         
Leasehold Improvement  $5,342,300   $4,447,705 
Furniture and equipment   1,504,852    902,736 
Vehicle   438,521    438,521 
           
Total property and equipment   7,285,673    5,788,962 
Accumulated depreciation   (2,046,339)   (1,696,012)
           
Total property and equipment, net  $5,239,334   $4,092,950 

 

Total depreciation was $350,327 and $545,549 for the six month period ended June 30, 2024 and for the year ended December 31, 2023, respectively.

 

6. OTHER ASSETS

 

Other assets consisted of the following:

 

   June 30,   December 31, 
   2024   2023 
         
Escrow deposit to acquire assets from Las Vegas restaurants  $-   $729,352 
Security deposits   209,929    209,844 
Tenant improvement receivable   370,335    370,335 
Loan to Won Zo Whittier   100,300    100,300 
Others   233,860    521,526 
           
Total other assets  $914,424   $1,931,357 

 

7. LINE OF CREDIT

 

The Company has a $1,000,000 bank line of credit. The line bears a fixed interest rate at 5.50% per annum. It is secured by a $1,000,000 certificate of deposit at the same bank. The line of credit expires in December 2024. The Company is in compliance with certain non-financial covenants imposed by the line of credit agreement. At June 30, 2024 and December 31,2023, the outstanding balance was $1,000,000 and $1,000,000, respectively.

 

10

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

8. BANK NOTES PAYABLES

 

   June 30,   December 31, 
   2024   2023 
         
November 27, 2018 ($780,000) – JJ  $271,733   $331,022 
September 14, 2021 ($197,000) – CC   157,418    164,418 
April 22, 2022 ($195,000) – Cerritos   167,890    174,492 
May 22, 2023 ($138,000) – BB   110,406    121,951 
May 22, 2023 ($196,000) – CC   156,775    173,169 
May 22, 2023 ($178,000) – DD   143,322    158,309 
September 13, 2023 ($150,000) – Garden Grove   129,106    141,484 
September 13, 2023 ($150,000) – Laguna   131,193    141,484 
March 22, 2024 ($150,000) – YM   143,910    - 
March 22, 2024 ($150,000) – YCT   142,740    - 
January 30, 2024 ($500,000) – Yoshiharu   500,000    - 
June 4, 2024 ($900,000) – YLV   900,000    - 
           
Total bank notes payables   2,954,493    1,406,329 
           
Less - current portion   (617,208)   (414,378)
Total bank notes payables, less current portion  $2,337,285   $991,951 

 

The following table provides future minimum payments as of June 30, 2024:

 

 

For the years ended  Amount 
2024 (remaining six months)  $617,208 
2025   814,591 
2026   469,484 
2027   436,237 
2028   336,869 
Thereafter   280,104 
      
Total  $2,954,493 

 

November 27, 2018 – $780,000 – Global JJ Group, Inc.

 

On November 27, 2018, Global JJ Group, Inc. (the “JJ”) executed the standard loan documents required for securing a loan of $780,000 from the SBA, with proceeds to be used for working capital purposes. As of June 30, 2024 and December 31, 2023, the balance of the loan is $271,733 and $331,022, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $12,571.15 per month which includes principal and interest with an interest rate of 10.25% per year. The balance of principal and interest is payable on December 1, 2025.

 

11

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

8. BANK NOTES PAYABLES (Continued)

 

September 14, 2021 – $197,000 – Global CC Group, Inc.

 

On September 14, 2021, the CC executed the standard loan documents required for securing a loan of $197,000 from the SBA, with proceeds to be used for working capital purposes. As of June 30, 2024 and December 31, 2023, the balance of the loan is $ 157,418 and $164,418, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $2,576.63 per month which includes principal and interest with an interest rate of 10.50%. The balance of principal and interest is payable on September 14, 2031.

 

April 22, 2022– $195,000 – Yoshiharu Cerritos.

 

On April 22, 2022, Yoshiharu Cerritos (the “YC”) executed the standard loan documents required for securing a loan of $195,000 from the SBA, with proceeds to be used for working capital purposes. As of June 30, 2024 and December 31, 2023, the balance of the loan is $ 167,890 and $174,492, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $2,599.66 per month which includes principal and interest with an initial interest rate of 10.50%. The balance of principal and interest is payable on April 22, 2032.

