UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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:
(Exact name of Registrant as specified in its charter) |
5812 | ||||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
(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 | ||
The
|
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. ☒
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). ☒
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 | ☐ |
☒ | 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
The registrant has shares of class A common stock outstanding, and shares of class B common stock outstanding as of November 19, 2024.
TABLE OF CONTENTS
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 | September 30, 2024 | December 31, 2023 | ||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | $ | ||||||
Accounts receivable | ||||||||
Inventories | ||||||||
Total current assets | ||||||||
Non-Current Assets: | ||||||||
Property and equipment, net | ||||||||
Operating lease right-of-use asset | ||||||||
Intangible asset | ||||||||
Goodwill | ||||||||
Other assets | ||||||||
Total non-current assets | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Line of credit | ||||||||
Current portion of operating lease liabilities | ||||||||
Current portion of bank notes payables | ||||||||
Current portion of loan payable, EIDL | ||||||||
Loans payable to financial institutions | ||||||||
Due to related party | ||||||||
Other payables | ||||||||
Total current liabilities | ||||||||
Operating lease liabilities, less current portion | ||||||||
Bank notes payables, less current portion | ||||||||
Loan payable, EIDL, less current portion | ||||||||
Notes payable to related party | ||||||||
Convertible notes to related party | ||||||||
Total liabilities | ||||||||
Commitments and Contingencies | ||||||||
Stockholders’ equity | ||||||||
Class A Common Stock - $ | par value; authorized shares; shares issued and outstanding at September 30, 2024 and shares issued and outstanding at December 31, 2023||||||||
Class B Common Stock - $ | par value; authorized shares; shares issued and outstanding at September 30, 2024 and December 31, 2023||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ equity (deficit) | ( | ) | ||||||
Total liabilities and stockholders’ equity | $ | $ |
See accompanying notes to unaudited consolidated financial statements.
1 |
Yoshiharu Global Co.
Unaudited Consolidated Statements of Operations
Nine months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Revenue: | ||||||||||||||||
$ | $ | $ | $ | |||||||||||||
Total revenue | ||||||||||||||||
Restaurant operating expenses: | ||||||||||||||||
Food, beverages and supplies | ||||||||||||||||
Labor | ||||||||||||||||
Rent and utilities | ||||||||||||||||
Delivery and service fees | ||||||||||||||||
Depreciation | ||||||||||||||||
Total restaurant operating expenses | ||||||||||||||||
Net operating restaurant operating income (loss) | ( | ) | ( | ) | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative | ||||||||||||||||
Related party compensation | ||||||||||||||||
Advertising and marketing | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income (expense): | ||||||||||||||||
Gain on disposal of fixed asset | ||||||||||||||||
Other income | ||||||||||||||||
Interest | ( | )) | ( | ) | ( | ) | ( | )) | ||||||||
Total other income (expense), net | ( | )) | ( | ) | ( | ) | ( | )) | ||||||||
Loss before income taxes | ( | )) | ( | ) | ( | ) | ( | )) | ||||||||
Income tax provision | ||||||||||||||||
Net loss | $ | ( | )) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Loss per share: | ||||||||||||||||
Basic and diluted | $ | ) | ) | ) | ) | |||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic and diluted |
See accompanying notes to unaudited consolidated financial statements.
2 |
Yoshiharu Global Co.
Unaudited Consolidated Statements of Stockholders’ Equity (Deficit)
Class A Shares | Class B Shares | Additional Paid-In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity(deficit) | ||||||||||||||||||||||
Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Issuance of Class A Common Stock | - | |||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance at March 31, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance at June 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||
Issuance of Class A Common Stock | $ | |||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance at September 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) |
Class A Shares | Class B Shares | Additional Paid-In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance at March 31, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance at June 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balance at September 30, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ |
See accompanying notes to unaudited consolidated financial statements.
3 |
Yoshiharu Global Co.
Unaudited Consolidated Statements of Cash Flows
For the nine months ended September 30, | ||||||||
2024 | 2023 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | ||||||||
Amortization | ||||||||
Gain on disposal of fixed asset | ( | ) | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ||||||
Inventories | ( | ) | ||||||
Other assets | ( | ) | ||||||
Accounts payable and accrued expenses | ( | ) | ||||||
Due to related party | ( | |||||||
Other payables | ||||||||
Net cash provided by (used in) operating activities | ( | ) | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | ( | ) | ( | ) | ||||
Acquisition of LV entities | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Cash flows from financing activities: | ||||||||
Advance from line of credit | ||||||||
Proceeds from borrowings for acquisition of LV entities | ||||||||
Proceeds from borrowings | ||||||||
Repayments on bank notes payables | ( | )) | ( | ) | ||||
Repayment of loan payable to financial institutions | ( | )) | ||||||
Proceeds from sale of common shares | ||||||||
Net cash provided by financing activities | ||||||||
Net increase (decrease) in cash | ( | ) | ||||||
Cash – beginning of period | ||||||||
Cash – end of period | $ | $ | ||||||
Supplemental disclosures of non-cash financing activities: | ||||||||
Note payable to related party | $ | |||||||
Convertible notes to related party | $ | |||||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during the periods for: | ||||||||
Interest | $ | $ | ||||||
Income taxes | $ | $ |
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 | ||
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
On
December 9, 2021, Yoshiharu completed a share exchange agreement whereby Mr. Chae, the sole stockholder of Holdings, received
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
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, a total of additional shares of Class A common stock were issued and a total of 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 September 30, 2024 and December 31, 2023 and for the nine months ended September 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
The
Company granted the underwriters a 45-day option to purchase up to
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
$
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 $
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
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 | |
Leasehold improvements | |
Vehicle |