 

May 22, 2023– $138,000 – Global BB Group, Inc.

 

On May 22, 2023, Global BB Group, Inc. (the “BB”) executed the standard loan documents required for securing a loan of $138,000 from a commercial bank, with proceeds to be used for working capital purposes. With the proceeds, BB paid off the existing SBA loan borrowed by Global AA Group, Inc on September 17, 2017. As of June 30, 2024 and December 31, 2023, the balance of the loan is $110,406 and $121,951, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $2,892.36 per month which includes principal and interest with an initial interest rate of 9.75%. The balance of principal and interest is payable on April 22, 2028.

 

May 22, 2023– $196,000 – Global CC Group, Inc.

 

On May 22, 2023, Global CC Group, Inc. (the “CC”) executed the standard loan documents required for securing a loan of $196,000 from a commercial bank, with proceeds to be used for working capital purposes. With the proceeds, CC paid off the existing SBA loan borrowed by CC on February 13, 2020. As of June 30, 2024 and December 31, 2023, the balance of the loan is $156,775 and $173,169, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $4,107.11 per month which includes principal and interest with an initial interest rate of 9.75%. The balance of principal and interest is payable on April 22, 2028.

 

May 22, 2023– $178,000 – Global DD Group, Inc.

 

On May 22, 2023, Global DD Group, Inc. (the “DD”) executed the standard loan documents required for securing a loan of $178,000 from a commercial bank, with proceeds to be used for working capital purposes. With the proceeds, DD paid off the existing SBA loan borrowed by DD on September 15, 2021. As of June 30, 2024 and December 31, 2023, the balance of the loan is $143,322 and $158,309, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $3,754.68 per month which includes principal and interest with an initial interest rate of 9.75%. The balance of principal and interest is payable on April 22, 2028.

 

12

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

8. BANK NOTES PAYABLES (Continued)

 

September 13, 2023– $150,000 – Yoshiharu Garden Grove

 

On September 13, 2023, Yoshiharu Garden Grove (the “YG”) executed the standard loan documents required for securing a loan of $150,000 from a commercial bank, with proceeds to be used for working capital purposes. As of June 30, 2024 and December 31, 2023, the balance of the loan is $129,106 and $141,484, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $3,160.82 per month which includes principal and interest with an initial interest rate of 9.50%. The balance of principal and interest is payable on September 13, 2028.

 

September 13, 2023– $150,000 – Yoshiharu Laguna

 

On September 13, 2023, Yoshiharu Laguna (the “YL”) executed the standard loan documents required for securing a loan of $150,000 from a commercial bank, with proceeds to be used for working capital purposes. As of June 30, 2024 and December 31, 2023, the balance of the loan is $131,193 and $141,484, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $3,160.82 per month which includes principal and interest with an initial interest rate of 9.50%. The balance of principal and interest is payable on September 13, 2028.

 

March 22, 2024– $150,000 – Yoshiharu Menifee

 

On March,22, 2024, Yoshiharu Menifee (the “YM”) executed the standard loan documents required for securing a loan of $150,000 from a commercial bank, with proceeds to be used for working capital purposes. As of June 30, 2024 and December 31, 2023, the balance of the loan is $143,910 and $0, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $3,160.96 per month which includes principal and interest with an initial interest rate of 9.50%. The balance of principal and interest is payable on March 22, 2029.

 

March 22, 2024– $150,000 – Yoshiharu San Clemente

 

On March,22, 2024, Yoshiharu San Clemente (the “YCT”) executed the standard loan documents required for securing a loan of $150,000 from a commercial bank, with proceeds to be used for working capital purposes. As of June 30, 2024 and December 31, 2023, the balance of the loan is $142,740 and $0, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $3,160.96 per month which includes principal and interest with an initial interest rate of 9.50%. The balance of principal and interest is payable on March 22, 2029.

 

January 30, 2024– $500,000 – Yoshiharu

 

On January 30, 2024, Yoshiharu Global Co. (the “Yoshiharu”) executed the standard loan documents required for securing a loan of $500,000 from a commercial bank, with proceeds to be used for working capital purposes. As of June 30, 2024 and December 31, 2023, the balance of the loan is $500,000 and $0, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $3,958.33 per month which includes interest with an initial interest rate of 9.50%. The balance of principal and interest is payable on September 13, 2028.

 

June 4, 2024– $900,000 – Yoshiharu Las Vegas

 

On June 4, 2024, Yoshiharu Las Vegas (the “YLV”) executed the standard loan documents required for securing a loan of $900,000 from a commercial bank, with proceeds to be used to acquire certain assets of three restaurants in Las Vegas. As of June 30, 2024 and December 31, 2023, the balance of the loan is $900,000 and $0, respectively.

 

Pursuant to that certain Loan Authorization and Agreement, interest accrues at a variable rate that is subject to change from time to time based on changes in an independent index which is the Prime Rate as published in the Wall Street Journal per annum and will accrue only on funds actually advanced from the date of each advance. The loan requires a payment of $18,964.14 per month which includes principal and interest with an initial interest rate of 9.50%. The balance of principal and interest is payable on December 6, 2028.

 

13

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

9. LOAN PAYABLES, EIDL

 

   June 30,   December 31, 
   2024   2023 
         
June 13, 2020 ($150,000 - EIDL ) - AA  $140,376   $142,104 
June 13, 2020 ($150,000 - EIDL ) - BB   140,392    142,119 
July 15, 2020 ($150,000 - EIDL) - JJ   139,906    141,642 
           
Total loans payables, EIDL   420,674    425,865 
           
Less - current portion   (5,312)   (10,536)
           
Total loans payables, EIDL, less current portion  $415,362   $415,329 

 

The following table provides future minimum payments as of June 30, 2024:

 

For the years ended  Amount 
2024 (remaining nine months)  $5,312 
2025   10,928 
2026   11,345 
2027   11,777 
2028   12,227 
Thereafter   369,085 
      
Total  $420,674 

 

June 13, 2020 – $150,000 – Global AA Group, Inc.

 

On June 13, 2020, Global AA Group, Inc. (the “AA”) executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the AA’s business.

 

Pursuant to that certain Loan Authorization and Agreement, the AA borrowed an aggregate principal amount of the AA EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly since May 14, 2021 (twelve months from the date of the AA EIDL Loan) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the AA EIDL Loan. In connection therewith, the AA also received a $10,000 grant, which does not have to be repaid.

 

In connection therewith, the AA executed (i) a loan for the benefit of the SBA, which contains customary events of default and (ii) a security agreement, granting the SBA a security interest in all tangible and intangible personal property of the AA, which also contains customary events of default.

 

June 13, 2020 – $150,000 – Global BB Group, Inc.

 

On June 13, 2020, Global BB Group, Inc. (the “BB”) executed the standard loan documents required for securing an EIDL loan (the “BB EIDL Loan”) from the SBA in light of the impact of the COVID-19 pandemic on the BB’s business.

 

14

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

9. LOAN PAYABLES, EIDL (Continued)

 

Pursuant to that certain Loan Authorization and Agreement, the BB borrowed an aggregate principal amount of the BB EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly since May 14, 2021 (twelve months from the date of the BB EIDL Loan) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the BB EIDL Loan. In connection therewith, the BB also received a $10,000 grant, which does not have to be repaid.

 

In connection therewith, the BB executed (i) a loan for the benefit of the SBA, which contains customary events of default and (ii) a security agreement, granting the SBA a security interest in all tangible and intangible personal property of the BB, which also contains customary events of default.

 

July 15, 2020 – $150,000 – Global JJ Group, Inc.

 

On July 15, 2020, Global JJ Group, Inc. (the “JJ”) executed the standard loan documents required for securing an EIDL loan (the “JJ EIDL Loan”) from the SBA in light of the impact of the COVID-19 pandemic on the JJ’s business.

 

Pursuant to that certain Loan Authorization and Agreement, the JJ borrowed an aggregate principal amount of the JJ EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly since May 14, 2021 (twelve months from the date of the JJ EIDL Loan) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the JJ EIDL Loan.