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 nine months ended September 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 September 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 September 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 | $ | |||
Promissory note to Seller | ||||
Bank notes payables | ||||
Convertible note to Seller | ||||
Total purchase price | $ |
Preliminary Purchase Price Allocation | ||||
Fixed assets | $ | |||
Inventory and other assets | ||||
Operating lease right-of-use asset, net | ||||
Goodwill | ||||
Intangible assets | ||||
Operating lease liabilities | ( | ) | ||
Acquired assets, net | $ |
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 | September 30, 2024 | April 20, 2024 | |||||||||
Brand & non-compete | $ | $ | ||||||||||
Less – accumulated amortization | ( | ) | ||||||||||
Total intangible assets, net | $ | $ |
Estimated future amortization of intangible assets is as follows:
Years ending December 31, | Amount | |||
2024 (remaining three months) | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total | $ |
Amortization
expense on intangible assets amounted to $
9 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30, | December 31, | |||||||
2024 | 2023 | |||||||
Leasehold Improvement | $ | $ | ||||||
Furniture and equipment | ||||||||
Vehicle | ||||||||
Total property and equipment | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Total property and equipment, net | $ | $ |
Total
depreciation was $
6. OTHER ASSETS
Other assets consisted of the following:
September 30, | December 31, | |||||||
2024 | 2023 | |||||||
Escrow deposit to acquire assets from Las Vegas restaurants | $ | $ | ||||||
Security deposits | ||||||||
Tenant improvement receivable | ||||||||
Loan to Won Zo Whittier | ||||||||
Others | ||||||||
Total other assets | $ | $ |
7. LINE OF CREDIT
The
Company has a $
10 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. BANK NOTES PAYABLES
September 30, | December 31, | |||||||
2024 | 2023 | |||||||
November 27, 2018 ($ | $ | $ | ||||||
September 14, 2021 ($ | ||||||||
April 22, 2022 ($ | ||||||||
May 22, 2023 ($ | ||||||||
May 22, 2023 ($ | ||||||||
May 22, 2023 ($ | ||||||||
September 13, 2023 ($ | ||||||||
September 13, 2023 ($ | ||||||||
March 22, 2024 ($ | ||||||||
March 22, 2024 ($ | ||||||||
January 30, 2024 ($ | ||||||||
June 4, 2024 ($ | ||||||||
Total bank notes payables | ||||||||
Less - current portion | ( | ) | ( | ) | ||||
Total bank notes payables, less current portion | $ | $ |
The following table provides future minimum payments as of September 30, 2024:
For the years ended | Amount | |||
2024 (remaining nine months) | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total | $ |
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
$
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 $
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 $
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 $
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 $
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 $
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 $
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 $
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 $
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 $
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 $
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 |
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
$
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 $
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 $
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 $
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 $
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 $
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 $
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 $
January 30, 2024– $650,000 – Yoshiharu
On
January 30, 2024, Yoshiharu Global Co. (the “Yoshiharu”) executed the standard loan documents required for securing a loan
of $
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 $
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 $
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 $
13 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. LOAN PAYABLES, EIDL
September 30, | December 31, | |||||||
2024 | 2023 | |||||||
June 13, 2020 ($ | $ | $ | ||||||
June 13, 2020 ($ | ||||||||
July 15, 2020 ($ | ||||||||
Total loans payables, EIDL | ||||||||
Less - current portion | ( | ) | ( | ) | ||||
Total loans payables, EIDL, less current portion | $ | $ |
The following table provides future minimum payments as of September 30, 2024:
For the years ended | Amount | |||
2024 (remaining three months) | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total | $ |
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 $
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 $
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 $
15 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10. LOANS PAYABLE TO FINANCIAL INSTITUTIONS
Loans payable to financial institutions consist of the following:
September 30, 2024 | December 31, 2023 | |||||||
November 17, 2023 ($ | ||||||||
November 17, 2023 ($ | ||||||||
November 21, 2023 ($ | ||||||||
November 30, 2023 ($ | ||||||||
November 20, 2023 ($ | ||||||||
November 20, 2023 ($ | ||||||||
Total loan payable | $ | $ |
11. CONVERTIBLE NOTE TO RELATED PARTY
On
June 12, 2024, the Company issued convertible note to a related party. The convertible note, maturing one year from closing, accrues
Interest expense was $
12. RELATED PARTY TRANSACTIONS
The Company had the following related party transactions:
● | Due
to related party – From time to time, the Company borrowed money from 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 September
30, 2024 and December 31, 2023, the balance was $ | |
● | Related
party compensation – For the nine months ended September 30, 2024 and 2023, the compensation to James Chae was $ | |
● | 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 $
Interest expense was $ |
16 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAX
Total income tax (benefit) expense consists of the following:
For the Nine months Ended September 30, | 2024 | 2023 | ||||||
Current provision: | ||||||||
Federal | $ | $ | ||||||
State | ||||||||
Total current provision | ||||||||
Deferred provision: | ||||||||
Federal | ||||||||
State | ||||||||
Total deferred provision | ||||||||
Total tax provision | $ | $ |
A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:
September 30, | 2024 | 2023 | ||||||
Statutory federal rate | % | % | ||||||
State income taxes net of federal income tax benefit and others | % | % | ||||||
Permanent differences for tax purposes and others | % | % | ||||||
Change in valuation allowance | - | % | - | % | ||||
Effective tax rate | % | % |
17 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAX (Continued)
The
income tax benefit differs from the amount computed by applying the U.S. federal statutory tax rate of
September 30, 2024 | December 31, 2023 | |||||||
Deferred tax assets: | ||||||||
Net operating loss | $ | $ | ||||||
Other temporary differences | ||||||||
Total deferred tax assets | ||||||||
Less – valuation allowance | ( | ) | ( | ) | ||||
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 $
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 September 30, 2024 and December 31, 2023, the Company has no accrued interest or penalties related to uncertain tax positions.