 

15

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

10. LOANS PAYABLE TO FINANCIAL INSTITUTIONS

 

Loans payable to financial institutions consist of the following:

 

  

June 30,

2024

  

December 31,

2023

 
         
November 17, 2023 ($76,400) – AA Loan agreement with principal amount of $76,400 and repayment rate of 44.17% for a total of $93,972. The loan payable matures on November 11, 2024   21,396    65,896 
November 17, 2023 ($115,600) - BB Loan agreement with principal amount of $115,600 and repayment rate of 43.01% for a total of $142,188. The loan payable matures on November 11, 2024   43,611    101,649 
November 21, 2023 ($91,000) - CC (CO) Loan agreement with principal amount of $91,000 and repayment rate of 46.27% for a total of $113,750. The loan payable matures on November 15, 2024   54,918    85,080 
November 30, 2023 ($132,100) - CC (EV) Loan agreement with principal amount of $132,100 and repayment rate of 43.39% for a total of $162,483. The loan payable matures on November 24, 2024   65,120    123,276 
November 20, 2023 ($89,400) - JJ (BP) Loan agreement with principal amount of $89,400 and repayment rate of 44.54% for a total of $110,856. The loan payable matures on November 14, 2024   29,675    81,299 
November 20, 2023 ($90,900) - JJ (OR) Loan agreement with principal amount of $90,900 and repayment rate of 43.99% for a total of $111,807. The loan payable matures on November 14, 2024   21,428    77,039 
Total loan payable  $236,148   $534,239 

 

11. RELATED PARTY TRANSACTIONS

 

The Company had the following related party transactions:

 

  Due to related party – From time to time, the Company loaned money to APIIS Financial Group, a company owned by James Chae, who is also the majority stockholder and CEO of the Company. The balance is non-interest bearing and due on demand. As of June 30, 2024 and December 31, 2023, the balance was $1,157,800 and $24,176, respectively.
     
   Related party compensation – For the six months ended June 30, 2024 and 2023, the compensation to James Chae was $95,879 and $123,432, respectively.
     
  Notes payable and Convertible notes to related party –. On June 12, 2024, the Company consummated the acquisition of certain assets in three Las Vegas restaurants from Mr. Jihyuck Hwang. Total acquisition cost was $3.6 million, consisting of $1.8 million in cash, issuance of a $600,000 promissory note and issuance of a $1.2 million convertible note to Mr. Hwang. The promissory note will be repaid in two equal installments without interest, while the convertible note, maturing one year from closing, accrues 0.5% interest annually and allows conversion into Class A common stock based on a specific price formula. As of June 30, 2024, the balances were $600,000 and $1.2 million for the promissory note and the convertible note, respectively. The balances were zero as of December 31, 2023.
     
  Combination of Entities Under Common Control - Effective October 2021, JJ transferred IP assets to James Chae, and then Mr. Chae contributed 100% of the equity interests in each of the Entities (as defined in Note 1 above) to Yoshiharu Holdings Co., a California corporation (“Holdings”), for purposes of consolidating the Business operations into a single entity. Mr. Chae was issued an aggregate 3,205,000 shares in Holdings, which reflected the aggregate number of shares originally issued to Mr. Chae by the Entities, in exchange for 100% of each Entity (on a 1 for 1 share exchange basis). In addition, effective October 2021, Mr. Chae transferred the IP to Holdings in exchange for the issuance of 6,245,900 shares in Holdings in order to bring his total shareholdings in Holdings up to an aggregate 9,450,900 shares. On December 9, 2021, the Company’s sole director at the time, James Chae, approved (a) a share exchange agreement whereby Mr. Chae, as the sole stockholder of Holdings, received 9,450,900 shares of Yoshiharu, representing 100% of issued shares at that time, and Yoshiharu received all of the shares of Holdings, and (b) the redemption of 670,000 shares of Yoshiharu’s class A common stock from Mr. Chae whereby Yoshiharu would repurchase such shares from Mr. Chae at par value.
     
   Private Placement - In December 2021, the Company received subscriptions for the sale of 670,000 shares of class A common stock to investors for $2.00 per share, for total expected proceeds of $1,340,000. Many of these investors are friends and family of James Chae. As of March 31, 2022, the Company had received $1,340,000 of the expected proceeds.
     
 

Exchange class A common stock for class B common stock - Immediately prior to the IPO in September 2022, the Company exchanged 1,000,000 shares of class A common stock held by James Chae into 1,000,000 shares of class B common stock.