As
of September 30, 2024, the Company had cumulative net operating loss carryforwards for federal tax purposes of approximately $
14. 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
14. COMMITMENTS AND CONTINGENCIES (Continued)
In accordance with ASC 842, the components of lease expense were as follows:
September 30, | ||||||||
For the nine months ended | 2024 | 2023 | ||||||
Operating lease expense | $ | $ | ||||||
Total lease expense | $ | $ |
In accordance with ASC 842, other information related to leases was as follows:
For the nine months ended | 2024 | 2023 | ||||||
Operating cash flows from operating leases | $ | $ | ||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
Weighted-average remaining lease term—operating leases | ||||||||
Weighted-average discount rate—operating leases | % |
Operating | ||||
Year ending: | Lease | |||
2024 (remaining three months) | $ | |||
2025 | ||||
2026 | ||||
2027 | ||||
2028 | ||||
Thereafter | ||||
Total undiscounted cash flows | $ | |||
Reconciliation of lease liabilities: | ||||
Weighted-average remaining lease terms | ||||
Weighted-average discount rate | % | |||
Present values | $ | |||
Lease liabilities—current | ||||
Lease liabilities—long-term | ||||
Lease liabilities—total | $ | |||
Difference between undiscounted and discounted cash flows | $ |
19 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
15. STOCKHOLDERS’ EQUITY (DEFICIT)
Class A Common Stock
The
Company has authorization to issue and have outstanding at any one time
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
In
September 2022, the Company consummated its initial public offering (the “IPO”) of
Immediately
prior to the IPO, the Company issued
The
Company also granted the underwriters a 45-day option to purchase up to
On
November 22, 2023, the Company filed the Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation
to effect the Reverse Stock Split of its issued Common Stock in the ratio of
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, a total of shares of Class A common stock were issued and total of 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.
On January 9 and September 24, 2024, Yoshiharu Global Co. issued shares of Class A Common Stock, respectively, as commitment shares pursuant to this agreement.
On April 18, 2024, the Company amended the Securities Purchase Agreement with Alumni Capital LP to extended the commitment period ending on the earlier of (i) December 31, 2024, or (ii) the date on which the Investor shall have purchased Securities pursuant to the Securities Purchase Agreement for an aggregate purchase price of the commitment amount.
20 |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
15. STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)
Class B Common Stock
The
Company has authorization to issue and have outstanding at any one time
The holders of class B common stock are entitled to dividends as declared by the Company’s Board of Directors from time to time at the same rate per share as the class A common stock.
The holders of the class B common stock have the following conversion rights with respect to the class B common stock into shares of class A common stock:
● | all of the shares of class B common stock will automatically convert into class A common stock on a one-for-one basis upon the earlier of (A) the date such shares cease to be beneficially owned by James Chae and (B) 5:00 p.m. Pacific Time on the date that James Chae ceases to beneficially own at least % of the voting power of all the outstanding shares of capital stock of the Company; and | |
● | at the election of the holder of class B common stock, any share of class B common stock may be voluntarily converted into one share of class A common stock. |
Immediately prior to the IPO in September 2022, the Company exchanged shares of class A common stock held by James Chae into shares of class B common stock.
On
November 22, 2023, the Company filed the Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation
to effect the Reverse Stock Split of its issued Class B common stock in the ratio of
The Company calculates earnings per share in accordance with FASB ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. The Company did not have any dilutive common shares for the nine months ended September 30, 2024 and 2023.
17. SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after September 30, 2024 up through the date the unaudited consolidated financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events required to be disclosed as of and for the nine-month period ended September 30, 2024.
21 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K/A for the year ending December 31, 2023. As discussed in the section titled “Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” in our Annual Report on Form 10-K/A for the year ending December 31, 2023.
Overview of Yoshiharu
Yoshiharu is a fast-growing Japanese restaurant operator and was borne out of the idea of introducing the modernized Japanese dining experience to customers all over the world. Specializing in Japanese ramen, Yoshiharu gained recognition as a leading ramen restaurant in Southern California within nine months of our 2016 debut and has continued to expand our top-notch restaurant service across Southern California, currently owning and operating 14 restaurant stores with an additional 3 restaurant stores under construction/development/acquisition as of September 30, 2024.
We take pride in our warm, hearty, smooth, and rich bone broth, which is slowly boiled for over 12 hours. Customers can taste and experience supreme quality and deep flavors. Combining the broth with the fresh, savory, and highest-quality ingredients, Yoshiharu serves the perfect, ideal ramen, as well as offers customers a wide variety of sushi rolls, bento menu and other favorite Japanese cuisine. Our acclaimed signature Tonkotsu Black Ramen has become a customer favorite with its slow cooked pork bone broth and freshly made, tender chashu (braised pork belly).
Our mission is to bring our Japanese ramen and cuisine to the mainstream, by providing a meal that customers find comforting. Since the inception of the business, we have been making our own ramen broth and other key ingredients such as pork chashu and flavored eggs from scratch, whereby upholding the quality and taste of our foods, including the signature texture and deep, rich flavor of our handcrafted broth. Moreover, we believe that slowly cooking the bone broth makes it high in collagen and rich in nutrients. Yoshiharu also strives to present food that is not only healthy, but also affordable. We feed, entertain and delight our customers, with our active kitchens and bustling dining rooms providing happy hours, student and senior discounts, and special holiday events. As a result of our vision, customers can comfortably enjoy our food in a friendly and welcoming atmosphere.