 

 

16

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

12. INCOME TAX

 

Total income tax (benefit) expense consists of the following:

 

For the Six Months Ended June 30,  2024   2023 
         
Current provision (benefit):          
Federal  $-   $- 
State   21,838    6,988 
Total current provision (benefit)   21,838    6,988 
           
Deferred provision (benefit):          
Federal   -    - 
State   -    - 
Total deferred provision (benefit)   -    - 
           
Total tax provision (benefit)  $21,838   $6,988 

 

A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:

 

June 30,  2024   2023 
         
Statutory federal rate   21.00%   21.00%
State income taxes net of federal income tax benefit and others   8.84%   8.84%
Permanent differences for tax purposes and others   -%   -%
Change in valuation allowance   -29.84%   -29.84%
           
Effective tax rate   0.00%   0%

 

17

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

12. INCOME TAX (Continued)

 

The income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of 21% and California state income taxes of 8.84% due to the change in the valuation allowance.

 

   June 30, 2024   December 31, 2023 
         
Deferred tax assets:          
Net operating loss  $1,854,000   $1,438,000 
Other temporary differences   -    - 
           
Total deferred tax assets   1,854,000    1,438,000 
Less – valuation allowance   (1,854,000)   (1,438,000)
           
Total deferred tax assets, net of valuation allowance  $-   $- 

 

Deferred income taxes reflect the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities are as follows:

 

As of December 31, 2023, the Company had available net operating loss carryovers of approximately $6,849,000. Per the Tax Cuts and Jobs Act (TCJA) implemented in 2018, the two-year carryback provision was removed and now allows for an indefinite carryforward period. The carryforwards are limited to 80% of each subsequent year’s net income. As a result, net operating loss may be applied against future taxable income and expires at various dates subject to certain limitations. The Company has a deferred tax asset arising substantially from the benefits of such net operating loss deduction and has recorded a valuation allowance for the full amount of this deferred tax asset since it is more likely than not that some or all of the deferred tax asset may not be realized.

 

The Company files income tax returns in the U.S. federal jurisdiction and California and is subject to income tax examinations by federal tax authorities for tax year ended 2018 and later and subject to California authorities for tax year ended 2017 and later. The Company currently is not under examination by any tax authority. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of June 30, 2024 and December 31, 2023, the Company has no accrued interest or penalties related to uncertain tax positions.

 

As of June 30, 2024, the Company had cumulative net operating loss carryforwards for federal tax purposes of approximately $8,830,000. In addition, the Company had state tax net operating loss carryforwards of the same amount. The carryforwards may be applied against future taxable income and expires at various dates subject to certain limitations.

 

13. COMMITMENTS AND CONTINGENCIES

 

Commitments

 

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

The Company has lease agreements with lease and non-lease components. The Company has elected to account for these lease and non-lease components as a single lease component.

 

18

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

13. COMMITMENTS AND CONTINGENCIES (Continued)

 

In accordance with ASC 842, the components of lease expense were as follows:

 

         
   June 30, 
For the six months ended  2024   2023 
Operating lease expense  $591,643   $457,959 
Total lease expense  $591,643   $457,959 

 

In accordance with ASC 842, other information related to leases was as follows:

 

For the six months ended  2024   2023 
Operating cash flows from operating leases  $542,277   $389,270 
Cash paid for amounts included in the measurement of lease liabilities  $542,277   $389,270 
           
Weighted-average remaining lease term—operating leases        6.8 Years  
Weighted-average discount rate—operating leases        7%

 

   Operating 
Year ending:  Lease 
2024 (remaining six months)  $675,014 
2025   1,203,909 
2026   1,205,462 
2027   1,175,514 
2028   1,120,321 
Thereafter   4,014,262 
Total undiscounted cash flows  $9,394,482 
      
Reconciliation of lease liabilities:     
Weighted-average remaining lease terms   6.8 Years  
Weighted-average discount rate   7%
Present values  $7,890,362 
      
Lease liabilities—current   882,627 
Lease liabilities—long-term   7,007,735 
Lease liabilities—total  $7,890,362 
      
Difference between undiscounted and discounted cash flows  $1,504,120 

 

19

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

14. STOCKHOLDERS’ EQUITY

 

Class A Common Stock

 

The Company has authorization to issue and have outstanding at any one time 49,000,000 shares of class A common stock with a par value of $0.0001 per share. Each share of class A common stock entitles its holder to one vote on all matters to be voted on by stockholders generally.

 

See Note 1 and Note 8 above for details regarding the issuance and redemption of shares of the Company’s class A common stock to and from James Chae, the Company’s majority stockholder, in December 2021.

 

In December 2021, the Company received subscriptions for the sale of 670,000 shares of class A common stock to investors for $2.00 per share, for total expected proceeds of