We operate in a large and rapidly growing market. We believe the consumer appetite for Asian cuisine is widespread across many demographics and grants us the opportunity to expand in both existing and new U.S. markets, as well as internationally.
22 |
Our Growth Strategies
Pursue New Restaurant Development.
We have pursued a disciplined new corporate owned growth strategy. Having expanded our concept and operating model across varying restaurant sizes and geographies, we plan to leverage our expertise opening new restaurants to fill in existing markets and expand into new geographies. While we currently aim to achieve in excess of 100% annual unit growth rate over the next three to five years, we cannot predict the time period of which we can achieve any level of restaurant growth or whether we will achieve this level of growth at all. Our ability to achieve new restaurant growth is impacted by a number of risks and uncertainties beyond our control, including but not limited to landlord delays; competition in existing and new markets, including competition for restaurant sites; and the lack of development and overall decrease in commercial real estate due to macroeconomic decline. We believe there is a significant opportunity to employ this strategy to open additional restaurants in our existing markets and in new markets with similar demographics and retail environments.
Deliver Consistent Comparable Restaurant Sales Growth.
We have achieved positive comparable restaurant sales growth in recent periods. We believe we will be able to generate future comparable restaurant sales growth by growing traffic through increased brand awareness, consistent delivery of a satisfying dining experience, new menu offerings, and restaurant renovations. We will continue to manage our menu and pricing as part of our overall strategy to drive traffic and increase average check. We are also exploring initiatives to grow sales of alcoholic beverages at our restaurants, including the potential of a larger format restaurant with a sake bar concept. In addition to the strategies stated above, we expect to initiate sales of franchises in 2025.
Increase Profitability.
We have invested in our infrastructure and personnel, which we believe positions us to continue to scale our business operations. As we continue to grow, we expect to drive higher profitability both at a restaurant-level and corporate-level by taking advantage of our increasing buying power with suppliers and leveraging our existing support infrastructure. Additionally, we believe we will be able to optimize labor costs at existing restaurants as our restaurant base matures and AUV’s increase. We believe that as our restaurant base grows, our general and administrative costs will increase at a slower rate than our sales.
Heighten Brand Awareness.
We intend to continue to pursue targeted local marketing efforts and plan to increase our investment in advertising. We also are exploring the development of instant ramen noodles which we would distribute through retail channels. We intend to explore partnerships with grocery retailers to provide small-format Yoshiharu kiosks in stores to promote a limited selection of Yoshiharu cuisine.
Experienced Management Team Dedicated to Growth.
Our team is led by experienced and passionate senior management who are committed to our mission. We are led by our Chief Executive Officer, James Chae. Mr. Chae founded Yoshiharu in 2016 and leads a team of talented professionals with deep financial, operational, culinary, and real estate experience.
Recent Developments
On October 31, 2024 we opened a new restaurant in San Clemente, CA, bringing the number of locations to 15 with 2 additional locations under construction. We believe this new opening will strengthen our business and further add to our presence in the southern California dining scene.
23 |
Components of Our Results of Operations
Revenues. Revenues represent sales of food and beverages in restaurants. Restaurant sales in a given period are directly impacted by the number of restaurants we operate and comparable restaurant sales growth.
Food and beverage. Food and beverage costs are variable in nature, change with sales volume and are influenced by menu mix and subject to increases or decreases based on fluctuations in commodity costs. Other important factors causing fluctuations in food and beverage costs include seasonality and restaurant-level management of food waste. Food and beverage costs are a substantial expense and are expected to grow proportionally as our sales grow.
Labor. Labor includes all restaurant-level management and hourly labor costs, including wages, employee benefits and payroll taxes. Similar to the food and beverage costs that we incur, labor and related expenses are expected to grow proportionally as our sales increase. Factors that influence fluctuations in our labor and related expenses include minimum wage and payroll tax legislation, the frequency and severity of workers’ compensation claims, healthcare costs and the performance of our restaurants.
Rent and utilities. Rent and utilities include rent for all restaurant locations and related taxes.
Depreciation and amortization expenses. Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including equipment and capitalized leasehold improvements. Depreciation is determined using the straight-line method over the assets’ estimated useful lives, ranging from three to ten years.
Delivery and service fees. The Company’s customers may order online through third party service providers such as Uber Eats, Door Dash, Grubhub and others. These third-party service providers charge delivery and order fees to the Company.
General and administrative expenses. General and administrative expenses include expenses associated with corporate and regional supervision functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, travel expenses, stock-based compensation expenses for corporate-level employees, legal and professional fees, marketing costs, information systems, corporate office rent and other related corporate costs. General and administrative expenses are expected to grow as our sales grows, including incremental legal, accounting, insurance and other expenses incurred as a public company.
Advertising and marketing expenses. Advertising and marketing expenses include expenses associated with marketing campaigns and periodic advertising. Advertising and marketing expenses are expected to grow leading up to the planned openings of restaurant locations and is expected to stabilize as an average by location as our sales grow.
Interest expense. Interest expense includes non-cash charges related to our capital lease obligations and bank notes payable.
Income tax provision (benefit). Provision for income taxes represents federal, state and local current and deferred income tax expense.
24 |
Results of Operations
The following table presents selected comparative results of operations from our unaudited financial statements for the nine months ended September 30, 2024 compared to nine months ended September 30, 2023. Our financial results for these periods are not necessarily indicative of the financial results that we will achieve in future periods. Certain totals for the table below may not sum to 100% due to rounding.
Three and Nine months ended September 30, 2024 Compared to Three and Nine months ended September 30, 2023
Nine months ended September 30, | Increase / (Decrease) | |||||||||||||||
2024 | 2023 | $ | % | |||||||||||||
Revenue | $ | 9,152,530 | $ | 6,714,429 | $ | 2,438,101 | 36.3 | % | ||||||||
Restaurant operating expenses: | ||||||||||||||||
Food, beverages and supplies | 2,362,515 | 1,787,046 | 575,469 | 32.2 | % | |||||||||||
Labor | 4,125,195 | 3,129,198 | 995,997 | 31.8 | % | |||||||||||
Rent and utilities | 1,262,963 | 840,389 | 422,574 | 50.3 | % | |||||||||||
Delivery and service fees | 398,986 | 415,139 | (16,153 | ) | -3.9 | % | ||||||||||
Depreciation | 596,701 | 396,388 | 200,313 | 50.5 | % | |||||||||||
Total restaurant operating expenses | 8,746,360 | 6,568,160 | 2,178,200 | 33.2 | % | |||||||||||
Net restaurant operating income | 406,170 | 146,269 | 259,901 | 177.7 | % | |||||||||||
General and administrative | 2,953,755 | 2,700,078 | 253,677 | 9.4 | % | |||||||||||
Compensation to related party | 139,769 | 216,308 | (76,539 | ) | -35.4 | % | ||||||||||
Advertising and marketing | 80,955 | 86,593 | (5,638 | ) | -6.5 | % | ||||||||||
Total operating expenses | 3,174,479 | 3,002,979 | 171,500 | 5.7 | % | |||||||||||
Loss from operations | (2,768,309 | ) | (2,856,710 | ) | 88,401 | -3.1 | % | |||||||||
Other income (expense): | ||||||||||||||||
Gain on disposal of fixed asset | - | 8,920 | (8,920 | ) | -100.0 | % | ||||||||||
Other income | 12,207 | 14,774 | (2,567 | ) | -17.4 | % | ||||||||||
Interest | (413,598 | ) | (186,877 | ) | (226,721 | ) | 121.3 | % | ||||||||
Loss before income taxes | (3,169,700 | ) | (2,157,030 | ) | (149,807 | ) | 5.0 | % | ||||||||
Income tax provision | 33,437 | 29,068 | 4,369 0 | 15.0 | % | |||||||||||
Net loss | $ | (3,203,137 | ) | $ | (3,048,961 | ) | $ | (154,176 | ) | 5.1 | % |
Three Months ended September 30, | Increase / (Decrease) | |||||||||||||||
2024 | 2023 | $ | % | |||||||||||||
Revenue | $ | 3,015,525 | $ | 2,025,386 | $ | 990,139 | 48.9 | % | ||||||||
Restaurant operating expenses: | ||||||||||||||||
Food, beverages and supplies | 853,943 | 557,705 | 296,238 | 53.1 | % | |||||||||||
Labor | 1,344,534 | 1,125,717 | 218,817 | 19.4 | % | |||||||||||
Rent and utilities | 493,667 | 285,013 | 208,654 | 73.2 | % | |||||||||||
Delivery and service fees | 118,070 | 130,189 | (12,119 | ) | -9.3 | % | ||||||||||
Depreciation | 246,374 | 144,701 | 101,673 | 70.3 | % | |||||||||||
Total restaurant operating expenses | 3,056,588 | 2,243,325 | 813,263 | 36.3 | % | |||||||||||
Net restaurant operating loss | (41,063 | (217,939 | 176,876 | -81.2 | % | |||||||||||
General and administrative | 941,701 | 477,732 | 463,969 | 97.1 | % | |||||||||||
Compensation to related party | 43,890 | 92,876 | (48,986 | ) | -52.7 | % | ||||||||||
Advertising and marketing | 22,391 | 34,051 | (11,660 | ) | -34.2 | % | ||||||||||
Total operating expenses | 1,007,982 | 604,659 | 403,323 | ) | 66.7 | % | ||||||||||
Loss from operations | (1,049,045 | ) | (822,598 | ) | (226,447 | ) | 27.5 | % | ||||||||
Other income (expense): | ||||||||||||||||
Other income | - | 7,784 | (7,784 | ) | -100.0 | % | ||||||||||
Interest | (161,472 | ) | (48,049 | ) | (113,423 | ) | 236.1 | % | ||||||||
Loss before income taxes | (1,210,517 | ) | (862,863 | ) | (347,654 | ) | 40.3 | % | ||||||||
Income tax provision | 11,599 | 22,080 | (10,481 | ) | -47.5 | % | ||||||||||
Net loss | $ | (1,222,116 | ) | $ | (884,943 | ) | $ | (337,173 | ) | 38.1 | % |
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Revenues. Revenues were $9.1 million for the nine months ended September 30, 2024 compared to $6.7 million for the nine months ended September 30, 2023, representing an increase of approximately $2.4 million, or 36.3%. The increase in revenue for the nine-month period was primarily driven by the three new Las Vegas restaurants acquired in April 2024 which represents a $2.4 million increase in revenues compared to the prior period.
Revenues. Revenues were $3.0 million for the three months ended September 30, 2024 compared to $2.0 million for the three months ended September 30, 2023, representing an increase of approximately $1.0 million, or 48.9%. The increase in revenue for the three-month period was primarily driven by the three new Las Vegas restaurants acquired in April 2024 which represents a $1.1 million increase in revenues compared to the prior period.
Food, beverage and supplies. Food, beverage and supplies costs were approximately $2.4 million for the nine months ended September 30, 2024 compared to $1.8 million for the nine months ended September 30, 2023, representing an increase of approximately $0.6 million, or 32.2%. The increase in costs for the nine-month period was primarily driven by increases in revenues from the three new Las Vegas restaurants acquired. As a percentage of sales, food, beverage and supply costs stayed comparable at 25.8% in the nine months ended September 30, 2024 and at 26.6% in the nine months ended September 30, 2023.
Food, beverage and supplies. Food, beverage and supplies costs were approximately $0.9 million for the three months ended September 30, 2024 compared to $0.6 million for the three months ended September 30, 2023, representing an increase of approximately $0.3 million, or 53.1%. The increase in costs for the three-month period was primarily driven by increases in revenues from the three new Las Vegas restaurants acquired. As a percentage of sales, food, beverage and supply costs stayed comparable at 28.3% in the three months ended September 30, 2024 and at 27.5% in the three months ended September 30, 2023.
Labor. Labor and related costs were approximately $4.1 million for the nine months ended September 30, 2024 compared to $3.1 million for the nine months ended September 30, 2023, representing an increase of approximately $1.0 million, or 31.8%. The increase in costs was largely driven by additional labor costs incurred with respect to the three new Las Vegas restaurants acquired. As a percentage of sales, labor and related costs was 45.1% in the nine months ended September 30, 2024 compared to 46.6% in the nine months ended September 30, 2023.
Labor. Labor and related costs were approximately $1.3 million for the three months ended September 30, 2024 compared to $1.1 million for the three months ended September 30, 2023, representing an increase of approximately $0.2 million, or 19.4%. The increase in costs was largely driven by additional labor costs incurred with respect to the three new Las Vegas restaurants acquired. As a percentage of sales, labor and related costs was 44.6% in the three months ended September 30, 2024 compared to 55.6% in the three months ended September 30, 2023.
Rent and utilities. Rent and utilities expenses were approximately $1.2 million for the nine months ended September 30, 2024 compared to $0.8 million for the nine months ended September 30, 2023, representing an increase of approximately $0.4 million, or 50.3%. The increase was primarily a result of the three new Las Vegas restaurants acquired. As a percentage of sales, rent and utilities ratio for the nine months ended September 30, 2024 was 13.8% which is comparable to 12.5% in the prior period.
Rent and utilities. Rent and utilities expenses were approximately $494 thousand for the three months ended September 30, 2024 compared to $285 thousand for the three months ended September 30, 2023, representing an increase of approximately $209 thousand, or 73.2%. The increase was primarily a result of the three new Las Vegas restaurants acquired. As a percentage of sales, rent and utilities ratio for the three months ended September 30, 2024 was 16.4% which is comparable to 14.1% in the prior period.
Delivery and service fees. Delivery and service fees incurred were approximately $399 thousand for the nine months ended September 30, 2024 compared to $415 thousand for the nine months ended September 30, 2023, representing a comparable expenses as more customers preferred in-dining rather than take-out during the post-Covid period. As a percentage of sales, delivery and service fees ratio for the nine months ended September 30, 2024 decreased to 4.4% compared to 6.2% in the prior period due to the decrease of take-out sales in the sales mix between the in-dining and take-out.
Delivery and service fees. Delivery and service fees incurred were approximately $118 thousand for the three months ended September 30, 2024 compared to $130 thousand for the three months ended September 30, 2023, representing a comparable expenses as more customers preferred in-dining rather than take-out during the post-Covid period. As a percentage of sales, delivery and service fees ratio for the three months ended September 30, 2024 decreased to 3.9% compared to 6.4% in the prior period due to the decrease of take-out sales in the sales mix between the in-dining and take-out.
Depreciation and amortization expenses. Depreciation and amortization expenses incurred were approximately $597 thousand for the nine months ended September 30, 2024 compared to $396 thousand for the nine months ended September 30, 2023, representing an increase of approximately $200 thousand, or 50.5%. The increase was primarily due to the three new Las Vegas restaurants acquired in April 2024.
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Depreciation and amortization expenses. Depreciation and amortization expenses incurred were approximately $246 thousand for the three months ended September 30, 2024 compared to $145 thousand for the three months ended September 30, 2023, representing an increase of approximately 101 thousand, or 70.3%. The increase was primarily due to the three new Las Vegas restaurants acquired in April 2024.
General and administrative expenses. General and administrative expenses were approximately $2.9 million for the nine months ended September 30, 2024 compared to $2.7 million for the nine months ended September 30, 2023, representing an increase of approximately $0.2 million or 9.2%. This increase in general and administrative expenses was primarily due to the city permit fees of $71 thousand related to opening a new restaurant, increase in travel and office expenses of $60 thousand and $70 thousand, respectively, related to acquisition of LV entities. As a percentage of sales, general and administrative expenses decreased to 32.2% in the nine months ended September 30, 2024 from 40.2% in the nine months ended September 30, 2023, primarily due to the management efforts.
General and administrative expenses. General and administrative expenses were approximately $0.9 million for the three months ended September 30, 2024 compared to $0.5 million for the three months ended September 30, 2023, representing an increase of approximately $0.4 million or 95.8%. This increase in general and administrative expenses was primarily due to the acquisition of LV entities. As a percentage of sales, general and administrative expenses decreased to 31.0% in the three months ended September 30, 2024 from 23.6% in the three months ended September 30, 2023.
Related party compensation: Compensation to James Chae was approximately $140 thousand for the nine months ended September 30, 2024 compared to $216 thousand for the nine months ended September 30, 2023, representing a decrease of approximately $76 thousand in an effort to control the expenses. As a percentage of sales, related party compensation was 1.5% in the nine months ended September 30, 2024 and 3.2% in the nine months ended September 30, 2023.
Related party compensation: Compensation to James Chae was approximately $44 thousand for the three months ended September 30, 2024 compared to $93 thousand for the three months ended September 30, 2023, representing an increase of approximately $49 thousand. As a percentage of sales, related party compensation was 1.5% in the three months ended September 30, 2024 and 4.6% in the three months ended September 30, 2023.
Key Performance Indicators
In assessing the performance of our business, we consider a variety of financial and performance measures. The key measures for determining how our business is performing include sales, EBITDA, Adjusted EBITDA, Restaurant-level Operating Profit, Restaurant-level Operating Profit margin, Average Unit Volumes (“AUVs”), comparable restaurant sales performance, and the number of restaurant openings.
Revenue
Revenue represents sales of food and beverages in restaurants, as shown in our statements of income. Several factors affect our restaurant sales in any given period including the number of restaurants in operation, guest traffic and average check.
EBITDA and Adjusted EBITDA
EBITDA is defined as net income (loss) before interest, income taxes and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus stock-based compensation expense, non-cash lease expense and asset disposals, closure costs and restaurant impairments, as well as certain items, such as employee retention credit, litigation accrual, and certain executive transition costs, that we believe are not indicative of our core operating results. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by sales. EBITDA, and Adjusted EBITDA are non-GAAP measures which are intended as supplemental measures of our performance and are neither required by, nor presented in accordance with, GAAP. We believe that EBITDA, and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. However, these measures may not provide a complete understanding of the operating results of the Company as a whole and such measures should be reviewed in conjunction with our GAAP financial results.
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We believe that the use of EBITDA, and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware when evaluating EBITDA, and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.
Because of these limitations, EBITDA, and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA, and Adjusted EBITDA on a supplemental basis. You should review the reconciliation of net loss to EBITDA, and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table presents a reconciliation of net loss to EBITDA and Adjusted EBITDA:
Nine months ended September 30, | ||||||||
2024 | 2023 | |||||||
Net loss, as reported | $ | (3,203,137 | ) | $ | (3,048,961 | ) | ||
Interest, net | 413,598 | 186,877 | ||||||
Taxes | 33,437 | 29,068 | ||||||
Depreciation and amortization | 623,253 | 396,388 | ||||||
EBITDA | (2,132,849 | ) | (2,436,628 | ) | ||||
Restaurants opening costs (a) | 195,615 | 431,072 | ||||||
Gain on disposal of fixed asset | - | (8,920 | ) | |||||
Adjusted EBITDA | $ | (1,937,234 | ) | $ | (2,014,476 | ) |
(a) | Represents expenses incurred to secure the restaurant locations under development and costs to reserve back-office managers to manage those restaurants. |
Restaurant-level Contribution and Restaurant-level Contribution Margin
Restaurant-level Contribution and Restaurant-level Contribution margin are intended as supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP. We believe that Restaurant-level Contribution and Restaurant-level Contribution margin provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and operating results. We expect Restaurant-level Contribution to increase in proportion to the number of new restaurants we open and our comparable restaurant sales growth.
We present Restaurant-level Contribution because it excludes the impact of general and administrative expenses, which are not incurred at the restaurant-level. We also use Restaurant-level Contribution to measure operating performance and returns from opening new restaurants. Restaurant- level Contribution margin allows us to evaluate the level of Restaurant-level Contribution generated from sales.
However, you should be aware that Restaurant-level Contribution and Restaurant-level Contribution margin are financial measures which are not indicative of overall results for the Company, and Restaurant-level Contribution and Restaurant-level Contribution margin do not accrue directly to the benefit of stockholders because of corporate-level expenses excluded from such measures.
In addition, when evaluating Restaurant-level Contribution and Restaurant-level Contribution margin, you should be aware that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Restaurant-level Contribution and Restaurant- level Contribution margin may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Restaurant-level Contribution and Restaurant-level Contribution margin in the same fashion. Restaurant-level Contribution and Restaurant- level Contribution margin have limitations as analytical tools, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
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The following table reconciles net restaurant operating income to Restaurant-level Contribution and Restaurant-level Contribution margin for the years ended September 30, 2024 and September 30, 2023:
Nine months ended September 30, | ||||||||
2024 | 2023 | |||||||
Net restaurant operating income, as reported | $ | 406,170 | $ | 146,269 | ||||
Depreciation | 596,701 | 396,388 | ||||||
Restaurant-level Contribution | $ | 1,002,871 | $ | 542,657 | ||||
Operating profit margin | 4.4 | % | 2.2 | % | ||||
Restaurant-level Contribution Margin (a) | 11.0 | % | 8.1 | % |
(a) Represents restaurant-level contribution divided by revenue.
Average Unit Volumes (AUVs)
“Average Unit Volumes” or “AUVs” consist of the average annual sales of all restaurants that have been open for 3 months or longer at the end of the period presented. AUVs are calculated by dividing (x) annual sales for the year presented for all such restaurants by (y) the total number of restaurants in that base. We make fractional adjustments to sales for restaurants that were not open for the entire year presented (such as a restaurant closed for renovation) to annualize sales for such period of time. This measurement allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.
The following table shows the AUVs for the nine months ended September 30, 2024 and September 30, 2023, respectively:
Nine months ended September 30, | ||||||||
2024 | 2023 | |||||||
Average Unit Volumes | $ | 1,001,612 | $ | 1,126,728 |
Liquidity and Capital Resources
Our primary uses of cash are for operational expenditures and capital investments, including new restaurants, costs incurred for restaurant remodels and restaurant fixtures. Historically, our main sources of liquidity have been cash flows from operations, borrowings from banks, and sales of common shares.
We believe that the expected cash flow from operations and the proceeds from the sales of equity to Alumni pursuant to our equity line agreement will be adequate to fund operating lease obligations, capital expenditures and working capital obligations for at least the next 12 months and thereafter.
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Summary of Cash Flows
The following table summarizes our cash flows for the periods presented:
Nine months Ended September 30, | ||||||||
2024 | 2023 | |||||||
Statement of Cash Flow Data: | ||||||||
Net cash provided by (used in) operating activities | $ | 1,164,719 | $ | (3,311,317 | ) | |||
Net cash used in investing activities | (2,237,042 | ) | (1,339,132 | ) | ||||
Net cash provided by financing activities | 1,322,061 | 666,720 |
Cash Flows Provided by (Used in) Operating Activities
Net cash provided by operating activities during the nine-month period ended September 30, 2024 was $1,164,719 which resulted from net loss of $3,203,137, non-cash charges of $623,253 for depreciation and amortization and net cash inflows of $3,744,603 from changes in operating assets and liabilities. The net loss was greater for the period relative to prior periods as a result of an increase in interest expenses following the acquisition of Las Vegas entities despite of the management efforts to control general and administrative expenses. The net cash inflows from changes in operating assets and liabilities were the result of increases in due to related party by $1,746,620, accounts payable and accrued expenses by $199,483, other payables by $1,012,591, and a decrease in other assets by $825,960 which was offset by the increases in accounts receivable by $36,397 and inventory by $3,654.
Net cash used in operating activities during the nine-month period ended September 30, 2023 was $3,311,317, which resulted from net loss of $3,048,961, non-cash charges of $387,478 for the net of depreciation and amortization and gain on disposal of fixed asset, and net cash outflows of $649,824 from changes in operating assets and liabilities. The net loss was significantly higher for the period relative to prior periods as a result of restaurant startup costs and increased general and administrative expenses. The net cash outflows from changes in operating assets and liabilities were primarily the result of an increase in other assets by $564,775, a decrease in due to related party of $142,106 and a decrease in payables of $3,118, which was offset by decreases in inventory and other payables. The increase in other assets of $564,775 primarily consists of a payment of $294,276 in escrow to purchase a restaurant in Southern California and an investment of $300,000 in a financial company for a fixed interest income.
Cash Flows Used in Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2024 and 2023 was $2,237,042 and $1,339,132, respectively. For the acquisition of Las Vegas restaurants in total price of $3.6 million, the Company used total $1.8 million of cash with non-cash financing for $1.8 million for the nine-month period ended September 30, 2024. Excluding the acquisition of Las Vegas restaurants, expenditures in each period are primarily related to purchases of property and equipment in connection with current and future restaurant openings.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2024 was $1,322,061 due to $2,038,164 cash received through bank borrowings, offset by $865,955 of repayment of bank borrowings and loan payable to financial institutions.
Net cash provided by financing activities during the nine months ended September 30, 2023 was $666,720 due to $500,000 cash received through line of credit and two additional bank loans in total of $300,00, offset by the repayment of bank borrowings.
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Contractual Obligations
The following table presents our commitments and contractual obligations as of September 30, 2024, as well as our long-term obligations:
Payments due by period as of September 30, 2024 | ||||||||||||||||||||
Total | 2024 (remaining three months) | 2025-2026 | 2027-2028 | Thereafter | ||||||||||||||||
Capital lease payments | $ | 9,616,843 | $ | 324,596 | $ | 2,660,737 | $ | 2,560,725 | $ | 4,070,785 | ||||||||||
Bank note payables | 3,000,612 | 169,814 | 1,734,436 | 806,015 | 290,347 | |||||||||||||||
EIDL loan payables | 418,091 | 2,669 | 22,273 | 24,004 | 369,145 | |||||||||||||||
Loans payable to financial institutions | 119,939 | 119,939 | - | - | - | |||||||||||||||
Total contractual obligations | $ | 13,155,485 | $ | 617,018 | $ | 4,417,446 | $ | 3,390,744 | $ | 4,730,277 |
Income Taxes
The Company files income tax returns in the U.S. federal and California state jurisdictions.
We are considered a U.S. corporation and a regarded entity for U.S. federal, state and local income taxes. Accordingly, a provision will be recorded for the anticipated tax consequences of our reported results of operations for U.S. federal, state and foreign income taxes.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the JOBS Act, and may take advantage of certain exemptions from various public company reporting requirements for up to five years or until we are no longer an emerging growth company, whichever is earlier. The JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to use this extended transition period under the JOBS Act. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Off Balance Sheet Arrangements
As of September 30, 2024, we did not have any material off-balance sheet arrangements.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable. The critical accounting policies affecting our financial reporting are summarized in Note 2 to the financial statements included elsewhere in this Quarterly Report.
Recent Accounting Pronouncements
We have determined that all other issued, but not yet effective accounting pronouncements are inapplicable or insignificant to us and once adopted are not expected to have a material impact on our financial position.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by 17 C.F.R. 229.10(f)(1) and are not required to provide information under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, our disclosure controls and procedures were ineffective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commission (“SEC”) rules and forms and (b) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure.
Management has identified control deficiencies regarding inadequate accounting resources, the lack of segregation of duties and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting outsourced staff may prevent adequate controls in the future due to the cost/benefit of such remediation.
To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.
These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis. In light of this material weakness, we performed additional analyses and procedures in order to conclude that our financial statements for the quarter ended September 30, 2024 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with GAAP. Accordingly, management believes that despite our material weaknesses, our financial statements for the quarter ended September 30, 2024 are fairly stated, in all material respects, in accordance with GAAP.
Internal Control Over Financial Reporting
This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
Limitations on Effectiveness of Controls and Procedures